HILO — A $2.4 billion Honolulu rail bailout bill clipped quickly down the fast track Wednesday, easily clearing the Senate and its only House committees midway through a week-long special session.
The full House is expected to hear the bill on second reading today, with a final vote slated for Friday. The bill then goes to the governor.
Senate Bill 4 levies a statewide 1 percent increase on the 9.25 percent transient accommodations tax — popularly called the “hotel tax” — dedicated to Honolulu rail while setting the share of the TAT to be divided by the counties at $103 million permanently.
That’s an increase in TAT of $2 million for Hawaii County over last year, but about $20 million less than what the county got before the counties’ share was temporarily capped during the Great Recession and never returned to prior percentages. The county raised property taxes and gas taxes this year to make up the slack.
Proponents said it’s financially essential that transient rentals and hotels from all islands bear the tax hike to help rescue the over-budget rail project. Opponents warned that setting a precedent of levying taxes on all islands for a local project on one island is fundamentally unfair and could lead to legal trouble.
A joint session of the House Finance and Transportation committees advanced the bill to the House floor.
Rep. Nicole Lowen, D-Kona, voted no, while Joy San Buenaventura, D-Puna, voted yes, with reservations.
“It feels like there’s no good choices,” Lowen said.
The two are the only two Big Island representatives on the committees.
Lowen had concerns about the TAT increase, but she said the alternative of extending Honolulu’s half percent general excise tax surcharge 10 years, compared to three in the bill, also hits neighbor islanders.
“There’s some part of that surcharge that gets included in the cost of goods,” Lowen said. “Anytime any neighbor islander orders anything online, they’re paying the surcharge.”
In fact, she added, all goods that come through Honolulu before continuing on to the neighbor islands get taxed first in Honolulu.
The committee hearing evolved into a discussion of the original purpose of the TAT to offset costs tourists add to county governments when they use police and fire services and parks, and how those costs continue to rise while the county share of the TAT decreases and the state takes a greater share.
For every 1 percent increase in the TAT, the Big Island could lose $9 million in visitor spending and 77 jobs, according to an analysis by the state Department of Business, Economic Development and Tourism.
Hawaii County Council Chairwoman Valerie Poindexter, one of about a half dozen county officials testifying, told the committees how tourism has taken up the economic slack after the sugar industry left the island.
“Our visitors are already being taxed for county services through the TAT and our counties are not receiving that much back,” Poindexter said.
Poindexter questioned the haste the bill is going through the process.
“We have not vetted this bill properly,” Poindexter said. “We haven’t given it to the people to understand.”
“I am getting a lot of pressure … advocating for this bill to fail,” added San Buenaventura.
Rep. Matthew LoPresti, an Oahu Democrat, pushed neighbor island officials on whether they think the state should return to the counties only what they raise on their own islands. They’d end up with a lot less money, he told them. He berated several for what he called misinformation being spread on the neighbor islands about how the TAT hike will affect them.
“A lot of us are being thrown under the bus by your spreading misinformation,” LoPresti said.
The committees quizzed Honolulu Mayor Kirk Caldwell on the project financing. Not all were satisfied with his responses.
“Nobody trusts your figures,” San Buenaventura told him.
Rep. Sean Quinlan, an Oahu Democrat, asked Caldwell how he felt about having the neighbor islands help shoulder the burden.
“I’m troubled by it,” said Caldwell, adding he grew up on the Big Island. “I tend to be sympathetic to the issues of the neighbor islands.”
Still, he added, Oahu, with 75-80 percent of the population, is the economic center of the state.
“The state rises and falls by what happens on this island,” Caldwell said.
The full Senate passed the bill on a 16-9 vote earlier Wednesday.
Voting no were all four Big Island senators, two of Maui’s three senators and three Oahu senators. Kauai’s lone senator, Senate President Ron Kouchi, voted yes.
Among the supporters was Sen. Jill Tokuda, an Oahu Democrat who was ousted as chairwoman from the Senate Ways and Means Committee after House-Senate negotiations on rail broke down at the end of the regular session. She acknowledged she might be an unusual advocate of the bill, but said taxing tourists visiting all the islands was a better choice than continuing the GET on Oahu residents buying life’s necessities.
“We have in the past and we will in the future have to rally and support our sisters in the neighbor islands,” Tokuda said.
Sen. Will Espero, an Oahu Democrat, agreed.
“When Oahu and Honolulu do well, the neighbor islands do well,” Espero said. “We help each other. That’s what we do as a state.”
Sen. Josh Green, D-Kona, said he supports rail but worries that all the state’s other problems will go unmet.
“Funding it should not come at the cost of neglecting all the other needs of Hawaii families” Green said. “Ask yourself how many times in the last ten years we’ve needed to solve other major challenges in Hawaii, but couldn’t even consider GET increases to address them because we’d already raised taxes and mortgaged our future?”
Sen. Gil Riviere, an Oahu Democrat, agreed with Green, calling the rail project a “black hole sucking in all the priorities.”
”We’re just throwing good money after bad,” Riviere said.
The bill also gives neighbor islands the option of raising their general excise tax by one-half percent to be used for roads, while extending Honolulu’s current half-percent general excise tax for three years. And, it reduces how much the state takes as administrative fees and requires an audit and more oversight for the rail project.
The rail project, estimated to be 40 percent built, has seen costs almost double from $5.26 billion in late 2014 to nearly $10 billion, including financing costs. The city has a Sept. 15 deadline to present a financing plan to the Federal Transit Administration, which could require the city to return more than $800 million already spent of a total $1.5 billion in promised federal dollars.
