The phrase "fuzzy math" comes to mind each time we hear of how Oahu is being shortchanged of the 0.5 percent general excise tax (GET) surcharge to help pay for the $5.26 billion rail project.
The recent good news as rail construction ramps up is that the project will receive an influx of $63.8 million in GET revenues for the quarter ended Sept. 30, a record amount of quarterly revenues to date. With officials relying on this local source to eventually fund nearly 70 percent of rail’s cost — the other $1.55 billion in federal funds has been secured in a recent agreement — this is welcome news indeed.
That’s especially so since the project earlier this year got tens of millions of dollars less than rail officials had expected, despite tax collections being up across the state.
At the heart of the problem is the state Tax Department taking more than its fair share of the 0.5 percent surcharge levied on Oahu on top of the statewide 4 percent general excise tax. This "rail tax" was created six years ago explicitly to help fund the project, minus a small, fair cut to the Tax Department for administering the surcharge. But since collection began in 2007, the state has kept more than $100 million of it, amounting to a 10 percent take that is wholly excessive for what was supposed to be a handling fee. Consider that in 2012, the state kept $21.2 million to administer the tax when the Tax Department’s entire budget that year was $23.7 million.
The unfair money grab at Honolulu county’s expense has been recognized in recent years, but statewide recessionary concerns somewhat muted the arguments. State legislative resolutions earlier this year calling for a fairer and timelier distribution of the surcharge went nowhere.
In 2011, even the Honolulu City Council rejected a resolution — despite it being in Oahu’s interest — that urged the state to return part of the GET surcharge it withheld. Indeed, the political and economic futility was recognized by the city’s then-managing director, who noted that given the state’s budget crisis, "it doesn’t seem like the right time for this legislative session."
Now, though, is the right time to improve the financial policy, and make it right on behalf of Oahu taxpayers: we need to get a firmer grip on the rail tax and ensure that it comes in steady, reliable amounts.
Project funds cannot come at the whims of the state: In May, for example, state Tax Director Frederick Pablo cited staff shortages in his department and a lag in processing tax returns as reasons why rail received $29 million less than the city anticipated for the first half of the fiscal year. He did assure rail officials, though, that the project would eventually receive its due millions.
And just as the improving state economy bodes well for tax collections, so, too, has rail’s legal situation improved:
» A state Supreme Court ruling, which delayed rail construction for a year, required an archeological inventory survey along the entire 20-mile route; that has been completed and accepted.
» A federal court required that more-thorough vetting of a Beretania Street underground-tunnel option and impact analyses on historic Mother Waldron Park in Kakaako and cultural Chinatown be done; those reports recently were submitted to the court.
A ruling is still pending from the 9th Circuit Court of Appeals on the federal lawsuit. There’s little doubt, though, that the long-awaited rail project is gaining momentum. Construction on the rail system has restarted in earnest, which means signing of contracts will accelerate. That will necessitate a reliable, steady flow of money. Along with the $1.55 billion in secured federal funding, it’s now imperative that the local funds are not unduly encumbered.
Oahuans fully expect rail officials to be doling out the money — our money — judiciously and efficiently. But state officials need to do their part and refrain from squeezing the dedicated GET revenue pipeline. The rail-surcharge millions must be allowed to flow to their intended purpose: the rail project.
