When Hawaii legislators passed a $2.4 billion bailout package for the Honolulu rail project in late August, their bill included a caveat: the city could use the additional money for rail construction, but would have to find other funds to pay for administrative costs.
The agency spends most of its operating budget on salaries and benefits for its 125 employees.
Six of Honolulu’s nine City Council members met Tuesday to discuss HART’s plan for building the 20-mile rail line from Kapolei to Ala Moana, but the city’s new $160 million expense dominated the conversation.
“We have a lot of work still cut out for us,” said Councilman Joey Manahan.
Revenue from Oahu’s 0.5 percent general excise tax surcharge, which the Legislature recently extended from 2027 to 2030 in the bailout bill, previously paid for administrative costs.
Councilwoman Kymberly Pine said now the money would likely have to come from property taxes, the city’s largest source of revenue.
“It’s very disappointing because the taxpayers said they did not want property taxes to be used for any part of the construction process for rail,” she said. “The state Legislature is basically forcing us to.”
In September the Legislature held a special session to pass the bailout bill. It is projected to raise about $2.4 billion over 13 years, roughly $1.046 billion from a 0.5 percent general excise tax charged on Oahu taxpayers and $1.3 billion from hotel guests statewide via a 1 percentage point increase in the hotel room tax.
The bill extends by three years the 0.5 percent general excise tax and increases the hotel room tax to 10.25 percent from 9.25 percent for 13 years.
In anticipation of the session, the City Council unanimously passed Bill 45, restricting the use of revenues from the GET and TAT taxes to rail construction costs — a requirement of the Legislature’s bill. Councilman Trevor Ozawa was absent for the vote.
The new expense isn’t a surprise, but some council members expressed frustration at Tuesday’s meeting.
City Budget Director Nelson Koyanagi said HART “should have sufficient cash” from other revenue sources to cover its $20.8 million operating budget for the current 2018 Fiscal Year, meaning the city won’t have to search its own pocketbook for HART administrative expenses until FY 2019.
In its recovery plan, HART estimates its administrative costs will rise to $24 million in FY 2019.
Koyanagi said that instead of increasing taxes or eliminating city services to pay for the new expense, the city could use issue more bonds. He added that issuing bonds would increase the amount of interest the city ultimately owes.
“It would increase the cost, but it would spread it out so it’ll be more affordable on a year-to-year basis,” he said.
That concerned Councilwoman Ann Kobayashi.
“It really worries me that we’re having to float bonds to pay for operating costs,” she said. “It’s unheard of, and I really worry about that.”
In June the council approveda measure that issued up to $350 million in bonds to ensure construction of the rail project can continue through June 2018.
Both construction and administrative costs are expected to peak in the next four years as HART works its way through the urban core toward Ala Moana, said Robert Yu, the agency’s chief financial officer.
HART’s most recent recovery plan puts a $9.02 billion estimated price tag on the rail project, $8.165 billion in construction costs and an estimated $858 million in financing costs.
In addition to the $160 million the city must pay for HART administrative costs, the state’s bailout leaves the city $54 million short on completing the project, Koyanagi said.
Unless state or private funds become available, “the city would probably have to pick up that additional $54 million,” he said.
Manahan said the money wouldn’t be needed until the final years of the project, when he expects the city will pay $9 to $10 million each year to cover the $54 million.
“We anticipated there would be some kind of a shortfall, we’d been talking about it,” Manahan said. “We didn’t know how much it would be. It is what it is, I guess.”
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