Council Postpones Decision on Proposed Fuel Tax Decrease

The fate of a measure that proposes some relief from higher prices at the gas pump is in limbo.

The Hawai‘i County Council on Wednesday, April 20, postponed making a decision on Resolution 363-22 until its May 4 meeting. The legislation, introduced by Councilman Matt Kaneali‘i-Kleinfelder, would cut the county’s fuel tax for on-highway diesel and gasoline from 23 cents per gallon to 13 cents per gallon.

Kaneali‘i-Kleinfelder moved to postpone the measure after council members renewed concerns Wednesday that while the proposed reduction of 10 cents a gallon could provide residents — and visitors — a savings of about $1-$2 each time they fill up, chopping the tax also would remove an estimated $7.5 million from the county’s budget for at least one year, possibly jeopardizing future projects to improve hundreds of miles of deteriorating island roadways.

Several council members also continued to push back on the resolution because it does not include a sunset date for the proposed decrease.

The measure was forwarded to the council level with an unfavorable recommendation after members discussed it at length during an April 6 meeting of the council’s Finance Committee.

The county uses revenue generated by the tax for various needs, including highway and roadway maintenance and paving, bridge projects, providing matching dollars for federal funds awarded for road and bridge projects, signal lights, streetlights and even traffic enforcement operations of the Hawai‘i Police Department.

“Yesterday was a realistic reminder that while some may consider the decrease manini, for many local families, folks who commute across island, local businesses, 10 cents a gallon decrease is gonna be a lifeboat for them,” Kaneali‘i-Kleinfelder said Wednesday, referring to comments made during a public hearing Tuesday, April 19, for the resolution. “I think that’s important to remember.”

Some of those who testified during the public hearing were opposed to the proposed decrease for many of the same reasons the council is expressing hesitancy.

One testifier said the resolution is a waste of time and won’t solve anything. Instead, the county would be better served by those funds going to improving roads and infrastructure. Another agreed, saying compared to the minimal relief at the pump, the loss of revenue would have a substantial cumulative effect because the county has so many roads in disrepair.

Members of the public who support the resolution, including one person who testified during the council’s meeting Wednesday, agreed that a reduction would provide some immediate relief for residents from the higher gas prices, helping reduce the sticker shock at the pump. Some also agreed a surplus in the county’s highway fund, a balance which Kaneali‘i-Kleinfelder suggests could be used to cover the loss, means there would be no impact on future road maintenance and improvement projects or funding matches for projects.

Those in favor of the fuel tax reduction also pointed out that it would keep more money in people’s pockets. One testifier said families continue to struggle with the fallout from the COVID-19 pandemic and supply chain issues, so any relief at the pump — any relief at all — the county could provide would help keep them from ending up in even more dire situations.

“The highway fund is maintaining a carryover fund balance, which means its been accumulating close to $20 million,” Kaneali‘i-Kleinfelder said Wednesday after first moving to approve the resolution. “The projected decrease in revenue is acceptable given the county’s fund balance, but it’s also leading to we haven’t been spending down the funding we’ve been allocating.”

Coupling that with an unexpected windfall in tax revenue in the current fiscal year, a decrease in fuel tax won’t lead to an infrastructure decline, “which has been stated,” he said. Inflation, now at about 8.5%, also driving increased revenue at the state and county levels.

“With revenue above projections, the idea that government can’t provide relief through decrease in a tax like this at this time is unconscionable,” Kaneali‘i-Kleinfelder said. “The reality is this: it was stated that the county has a surplus in tax revenue in the highway fund; we’ve been unable to spend down the funds in full for years. The county can — CAN — cover the revenue loss with carryover funds as well as underprojected revenue. Simply put, the county can provide the relief and has been overtaxing our residents.”

During the Council’s discussion on the measure, members asked several questions of county Finance Director Deanna Sako and Public Works Director Ikaika Rodenhurst, including why the county hasn’t been fully expending fuel tax revenues.

