Honolulu rail officials not counting on city tourism tax to fix $3.5 billion shortfall

Officials with the city’s troubled rail project are waiting for the City Council to decide whether to impose a new city hotel tax that could benefit the Honolulu Authority for Rapid Transportation, but do not expect it to plug their $3.5 billion deficit — and have no alternative hopes of outside funding.

HART board member Natalie Iwasa, a certified public accountant and certified fraud examiner, questioned Thursday how reliant HART officials are on getting funds from a proposed Honolulu transient accommodations tax of up to 3% that’s now being weighed by the City Council.

“Taxpayers were told that there would be no — quote unquote — mortgage with respect to rail construction,” Iwasa said. “I don’t think it can realistically come from TAT at the county level, unless we’re talking about going out 40 years or so.”

Rick Keene, HART’s deputy executive director and chief operating officer, responded:

“You’re absolutely right. We agree. We have never made any contention that we think we can fill that gap. No. 1, we can’t fill it from additional funding from anywhere. We’re not going to get $3.5 billion in additional funding, and, the least of which, we’re not going to get it from TAT. We all knew that and that’s not the objective. We have been working really hard over the last six months to do things to try to reduce that funding gap.”

Bill 40 would levy a 3% city transient accommodations tax on visitor lodgings, in addition to the state’s current 10.25% visitor tax. Last week the measure passed first reading by the City Council and was assigned to the Council’s Budget Committee.

Keene said the HART administration and HART board Chairwoman Colleen Hanabusa hope that the current $3.5 billion estimated funding deficit will be smaller than currently projected.

“That funding gap came about in March … and we said we were very conser- v­ative,” Keene said. “We wanted to be transparent and talk to the public about what we thought was hopefully a worst-case scenario.”

HART officials are waiting for a draft report of their financial situation by an outside consultant due Nov. 1 that will be used as part of a new financial plan to eventually go to the Federal Transit Administration. FTA officials have told HART not to submit an updated financial plan until the City Council decides what to do with Bill 40, Keene said.

While the bill’s current draft creates specific allocations for the city’s TAT revenue, it does not specify how much would go to each proposed fund. Revenue would flow to the city’s general fund as well as to funds for mitigating the effects of tourism on public facilities and transit matters.

Iwasa suggested that an accurate estimate of HART’s finances would be helpful for the deliberations over Bill 40 “in order for the City Council to make a good decision.”

Keene called the timing of HART’s draft report on its finances — while the Council deliberates how to proceed on Bill 40 — “a chicken-and-egg thing,” noting that he hopes the $3.5 billion deficit will be verified as actually smaller.

“We have been working really hard over the last six months to do things to try to reduce that funding gap,” Keene said. “We don’t have a validation on that yet, so we don’t want to go public and say, ‘Here’s the new number,’ without having a high level of confidence in that, so that’s what we’re working toward doing.”

An update on HART’s financial picture — based on whatever the City Council decides and verification by its consultant — is expected to be ready in March or April. “We understand that’s a key component. That’s a key component for Council, that’s a key component for you guys. And it’s very key to us in managing the project.”

The plan is to run trains along a 20.2-mile, 21-station route from East Kapolei to Ala Moana Center, Hawaii’s busiest transit hub. The project is currently budgeted at $12.499 billion and is not scheduled for completion until March 2031. The budget faces a current shortfall of about $3.5 billion, with no simple plan to plug the deficit and no offers of financial assistance.

The HART board passed a resolution during a meeting in late September asking the Council to implement a city hotel tax, with a portion of TAT revenue dedicated to the rail project.

The board’s proposal follows a measure passed in the Legislature this year that ended the sharing portion of the state’s TAT with Hawaii counties but allows them to recoup the lost funds by implementing their own TAT of up to 3%. Previously, the state alone imposed a 10.25% TAT and distributed a portion of proceeds — limited to $103 million annually — to the counties. Honolulu received 44%, or about $45 million.

According to the state’s calculations, if Oahu were to levy its own 3% TAT, it would generate about $48 million a year.

Even though the rail project is just 4 miles shy of reaching its scheduled destination at Ala Moana Center, some political leaders and even a former HART board member have called for construction to end somewhere downtown.