Forget about the nearly $1 billion shortfall, Honolulu’s rail project has a cash flow problem that could halt work as soon as this summer.
Construction costs are now outpacing the money trickling in from taxes and the federal government. That means the Honolulu City Council must issue debt to temporarily cover the difference while the revenues catch up.
But council members are still uneasy about the plan, especially given the growing shortfall and the fact that state lawmakers have yet to pass an extension of the general excise tax surcharge to pay for it.
On Wednesday, the City Council Budget Committee once again tabled an agreement with the Honolulu Authority for Rapid Transportation that would allow the city to float bonds for the project.
Council members also signed off on a resolution that would take $210 million in federal funds normally used for city bus service out of the rail budget, which effectively increases the shortfall and forces officials to find more money.
HART Executive Director and CEO Dan Grabauskas said these decisions add even more uncertainty to the project. The most immediate concern is cash flow.
Without bond revenues coming in, he said construction on the project could stop as soon as June unless contractors agree to get paid later, a sum that would likely include interest.
“We need the short-term borrowing to begin this summer,” Grabauskas said. “If we don’t have money we can’t pay our bills.”
The initial plan is to issue $350 million in debt to pay for ongoing construction in West Oahu. There’s currently enough money in the budget to pay back that debt.
But Grabauskas said the entire project is estimated to need a total of $1.9 billion in bond funding. The current budget can’t pay back that debt without a new funding source.
In fact, even with enough cash to cover current construction expenses and contracts the project is estimated to run out of money in the first quarter of 2016.
Council members were anxious about issuing debt in the face of such uncertainty. They said they would need a guarantee from the Legislature that the general excise tax would be extended beyond 2022.
The last thing they want to do is pay for the project using property taxes. Honolulu Mayor Kirk Caldwell has said those taxes would need to be increased by 30 percent to 40 percent to cover the current shortfall and operate the system.
“Our bottom line is the taxpayer. We really are worried,” said City Councilwoman Ann Kobayashi, who chairs the Budget Committee. “Who would give a loan to someone who has such a huge shortfall in their project and who has a questionable financial plan?”
Other council members said they didn’t want to make a decision on issuing debt until they know what the state plans to do. In essence, they said they didn’t want to get stuck with half a project.
There was much political grandstanding throughout Wednesday’s hearing, with council members and citizens berating HART for a lack of transparency and fiscal accountability.
At the same time, HART Chair Ivan Lui Kwan said it was important for the City Council to “show some skin in the game” with the Legislature to help move the project along and secure an extension on the GET.
Yet, underlying all these discussions is what to do about the Federal Transit Administration. The federal agency gave Honolulu $1.55 billion to build a 20-mile rail line with 21 stations.
The funding document included an agreement by the city to put up $210 million in federal bus money, known as 5307 funds, that are normally allocated to The Bus and Handi-Van.
But city officials, including council members and Caldwell, have made clear that those dollars are off limits, which puts HART in an awkward position.
Grabauskas said if he can’t find an additional $210 million to replace that money, the FTA could ask for a refund on the money that has been dished out and put the city in default.
“That’s the extreme,” he said.