City Council Chairman Ernie Martin said he’s tired of being told that the $6.57 billion rail project cannot be changed because the city is being “held hostage” by the conditions of a $1.55 billion federal grant.

So Martin wants the Honolulu Authority for Rapid Transit to consider saying, “Thanks, but no thanks” to approximately $1 billion in unused federal funding if it frees the city from constraints over routing or other project details.

Martin made his comments to HART Chairman Don Horner at a Council Budget Committee meeting Monday night at Washington Middle School. The committee is considering Bill 23, which would allow the city to extend, through 2027, a 0.5 percent surcharge Oahu consumers pay on the state general excise tax.

HART officials said the extension is needed to complete the 20-mile, 21-station rail line from east Kapolei to Ala Moana Center. When Council members suggested that, in the face of escalating costs, HART consider shortening the route, HART Executive Director Daniel Grabauskas said doing so could cause the Federal Transit Administration to nix the $1.55 billion it has authorized for the project through a full funding grant agreement.

Martin suggested HART think about ending the agreement and FTA’s involvement with the project.

“All I would ask you to (do) is you commit to have that discussion,” Martin said, “that the city look at the GET surcharge with the five-year extension, settle what costs we’ve already incurred with the federal government and not be binded by that agreement and not use that as an excuse for us to be held hostage.

“The administration … has always hidden behind the (federal agreement),” Martin added. “That’s not something I’m very comfortable with, using that as a crutch. I’d rather eliminate that particular crutch and let’s talk facts.”

Freeing the project from federal restrictions would allow the city to discuss taking the rail line to the University of Hawaii-Manoa campus as originally planned, he said.

Horner said the HART board will do as the city administration directs.

But the former First Hawaiian Bank chairman made it clear that cutting ties with the FTA was not something he supports.

“In my observation, the feds have been good partners,” he said. “I’m not sure why we would basically jettison them … what we’re going to gain by giving up $1.5 billion in opportunity lost.”

The city has so far spent $447 million of the $1.55 billion in federal grant money, Horner said.

“We’ve expended a substantial amount of money in design so we have a 21-station, 20-mile (project),” he said. “If we’re now talking about not getting a billion dollars from the federal government, borrowing money back to pay back a half a billion … so the project by definition is short $1.5 billion, I’m not sure how we’re going to get to Ala Moana, much less the university.”

Foregoing the federal money would leave the project “short” so that “we wouldn’t be able to get to the 21 stations,” Horner said.

While that may be the case, the city would not be required to build 21 stations as required by the federal agreement, Martin said.

The city may be able to make up the $1.55 billion in surcharge revenues from the five-year extension, depending on economic factors, Horner said, but it would still likely need to pay an estimated $95 million to borrow additional money.

Pressed by Martin if he would then support additional funding beyond the five-year extension of the tax surcharge in the future, Horner stopped short of saying yes or no.

Horner contends the city will get a better fix when some key outstanding bids come in. “I personally believe that we’re very close,” he said. “But I wouldn’t anticipate any more money than what’s in the five-year extension. That five-year extension should be the point where I would think that we, as a community, we’re saying, ‘We’ve invested enough in this project.’”

The project’s financial plan includes a $700 million contingency that would cover overages up to that amount, Horner said.

If that won’t be enough to fund the project as now planned, the city would need to discuss with the Council, community and FTA what changes to consider.

“We may stop it downtown, we might stop at Middle Street etc., so we may have to sit down to talk about what adjustments we would need to make,” Horner said. “We wouldn’t just, without consultation, move forward with that kind of a number. That, to me, is certainly a community decision.”

A new draft of Bill 23 offered by Martin would cap the rail surcharge extension at $910 million.

Horner said, “We could live within those constraints ” and finish the project at Ala Moana if an additional $95 million was set aside to pay debt service and $193 million for an ending cash balance at the conclusion of the project.

Martin told the Honolulu Star-Advertiser Tuesday that terminating the federal agreement would allow the city “to make, in my mind, more financially responsible decisions as to what course of action to take with respect to the project. We can’t continue to either extend the GET surcharge even further or, in the worst-case scenario, have to raise real property taxes to pay for the project solely on the base of that (federal) obligation.”

Ending the rail line at UH, Martin said, could be done if the city chose a new route and bypassed Kakaako and Ala Moana Center. “I’m sure they’ve done some of those preliminary studies already,” he said. “I would think the ridership would be more attractive going to UH-Manoa than it would be going to Ala Moana Center.”

Martin also said the FTA may not require the city to reimburse it the $457 million in federal dollars already spent “because the work has already been done.”

Councilwoman Ann Kobayashi told Horner Monday that she’s continually troubled by the way the price tag for the rail keeps rising, despite promises that it won’t happen. “Over the years, as the numbers keep changing, the trust and confidence keeps changing also — it erodes.”

Mayor Kirk Caldwell told Budget Committee members Monday evening that he will discuss the rail project with FTA Acting Administrator Therese McMillan and U.S. Undersecretary for Transportation Peter Rogoff in Washington this week.