Rail borrowing pegged at $1.9 billion

Amid a tenuous time for the island’s cash-strapped rail project — with transit officials still uncertain how to cover the ballooning costs to complete it — city leaders have again deferred a deal that would allow rail to borrow hundreds of millions of dollars leveraged against the city’s general fund.

The total amount that the rail project will need to borrow to cover expenses during peak construction has now been put at $1.9 billion, according to a newly disclosed estimate.

On Wednesday, members of the City Council’s Budget Committee, some of them visibly frustrated, held off for the second time in less than a month approving a deal that would allow the rail project to borrow money for the height of construction. There are a projected four or five years when rail revenues won’t keep pace with all the construction bills.

Rail’s financial plan calls for state general excise tax dollars to cover payments on city-leveraged bonds.

But now that costs are soaring and the largest public works effort in Hawaii’s history faces a budget shortfall of as much as $910 million, it remains to be seen whether the transit project will collect all the dollars it would need to pay those bonds back in the long run.

That uncertainty, combined with a sense that they’re not getting all of the information that they need, has left Honolulu City Council members hesitant to commit to the proposed borrowing plan. On Wednesday they said they needed more assurances that Hono­lulu property taxpayers would not get left holding the bag.

"Who would give a loan to someone who has such a shortfall in their project?" Budget Chairwoman Ann Kobayashi, a frequent rail critic, wondered aloud during the meeting Wednesday. She described the project’s financial plan as "questionable."

"And you expect us to give you a loan? That’s so scary," Kobayashi said.

Council members said they preferred to wait and see whether rail officials succeed in getting some sort of extension of the 0.5 percent GET surcharge for rail through the state Legislature this session, which ends in May, before they approve the borrowing deal.

Rail officials, meanwhile, say they would need to start issuing the bonds as early as June to keep up with the construction bills. They intend to borrow as much as $350 million in short-term loans in 2015.

If the Council doesn’t sign off in time, the rail project wouldn’t have enough cash to immediately pay Kiewit Infrastructure West for its work, Honolulu Authority for Rapid Transportation Executive Director Dan Grabauskas said after Wednesday’s meeting. Kiewit is building the first stretch of elevated guideway from the fields of East Kapolei to Aloha Stadium.

In that situation, it remains to be seen whether Kiewit would keep building without receiving its scheduled payments — instead waiting until the revenues caught up, Grabauskas said.

"I think the expectations that the company would have is, are we going to be paid … eventually?" he added.

Until Wednesday, HART officials had remained reluctant to provide even a general estimate or range of how much they thought the project would need to borrow over the full course of construction. Grabauskas shared the $1.9 billion figure for the first time during the budget meeting.

Grabauskas and other rail officials have stressed that the "memorandum of understanding" that the Council is considering is merely a first step laying out the terms between the city and HART. Rail officials would have to return to the Council for approvals on the bonds incrementally as they needed them.

That didn’t ease Councilman Ron Menor’s concerns. Menor, whose district includes Waikele and Mililani Town, said the agreement would set the stage for borrowing for years to come. The Council needs to ensure there’s sufficient state tax revenues to complete the project before it goes down that path, he said.

Borrowing issues aside, the project still faces a larger budget shortfall on the horizon, in which rail officials simply won’t have all the revenues they need to complete it. Grabauskas said the project could fall short in early 2016 of the funds needed to award new contracts and keep construction going.

The state Senate’s Transportation and Public Safety, Intergovernmental and Military Affairs committees will consider a bill lifting the sunset on the rail tax surcharge, Senate Bill 19, during a hearing Thursday at the state Capitol building.

Meanwhile, some on the Council continued to press for answers on why the project is suddenly facing such dire straits after officials had told them until recently that it had been proceeding on time and on budget.

"Why is there such a big difference in just several years? And it can’t just be because of the lawsuit," Councilman Trevor Ozawa said, referring to the challenges against rail in state and federal court that helped lead to delays. "We want to get the straight facts. I’m uncomfortable with it. … When we’ve got two different stories going on we don’t know what to believe."

After the meeting, Grabauskas said that HART is still working with estimates based on what the future bids might be, making it difficult to supply state lawmakers and city leaders with the all the details they’re looking for as they consider how to best deal with the rail shortfall.

"I’m being as honest as I can with the facts as I have them, to put them out there as early as I can," he said. "We are trying to get the best numbers out there as quickly as we have them and as quickly as they’re available."