Neighbor isle leaders protest tax hike for rail

September 5, 2017

Hawaii Star Advertiser
By Kevin Dayton
August 27, 2017

Some neighbor island lawmakers are agitating against plans to increase the hotel room tax statewide to pump more money into Honolulu’s financially troubled rail project, and their resistance could jeopardize what is expected to be a close vote in the state Senate this week on a multibillion-dollar rail bailout package.

State Sen. Russell Ruderman, who represents the rural Puna district of Hawaii island, calculates the latest rail bailout proposal would force the neighbor islands to contribute $200 million in extra hotel-room taxes to the rail project in the years ahead.

Ruderman said the rail project won’t benefit his constituents and that taxpayers on Maui, Kauai and Hawaii island should not be forced to pay for the financially troubled 20-mile rail project on Oahu.

“I think it needs to be funded by Oahu,” Ruderman said. “Folks on Oahu voted to do the rail. People on the outer islands never did, and it’s a big enough project that it ought to have been a discussion. I don’t think that paying for rail should fall on people without ever having discussed it.”

After months of negotiations, lawmakers last week unveiled a plan to provide an additional $2.37 billion for the Honolulu rail project to help finance the city’s recovery plan. The city faces a Sept. 15 deadline to show the Federal Transit Administration how it plans to raise enough money to cover the project’s latest budget shortfall.

The partially built rail line is vastly over budget, with the estimated price tag for rail increasing from $5.26 billion in late 2014 to nearly $10 billion, including financing costs. City officials estimate the project now has a budget deficit of about $3 billion.

House and Senate negotiators have agreed to a new bailout package that involves raising hotel room taxes statewide by 1 percentage point for the next 13 years to raise $1.32 billion for rail. That would increase the state’s hotel room tax to 10.25 percent.

The plan would also require lawmakers to extend the half-percent excise tax surcharge on Oahu for another three years to raise another $1.04 billion for rail.

Honolulu Mayor Kirk Caldwell says the funding provided under that new plan would still be $600 million to $900 million short of what the city needs to complete the project, but House and Senate leaders are pressing ahead anyway. They plan to approve the package in a five-day special session of the state Legislature this week.

The plan to increase the hotel tax statewide has been hugely unpopular with the hotel industry, and with a number of neighbor island lawmakers and county officials.

State Sen. Kai Kahele (D, Hilo) has expressed his unhappiness with the idea of a statewide increase in the hotel tax — also known as the transient accommodations tax, or TAT — under the Twitter hashtag #aoletat. Those posts were later removed, and Kahele did not respond to a request for comment Saturday.

Sens. Josh Green (D, Naalehu-Kailua-Kona) and Gil Keith-Agaran (D, Waihee-Wailuku-Kahului) also were unavailable for comment.

Senate President Ron Kouchi, who represents Kauai, said he personally would prefer a hotel tax increase that is limited to Oahu, but “we are where we’re at as the result of the give-and-take of negotiation, so I am supporting the proposal.”

The rail package would get a few more Senate votes if the hotel tax increase applied to Oahu only, but the negotiations with the House produced a plan that included a statewide increase, he said.

The vote in the Senate on the rail bailout package is expected to be close, but Kouchi said he is confident the plan will pass despite some senators’ unhappiness with the hotel tax increase.

When constituents express concern with the bailout plan, Kouchi said he tells them that “as the leader of the chamber, I need to see where the majority of our (Democratic) caucus would like to go, and it’s my duty to help lead in that direction.”

He said the neighbor islands get more than their share of the weight taxes, fuel taxes and registration fees that are collected by the state to fund highway projects, with Honolulu motorists paying 60 percent of those taxes, while the city receives only half of the revenue.

“They help the neighbor islands fund our highway improvements each year,” Kouchi said. “We have always had assistance, so it’s not like Oahu hasn’t helped make contributions for improvements on the neighbor islands. It’s not a one-way street.”

The vast majority of hotel tax revenue is paid by tourists, but Ruderman said at least some of extra hotel taxes for rail will come from neighbor island residents.

Ruderman and some of his colleagues maintain the Legislature should not “open the door” to using state funding for rail because that will make the state partly responsible for a project that the city controls.

The proposed hotel tax increase is for 1 percentage point today, “but as we’ve seen, they’re going to come back to the well again. This isn’t the last time the rail project will ask for money,” Ruderman said. “So, once we’ve opened this door, what’s to stop it from becoming 2 and 3 percent, and on into infinity in terms of the duration?”

Meanwhile, Ruderman said his Puna district has “desperate needs” that are not being met, including widening and safety improvements to the dangerous and congested Highway 130 between Pahoa and Keaau.

He described Puna as the fastest-growing and poorest district in the state, and “it’s very difficult to ask someone from such a district to contribute to this project on Oahu.”

“I don’t think it’s been a well-managed project, to say it mildly, and when you have such a project, it’s rarely a good idea to throw more money at before you fix what’s wrong,” Ruderman said. “You really ought to fix what’s wrong first, so that the money you invest is efficiently used, rather than wasted like the last batch of money.”