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The Honolulu Advertiser
Posted on: Friday, July 10, 2009

Transit tax behind schedule


By Sean Hao
Advertiser Staff Writer

Honolulu transit tax collections fell about 5 percent to an estimated $160.9 million in the past 12 months as the local economy weakened. Collections had been expected to rise 11 percent to $188 million but wound up $27.1 million lower than forecast.

The shortfall in transit tax collections are minimal when compared with the project's overall cost of $5.4 billion. However, the city expected transit tax collections to rise every year for 15 years. Economists believe Hawai'i's economy will struggle for at least the next year or two.

"I just think it's going to get worse," said Lowell Kalapa, director of the Tax Foundation of Hawai'i. "We're seeing the slide get steeper as people tighten up their spending, so I think it will have a substantial impact (on tax collections) moving forward."

The city needs to collect an inflation-adjusted $4.1 billion by Dec. 31, 2022, according to financial plans. Those tax collections, which began in January 2007, combined with $1.4 billion in federal grants, will be used to build a 20-mile elevated commuter train from East Kapolei to Ala Moana.

So far, the tax has raised about $378 million during the first 30 months, based on figures provided by the state Department of Taxation. That figure, and all figures in this article, do not include the 10 percent the state takes off the top to pay for administering the tax, a half-percent surcharge on top of the 4 percent state excise tax.

The shortfall in revenues shouldn't prevent construction from beginning in December, City Council Chairman Todd Apo said.

"I don't think that anyone could have expected that the year by year, month by month (tax collection) estimates were exactly going to match up," he said. "But we realize it's behind the current expectations. We obviously need to keep a very careful eye on it, but I don't think it's reached the point of being an emergency that would cause us to say this project no longer works financially."

The city wants to begin construction in December, contingent on federal approval, and launch service in phases between late 2013 and 2019.

City transportation director Wayne Yoshioka said the economic downturn could benefit the project by reducing construction costs.

"Because of the current depressed economy, a lot of the bids that are coming in on a lot of our other projects are about 20 to 30 percent lower than in the recent past," Yoshioka said. "So it works two ways.

"If tax collections are down, then so are the costs to us — they're down as well."

The city expects any near-term revenue shortfall to be offset by higher collections in the future. Additionally, the project's price tag includes $1 billion to cover contingencies, which could cover all or part of any revenue shortfall.

Just how accurate the city's transit tax forecasts are remains to be seen. During the 2009-2010 fiscal year, which began July 1, the city anticipates transit tax revenue growing to an inflation-adjusted $198 million, an average of $16.5 million a month. However, during the past 12 months transit tax collections averaged just $13.4 million a month. In June, transit tax collections were $14.2 million, down 15 percent from June 2008.

Local economists don't expect any meaningful rebound in the economy until 2011. That could make it difficult for the city to make up lost transit tax collections.

"There's going to be some lost revenues during this time period and maybe they're not reflecting that in their estimates," University of Hawai'i economist Byron Gangnes said. "Of course, there's the possibility that you're going to get somewhat stronger growth in revenues as the economy recovers, but that assumes that we're going to get a significant recovery and, right now, we're not expecting a strong recovery.

"This is a particularly deep downturn and we're not expecting a strong recovery, so it's going to be hard to make up lost ground."

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