Rail deal collapses as House, Senate disagree on how to fund it - Hawaii News Now - KGMB and KHNL

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Rail deal collapses as House, Senate disagree on how to fund it

(Image: Hawaii News Now/file) (Image: Hawaii News Now/file)
HONOLULU (HawaiiNewsNow) -

In a dramatic turnabout, state senators have rejected a deal on rail funding reached Monday night with House lawmakers, putting in jeopardy any agreement on how to pay for the beleaguered project.

If the House and Senate can't agree on how to fund the rail project by Tuesday night, the session could end with no deal on the issue.

On Tuesday afternoon, senators voted 16-to-9 to support a 10-year extension of the rail tax surcharge to help fund the rail project, something the city has advocated for.

In doing so, they rejected a deal reached with the House late Monday that would have sought funding for rail by increasing the hotel room tax.

"The biggest issue that really struck all of us was that this plan that was concocted was done at the 11th hour by a privileged few," state Sen. Kaialii Kahele said of the House bill.

"That didn't give the industry and opportunity to comment. It didn't give the counties the opportunity to weigh in. And most importantly, it didn't give the public the opportunity to weigh in on this proposal."

Meanwhile, House lawmakers voted Tuesday to support a compromise bill, which was aimed at addressing concerns raised by city and the hotel industry leaders which would force Honolulu to direct more of its general revenues to the project.

Lawmakers said the new proposal includes a 10-year increase in the hotel room tax from 9.25 percent to 10.25 percent, starting next year. That's a decrease from the 12 percent tax that was originally proposed. 

Also under the plan, Honolulu must direct all of its hotel room tax revenue – about $45 million a year – to the rail system. That money will no longer be available to the county for its general operating budget to pay for various county services and personnel costs.

"In total, this is the biggest money generating bill that we had in discussions. It would generate over one-point-seven billion dollars for rail," said Rep. Henry Aquino, co-chair of the House conference committee on the measure.

The neighbor island counties will not lose their share of the hotel room tax.

And, lawmakers said, the rail surcharge on Oahu’s excise tax will be extended for one year to coincide with the TAT increase.

The 10 percent state assessment for collecting the tax will be reduced to 1 percent. This will provide more for the rail project, sources said.

The distribution to the public schools will be $25 million per year.

Sources say the proposal will direct about $1.6 billion to the Honolulu rail project, which currently has a shortfall of about $1.3 billion, excluding debt.

On Monday, Mayor Kirk Caldwell told lawmakers that the formerly-reached deal to raise the hotel room tax for rail funding could be unconstitutional. City Council Chairman Ron Menor and tourism industry leaders also came out against the deal. 

The failure to reach an agreement could push the legislature into overtime or even a special session.

Both houses are adjourned till Thursday afternoon -- the day the 2017 legislative session is scheduled to end. 

Lawmakers say the best-case scenario is if House Speaker Joe Souki and Senate President Ron Kouchi reach a deal that day and extend the session a couple more days to approve it. 

"It just depends on the communication between the Senate President and the Speaker. They'll have to see if they can work this out," said House Majority Leader Scott Saiki. 

If that doesn't happen, Kouchi said both houses could come to an agreement later. The governor can also call the legislature back for a special session.

"The only path that appears clear right now is if the Governor feels this is important enough and some conversations occur and maybe we can bridge the divide," Kouchi said. 

If the House and Senate come to an agreement and pass something, it then goes to the governor, who has not given his position on either version of the rail deal yet.

However, if the two houses can't come to an agreement on the rail funding bill, the measure will die and the City will be left to figure out how to pay for the project's almost $3 billion dollar shortfall. 

One major question that remains unanswered: Will the gridlock at the state Capitol further affect the project's standing with the Federal Transit Administration? The city provided the FTA with a recovery plan for the project last week, but the document didn't include the latest details on how the project would be funded.

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