The state collected nearly $500 per household in extra taxes last year to support a planned mass-transit system linking Kapolei to Ala Moana.

Groundbreaking on a $3.7 billion mass-transit system linking Kapolei to Ala Moana Center could occur next year, with the first portion running as soon as 2012.

Honolulu residents and visitors already are helping to pay for the system via a half-percentage-point surcharge levied on nearly all O'ahu transactions starting last January.

Through December, that surcharge raised an estimated $148.5 million, according to the state tax department. That equates to an average of $496 per O'ahu household, based on population statistics from the U.S. Census Bureau. However, the figure includes money spent by visitors, who account for about 30 percent of the state's economic activity, so not every household paid $500.

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

Regardless of which numbers are correct, it's clear the tax has added up to hundreds of dollars a year for O'ahu families.

The hit comes as families face stiff increases in the cost of living and a sluggish economy.

"We see it as an additional burden on the economy at a time when we really don't need it," said Lowell Kalapa, president of the nonprofit Tax Foundation of Hawai'i.

The tax foundation estimates that Honolulu households already pay $3,600 in general excise taxes annually apart from the transit tax.

Overall, more than $2 billion of the money needed to support the mass transit project is expected to come from taxpayers in Honolulu. Project proponents contend the money is a long-term investment that could help relieve congestion and traffic waits and lead to economic development for outlying communities.

"This is more than just a traffic congestion issue, this is a quality of life issue," said Honolulu Mayor Mufi Hannemann during a state Legislature briefing yesterday. "Around rail stations, good things can happen — affordable housing, commercial, retail (development), park space, bike lanes, walk lanes, (and) livable communities."

CRITICAL DECISION DUE

The council agreed last year to plan a "fixed guideway" system that calls for some form of train. A firm decision on the type of vehicle must be made before an environmental impact statement for the project can be completed and allow construction to begin. Hannemann hopes to break ground on the project in 2009, with the first segment starting service between East Kapolei and Waipahu in 2012.

The initial 20-mile system will have about 20 transit stations between East Kapolei and Ala Moana. A more than $1 billion add-on could extend the system from west Kapolei to the University of Hawai'i-Manoa.

The state and city of Honolulu started raising money for the project last January 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.

While Hawai'i's excise tax seems relatively low, the tax is applied to a broad range of goods and services and is assessed on all levels of transactions. So in addition to consumers paying the tax at the register, stores pay the tax — albeit at a lower rate — when they buy inventory from wholesalers, and wholesalers when they buy from manufacturers. The tax for these transactions is 0.5 percent.

Because the tax is due on every transaction, it is often said to "pyramid."

"It has a domino effect on increasing the cost of goods and services in Hawai'i," Kalapa said. "It's cascading again and again and again."

In addition, the $500 the state collected per household last year will likely increase next year. That's because transit taxes are collected and allocated on a two-month lagging basis.

As a result, last year's $148.5 million in tax collections accounted for only about 10 months of revenue. This year total transit tax collections could reach $174 million.

Reach Sean Hao at shao@honoluluadvertiser.com.