Mayor Peter Carlisle’s administration has formally asked the City Council to approve a $450 million city-backed line of credit that could be used to complete the rail line in the event of a "catastrophic, unforseen event" that causes the project to run out of money.
The city is establishing the line of credit to appease the Federal Transit Administration, which last year warned the city the rail financial plan "must be further strengthened" before it will agree to commit $1.55 billion in federal funds for the project.
In a Dec. 29 letter to the city, FTA Regional Administrator Leslie T. Rogers said the Honolulu Authority for Rapid Transportation "should demonstrate the availability of additional revenue sources that could be tapped should unexpected events such as cost increases or funding shortfalls occur."
Daniel Grabauskas, executive director of the authority, described the proposed extra line of credit as a kind of "super-contingency" reserve.
"The hope and the belief would be that you would never call on this line of credit, but if you were 90 percent done with the project and something catastrophic happened that more money was necessary, you’d have a little extra reserve or some opportunity or some option," Grabauskas said. "That’s what this is about."
The Council is scheduled to consider Bill 37, which authorizes the line of credit, in a meeting that begins at 10 a.m. Wednesday at Kapolei Hale.
The line of credit differs from the rest of the rail financial plan because city officials have not yet specifically said how the $450 million would be repaid in the event that it is needed.
All of the other projected costs for the construction project are covered in the financial plan, which spells out exactly where money will come from.
Most of the construction funds would come from $3.154 billion in tax collections from the half-percent excise surcharge city residents and tourists began paying in 2007 and will continue to pay through 2022.
The plan is that another $1.55 billion in federal New Starts funding would cover most of the rest of the cost of construction and be supplemented by other federal funds to pay for the entire construction cost shortly after the line is completed.
Those plans do not include the $450 million line of credit that would be authorized through Bill 37. The bill would expand an existing $350 million city program for borrowing using commercial paper, boosting the allowable amount that could be borrowed to $450 million. The bill would also allow the borrowed funds to be spent on rail.
"These are things that they (the FTA) are requiring of projects everywhere these days, and I think it’s because in the past they’ve been burned because they haven’t been as thorough," Grabauskas said.
He said he intends to sign a memorandum of agreement with the city that will cover how the borrowed money can be used, and said he persuaded FTA to agree that HART could repay the $450 million to the city if the money is needed to complete construction.
"And how might that happen? It could be paid out of future proceeds of the fare box or something like that," Grabauskas said.
However, it is unclear exactly where HART would get money to repay the line of credit. HART’s primary source of funding today is the excise tax surcharge. HART also receives federal funds.
The fares paid by rail riders aren’t likely to generate much extra cash because fares are expected to cover only about 40 percent of the rail system’s operations. City subsidies are expected to pick up the rest of operating expenses.
Council Budget Committee Chair Ann Kobayashi said she has concerns about the borrowing bill.
"It’s a big worry for me," she said. "To me its like asking every resident to co-sign a loan for HART, and I don’t think that’s right."
