"We've got to start from ground zero. It would be very, very difficult for us to do it from a financial point of view."

Mufi Hannemann
Honolulu mayor, about a new revenue collection system for a transit tax

Mayor wants
state in charge
of excise tax plan

Mayor Mufi Hannemann said the state -- not the city -- should collect and administer the proposed general excise tax surcharge to fund county transportation projects.

"The state is best equipped to do it," Hannemann said.

The debate over whether the state or the counties should handle the tax-collecting duties is at the heart of whether Gov. Linda Lingle will veto House Bill 1309, which gives the counties the authority to raise the general excise tax by half a percentage point, to 4.5 percent, for transportation.

For Honolulu, that would mean $150 million in additional tax revenue for a proposed rail transit line.

The governor said she wants the bill amended so the state will not collect the tax surcharge.

State tax authorities have told Lingle that managing the new tax and different tax rates for all counties will be difficult and costly. The Legislature responded by allowing the state to keep up to 10 percent raised for transportation as administrative fees.

Lingle said that she will not veto the bill if the Legislature makes changes to the measure in a special session this summer or pledges in writing to make changes next regular session.

"The main problem was the state's involvement in collecting and keeping a cut of the money. We think it's a home rule issue, and that means the county assessing, collecting it and using it," Lingle said. "The bottom line was we don't want it."

State Tax Director Kurt Kawafuchi said that throughout the legislative process this past session, he opposed the state being designated to take care of the surcharge.

Kawafuchi said it would cost the state an additional $3.6 million to do those duties.

"What makes it really expensive and complex is that you're going to have different rates throughout the state -- you're going to have a half-percent on Oahu and no increase on the other. If we didn't have that, if we had a uniform rate, it'll be a lot cheaper," Kawafuchi said.

Lingle said when the counties took over assessing property taxes from the state, they had to come up with a system.

Hannemann said that he knows the governor has a tough decision to make but that the city does not have an administration in place to collect the surcharge. The cost to the city would be at least $50 million, and it would take a minimum of six years to get such a tax collection system up and running, which would mean lost time in revenue collection.

"We've got to start from ground zero," Hannemann said. "It would be very, very difficult for us to do it from a financial point of view."

City Council Budget Chairwoman Ann Kobayashi agreed.

"It's not an easy thing," she said. "It seems easier for the state to do it."

The mayor said that the bill could be changed so that the 10 percent collected from the tax would go to the state Tax Department -- and not the state general fund -- to help offset the additional administrative costs.

He also said he believes it would be best to discuss the issue next regular session instead of having to "cram" it into a special session.

Meanwhile, Hannemann said he does not see anything to prevent the City Council from moving forward July 6 with voting on Bill 40, the measure that would actually put the tax increase into effect.

"I'd like to go forward because we don't know what she or the Legislature is going to do at this point," Council Transportation Chairman Nestor Garcia said.

Kobayashi encouraged some patience. "I'd like to hear from the Corporation Counsel on the legality of us voting on the tax increase," she said.

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