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The Honolulu Advertiser
Posted on: Wednesday, March 15, 2006

Collection surcharge looms as another tax

By David Shapiro

Lost in the political tiff over who will collect the new excise tax for O'ahu rail transit is the more important matter of rectifying a $15 million-a-year gouging O'ahuans will suffer if this law isn't fixed.

Gov. Linda Lingle, Mayor Mufi Hannemann and the Legislature are arguing about whether it should be the city's responsibility to collect its own tax, as Lingle wants, or the state's role, as Hannemann and the Legislature prefer.

There's little talk about a 10 percent state kickback lawmakers extracted when they approved a half-cent excise tax for O'ahu transit on top of the 4 cents the state already assesses.

The superfluous surcharge was supposed to disappear as part of the deal Lingle reached with legislators and Hannemann last year to allow the transit tax to become law in exchange for promises that her concerns about how the tax is collected would be addressed this year.

But lawmakers discarded bills to enact the agreement before the legislative session was half over.

The dispute about whether the city or the state will collect the tax is mostly politics.

The greedy and ill-timed state surcharge, however, is of real consequence.

Legislators claimed the state needed to take 10 percent off the top of the transit tax to cover its "administrative costs" for collecting the city's excise tax revenues.

None of the money, however, was earmarked for the Department of Taxation, which would bear any administrative costs.

The surcharge all goes to the general fund with no defined purpose, making it a backdoor general tax increase that lawmakers can spend on pet projects unrelated to transit.

The transit tax, which takes effect next year, is expected to raise the city $150 million a year over its life of 15 years, which means the state's 10 percent vigorish would be $225 million over that period.

Some analysts predict that the city excise tax will ultimately have to double or even triple to yield enough cash to finish the rail project potentially increasing the state's take to more than a half-billion dollars.

It's unconscionable for lawmakers to stick taxpayers with a gratuitous tax surcharge of such magnitude when the state is running a budget surplus likely to exceed $600 million next year and residents are already being battered by rising costs on all fronts.

And it's grossly irresponsible to increase the immense cost of building a rail line to Leeward O'ahu by 10 percent off the bat for no good public purpose.

Lawmakers are trying to cover their tracks by saying they'll now direct some of the surcharge money to the Tax Department, but it won't likely be anywhere near the total amount the state is collecting.

Tax Director Kurt Kawafuchi's preliminary estimate was that it would cost his department $13.6 million over four years to collect the excise tax for the city a fraction of the $60 million the state would reap from its surcharge during that time.

And Kawafuchi's cost estimate will probably prove to be high; how much could it cost to calculate the city's fixed share of gross O'ahu excise tax receipts and deliver a check across the street?

Public confidence in rail transit has been shaken by political bickering and allegations of cronyism in the award of the first transit contract.

Lingle, Hannemann and the Legislature need to sit down now to hammer out an agreement that eliminates the odious surcharge and satisfies all parties that faith has been kept with the deal struck last year.

We need assurances that the costliest public works project in O'ahu's history won't be used as cover for a massive siphoning of public money for other purposes.

David Shapiro, a veteran Hawai'i journalist, can be reached by e-mail at dave@volcanicash.net.