Long before HART announced it was under federal investigation, a HART employee raised concerns about improper handling of millions of federal dollars and said she faced retaliation for reporting it, according to a confidential city report obtained by Civil Beat. 

Commissioned by the board of the Honolulu Authority for Rapid Transportation in April 2016, the report examines claims from two employees about then-HART Executive Director Dan Grabauskas. Allegations of wrongdoing by Grabauskas were “not substantiated.”

However, the report shows alleged problems with the project’s real estate acquisition effort as early as 2015 – years before HART admitted those issues publicly in February 2018.

Now, the feds are investigating the agency for potential criminal activity in its real estate transactions. Made public for the first time, HART’s report from August 2016 raises questions about why alleged problems with federal money weren’t found and fixed sooner in the largest public works project in Hawaii history. 

In the report, a complainant, whose name is redacted, alleged that Grabauskas intimidated her into withholding information from the board; “concealed and covered up” performance deficiencies that resulted in improper compliance and financial management of more than $18 million, over $5 million of which came from a Federal Transit Administration grant; and coerced her to resign when she and a manager raised concerns about “improper drawdowns” – or filings for reimbursement – by an individual against the FTA grant. 

The other complainant, whose name is also blacked out, told investigators that Grabauskas created a culture of “don’t make waves or you will be fired.” 

The corporation counsel’s office redacted the names of the complainants and all witnesses in its response to a public records request. The report states the first complainant was hired in June 2012 and resigned in January 2016 but later rescinded her resignation and continued working for HART for another year under a personal services contract. 

That employment record mirrors the tenure of former Chief Financial Officer Diane Arakaki, who was hired and resigned on those dates, then rescinded her resignation and continued working at HART for another year on a contract. A former board member confirmed Arakaki was the complainant.

Messages left with Arakaki by phone, email and at a Honolulu address were not returned. 

The report offers no insight into what action, if any, the board took in response to the employee’s allegations of financial mismanagement.

Did Feds Know Of Problems?

Colleen Hanabusa, who was the chairwoman of HART at the time, said the allegations in the report validated concerns she already had about the handling of federal funds. 

However, the board did not ask the employee for further information or report her allegations to the Federal Transit Administration. The FTA was already having monthly meetings with HART, according to Hanabusa, so “they would’ve flagged something” if there was an issue. 

“The FTA had information about what was going on, so it’s not a situation where they were, I think, left in the dark,” said Hanabusa, who is running for mayor.

Besides, at that time, HART’s board had little oversight power, according to Hanabusa. Members didn’t even have the authority to question change orders until a charter amendment was passed in 2016, she said.

“I understand clearly why people would say hey, what did the board do?” she said. “But the board also, in fairness to the people who served on it, they were clearly told that you have no right to question or to raise these issues.”

With “2020 hindsight,” Hanabusa said if she could go back, she’d ask the corporation counsel’s office to investigate the employee’s claims.

“But if the corporation counsel believed it was something irregular, they would’ve done it,” she said.

Michael Formby, who was also on the board at the time, said he remembers being briefed in a 2016 executive session on personnel matters but doesn’t recall any mention of potential financial mismanagement. He said members were given copies of the 52-page report during the meeting to review while city lawyers summarized it. He estimated the briefing lasted 15 minutes.

At the end of the meeting, members were required to return the reports. If fiscal improprieties had been mentioned, he said “our ears would’ve perked up.”

“That sort of stuff would’ve been called out immediately,” he said. “If someone tells you of a potential legal issue, especially me as a lawyer, that’s a red flag.”

No one brought any allegations of financial issues to the board during that time or to Formby when he became acting executive director later that year, he said. If they had, he said it would have been investigated, likely by outside counsel.

“You don’t just overlook stuff like that,” he said. “If someone made that kind of claim, that’s just too big.” 

A statement released Friday by HART spokesman Bill Brennan gave no indication of whether the agency took any action as a result of the complainant’s financial concerns.

“The report is a confidential personnel matter, and HART cannot comment,” the agency said.

‘Unable To Substantiate’ Most Claims

Marr Jones & Wang was “unable to substantiate” most of the allegations in the report. However, there were a few claims they determined were likely to have happened. 

Regarding claims of a hostile work environment,  Marr Jones & Wang attorney Megumi Sakae wrote: “Based on the information gathered throughout this Investigation, the Investigator finds it more likely than not that Grabauskas engaged in behavior that a reasonable person could find intimidating or offensive when he raised his voice, swore and indirectly or directly threatened employees’ jobs when he was upset.”

The investigator also found that Grabauskas “more likely than not” called two board members “shits” before an April 18, 2016 board meeting. 

Grabauskas resigned with a $282,250 severance three days after the date on the report and following months of deliberation by the board. His LinkedIn profile says he is now running a consulting firm out of New York. He did not respond to requests for comment.

Whether the FTA drawdowns were proper or not was left undetermined. That answer was beyond the scope of the investigation and outside the investigator’s knowledge, the report states. 

Apparently, it was also outside the expertise of HART’s own employees, according to the report. 

“Investigator notes that despite the heated internal disagreement over the drawdowns, it does not appear that anyone, other than (name redacted) claims to have authoritative knowledge of grants management,” the report states. “This includes high-level managers in Budget and Finance or in Planning.”

