- Associated Press - Monday, August 28, 2017

HONOLULU (AP) - Officials at Honolulu’s cash-strapped $9.5 billion rail project are under pressure to deliver an adequate funding plan to the federal government. Hawaii lawmakers are meeting in a special legislative session to find a financial solution.

State senators introduced a bill Monday calling for a combination of tax hikes and increased oversight after holding private meetings over several months with leaders of the Hawaii House of Representatives.

If rail officials don’t present an adequate funding plan to the federal government by Sept. 15, they risk having to return more than $800 million already spent of a total $1.5 billion in promised federal dollars.

The bill would increase hotel room taxes statewide by 1 percentage point to 10.25 percent for 13 years and would extend a surcharge on the general excise tax - a business tax often passed to customers - on Oahu for three years. It also would give the state a role in reviewing rail spending by having the state comptroller and finance director review receipts before handing over money to rail officials, House Speaker Scott Saiki said.

“If rail is going to succeed in the long term, then the city needs to contain costs, and it needs to start doing that now,” Saiki said. “If rail exponentially goes over budget again, it will be very, very difficult for the Legislature to act upon a request for more funding.”

Honolulu Mayor Kirk Caldwell, however, says if the state plays a role in approving costs, that could put the project in legal jeopardy because the state wasn’t a part of the original funding agreement with the Federal Transit Administration.

He also says the $2.4 billion funding bill is not enough to close the funding gap, because it relies on aggressive growth in hotel tax revenues, relies on the city to make cuts to its budget, and does not include an estimated $548 million that would be necessary if the Federal Transit Administration puts the financial plan through a “stress test.”

But lawmakers crafted the funding package using numbers provided by the city, and based on those figures it will be enough, said Rep. Sylvia Luke, House Finance Committee chairwoman.

Discrepancies over the numbers could have been reduced if the city was involved in meetings to craft the bill, Caldwell said.

“I think it was somewhat constructed in a vacuum without a lot of input and I think a lot of these problems could have been avoided if we actually talked around the table to each other, instead of past each other, which is what’s been going on for eight months,” Caldwell said.

Tourism officials criticized the proposal to raise the hotel tax - officially called the transient accommodation tax (TAT) - saying if hotel prices are too expensive visitors will go elsewhere.

“We also believe the TAT has been used as a cash cow through the years, where more and more of that money is going for non-tourism purposes, and what’s to hold the state back from making this a permanent tax?” said Mufi Hannemann, president and CEO of the Hawaii Lodging and Tourism Association, which supports the rail project, but not the use of the hotel tax.

Saiki countered that whenever the hotel tax has been increased in the past, it has not affected tourism.

“These are very different times that we’re living on right now,” Hannemann said. “I don’t think you can just base it on what happened years ago. You have to base it on what’s going on today.”

Neighbor islanders also opposed increasing the hotel tax statewide, which would make visitors to their islands pay for a train on Oahu.

“An increase in the TAT on all counties is to me unfair,” Kauai Mayor Bernard Carvalho said.

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