UPDATED 4 p.m. 6/28/12

The Honolulu rail project is now in the federal government’s hands.

After years of discussions and planning, the Honolulu Authority for Rapid Transportation on Thursday said it’s submitted a formal application for $1.55 billion from the Federal Transit Administration. That represents about 30 percent of construction costs from East Kapolei to Ala Moana Shopping Center.

“I’m not sure if it’s the most significant milestone in this project, but it very well might be,” HART CEO Daniel Grabauskas told Civil Beat. “We’re going to file, finally, for the Full Funding Grant Agreement. The joke I’ve made around here is that after 40 years of being an applicant, we’re about to become a grantee, and that’s really what we’re embarking on when we submit the application.”

The new financial plan projects that the city will need to contribute nearly $600 million more in “operating subsidy” than had been estimated in the previous model. That money could come from the general fund and property taxes.

A spokeswoman for anti-rail mayoral candidate Ben Cayetano told Civil Beat Thursday morning he would want to review the details of the application and financial plan before commenting. UPDATE Cliff Slater, a lead opponent and one of the plaintiffs in the lawsuit challenging the project, said HART should admit that the project cost is going up rather than the contingency being drawn down.

The application includes a 16-page template document and eight short attachments. Grabauskas told the HART Finance Committee about the filing Thursday morning in Kapolei. The most important piece of the puzzle, at least from the public’s perspective, is an updated draft of the project’s financial plan that lays out how HART intends to pay for construction over the next seven years or so.

The timetable remains the same as the one in the September 2011 draft, with a target completion date of March 2019. It’ll still be 20 miles long and it’ll still have 21 stations. So it’s substantially the same project. And the total construction cost for the system is basically the same — down a fraction of a percent from $5.17 billion last September to $5.16 billion in the new draft.

The minor savings are a function of an $80 million decrease in the financing costs — basically, the FTA gave HART feedback that its previous modeling was too conservative in projecting future interest rates. The non-financing construction costs are projected to be $70 million higher in the new draft than they were in the old one.

The plan shows that the contingency has decreased about 20 percent, from $815 million to $645 million, even though heavy construction has just recently begun. Grabauskas said that $170 million drawdown includes already-approved change orders as well as HART estimates for upcoming delay claims due to the “fits and starts” the project encountered early on.

Much of that money will go to Kiewit for work on the first section of the fixed guideway, and some will go to increased engineering and consulting services required by the FTA, Grabauskas said.

“This is a resetting of the project schedule and the project cost. The good news is that having adjusted for delay claims, changes and even the FTA’s requirements for additional professional services, we are within their alotted-for buffer zone,” he said.

“People seem to be under the impression that to touch contingency is a bad thing,” he said. “The FTA expects that there will be a drawdown of contingency. We don’t carry the contingency, like, oh, if we goof, really something unforeseen and it’s a bad thing to go there. They anticipate or expect that there will be for contingent dollars to meet unanticipated costs. That’s why we build it in there. … It’s the burn rate of contingency that we have to watch over.”

HART has produced a drawdown chart showing the target balance and minimum acceptable balance for the contingency fund at 10 key milestones from final design until project completion. Today, the balance is closer to the minimum than the target and is inside the 10 percent buffer zone, but is still above the line that would, if crossed, raise a red flag with the FTA, Grabauskas said.

“If you at any time see this below this purple line, that’s bad,” he said, pointing at the chart. “If somebody were to say, ‘How are you doing right now?’ here’s what my assessment would be: We have less contingency than I would like to have had, but it should be understood that much of what’s driving the current burn rate of contingency as we’ve now factored it and applied it is the one-time delay costs associated with start-up delays. I mean, we won’t have another start-up. And the delays that were attributed to the start-up — and you know them all: the EIS sitting on certain desks, lawsuits, not getting certain approvals.”

Grabauskas said the plan calls for there to be zero dollars left in the contingency fund at the end of construction, but that doesn’t mean all the money will have been spent.

The new financial plan has projected higher operating costs than the previous draft, up around $280 million from $1.33 billion to $1.61 billion. Grabauskas told Civil Beat that HART previously projected it would have only a handful of full-time employees after the system is up and running, and FTA required an increase to around 80 workers going forward.

Larger economic factors also play a role. Projected operating costs for TheBus and TheHandi-Van are also expected to be higher in the new draft versus the September 2011 version. Those changes are together almost $500 million.

On the revenue side of the ledger, HART now projects it will receive $3.29 billion from the half-penny general excise tax surcharge — up from $3.15 billion in the last draft. The draft also bows to the City Council’s demand that Section 5307 federal funds traditionally used for bus maintenance remain untouched in Fiscal Year 2013. The projected take from that funding source is reduced in the new draft from $244 million to $210 million over the life of the project.

All told, HART now projects an end balance of $193 million, more than double the $83 million it projected in the September 2011 draft.

“We have spent the last number of months, we and FTA, punching at the numbers from every angle, punching at the schedule from every side, really trying to say with the most current information that we have, with all the best modeling that the financial people can do and all the best experience that the FTA has to date that helps to guide the provisions within the plan,” Grabauskas said. “All that stuff gets brought to bear in this.”

Here’s a look at the key changes in the new financial plan draft and the schedule for drawing down the contingency fund:

A key change in the draft not mentioned in that overview is the inclusion the new backstop of a $450 million line of credit approved by the Honolulu City Council and signed into law by Mayor Peter Carlisle earlier this month. The FTA had demanded an additional funding mechanism HART could tap in the event of unforeseen circumstances.

The FTA will take some time — Grabauskas estimates around 30 days — to review the submittal and make changes before sending the packet to President Barack Obama and the Office of Management and Budget for another layer of review. When that’s done, the final financial plan and application will go to Congress. Simultaneously, an inter-governmental agreement resolution will be submitted to the City Council to finalize the deal on this end.

Read more about the upcoming timeline: Race To The Finish For Federal Rail Money

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