Rail officials confident about strength of new plan

In the only recovery plan they ever hope to write, Honolulu rail officials say it’s “realistic and achievable” to build the full line to Ala Moana Center with the $9 billion total they now expect to receive.

But early in their long-anticipated 213-page report, released Monday, there’s a reminder of how such forecasts have fared previously.

The recovery plan states that rail’s earlier, 2015 bailout “was anticipated to yield $1.2 billion in additional funds.” In fact, some officials at the state Capitol anticipated it would yield $1.8 billion when the Legislature approved that five-year tax extension in May of that year.

By October 2015, as project costs continued to climb, the Honolulu Authority for Rapid Transportation instead forecast $1.5 billion.

And by February 2016, as new budget problems surfaced, officials were saying the five-year extension through 2027 could yield anywhere between $1.2 billion and $1.8 billion.

Several months later the island’s transit project would plunge into renewed fiscal crisis as projected costs skyrocketed.

It remains to be seen whether HART’s latest financial forecast, sent to the Federal Transit Administration with the recovery plan Friday, will eventually prove accurate enough to complete the full 20-mile, 21-station line.

However, after several years of intense public scrutiny and two high-profile audits with dozens of recommendations to better manage rail, HART’s new leaders insist that they’ve made the changes needed to handle risk, schedule and cost and get the project back on track.

“We have to manage the project to this budget. I think the message was loud and clear from our elected officials that they came through with the additional funding,” new HART Executive Director Andrew Robbins said Tuesday. “You know, that’s the budget, and we now have to make this work.”

That budget still includes $8.17 billion in total project capital costs. But in the new recovery plan, HART and the city have significantly cut how much they expect to pay in interest on rail-related borrowing.

A December report from HART put those interest costs at $1.3 billion if island leaders were to extend Oahu’s general excise tax surcharge another 10 years and the transit project continued to receive a 90 percent share of those revenues.

Now that the project will receive more money upfront through an influx of transient accommodations tax, or TAT, dollars and with its share of the surcharge boosted to 99 percent, rail officials say they’ll be able to more aggressively pay off that interest.

They now put rail’s debt-financing costs at $858 million — a savings of about $450 million compared with the scenario given in December. Instead of a $9.5 billion total cost, the recovery plan estimates it could cost just over $9 billion to build and finance Honolulu rail.

Before the Legislature’s special session on rail last month, state budget officials estimated that the project would save some $208.6 million in financing costs by using the TAT dollars upfront. That’s less than half the savings HART expects, when comparing its December estimate with what’s laid out in the recovery plan.

Both the city and the state forecast that the project will receive about $6 billion from the GET surcharge, representing the largest slice of its budget.

And despite concerns that state budget officials are too optimistic about how many TAT dollars rail will collect, the city and state’s forecasts aren’t dramatically different there, either.

In its recovery plan, HART estimates rail will get $1.11 billion in those tax dollars charged to hotel rooms across the state over the next 13 years, based on the State Revenue Council’s latest forecast. The state, meanwhile, estimates $1.32 billion in TAT for rail, based on an annual 8 percent growth rate.

Both the city and state assume the FTA eventually will provide rail its full $1.55 billion share, provided the federal agency approves the recovery plan.

“It’s going to take a while before they accept it,” said Krishniah Murthy, who until recently was HART’s interim executive director and now serves as the agency’s senior adviser.

“This is the best estimate based on the current financial market conditions we know,” Murthy said Tuesday. “From here we don’t anticipate any more problems pertaining to the project. We have to now put everything in place so we have good checks and balances on a daily basis of what we do.”

But the recovery plan makes clear that rail still faces plenty of risk and uncertainties, particularly with underground utility relocation and property acquisition in a hot Honolulu real estate market. HART is trying to get as much of that utility relocation work done as it can before it reissuing the final, major construction contract, the plan states.

“There’s always going to be risk on these projects, but we need to be creative … and come up with the opportunities to offset the risk,” Robbins said Tuesday. “This is a $7 billion project because the rest of it is contingency. We don’t want to assume that that is going to be gobbled up in the costs. So, that’s the mindset that I want our staff to have, that the project is $7 billion. It’s not even the $8.1 billion, because that’s the contingency on top of the $7 billion.”

Hart Recovery Plan – Sept. 15, 2017 by Honolulu Star-Advertiser on Scribd