There should be a pathway out of this rail financing quagmire that has led state and city leaders to Monday’s informational briefing at the state Capitol. A lot of options are being floated for closing a roughly $3 billion gap, including financing charges, to complete the Oahu project as designed, ending at Ala Moana Center.
But there’s still this unknown: Will legislators be able to overcome the political stalemate barring an agreement, particularly if the solution relies on a hotel room-tax increase, even one that extends statewide? And could they break through in time to retain federal backing for the project, now approaching the $10 billion threshold?
Advocates for the 20-mile, 21-station fixed-guideway system hope that they will come to terms on a project on which so much of Oahu’s future depends.
Time is running out. The deadline is Sept. 15 for the city to submit a revised financial plan to the Federal Transit Administration; miss that, and the city may have to repay what it’s spent of the $1.55 billion federal subsidy, and forego what subsidy remains.
And there really are only days to reach some compromise ahead of the Legislature’s special session, Aug. 28-Sept. 1.
The regular session adjourned in May, with rail discussions breaking down and funding unresolved. The state Senate’s proposal was a 10-year extension of Oahu’s general excise tax surcharge financing the rail. But its rival was a late entry favored by state Rep. Sylvia Luke and others in House leadership, a combination of a shorter GET extension with a new increase of the transit accommodations tax (TAT), the hotel room tax.
Lawmakers, city officials and visitor-industry experts still need to weigh that idea’s potential effect on tourism before it can be part of the final formulation. But more recent number-crunching does suggest that it would produce a relatively quick infusion of cash at the front end of the remaining construction schedule. This would allow a faster repayment of debt on the project, Luke reasoned, saving on the financing charges over the term of the bonds.
A new revision of this idea would involve a shorter extension of the GET surcharge on Oahu and an assessment of a 1 percent TAT surcharge statewide. One projection is that by 2031, the deficit would be covered and the new financing scheme would produce a surplus of $524.5 million.
This makes sense, as it would limit the neighbor island participation to visitors paying in. Many tourists make multi-island stops, so it’s reasonable to tap their support for a project that many would use.
The industry, of course, is leery of this notion. Ed Case of Outrigger Enterprises Group said visitors would be discouraged from choosing Hawaii as a destination if they had to pay an added 1 percent TAT.
However, lawmakers will need to see some hard numbers that bolster this argument, in an economic environment of sky-high visitor arrivals and expenditures. Currently, it seems a rational way to enable the “front-loading” that Luke described.
Other proposals would extend the GET statewide as well, but this seems unfair to neighbor island taxpayers. The law allows all Hawaii counties to assess a half-percentage point surcharge similar to Oahu’s, to fund transportation solutions for that county. This will become harder to do in the near term if neighbor island residents and businesses are already paying more GET for the rail project.
The rail system is an Oahu project, but it’s also the single largest public-works asset in the state, with broad economic ripple effects. If injection of some statewide hotel room tax can save on borrowing costs overall, that’s a strategy that merits serious consideration.
