A controversial measure to increase the general excise tax to pay for Honolulu’s $6 billion rail project passed its first committee hearing in the Hawaii Senate on Thursday.

But lawmakers didn’t give the city the permanent half-percent surcharge it was seeking.

Instead, they extended the 2022 sunset date to 2047 and tacked on several caveats, including requiring a state audit of the project’s finances that must be completed before the 2016 legislative session.

The amended bill states that half of the 10 percent surcharge revenue the state skims from the rail portion of the GET must also be used for transit-oriented development projects.

Leeward LCC Rail2

Rail construction is ongoing, but without an increase in taxes it could stop, rail officials say.

Cory Lum/Civil Beat

It was a victory for the city’s project, which has an estimated shortfall of up to $1 billion. The was vote unanimous and there weren’t many tough questions coming from committee members.

With the extension, lawmakers hope the project could expand to the University of Hawaii at Manoa and downtown Kapolei.

“We understand within these committees the importance of rail,” said Sen. Will Espero, who chairs the Public Safety Committee that was part of Thursday’s joint hearing.

“It’s not only about mobility. But it’s really dealing with the future growth of our population on Oahu, housing needs, job needs and other opportunities. We feel that this is one way we can help and benefit our residents on Oahu.”

Sen. Clarence Nishihara, who chairs the Transportation Committee, also expressed support for the project, saying that the streets are too clogged.

“We’ve pretty much reached the limit of what we can on the roadways,” Nishihara said. “Looking forward I think we need to come up with a solution that will take us to the future.”

Financial Ramifications

Honolulu Mayor Kirk Caldwell attended Thursday’s hearing. So, too, did Honolulu Authority for Rapid Transportation Executive Director and CEO Dan Grabauskas.

Together they defended the merits of rail, and repeated many of the same talking points about the GET surcharge being their last, best option to complete the project.

Grabauskas also reiterated his concerns that the project could run out of cash and that the city could suffer serious problems as a result. At one point he talked about the ramifications of defaulting on the city’s $1.55 billion grant from Federal Transit Administration to build the railroad.

The agreement included a promise that the city would construct a 20-mile elevated rail line with 21 stations. Anything short of that, he said, and the FTA would look to Hawaii for a refund. It could also jeopardize future federal funding.

“We’d literally be tearing down the stuff that we built now at a tremendous cost,” Grabauskas said. “And I would just tell you, that in my professional career, we are far enough along in this project that there is no way the FTA couldn’t take a hard stand with us because of future grantees who might be in similar situations.”

But the costs would be greater than the $350 million in federal funds that have been spent so far, he said. Cancelling the existing contracts could open up the city to $1.4 billion worth of claims. Ripping up the columns, guideway other infrastructure that’s been laid would add another $100 million.

To date, at least $1.3 billion has been spent on the project. Without the GET extension or any new revenue, city officials estimate construction could stop by early 2016.

Tax Is ‘Premature’

The tax extension isn’t a done deal, especially under Gov. David Ige, who Thursday questioned the timing of the city’s request.

“The fundamental question is why is it necessary to adjust the tax this session,” Ige said during a press availability. “Several legislators have asked the same question about why is it that we have to take action this session. I really haven’t heard a response to that question.”

Ige’s budget director, Wes Machida, is also leery about giving Honolulu more money, especially given the lack of information about the project’s finances and zero commitment from the city to help pay the shortfall.

Machida said in written testimony that the state can’t support a tax increase until it gets a detailed account of what’s been spent so far and how much more will be needed.

Specifically, he said the state wants a financial plan that will show how much it will cost to build and operate the rail line until fiscal year 2034. That plan should include two scenarios, one in which the GET expires on its original sunset date in 2022 and another in which it goes away in 2027.

Machida also wants HART to show the state how it plans to control cost overruns as well as identify any non-state revenues the city plans to tap to help pay for the project.

Until the state gets that information, he said “consideration of any extension of the half percent county surcharge would be premature.”

The bill now goes the Senate Ways and Means Committee, which is headed by Sen. Jill Tokuda. She is one of several lawmakers who grilled Caldwell in January when he first asked for the GET extension.

• Civil Beat reporter Nathan Eagle contributed to this report.

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