Mayors, council members oppose taxing neighbor islands to generate funds for Honolulu rail

Several neighbor island mayors and county council members told state lawmakers Monday they are opposed to the Legislature taxing their residents and visitors to pay for the over-budget Honolulu rail project.

Honolulu Mayor Kirk Caldwell and the City Council leaders said they want the state to allow them to extend Oahu’s half-cent general excise tax surcharge, or GET, another 10 years to 2037 so they can pay for the rail themselves.

Still, many members of the state Legislature seemed intent on spreading the cost of Honolulu’s beleaguered rail project to the neighbor islands through an increase in the 9.25 percent statewide surcharge on hotels and lodging of less than 180 days, known as the transient accommodations tax or TAT.

During a joint session of House and Senate money and transportation committees, many state lawmakers saw an increase in the TAT as more palatable than GET because it’s paid by tourists more than residents, and hits the poor the least.

No decisions were made during the informational hearing Monday. The state is trying to help Oahu make up a $1.4 billion shortfall in the $10 billion project.

The Legislature plans an Aug. 28-Sept. 1 special session to try to work out a plan, after House-Senate compromise attempts failed in the regular session earlier this year.

A TAT increase of 1 percent statewide could trim more than $1 billion off rail financing costs by allowing less borrowing, said House Finance Committee Chairwoman Sylvia Luke, a Punchbowl Democrat.

The rail project’s price tag has ballooned from $3.6 billion in 2006 to $8.2 billion now, or more than $10 billion with the bond costs.

“I just don’t get it,” Luke said, apparently exasperated by Caldwell’s insistence that the GET is the better choice.

Caldwell and other city officials said they prefer the GET instead of the TAT because it’s a more stable funding source, and also because it’s already approved by the Federal Transit Administration as the rail’s funding source. The FTA is chipping in $1.55 billion for the project.

“I support GET and I haven’t wavered from that,” Caldwell said.

A statewide increase in the GET surcharge earmarked for the rail didn’t come up during Monday’s discussion, although it was listed as an option in a slideshow for the meeting and could be floated during the special session.

Last session, all Big Island House members voted in favor of a conference bill increasing the TAT by 1 percent statewide and giving the money to the Honolulu rail project while raising the cap on the counties’ share to $103 million. The Senate wanted to keep the $93 million cap while allowing Oahu to raise its GET.

Maui County Council Chairman Mike White disputed state lawmakers’ contention that a TAT increase wouldn’t hurt county budgets. The issue of TAT already is a sore point for counties, which saw their share capped during the recession and never returned to earlier levels.

“Most visitors have a fixed budget for their vacation, and an increase in the room tax will simply lead to less spending on restaurants, retail and activities,” White said.

A 1 percent increase in the TAT would send approximately $26.7 million to the state instead of remaining in neighbor island communities, White said. Kauai, Maui and Hawaii counties generate 51 percent of TAT revenues, or $247 million, while Oahu generates 49 percent, or $237 million, according to White.

The percentage coming from neighbor islands actually could be much higher.

Outrigger Enterprises Group, for example, reports TAT for all its Hawaii properties from its Oahu headquarters, said spokesman Ed Case. That means TAT revenues from seven Oahu properties, six on Maui, four on the Big Island and three on Kauai are all counted as coming from Oahu. It’s not known if other hotel chains also attribute all their TAT as coming from Oahu.

Sen. Kai Kahele, D-Hilo, who participated in the hearing, said afterward he supports rail, but he is more convinced than ever that the neighbor islands shouldn’t be funding it. Kahele hosted a public event Saturday in Hilo and said his constituents are strongly opposed to the concept. “They don’t want to go to Kona and stay in a hotel and pay a higher TAT and it go to the rail,” Kahele said.

“Taxing all for the benefit of one is not fair,” said Hawaii County Mayor Harry Kim in written testimony. “We cannot burden our citizens any more for something that will not benefit them.”

Kim, who did not attend the meeting, asked that the Legislature restore some of the county share of the TAT. Just bringing the cap up to $103 million would more than pay for the county’s entire Civil Defense Department, he said.

The TAT allocations to the four counties were capped at $93 million annually, with Hawaii County receiving 18.6 percent, or $18.3 million of that amount.

Kim’s words were echoed by Kauai County Council Chairman Mel Rapoza.

“We don’t have a rail on Kauai,” Rapoza said. “We’ll never have a rail on Kauai. But we do have a homeless problem.”

Maui Mayor Alan Arakawa said his county already pays for services that are technically the responsibility of the state.

“This is basically a City and County of Honolulu rail system,” Arakawa said. “We spend an extraordinary amount of money, time and resources to do a lot of what the state agencies should do in our county.”

All of the Big Island’s House members voted in favor of a 1 percent statewide TAT increase for Honolulu rail in the bill that deadlocked during the recent legislative session.

Rep. Cindy Evans, D-Kona, the House majority leader, thinks spreading the rail cost throughout the state is appropriate. Evans, who didn’t speak during the meeting, said Friday that it’s important to look at the big picture.

Just as West Hawaii is the economic engine for the county, generating almost 70 percent of the county property tax base, so is Oahu the economic driver for the state, she said.

In addition, supporters of the TAT increase say, the state pays for airports and seaports, roads and other facilities within counties.

“Rail may appear to be an Oahu issue,” Evans said. “But it will end up helping determine the health of the whole state.”

Email Nancy Cook Lauer at

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