Anatomy of Epic Fail on Rail

by Tom Yamachika, President, Tax Foundation Hawaii

In early May, on the day our Legislature adjourned, one of the newspapers summarized our Legislature’s work on the Honolulu transit surcharge extension as “Epic Fail on Rail.” With the Federal Highway Administration poised to pull out its $1.5 billion commitment if no funding solution is firmed up, our legislators need to get their collective act together if they want to help the project get back on track.

How did we get to be in this spot? This week, we’ll retrace Senate Bill 1183 and its tortuous history through our legislative labyrinth.

SB 1183, like its companion House Bill 1442, was a 6-page bill to extend permanently the current rail surcharge on general excise tax (GET). The bill also proposed to give an unspecified percentage of the surcharge proceeds to the state DOT (Department of Transportation). The other counties were given the option to adopt their own GET surcharge beginning in 2018.

The first committees to work on the bill, the Senate Committees on Transportation and Energy and Public Safety, Intergovernmental, and Military Affairs, came up with a 78-page monster containing two parts, one that would extend the surcharge permanently and another that would extend it to the year 2032. (Yes, these conflict with each other.) Other sections of the bill would establish a tax credit for low-income taxpayers; raise the base GET rate to 4.5% for everyone (the surcharge would be on top of that); and contained a pages-long laundry list of mandates to the City. At the time, the Senate Transportation Chair explained that she wanted to keep all options open.

The Senate Ways & Means Committee took a very different tack. Its 10-page version basically said, “We’ll take away the State’s 10% skim off the surcharge, but no extension; you’re on your own.” That draft unanimously passed the full Senate and went over to the House.

There, the House Transportation Committee kept the bill alive by putting blanks in it – its draft extended the tax to an unspecified date, reinstated the skim but replaced the percentage with a blank percent to recover the State’s costs and a blank percent that would go the DOT for State highway projects.

The House Finance Committee then filled in the blanks, extending the tax for two years, and dropping the skim to 1%, none of which would be earmarked for the DOT.

This version went to the Conference Committee, and then surprising things started happening. First, the Senate proposed a new draft, radically different from the version that passed the Senate, which extended the surcharge for ten years and raised the skim to 20%. The House came back with a draft that left the GET surcharge untouched, dropped the skim to 1%, and raised the hotel room tax from 9.25% to a hefty 12%. The latter proposal, though innovative, caught the hotel industry unaware, prompting vigorous objections. Then-Senate money chair Tokuda agreed to that version with tweaks a few hours later, thereby making the Final Decking deadline.

After frantic meetings through the weekend, the money chairs, apparently with some members of the hotel industry, reached a compromise involving a shorter GET extension and a lower TAT hike. Amendments were introduced on the chamber floors to implement the “agreement,” although another version with only a GET extension and no TAT increase, which Mayor Caldwell supported, was circulating in the Senate. The House passed one version and jettisoned its Speaker, while the Senate adopted the other version and deposed Chair Tokuda. With no agreement between the chambers, neither version can be enacted. That is where we are now.

We now seem to have a bunch of rudderless ships in the harbor banging into each other. Could the Governor have brought both sides together? Was Senate President Kouchi capable of herding the 25 senators? And how about former Speaker Souki, new Speaker Saiki, or House money chair Luke? To what or whom should we be looking for leadership to get us out of this mess?