Feds give city until end of year to address $1.5B deficit

City officials will get nearly five more months to assemble a recovery plan for rail — enough time to better weigh their options and pursue private dollars but not enough time to secure more funding from state lawmakers.

In a letter sent to Honolulu on Thursday, the Federal Transit Administration informed Mayor Kirk Caldwell that the city now has until the end of the year to deliver a “recovery” plan for the island’s cash-strapped rail project, instead of having to hastily present one by Aug. 7.

Caldwell had hoped that rail’s federal partners would give the city more time — last month he requested a June 1, 2017, deadline. Those extra six months would have allowed rail leaders to ask the state Legislature for more funding help during next year’s session at the state Capitol.

But the federal agency, which has a $1.55 billion deal to help fund the project, was adamant that it needs a clearer idea much earlier on how the city intends to deal with the rail’s massive budget deficit, which is now officially estimated to be at least $1.5 billion.

“Please recognize, FTA is obligated to protect the public’s very substantial investment in the project, thus we need to know the city and county’s intentions for resolving your planning, engineering and financial issues as quickly as possible,” FTA Acting Administrator Carolyn Flowers wrote in Thursday’s letter.

Flowers’ letter further requires city and federal officials to meet next month and compile an “interim” plan, due by the end of September, on how the project will “move forward.”

In a statement Friday, Caldwell said he was “extremely grateful” for the time the city got “to develop a financial plan to complete the project to Ala Moana.”

“We will be putting together our recovery plan due in December that addresses (FTA’s) concerns regarding costs, impacts to ridership, and functionality,” the statement added.

It remains unclear whether the added five months will give Caldwell and city leaders enough time to present a recovery plan that gets the rail going past Middle Street. Right now officials say they only have the funding to get that far — essentially leaving the project stalled 4 miles short of what they planned.

The city is prohibited from tapping property taxes to build the rail, and Caldwell spokesman Andrew Pereira said Friday that the mayor remains “fully committed not to use property taxes” to fund the project.

Department of Transportation Services Director Mike Formby expressed some optimism Friday. Even if the city can’t secure more state funding by December, it can pursue funding partnerships with private developers and landowners along the line — particularly those in Kakaako — to at least help close rail’s daunting budget gap, he said.

Such partnerships could involve “give and takes” in which the city works with developers on more lucrative building densities and heights, or other incentives, in return for their help to pay for stations, said Formby, who also sits on the rail board.

“It would take a number of stations to have a meaningful impact on the project,” he added.

Private-sector partners

Caldwell, meanwhile, has said he’s already started those talks with Kakaako developers, including Kamehameha Schools, Stanford Carr, Howard Hughes Corp. and General Growth Properties, which owns Ala Moana Center.

“I sat down with each of them, and I said … ‘How can we get you to pay $40 million for a station?’” Caldwell told the Honolulu Star-Advertiser’s editorial board July 14. Caldwell said that Howard Hughes expressed early interest, in return for some design changes to rail that better mesh with its properties.

It’s early and “we’re just talking,” Caldwell said. “I do believe we need some skin in the game from the private sector” in order for rail’s state and federal partners to be willing to chip in more rail funding, he added.

Howard Hughes representatives declined to comment Friday.

Formby added that the city could also reach out to state legislators and at least see whether “there’s an opportunity to come back next year” to pursue another extension to the general excise tax surcharge for rail or to find some other funding.

“We’re going to have discussions with the (House) speaker and the (Senate) president and hopefully come to some understanding of what our prospects will be,” he said.

The Legislature’s top two finance leaders, Sen. Jill Tokuda (D, Kailua-Kaneohe) and Rep. Sylvia Luke (D, Punchbowl- Pauoa-Nuuanu) have already indicated that rail officials should not return to the state for help next year after they underestimated project costs so badly last year.

The Honolulu Authority for Rapid Transportation board and the City Council would need at least two months for the full process of recommending and then approving a rail recovery plan, according to city officials.

The city’s new deadline falls after the U.S. presidential election in November but before the next administration takes office. Caldwell and other rail officials have said the city would have to wait to lobby for more federal funds until next year, once the new administration is in place.

Flowers’ letter Thursday also cautioned the city to not take any actions that might “foreclose viable options” for the rail project in the future.

Specifically, Formby said, the FTA likely doesn’t want the city to award the contract to build the rail’s Pearl Highlands transit center, H-2 offramp and parking garage before all options are considered. That job was estimated to cost $207 million in 2012. Now it’s as high as $280 million, Formby said.

Rail officials might still find a way to work with private investors to save costs on that part of the project, but “it hasn’t worked out so far,” Formby said.

“They’re just telling us to be wise and think very carefully before you proceed with any future procurement,” he added.

FTA letter to Mayor Kirk Caldwell by Honolulu Star-Advertiser on Scribd