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The Honolulu Advertiser

Posted on: Saturday, April 30, 2005

Transit tax option OK'd

 •  Taxes on real estate purchases may go up

By Derrick DePledge and Gordon Y.K. Pang
Advertiser Capitol Bureau

In a major advance for a rail line in Honolulu, state House and Senate negotiators yesterday agreed to give counties the option of adding a 0.5 percent surcharge to the state's 4 percent general excise tax, which would raise as much as $150 million a year to pay for the rail project.

Rail tax basics

How much: 0.5 percent added to state's 4 percent general excise tax

Would raise: $150 million a year for 15 years

What's next: If Legislature passes the law, counties must also give their approval

The Honolulu City Council would have until the end of the year to approve the tax increase or the authority will expire. Neighbor Island counties would have the same deadline, but only Honolulu has the urgency to pass a tax, which Honolulu Mayor Mufi Hannemann described yesterday as the last chance to qualify for federal dollars to help pay for rail.

Honolulu lost federal money in the early 1990s after the council backed out of a rail project at the last minute, and Hannemann said a local funding source is necessary because Honolulu still has a "black eye" with the federal government.

"There is real opportunity now to provide a transit option for the citizens of Honolulu," the mayor said at a City Hall news conference.

The House and Senate still must cast final votes on the tax surcharge next week, but the agreement reached yesterday provided some certainty after several days of twists and turns in the negotiations. Lawmakers said they were motivated to reach a deal because people are growing increasingly frustrated by traffic congestion, and some admitted they did not want to be blamed in the future for doing nothing.

But lawmakers also put limits on the surcharge that did not entirely please Honolulu and federal officials. Lawmakers settled on a 0.5 percent surcharge instead of the 1 percent Honolulu had wanted, which means Honolulu would receive only half the revenue it sought. The tax, which would be collected on almost all consumer and business activity starting in January 2007, would expire after 15 years. Honolulu had preferred a 20-year sunset — or longer — to show the federal government that it had an extended funding commitment.

The responsibility for actually raising the tax now moves to the City Council, where vocal protests are expected over the next few months by tax opponents who believe that rail is not the ideal option to relieve traffic woes.

Hannemann said Honolulu would continue to work on ferry, bus and traffic alternatives to ease congestion in the short-term, but he believes that while rail is not a silver bullet against gridlock, it is the long-term solution. "I don't see another alternative option out there," the mayor said. "I really don't."

The earliest that construction could begin on the first phase of a rail line would be in April 2009, according to Honolulu officials. It would likely start in Kapolei and work toward Waipahu.

Eventually, the line could move toward Aloha Stadium, Honolulu International Airport, downtown and, perhaps, to the University of Hawai'i at Manoa. Honolulu officials would not estimate the total cost of the project, but a previous analysis of a rail line between Kapolei and Iwilei put the cost at $2.6 billion.

'A very good start'

Hawai'i's congressional delegation has sought federal money for a rail project in a six-year transportation bill now pending in Congress and has told state and county officials that a local funding source is a condition of federal support. Honolulu will have to compete with other cities for federal transit money, and federal money may only cover up to half the costs of the project.

"That made a tremendous difference," Mac Lowson, the president of the Hawai'i Association of Realtors, said of the federal pressure to pass a tax. The Realtors oppose a tax increase in principle and have argued that there are not enough specifics about the rail line to commit to a project. "Our point is there is no plan in place," Lowson said.

A late reversal by the Chamber of Commerce of Hawai'i and the strong backing of builders and other trade unions may have also been a factor for lawmakers. The chamber had opposed giving counties the option to raise taxes but now favors it as long as revenue is limited to transit projects.

But lawmakers have also been hearing from their constituents about being stuck in traffic. Some residents in central O'ahu, where traffic congestion is often at its worst, said yesterday that any momentum toward rail is good.

"A half a percent is better than nothing," said Edwin S. Imamura, a retired federal government worker who lives in Wahiawa. "It's a good start, a very good start."

Dan Stringer, an employment counselor for a nonprofit agency who lives in Mililani, agreed. "Whatever they've got to do, I think they should do it," he said. "I think even if every family had to pay an extra 1 percent, it would be worth it in terms of what we would gain in time with our families and quality of life."

Tax relief unlikely

The agreement at the state Capitol came on the last day to get bills ready for final votes next week.

House and Senate negotiators agreed to drop a Senate proposal to add a 1 percent surcharge statewide and use some of the money to offset the cost of raising the standard income tax deduction. Instead, they opted for the original Senate position of giving counties the choice to add a 0.5 percent surcharge to the tax for transit. They also decided not to give counties the option of raising fuel or motor vehicle taxes to help pay for transit projects.

The decision all but dooms any tax relief this session, a disappointment to some leading Democrats and Gov. Linda Lingle, who called for tax breaks for the lower and middle classes when the session opened in January. Sen. Brian Taniguchi, D-10th (McCully, Manoa), the chairman of the Senate Ways and Means Committee, had tried to add tax relief as part of the excise tax package but acknowledged yesterday that it complicated the bill's passage.

"It looks like it's off the table," he said of tax relief.

Lawmakers in separate conference negotiations also tabled other tax-relief options yesterday, from raising the standard deduction and an earned income tax credit to a long-term-care tax credit.

Rocky road to deal

Republicans said the excise tax surcharge for transit could have been worse for taxpayers but is still unnecessary. "Once again the majority party is throwing money at a problem rather than implementing common-sense solutions," said Senate Minority Leader Fred Hemmings, R-25th (Kailua, Waimanalo, Hawai'i Kai). "O'ahu's transit problems could be solved by other, more cost-effective ways than a multi-billion dollar heavy rail plan that has yet to be designed."

After the fierce reaction to the Senate's proposal for a statewide excise tax increase, especially on the Neighbor Islands, there were tremors that maybe the House and Senate would not agree and a Honolulu rail project would again perish.

Hannemann told reporters he would not have returned to the Legislature with the same request next session. "I would have just said, 'Let's move on. There's no more time to spend on this. It's clear the political will is not there,' " the mayor said.

Asked what led to a deal, House Rep. Joe Souki, D-8th (Wailuku, Waiehu), the main House negotiator, quipped, "Cool heads."

But Sen. Lorraine Inouye, D-1st (Hamakua, S. Hilo), a leading Senate negotiator, said people still blame former Honolulu City Councilwoman Rene Mansho for killing rail in 1992 and she did not want the same legacy. Mansho was the swing vote in a 5-4 council decision that stopped a rail project even though the state's congressional delegation had locked in more than $600 million in federal transit money.

"I wouldn't want to be here 10 years from now if we do nothing," Inouye said.

Staff writer Karen Blakeman contributed to this report. Reach Derrick DePledge at ddepledge@honoluluadvertiser.com or 525-8070.