Honolulu rail officials repeatedly fed the public rosy estimates that contradicted their own internal warnings of the project’s runaway costs and crippling delays, according to a much-anticipated state audit.

Furthermore, city and rail officials often clung to “weak” and shoddy budget projections, despite numerous warnings from their federal partners, and they should have seen the project’s severe cost overruns coming, it found.

The rail report released Thursday is the first of four expected from state Auditor Les Kondo in the coming weeks.

In 2017, the Legislature, faced with having to bail out the island’s beleaguered transit project for a second time, assigned Kondo’s office to audit the Honolulu Authority for Rapid Transportation’s management and fiscal practices and then deliver its findings before the 2019 legislative session, which begins Wednesday.

The first report largely focuses on 2014 to 2016, a period when rail’s estimated total costs nearly doubled from just over $5 billion to about $9 billion.

It found that under the agency’s former executive director, Dan Grabauskas, HART’s “internal alarms of rising project costs and schedule delays were not shared in a timely manner by HART management with the Board, the Legislature or the public.”

Specifically, the report points to previously undisclosed HART estimates in April and June 2015 that showed rail’s cost overruns to be potentially far worse than what the agency was sharing at the time, as city leaders sought more tax revenues from the Legislature to keep rail construction going.

It further points to discrepancies in the cost and schedule data that HART reported to the Federal Transit Administration compared to the more optimistic data that it shared with its own board of directors.

HART had set procedures for how to keep the public informed of such updates but “failed to follow this framework,” instead giving Grabauskas “wide discretion over how and when the project would update costs and schedule,” the report said.

“I think that’s a true statement,” said Brennon Morioka, who served as HART’s deputy director from 2013 to 2017. “That’s probably a fair statement.”

“Dan would make the decisions as to content and timing,” Morioka told Civil Beat.

Asked whether he ever raised concerns with Grabauskas about that timing, Morioka replied: “I’m always a believer the earlier you share the information, especially (with) your stakeholders and partners, the better it is.”

Grabauskas resigned from HART in 2016 under mutual agreement with the board.

“No one person controlled the decision-making or flow of information on this massive project. It was a large group effort,” Grabauskas said in an email Thursday, asserting that the local rail agency had been transparent on rail costs. “As soon as there was a new consensus estimate it was published independently by both HART staff and (federal oversight contractors) in separate written monthly reports.”

Grabauskas was not interviewed for the audit.

The report cites an April 2015 presentation that Morioka gave to HART staff titled, “If can, can … If no can, how can?” in which Morioka reportedly shared that the project might cost as much as $6.72 billion — about $700 million more than the official estimate at the time.

Morioka said he remembered using the “if can” slogan in a slide for a morale-building session with the full staff, but he did not recall discussing cost estimates in that meeting. He said he also was not interviewed for the auditor’s report.

HART board chairman Damien Kim said Thursday there was little to dispute in the first report because it was mostly a synopsis of the past decade.

“In hindsight, looking back, things should’ve been done differently — could’ve been done differently. But it was a brand-new project in Honolulu, the first of its kind,” said Kim, who’s also the volunteer board’s last original member. “Everyone has a different take on how much tolerance” is acceptable for rail’s cost overruns.

“At the time … the board themselves did not know it was not a timely matter,” Kim added of the cost updates. Overall, however, he said that he did not feel misled by HART under Grabauskas’ leadership.

Much of the auditor’s findings so far echo concerns raised over HART’s transparency by former Hawaii Congresswoman Colleen Hanabusa, who served as the agency’s board chair before returning to Congress in 2017.  

In 2016, Hanabusa flagged a 2014 FTA risk report that showed rail might cost as much as $7.6 billion. Rail leaders had not disclosed that figure during their 2015 discussion with the Legislature.

“What is troubling about that is, why then would the city and HART go in for $910 million more, because at that point in time, you know it’s about $2 billion,” Hanabusa told Hawaii News Now at the time.

Problems From The Beginning

Much of the auditor’s first 39-page report on rail outlines a turbulent history that anyone who’s followed the project closely will recognize.

It chronicles questionable management decisions, lofty promises from city leaders such as former Honolulu Mayor Mufi Hannemann, effective legal challenges and skyrocketing construction costs that have pushed the largest public works project in Hawaii’s history nearly 80 percent over budget.

But the report further asserts that city officials should have seen those problems coming, especially given the repeated warnings from their partners at the FTA.

“The City prematurely entered into contracts under an artificial timeline and fragile financial plan, stemming from a desire to demonstrate that (rail) was progressing satisfactorily and to minimize public criticism,” the report summary states.

It also recounts HART’s years-long struggle to build the final 4 miles of elevated track and eight stations planned for Honolulu’s urban core.

Officials expect that section, dubbed “City Center,” will be the most challenging stretch to build. Its cost estimate have more than doubled to $1.4 billion in the past five years.

As those costs climbed, the city repeatedly found itself short of the funds needed to issue the construction contract, the report stated. It was a vicious circle of sorts that helped push back rail’s opening date on six separate occasions, representing a total delay of six years.

City Center construction is slated to finally start in 2020. The full rail line now isn’t expected to open until December 2025, at the earliest.

“Bold, overly optimistic projections: that’s really the story of the Honolulu Rail project, at least during the period that we examined for this report,” Kondo added in a follow-up press conference Thursday. “From the very beginning, even before the city put shovel into the ground, the city knew that it could not complete the rail project on time or on schedule.”

HART, in its written response, did not dispute the auditor’s overall findings.

The agency’s response states that under its new executive director, Andrew Robbins, HART has “established and enforced a robust risk assessment and management system, developed a well-documented … change order management system, and has applied best practices and effective front-line construction management.”

Nonetheless, HART was blasted in the report for impeding the auditor’s work. The agency didn’t give the auditor’s staff access to the computer system that manages the project’s contracts until months after the initial request, and the access they eventually got was “limited,” the report said.

“We could have done better in terms of timeliness of information, and I think that’s a lesson learned for the future,” Robbins said during his own media briefing Thursday. “But we were never trying to intentionally withhold any documents.”

Further, the HART board only provided a fraction of the executive session minutes requested by the auditor. The minutes that the auditor did get “were redacted so extensively as to render them indecipherable and meaningless,” the report said.

Kim said that the board withheld the minutes — and heavily redacted the ones it provided — on the advice of the city’s Corporation Counsel.

During the course of the audit, which took place from March through November, Kondo appeared before the HART board several times to raise his concerns over the agency’s cooperation with his staff.

The agency did, however, give those staff members access to more than 1,600 files with more than 36,400 pages, 472 emails and 5,000 spreadsheets, according to HART’s written response.

Honolulu Mayor Kirk Caldwell said in a statement Thursday that he “welcomed” Kondo’s report.

“The findings contained in the audit report is a further call to action by the HART Board of Directors to maintain strong management oversight of the transit authority,” said Caldwell, who previously served as Hannemann’s managing director.

The auditor’s second report, expected to be published next week, will delve into HART’s organizational structure, Rep. Sylvia Luke told an audience Thursday during Civil Beat’s Legislative Preview.

The third installment will be more “substantive” and examine the project’s change orders among other issues, Luke said. The auditor is expected to release the final report in mid-February, she added.

State Sen. Karl Rhoads also reacted to the report at the Civil Beat event.

“The number one rule of public communication is to get the bad news out there yourself before somebody catches you, and I’m just appalled that they would go that route,” Rhoads said.  He added “I don’t think it should be used as an argument to stop the rail project. It should be an argument to improve the management of the rail project.”

Civil Beat reporter Stewart Yerton contributed to this story.

Here’s a copy of the auditor’s first report on rail: