I wanted to share my thoughts with you on why the city felt it was absolutely necessary and in the best interests of the taxpayers to pull out of the public-private partnership (P3) for the rail project, and to now offer a way to keep rail moving forward.
I originally agreed to pursue the P3 for three important reasons. I was sold on the promise by the Honolulu Authority for Rapid Transportation (HART), and other industry experts, that the P3 would result in: 1) lower costs; 2) less risk for the city; and 3) schedule certainty for the project.
The City Council and the HART board also backed this approach. For the past two years, HART and the city jointly worked on the procurement of a P3 for the design and construction of the final 4.16 miles of the system, the last eight rail stations, the Pearl Highlands parking garage, plus the operations and maintenance (O&M) of the rail system.
The procurement process began in September 2018 with the expectation that bids would be received a year ago, in 2019. Instead, there were several delays and the bids were received on July 23, 2020. During this period, there were industry reports that P3 transactions had fallen out of favor, several large construction companies publicly announced they were avoiding P3s due to higher risks, and existing P3 transactions in other cities began to fall apart.
After a thorough analysis of the proposals and discussions with HART, the city concluded that it could no longer support the P3 procurement. Among other things, it no longer provided the main benefits why we went with a P3 in the first place. It did not lower costs, shift certain important risks away from the city, or provide schedule certainty. The city notified HART of its decision to cancel the procurement on Aug. 24, and HART disagreed with this decision and required a 30-day written notification. Therefore, the city terminated a memorandum of understanding with HART and withdrew from the procurement by itself, effective Sept. 25, at which time the city was legally permitted to tell the City Council, the Federal Transit Administration (FTA), the HART board and, most importantly, Oahu’s taxpayers of its decision.
HART continues to press on with the P3, without the city’s involvement. Because HART is keeping the procurement active, it prevents a public discussion of the proposals, including the financial impact to the rail construction budget. The city believes that awarding of a contract is no longer possible, that the financial gaps in the budget are too large to close no matter what cost-cutting is proposed, and that the focus should now be on alternative approaches, not wasting important time and energy on a losing proposition.
We need to move quickly in another direction. Some $250 million from the FTA is scheduled to lapse on Dec. 31, 2020. We may lose that money unless we can explain to the FTA our plans for the project going forward, and if it is to its satisfaction, I hope it will continue to be very patient with this project and extend the lapse date.
The following outlines steps that may be followed to get us back on track. The first part comprises steps to be accomplished with funding currently certified by HART:
1. The utility relocations along the Dillingham Boulevard portion of the project need to progress much faster. This is a key factor in the overall project schedule and is a big driver in the escalating costs of rail.
2. I would like to consider negotiating with Shimmick/Traylor/Granite (STG), the current contractor on the Airport Guideway segment, to extend its contract to include the guideway construction for the first 1,700 feet of Dillingham Boulevard. This is subject to HART’s ability to make progress on the utility relocations so that construction can occur. HART considered but did not pursue this option due to its potential impact on the P3.
3. Rather than stop at Middle Street, issue a new design/build request for proposals (RFP) that would extend the system from Middle Street to a station in or near the downtown area. That way, many more rail riders would use the rail and connect to other modes of transportation.
4. Consider a separate RFP for the Pearl Highlands Garage and Transit Center.
The second part involves building the last segment of the rail system, with construction funding to be acquired:
1. Conduct an independent cost estimate to complete the project to Ala Moana. This estimate can be used to evaluate the reasonableness of HART’s estimated costs to complete the project, and it would help to identify the funding gap the project faces.
2. Simultaneously, conduct an evaluation of HART’s funding status. We need a better understanding of the impact of COVID-19 on the general excise tax and transient accommodations tax revenues, and what HART can expect coming from these two funding sources.
3. Explore other sources of funding potentially coming from federal grant opportunities or financing initiatives, or community development finance opportunities related to value created through development around the remaining eight rail stations. As the funding issue is resolved, a final RFP would be issued for the remaining construction to Ala Moana.
More than ever, I believe that Honolulu needs rail for traffic management, quality of life and economic health. Despite all the problems, there are many impressive elements that are already developed, including the 10 miles of guideway and the near-completion of nine stations between Kapolei and Aloha Stadium that will open in 2021, and the progress on the next section of the guideway as it passes by the Daniel K. Inouye International Airport. I receive comments every day from people who see the construction for the first time: It is a positive reaction, and they begin to understand and get excited about the reality of rail for this island.
It is human nature to lose hope on something when you don’t see a way forward. But, the above are logical and realistic steps that keep this project viable. The withdrawal from the P3 had to be done in order to protect the city’s finances, in an open and transparent manner, and get this project back on the right track. Rail is too important to stop or let slip away. We have to find a way to finish it. Rail should and will be the core of Honolulu’s transit infrastructure, and will serve the people of this city for generations to come.
Kirk Caldwell is mayor of the City and County of Honoolulu.
