LEGISLATURE REACHES RAIL FUNDING BILL AGREEMENT FOR SPECIAL SESSION

Bill extends GET support on Oahu, raises TAT one percent, provides needed accountability

In order to provide the City and County of Honolulu with the funding to complete its $8.2 billion rail project House and Senate Committee Chairs have drafted a bill to be considered during a special legislative session next week.

The proposed bill will:

·         Extend the general excise tax surcharge on Oahu for three additional years, from December 31, 2027 through December 31, 2030. This will provide $1.046 billion.

·         Raise the hotel room tax charged to visitors (Transient Accommodation Tax) by one percent from 9.25 percent to 10.25 percent for 13 years, from January 1, 2018 to December 31, 2030. This also applies to timeshares. This will provide $1.326 billion.

·         The current method of collecting the hotel room tax remains the same. It is collected statewide and goes directly into the general fund, not to the island where it is collected. Each county receives a specified amount of the tax regardless of total amounts collected. Raising the tax does not change that amount.

·         Permanently increase the counties’ share of the TAT from its current $93 million base to $103 million.

·         Reduce the State Department of Taxation’s administrative fee on the GET surcharge from 10 percent to one percent.

·         Require a state run audit of the rail project and annual financial reviews.

The bill also provides that funds collected for rail go into a new Mass Transit Special Fund and rather than simply give the money to the City, the State Comptroller will review and disburse the funds to the City for its costs as the project moves forward. This will allow the state to keep track of both spending and construction progress.

Currently, the GET surcharge is automatically transferred to the city on a quarterly basis without any oversight. This bill will change that practice to ensure accountability and transparency by having the Comptroller review and approve the expenses before the City and HART are reimbursed. It also establishes better internal control and ensures that waste and fraud does not occur.

This bill addresses the immediate rail construction shortfall by collecting funds upfront through a modest TAT increase instead of adding additional years of GET surcharge on the back end. This will likely reduce the financing costs of the project by hundreds of millions of dollars.

A rail bill that relies solely on GET will continue to tax the poor and increase the cost to taxpayers in the long term. By including the TAT, visitors will now bear a significant portion of the financing burden.

Having these two funding sources for the City and County’s rail project also provides greater security for the project in case either the GET or TAT does not perform as expected.

House Speaker Scott K. Saiki (Kakaako, Downtown) said the $2.378 billion funding shortfall package will fund the rail project through Ala Moana and will not jeopardize the $1.55 billion in federal funding.

“By working with our colleagues in the Senate, the Legislature has come up with a concrete plan to fund the rail project that will reduce the overall costs while shifting some of the regressive tax burden away from our residents, who are struggling to make ends meet,” Saiki said. “This plan will not have a direct impact on neighbor island county budgets.

“We have taken a long look at the rail project and have heard the concerns of residents during our joint public hearing on rail funding this month. This is a critical infrastructure project for Hawaii. We are not giving the City a blank check but instead insisting on audits and financial reviews and expenditures to provide complete transparency for our taxpayers.”

Senate President Ron Kouchi (D, Kauai-Niihau) said, "I want to thank my colleagues and their respective staffs for all of their efforts in developing this proposed compromise draft bill that includes a permanent increase in the counties' share of the TAT from its current $93 million base to $103 million.  I am hopeful that this compromise legislation will satisfy the FTA's construction cost concerns as testified to numerous times by the City and County of Honolulu.