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A joint panel of state senators and representatives agreed to terms Friday to extend Honolulu’s 0.5 percent General Excise Tax surcharge for rail another five years beyond its Dec. 31, 2022, sunset date.
The extension, if passed into law and approved by the Honolulu City Council, should generate enough money to complete the financially challenged, 20-mile commuter rail project from East Kapolei to Ala Moana Center. The project is currently facing a nearly $1 billion shortfall due to high construction costs and a weaker-than-expected revenue stream.
House and Senate conference committee members amended House Bill 134 to give the state control over the “air rights” above the train stations and along the rail line. This could mean that any proposed advertising or development that occurs above the stations could be subject to state approval, and raise questions about who gets to keep the money.
The “air rights” provision seemed to be what sealed a deal on the rail tax, at least on the House side. Senators have been pushing for a five-year extension of the surcharge while House members wanted 25 years, but with the tax cut in half to 0.25 percent.
Neither side — with some exceptions — wanted to see the tax die. City officials have said such a scenario could have dire consequences, including the possibility of halting construction altogether and paying back nearly $1.55 billion in federal grant funds.
“There is a recognition at this point in time that rail is not going to stop,” Rep. Sylvia Luke said during Friday’s conference committee hearing. “If it were to stop the City and County of Honolulu would have to pay the penalty.”
Honolulu Mayor Kirk Caldwell, who has spent nearly 90 hours lobbying legislators this session, said after the hearing that he was proud of the lawmakers who finalized a bill that effectively results in a tax increase. But he tempered his enthusiasm by noting that the full House and Senate still have to vote on HB134. The bill also still needs to be signed by Gov. David Ige, who has expressed apprehensions about the tax extension.
“Any time a politician has to go to either give authority to extend a tax or actually extend a tax (it’s) highly unpopular,” Caldwell said. “It takes political courage and guts … I’m very appreciative for what has happened, but we’re not out of the woods.”
Under HB134, neighboring island officials would be allowed to implement a similar surcharge for transportation projects so long as the tax is approved by Jan. 1, 2018. The Honolulu City Council also must approve the extension of the surcharge for it to actually take effect, something Caldwell said is not a guarantee.
The final version of HB134 still includes the state’s 10 percent skim of the GET surcharge revenues that is expected to bring in hundreds of millions of dollars over the life of the tax. Caldwell has fought in the past to reduce the 10 percent fee, but avoided it this legislative session to instead focus on getting the surcharge extended.
It became clear the rail project was in trouble last August when the low bid to build the first nine rail stations on Oahu’s west side came in $110 million more than expected, about a 60 percent increase over the Honolulu Authority for Rapid Transportation’s original construction estimate of $184 million. This led to HART rebidding the construction package in hopes of reducing costs, which ultimately pushed back the initial opening of the first 10-mile leg from East Kapolei to Aloha Stadium from 2017 to 2018.
Even though HART Executive Director and CEO Dan Grabauskas was touting the project’s “healthy contingency fund,” federal oversight officials had been saying for months that aggressive cost containment measures were needed to ensure the rail line would be completed within budget.
In December, Grabauskas finally revealed just how bad the situation was. Construction delays caused by lawsuits and higher-than-anticipated construction costs meant the project was expected to go over budget by about $600 million. A lag in GET revenue collections — believed to be about $100 million over the life of the tax — along with a decision by Caldwell and the City Council to yank $210 million in federal bus funds from the rail project’s budget, added to the deficit.
That’s when Caldwell and Grabauskas turned to the Legislature to ask for more money. Without a GET extension, they said they would have to raise property taxes or risk losing billions of dollars more to construction delays and legal claims. The city would also be in danger of paying back its $1.55 billion federal grant.
Initially, the city’s hope was to get a long-term extension of the GET surcharge, and perhaps even make it permanent. But state lawmakers, many of whom harshly criticized Caldwell, Grabauskas and HART, said that they wanted to see more of a financial commitment from city, more “skin in the game.”
The House and Senate are scheduled to vote on HB134 next week.