Sako told the Council that supply chain issues, the pandemic and some other issues resulted in the county not being able to get some needed equipment last fiscal year, meaning funds expected to be used for those purposes remained in the account. Rodenhurst agreed, saying equipment has been delayed because of supply chain issues or higher prices.

Sako also said the county moved those equipment purchases to this fiscal year and said DPW is now getting back on track with paving and spending islandwide as it obtains the correct equipment and materials.

Rodenhurst also reminded council members that fuel tax funds allow the county to cover a 20% match when it comes to getting state and federal funds, and $7.5 million could be instrumental in a large shovel-ready project getting off the ground. The funds also are used for emergency purposes.

“Conceptually, I do not disagree with reduction of taxes. In fact, on this fuel tax, I did not vote for it when it came forward,” said Councilman Tim Richards, referring to when the council increased the fuel tax several years ago. “But things have shifted since then, and I spoke against the reduction in fuel tax. My opinion has not changed. We have an opportunity before us to take care of some the roads and it’s gonna take that matching fund.”

His concern is that if the fuel tax is reduced, it will impact the county’s ability to obligate matching funds for projects receiving state and federal dollars, thereby reducing the county’s ability to maintain its roads.

“Though I appreciate the efforts of Mr. Kaneali‘i-Kleinfelder in recognizing how we might be able to help, the problem is we put in $1 and we get $4 added to that,” Richards said.

For example, a project on Waikōloa Road is estimated to cost $50 million, of which the county would be obligated to provide $10 million with federal funds covering the other $40 million.

“I’m concerned if we cut short, we will not have that funding available and then so we lose on a grand scale,” Richards said. “So for that reason, I’m more interested in taking care and getting these roads back in shape, because our roads are in bad shape.”

It’s a question of leverage, and other council members agreed.

Councilwoman Heather Kimball said there are an estimated 250 miles of roads around the county classified in poor condition. A third of them are in her District 1.

“I share council member Richards’ concern about this particular time and place. There’s a lot of revenue to be leveraged for state and federal funding,” said Kimball. “And just the shear volume of roadways in poor condition in District 1, in addition to the particular crisis at Waipiʻo Valley Road, which, in part, some of those repairs may be funded out of this fund, I can’t support this at this time.”

“I certainly do not want to be hamstringing the ability of county Public Works to get these important road projects done,” said Councilwoman Ashley Kierkiewicz.

Kimball also said there is too much uncertainty surrounding the willingness to reinstate the tax to its current rate at a later date.

Councilwoman Sue Lee Loy reminded her colleagues and the public that the county is already taking steps to provide relief in different ways, including the recent transition to free fares for the Hele-On bus system. She also noted an email from one of her constituents who looked at reducing the fuel tax in a different way, saying a reduction could impact climate change because people would be buying more gas and driving more. The constituent actually suggested increasing the fuel tax to encourage people to use more fuel efficient vehicles.

Lee Loy also later asked Rodenhurst if he could put together a memo to council members outlining what projects and uses for which these funds are committed. She understands the intent of the measure, but she wants to better understand how the money is being used to gauge the impact of the proposed decrease.

Kaneali‘i-Kleinfelder, after listening to his fellow council members’ concerns and issues, moved to postpone action on the resolution to have more time to dig into the data and work with administration to get a more solid idea of how a decrease in fuel tax revenue will impact the county’s budget and ability to carry out upcoming projects, specifically those expected in fiscal year 2022-23.

He also agreed there could be an end date to the decrease put into the measure.

Kaneali‘i-Kleinfelder said the county has the funding to weather a decrease in fuel tax and continue to provide infrastructure — and its residents need relief.

“If this body, at this point, does not feel that we can provide relief by a simple decrease of 10 cents per gallon, based on the figures and the data that have been presented so clearly, then there’s nothing else I can do,” he said.