New affordable housing and healthcare facilities built near future mass-transit stations could qualify for state tax breaks.

Senate Bill 3165, which passed three Senate committees last week, would create the first tax incentives for economic development around 19 stations along a planned 20-mile rail line stretching from east Kapolei to Ala Moana Center.

The bill would exempt certain transit-oriented developments, including eldercare projects, from the general excise tax.

"This is an opportunity for us to look at the general excise tax and how that can play a role in this whole transit system," said state Sen. Will Espero, D-20th ('Ewa Beach, Waipahu). "Hopefully the rail will be an opportunity to build housing and specifically affordable housing."

The excise tax break could spur housing and healthcare projects that would prevent rail from pushing out existing residents and businesses, said Sharon Miyashiro, interim associate director for the University of Hawai'i College of Social Sciences' Public Policy Center.

"This tax exemption bill is one of the tools that could help in terms of some of the programs identified for each of these areas as a way of bringing people in that can make a difference," Miyashiro said. "I don't think it's enough, but it's one of the tools in the toolbox that we're trying to create. Once you get that momentum, hopefully there will be other tools and mechanisms that could be developed."

The Public Policy Center spent about a year gathering community input from three future rail stops: McCully/ Mo'ili'ili, Ala Moana/Sheridan/Kaheka and Kaka'ako Mauka.

So far the Senate bill has passed through the Committee on Human Services and Public Housing, the Committee on Economic Development and Taxation, and the Committee on Transportation and International Affairs. The bill now goes to the Committee on Ways and Means.

"One would hope that at the very least we can get this (bill) to the House and let them look at it," said Espero, vice chair of the Committee on Economic Development and Taxation.

The Public Policy Center, Hawaii Association of Realtors, and Hawai'i Alliance for Community-Based Economic Development back the bill. The City and County of Honolulu Department of Transportation Services opposes the bill because it could reduce excise-tax collections, which would mean less money to pay for the transit project.

The Honolulu City Council already is changing land-use ordinances to create transit-oriented development districts around planned transit stations. The idea is to create special districts with specific community-tailored rules governing housing density, parking and pedestrian amenities, among other things.

Waipahu is the only community drafting a formal transit development plan. That plan is scheduled to be completed later this year. Communities must have a development plan in place before receiving station construction funding, according to city regulations.

The potential value of train-related economic development is huge, said Paul Brewbaker, chief economist at Bank of Hawaii. However, it's still unclear how accommodating the city will be toward such developments.

"We don't really understand the scope of transit-oriented development" at this point, Brewbaker said. The city "could adopt a very accommodating posture, recognizing the kind of development you want is within a five-minute walking distance" of a train station, or "the opposite could equally be true where they clamp down and disallow (development)."

Reach Sean Hao at shao@honoluluadvertiser.com.