When policymakers were discussing how much money was needed to pay for the Honolulu rail project during the spring and summer, one estimate repeatedly surfaced: a big round figure of $10 billion.

But in a financial plan submitted to federal transportation officials Monday, rail officials have reduced that estimate by a whopping $1 billion.

The new estimated price tag of $9.02 billion is still significantly more than the $5.121 billion the Honolulu Authority for Rapid Transportation cited in a 2012 contract with the Federal Transit Administration, which agreed to provide $1.55 billion for the 20-mile rail line.

HART Rail guideway along Kamehameha Hwy near the Aloha Stadium.
A portion of the rail guideway along the Kamehameha Highway near Aloha Stadium. Cory Lum/Civil Beat

And it’s far from certain that costs won’t balloon again as the project heads into the center of town on its path from East Kapolei to Ala Moana Center.

Still, the new projection is much less than what many had come to expect.

“This confirms clearly that what we did in the special session was the right approach,” said Rep. Sylvia Luke, chair of the House Finance Committee, who helped craft a $2.4 billion bailout package for rail during a five-day special session Aug. 28-Sept. 1.

HART’s cost estimate, Luke said, is $1 billion less than the figure cited by Honolulu Mayor Kirk Caldwell, who during the special session pushed for a bigger funding package.

“I think we need to be responsible, and I think HART’s being responsible,” Luke said.

Bill Brennan, a spokesman for HART, noted that the rail authority had not cited the $10 billion estimate, but declined to comment on the report.

A major part of the difference appears to be a reduction in interest payments, the apparent result of the Legislature’s funding plan.

The plan calls for extending by three years to 2030 a 0.5 percent general excise tax surcharge on Oahu dedicated to rail and by increasing the statewide hotel room tax for 13 years. The excise tax extension is projected to raise $1.046 billion, and the 1 percentage point increase in the hotel tax is projected to raise $1.3 billion.

Finance Chair Sylvia Luke and Vice Chair Henry Aquino question the mayor at the Capitol Auditorium.
House Finance Committee Chair Sylvia Luke and Vice Chair Henry Aquino questioned Mayor Kirk Caldwell during the special session on fund rail in August. Cory Lum/Civil Beat

Caldwell had called for no hotel tax increase and a longer extension of the excise tax, which, before the Legislature acted, was set to expire in 2027. One problem with relying only on the excise tax, lawmakers such as Luke said, is the new revenue wouldn’t start flowing until 2028 and HART needs the money now. That means HART would have had to borrow the money to use now and pay it back later with interest.

Just how much interest was a big question. HART submitted a recovery plan in April, but the plan didn’t say how the authority planned to pay for the project and thus couldn’t say how much the financing costs would be.

The Legislature hadn’t agreed to a funding plan by then – or by the time the regular legislative session ended in May. It was only after lawmakers crafted a bailout during the special session, which Gov. David Ige signed into law earlier this month, that HART could tell federal transit officials how it planned to pay for the project.

The plan submitted Monday includes projected interest costs. It calls for trains to start rolling in 2025, and states construction is about 38 percent complete. The plan calls for an elevated rail line with 21 stations.

While those details haven’t changed, the information on financing has changed significantly. The new plan, for instance, includes a table with revenues and costs extending to 2032. It uses the same $8.165 billion construction cost project, but also estimates $858 million in financing costs for a total of $9.023 billion.

“This is good news,” said Sen. Donovan Dela Cruz, chairman of the Senate Ways and Means Committee. “In the long run, this is going to help the taxpayers.”

Senator Donovan Dela Cruz holds up a handout during presser. The Compromise ?
Sen. Donovan Dela Cruz, right, chairman of the Senate Ways and Means Committee, helped craft the rail bailout. He’s seen here with Senate President Ron Kouchi. Cory Lum/Civil Beat

The projected interest costs are less than what the Legislature projected when trying to analyze the expense of various funding schemes. The so-called compromise package using general excise and hotel taxes was projected save $208.6 million in interest when compared to paying for rail only with the excise tax, according to the Department of Budget and Finance.

Dela Cruz, who was instrumental in crafting the deal as the head of the Senate’s money committee, said Caldwell should have been more proactive in assessing various deals instead of simply pushing for the general excise tax extension.

“The reality is the mayor should have been asking HART to do these exercises sooner,” Dela Cruz said.

Andrew Pereira, a spokesman for Caldwell, defended the mayor’s larger cost projections, saying that legislators have assumed that the federal transit officials will not subject the financial plan to a financial risk assessment, known as a “stress test,” designed to assure that costs don’t rise more than expected and tax revenues don’t drop too much.

Caldwell during the session repeatedly said the FTA could reject HART’s financial plan if the plan failed the stress test and that more money was needed to make sure the plan could pass.

But U.S. Rep. Colleen Hanabusa said during the session she had talked to FTA officials and that Caldwell’s concerns about the stress test were overblown.

Regardless, there is still plenty of financial risk and uncertainty.

In addition to estimating financing costs for constructing rail, the plan released Monday includes operating and maintenance costs, which weren’t included in the April plan. By one estimate costs for operations and maintenance in the first year of operation will total $127 million.

Precisely where that money will come from isn’t clear. One chart in the plan shows fare revenue of $90 million for the first year. The report says where the rest of the money will come from will be the subject of further review and extensive public discussion.

There’s also the question of whether the taxes to pay for construction will meet projections.

Carl Bonham, executive director and professor of economics with the University of Hawaii’s Economic Research Organization, is also a member of the Hawaii Council on Revenues, which helps prepare revenue estimates for state government. In tax projections published earlier this month, the council projected an overall growth rate of 4 percent annually from 2018 to 2024.

Bonham said the risks of tax collections not meeting expectations run both ways – taxes could produce more revenue or less revenue than projected – but with Hawaii’s economy now running red hot, the risk of a decline seems greater. Bonham said UHERO will almost certainly be looking at those risks as well.

“I’m sure we’ll have something to say about that in our next forecast report,” he said.

About the Author