It’s an awkward time to ask, but the Honolulu Authority for Rapid Transportation wants the Honolulu City Council to authorize the city to borrow up to $550 million so HART can keep paying its rail contractors for the next year or so.
The beleaguered rail project is now running largely on borrowed money, and the HART board voted on May 21 to ask the city to issue up to $550 million in city-backed bonds to raise more cash so work on rail can continue under HART’s existing construction, design and other consulting contracts.
This is an uncomfortable time to make that request because the estimated cost of the 20-mile rail line and stations has now swelled to $12.4 billion, leaving HART with a budget shortfall on the order of $3.5 billion.
HART is urgently trying to develop a plan to either scale down the project or raise more money to complete the system, and HART officials suggest they may once again ask the Hawaii Legislature for a financial bailout.
But lawmakers have said they are not inclined to provide more money for rail. The Legislature already voted twice to financially rescue the city project, voting in 2015 and 2017 to pump a total of nearly $3.7 billion in additional general excise and hotel tax revenues into rail.
Apart from that larger financial crisis, HART also needs a near-term injection of money to pay for the contractors that are already working on the project.
HART Chief Operating Officer Rick Keene told members of the HART board last month that the rail authority pays out about $120 million to $180 million every three months, most of which goes to contractors building the rail operating system, the elevated guideway and the rail stations.
But HART receives considerably less than those amounts in excise and hotel tax collections each quarter. The rail authority was receiving $80 million to $90 million per quarter from the excise and hotel room tax sources before COVID-19 hit, but that revenue stream dropped to $68 million per quarter or less during the pandemic.
To make up the difference and pay the bills as they come due, HART has been using short-term debt known as tax-exempt commercial paper, or TECP.
That TECP line of credit was originally proposed a decade ago to be used only in a “worst case scenario” to help maintain the cash flow for rail, but since then has become an important part of HART’s finances.
The rail authority used that tool to borrow a total of $215 million last fall and this spring to cover its costs, and expects to use TECP to borrow another $60 million this month, Keene told members of the HART Finance Committee on May 21.
Keene said HART then plans to use the money raised by the proposed $400 million to $550 million city bond float for rail to pay off that short-term TECP debt. HART would receive another $100 million in net proceeds from the city bonds, he said, which will also help fund the project.
HART will then be able to tap the TECP line of credit again later to help cover its expenses for next year, and will likely ask the city administration and council to issue more city bonds in the fall of 2022, Keene said.
Keene said HART will refine its current request to the city in the months ahead to spell out exactly how much money it needs from the city bond float, and expects the city will issue the bonds in August. HART will be responsible for repaying the city bond debt.
This is not the first time HART has asked the city to borrow money on its behalf. A spokesman for HART said the city now has $658 million in outstanding general obligation bonds for rail that HART is already obligated to repay with the hotel and excise tax revenue it receives.
Given changes in the makeup of the City Council last year and the uncertainty swirling around the rail project right now, it’s unclear how the council will react to HART’s request. Getting the city to issue more general obligation bonds for rail requires a two-thirds vote by the council.
Council member Heidi Tsuneyoshi on Wednesday complained that the tally of outstanding commercial paper and outstanding general obligation bonds shows HART is already in debt for nearly $1 billion.
Tsuneyoshi, who has been a frequent critic of the rail project, proposed that the council defer HART’s operating and construction budget requests for the coming year until HART takes steps such as strengthening its audit functions and presenting the council with a six-year construction plan.
Both of those steps are required by the charter, she said.
“Members, we have already floated almost a billion dollars in bonds. We can’t keep doing that. We cannot keep doing that without having them follow our own charter,” Tsuneyoshi said.
The council went ahead Wednesday and gave final approval to both the HART construction and operating budgets anyway, and also approved Bill 14 to authorize Mayor Rick Blangiardi’s administration to move forward on issuing bonds to fund new rail construction.
However, Council Chairman Tommy Waters noted that Bill 14 also requires that the council approve a new “Updated Final Financial Plan” for rail before any of those city bonds are actually issued.
HART Interim Executive Director Lori Kahikina said HART has hired a consultant to prepare a recovery plan for rail that would include a new financial plan, and the rail authority intends to submit that plan to the Federal Transit Administration in September.
Kahikina said she hopes to then finalize the recovery plan by the end of this year.
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