Honolulu’s $5.2 billion rail project could go over budget by as much as $700 million, causing Mayor Kirk Caldwell and top transit officials to seek more funds elsewhere.
On Thursday, Honolulu Authority for Rapid Transportation Executive Director and CEO Dan Grabauskas told the HART board of directors that construction delays and the current building boom have hurt the project’s bottom line.
A lower-than-expected collection of general excise tax revenue has put the project’s financing even further behind schedule.
Grabauaskas said there are several options to make up for the increasing costs, including extending the half-percent surcharge on the state’s general excise tax to help cover design and construction costs.
“People are going to expect us to do everything within our own house to make sure our belts are tightened as firm as possible,” Grabauskas said during a press conference after the meeting.
“While there’s some opportunity for us to look everywhere and at everything I just have to be realistic that with the magnitude of what we’re facing I think we’re going to have to look for multiple solutions and some solutions may be beyond HART.”
The Federal Transit Administration has been warning HART for several months that it needed to take aggressive cost containment measures to ensure the project would come in on budget.
But what added to the alarm bells was a recent station construction bid that came in 60 percent higher than anticipated, or about $110 million more than what was budgeted.
That bid is what ultimately caused HART and city officials to reevaluate how much money it would take to actually build the 20-mile rail line and its 21 stations by 2020, when it is scheduled to be operational.
City and HART officials have blamed the development explosion in Kakaako for cutting into the contractor pool and driving up prices.
But the biggest scapegoats they pointed to were the delays caused by two separate lawsuits that halted construction and the premature notices to proceed that were issued to contractors before building could actually begin.
While those delays cost the project an estimated $190 million, the lawsuits in particular caused HART to push back its bidding process as the building market began to heat up and drive prices even higher.
Caldwell held a press conference after Thursday’s meeting to outline several of the options the city and HART will explore to help narrow the projected budget gap.
Among them are taking advantage of lower interest rates to save money on bond financing, asking the federal government for more money and repackaging construction bids to increase competition and drive down costs.
He also said the city would be open to public and private partnerships to help build the project. For instance, he said a private developer could pay for one of the stations in exchange for the “air rights” above it that can be used for parking, commercial or residential purposes.
“We’re going to look at everything and anything we can to find the money that we need to complete the project as promised to the people of the City and County of Honolulu,” Caldwell said. “We have some challenges down the road and we’re going to address those challenges.”
Caldwell made clear that he would not allow $210 million in federal funds normally allocated to bus service to be used for rail, even though it is included in the project’s financial plan as a cushion.
Caldwell was emphatic in saying that taking that money would not be an option, at least as long as he’s mayor.
“It is about bus and rail together, not bus versus rail,” Caldwell said. “Taking away that money would pit bus against rail.”
It’s likely that any solution will involve the city convincing state lawmakers to extend the general excise tax surcharge on Oahu beyond its 2022 sunset date.
Caldwell made a point to say that an extension of the tax would not be a tax increase since it has been in place since 2007. He also pointed out that tourists pay about one-third of the tax.
One point of leverage the mayor said he could use with lawmakers is the fact that the state skims 10 percent of the rail surcharge off the top as an administrative fee. He said Wednesday that the state will collect $440 million through the fee even if the tax is not extended.
Grabauskas said it was important to extend the surcharge so the city can add new spurs to the 20-mile system that’s currently being built.
He noted that the surcharge would also help build the next leg of the system, which would go from the Ala Moana Center to the University of Hawaii at Manoa campus. He also said the time to begin that discussion is now.
“Everyone understands that if you want to do the extensions to the existing alignment you’re going to need to extend the GET,” Grabauskas said. “If you really want to get to Manoa and have the men and women who are working today pick up their shovels from this job and go right to the next one you probably want to have a conversation in 2015.”
Read HART’s presentation here: