Extend rail tax past 2 more years

Few public-policy debates have been as corrosive as the one over the completion of Honolulu’s elevated-guideway rail system. There’s a laundry list of reasons for that, of course. The project is years behind schedule and approaching $3 billion short of funds needed to finance and complete construction as envisioned, connecting East Kapolei with Ala Moana Center.

There have been promises made and broken, the finger-pointing aimed at various targets. Most of the recent installments of the blame game have played out in the halls of the state Capitol, where lawmakers have been loathe to extend the project’s funding mechanism again, only two years after the mayor swore the first extension would more than suffice.

Now leadership is quite rightly feeling the impulse to keep a rein on the spending and seems disinclined to give Mayor Kirk Caldwell the taxing authorization he says the city needs. That’s a good impulse, but lawmakers intending to provide the cure need to make sure they don’t kill the patient in the process.

Senate Bill 1183 is the measure to allow more funding for the rail; it should move to conference committee. State Rep. Sylvia Luke, who chairs the House Finance Committee, has said it’s possible that the Senate could simply accept the House version as a concession, since the House draft is more generous than what the Senate passed.

But that is not a solution, since neither draft provides enough funding to allow the completion of construction using the general excise tax surcharge, as it should. Neither provides sufficient assurance to the federal overseers of the 20-mile rail project that the funds are on hand to complete it as proposed, at least not in time to make an April 30 deadline for an adjustment to its financial plan.

The Senate favors only a return of the 10 percent the state has skimmed from the GET revenues as a tax-collection charge, which would add far less money to the city’s rail coffers. That proposal should be rejected out of hand. The right amount is somewhere between the two-year extension the House favors and what the city has proposed: a 10-year extension of the tax.

Conferees need to drive down to a closer estimate of actual costs. The mayor said his proposal would ensure that no further extension is needed and said there could be a provision to stop the tax downstream, when the final costs become clear.

Better to err on the side of the taxpayers than count on government from turning off an established tax stream.

The House proposal would cover most — but not all — of the city’s construction-cost deficit of $1.3 billion. That would be OK, Caldwell said, if that amount of money could be delivered up front instead of at the tail end of the tax period.

He identified the issue as a classic cash-flow problem. Funds for the City Center phase of the project — the final five miles — needs to be in much sooner in order to let that contract out.

So that part of the cost needs to be financed by floating a bond, and the city would need to turn to other sources — primarily property taxes — to raise the financing charges. In fact, the Legislature is insisting on city funding sources as part of the bill: Removing the existing prohibition on using city general funds for rail is one of its conditions.

The City Council seems unlikely to approve using property taxes for construction, certainly not by April 30, and that hurdle could put the project’s federal funding at risk.

And opening all of the city’s funding streams for construction expenses is a bad idea in any case, when GET is the far more efficient source. It is paid by tourists as well, and the fairest strategy is to share building costs more broadly among all classes of people who benefit from rail.

Lawmakers have argued that the city should have more “skin in the game.” In fiscal terms, however, the taxpayers living within the City and County of Honolulu are the people paying the bills.

What they undoubtedly mean is the political liability for raising taxes. Surely the city will own that problem down the road for raising operational funds, through public-private partnerships as well as taxation.

In any case, this can’t be what drives decisionmaking now, if the result is a heavier lift for the resident taxpayers.

And it seems likely to produce that added burden. Caldwell quoted an assertion by the city’s bond underwriters that this shift in financing sources would damage the city’s bond rating, driving up the costs of all other municipal capital projects as well.

City officials have noted various flaws in the drafting of the bill, as one means of prodding the measure into conference committee for further discussion.

This bill needs further discussion, but for a much more critical purpose. The final measure should enable the city to complete the project, and do so with as little unwarranted risk as possible. That is what the public has a right to expect from elected public servants.