House lawmakers easily approved a two-year extension of the excise tax surcharge on Oahu on Tuesday to help bail out the financially strapped Honolulu rail project, but some charged that Honolulu Mayor Kirk Caldwell’s dire warnings about raising property taxes to fund rail amount to “threatening” or even “blackmail” of the state Legislature.
Caldwell has said the latest draft of Senate Bill 1183 to extend the rail surcharge until the end of 2029 would not provide enough money to complete construction of the rail project, and could force the city to raise property taxes by 8 to 14 percent.
House Finance Committee Chairwoman Sylvia Luke, who led the push for the latest draft of the bill, said Tuesday the measure would provide an extra $1.2 billion, which is almost enough to cover the rail project’s deficit of $1.3 billion.
She reminded her colleagues on the House floor that the city asked for more money from the rail excise tax surcharge in 2015 to provide extra cash for the project, and lawmakers agreed to a five-year extension of the surcharge until 2027.
Since then, “the calls for cost control and accountability have pretty much been ignored, so here we are again,” said Luke (D, Punchbowl- Pauoa-Nuuanu).
“Threatening the public with a property tax increase is doing a disservice to our citizens,” she said. “The city must first do whatever it can to instill confidence and trust in this project, and I am certain if given the opportunity, they will do that.”
Luke has also said that Caldwell is “in a way bluffing” with some of his warnings about using property tax increases to fund rail, and predicted the Honolulu City Council will refuse to raise property taxes on local residents to fund the rail project.
Cost estimates for the city’s 20-mile, 21-station rail project from East Kapolei to Ala Moana Center dramatically escalated from $5.26 billion in late 2014 to nearly $10 billion now, including financing costs. The project is being funded mostly from the half-percent excise tax surcharge on Oahu, which generates about $250 million per year.
This year Caldwell initially asked lawmakers to make the excise surcharge permanent to cover the increased rail costs, but later scaled back that request and asked for a surcharge extension of 20 years. This week he said the city could complete the rail project if the tax were extended by 10 years.
Caldwell said after the Tuesday vote he was grateful for the two-year extension of the surcharge approved by the House, but said it won’t be enough to build the line the 20 miles to Ala Moana Center as planned.
The city will need to come up with $100 million to $150 million annually to make up the difference, he said. “And a chunk of that is going to come out of our real property taxes,” he said.
“I prefer not to do that, and I ran (for re-election) on this, and I don’t want to do it, but if we’re going to complete the system, and this is the only choice we’re presented with, then it’s a discussion that we need to have with the Honolulu City Council,” Caldwell said.
Caldwell said he submitted a bill to the Council on Tuesday that would lift the ban on using general operating funds to pay for rail construction. If approved, it would clear the way for the city to use property tax revenue for the project. Removing the current prohibition on using city general funds for rail is one of the requirements imposed by House lawmakers.
Republican Floor Leader Gene Ward said the city made “shocking” mistakes in connection with the rail project, including awarding rail contracts from 2009 to 2011 before it had finalized issues such as what technology would be used to run the trains or how the stations would be designed. The city then had to renegotiate the contracts it had awarded prematurely, adding to the overall project costs.
Ward said the city should be selling development rights along the rail route to raise money to help finance the project, and “my position is not one more public dollar until the private dollars are sought, and sought with genuine vigor.”
The city hasn’t paid anything for the project so far, and “now they’ve got a blackmail clause that says ‘We’re gonna raise your property taxes,’” Ward said. “Totally unfair. The way that this is structured is so lopsided.”
Other lawmakers suggested rail is a done deal. Rep. James Tokioka (D, Wailua-Hanamaulu-Lihue) said many issues have been raised in connection with the rail project, including financing and cost overruns, “but at this point, the rail is at the stadium. Are we going to tear it down and stop?”
Tokioka said he worries the $1.2 billion provided in the bill will not be enough. The construction boom of recent years has tapered off, and “rail is it, so for all the men and women in the (construction) trades that have asked us to support this, I want to make sure that we have the funding so we don’t have to come back again,” he said.
The vote to advance the House bill was 41-10. Voting against the rail excise tax extension were Democratic Reps. Tom Brower, Aaron Johanson, Romy Cachola, Bert Kobayashi, Nicole Lowen, Scott Nishimoto and Sean Quinlan; and Republican Reps. Gene Ward, Cynthia Thielen and Andria Tupola.
There are now several possible outcomes for the rail bill in the final weeks of this year’s session.
It likely will advance to a House-Senate conference committee, where lawmakers will try to iron out the differences between the House and Senate drafts of SB 1183. The Senate was actually less generous than the House because the Senate draft of SB 1183 would provide only about $300 million more for the rail project than what the city already expects to receive from the tax surcharge.
Lawmakers could also try to come up with some other version of the rail bill that is agreeable to both the House and Senate, or senators could simply agree to the House version of the rail bill that was approved Tuesday.
If the Senate chooses that route, the measure would then go to Gov. David Ige for his consideration.