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The Honolulu City Council approved a measure Wednesday to ensure construction of the rail project can continue through June 2018 by issuing up to $350 million in bonds, although there is still no long-term revenue source to finish the $10 billion, 20-mile line.
The move puts Honolulu taxpayers on the hook for a portion of the rail costs beyond what they are already paying through a general excise tax surcharge of 0.5 percent applied to virtually all goods and services.
The Legislature during the last session rejected two proposals designed to cover an estimated $3 billion project shortfall. One called for increasing the state hotel room tax, and another proposed extending the general excise tax surcharge beyond its 2027 sunset date.
The Honolulu Authority for Rapid Transportation, which manages the project, was projected to run out of funding in January, but HART executives painted a more urgent picture Wednesday.
HART’s interim executive director, Krishniah Murthy, and its chief financial officer, Robert Yu, said HART would have to start winding down operations in August, if the City Council did not pass the bill, which lets the city borrow money to keep the project going.
The 6-3 vote followed long, often emotional testimony and pointed questioning of Murthy and Yu. Opponents cited the project’s ballooning costs, questionable utility and fiscal risks, while proponents said it was too late to abandon the project. Ultimately designed to go from east of Kapolei to Ala Moana Center, construction of the elevated rail track now stretches near Aloha Stadium.
The vote authorizes the city to issue general obligation municipal bonds to cover rail costs for a year. The bonds would be backed by the full faith and credit of the City and County of Honolulu, said Nelson H. Koyanagi Jr., Honolulu’s budget director.
Council members Kymberly Pine, Ikaika Anderson, Joey Manahan, Brandon Elefante and Trevor Ozawa joined council chairman Ron Menor in voting for the measure. Council members Ernie Martin, Ann Kobayashi and Carol Fukunaga opposed it.
As council members on both sides described it, Honolulu taxpayers could be left holding the bag no matter which way the vote had gone.
Anderson said failing to pass the measure would leave taxpayers with no rail, but with a $2 billion liability, including money the city would have to pay back to the Federal Transit Administration. That would mean increasing property taxes, Anderson said.
“I am not ready to commit (more than) $2 billion in real property taxes to shut thus project down,” Anderson said.
But Kobayashi said the bill passed Wednesday also puts taxpayers at risk.
“It’s such a dangerous situation when we borrow money for rail and ask our constituents to co-sign the loan,” she said. “That’s what worries me.”
Wednesday’s action was the first in a two-step process: The council authorized the city to issue up to $350 million in taxpayer-backed bonds to cover rail operations and construction. The next step, to actually issue the bonds, would require additional council approval.
And because the measure covers rail expenses only through June 2018, the council may have to come back again next year and authorize more bonds, Yu said.
Honolulu residents generally are not happy with the rail. A Civil Beat poll conducted in May found nearly 87 percent of Oahu respondents don’t like the current state of the project.
The poll also gauged voter preferences for how they’d prefer to deal with the rail funding shortfall, including the options of extending the GET surcharge, raising residential property taxes, raising hotel taxes or some combination of the three.
A plurality of Oahu respondents, about 30 percent, said they’d like the tourism industry to help foot the bill through increased hotel taxes. The next best option, according to those polled, would be a balance of the various tax proposals, which 24 percent favored. The least desirable option, by far, was to increase property taxes for rail — only 1 percent of Oahu voters thought that would be a good idea.
The City Council’s move may put more pressure on the Legislature to come up with a funding source. Mayor Kirk Caldwell has called for a special session to deal with rail financing. Now that the council has gotten Honolulu taxpayers to “co-sign the loan” to help pay for rail, as Kobayashi put it, lawmakers may be more likely to find an alternative to the unpopular property tax option.
Randall Roth, a retired law professor at the University of Hawaii, William S. Richardson School of Law, who opposed the rail project, said that whether Honolulu taxpayers cover the rail cost with a property tax or an excise tax, it’s still money from their pockets. He said the city should quit throwing good money after bad and reject the idea that the rail is past the fiscal point of no return.
“It’s called the ‘sunk cost fallacy,’” said Roth, a former tax law professor. “It makes no sense to say, ‘Because we’ve spent so much money, we need to keep spending.’”
Natalie Iwasa, another critic, accused the City Council of giving the rail project a blank check while residents paid more for necessities through the GET surcharge.
“We’re paying for this with a tax on food, rent and medical services,” she said. “”How can you do that?”
But Bob Nakata, a housing advocate who testified in support of the measure, said the city needs to do something to address the transportation needs of the people.
“For those who want to kill the rail now, what is the answer to the transportation problem that faces us?” he asked. “If we kill the rail now, whatever we put in its place is going to cost us tremendously more.”