Council OKs $350 million in bond funding for rail

July 13, 2017

Honolulu Star Advertiser
By Marcel Honoré
July 13, 2017

The Honolulu City Council has authorized $350 million in city-backed bonds to keep existing rail work going — a shot of political support for the beleaguered transit project as the Legislature looks to bail it out later this summer.

With Wednesday’s 6-3 vote, city budget officials plan to issue those general-­obligation bonds on behalf of rail next month, right before the Honolulu Authority for Rapid Transportation says it will run out of money. The project is now in the height of construction, and the bonds will cover rail’s cash flow when its state tax revenues don’t keep pace with expenses, officials say.

Such city-backed borrowing has been part of rail’s official plan since at least 2012. The bonds approved this week will cover construction only as far as Middle Street, and HART says it can pay them back with its state funds.

Still, the Council heard about 3-1/2 hours of contentious public testimony and discussion Wednesday — mainly because the full 20-mile, 21-station project continues to face a multibillion-dollar budget shortfall and an uncertain future. Critics questioned whether city leaders should further commit to the elevated rail line when they still don’t know how — or if — they’re going to build all the way to Ala Moana Center.

One of rail’s most fervent longtime opponents, retired University of Hawaii law professor Randy Roth, likened the situation to being stuck in a hole but still digging.

The $350 million covers only fiscal year 2018, which started this month. As rail progresses, HART is expected to come back to the Council in subsequent years and ask for many hundreds of millions of dollars more in bonds.

A total of $2.4 billion in general-obligation bonds and $700 million in commercial paper borrowing was expected to cover rail’s cash-flow needs under the city’s 2012 funding agreement with the Federal Transit Administration.

That was back when officials assumed the project would come in on time and on budget, costing $5.26 billion. That cost estimate has since nearly doubled. On Wednesday, HART officials said they’re no longer sure how much bond financing backed by the city’s full faith and credit they’ll need during rail construction.

“I’m not even sure I want to say a number,” rail Chief Financial Officer Robert Yu said during a Council meeting break. “It depends on a lot of variables.”

Wednesday’s 6-3 vote mirrored a previous one taken in June, when the Council gave its preliminary authorization for city bonds to help rail this year.

Both votes barely passed. Under the Honolulu City Charter, bond-related measures need at least six Council votes on final reading to pass. Councilman Trevor Ozawa was largely viewed as the swing vote last month since he switched from a previous “no” to a “yes.”

“Today’s vote is about obligations that we owe on contracts that we’ve already signed to Middle Street,” Ozawa said Wednesday before again voting in favor. Approving the bonds doesn’t reflect how he feels about the “project on a whole,” he added.

“It’s not a rubber stamp toward Ala Moana,” Ozawa said. “There are other ways to do things in the city, and I’m open to all of those options.”

Council members Ernie Martin, Ann Kobayashi and Carol Fukunaga again voted against.

Kobayashi, the Council’s most vocal rail critic, expressed disdain for using some of the $350 million to help pay off commercial paper that rail already borrowed to cover costs. She was surprised Wednesday to learn from HART officials that “it was in the plan that we would borrow money to pay off borrowed money.”

“That is really a dangerous situation,” she said at the meeting. “I think a bell would be going off if any other business did that.”

Martin said he’s pro-rail but wants to see other city needs receive more equitable treatment. He listed tennis courts in Mililani Mauka, park lights in Waialua and bathrooms at the Wahiawa Transit Center as examples.

Meanwhile, some in the audience held up signs urging the Council to build rail to Ala Moana. Shem Lawlor, clean-transportation director for the Honolulu-based Blue Planet Foundation, agreed that rail’s cost increases and delays have been unacceptable — “but don’t confuse that to mean it’s not needed,” he said.

Rail would help build a transportation network where local households would not have to own a car, giving them the option to save hundreds of dollars a year in fuel and maintenance, Lawlor added. Testifiers spent more than an hour Wednesday debating whether rail would give future residents a better chance at prosperity on Oahu.

The Legislature plans to meet Aug. 28 to Sept. 1 to try to reach a financing deal to complete rail. Supporters hope that will convince the FTA not to declare the city in breach of its rail funding deal.
“As we speak, we have the FTA (and its contractors) in our offices going through all of our books, trying to figure out where we are and what the state of the project is,” HART interim Executive Director Krishniah Murthy told the Council on Wednesday.