Honolulu’s financially strapped rail project faces an even more uncertain future now that a controversial 11th-hour funding deal has crumbled in the state Legislature.
With only one day left in the 60-day session, the House and Senate still fiercely disagree over how to bail out the largest public works project in the state’s history. Members in both chambers said Tuesday that it’s unlikely they’ll reach consensus because they’re so far apart and there’s such little time left.
“As of now the bill is dead,” House Majority Leader Scott Saiki said Tuesday of the rail measure, Senate Bill 1183.
Barring a last-second legislative breakthrough, the city will have to come up with a solution to cover the rail’s massive deficit, which could reach $3 billion depending on how the project is financed.
Local rail leaders have been counting on another state bailout to complete the full 20-mile, 21-station elevated system to Ala Moana Center. They listed the state legislation as their potential funding source in a mandatory recovery plan delivered to the Federal Transit Administration last week.
However, instead of finalizing that funding, the state Senate and House approved dueling amendments Tuesday. The Senate’s version looks to extend Oahu’s half-percent surcharge on the general excise tax for an additional 10 years (expiring in 2037) in place of raising the state’s transient accommodations tax.
Several senators criticized the version of the rail bill that emerged from last week’s conference sessions. It would raise that hotel room tax to 12 percent from 9.25 percent over the next decade and limit the city’s ability to reconstruct the Neal S. Blaisdell Center. Those changes didn’t get their necessary hearings and public input — and the measure would be vulnerable to legal challenges, Senate members said.
“Where is the transparency?” Sen. Donna Mercado Kim (D, Kalihi Valley- Moanalua-Halawa) said Tuesday. “Those rules are there to ensure that we are transparent in our deliberations and that no last-minute proposals are sneaked into a bill that the public did not have an opportunity to testify on.”
The Senate voted 16-9 to extend the GET surcharge instead. Minutes later a House majority voted to reject that idea.
In the House
House Transportation Committee Chairman Henry Aquino then proposed a floor amendment that would increase the hotel room tax by 1 percentage point, to 10.25 percent, for 11 years as part of a package that would provide more than $1.7 billion for the rail project.
The floor amendment would also extend the excise tax surcharge for rail by one year, and it would reduce the state’s share of the surcharge to 1 percent from 10 percent to generate more than $435 million, he said.
Aquino said that plan “provided more funding than any other conference draft” being considered by lawmakers. The various other proposals circulating in the House and Senate during a chaotic day of bargaining would have provided only $1.2 billion to $1.3 billion, he said.
Other speakers during the House debate protested that the new proposal would strip Honolulu of $45 million a year in hotel room taxes that the city now receives from the state. That money would be applied to the rail project under the new House proposal.
“This amendment will undoubtedly raise property taxes for the people of the City and County of Honolulu,” said state Rep. Sharon Har (D, Kapolei-Makakilo). She said it would be better to extend the excise tax surcharge to fund rail.
The House closely passed the proposal with a voice vote instead of a roll-call vote that would have put each lawmaker’s vote on record.
In a letter to Senate President Ron Kouchi on Tuesday, Honolulu Mayor Kirk Caldwell thanked the Senate for its amendment and criticized the House’s. The House proposal could force the city to “severely” cut staff and to make up a shortfall in the 2018 budget, Caldwell stated.
The partially built rail line has seen its estimated price tag increase from $5.26 billion in late 2014 to nearly $10 billion today, including financing costs. The project is funded mostly from the excise tax surcharge, which generates about $250 million a year and is scheduled to end in 2027.
The Legislature already extended the tax surcharge once in 2015 at Caldwell’s request, but the latest cost overruns forced the city to return to the Legislature this year to seek another extension.
House Finance Committee Chairwoman Sylvia Luke said the latest House proposal grew out of discussions between lawmakers and members of the tourism industry.
“Rail is a statewide concern, and I applaud the members of the visitor industry for coming forward and helping us share the burden,” and that prompted House leaders to reduce the proposed hotel tax increase from what had been proposed earlier.
However, the Hawaii Lodging & Tourism Association issued a statement Tuesday flatly opposing the use of the hotel room tax for rail.
“We … continue to believe that the (excise tax surcharge) is the more appropriate funding mechanism” for rail, the association said.
Luke told her colleagues in a floor speech, “I think most of the people in this chamber still have strong misgivings about whether the city has properly managed this rail project.”
She said a number of House members were unwilling to accept a long-term extension of the excise tax surcharge because it is a regressive tax that weighs on the working poor and seniors.
“So, it is our responsibility to stand up for those people because they don’t have lobbyists here,” said Luke (D, Punchbowl-Pauoa-Nuuanu). “It is our responsibility to stand up for the people who don’t have voices, who cannot hire lobbyists, and that is what we have done.”
If this year’s session ends without a rail funding deal, the state’s legislative leaders — or Gov. David Ige — could call a special session to hash out an agreement. However, lawmakers such as Sen. Jill Tokuda (D, Kailua-Kaneohe) pointed out that such sessions are costly and that they’re convened after the House and Senate have reached some understanding.
Legislative leaders had scheduled an 11 a.m. joint news conference Tuesday in which Saiki, Luke, Tokuda and Sen. J. Kalani English (D, Molokai-Lanai-East Maui) were to discuss amendments to the rail bill. However, it eventually became clear that conference would not take place after the Senate reconvened and voted on its amendment to extend the GET surcharge.
Some in the Legislature called for stronger leadership on the rail matter.
“Where’s our governor?” Sen. Kai Kahele (D, Hilo) said Tuesday. “There is not a sense that someone is taking charge.”
He added that it’s “quite possible” that the Legislature’s leadership has lost control over the rail deliberations.
“I don’t know how else to sum up what happened today,” said Kahele, who supports extending the surcharge 10 years. “It’s been a pretty incredible four days.”
It has become clear that “unfortunately, the Legislature has assumed an oversight responsibility for the rail project, like it or not,” Saiki said. “And that is because there is no other entity is the state of Hawaii, public or private, that has overseen this project to watch out for taxpayers and ratepayers.”