Honolulu rail officials, beset by several years of budget woes, could soon take a different approach to build the final, trickiest four miles and eight stations — one that’s backed by private financing.
On Monday, executives with Ernst & Young Infrastructure Advisors told the transit project’s local board that a public-private partnership could get rail done while also limiting taxpayers’ exposure to any future cost increases.
Under such a partnership, tax dollars would still pay for the bulk of the project — but its budget would be capped at $8.16 billion and private finance would cover any cost increases. Also under the proposed model, contractors wouldn’t get paid until they delivered the project or at least hit major construction milestones.
Then, HART hopes, contractors would be highly motivated to build the rail line on time and on budget so they don’t lose money.
HART is considering capping the rail budget at $8.1 million in public money and using private investment for any thing over that.
Cory Lum/Civil Beat
“What we’re looking for is more budget certainty and more schedule certainty,” HART Executive Director Andrew Robbins said Monday after the board briefing.
Since late 2014, rail has seen its construction costs climb by about $3 billion.
On Monday, Ernst & Young executives told the HART board that a public-private partnership could curb the remaining construction costs by 5 percent to 10 percent.
HART Executive Director Andrew Robbins touts using a public-private partnership to reduce the city’s exposure to risk of more cost increases.
Cory Lum/Civil Beat
Overall, it could cut costs to build the full 20-mile, 21-station project by about 2 percent, the firm estimated.
Ernst & Young relied entirely on the $8.16 billion budget and tax revenue assumptions that the rail agency provided. Those figures were also included in the rail agency’s 2017 recovery plan, and they’re currently under heavy scrutiny by rail’s partners at the Federal Transit Administration.
A 2017 analysis funded by the Hawaii-based social investment fund Ulupono Initiative first proposed taking this public-private partnership approach, also known as “design-build-finance,” to finish rail.
“It changes their behavior — they want to finish quickly,” Jill Jamieson, a managing director with the Chicago-based investment management firm Jones Lang LaSalle, told the Honolulu Star-Advertiser in March 2017.
At the time, rail officials were dubious that they could realistically change their approach so far into construction. Other major public works and transit projects, such as the Denver Eagle, have used design-build-finance — but they hadn’t changed course midway through. HART said it had reached out to private finance firms but didn’t get any follow-up interest.
However, Robbins touted the idea almost as soon as he joined the project in July.
On Monday, Ernst & Young Senior Managing Director Tuyen Mai told the HART board the proposal could work after all — but there was a catch: To get a large-enough pool of interested, well-financed candidates, HART would also need to let those candidates operate and maintain the rail line for some 20 years after it launches.
Ansaldo Honolulu JV Managing Director Enrico Fontana
Complicating matters, Ansaldo Honolulu, the joint venture that’s designing and building rail’s cars and communications systems, already has a 10-year operations and maintenance deal as part of its $1.4 billion contract.
Ansaldo is in a tricky situation. It has the operations and maintenance contract, but it also needs the city to successfully complete rail to capitalize on that contract.
“For sure we are interested” in finding a solution to finish rail, he told the HART board.
Robbins said he’s met with Ansaldo executives and their response has been “very positive.”
It’s not yet clear whom the city would partner with on such an agreement. Omaha-based Kiewit Infrastructure West built rail’s first 10 miles to Aloha Stadium and a joint venture, Shimmick/Traylor/Granite, is building the next stretch to Middle Street.
The firms that enter such deals are specialized and “extremely well-capitalized,” Mai told the HART board on Monday. He didn’t name specific companies, but Mai said some are development arms of large transit systems in France and the United Kingdom, and that they’re backed by the national governments there.
Despite these firms’ largesse, “it’s not to say that there are no risks” that they could encounter financial problems, Mai told the board.
Some HART board members, such as Honolulu Planning and Permitting Director Kathy Sokugawa, expressed concerns that partnering with a large international firm could cost local jobs on the project.
HART Procurement Director Nicole Chapman told the board that the rail has seen strong local participation despite having numerous mainland-based primary contractors.
The city’s elected leaders would have to approve of HART’s change in strategy — and partner with the rail agency to award the contract, officials said Monday.
HART hopes to issue a request to get proposals from interested partners in July. It then hopes to award the contract by the fourth quarter of 2019 in order to stay on schedule to finish rail by December 2025.
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