In its statement to Civil Beat on Friday, HART said the agency currently has grants management experience and expertise on staff.

“HART’s current Chief Financial Officer had grant experience before joining HART as grants manager, and she is about to bring on board another staffer with grants management experience,” the agency said.

One person told the investigator that from October 2014 through the date of the report in August 2016, fiscal expenditures – including federal financial reports and drawdowns against the grant – were not reviewed by the budget and finance staff before Grabauskas signed them. 

In February 2018, Grabauskas’ successor, Andy Robbins, announced that rail officials might have violated federal law by issuing millions in relocation payments to property owners along the rail line. HART has since been hit with three federal subpoenas, at least one of which focused on overpayment of relocation costs to landowners. 

That doesn’t count additional subpoenas sent separately to rail employees. Federal authorities have prodded Honolulu Hale staff for information related to rail, too. 

‘Improper Grant Reimbursement’

In fall of 2015, while preparing for an audit by independent financial auditors, a female employee allegedly discovered improper drawdowns against the FTA grants for real estate transactions that have not yet closed and cash collateral for the Owner Controlled Insurance Program, the report says.

The report doesn’t go into detail or provide evidence of the alleged wrongdoing. 

While the audit did not result in a finding on those points, the woman and another person felt a “professional obligation” to raise the issue, the report says. They addressed it with at least two others. 

From October 2015 until early January 2016, several employees discussed the possibility of “improper grant reimbursement” through emails, the report says. The exchange ended when an official, whose name is redacted, said to “stop sending me any further emails regarding this matter.”

“I will say it again, THIS IS YOUR AREA OF RESPONSIBILITY AND YOU MUST MAKE THE DETERMINATIONS AS TO THE ELIGIBILITY OF THOSE EXPENDITURES,” the email stated. 

That same day, Jan. 7, 2016, the report indicates Grabauskas called the complainant into his office and asked her to resign. 

Grabauskas said he was unaware of issues with drawdowns until April 29, 2016 when a Marr Jones & Wang investigator sent him the Jan. 7 email. On May 9, 2016, he reached out to several others (whose names are redacted), writing: 

“Is there a question of (in)eligible draw downs on the federal grant? (S)pecifically, regarding: properties not yet in escrow; properties in eminent domain; and/or collateral and escrows; OCIP? Either they are or not — and FTA should be able to answer. If they are ineligible costs, are we having to reimburse? What is the status? There was no finding in the audit last year that I am aware of, or the FTA Triennial was there? Or is this possible a recent occurrence. Can someone fill me in?”

Grabauskas was told the drawdowns were appropriate, the report states. The next day, the report says Grabaukas told someone to follow up with the FTA to ensure “we’re not missing anything.” 

Grabauskas told investigators that he asked FTA officials in May 2016 whether there were any issues with improper drawdowns, and “the FTA responded there were none,” according to the report. 

An FTA spokesperson told Civil Beat the agency “is not aware of any such inquiry from HART in 2016.”

A ‘Reasonable’ Response

The investigator could not substantiate any wrongdoing by Grabauskas, including that he “covered up” any performance deficiencies or improper drawdowns. 

“This investigator sees no reason why Grabauskas would attempt to cover up or conceal improper drawdowns or the performance deficiencies of the (redacted) at the risk of an audit finding or other serious repercussions,” the report states. 

Grabauskas also took “reasonable action” in response to concerns, the report found. 

According to the report, Grabauskas denied retaliating against the first complainant. He said he asked her to resign because of performance deficiencies including that she “did not present well” and rolled her eyes in response to questions from board members. In the report, three board members corroborated the existence of performance issues.

“We had gone through a difficult storm in 2015 and (name redacted) wasn’t the person that could stand up at the hearings,” Grabauskas told the investigator. “We anticipated further problems would likely arise and we need a strong (redacted) to work through them. We need someone who has the facility with the numbers, and understands how financing works.” 

HART officials had spent much of 2015 grappling with the project’s first major budget deficit and pleading with state lawmakers to approve a $1.5 billion bailout. Even with that help, the project’s price kept climbing, and it became clear it could face further financial trouble.

In an interview with the investigator, the complainant said Grabauskas talked to her about her performance “once maybe twice in 4 years,” the second time being in January 2016 when he asked her to resign. She said she did not recall rolling her eyes and that when she didn’t answer questions at board meetings, it’s because the question was outside her “kuleana.” 

As for the complainant’s belief that Grabauskas asked her to withhold information from the board, the investigator found “more likely than not that there was a misunderstanding.” The report says the allegation could not be substantiated. 

The fact-finding investigation into personnel complaints at HART occurred during an especially tumultuous time for the project, in which Grabauskas clashed with city leaders and rail’s official price tag dramatically soared. The price tag has grown from $5.26 billion in 2012, when HART signed a deal with the FTA, to just over $9 billion today. 

Marr Jones & Wang was retained the week after Hanabusa took over as the rail board’s chairwoman. In public, some members expressed frustration at not receiving more timely and reliable budget updates from HART, including then board member Formby during an April 2016 meeting.

“We look like potted plants when we don’t have the opportunity to ask questions and make decisions,” he said. 

Confidential Investigative Report of Dan Grabauskas for Honolulu Authority for Rapid Transportation (Text)