Lawmakers strike funding deal to save rail project, but city objects

HONOLULU (HawaiiNewsNow) - State lawmakers have struck a breakthrough compromise to keep Honolulu's rail project going, but the city says the deal falls short.

"We would like to have gotten the bill so that we could see the bill and get a little more specific about it," said Honolulu Mayor Kirk Caldwell, in a news conference on Thursday evening. "We don't have a bill to analyze to see what they say is in there is in there."

Caldwell's objections didn't deter legislators from moving forward on Thursday, while acknowledging that the deal to fund a $2.8 billion shortfall won't leave anyone jumping for joy.

"We said that we need to work together to come up with a solution and it's something that will gain a majority of support," said Senate President Ronald Kouchi, in a news conference Thursday evening.

"Will all of the neighbor island counties be happy? Probably not. ... Will taxpayers be happy that the half percent being extended for another three years? Probably not. So it's a lot of give on a lot of fronts to come to a compromise and find something that we think is a sacrifice by lot of the parties who are involved so we can come to some level to agreement."

Earlier Thursday, Caldwell delivered a letter to Senate and House leadership, in which he wrote the plan is not "sufficient to close the funding gap, nor provide a 'dedicated revenue stream' to complete" the rail project.

He added, "While our rail project is important, I will not jeopardize the financial health of the city and negatively impact the resident and taxpayers."

Caldwell also said in the letter that House Finance Chair Sylvia Luke told the city on Wednesday night to accept the terms of the plans, and that "this was not a negotiation, but a take it or leave it situation."

The plan, unveiled Thursday afternoon, will be voted on during a special legislative session next week. It would:

• Extend the existing general excise tax rail surcharge on Oahu for three additional years (from 2027 to 2030), which will provide $1 billion
• Increase the hotel room tax statewide by 1 percent to 10.25 percent from 2018 to 2030, which will generate $1.3 billion
• Increase the counties' share of the hotel room tax to $103 million
• Reduce the state's administrative fee on the GET surcharge from 10 percent to 1 percent
• Require a state audit of the Honolulu Authority for Rapid Transportation along with annual reviews.
• Allow the Senate and House to each appoint two non-voting members to HART's board.

In the news conference with state lawmakers, U.S. Sen. Brian Schatz, D-Hawaii, called the plan "by far the most productive, most collaborative, most significant work that's been done to make rail happen in years."

He added that the work isn't over yet. "This was not easy and this is not done," he said.

Added U.S. Rep. Colleen Hanabusa: "We must be very clear that the success of this project is going to be contingent on the Legislature's ability to fund the rail system. This is a plan that clearly shows that they are committed to a city project."

Governor David Ige also praised House and Senate leaders for their hard work over the last few months.

"It is a difficult challenge to take state resources and apply it to a county challenge. The bill is the right balance that provides a solution for us to finish the rail project to Ala Moana," Ige said.

Officials said the plan would generate about $2.4 billion, while the city says it needs $3 billion.

Hanabusa rebuffed that notion, saying the city needs to look at its math again.

"They can't come out as they've done in the past and pick numbers out of the air. and if they want to do that, they have to be fair and to say that this number has been there all along," she said.

Lawmakers also noted that the agreement cut spending on financing, marketing, and operational costs, narrowing the funding shortfall.

Caldwell, though, disagreed. "To fund the gap with city operating revenue would place an enormous financial burden on the residents and taxpayers of Oahu well beyond what a straightforward extension of the GET would do," Caldwell wrote.

For the last several days, state and House negotiators have been meeting behind closed doors to try to reach a compromise on funding the rail system. They've also tied those talks to a call for a financial audit of the $10 billion system.

And they are considering a new system of reviewing payments to contractors.

Under the reimbursement system, money generated by any increase in the hotel room tax or an extension of the general excise tax surcharge would first go to the state. The state, in turn, would get to review the contractors' invoices before disbursing the money.

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"It's no longer your decision, it's our decision to figure this thing out for you," Luke said during an Aug. 14 House and Senate informational briefing.

During that hearing, Luke was critical of Caldwell and other city officials for not being cooperative in studying alternative sources of money, such as the hotel room tax or tapping private developers.

Some lawmakers are backing a 14-year, 1 percent hotel room tax increase, which pays for a lot of the construction upfront and could save taxpayers about $1 billion in loan interest payments.

The plan to increase the hotel room tax appears to have support from Senate Ways and Means Committee Chairman Donovan Dela Cruz. During the Aug. 14 hearing, Dela Cruz challenged Outrigger Hotels' lobbyist Ed Case, who said raising the hotel tax could harm the industry.

"I never really bought into the idea that the sky is falling for tourism," Dela Cruz said.

Caldwell said he's open to the idea of increasing the transient accommodations tax but worries that it is too volatile and isn't a broad enough source of funding.

He favors 10-year extension of the .5 percent general excise tax surcharge.

"I'm not against using other sources of funding. But it has to be adequate enough ... upfront to make a difference," the mayor said.

Former Mayor Mufi Hannemann said the city has also ignored the idea of getting money from businesses and landowners who will benefit from rail.

"For the life of me I can't understand why the current administration ... and HART haven't tried to incorporate some kind of public/private partnership to the whole mix. It is working throughout the mainland," he said.

Caldwell said rail officials have tried that approach but haven't been able to find developers willing to sign a deal.

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