Three tax increases proposed to cover Honolulu rail costs

The three tax increases Honolulu Mayor Kirk Caldwell proposed in his budget package earlier this year are designed in part to prepare the city to cover the cost of operations and maintenance of rail, a looming expense that rail critics have long warned would eventually force the city to raise taxes.

One of the mysteries surrounding the Honolulu rail project in recent years has been exactly where the city will get billions of dollars it will need in the decades ahead to operate and maintain rail. The Honolulu Authority for Rapid Transportation estimates those costs will amount to $127 million to $144 million per year once the entire 20-mile train line opens.

In an interview last week, Caldwell said the increases he proposed this year in property taxes on hotels and the most expensive Oahu homes as well as a new fee for rubbish pickup are part of the answer. If approved by the Honolulu City Council, those fees would take effect in the budget year that begins July 1.

“I’m trying to get in place the funds necessary to pay for the operation and maintenance of rail,” Caldwell said.

When portions of the rail line are completed and ready to open to the public, the rail authority is required to turn the finished segments over to the city Department of Transportation Services. The city will then be responsible for the costs associated with rail operations, including maintenance, security and purchasing the electricity to power the trains.

The question of how the city will pay for rail operations and maintenance is finally coming to a head because HART plans an interim opening of 11 miles of the rail line from East Kapolei to Aloha Stadium in December 2020.

That means the city will need to include money to operate the system in the budget the Honolulu City Council will debate and adopt a year from now, in spring of 2020.

But elected officials are famously reluctant to raise taxes in an election year, and at least two members of the Council are expected to run for mayor next year. That means this year is a more politically promising time to make difficult decisions and take controversial votes on issues such as raising taxes to fund rail operations.

Caldwell said rail costs are partly why he has proposed a hotel property tax rate increase that would raise nearly $18 million a year, along with a new tax rate for the most expensive non-owner-occupied residential properties that would raise $14 million a year, and a new refuse fee that would raise $6 million in its first year and $12 million per year after that, he said.

“We’re doing this to generate the revenue that we need to start covering the cost of operations and maintenance of rail integrated with bus,” Caldwell said in an interview last week. The city subsidy for rail will be “just like how we do for bus,” where the city pays more than two-thirds of the cost of operating the system, he said.

If the proposed tax increases pass, the city general fund that will provide the rail subsidy “will be healthy and, I think, sufficient to cover those costs,” Caldwell said. However, he stressed that the city also needs the extra tax dollars for a variety of costs including bus operations, trash pickup and disposal, and other city operations.

But it appears Caldwell’s effort to fund rail’s operating costs is on shaky ground.

Council Budget Committee Chairman Joey Manahan said the extra revenue from Caldwell’s proposed increases in property taxes on hotels and on high-end residential properties is needed just to balance the budget for next year, before rail operations even begin.

That extra money will be required to cover increases in ordinary operating costs such as employee pensions, current and future health care costs for active and retired workers, and negotiated raises for public workers, he said.

Caldwell’s proposed new trash fee could raise some money for rail operations by reducing the amount the city pays to subsidize solid waste pickup and disposal, which in turn could free up cash to run the rail system, he said.

But both Caldwell and Manahan are unsure the trash fee will pass. Manahan predicted last month it would fail when it is put to a vote by the full Council, and prompting Caldwell to float a new plan to impose a $15 per month curbside pickup fee while slightly reducing the homeowners’ property tax rate.

And Caldwell has said publicly his latest trash-hauling fee proposal is “revenue neutral,” meaning it won’t immediately raise any extra money for the city — or for rail operations.

Councilwoman Heidi Tsuneyoshi said she does not expect the refuse fee will pass, and said she is surprised and concerned that Caldwell is suddenly citing rail operations as a justification for tax increases he proposed in March. “This is the first that (it was) directly stated that it is because we have to ramp up for operation and maintenance costs,” she said.

The refuse fee was pitched as a way to provide better services, “and hearing now that it is actually for (rail) O&M is completely different from what was shared with us before,” she said.

“There has never been clear answers given to the operation and maintenance,” she said. “That still doesn’t answer the basic concerns as far as what is that actual cost that they’re looking at, and does that even cover it?”

Tsuneyoshi said she has been asking for more information about exactly how much operations and maintenance will cost the city, and said the administration isn’t sharing that information with the Council. “We don’t get the actual figures, we don’t get the actual numbers, and then there’s just these random things,” she said.

Manahan said he was recently briefed by the administration on projected maintenance and operations costs for rail, but said the administration is keeping that information confidential.

The city is now soliciting proposals from companies who would maintain and operate the rail system for the next 30 years under a public-private partnership, and “I don’t think they want to show their hand, basically,” Manahan said.

When asked how much the rail operations and maintenance will cost in the first two years that rail is open to the public, a spokesman for the administration said that “work is ongoing to validate/update the O&M cost estimate. This work is being led by the Department of Transportation Services.”

The specifics of the interim opening such as how often the trains will run in peak or off-peak times, how the bus system would be reconfigured to mesh with rail and whether the city might waive fares for a time to encourage people to ride the train are still being worked out, Caldwell said. Those variables would all have some impact on costs.

Randy Roth, a retired University of Hawaii law professor and a longtime critic of the rail project, said, “The question is whether the city is going to be honest about the inevitability of those costs and the need to come up with funding, and the city’s failure to be straight with the public about that is just part of a pattern of deception.”

Whatever the cost of rail maintenance and operations finally turns out to be “there isn’t that amount sitting there, and obviously it’s going to have to come out of the pockets of taxpayers, and their refusal to own up to that and have an honest discussion of what the possibilities are in terms of where the money will come from, unfortunately again is just part of this pattern,” Roth said. “One would hope it would change after a while, but it hasn’t at all.”