A $2.4 billion bailout plan for the Honolulu rail project cleared another hurdle Tuesday when the full Senate voted 17-7 in favor of Bill 4.

Sens. Josh Green (Hawaii Island), Breene Harimoto (Oahu), Lorraine Inouye (Hawaii Island), Kai Kahele (Hawaii Island), Gil Riviere (Oahu), Russell Ruderman (Hawaii Island) and Laura Thielen (Oahu) voted against the measure.

The bill now faces a third reading before the full Senate at 9:30 a.m. Wednesday, where more discussion is expected. If it passes there, it will head to a hearing before the full House at 11:30 a.m. A joint hearing for the House Finance and Transportation Committees is scheduled Wednesday at 1:30 p.m.

Monday night, the Senate Ways and Means Committee narrowly voted to approve the measure in the face of fierce opposition from the mayor of Honolulu, neighbor island officials and hotel executives. The 6-5 vote came at the end of a five-hour hearing, where members of Hawaii’s congressional delegation testified in support of the measure and hoteliers opposed it. Sens. Kalani English (Maui), Harimoto, Inouye, Kahele and Riviere voted against the bill in committee.

The chorus of opponents was led by Honolulu Mayor Kirk Caldwell, who opposed the bailout because he said it would not provide enough money to finish the project, which is estimated to cost about $8.2 billion to complete, not counting financing costs.

Ways and Means Committee Chairman Donovan Dela Cruz, the Oahu senator who had helped craft the deal, said he was pleased to eke out passage.

“That’s all you need,” Dela Cruz said of the one-vote margin. “Let’s not worry about what you want, like the city is, but what you need.”

Joining Dela Cruz voting in favor were Sens. Gilbert Keith-Agaran (Maui), Brickwood Galuteria (Oahu), Michelle Kidani (Oahu), Maile Shimabukuro (Oahu) and Glenn Wakai (Oahu).

The bailout calls for increasing the state’s hotel room tax by 1 percentage point, from 9.25 percent to 10.25 percent for 13 years and extend by three years the 0.5 percent general excise tax rail-designated surcharge paid by Oahu residents.

The increases are expected to raise almost $2.4 billion — $1.3 billion from the hotel tax and $1.045 billion from the general excise tax. Legislators had crafted the bailout using numbers from the Honolulu Authority for Rapid Transportation, which as recently as Aug. 14 quoted a total cost of $8.165 billion in testimony submitted to the Legislature.

State And City Lawmakers Disagree

But last week Caldwell said the project needed $8.7 billion, and that the Legislature’s bailout package was thus about $548 million short. On Monday, Caldwell said the shortfall could be more like $600 million to $900 million.

Caldwell said on Monday that the $8.165 number did not factor in a “stress test” that would measure potential cost increases. He said extending the GET surcharge by five years instead of three, as the current bill proposes, is needed to provide enough money to meet stress test requirements.

But testifying before the Ways and Means Committee U.S. Sen. Brian Schatz and U.S. Rep. Colleen Hanabusa both said the mayor’s stated reason for needing more money was overblown.

“It is not the practice of the FTA to make the stress test a financial requirement,” Schatz said.

Hanabusa echoed his remarks. She said it was not certain that the FTA would even require a stress test. If it did, she said, the test would merely want to know what HART would do if certain financial assumptions were not realized.

“You’re not talking about real money,” Hanabusa said. “You’re not talking about something that actually will occur.”

Tourism executives, meanwhile, said the 1 percentage point increase could hurt one of the state’s largest industries. With neighbor island room rates averaging $300 a night, the increase would tack on another $3 per night to the cost of a room, said George Szigeti, president of the Hawaii Tourism Authority.

“Now that’s going to break the back of the industry?” asked Galuteria, echoing the skepticism also voiced by Wakai and Sen. Donna Mercado Kim, who sat in on the hearing but did not vote because she is not a committee member. “One percent of $300 is $3.”

Szigeti insisted the increase could hurt tourism. “Any time you increase the price of anything, you get consumer push back,” he said.

One of the ironic twists of the meeting was that two of rail’s most important supporters were opposing the proposed bailout. Caldwell previously worked as managing director for former Mayor Mufi Hannemann, who was the project’s initial mastermind.

Now president and chief executive of the Hawaii Lodging and Tourism Association, Hannemann joined Caldwell in opposing the bill.

“We are very much pro-rail,” Hannemann said after the the hearing. “We just think this is the wrong funding mechanism.”

Neighbor island officials also spoke out.

In a statement, Hawaii County Mayor Harry Kim said he opposes the “unnecessary,” permanent cap on the counties’ TAT share. He called the GET “the most regressive form of taxation that impacts the lower income the greatest.”

Some Only Want GET Extension

Others, like Maui County Council Chair Mike White, would like to see a bill that uses only the GET.

“The State has multiple sources of revenues,” White wrote. “The counties only have property tax, motor vehicle weight tax, and public utility franchise tax.”

Citizens also weighed in on both sides of the issue. Choon James, a rail critic known for  concerns about land use issues, added comic relief by throwing a bundle of 100 $1 bills into the air to make a point about the project’s escalating costs.

Meanwhile, sign wavers lined up outside the Beretenia Street side of the Capitol. Trucks bearing “We Will Use Rail” and “Finish To Ala Moana” signs circled the Capitol, honking.

Most supported using a GET-only proposal because extending the surcharge, which Oahu residents already pay, didn’t seem like a big difference. They also worried about the potential impacts a hotel tax increase could have on the tourism industry.

Misty Mamo of Waianae said locals and tourists alike pay the GET when they buy goods and could ride rail. She sympathized with tourists who already pay a lot to visit Hawaii.

Earlier in the day, Caldwell had held a press conference to reiterate his call for an increase in the rail bailout package.

Caldwell said it was worth extending the special session, which was expected to last five days, to amend the bill.

The bill is now in the hands of the House Finance Committee, where the odds of passing might be better.

The Finance Committee’s chair, Rep. Sylvia Luke, has long supported increasing the hotel room tax to raise money for rail. And the committee might be even more inclined to pass the measure thanks to the removal over the weekend of two members who have been skeptical of the train project, Reps. Isaac Choy and James Tokioka.

Choy, an accountant who served on the House Committee on Finance until yesterday, said he received no explanation why he and Tokioka were replaced by Reps. Beth Fukumoto and Sam Satoru Kong. He assumes it’s because the duo have criticized the rail bill.

Choy said he isn’t convinced that raising the hotel tax is a good idea because the surplus extension would begin in 2028, four years after rail is projected to be finished. It would be better to have the project completed and understand all costs before imposing such a tax.

He also questioned the projected hotel tax revenue growth rate of eight percent that’s quoted in the proposal. A study produced last year by the University of Hawaii’s Economic Research Organization last year estimated the hotel tax would grow by an average of 4.9 percent over the next decade.

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