Gov, mayor need to find transit tax compromise

THE ISSUE Governor Lingle is meeting with City Council members about a tax collection tiff with Mayor Hannemann.

WHILE Mayor Hannemann hopped through four mainland cities this week to tour and talk rail transit, Governor Lingle was lobbying some members of the City Council to win their support in a dispute over collecting a tax that will pay for a Honolulu transportation system.

The quarrel between Lingle and Hannemann had reached ridiculous proportions with the mayor threatening to sue the state. Though he has backed off from that, both Hannemann and the governor need to step away from the brink of pettiness and resolve the problem that could jeopardize a long-stalled project to alleviate traffic problems on Oahu.

At the heart of the squabble is money, or more precisely, the lack of funding to start collecting a 0.5 percent Oahu excise tax, which the state Legislature approved to pay for transportation improvements in the city. However, lawmakers failed to carve out a sum to get the complicated tax collection going even though the state general fund will receive 10 percent of the revenue.

Lingle contends that without a specific appropriation for the state Tax Department to pay a private vendor to set up collections, there's no way to begin the process by the Jan. 1 start-up.

The governor was not in favor of the tax, but she allowed it to become law. She has said she supports a transit project for Oahu but believes the city should do the tax collecting.

Hannemann correctly points to the law as requiring the state to do the collecting, which makes sense since it already collects excise taxes. However, imposing the 0.5 percent surcharge entails myriad complexities, such as figuring which transactions are taxable if a wholesale business based on Maui sells a product to an Oahu retailer who, in turn, sells to a Big Island customer.

To make these determinations, the state contracts a vendor, who needs a guarantee of payment for its work. The mayor sought Council approval of $5 million for that, but the Council balked, saying there was no way to assure the state would reimburse the city.

The situation degenerated further with Hannemann saying he would sue and Lingle saying the mayor "lost his head" in making the threat.

This is not the way taxpayers expect their leaders to conduct business and the discord does little to demonstrate to the federal government, from which the bulk of the project's funds will come, that Hawaii's officials are able to act responsibly.