Four days ahead of a planned special session, state House and Senate leaders outlined their proposal to save Honolulu’s struggling rail project.

The proposal calls for increasing Hawaii’s hotel room tax, or transient accommodations tax, by 1 percentage point through 2030. The increase, which would raise the tax from 9.25 percent to 10.25 percent, will generate an additional $1.3 billion.

Many neighbor island lawmakers oppose the increase because they feel it unfairly impacts tourism in their districts to pay for an Oahu project. The hotel industry is also opposed.

Legislature Senate President Ron Kouchi gestures at the beginning of the press conference announcing the start of the special session start soon.
Senate President Ron Kouchi spoke of spirited discussions between the city and state during Thursday’s press conference. Cory Lum/Civil Beat

The proposal would also extend for three years a 0.5 percent surcharge on Honolulu’s general excise tax, a less visible tax that applies to almost all goods and services. Most tax experts agree that the GET hits lower- and middle-income earners the hardest.

The Legislature acknowledged this in a statement, saying “a rail bill that relies solely on GET will continue to tax the poor and increase the cost to taxpayers in the long term. By including the TAT, visitors will now bear a significant portion of the financing burden.”

The GET extension will allow for generation of $1 billion from that tax.

Caldwell Unhappy

Honolulu Mayor Kirk Caldwell showed up with members of the City Council 30 minutes before the press conference was scheduled to begin. Caldwell later held his own press conference at Honolulu Hale, denouncing the state’s plan.

Caldwell, joined by City Council members, complained that the state’s plan didn’t go far enough. He said it would the leave the rail project at least $600 million short of the additional $3 billion needed to complete the 20-mile route from East Kapolei to Ala Moana.

Senate President Ron Kouchi as meeting ends with Mayor Caldwell and other city officials that met with senate and house members in Speaker Saiki’s office before the press conference.
Senate President Ron Kouchi leaves a meeting with Mayor Caldwell, Speaker Scott Saiki and other officials before the press conference. Cory Lum/Civil Beat/2017

Just one more year of the GET surcharge could make a big difference in addressing the shortfall, said Council Budget Chair Joey Manahan. Otherwise, Honolulu would have to increase property taxes by 10 percent.

Caldwell said the Legislature admitted in a private conversation that it “overlooked” figures for a “stress test,” or worst-case scenario that takes into account the potential shortfall.

During the state’s press conference, U.S. Rep. Colleen Hanabusa, former Honolulu Authority of Rapid Transit board director, said she was confident in the state’s numbers.

“With all due respect to the mayor and the city, they can’t come out, as they’ve done in the past, and pick numbers out of the air… To say that this figure has been there all along, is in my opinion, not true,” she said.

“I could use another word, but it’s (Caldwell’s statement) not true,” she said. “It may be a figure to cover up for something else.”

Support For Neighbor Isles

As a compromise to neighbor island lawmakers frustrated by the statewide hotel tax increase, the proposal will permanently increase the base funding counties get from the hotel tax to $103 million from $93 million.

Honolulu’s GET is currently at 4.5 percent. That figure currently includes a 0.5 percent surcharge through 2027 to help fund rail. Under the new proposal, the surcharge would be extended  three more years through 2030.

Rail Funding Proposal

The money from the increased taxes will go into a new Mass Transit Special Fund. The State Comptroller will give funds to the city as the project moves forward, but HART can’t use the money for rail operations, maintenance or administrative costs.

The state collects an administrative fee of 10 percent, known as a “skim,” from Honolulu’s GET surcharge. The proposed legislation calls for the fee to be reduced to just 1 percent.

The proposal represents a compromise between the House and Senate. During the regular session, the House proposed extending Oahu’s GET surcharge for one year and imposing the hotel tax increase through 2028. The Senate wanted to extend Oahu’s GET past 2027.

Legislators are also calling for a state-run audit of the HART and annual financial reviews. The bill would also require that a House representative and a senator join the HART board as non-voting members.

Gov. David Ige has said that he will support a bill passed by Legislature.

In a press release Thursday evening, Ige said he was “pleased that the state will have increased oversight of this project.”

Other Session Business

The special session will also consider more than a dozen gubernatorial appointees, including to the state’s Public Utilities Commission and the Land Use Commission.

Senate Ways and Means Chairman Donovan Dela Cruz told Civil Beat late Thursday that senators were expected to gavel into session Monday at 9:30 a.m. WAM will then begin hearing the rail funding bill at 11:30 a.m.

Sen. Lorraine Inouye, chairwoman of the Transportation and Energy Committee, elected not to hear the bill, meaning only WAM and the full Senate have to approve it.

If the measure makes it out of WAM, the House Finance Committee will hear the bill. It is unclear whether the House Transportation Committee will consider the measure as well.

The Legislature will also consider collective bargaining matters.

Here’s a link to Senate Bill 1, which is also posted below.

Read the proposal in its entirety below:

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