The Hawaii Legislature approved a bill that would allow the Honolulu City Council to extend the general excise tax surcharge to fund the city’s rail project which faces a nearly $1 billion shortfall.

House Bill 134 would also allow other counties to levy a half-percent GET surcharge, and gives the state “air rights” above the rail line and its stations.

Despite tough public hearings throughout the session in which lawmakers grilled Honolulu Mayor Kirk Caldwell and top transit officials, the measure passed both chambers with strong majorities on Tuesday. The Senate vote was 21-4, and the House vote was 39-12.

Mayor Kirk Caldwell sits in on the House session.  5 may 2015. photograph by Cory Lum/Civil Beat

Mayor Kirk Caldwell sits in the House listening to lawmakers debate the bill to extend the GET surcharge.

Cory Lum/Civil Beat

House Finance Committee Chairwoman Sylvia Luke voted in favor of the tax, even though she voted against it in 2005.

“I don’t like to make Kirk Caldwell happy,” she said on the House floor to a round of laughter. But Luke said she changed her mind about the bill because not passing the extension “would have significant financial implications that neither the state nor the county could afford.”

Still, several lawmakers weren’t convinced.

Sen. Gil Riviere from the North Shore said that he supports rail but he opposes giving the city a blank check with no accountability.

As for the mayor, he said he’s grateful that the Legislature passed the bill.

“I think with this extension we have sufficient money to complete the 20 miles with a pad in case we see increased costs,” Caldwell told reporters Tuesday, adding that he’ll be eager to see how the bids come out next year. “We will be going gangbusters to finish this project by the first quarter of 2016.”

Caldwell said he is cautiously optimistic that Gov. David Ige will sign the measure given the broad support for it from both Democratic and Republican lawmakers. The mayor said he has spoken to Ige four times about the rail tax extension, including as recently as last week.

“No one wants to deal with tax issues but at the end of the day … it’s the right thing to do, we need to complete what we started,” Caldwell said.

In December, city leaders revealed that Honolulu’s rail project was facing a nearly $1 billion deficit as a result of construction delays, cost overruns and revenue shortfalls. Without more money, they said, the project would be in danger of stalling out.

Caldwell teamed up with Honolulu Authority for Rapid Transportation Executive Director and CEO Dan Grabauskas to push the Legislature for a tax increase to help fill the budget gap. Their hope was to either make permanent the GET surcharge or at least get a long-term extension so that they could expand the rail line to the University of Hawaii at Manoa and downtown Kapolei.

But state lawmakers were skeptical. They couldn’t understand why a project that was barely underway was in such dire fiscal straits. Many also thought it was too soon to approve an extension of the rail tax, considering it wouldn’t expire until Dec. 31, 2022.

The answer, according to the city, was a cash flow problem. HART officials couldn’t sign contracts if they didn’t have the money to cover the costs. And with the final construction contracts for work in downtown Honolulu scheduled to be signed in 2016, that meant there was pressure to get a deal done in the 2015 legislative session.

Failure to do so, officials said, could cost taxpayers billions more in construction delays and legal action. The city might also be forced to pay back a $1.55 billion grant from the Federal Transit Administration.

House Bill 134 could help avert fiscal disaster. Extending the GET surcharge five years should be enough to cover the anticipated shortfall while allowing the city to start planning for future extensions to UH and Kapolei.

Lawmakers placed a few restrictions on the cash, however, saying that the money can only be used on capital expenditures and that the state would retain the “air rights” above the portions of the rail line on state land for possible development purposes.

The measure will also allow the neighboring counties of Hawaii, Maui and Kauai to implement a 0.5 percent GET surcharge starting on Jan. 1, 2018. The tax can only be used on public transportation projects, including those related to roads, highways, bike paths, buses and ferries. Like the rail tax, it would expire Dec. 31, 2027.

Ige has been non-committal on the tax increase and, like some legislators, questioned why it needed to pass this session. He also has expressed concerns that approving the tax would equate to condoning mismanagement on the project.

The Honolulu City Council also must pass an ordinance to implement the tax extension, although it technically has until July 1, 2016, to do so. Council Chairman Ernie Martin said he expects vigorous debate on the topic, and that it won’t necessarily be an easy sell.

Civil Beat reporter Nathan Eagle contributed to this story.

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