Hawaii lawmakers took turns hammering Honolulu Mayor Kirk Caldwell on Monday over his request to let the county continue charging a half-percent surcharge on the General Excise Tax to fund the city’s rail project.
The 20-mile, 21-station project, budgeted at $5.2 billion, is now facing a shortfall of up to $910 million, spurring the mayor to ask the Legislature to make the surcharge permanent instead of letting it sunset as planned in 2022.
“I’m here because I think it’s the last resort,” Caldwell told a panel of House and Senate lawmakers during a three-plus-hour briefing at the Capitol. “I wouldn’t be here otherwise.”
It’s not just Caldwell who wants GET taxing power in perpetuity though. The neighbor island mayors want it too.
Together, the four mayors have put forward a bill that would give the counties the authority to levy a GET surcharge of up to 1 percent. The legislation limits Honolulu’s ability to use the tax only for a mass transit project, but places no restrictions on how the other counties could use the money.
A few dozen people in attendance wore red and brought signs protesting the “rail tax extension,” occasionally interrupting the briefing with applause after comments from critical lawmakers.
Kauai Mayor Bernard Carvalho Jr. and Hawaii Mayor Billy Kenoi made their pitches for more state support for county projects at the beginning of the briefing, breezing through questioning from lawmakers.
Maui Mayor Alan Arakawa quickly addressed the request for the GET taxing power, saying the county needs a stable source of funding from the state.
Caldwell took the brunt of lawmakers’ criticism. He stood at the podium responding to their concerns for over two hours, visibly agitated at times but exercising restraint when asked the same questions he’d already answered.
Senate Ways and Means Chair Jill Tokuda, House Finance Chair Sylvia Luke and others seemed to be searching for ways to not have to act on the issue this session, which started last week and ends in May.
They questioned Caldwell’s statement that the project’s funding sources are limited by law to federal money and the GET, asking why the county could not use property taxes to cover the shortfalls.
Luke underscored how the GET is one of the most regressive types of taxes, disproportionally affecting the state’s poorest residents. If the state is going to let the counties raise the GET, she said, there needs to be a trade-off to help protect the most vulnerable members of the community.
Studies have routinely placed Hawaii near the worst in the country when it comes to unfairly taxing residents.
Caldwell was unable to point to what law restricts the project’s funding sources but was firm in his belief that those were the only two options. He added that the county would have to raise property taxes 33 percent to 43 percent to raise enough money for the rail project.
The mayor acknowledged the regressive nature of the GET, but noted that he liked how tourists pay for one-third of the surcharge. He said he’d much rather place the burden on visitors than residents.
Caldwell is somewhat stuck though. He said procurement laws are preventing the county from moving forward with the project as fast as it would like because it has to demonstrate it has enough money to pay for the contracts.
The mayor said it’s estimated that $3.7 billion will be collected from the GET surcharge by 2022, leaving huge shortfalls that prohibit bids from going out.
That wasn’t enough to convince lawmakers though, not to mention Gov. David Ige, who shares their concerns about the lack of financial data for the project.
“I definitely need to get more information before I can commit to any specific position,” Ige told reporters after delivering his State of the State address Monday morning.
“We still have seven, eight years before the current tax expires and we just need to get a better understanding of what the finances on the rail transit project are,” he said.
Ige made it clear in his State of the State that he is committed to the rail project, but wants to “make sure we do things the right way for the right reasons, including cost containment, before we ask for more money.”
Caldwell maintained that he has searched for ways to bring down costs. He recently met with federal officials and said the city is trying to divide the contracts into smaller chunks of the project to make the bidding more competitive.
He said the project would not be facing an estimated $550 million to $700 million shortfall — not counting another $210 million in federal bus money that’s in the budget even though the mayor is adamant it will only be used for the bus system — if it weren’t for unexpected delays.
The bus money was put into the budget because the Federal Transit Administration needed the city to identify how it would pay for the project in a worst-case scenario, Caldwell said.
It was anticipated that the project would get going in 2009, Caldwell said, but then-Gov. Linda Lingle sat on an environmental review for 13 months and two lawsuits caused further delay. By the time the contracts finally went out, Caldwell said the construction market had gone from “very soft” to “red hot.”
Political insiders have said there’s simply no way the Legislature is going to extend the rail tax this session, let alone give all the counties the power to do a surcharge of up to 1 percent. And next year is even more unlikely since it’s an election year, making 2017 the most likely time for the proposal to pass.
In the meantime, lawmakers have been putting forward their own plans related to the GET. Some measures would make the tax less regressive by exempting food, medical services and affordable housing.
Senate President Donna Mercado Kim has introduced a bill that would let the counties adopt a GET surcharge as long as the money is used for transportation, affordable housing, road repair or transient accommodations tax law enforcement.
Her bill would also change how much money the state would take from the county surcharge to collect the taxes.
Currently, the state’s cut is 10 percent, which amounted to roughly $24 million in 2014 from Honolulu’s surcharge. Kim wants to up the state’s portion to 25 percent.
The state has collected almost $1.6 billion from the surcharge since it was implemented in 2007, keeping roughly $156 million for administrative costs as of 2014.
Caldwell defended the rail project throughout the briefing, calling it a “game changer” critical to a good quality of life for residents.