City officials are hoping the state will turn over more than $18 million being kept to cover costs associated with administering Honolulu's transit tax.

The City Council Intergovernmental Affairs Committee today is scheduled to hear a resolution asking the state to steer that windfall back to city coffers, where it can be spent on a planned $3.7 billion elevated commuter rail. The meeting begins at at 12:30 p.m. at Honolulu Hale.

The state added a half-percentage-point surcharge to the excise tax for O'ahu residents beginning in January 2007 to pay for the new mass transit system linking East Kapolei to Ala Moana. The state collects the tax, takes a 10 percent cut for administrative costs and gives the rest to the city. The administrative costs, however, are proving to be much lower than 10 percent, according to the state Department of Taxation, and the excess is going into the state's general fund.

Council Chair Barbara Marshall and other city officials are asking for that money back.

"Basically they're taking that tax money and spending it on something, we don't know what," said Marshall, who opposes rail for financial reasons. "That does concern me.

"Once we get down the road to the point where we have no more money in the till there are going to be hard questions asked and hard answers to be given and the council, depending on who it is at the time, is going to have to do some really radical things" to pay for rail, Marshall added.

STATE REFUND UNLIKELY

Marshall introduced the measure along with pro-rail council members Todd Apo, Nestor Garcia and Rod Tam. However, the state, which is facing an $869 million budget deficit over the next three years, isn't likely to take the request too seriously. The state already has proposed cutbacks of between 10 percent and 20 percent to libraries, schools and other services. A refund of transit taxes to the city could prompt further cuts, said State House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo Valley, Wilhelmina Rise).

"At this point I would say it's going to be a very difficult and uphill battle" for the city, Say said.

The tax surcharge raised $285.3 million through September. By law, the state kept about $28.5 million to cover administrative costs. However, the state's actual administrative costs amounted to about $6 million last year, according to the state Department of Taxation. The state keeps that money to cover the tax's administrative costs. Those administrative costs, however, are proving to be much lower than expected.

The cost of administering the tax was highest in the first year, when the state was putting in place a system to collect it. Now that the tax is in place, administrative costs were projected to drop to about $1 million in the fiscal year, ended June 30, and $717,944 in fiscal 2009. That excludes $233,300 for annual hardware and software upgrades requested starting in fiscal 2009.

The tax surcharge is to be collected until 2022, and based on current estimates, the state would get $300 million for administrative costs during the life of the levy.

Honolulu Mayor Mufi Hannemann also has suggested the state consider giving that money back.

"They needed some money to tweak the system to accommodate additional responsibilities, but they shouldn't keep that money forever," he said.

Hannemann hopes to break ground on the elevated rail line late next year, with the first segment starting service between East Kapolei and Leeward Community College in 2012. The city plans to extend the rail line to Ala Moana Center in 2018.

The city's search for added transit tax revenues comes at a time when a slowing state economy could mean lower-than-expected tax revenues for the train. City officials hope to raise an inflation-adjusted $4 billion between 2007 and 2022 to pay for the 20-mile system. That, along with $925 million in anticipated federal funds, is expected to pay the $5 billion in capital costs associated with rail, according to the city's financial plan.

TAX COULD BE EXTENDED

However, the financial plan is based on tax-revenue forecasts generated in September 2006, when more robust economic growth was anticipated.

Concerns about transit tax revenues were bolstered last week when the Hawaii Business Roundtable, which supports the project, raised concerns that tax revenue collections to build the train will be lower than anticipated. That may necessitate extending the half-percentage-point transit tax — now scheduled to expire in 2022 — until 2027, according to the group.

Asking the state to review how much transit tax it keeps could be risky, given the state's own financial needs, Say said.

"You may open up a can of worms," he said. "Instead of (the state keeping) 10 percent it may be 20 percent. Who knows."