With two major lawsuits out of the way, the Honolulu Authority for Rapid Transit is preparing to dole out $1.56 billion in contracts for planning, designing and building the Honolulu rail project.

But, to the consternation of some Honolulu City Council members, HART’s asking the city to loan them the money in the form of general obligation bonds.

“In fairness, the plan may be sound,” Councilman Joey Manahan told Civil Beat, “but if anything happens, those bonds are basically backed up by the fact that we are able to levy property taxes on homeowners and residents of the City and County of Honolulu.”

“If they default or are not able to pay it back, anybody that pays property taxes will be on the hook.”

HART’s plan to fund the $5.2 billion Honolulu rail project hasn’t changed. Roughly 30 percent, or $1.55 billion, is supposed to come from federal funds. The rest comes from a hike in the General Excise Tax.

But HART has a cash flow problem and is asking the city for a bridge loan in the interim as it embarks on a major construction boom.

“In order to fund the project, based on how much money comes in from the GET and drawing from federal funding, there is a gap . . . where a lot more money is being paid out than is coming in,” HART CEO Dan Grabauskas told members of City Council’s Budget Committee on Friday.

He assured council members that the money would be paid back in full and the city won’t be paying anything for the debt service.

The GET fund has remained relatively steady over the past two decades. And HART has already secured $750 million in federal funds. President Barack Obama has earmarked $250 million for HART in his 2015 fiscal year budget, which still needs to be approved by Congress. Two more installments of $250 million are expected in coming years, said Grabauskas.

UPDATE: HART has so far accrued $1.8 billion from the General Excise Tax, according to HART spokesman Scott Ishikawa, part of which has been expended on rail contracts. Currently, HART has a balance of $469 million.

HART officials noted that using bonds to fund the rail system has been part of the financial plan for the past three years.

Ironically, the amount of bonds HART will end up having to issue will likely be less than originally planned due to the lawsuits, according to Don Horner, vice chair of HART’s Board of Directors.

“This lawsuit was unfortunate, but frankly it was a blessing for us because it has allowed us to accumulate more cash,” he said.

The $1.5 billion in city bonds would cover four major contracts, primarily for construction, for the rail line that is planned to run from East Kapolei to Ala Moana Center. The project is expected to create 4,000 jobs.

Funding the rail project through city bonds isn’t new. Last year, the City Council voted 7 to 2 to approve the funding mechanism. Manahan and Councilwoman Ann Kobayashi, chair of the city’s budget committee, voted no.

But lawsuits delayed rail construction, and now HART is once again asking the City Council to approve bills authorizing the bonds.

Manahan noted that the city’s internal policy is for its debt service not to exceed 20 percent. He said the rail bonds would likely double that, meaning the Department of Budget and Fiscal Services would have to suspend the city’s own rules in this case.

“From my perspective, this is a $1.5 billion capital improvement project request for one project,” said Manahan.

The entire state budget for capital improvement projects is about $2 billion, which includes schools, roads and bridges, Manahan said, adding, “How do you justify that?”

Still, Manahan, a rail supporter, says if the City Council denies the request it will likely delay rail and raise financial problems for the rail line.

“We are stuck between a rock and a hard place,” he said.

DISCUSSION: *Are you concerned about the risks of floating bonds? Do you think the financial plan is sound?

About the Author