On June 7, Honolulu City Council members approved the concept of using bond funding to keep the Honolulu rail project on track.

On Tuesday, they actually authorized the issuance of $350 million in general obligation bonds for that purpose.

What they might not realize is that bond funding dramatically raises the stakes for transparency around the rail project.

HART Rail Salt Lake Boulevard Aloha Stadium2. Near Kamehameha Hwy. 23 feb 2017

Issuing general obligation bonds to pay for rail construction could increase the city’s liability if spending irregularities ever surface.

Cory Lum/Civil Beat

Beginning in late 2007, the U.S. Securities Exchange Commission started scrutinizing state and local governments to protect investors in what then-Chairman Christopher Cox called the increasingly complex municipal bond market.

In April 2008, the SEC charged five San Diego officials, including the former city manager and auditor, with fraud. City officials were accused of certifying financial statements in 2002 and 2003 that were false because they failed to disclose that the city was purposely underfunding its pension system. Eventually, the officials agreed to pay penalties ranging from $5,000 to $25,000 — the first such fines levied against officials in a muni-fraud case.

In 2010, the SEC established a new unit to investigate misconduct in municipal finance, with an emphasis on pension funding. They charged New Jersey in 2010 and Illinois in 2013 with fraud connected with bond offerings for misrepresenting that their respective pension systems were well funded, when they were in fact under water by billions.

In April 2016, the SEC turned the heat up another notch on Ramapo, a suburb in New York. The plot in this case sounded like “Field of Dreams” – officials in Ramapo wanted to build a $58 million baseball stadium after voters in the town overwhelmingly refused to guarantee bonds to pay for its construction.

The officials went to the bond market anyway and raised the money to build the stadium, now called the Provident Bank Park, in part because they “cooked the books of the town’s primary operating fund,” according to the SEC. Instead of just going for fines and penalties, however, the agency involved Preet Bharara, who then was the U.S. attorney for the Southern District of New York, to indict the town defendants on criminal securities fraud, wire fraud, and conspiracy charges.

In May 2017, a federal jury convicted then-Ramapo Supervisor Christopher St. Lawrence on 20 of the 22 felony charges. The fraud counts on which he was convicted carry 20-year maximum terms. He is scheduled to be sentenced Sept. 28.

Back here in the Aloha State, there is a growing chorus of people who are expressing misgivings about the financial parameters of the rail project.

Those who are now overseeing the project need to be concerned that going out to the bond market with cooked books is a recipe for repercussions of the federal criminal variety.

It doesn’t matter that the officials involved have gotten no personal benefit from the project. St. Lawrence had nothing to gain personally from building the Provident Bank Park. He just wanted the park built, no matter what. He now may be getting a one-way ticket to federal prison.

Officials here may have the best of intentions, but they better be telling the public the truth. Or else.

Community Voices aims to encourage broad discussion on many topics of community interest. It’s kind of a cross between Letters to the Editor and op-eds. This is your space to talk about important issues or interesting people who are making a difference in our world. Columns generally run about 800 words (yes, they can be shorter or longer) and we need a photo of the author and a bio. We welcome video commentary and other multimedia formats. Send to news@civilbeat.org.

About the Author