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The Honolulu Advertiser
Posted on: Wednesday, February 4, 2009

State on thin ice in tapping transit tax

By David Shapiro

The state seems to be clinging to the idea of siphoning the O'ahu rail transit tax to balance its budget, despite a lukewarm public response and Mayor Mufi Hannemann's assertion that the idea is "harebrained."

The transit tax is a half-cent add-on to the state's 4-percent general excise tax that is paid by O'ahu residents only to raise the local share of the $5.3 billion commuter train from Kapolei to Honolulu.

The tax, which the Legislature authorized the city to assess for 15 years, is currently bringing in about $165 million a year, with the state already skimming 10 percent to cover nonexistent collection costs.

Under proposals being floated in budget talks between the Lingle administration and the Legislature, the transit money would be transferred to the state general fund for a year or two to help relieve a $1.8 billion budget deficit over the next two years.

The tax would be extended a like number of years on the back end of its 15-year authorization to make up the city's losses.

Hannemann and some City Council members strongly object, saying the diversion could delay rail and undermine the city's application for $1 billion in federal funds.

The strongest public defense of siphoning the tax came over the weekend in a letter to the editor from deputy state budget director Robert Piper, who said the transfer is possible because the city already has enough in the bank about $300 million to cover the current planning and design phase of rail.

"We must be willing to rationally discuss advantages and impacts of all ideas under consideration, and resist the urge to dismiss ideas without first listening to and understanding the reasons these options are being considered," Piper said.

Fair enough, but if they want to keep all options on the table, how about putting a specific proposal on the table so we can see all the ramifications and have the rational discussion he suggests?

The transit tax was levied by the City Council, not the Legislature, and the money belongs to the city.

Can the state legally transfer a city tax raised for a dedicated purpose to the state general fund for another purpose? The state Supreme Court struck down the Legislature's transfer of insurance assessments to the general fund.

The bigger issue is fairness. If a tax paid by O'ahu residents only is siphoned by the state, Oahuans would effectively be taxed at a rate of 4.5 percent for the same state services that residents of other counties get for a tax rate of 4 percent.

Talk about inviting a tax-discrimination lawsuit by unhappy O'ahu taxpayers not to mention a political backlash against O'ahu lawmakers who let their constituents bear a disproportionate burden in balancing the state budget.

The state can't brush off the city's legitimate concern about disrupting the transit project and running up its cost.

If a tax that was sold as being dedicated to transit is raided this early in the game, what's to prevent it from being raided again and again? How can we effectively manage our biggest public works project ever under such chaotic circumstances?

The state's collection fee is already running up the project cost by 10 percent, and extending the tax by a year or two would inflate the end cost of transit to O'ahu taxpayers by another 10 percent or more.

Add the fact that the current rate of transit tax collections won't come close to covering the $4 billion-plus local share at the end of 15 years, and we have cause for serious taxpayer alarm.

David Shapiro, a veteran Hawai'i journalist, can be reached by e-mail at dave@volcanicash.net. His columns are archived at www.volcanicash.net. Read his daily blog at blogs.honoluluadvertiser.com.