City taxpayer subsidies of transit operations in Honolulu will climb to 19 percent of overall city tax collections after the new rail system launches operations, and that extra cost will require that Honolulu limit its spending on other city operations, according to a new report from a federal consultant.
The report by Porter & Associates Inc. reviewed the city’s latest financial plan for the $5.26 billion rail project and concluded "the city has the financial capacity to construct the project, and to address reasonable risks regarding the project costs and funding."
The report specifically cited a decision by the city earlier this year to extend a $450 million line of credit to the rail project, and found the Honolulu Authority for Rapid Transportation is now positioned to cope with a rail project cost overrun of up to 10 percent.
Those findings were hailed by HART, which cited the report Thursday as new proof it has the means to build and operate the 20-mile rail system.
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COST OVERRUN OF 10% ALLOWED
Conclusions in the Federal Transit Authority’s Financial Capacity Assesment Update include:
>> Current estimates that the city will spend $173 million on financing or borrowing costs to build rail are reasonable.
>> GET surcharge revenue is forecast to grow at a 5.04 percent rate through 2023, and will provide $3.358 billion to fund rail.
>> Since the city extended a $450 million line of credit to the rail project, the project can now cope with a cost overrun of up to 10 percent.
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"This independent financial assessment analysis of the project was comprehensive and thorough," HART Finance Committee Chairman Don Horner said in a written statement. "Their bottom-line conclusion was the overall HART financial plan is reasonable when compared to other projects around the U.S. and our city has the expertise and financial capacity to build and operate the system, which would provide a significant improvement to our existing traffic challenges."
The city has applied for $1.55 billion in federal funding for rail, and the conclusion by Porter & Associates that the city has an acceptable financial plan is a significant milestone in the effort to win that funding from the Federal Transit Administration.
While the city cited the report as good news, the report also underscored the growing financial demands that Honolulu’s mass transit system will impose on city taxpayers in the future.
Earlier this year Porter & Associates warned that in the years ahead the required city subsidy of a bus-rail-Handi-Van transit system would use 17 percent of the revenue from the city General Fund and Highway Fund.
The latest report amended that estimate to calculate that up to 19 percent of the revenue from those funds will be needed to subsidize Honolulu transit operations.
Historically, subsidies of transit operations in Honolulu have absorbed about 10 percent of the revenues flowing into those funds.
According to the report, "Real revenue growth in the city’s general fund and highway fund could potentially fund this increase in transit subsidies, but the city would need to reduce the rate of growth in non-transit uses of these funds to less than the historical average."
In other words, the growth in transit subsidies with rail and an expanded bus system would leave less money for other things.
HART, in its written comments on the report, suggested that TheBus is mostly to blame for the demand for additional transit subsidies.
According to the HART statement, the report "shows TheBus will account for 67 percent of operating costs, Handi-Van 15 percent and rail 18 percent."
The report also concluded that the city can reasonably expect to pay $173 million in borrowing costs to build the rail project. The city expects to repay all loans and pay for the project in total by 2023.
"This external review is a key element of the Federal Transit Administration’s evaluation of Oahu’s rail project for our Full Funding Grant Agreement and reinforces the fact that we are on track to receive our FFGA by the end of the year," said Dan Grabauskas, HART’s executive director and CEO. "This review validates our current financial plan, which includes a total of $1.55 billion in federal funding, $645 million in contingency funds to cover unforeseen expenses and an ending cash surplus of $193 million. It indicates we’re on target."
Rail Financial Capacity Report
