State won’t pay Honolulu rail invoices subject to subpoena by feds

The state has warned the Honolulu rail authority that it will not release funding for invoices that are being scrutinized by the federal government as part of the ongoing federal investigation of the city rail project, according to state Comptroller Curt Otaguro.

The state Department of Accounting and General Serv­ices reviews invoices from the Honolulu rail project to determine whether they qualify for state funding, and Otaguro said he instructed the rail authority “not to submit any invoice that is in question under the federal subpoena and investigation.”

The Honolulu Authority for Rapid Transportation has confirmed it was served with three federal grand jury subpoenas in recent weeks seeking tens of thousands of documents in connection with a federal investigation that involves the FBI and the Honolulu office of the U.S. attorney.

Federal officials have not said exactly what aspects of the $9.2 billion project they are investigating. However, in a letter to HART dated Monday, Otaguro wrote that media accounts of the subpoenas suggest the “the nature of the records requested may indicate errors in payments and/or overpayments.”

“Accordingly, until the federal matter is resolved, DAGS requests that invoices related to any documents covered by the federal subpoenas including but not limited to invoices, contracts agreements and change orders not be submitted to DAGS for verification as DAGS will be unable to complete the verification procedures on such invoices at this time,” he wrote.

State lawmakers instructed DAGS to review the rail invoices as part of a $2.4 billion financial bailout of rail that was approved by the Legislature in 2017.

Lawmakers at that time provided additional money for the project from money from the state hotel room tax and excise tax surcharge, but tasked DAGS with ensuring the money be used only for construction costs and not for rail operations, administrative or other costs.

Under the process in place now, HART pays its contractors and then submits invoices to DAGS so the state will reimburse HART for those expenses.

As of the end of last year, DAGS had refused to reimburse HART for invoices worth $40.4 million until rail officials provide more information, Otaguro said.

DAGS is not flatly rejecting those invoices, Otaguro said, but instead is asking for additional documentation to confirm they qualify for funding from the proceeds from the state hotel room tax and the half-percent excise surcharge on Oahu, which provide most of the funding for rail.

Last year the state reimbursed HART for $317 million, or 89 percent of the invoices it submitted, Otaguro said. However, DAGS has so far refused to pay for other claims, including $14.6 million to settle delay claims filed by contractors working on the project.

That’s important because HART has agreed to pay an array of delay claims to contractors, including one for $160 million that is to be paid to Ansaldo Honolulu JV as compensation for six years of delays on the project. If the state refuses to reimburse HART for those expenses, that could have a significant impact on rail’s finances.

DAGS said in a Jan. 4 letter it was returning the delay claim invoices without paying for them because HART provided insufficient documentation that the claims are actually construction costs.

HART Executive Director Andrew Robbins said, “I think we have to provide more information to them because a delay claim against construction is a capital expense” that qualifies for reimbursement.

DAGS also has withheld reimbursements for $16.4 million in payments for right-of-way acquisitions because HART has not provided evidence that it has actually acquired title to the properties involved, according to Otaguro’s letter.