Mayor Peter Carlisle said he plans to earmark a $450 million city-backed line of credit for the Honolulu Authority for Rapid Transportation to demonstrate to federal authorities that the rail project has the resources it needs to complete construction.
That line of credit would only be used in a "worst-case scenario," and Carlisle said Tuesday it would be the responsibility of the rail authority to repay all of the debt in the event that it needs to draw on that money.
The City Council has already established a program to allow the city to borrow up to $350 million for water, sewer or other city projects using "commercial paper," or short-term debt that is sold on financial markets.
Carlisle said he will soon ask the Council for a $100 million increase of the program for borrowing using commercial paper, and to make that credit available for the rail project.
Carlisle made his comments during a meeting with the Star-Advertiser editorial board Tuesday, and later issued a news release on the subject.
The Federal Transit Administration has warned HART that it must demonstrate it has additional revenue sources that the authority can tap in case rail construction costs turn out to be higher than expected, or if HART receives less funding than expected from local or federal sources.
HART suggested in its financial plans that it might seek an extension of the half-percent excise tax surcharge city taxpayers lay out if it needs extra funds to complete the project, but Carlisle said Tuesday that he does not plan to seek an excise tax extension "at this time."
Instead, Carlisle said he and FTA Administrator Peter Rogoff agreed on a satisfactory solution involving the line of credit that allows the project to move forward.
"The solution is to establish a sufficient line of credit that demonstrates the city’s already existing financial capacity in an amount that satisfies the FTA," Carlisle said.
He said the line of credit will demonstrate the ability of HART and the city to complete the project, which in turn will help the city to secure $1.55 billion in federal funding.
"In the highly unlikely event a draw on the line (of credit) is necessary for rail, the City Council would have to approve any borrowing from the line of credit to pay for rail," a process similar to the standing requirement that the Council approve any city bonds issued to raise money to finance the project, Carlisle said.
Carlisle said the city consulted with its bond counsel, and the line of credit proposed to assist HART "is not likely to affect the city’s bond rating, which is AA-plus. I would not advocate for this solution if I believed it would affect the city’s bond rating."
The financial plan for the project already calls for HART to use the city’s borrowing capacity to borrow hundreds of millions of dollars in long-, medium- and short-term debt to help pay for rail construction.
The rail financial plan also includes borrowing up to $100 million through the city’s existing commercial paper program. That means any use of the line of credit proposed by Carlisle beyond $100 million would be borrowing that wasn’t included in the current rail financial plan.
City Council Chairman Ernie Martin agreed with Carlisle’s decision to seek a line of credit to strengthen the rail financial plan and deal with any remaining FTA budget concerns, according to the news release.
"A provision like this would be similar to the current requirement for City Council approval to float general obligation bonds to cover the cash flow for rail construction," said Martin. "This makes sure the public has the opportunity to comment before any borrowing ever occurs. Moreover, it is designed to come into play only in the event of catastrophic circumstances such as a natural disaster over which we have no control."
It was not immediately clear how HART would repay any money it might borrow outside of the parameters set by the current financial plan. The plan accounts for virtually all of HART’s projected income by allocating it for such uses as construction funding, contingency funding or repayment of other debt.
The financial plan calls for the authority to repay all funds borrowed for the project by 2023, with a cash balance of $83 million left over at the end of construction.
Don Horner, chairman of HART’s Finance Committee, said transit officials do not expect they will need to draw on the line of credit.
"That’s a requirement by the FTA," Horner said. "Before we would draw on that line of credit, obviously we would look to our first line of defense, which is our contingency budget, which is substantial."
HART has budgeted more than $860 million in contingency funds as part of the rail project’s $5.27 billion budget to cover any unexpected costs. However, the FTA is insisting that HART demonstrate is has additional funding sources beyond that.
Horner said HART could also make design changes in the project to reduce the cost, or could rely on the projected $83 million surplus in the construction budget to help cover any unexpected costs.
