City Must Find $160 Million To Pay For Rail Agency’s Employees
Those costs had been covered by general excise tax revenue, but the legislative bailout requires that money to be used only for construction.
When Hawaii legislators聽passed a $2.4 billion bailout package for the Honolulu rail project in late August, included a caveat: the city could use the additional money for rail construction, but would have to find other funds to pay for administrative costs.
That鈥檚 left Honolulu taxpayers responsible for an estimated $160 million to pay for the operating budget from 2019 to 2026, when HART expects to wrap up construction.
The agency spends most of its operating budget on salaries and benefits for its 125 employees.
Six of Honolulu鈥檚 nine City Council members met Tuesday to discuss聽HART鈥檚 plan for building the 20-mile rail line from Kapolei to Ala Moana, but the city’s new $160 million expense dominated the conversation.
鈥淲e have a lot of work still cut out for us,鈥 said Councilman Joey Manahan.
Revenue from Oahu鈥檚 0.5 percent general excise tax surcharge, which the Legislature recently extended from 2027 to 2030 in the bailout bill, previously paid for administrative costs.
Councilwoman Kymberly Pine said now the money would likely have to come from property taxes, the city鈥檚 largest source of revenue.
鈥淚t鈥檚 very disappointing because the taxpayers said they did not want property taxes to be used for any part of the construction process for rail,鈥 she said. 鈥淭he state Legislature is basically forcing us to.鈥
In September the Legislature held a special session to pass the bailout bill. It is projected to raise about $2.4 billion over 13 years, roughly $1.046 billion from a 0.5 percent general excise tax charged on Oahu taxpayers and $1.3 billion from hotel guests statewide via a 1 percentage point increase in the hotel room tax.
The bill extends by three years the 0.5 percent general excise tax and increases the hotel room tax to 10.25 percent from 9.25 percent for 13 years.
In anticipation of the session, the City Council unanimously passed , restricting the use of revenues from the GET and TAT taxes to rail construction costs — a requirement of the Legislature’s bill. Councilman Trevor Ozawa was absent for the vote. 聽
The new expense isn’t a surprise, but some council members expressed frustration at Tuesday’s meeting.
City Budget Director Nelson Koyanagi said HART 鈥渟hould have sufficient cash鈥 from other revenue sources to cover its for the current 2018 Fiscal Year, meaning the city won鈥檛 have to search its own pocketbook for HART administrative expenses until FY 2019.聽
In its recovery plan, HART estimates its administrative costs will rise to $24 million in FY 2019.
Koyanagi said that instead of increasing taxes or eliminating city services to pay for the new expense, the city could use issue more bonds. He added that issuing bonds would increase the amount of interest the city ultimately owes.
鈥淚t would increase the cost, but it would spread it out so it鈥檒l be more affordable on a year-to-year basis,鈥 he said.
That concerned Councilwoman Ann Kobayashi.
鈥淚t really worries me that we鈥檙e having to float bonds to pay for operating costs,鈥 she said. 鈥淚t鈥檚 unheard of, and I really worry about that.鈥
In June the council approved that issued up to $350 million in bonds聽to聽ensure construction of the rail project can continue through June 2018.
Both construction and administrative costs are expected to peak in the next four years as HART works its way through the urban core toward Ala Moana, said Robert Yu, the agency’s chief financial officer.
HART鈥檚 most recent recovery plan puts a $9.02 billion estimated price tag on the rail project, $8.165 billion in construction costs and an estimated $858 million in financing costs.
In addition to the $160 million the city must pay for HART administrative costs, the state’s bailout leaves the city $54 million short on completing the project, Koyanagi said.
Unless state or private funds become available,聽鈥渢he city would probably have to pick up that additional $54 million,” he said.
Manahan said the money wouldn’t be needed until the final years of the project, when he expects the city will pay $9 to $10 million each year to cover the $54 million.
“We anticipated there would be some kind of a shortfall, we’d been talking about it,” Manahan said. “We didn’t know how much it would be. It is what it is, I guess.”
