Lawmakers should support the completion of Honolulu’s rail project as intended, from East Kapolei to Ala Moana Center. And if they do, they now have little choice but to pass the eleventh-hour rewrite of Senate Bill 1183. Flawed as it is, both in substance and process, that’s now the only logical vehicle for providing the cash infusion needed for its construction.
It’s impossible to know whether, even as a practical matter, the Legislature’s proposed solution to the rail-tax impasse will work. A hike in the transient accommodations tax (TAT) that tourists pay on hotel rooms as the source of bailout funds for the project may or may not cover the estimated shortfall.
The general excise tax surcharge, the main funding source up to this point, is still the most stable funding source. Boosting the TAT by 2.75 percent could have an effect on its yield.
It could change tourists’ calculations on their preferred travel destinations. It could drive even more tourists to Hawaii’s illegal vacation-rental market to avoid the tax.
The most clearcut problem with Friday’s surprise development was the fact that it came as such a surprise to just about everyone. This includes, of course, the people the most intimately involved with the tax: the visitor industry.
None of the lengthy hearings on this issue in either chamber broached this option at all, so ultimately the revised proposal amounts to an undemocratic power play.
Advocating for the TAT route should have happened at the start of the session. At that stage, its advantages could have been more reasonably raised:
>> It adds a new cash stream when it’s needed — starting in January, as the project moves into its final construction phase, heading into the urban core. That could mean a reduction in the amount the city would need to borrow and in its bond servicing costs.
>> It replaces the proposed extension of the GET, which disproportionately affects poorer Hawaii taxpayers.
>> It draws from the population of tourists, who will be among the beneficiaries of the project. While the rail route does not reach Waikiki, it does link the airport to major urban destinations, making some of their transportation simpler and less costly.
Those advantages remain valid and have been cited as talking points in the latter-day legislative debate. But there are additional demerits to add to the ledger.
One is that lawmakers want to divide the extra TAT revenue, with $50 million a year earmarked for a New Start Education Special Fund. There is no clear nexus between the people who pay this tax and the ones who benefit, although it may be possible to craft one.
Could these funds benefit career preparedness in visitor-industry fields, for example? Perhaps. But educational needs are supposed to drive the search for revenue — not the other way around.
Then there’s a highly irregular condition inserted in the legislation. State Rep. Henry Aquino, House transportation chairman and one of the champions of the new draft, said the bill “would prohibit the City and County of Honolulu from overextending itself fiscally by using public funds to reconstruct or redevelop the Neal S. Blaisdell Center, which is expected to cost nearly $500 million.”
This amounts to an unwarranted usurping of county decisionmaking authority. The state can set conditions on how its own authorized funds are spent, but if the city is tapping its own source of property taxes for the NBC or any project, lawmakers should leave spending dictates to the City Council.
Mayor Kirk Caldwell said the projected yield from the TAT will be insufficient. At this point, however, it’s an argument Caldwell likely will have to make at a future legislative — or Council — session, once the city can monitor revenues that come in.
That’s because, whether the city likes it or not, this deal is now rail’s only route forward.