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Zip in Mass Transit Tax Could Have Left Taxpayer Holding the Bag

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By Lowell L. Kalapa

Next year will mark ten years since state lawmakers approved legislation authorizing the counties to impose an additional rate on the general excise tax to fund the mass transit proposal for the City & County of Honolulu.

That legislation also allowed the Neighbor Island counties to impose an additional rate for the purpose of funding a mass transportation system, for county infrastructure or park needs. While the focus was on Oahu where the multimillion dollar fixed rail system was the primary beneficiary, some Neighbor Island counties seriously considered adopting the added tax rate.

Fortunately, none of the counties adopted the additional rate and as history now tells us, the mass transit proposal went down the tubes in Honolulu. The defeat of the proposal engendered a lot of bitter feelings especially from the construction industry which had been banking on the Honolulu mass transit project to provide for jobs for their employees for years to come.

For those elected officials who made the hard decision to vote the tax increase down, life has not been a bed of roses as supporters of the mass transit project have taken their anger out on those officials. But are they justified from a taxpayer’s point of view?

If elected officials had listened to the consultants who made the projections of tax revenues to be realized from the increased general excise tax rate, both they and the taxpayers would be crying in their beers by now. Based on the latest forecasts made by the state Council on Revenues and the track record of the general excise tax over the past seven years, the added tax rate would have generated $343 million less than was anticipated by the supporters of the tax increase and the rail project.

Knowing that the general excise tax increase would not have yielded as much as the consultants said it would should lend some comfort to those who were concerned about the viability of the project back in 1992. If the tax increase had been adopted and the project undertaken, there is no doubt that elected officials would again be asking taxpayers to kick in even more in the way of yet another tax increase.

While the proponents of the project back in 1992 argued that moving ahead with the mass transit project would bring in new capital to the state, that remains a difficult argment to swallow. Of the more than $1.7 billion the project was estimated to cost, the federal matching share would have amounted to about $700 million.

However, that $700 million was about the amount that the project would have spent on “rolling stock” or the equipment that would have been purchased from vendors outside the state. These vendors would have provided the rails, the passenger cars, and the maintenance equipment. Thus, all of the matching dollars would have been eventually offset by outflow of those dollars for the “rolling stock.”

Thus, the bulk of the $1.7 billion cost of the mass transit system would have come out of the local economy. Since 1992, as many readers know the state’s largest industry – tourism – has been in a slump. If mass transit had moved ahead, tearing up the roadways and visitor sites, the visitor picture would not have been any better.

In fact, the shortfall in tax revenues would have been evident from year one. In fiscal 1993, collections from the half-percent general excise tax rate increase would have fallen a half million dollars short of the amount projected by the consultants. This shortfall would have grown year after year rising to $4 million, then $8 million, and then $10 million in fiscal 1996. Based on what observers now know about the general excise tax, the shortfall would have risen to nearly $71 million by the year 2002.

For those who voted the tax increase down, taxpayers should send them their kudos, for if the City & County of Honolulu had adopted the increase, Hawaii’s economy may have been in even more dire straits than it currently faces. And taxpayers would have been asked to pick up an even larger share of the tab with yet another increase in the general excise tax. Thank goodness someone had the courage to just say “No.”

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