Honolulu city officials will float short-term commercial paper to swiftly raise $44 million for Oahu’s rail project before Nov. 20, a deadline set by an increasingly impatient Federal Transit Administration.
Mayor Kirk Caldwell made the announcement Monday, marking the first time city property tax dollars will go toward building rail. The move, enabled by key City Council votes last week, reverses a nearly 12-year-old policy and pledges by previous city leaders to only use state and federal tax dollars to complete the transit project.
Now, Oahu taxpayers will fund rail construction not only with state tax revenues but also their city property taxes.
“This has been hard for the council, hard for me,” Caldwell said Monday. “None of us wanted to use property taxes. None of us wanted to pay twice. But this is what we’re faced with.”
Last year’s multibillion-dollar rail bailout package from the state, which is expected to generate at least $2.4 billion for the beleaguered transit project, forced the city to put more “skin in the game.” It required the city to contribute $214 million toward rail’s construction budget.
The $44 million represents the first two years’ payments, and exactly how to cover that amount has consumed much of the council’s time and energy this year. Now, the FTA is demanding that the city pony up or face consequences.
The federal agency hasn’t specified what those consequences might be, but it continues to withhold the remaining $744 million in federal money dedicated to the project. Caldwell and other city officials fear they might lose that money outright if they don’t appease the FTA.
The short-term bonds, essentially a bridge loan, should be floated in the coming week. The move, Caldwell said, was already authorized by the council. City officials plan to use general obligation bonds early next year to pay off the short-term loan.
Last week, some City Council members, including Kymberly Pine, suggested the city consider using its so-called “rainy-day” fund to cover the $44 million in the short term, surmising the move could help the city save on interest payments.
Caldwell rejected that idea, however, saying the move could put the city’s AA-plus bond rating at risk. If the bond rating sinks, costs for the city to borrow on all of its long-term projects — not just rail — would increase.
Further, Caldwell argued, the city’s new obligation to help pay for rail construction technically isn’t an “emergency” covered by its rainy day fund. Instead, Caldwell told Council Chairman Ernie Martin, the fund is reserved for severe downturns, natural disasters or other such emergency situations.
The city has known it would have to pitch in on rail since September 2017.
Caldwell called tax-exempt commercial paper “the least-painful” and “the most open and transparent” way to cover the millions needed in a short amount of time.
Although the FTA is demanding that the city show it the money, the Honolulu Authority for Rail Transportation has said it doesn’t actually need those funds due to its current cash flows.
The city would pay about $150,000 in interest on the stopgap loan, Budget and Fiscal Services Director Nelson Koyanagi told reporters after Caldwell’s briefing Monday.
Under rail’s recovery plan, a step that was also required by the FTA, the city will be making regular payments on its $214 million share through 2027 — long after the terms of Caldwell and council members expire.
“This is not the end of it. There’s going to be further challenges,” Caldwell told reporters Monday.
“But it’s worth all the agony,” he said.
Read Caldwell’s Nov. 5 letter to the Honolulu City Council explaining his decision here:
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