The $161 million that city leaders agreed to pay to cover rail’s administrative costs during construction — the “skin in the game” they reluctantly exchanged for another massive state bailout of the project — may soon swell to $215 million.

Honolulu Mayor Kirk Caldwell noted the increase toward the end of a nearly hourlong budget preview Friday. For the 2019 fiscal year beginning July 1, he proposed that the city absorb $44 million of its new rail obligations by floating bonds.

It’ll be the first fiscal year that the city is on the hook to help cover some of the estimated $9 billion rail construction costs out of its own budget. It’s still up to the City Council whether to go along with Caldwell’s spending plan.

HART Rail contractors from STG stand on column support or ‘piers’ along Kamehameha Highway.
The city now finds itself on the hook to cover some $215 million in rail costs. Cory Lum/Civil Beat

“We’re always looking at, watching how we spend money. We’re not trying to grow the number of employees at the city … We’re trying actually to reduce it through attrition,” Caldwell said Friday, commenting on how the city must confront its mounting costs overall.  “That is partly, you know, how do we do a better job bringing services to the city.”

State leaders, as part of last years’s $2.4 billion package to rescue rail, required the city to shoulder all of the project’s administrative costs while it was still being built.

Days after Gov. David Ige signed that package into law, the Honolulu Authority for Rapid Transportation, which oversees rail construction, included that estimated $161 million amount in its Sept. 15 recovery plan:

But HART’s recovery plan also included another, vague line item: $54 million in “additional costs”:

HART’s plan didn’t include a specific source for those “additional funds.” The $54 million represents the portion of rail construction costs that’s not covered by the state’s bailout, its federal funds or the city’s $161 million for administrative costs.

In the months since the plan’s release, city and rail leaders repeatedly said they didn’t know how they’d cover that $54 million.

On Friday, they finally acknowledged the city would have to cover it on top of HART’s administrative costs. Caldwell said the city might avoid paying some or all of that amount if rail’s state tax collections outpace predictions in the coming years.

Honolulu Mayor Kirk Caldwell proposed Friday that the city cover more of the cost of the rail project. Anthony Quintano/Civil Beat

“The hope is we may not have to,” Caldwell said.

For the mayor and members of the City Council, the notion of using any city dollars to pay for rail has been a tough pill to swallow.

In 2007, city leaders pledged not to use property tax dollars to help build rail in an ordinance. In October, however, a majority of council members approved HART’s recovery plan, essentially acknowledging that some property tax dollars will go to the construction effort after all.

Councilwoman Kymberly Pine at the time called it a “conscious effort by the Legislature to stick it to the city taxpayer,” although she voted in favor. During that discussion, Pine assumed the amount would be $160 million.

The City Council must first pass Bill 42, which Chairman Ron Menor introduced last year and would allow city dollars to help build rail. The council deferred it earlier this week as its members continue to tweak its language.

City Budget Director Nelson Koyanagi jr during Mayor Caldwell budget presser. 2 march 2017
Budget and Fiscal Services Director Nelson Koyanagi says bond financing will help the city absorb its new rail costs without cutting services. Cory Lum/Civil Beat

Caldwell’s fiscal year 2019 budget calls for $44 million in rail spending, representing the costs to run HART in two years: 2018 and 2019. According to a Feb. 23 letter that Caldwell sent to the Federal Transit Administration, the city didn’t include HART’s administrative costs this fiscal year because the project already had enough money to cover them.

However, FTA officials interpreted this as a lack of commitment by the city to rail, Caldwell’s letter stated, so he opted to include both years’ funding in his proposed 2019 budget.

On Friday, Caldwell’s budget director, Nelson Koyanagi, said that he’s confident the city can absorb the millions of dollars in extra rail costs without cutting core services because they’ll be covered by bonds to be paid back over 25 years.

The city likely would have faced service cuts if its operating budget had to also cover the rail costs. The bond financing makes it manageable, Koyanagi said.

Other city leaders have voiced displeasure at using bonds to fund rail. In June, Councilman Ernie Martin dissented on a key vote to float separate rail bonds because he said they make it harder to bond for other badly needed improvements, such as new light fixtures at Waialua District Park.

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