Bailing out the Honolulu rail project

John Pritchett

Today from Honolulu's Civil Beat on the rail project bailout:

...That’s the number the Legislature used when crafting the bailout, said Sen. Donovan Dela Cruz, the chairman of the Senate Ways and Means Committee. Based on that figure, the Legislature’s $2.4 billion package would be more than enough to pay for the project, Dela Cruz said in an interview.

House Speaker Scott Saiki agreed.

“HART’s report makes clear that the cost is $8.165 billion,” Saiki said. “And the $8.165 includes contingency costs.”

But now the city says it needs about $8.7 billion. And lawmakers are accusing [Honolulu Mayor]Caldwell of padding the tab.

On Friday, Caldwell issued a news release saying HART needed $3 billion. He said Oahu taxpayers would have to make up any shortfall---up to $1 billion, the mayor estimated---with property taxes. Despite the Legislature’s announced plan, Caldwell’s statement assumed the bailout would be financed entirely with general excise taxes.

“The shortfall is $3 billion, of which $1.5 billion of the shortfall is construction costs, and the remainder is in financing costs,” Caldwell wrote.

Caldwell has long called for Oahu taxpayers to foot the bill for rail with a GET increase. So Friday’s news release was nothing new.

But it seemed out of touch with the discussions over the past two weeks---not just the bailout proposal, but also statements made by key legislators weeks ago, in public, to Caldwell and his staff.

On Aug. 14, during an all-day briefing at the State Capitol, lawmakers rejected Caldwell’s repeated call to pay for the rail by extending the half-percent GET surcharge in perpetuity, instead offering to give it a three-year extension. The surcharge is set to expire in 2027.

Dela Cruz and his powerful House counterpart, House Finance Committee Chair Sylvia Luke, both pointed out that the GET extension would cost Honolulu taxpayers $1.5 billion in interest and other financing fees. In other words, half of the $3 billion paid by taxpayers would go to banks, not the rail.

That’s because under Caldwell’s preferred plan, HART would have to borrow money to pay costs now and pay off the loans, with interest, from revenue that won’t start coming in until 2028.

By creating a new source of revenue immediately, like a new hotel room tax, taxpayers could save as much as $1 billion in interest, Luke said.

“A billion dollars is nothing to laugh at,” Luke said during the briefing.

Caldwell left the briefing early and didn’t hear all of the legislators’ remarks, but his chief of staff, Gary Kurokawa, was there to face blistering criticism from lawmakers, who made clear they were not inclined to fund rail with the general excise tax.

Since then, lawmakers have been circulating an analysis from the Department of Budget and Finance showing the project will save about $208 million in financing costs by relying on the hotel room tax rather than completely on the general excise tax.

A slide from a Department of Budget and Finance presentation shows the state will save about $208 million in financing costs by relying on the hotel room, or TAT tax.

In an interview Saturday, Dela Cruz said it would be irresponsible to spend hundreds of millions of dollars on interest payments when the state faces major liabilities for items such as the state employee health and retirement funds.

“We have too much of our own liability,” he said. “There’s no way.”

While the Legislature’s plan to extend the GET surcharge by three years estimates the extension will raise about $1.046 billion, Dela Cruz said that number is conservative.

Hawaii Department of Budget and Finance based its estimate on a general excise growth rate of 3 percent. That compares to a 4.6 percent growth rate HART predicted in its submission to the FTA.

“The fact is he’ll get a windfall if his numbers actualize,” Dela Cruz said of Caldwell.

Still, there has been no shortage of drama between the mayor and his fellow politicians.

Caldwell and Kurokawa met privately with legislative leaders last week to discuss a deal. U.S. Sen. Brian Schatz and Congresswoman Colleen Hanabusa, the former chairwoman of HART, were also there. It ended with Caldwell storming out.

The Honolulu Star-Advertiser reported Caldwell was upset with the tone of the meeting, which apparently included a criticism of his leadership and honesty. He also told the newspaper that it appeared that at least one lawmaker, who he declined to name, was drunk during the meeting.

Sen. President Ron Kouchi admitted that tensions were high in the room, but he told Civil Beat that as far as he was aware no one had been drinking, as the mayor alleged. Kouchi refused to disclose who was involved in the negotiations, saying that he didn’t want to go “tit-for-tat” with Caldwell in the press.

“The discussion got a little passionate and the mayor chose to leave,” Kouchi said. “That’s my take on the whole thing. But we were hoping to work together.”

Regardless, it appears Honolulu’s mayor has a credibility problem with his counterparts.

“Colleen Hanabusa summed it up best when she said it looks like the mayor is trying to cover for something,” House Speaker Saiki said.

Caldwell’s spokesman did not return calls seeking comment for this story.

In addition to the three-year general excise tax extension, the proposal would raise Hawaii’s hotel room tax by 1 percentage point, from 9.25 percent to 10.25 percent, for 13 years. The industry says this is too much for an already highly taxed industry...

See Another dumb rail project in trouble and Honolulu traffic.com