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The Honolulu Advertiser
Posted on: Saturday, January 23, 2010

Honolulu sales-tax surcharge for rail has brought in $510M so far

By Sean Hao
Advertiser Staff Writer

A state tax to pay for Honolulu's planned elevated commuter train raised $510 million during its first three years.

The amount equates to an average cost of $1,523 per O'ahu household. However, that figure includes money spent by visitors, who account for about 25 percent of the state's economic activity.

The half-percentage point excise tax is the main funding source for Honolulu's rail project. It raised $179.2 million last year, which was down about 2 percent from the prior year, according to the state Department of Taxation.

While the revenue generated is less than originally forecast, it should still be enough to pay for the planned train's inflation-adjusted price of about $5.3 billion, according to the city.

Overall, the city expects to raise an inflation-adjusted $3.52 billion before the tax sunsets in 2022. The city expects the federal government to contribute another $1.55 billion to help build the 20-mile project from East Kapolei to Ala Moana. The city also plans to divert about $300 million in federal money intended for TheBus to help pay for the rail.

City officials estimate the tax surcharge adds about $365 to household bills, or $1 a day. The nonprofit Tax Foundation of Hawai'i estimates the average household cost at about $450 annually.

Construction on the train was supposed to start last month, but has been delayed by an ongoing review by federal agencies.

During December, net transit tax collections hit $15 million, which was up 27 percent from December 2008. Collections have rebounded sharply in recent months after falling when the economy slowed last year. Through the first six months of fiscal year 2010, which began in July, collections were essentially flat, with the prior-year period at $80 million.

That puts the city on track to raise a revised transit tax target of $164 million during fiscal 2010.

The city had initially projected raising $198 million during the current fiscal year; however, that forecast was reduced last year when a slowing economy took a toll on transit tax collections.

Both the state and Federal Transit Administration have raised concerns about whether the city can afford the train.

However, Honolulu Mayor Mufi Hannemann, who was in Washington, D.C., this week, said federal officials continue to work with the city on revised financial plans.

"The bottom line is that the FTA and the DOT (U.S. Department of Transportation ) see nothing at this point to stop our project from continuing to go forward," Hannemann said in a statement from Washington. "The FTA and DOT are committed to continue working with the city to help make rail transit a reality for Honolulu."

According to a revised financial plan, the city expects to offset lower-than-anticipated transit tax revenues by relying on increased federal funding and by diverting $305 million in federal money intended for TheBus. City officials also hope that lower tax revenues will be partially offset by lower construction costs.

The state and city of Honolulu started raising money for the project in January 2007 in the form of an increase in the state's general excise tax on O'ahu from a maximum of 4.166 percent to 4.712 percent. During its first year, 2007, the tax raised $148.5 million, followed by $182.3 million in 2008 and $179.2 million last year.

Those figures are the total amount collected by the state. The state then took a 10 percent administrative fee, which left the city with a net $459 million during the first three years.

Lowell Kalapa, president of the nonprofit Tax Foundation of Hawaii, said the transit tax likely will be a target of some state lawmakers seeking to balance the state's budget. Other alternatives being considered include the state retaining the county's portion of tourism accommodation taxes and raising excise taxes.

Last year, the Legislature considered but rejected a proposal to extend the transit tax by two years, but temporarily redirect transit taxes to the state. Hannemann opposed such a move, saying it would send the wrong signal to federal officials and could jeopardize the project.

That proposal could be revived, particularly if the transit project appears to be bogged down.

"If they're not getting under way, then maybe that might be a good use for the surcharge ," Kalapa said.

"This is a dicey situation. How sincere were (lawmakers) really about this?" Kalapa asked. "When things were hunky dory, they said, 'Oh yeah, we can give you that.'

"But things aren't so hunky dory."

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