Keep eye on rail’s reserve fund

Financial reserves to pay for increasing costs of Honolulu’s rail project are decreasing less than two months after construction began, but it is important to remember that such depletion is entirely expected in a project of this magnitude. In itself, depletion of the $815 million "contingency" fund should not be setting off alarm bells for taxpayers. What will bear watching, though, is the rate of drawdown in the months ahead, should it drop below anticipated benchmarks.

With tight financial management and scrutiny, this should not happen.

Transit officials have been pointing to the contingency fund, and its expected drawdown, as standard operating procedure since Day One of this system’s financial planning. The fact that construction has finally begun means that this fund inevitably will start to get depleted. And so far, this is occurring as outlined in the Honolulu Authority for Rapid Transportation’s long-range financial plan.

The rail project’s total budget is estimated at $5.26 billion, and nearly $1 billion of that was reserved — as recommended by the Federal Transit Administration — to pay for unexpected costs such as contractors’ delay claims, future contract agreements, design modifications and staffing changes.

That reserve was reduced to $815 million in April and has dropped since then to $644 million — about 15 percent of the overall budget. It includes increased payments that have been made and what have been recognized as spending increases to be owed in the future.

Daniel Grabauskas, HART’s executive director, expects the contingency reserve to drop further as design and construction costs are finalized and the project progresses. He said the FTA has agreed that the current budget "is appropriate for this stage of the project."

Grabauskas, formerly general manager of Boston’s transit system, said Honolulu’s rail administration is "feeling very good about the fact that we are within the range that FTA has set, and based on the foreseeable future of what is known, we are going in with a very strong amount of contingency."

It’s natural for casual observers to be uneasy over the $170 million contingency drawdown since rail building began — but there’s good reason to agree with Grabauskas’ calm assessment, which aligns with the stated financial plan.

Still awaited are completion of negotiations with contractors, including Kiewit Infrastructure West Co., over how much more they will be owed in delay claims. HART agreed in January to pay Kiewit $15 million for delays in the first 6.4-mile segment of construction. Other settlements will be made public as soon as they are settled, understandable in a lengthy construction project. Some elements of the project, such as track and guideway, are costing less than was estimated last year, as are $80 million in borrowing interests. That’s certainly welcome news.

Opponents predict that the project’s future price tag will be at least $7 billion, but that is far-fetched, a scare tactic aimed at urging voters in Saturday’s primary election to block the project. Unfortunately, this exaggeration appears to be having an effect. A Star-Advertiser and Hawaii News Now poll last month found that 84 percent of Oahu voters believe the project "will end up costing a lot more than is currently estimated."

The cost is being paid by the revenue from a half-percent general excise surcharge, which took effect in January 2007 and is set to expire at the end of 2022, plus $1.55 billion in expected federal funding via the FTA. Rail leaders and proponents must be articulate in this message and proactive in ensuring its outcome: The expectation that taxes will be increased to meet the final cost of rail is unfounded.