Honolulu City Council members continue to harbor strong reservations about a deal that would pave the way for the island’s cash-strapped rail transit line to borrow hundreds of millions of dollars in bonds leveraged against the city’s general fund.
On Wednesday, Council members spent much of a Budget Committee hearing grilling rail officials on the project’s new financial challenges — and airing concerns that the Council lacks sufficient oversight over the largest public works project in Hawaii’s history.
Then the committee decided to defer the city’s proposed agreement with rail officials on borrowing to a later date, likely in February.
"I’ve been told so many things, and many of them untrue, and there’s been so many changes so I just want to make sure," city Budget Chairwoman Ann Kobayashi said before calling for the borrowing agreement’s deferral. "The bottom line is we all have an obligation to the taxpayers.
"We’re asking every taxpayer in our city and county to be co-signers of this loan," Kobayashi added.
The Honolulu Authority for Rapid Transportation, which oversees the rail project, intends to borrow as much as $350 million in short-term loans in 2015 alone to cover rail construction when revenues don’t keep up with costs, officials with the agency said at Wednesday’s hearing. The borrowing has always been part of the 20-mile, 21-station rail project’s financial plan.
However, rail officials remain reluctant to provide even a general estimate or range of how much they think the project will need to borrow over the total course of construction.
Rail leaders, including Mayor Kirk Caldwell, have already touted a borrowing plan that they say would save between $60 million and $70 million in interest payments. Rail officials declined Wednesday to share any larger borrowing estimates on which those interest-payment savings would be based.
Whatever the total borrowed amount winds up being, local transit leaders have pledged that only rail funds from Oahu’s 0.5 percent general excise tax surcharge and federal transportation funds will be used to pay back those loans — not the city general fund dollars being used to leverage the loans.
But now that the project faces a $500 million to $700 million budget shortfall, Council members are expressing more unease that the city could potentially be subject to paying some of those loans back. And neither the Council nor the public knows how much the rail project ultimately will cost, or how much the project will have to borrow to cover cash flows for construction.
"When can we get more specific information?" Councilman Ron Menor asked Wednesday. "What assurances or safeguards are there that the city would not eventually be put in a situation" in which real property tax revenues are required to pay back the loans instead?
"There’s always been a risk," city Budget and Fiscal Services Director Nelson Koyanagi told Menor. "If revenues don’t come in, whatever the reason, the city would have to pay for the bonds."
Meanwhile, the elevated rail project’s GET revenues continue to lag about $40 million behind what was supposed to be collected at this point, new preliminary numbers provided Wednesday by HART officials show.
The project netted $57.8 million in GET funds for the final quarter of 2014, according to the latest numbers from HART. That’s after the state’s 10 percent administrative fee was taken off the top.
The project’s financial plan had called for rail to net $56.8 million in that same quarter. The project closed the gap on its GET deficit by about a million dollars, but it still hovers at about $40 million and city officials still don’t know why the rail project’s share is coming in low when compared with GET growth statewide.
The Council’s Budget Committee has just five voting members. However, eight of the nine total Council members sat in Wednesday on the committee’s hearing — and most of them leveled questions at HART finance officials and leaders.
Only Council Chairman Ernie Martin did not attend the Honolulu Authority for Rapid Transportation portion of the hearing.
Several Council members, including Ikaika Anderson, said they couldn’t support the proposed borrowing agreement because it didn’t have any language granting Council oversight for any changes to the deal that might arise in the future. That omission, they said, gave the Caldwell administration too much control over the borrowing plan without any Council check on that authority.
"I’m absolutely uncomfortable at this point moving forward," Anderson, who’s not a voting member of the committee, said at Wednesday’s hearing.
The deal weighed by the Council on Wednesday is commonly known as a "memorandum of understanding," and officials with the city’s Budget and Fiscal Services Department have repeatedly said it will give them extended financial oversight. The deal, Koyanagi said Wednesday, allows them to directly seize rail assets and rail funds to pay off the city bonds should the project fall into trouble.
"So we’re first in line" to seize assets, Kobayashi said. "That’s not a protection" if the assets don’t have value, she added.
"I don’t think that’s fair for us to just rush into something," she added of the borrowing agreement.
"If you need the time, take the time," Koyanagi responded. "This is a lot of money we’re talking about."
