A Honolulu rail project was given new life yesterday after Gov. Linda Lingle and state House and Senate leaders reached an unexpected compromise on the eve of a veto deadline.

Lingle had promised to veto a county tax option for mass transit by today's deadline if the state, instead of the counties, were to collect the new tax revenue. But the governor said she would allow the bill to become law without her signature after state lawmakers agreed to try to change the law when they meet in regular session next year.

Honolulu, the only county actively considering a new tax, will immediately begin working with the state on how to collect the money.

"I'm so happy today," said Mayor Mufi Hannemann, who cut short a weekend trip to Japan and returned to Honolulu for a last-ditch round of personal appeals. "You can't imagine how pleased I am that we're able to come together and resolve the most critical quality-of-life issue facing O'ahu today, and that's our traffic problem."

Lingle, who stood with the mayor and House and Senate Democrats at a rare joint news conference at the state Capitol, said it is important to the evolution of the state for counties to have more responsibility and authority.

"This has been an intense process at times but a good one," Lingle said. "Perhaps a new experience for all of us to be able to reach such an important compromise on an important issue that will affect so many people."

Tax and rail opponents said they would now target the City Council, which is scheduled to vote again next month on the tax. Honolulu has until the end of the year to approve the tax, which would not be collected until 2007.

"I'm disappointed with everyone who did this today. We're in tax hell and this was a deal with the devil," said Senate Minority Leader Fred Hemmings, R-25th (Kailua, Waimanalo, Hawai'i Kai). "I think we've got to fight it. This is a disaster."

Cliff Slater, among the most prominent rail opponents, said he was both surprised and a little puzzled by Lingle's role.

"We've got Republicans raising taxes, so I just don't know what to do," he said. "It's all very strange to me."

Counties will be able to add a 0.5 percent surcharge to the state's 4 percent general excise tax to pay for transportation projects. The tax, charged on most goods and services, will raise an estimated $150 million a year for 15 years. A local tax, according to the state's congressional delegation, is key for Honolulu to qualify for federal money for a rail project.

Honolulu had sought a 1 percent surcharge — or $300 million a year — initially. Questions remain about whether the money will be enough to pay for what Hannemann envisions as a rail line that could extend from Kapolei to the University of Hawai'i-Manoa.

Senate President Robert Bunda, D-22nd (N. Shore, Wahiawa), said the agreement was a relief for Leeward and Central drivers who, like him, are "in gridlock every morning and in the afternoon."

House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo, Wilhelmina Rise), said: "Rail transit is the largest, most important public works project in our lifetime."

Hannemann and others have described the tax option as the last chance for rail. Lingle announced her intention to veto the bill on Friday, just hours after the mayor and House and Senate leaders had sent letters to the governor they thought would meet her concerns. The deal came after an edgy and occasionally frantic three days of talks when it appeared that hopes for a rail project were all but dead.

Trade union activists, who see an economic benefit in rail, approached lawmakers in what one aide described as a "full-court press."

Others were impressed that Hannemann, who still has concerns about the cost of collecting the tax, was so willing to bend if it meant saving the bill.

The breakthrough came at a private meeting around noon yesterday between Hannemann, Bunda, Say, Bob Awana — the governor's chief of staff — and Linda Smith — Lingle's senior policy adviser. The governor's staff indicated that Lingle was looking for a much stronger commitment from lawmakers in writing that they would change the law next year.

Although they could make no guarantees, Bunda and Say agreed on a new letter, promising to personally introduce the revisions to the law and to ask other lawmakers for their support. Awana and Smith took the letter to Lingle, who lifted her veto threat.

Had the deal collapsed, the House and Senate likely would have refused to accept a veto because of a clerical error in Lingle's initial veto warning, which possibly would have thrown the issue into the courts. Bunda also believed he had enough votes in the Senate for a veto override, while Say, who did not have a veto-proof majority when the House voted for the bill in May, was not ready to ask his troops to change their votes. Hannemann, however, was preparing for an override push in the House and it appeared momentum may have been building.

"The story of Lazarus was written for the Hawai'i state Legislature," said U.S. Rep. Neil Abercrombie, who said the tax would put Honolulu in a better position when competing for federal transit money. "I think the mayor has done a masterful political job here. He understood what was at stake. He understood the players. And he understood what motivated them."

Union construction workers, still dressed in work clothes, came to the Capitol to protest a veto yesterday afternoon but wound up applauding the governor, who stopped to shake hands. Business leaders were more divided, with the Chamber of Commerce of Hawai'i supporting the transit tax and Realtors, retail merchants and many smaller businesses opposed.

"There seems to be a kind of silent majority out there that says, 'We really need to do something,' and if this is the way we do it, this is the way we're going to have to do it," said Jim Tollefson, the chamber's president.

Lingle may hear from anti-tax conservatives who feel betrayed even though it is Honolulu that will ultimately decide whether to impose the tax. The governor has consistently favored "home rule" for counties and believes many policy decisions need to be made at the local level.

"Conservatives historically have always supported home rule," Lingle said. "There are some people who don't want to view that aspect of this bill, but that's been a driving force for me from the beginning."

The compromise may have political value for everyone involved if the public views the tax as necessary to reduce traffic congestion. But it is also likely that such a massive project, if it moves forward, will have many problems along the way that could test public patience.

"I was hoping that people wouldn't lose faith and trust in government," Honolulu City Councilman Nestor Garcia said of the past few weeks of doubt. "People hope that politicians can set aside their differences and work toward the common good."