The House and Senate remain at a standoff on how to pay for rescuing Honolulu’s troubled rail project, with the two chambers passing competing tax proposals Tuesday.

The Senate voted to modify Senate Bill 1183 to extend the general excise tax surcharge currently levied on Oahu taxpayers until 2037. It was similar to a Senate draft that the House rejected just last week.

The House later gave early approval to its own a version of the bill that would raise the state’s hotel tax from 9.25 percent to 10.25 percent until 2028 to help pay for rail, while only extending the GET one more year until 2028.

In a letter to the Senate, Honolulu Mayor Kirk Caldwell made it clear he preferred the Senate’s proposal, and said the House version would leave the city on the hook to find more rail money.

If the two chambers can’t agree by Thursday, the funding bill will die and the rail project will remain about $3 billion short of what’s needed to complete the system.

During a City Council hearing Wednesday morning, Caldwell and the rest of Hawaii’s mayors are requesting that Gov. David Ige extend the legislative session.

State Sen. President Ron Kouchi told Civil Beat that it’s possible that the Legislature will need to call a special session to deal with rail funding, but it won’t happen if neither side is willing to compromise.

House Majority Leader Scott Saiki Rep Aquino Rep Luke speak to media during a recess for lunch. 2 may 2017
House Majority Leader Scott Saiki, right, along with Reps. Sylvia Luke and Henry Aquino briefed reporters on their plan to pay for Honolulu rail. They said that the House would not accept a 10-year extension on the general excise tax, as the Senate prefers. Cory Lum/Civil Beat

The Senate never considered a proposal to increase the transient accommodation tax, known as the TAT.

Most senators were opposed to raising hotel taxes to fund rail. Sen. Kai Kahele said that the hotel industry has lobbied intensely since the plan was unveiled Friday and that he believes raising that tax would “devastate” Hawaii’s economy.

“This plan that was concocted was done at the 11th hour by a privileged few that didn’t give the industry an opportunity to comment, it didn’t give the counties an opportunity to weigh in and most importantly it didn’t give the public an opportunity to weigh in on this proposal,” Kahele said.

The Senate vote on the floor amendment calling for using the GET was 16 to 9. Voting in opposition were Kouchi and Sens. Roz Baker, J. Kalani English, Mike Gabbard, Gil Keith-Agaran, Les Ihara, Karl Rhoads, Gil Riviere and Jill Tokuda.

In the House, members rejected the GET route in favor of the TAT path. Rep. Sylvia Luke said that her colleagues met with representatives of the tourism industry and the construction trades.

“I applaud the members of the visitor industry coming forward to help share the burden,” she said.

The House bickered on the floor over the new legislation, with several Republicans and Democrats arguing the TAT should not be considered, as it had not been mentioned as a funding mechanism as the bill was heard throughout sessions.

Senators before Lunch break. 2 may 2017
Senators discussed their plans for rail before breaking for lunch Tuesday. They oppose the House’s plans to use the hotel tax for rail. Cory Lum/Civil Beat

Republican Gene Ward used  several colorful expressions to urge the House to act — “get off the pot” and “fish or cut bait.”

“This project is clogged up,” he said, at one point calling it “constipated.”

Ward also asked for a roll call vote, but Democrats, who outnumber Republicans 46-5 in the House, called instead for a voice vote.

On the Senate floor, Kahele gave a rousing speech in support of using the GET to fund rail, calling the hotel tax proposal “pilau,” a Hawaiian word for rotten or stinky.

Sen. Donna Mercado Kim lambasted the lack of transparency around creating the hotel tax bill. She said there were “so many poison pills” in the measure and in the proposed amendment that she couldn’t help but wonder if it was done intentionally to kill the bill.

Sens. Will Espero, Josh Green, Laura Thielen and Russell Ruderman also raised concerns about the lack of public input on using hotel taxes to pay for rail, with Espero cautioning that it could open up the rail project to more lawsuits.

“I think our credibility is on the line,” Green said.

And so, the two chambers remain sharply divided with just two days remaining in the 2017 legislative session.

An Anxious Tourism Industry

Tuesday was full of unexpected developments.

For example, a press conference with House and Senate leaders and tourism executives to discuss the amendments was abruptly canceled that morning, as the two chambers gathered separately and sometimes privately. Some described the uncertainly over the rail tax bills as chaotic.

Both the House and Senate reconvened Tuesday afternoon. The Senate soon adjourned until noon Thursday, and the House was expected to follow suit later Tuesday afternoon.

Asked if it was possible for the two sides to settle their differences, House Majority Leader Scott Saiki said it would be up to Kouchi and House Speaker Joe Souki.

Kahele later told reporters that a compromise was possible, but he insisted that the Senate would not approve the TAT funding for rail. Kouchi said that he would be willing to talk to Saiki, but also did not expect his fellow senators to agree to use the TAT to fund rail without public hearings.

SB 1183 has gone through several major rewrites during the 2017 session.

Senator Kai Kahele before lunch break. 2 may 2017
Sen. Kai Kahele called the House’s plan for paying for Honolulu rail a decision at the “11th hour by a privileged few that didn’t give the industry an opportunity to comment.” Cory Lum/Civil Beat

A dramatic development came at the 11th hour Friday, when House negotiators shocked their Senate counterparts with a plan to increase the TAT by 30 percent  for 10 years rather than extend the GET.

Combined with the GET surcharge that is already being levied on Oahu taxpayers until 2027, the tax hikes were estimated to bring in $2.4 billion for the rail project.

But on Monday, tourism executives and leaders of the Honolulu City Council said that the TAT hike was not the way to go. They warned that the plan raised the unpleasant possibility of also having to increase property taxes, and questioned whether SB 1183 was legally sound, given that it was altered without public input.

Consultation With The AG

Others pointed out that county “home rule” rights might be jeopardized, because the House plan initially made demands on Honolulu regarding certain land parcels.

Luke and Rep. Henry Aquino, during one of the many unscheduled recesses during floor session Tuesday, told reporters that the House had been in touch with the state’s attorney general to craft satisfactory language regarding home rule.

Aquino said the latest version of the House bill, also known as a floor amendment, would dedicate $25 million a year for 10 years to help pay for an education program, maintain the four counties’ share of $103 million in TAT and reduce the state’s 10 percent administrative fee that is “skimmed” from the GET surcharge to just 1 percent.

Recess before the voice vote. 2 may 2017
As with their Senate counterparts, House representatives frequently huddled to privately resolve their differences. Cory Lum/Civil Beat

Aquino estimated the House plan would generate an additional $1.7 billion for rail, which he described as representing the more generous approach as opposed to the Senate’s plan.

All the frantic action came in the wake of the news Monday that the Honolulu Authority for Rapid Transportation had submitted a new plan to the Federal Transit Administration for completing the 20-mile, 21-station rail line.

If final votes on SB 1183 are eventually secured Thursday, the bill would then go to the desk of Hawaii Gov. David Ige, who has until next month to announce his intentions on the bill.

But based on what happened Tuesday, no one in the Legislature is quite sure how the rail tax issue might be resolved, if at all.

Mayor Kirk Caldwell’s letter to Senate President Ron Kouchi:

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