State lawmakers want to repeal an annual rail audit requirement in part, they say, to get out of the way of federal investigators now probing the multibillion-dollar transit project.

On Tuesday, the House passed House Bill 118, a measure that was overhauled earlier via the “gut-and-replace” procedure. The revised bill would free the state auditor from having to inspect Honolulu rail’s invoices each year, making sure those expenses comply with what state law allows.

A similar measure is moving in the Senate.

As part of their 2017 rail bailout, state leaders gave the Department of Accounting and General Services $400,000 to verify that all rail expenditures are legitimate — that they relate directly to construction — before reimbursing the Honolulu Authority for Rapid Transportation for the costs.

However, the state auditor said last week that his office lacks both the expertise and the funding to separately assess that DAGS’ rail reimbursements are OK.

HART rail rebar round steel construction near the Makalapa Gate. Pearl Harbor/Air Port
A rail worker installs rebar near Pearl Harbor. Cory Lum/Civil Beat

“At this point it really becomes a policy decision,” Hawaii Auditor Les Kondo said Thursday. “If you want us to do that exercise, and it’s meaningful, then we’re going to have to hire a consultant.”

Rep. Sylvia Luke, who chairs the House Finance Committee and introduced HB 118, said via text earlier this month that lawmakers want to ensure the auditor’s work doesn’t interfere with the federal criminal probe related to rail that’s now underway.

She repeated that sentiment Tuesday shortly before the bill passed on the House floor.

Her proposal comes after the U.S. Attorney’s Office dropped three grand jury subpoenas on HART last month. The orders demand that the rail agency provide tens of thousands of pages related to construction contracts, change orders, federal agreements, closed-door board meetings and other facets of the project.

State Auditor Les Kondo speaks about the first HART Audit.
State Auditor Les Kondo addresses the media after his office released the first in a series of audits on Honolulu’s rail project. Cory Lum/Civil Beat/2019

The proposed repeal also comes as the public awaits a separate report on rail from the state auditor — one that Kondo says will focus on DAGS and that his office is capable of carrying out. That report, the third in the state auditor’s deep-dive into the rail project, will examine whether DAGS has the right process and procedures in place to carry out its new rail responsibilities, Kondo said.

Rail aims to transform transportation and development across much of Oahu’s crowded southern shore, but its price tag has nearly doubled since late 2014 to more than $9 billion, dampening public support. The subpoenas have ensnared the effort in a criminal probe.

While rail leaders have struck a hopeful tone, it remains unclear how the subpoenas might impact the project’s much-needed federal dollars.

Kondo said his staff didn’t find potential criminality during its examination of rail — but he stressed that they weren’t looking for criminality, either.

“If we had smelled it, we would have referred it to the appropriate authority,” Kondo said.

State Withholding ‘Substantial’ Rail Dollars

Meanwhile, during their first full year scrutinizing fresh rail costs, finance officials at DAGS approved most — but not all — of the project’s invoices.

For 2018, they rejected expenditures to develop the transit line’s fare-collection system, plus costs to repave Kamehameha Highway after construction, according to HART.

If the state officials keep rejecting those invoices, HART and the city might eventually be on the hook for tens of millions of dollars in additional rail-related contracts, officials say.

That “could be pretty substantial,” HART’s then-chief financial officer, Robert Yu, told the agency’s board in November.

Overall, DAGS approved and certified some $317 million in invoices for reimbursement in 2018, the agency’s quarterly reports show.

The bulk of that expense came from Shimmick/Traylor/Granite, a mainland-based joint venture firm with an $875 million contract to build rail’s elevated concrete pathway and the four stations between Aloha Stadium and Middle Street

Honolulu-based Nan Inc., which is building six westside stations and has a $400 million utility relocation contract on the project’s east end into town, also represented much of those approved expenses.

HART rail guideway construction near the Arizona Memorial 2019.
Construction of the rail guideway, led by the firm Shimmick/Traylor/Granite, continues near Pearl Harbor. Cory Lum/Civil Beat

However, DAGS returned 11 percent of HART’s total invoices unreimbursed in 2018, representing about $40 million, according to state Comptroller Curt Otaguro. DAGS seeks further documentation for those expenses, he said.

That withheld $40 million won’t prevent HART from paying its expenses in a timely manner, but it could lead to added financing costs, according to agency spokesman Bill Brennan.

Otaguro didn’t specify which expenses needed more explanation, but DAGS’ rejection of the fare-collection and road-repaving invoices came up at HART’s meeting in November, when Yu briefed the board.

TheBus aims to eventually share that same fare system with rail, Yu explained, so HART and the city look to split that system’s approximately $30 million in total costs down the middle. DAGS, however, has questioned whether splitting those costs evenly makes the most sense, Yu said.

Two months after the November board meeting, Yu left HART to take a position at the state’s Department of Budget and Finance.

Kondo said he’s not sure when the DAGS-related report will be released. The Senate will vote Thursday on its bill to repeal the annual audit.

Civil Beat reporter Blaze Lovell contributed to this report.

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