Mayor Kirk Caldwell feeling confident of financing for Honolulu rail

Honolulu Mayor Kirk Caldwell is adamant that the city’s financial picture is in good shape and that warnings raised by opponents that the now $9.2 billion East Kapolei-to-Ala Moana Center rail project will drive the city into bankruptcy are unfounded.

“We’ve taken a conservative approach and we have prudent fiscal practices,” Caldwell said this week. “We’re not kicking the can down the road for other people to deal with.”

Officials with the Honolulu Authority for Rapid Transportation are aiming for the first leg — from East Kapolei to Aloha Stadium — to open in December 2020. Preliminary projections show operation and maintenance for the entire 20-mile guideway will cost $127 million.

Caldwell insisted that he’s confident the city budget will be able to absorb that amount without any increases to tax rates in the homeowners’ category.

“This administration has not raised (the rate for) real property taxes for single- family residential for the time we’ve been here — it remains $3.50 per $1,000 of value,” he said. “There’s been no proposal to raise it nor is there any proposal to raise it for the remainder of my term.”

But at least one critic of the current rail project said Caldwell is painting too rosy a forecast for Honolulu’s finances and that the mayor is conveniently ignoring other costs that the rail project will bring.

University of Hawaii law professor Randy Roth said the city’s operations and maintenance forecasts do not include what some have projected to be $100 million more in replacement equipment, refurbishment and replenishment.

“What I’m talking about are capital costs, where you have to replace the cars or you have to replace the operating system, the things that were part of the initial cost of creating the system,” Roth said.

“We’ve estimated that it’s about another $100 million,” he said. “I think that’s conservative. But the point is it’s a very, very big number. He can’t realistically argue it’s a significantly lower number.”

Former Federal Transit Administration chief Peter Rogoff warned municipalities to factor in money for “R&R,” or refurbishment and replenishment” before deciding to dive into new rail projects, Roth said.

Caldwell pointed to the city’s strong bond ratings and its stable budget as strong indicators about the city’s financial outlook. Recent bond sales have been AA+ by Fitch Ratings and Aa1 by Moody’s Investor Services, which are ranked higher than the state’s ratings.

His administration proposed — and the City Council approved — an increase in property tax rates for both the so-called Residential A, or non-homeowner classification, and the hotel-resort class, Caldwell said. The increases were done in anticipation of the opening of the first leg of the rail project, he said.

City Budget Director Nelson Koyanagi said the state gave the counties five years to comply with a requirement that they each pay 100 percent of their share of employee retiree health benefits starting in 2019. Contributions ramped up by 20 percent in each of five years, a period that ended last year, he said.

“We’ve gone through the state where we had to look at increases every single year for five years,” Koyanagi said. “We’re over the hump. After that, the increases will be much, much lower.”

Among other moves toward fiscal responsibility in recent years, Koyanagi said, is the use of short-term bonds to pay for equipment purchases (resulting in shorter borrowing periods and a reduction in interest payments), increasing the fiscal stability (rainy day) fund to $120.3 million, and consolidating the offices of city agencies outside of Honolulu Hale under the Kapalama Hale complex, thus cutting down in rental costs, he said.

Demand for the bonds was four times over what was subscribed, another good sign, said Gary Kurokawa, the city’s chief of staff.

Breaking a previous commitment to Oahu residents, the city agreed to the state Legislature’s requirement that it put in up to $214 million from its general fund to help pay for rail construction which is to be paid out over a number of years, including $44 million this year.

Caldwell noted that the allotment expected to come out of the city general fund, which relies primarily on property tax revenue, comes out to 2.3% of the rail project’s overall construction costs. “It’s a minor amount but we pay close attention to it.”

The latest economic projections show Hawaii heading toward a slowdown, a situation that will mean less general excise and hotel room taxes than had been anticipated could be used for rail, he said. That also could have an impact on property tax revenue, he said.

“Nobody knows the future but the experts are not predicting boom times, and yet it sounds as though that’s what the mayor is assuming in saying he can produce more tax revenue without raising tax rates,” Roth said.