Council gives initial OK to use property taxes to pay for rail

By a 5-4 margin, the Honolulu City Council gave preliminary approval Wednesday to a bill that lifts the ban on using property taxes to finish the city’s $10 billion rail project.

Whether the city will need to tap that resource might be determined when state lawmakers meet today to discuss a possible extension of the 0.5 percentage point Oahu rail surcharge on the state general excise tax by up to 10 years.

City officials say they need a 10-year extension, through 2037, to ensure there is enough money to finish the 20-mile, 21-station route from East Kapolei to Ala Moana Center.

Mayor Kirk Caldwell and Council members have made it clear to the Legislature they prefer extending the GET surcharge to raising property taxes. But extending the surcharge has met with resistance from state lawmakers who approved a five-year extension, through 2027, only two years ago. The surcharge, which began in 2007, is generating about $250 million annually.

Some legislators have said they will pass the GET surcharge extension only if the City Council removes its ban on using property taxes for rail.

For the property tax measure, Bill 42, to pass, it needs to go through two more committee votes and two full Council votes and be signed by the mayor. Council Budget Chairman Joey Manahan said the bill will be taken up at Wednesday’s Budget Committee meeting.

Voting for using property taxes for rail were Council members Ikaika Anderson, Brandon Elefante, Manahan, Ron Menor and Kymberly Pine. Voting no were Carol Fukunaga, Ann Kobayashi, Ernie Martin and Trevor Ozawa.

Manahan told colleagues that as reluctant as they might be to use property taxes for rail, the House version of the surcharge extension not only requires lifting the ban on using property taxes, it would leave the city a potential shortfall of $1.8 billion for the 20-mile route.

Property taxes would be needed to make up that shortfall if the city wants to adhere to an agreement with the Federal Transit Administration that gives the city $1.55 billion for the rail project, he said.

The city has until Sunday to provide the FTA with a recovery plan explaining how it will finance the project.

“I’m hoping that we can still work things out with the Legislature” for a wider extension “so that we don’t have to resort to paying property taxes to pay for rail,” Manahan said.

City officials have estimated that property taxes would have to increase 8 to 14 percent to make up the shortfall left by the House version.

Anderson said that despite his vote for the bill, he continues to believe the GET surcharge is “the fairest and most equitable way to fund our rail transit system’s construction” because Oahu visitors, who also pay the excise tax, need to participate in paying for rail.

“Relying on property taxes … shields the visitor from paying for the system, and it also places the burden squarely on the backs of Honolulu’s taxpayers,” Anderson said, adding that he was not committing to voting for it a second time.

Martin pointed out that he and several colleagues promised voters not to use property taxes for rail construction. “I’ll be keeping my commitment to my constituency,” he said.

Fukunaga said she’s heard from a number of people in her district who want her to reject property taxes for rail.