If you live on Oahu, you probably know you’ve been helping pay for the city’s rail project since 2007. That was the year that a .5 percent surcharge on the general excise tax took effect.

The project’s financial viability largely hinges on that tax revenue, yet City Council members yesterday advanced a measure to authorize the issue and sale of bonds for rail. It still faces several council votes before it can be passed.

Does this mean the project’s finances are out of order?

Rail planners say no.

“The build-out is going to be over the next seven years, so we need to get that cash,” Budget and Fiscal Services Director Mike Hansen told City Council members in a special council meeting Monday evening. “We need to finance… until we get some of that cash from the excise surcharge.”

Basically, Hansen says officials want to be sure to have enough cash to pay for the costly early stages of the rail project before all of the GET revenue is collected.

The city’s bond-floating plans are explained in the updated financial plan released last month.

Here are some key explanations from the city’s new financial plan:

While available GET Surcharge revenues will be used first to pay Project costs, the use of debt financing instruments will be required and will enable the Project to be completed as currently scheduled.

The use of medium-term and short-term debt during construction is necessary and advantageous because debt instruments of shorter maturity generally bear lower interest rates than longer term debt. BANs are assumed to be issued between FY2015 and FY2018, and will be repaid in each subsequent year when long-term debt is issued. BANs are a type of short-term municipal bond issue whose proceeds are generally used to pay the startup costs associated with a future, long-term bond-financed project.

Finance charges incurred for the Project are projected to total $334 million.

One of the guidelines the city gives itself is that debt service for general obligation bonds should not exceed 20 percent of the City’s total operating budget. The proposed limit would be $380 million based on next year’s proposed $1.9 billion budget.

While City Council members advanced Bill 40 yesterday, many of them expressed grave concerns about the city’s plans to float bonds.

There was confusion over whether authorizing Bill 40 meant the administration would have to again return to the City Council for approval before floating a bond. Honolulu Managing Director Doug Chin said yes, but a city lawyer called the adoption of Bill 40 “a complete authorization to issue and sell.”

City Council member Ikaika Anderson said he worries about borrowing money for a project that isn’t yet guaranteed the full $1.55 billion Honolulu is seeking in federal funding. City Council member Ernie Martin said this week he was “very disappointed” in what he saw as “inconsistent” explanations from Honolulu Mayor Peter Carlisle‘s administration about financing.

City Council member Ann Kobayashi, a long-time rail critic, was more blunt: “I can’t believe the level of insincerity,” Kobayashi said. “I just can’t put my trust in the testimony that’s being given by the administration.”

Council members won’t have to wait long to continue the conversation about borrowing for rail. The issue comes up again on Wednesday morning in Martin’s Budget Committee meeting.

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