Mayor Kirk Caldwell emerged from last week’s special session of the state Legislature with some political scrapes and bruises, another $2.37 billion in taxpayer money to help complete the 20-mile rail line, and a powerful new partner.
From now on, whatever else goes wrong with rail, the mayor need not stand alone to take the blame. With the passage of Senate Bill 4 last week, state government is emerging as a full participant in rail with responsibility to oversee management of the project, scrutinize each expense, and pay the bills. Starting now, the state of Hawaii is all in.
State political figures have often hesitated to wade into the rail controversy because it was politically polarizing from the start. It had passionate supporters among Oahu’s freeway commuters and its development and construction industries, and frustrated opponents among tax-averse residents who believe they will never use rail.
For politicians, trumpeting a position on rail meant making enemies of one side or the other, and the issue became progressively messier as the cost overruns piled up. A cadre of die-hard rail opponents raised seemingly reasonable doubts about almost every aspect of the project.
The rail naysayers worried about the aesthetics of running an elevated concrete rail line along the waterfront and criticized the use of steel-wheel-on-steel-rail technology. They pointed out the awkward fact that Oahu traffic will worsen even after rail is built, and questioned the system’s projected rail ridership.
Amid the seemingly endless rail controversy, lawmakers often appeared to be passive observers. In a House floor speech on Friday, state Rep. Cynthia Thielen (R, Kailua-Kaneohe) described the Legislature as the “enabler” of the city project.
Lawmakers authorized a half-percent general excise tax surcharge on Oahu in 2005, but it was up to the Honolulu City Council to actually impose the tax to raise more than $3 billion. When that wasn’t enough, lawmakers in 2015 authorized the Council to extend the surcharge for another five years to raise another $1.5 billion for the project.
Caldwell assured the Legislature that would likely be more than enough money to complete rail construction, which soon proved to be wrong. Caldwell then had the painful chore of returning to the Legislature this year to plead for more money.
No stopping now
Despite some alarmist speculation that the rail project might fail this year, the squabbling during the regular session of the Legislature and last week’s special session was never about stopping rail, changing the route, or switching to some new rail technology.
With 10 miles of rail guideway already towering over Waipahu and extending to Aloha Stadium, Gov. David Ige and almost everyone in a position of political influence believes the project must continue to completion.
Apart from any transportation considerations, stopping construction now could turn the partially built rail guideway into a nationally known concrete monument to the incompetence of Hawaii’s Democrats. Not surprisingly, Hawaii Democrats reject that option.
The question on the table was how to pay to finish construction, and at times things got ugly. Leading lawmakers fumed that Caldwell seemed to think the city was “entitled” to an extension of the half-percent excise tax to provide the money needed to complete the project. Some closed-door negotiations deteriorated into a shouting match last month.
Some of that ire was about personalities. House Finance Chairwoman Sylvia Luke (D, Punchbowl-Pauoa-Nuuanu) and House Speaker Scott Saiki have a poor relationship with Caldwell that dates back more than a decade to when they served together in the House, and parted company during an internal power struggle.
Beyond the personalities was the matter of money. Caldwell wants the half-percent general excise tax surcharge, which generates about $300 million a year, to be made permanent to support rail. For now, the city needs that money for construction, but later that surcharge revenue could be used to cover operating and maintenance costs for rail that will total about $100 million a year by 2024.
House lawmakers in particular oppose a permanent excise surcharge for rail. Earlier this year, then-House Democratic Majority Leader Saiki (D, Downtown-Kakaako-McCully) said permanently surrendering the surcharge to the city would make it “very difficult” to raise the tax again for other purposes.
“If the Legislature is going to raise the GET, there are other state programs that could also benefit from that, and the House does not want to preclude consideration of those other areas, such as public schools and human services programs,” he said. Saiki has since become the House speaker, and the House view on that issue prevailed.
Rather than make the city surcharge permanent, lawmakers voted last week for a three-year extension of the half-percent surcharge on Oahu to raise another $1.32 billion for rail. The Legislature also voted to raise the statewide hotel room tax by 1 percentage point for 13 years to raise $1.04 billion. Under the bill approved in the special session that ended Friday, both of those tax provisions will expire in 2030.
Becoming watchdog
Along the way, lawmakers also took some important steps that will more deeply involve the state in the rail project. They provided $1 million to the state auditor to audit previous rail spending, and inserted language in the bill giving the state a remarkable degree of supervision over future spending for rail.
Once the new law takes effect, the Honolulu Authority for Rapid Transportation will be required to submit invoices for its construction costs to the state and have them approved before the city can draw down money from the state from excise or hotel room taxes. The bill also adds four non-voting members to the HART board, with two each appointed by the House speaker and the Senate president.
“That’s going to allow us to have people on the board. We’re going to have access to information, access to decision-making, to see how it’s being managed,” Saiki said. “What’s happened, unfortunately, is the Legislature has had to become a watchdog over rail.”
That requirement for state review and approval of city spending for rail will change the “culture” of the project by making HART more cautious about its expenses, said Senate Ways and Means Committee Chairman Donovan Dela Cruz (D, Wahiawa-Whitmore-Mililani Mauka).
‘Bought the problem’
But all of those oversight provisions also place some of the responsibility for spending on rail on the state. If the state approves the invoices and makes payments to the city for those costs, it will be difficult to later complain that the city has been wasteful or careless with rail’s finances.
In other words, just as the city begins the most challenging portion of the rail project through almost 5 miles of urban Honolulu, the state is becoming a full participant in the project. If there are more cost overruns — and even Caldwell worries there might be — the state will share the responsibility.
“Call it what you guys want to call it, but in my humble, simplistic view of things, you guys are in, lock, stock and barrel,” said state Rep. Marcus Oshiro of lawmakers’ decision to oversee rail spending. “The physical presence of you guys being there speaks volumes of your engagement. This is now a state project.”
Lawmakers also refused to provide all of the money that Caldwell says may be needed to complete the rail project, and it is still unclear whether the federal government will accept the new funding plan. Caldwell said he believes SB 4 leaves the city $600 million to $900 million short of what it needs, while lawmakers contend they have provided enough money for the city to finish the 20-mile line.
If the Federal Transit Administration decides more money is needed and rejects the city’s new rail financial plan, Caldwell promises he will return to the state Capitol to ask for more help.
“If the Legislature is wrong, and the bill does not provide sufficient funds to complete the project, without forcing the city to raise property taxes, we will be back here, asking the Legislature to finish the job and fully fund the project, as they promised the FTA and the public,” Caldwell said in a written statement.
If lawmakers then refuse to provide more money and the city is forced to raise property taxes, the Legislature’s fingerprints will be on that development as well, Oshiro said.
“Legislature, now you guys own the problem, bought the problem, this is your solution,” said Oshiro (D, Wahiawa-Whitmore-Poamoho), who voted for the rail funding bill. “This is no longer Kirk Caldwell’s problem. The Legislature has taken it to the point that we’re making the decision.”
Others say the Legislature has boxed itself in financially for years to come, just as Saiki warned against earlier this year.
State Sen. Laura Thielen (D-Hawaii Kai-Waimanalo-Kailua) said SB 4 is “shutting down” the possibility that the state would use revenue from either the excise tax or the hotel room tax for causes such as helping college students to graduate debt-free or coping with homelessness.
“I think one of the biggest casualties of this session is the fact that this Senate body has quashed debate, because we had the ability to force the debate and the discussion to try and come up with a holistic solution to these very serious problems, and we’ve not done it,” said Thielen, who voted against the funding bill.
