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Senate committee votes 6-5 to approve rail bailout bill

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U.S. Sen. Brian Schatz leaves the podium at the Hawaii State Capitol today after making a statement during a special session on Honolulu’s rail project.

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Honolulu Mayor Kirk Caldwell leaves the podium at the Hawaii State Capitol today after making a statement during a special session on Honolulu’s rail project.

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The Senate Ways and Means Committee holds a public hearing on Senate Bill 4, regarding the Honolulu rail project, today at the Hawaii State Capitol.

The state Senate Ways and Means Committee narrowly voted tonight to advance legislation that would generate $2.37 billion to bail out the city’s financially troubled rail project.

The 11-member committee voted 6-5 to pass out Senate Bill 4 unamended, with Sens. Donovan Dela Cruz; Gil Keith-Agaran; Brickwood Galuteria; Michelle Kidani; Maile Shimabukuro and Glenn Wakai voting in favor. Sens. J. Kalani English; Breene Harimoto; Lorraine Inouye; Kaiali‘i Kahele and Gil Riviere voted against the measure.

Senate Bill 4 would raise the statewide hotel room tax by 1 percentage point for 13 years to raise $1.04 billion, and would extend the half-percent general excise tax surcharge on Oahu for another three years to raise another $1.32 billion for the rail project.

The bill next heads to the Senate floor. If approved by the full Senate, the measure would then head over to the House of Representatives for consideration.

The Ways and Means Committee vetted the bill during a public hearing Monday that spanned five hours, including two hours of public testimony. Lawmakers spent the rest of the time questioning officials about the project’s runaway costs and the impacts of the proposed tax hikes.

Mayor Kirk Caldwell said he wanted to support the funding bill but added that he worries the project would still be short $600 to $900 million under the proposed bill.

“If in fact the numbers do prove to be correct and we do not face a shortfall, I will breathe sigh of relief,” Caldwell said. “Otherwise we’re going to be faced with things I don’t want to have to do. Raising real property taxes is something I don’t want to do. Having our bond ratings slip — I don’t want to see. And most of all, I don’t want to cut down on the core public services that we provide to the City and County of Honolulu and the taxpayers.”

Public testimony included strong opposition from representatives of the tourism industry to the part of the bill that would raise the transient accommodations tax, or TAT, to 10.25 percent. Several industry executives said increased visitor arrivals to Hawaii have not translated to increased hotel occupancy rates due to alternative accommodations like Airbnb and vacation rentals.

Former Honolulu Mayor Mufi Hannemann, now the president and CEO of the Hawaii Lodging & Tourism Association, called the TAT “highly volatile” and suggested the GET is a more stable funding source for the project.

Several lawmakers later doubted remarks from hotel executives who asserted that increasing the hotel room tax would harm the state’s tourism industry and drive visitors away. The TAT levied on the average hotel room rate of $254 a night would increase by $2.54 under the higher tax rate.

“That’s going to break the back of the industry?” questioned Sen. Brickwood Galuteria. “Am I missing something?”

Elected officials from the neighbor islands — including Hawaii Island Mayor Harry Kim, Kauai Mayor Bernard Carvalho and Maui County Council Chairman Mike White — also opposed the bill, arguing that their islands should not have to foot the bill for a Honolulu project.

“The increase in the TAT across all counties is, to me, not fair … on our visitor populations on the neighbor islands for a project that doesn’t have a direct effect,” Carvalho said.

Tom Yamachika, president of the Tax Foundation of Hawaii, said state tax dollars fund projects around the state, and with 80 percent of the population on Oahu, Honolulu taxpayers often fund state projects on other islands.

The partially built rail project is hugely over budget, with the estimated cost ballooning from $5.26 billion in late 2014 to nearly $10 billion, including financing costs.

City officials now say the project is facing a $3 billion shortfall to complete. The city has to show the Federal Transit Administration by Sept. 15 how it plans to raise the money to cover the budget gap.

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