No matter how the numbers are added, subtracted or multiplied when you’re building a railroad that’s behind schedule and over budget there’s only one answer: Borrow money, and lots of it.
The only quandary facing Honolulu Authority of Rapid Transportation board members Thursday was figuring out how to pay for future contracts and repay any debt incurred since the City Council has yet to approve an extension of the General Excise Tax.
Although board members were expected to seek as much as $350 million in commercial paper sales that would provide bridge financing to alleviate cash flow problems expected possibly as early as January when expenses are expected to begin exceeding revenues, no decision was made on how much should be requested and when.
Before HART sees a penny from borrowing, the City Council must extract itself from a legal mess created in September when Abigail Kawananakoa filed a lawsuit alleging undisclosed conflicts of interest by several City Council members who voted on a number of early ordinances dealing with HART financing.
Kawananakoa alleges that those votes should be nullified and the City Council forced to re-approve as many as 11 rail-related votes.
To solve that problem, the Council held a special session Wednesday, beginning the process of approving a new ordinance, repealing its 2012 action and reauthorizing a new commercial paper program.
But the Honolulu Ethics Commission might have aided in that endeavor Wednesday, when it decided to end its investigation into City Council members Ikaika Anderson, Ann Kobayashi, and their former colleague Donovan Dela Cruz, who is now a state senator.
According to the commission, Anderson, Kobayashi and Dela Cruz did not violate city ethics rules when they were accepting free meals and drinks from lobbyists who had an interest in seeing the city’s $6 billion rail project move forward.
It’s unclear at this point how the Ethics Commission decision might affect the Kawananakoa lawsuit since former City Councilman Todd Apo is still a subject of the investigation.
Under terms of the ballot measure creating HART only the City Council can authorize incurring debt for the rail agency. In 2012, the Council approved an ordinance authorizing a maximum of $450 million in commercial paper to provide interim funding for HART. However, the Kawanankoa lawsuit brought the legality of that ordinance into question.
Approval of the new authorization is critical to keep HART in the black during a period when construction is accelerating and expenses will exceed revenues as soon as the first quarter of next year.
Initially HART is expected to ask the Council to approve the issuance of commercial paper – in essence promissory notes providing short-term loans for interim financing to cover cash flow problems. The loans must be repaid within 270 days and have interest rates lower than those for long-term bonds. Commercial paper can be rolled over or repaid from the proceeds of subsequent bond issues.
In HART’s case the city guarantees payment of any debt and is reimbursed by the rail agency for all principal, interest and other costs associated with selling commercial paper or bonds under an agreement requiring repayment from GET surcharge and other revenues collected by HART.
Despite the fact the City Council has until next June to approve the GET surcharge extension, HART’s executive director Dan Grabauskas told board members Thursday approval of the extension as soon as possible was crucial to keep the project on schedule and the Federal Transit Administration happy.
Board member Colleen Hanabusa questioned Grabauskas about the meaning of a letter from the FTA received within the past few days requesting additional financial information and suggesting HART might not have been completely forthcoming in providing detailed or completely accurate financial information. She was concerned that it might indicate more serious action by the federal agency.
“The FTA is concerned about the GET surcharge extension not yet having been approved by the city council,” said Grabauskas, who added that if HART did have to wait six months for approval, it would push back its agency’s schedule even further.
Grabauskas said HART officials were working on a revised budget and construction schedules to satisfy FTA requests, again emphasizing the need for prompt City Council action on the surcharge extension.
Although there was considerable discussion of Commercial Paper during a prolonged joint Finance/Project Oversight Committee meeting that delayed the board meeting for almost an hour, there was no discussion of HART’s plans to issue as much as $1.4 billion in bonds during the next four years.
Updated bond sale schedules provided to the Legislature last spring outlined HART’s plans for five fixed and variable rate bond issues between 2016 and 2019. The principal and an estimated $340 million in interest would be repaid from GET surcharge revenue.
Although HART has included $215 million in financing costs in its budget — $173 million eligible to be paid from FTA funding and $42 million from other sources – it is expected GET surcharge revenue would be used to cover the $124.6 million difference between what HART has budgeted for financing costs and what it has projected the total interest on bonds will be.
Board members did approve an $8.7 million settlement with Ansaldo, its core systems contractor for a nine-month delay it claimed was caused by a protest over its contract award by a competitor. Ansaldo had initially submitted a claim for $16.5 million.
Civil Beat reporter Nick Grube contributed to this report.