City to lend state $5 million for transit tax system

The Council must approve the funding in the city budget

The city is looking to front the state $5 million to help pay for the start-up costs of collecting the 0.5 percent general excise tax surcharge for mass transit.

The $5 million is included in the proposed, record-setting $1.4 billion operating budget that is up for approval today before the City Council -- along with more than $600 million in the capital improvement budget for the fiscal year beginning July 1.

The budget also makes room for $19.5 million in property tax cuts with a 16-cent reduction on residential rates to $3.59 per $1,000 in valuation for apartment and single- family homeowners. It also includes $13 million in additional property tax revenue from an 60-cent increase in commercial, industrial and hotel rates to $11.97 per $1,000 in valuation.

"The tax relief is modest. We did the best we could," Budget Chairwoman Ann Kobayashi said.

Kobayashi said the $5 million for the state's computerized tax collection system for the surcharge won't affect the proposed tax cuts because the tax-collection money will be paid for by $5 million that was supposed to be deposited in the city's so-called rainy day fund.

"I thought this was all settled when the Legislature adjourned and everything was settled. Evidently, the (state) Tax Department has some problem with the collection of the tax," Kobayashi said.

By law, the state Tax Department, which now collects the state's 4 percent general excise tax, must collect the 0.5 percent excise tax surcharge that will be imposed beginning Jan. 1. The state also would receive 10 percent of the surcharge revenue for administrative costs.

Gov. Linda Lingle sought to change the law to force the city to collect it, but was unsuccessful.

But legislators also failed to approve $6.1 million for the Tax Department to collect the additional tax revenue because other tax measures were attached to the bill.

"Those were significant numbers, and obviously the numbers that they were going to appropriate were numbers that we believe were necessary to implement to the county surcharge," state Tax Director Kurt Kawafuchi said. "If we don't have any appropriation, it would be very costly to the state -- resources would have to be reallocated away from processing the (state) general fund to the county surcharge."

Kawafuchi said the state and city have been in talks to come up with a way to move forward with the collection of the surcharge.

"We're looking at a variety of options ... to see what is possible and feasible at this point," Kawafuchi said. "We're trying to work with the city to see if we can work something out to accomplish ... implementing the county surcharge."

Kobayashi said the city expects to get the money back from the state.

"They need this assurance that the city can pay in advance for this, but I guess we'll get the money back," Kobayashi said. "When we get the money back from the state when the Legislature meets, then we can put the $5 million in the rainy-day fund."

The city administration declined comment pending budget approval.