The head of Honolulu’s $9.2 billion rail project said he is fairly confident the repercussions from the worldwide coronavirus outbreak will not negatively affect the project’s scheduled opening for the first segment later this year.
Andrew Robbins, executive director of the Honolulu Authority for Rapid Transportation, said Friday he doesn’t expect any long-term impacts either and that it’s still too early to say definitively how the pandemic will affect the financing picture of the 20-mile rail line, the largest public works project in Hawaii history.
The project’s initial segment, from East Kapolei to Aloha Stadium, is expected to be completed and start “interim service” by December, and Robbins is sticking to that projection.
“At this time there’s no change to any of our schedules or budgets,” Robbins said in a conference call with reporters. “We talked to our contractors. … They’ve all been advising their employees about hand-washing, safe practices, if you don’t feel well, who to call; but other than that, it’s been business as usual. They’ve been out their working.”
He said, “The coronavirus situation is very fluid, so that could change, but right now we are on our schedule.”
One possible glitch that HART officials are monitoring closely has to do with Hitachi Rail Honolulu Joint Venture, which holds the contract to provide the project’s 20 trains.
Hitachi Rail notified HART on Feb. 27 that it is starting to feel an impact on its equipment supply chain, and warned that the coronavirus pandemic constitutes “unforeseeable delays attributable to the ‘force majeure event,’” essentially a situation beyond the control of the contractor. As a result, the letter said, Hitachi Rail should be granted an “extension of time, thus exempting us from any liability for any application of penalties and damages.”
The global contractor is headquartered in Italy, the European nation hardest-hit by the coronavirus, and it receives equipment and parts from China, where the outbreak originated.
“They have a global supply chain, like all rail transit suppliers do these days, and a lot of it’s in China,” Robbins said.
HART responded by letter to Hitachi Rail on March 7 saying it disagrees.
“It has yet to be seen that (Hitachi Rail) has or will experience any inability to procure necessary material or labor,” said HART’s response, written by project manager Jeffrey Siehien. “‘Difficulty in obtaining material or labor does not constitute a force majeure event,” Siehien wrote. “If labor and/or material can be obtained from other sources or locations, the affects of COVID-19 ‘can be avoided or prevented by … use of reasonable efforts’” by Hitachi.
Robbins said the company is obligated to provide proof the disruption would affect their ability to deliver the project. At this point “we don’t have anything like that yet,” he said.
Hitachi Rail’s office in Genoa, Italy, remains open, although some employees are working from home, Robbins said.
“We have the materials now” to complete the interim service segment, he said. “There’s just one or two components I’ve been advised that we’re waiting on, and we anticipate them to be delivered next week.”
HART only needs six of the 20 trains to begin interim service, Robbins said.
“By and large, we’ll have all the trains by next month that we need,” he said, noting that they are being assembled in California.
There are 11 four-car trains on the island, another one “on the dock in California” that’s ready to ship, and a 13th one that’s still being constructed and is expected to ship next month.
Aside from the Hitachi situation, the coronavirus situation remains fluid, and it’s possible if the situation worsens that the work may have to stop, but there’s been nothing to suggest that will happen, Robbins said. “If something happens here, for example, where we can’t go to work, that may change things. That remains a concern; we just don’t know how things are going to transpire.”
Then there’s the potential impact on tax revenue.
On Thursday, city Budget Director Nelson Koyanagi told the City Council Budget Committee it’s uncertain how the coronavirus will affect Oahu’s economy and how that might affect HART’s revenue situation. A majority of the project is being funded through general excise and hotel room taxes.
If revenues don’t come in as projected, city taxpayers may be forced to foot the bill as a last resort, Koyanagi said.
But Robbins said based on the latest projection by state economists showing a $400 million overall hit to state taxes, it’s a situation HART can deal with.
“From my perspective, if this is a short-term impact to the economy, that’s something we can weather and make up for,” Robbins said. “And that’s the big unknown, is how long the economic impact will be. I don’t think anybody knows that.”
HART’s slice of that $400 million pie is less than 0.5% of the GET and 1% of the hotel tax, which the agency’s staff projected to be about $2 million. “If the coronavirus situation is a two-month event and it has a relatively small impact, we could weather the storm,” Robbins said. “If it goes on for a year or more, that could be a different issue.”
Ruth Lohr, HART’s chief financial officer, said her staff’s projections are much more conservative. “Even within a $10 million hit, we could still absorb that,” she said.
But Lohr emphasized that the situation remains fluid and that her staff is monitoring the situation closely.
There are still too many unknowns to even begin to project how long the situation would need to last for there to be a severe impact, she said.