Getting rail to reach Ala Moana is a funding ‘puzzle’

Rail’s concrete pathway now snakes more than 8 miles, stretching from East Kapolei almost to Aloha Stadium. Soon, a new construction contract will extend it as far as Middle Street. From there, the rail system’s endpoint, Ala Moana Center, sits 4.3 miles away.

But with the project facing yet another massive budget shortfall — this time estimated to be at least $1.5 billion — that final destination appears to be far out of reach. The transit system that’s supposed to help transform commutes across the island now lacks the cash to get past Middle Street, based on the latest consensus among rail officials.

Any solution to keep building toward Ala Moana Center — should city leaders opt to pursue that route — would likely involve a patchwork of funding sources. City leaders have already started seeking a mix of more state and federal tax dollars, along with contributions from private developers.

“I call it a puzzle because it’s going to be a puzzle of different pieces,” Mayor Kirk Caldwell said while discussing rail’s funding conundrum with the Honolulu Star-Advertiser editorial board earlier this month.

Extending Oahu’s 0.5 percent general excise tax surcharge for a second time would likely yield the most cash to complete the rail system. (The first tax extension in 2015 is expected to generate more than $1.5 billion for the project.)

So far, it appears to be the toughest piece of that puzzle to get.

The state Legislature’s two money chairs, Sen. Jill Tokuda (D, Kailua-Kaneohe) and Rep. Sylvia Luke (D, Punchbowl-Pauoa-Nuuanu) have already frowned on rail officials asking for more state dollars in the coming session.

“They say it’s going to be hard,” Caldwell said of his recent conversations with state lawmakers.

Senate President Ron Kouchi (D, Kauai-Niihau) said it’s too early to tell what might happen. Legislators don’t submit their priorities for next year’s session until November, he said.

“It also matters who ends up winning the mayor’s election, because they have different ideas as well,” Kouchi said. Caldwell’s chief opponent in this year’s mayoral race, former Congressman and City Councilman Charles Djou, opposes using any more state tax dollars to help build rail, but he does say he’s open to more federal tax dollars and private funding.

“Until we know who we’re going to be working with, and what their plan is, it’s difficult to say,” Kouchi said.

Rail leaders have also said they’re interested in reclaiming at least some of the state’s 10 percent take to administer the tax. Often called “the skim,” the fee is projected to funnel more than $500 million in rail tax surcharge dollars to the state’s general fund.

Tokuda has said it’s premature for rail officials to make such a request until they have a clearer idea of what they want to do. “Do they even know how that would make a difference? Do you even have a budget you can stand by?” she said earlier this summer.

Even if lawmakers agree to provide some of that 10 percent fee, HART board Chairwoman Colleen Hanabusa said it wouldn’t be enough to finish building the guideway into town. It can only be one piece of the puzzle.

Rail leaders also hope to secure more federal dollars. So far, they’ve been rebuffed when asking the Federal Transit Administration to increase its $1.55 billion share of the project.

“To date, they’ve said no,” Honolulu Authority for Rapid Transportation Executive Director Dan Grabauskas recently told City Council members.

Prior to December 2014, which is when the island’s rail project was last officially on budget, the federal government’s $1.55 billion represented about a third of the cost. Now that rail costs have soared to what’s estimated to be $8.3 billion, the federal share represents about 19 percent.

Caldwell said he believes the federal share of the final cost should be closer to the original one-third. One idea that the FTA itself suggested, according to Caldwell, is for the city to renegotiate its funding agreement so that it shortens the rail route to what the city can currently afford to build. That should be about as far as Middle Street. Then, the city could re-apply for more federal dollars to build the remaining line to Ala Moana Center as an extension.

“The FTA gives money for extensions all the time,” he said.

The FTA, however, deflected the question last week when asked whether other cities have successfully tried the “extension” strategy as outlined by Caldwell to complete a transit project as originally envisioned.

“It is important to keep in mind that each and every transit project is unique and different in scope and has different challenges to overcome,” agency officials said in an emailed statement Wednesday. “The FTA will not speculate or compare past projects to the current Honolulu rail project.”

According to Grabauskas, FTA officials have also suggested that the city consider tapping a federal loan program designed for large transportation projects such as rail. It’s called the Transportation Infrastructure Finance and Innovation Act, or “TIFIA.”

The federal low-interest-rate program helps finance large transportation projects that “otherwise might be delayed or deferred because of size, complexity, or uncertainty over the timing of revenues,” according to the TIFIA website.

Rail leaders further hope that private landowners and developers along the rail line will pitch in to help cover some of the costs, particularly to help build the stations. Those dollars would help get some construction work done but wouldn’t be nearly enough to finish the project on their own, rail officials say.

They could be an important piece of the puzzle nonetheless — encouraging rail’s state and federal partners to pony up more dollars if they see others with “skin in the game” willing to contribute to the cause, according to Caldwell and other rail leaders.

The rail project could also change its borrowing strategy from a short-term one to long-term in order to make “payments more manageable” and have future riders help pay for rail’s construction, according to a statement from Caldwell’s re-election campaign.

Currently, HART has a deal with the city to rely on short-term bonds and commercial paper to cover expenses at times when rail’s construction costs outpace its tax revenues. Those general-obligation bonds would be backed by the city but paid back with rail’s state and federal dollars. HART is to pay them back by the time its GET surcharge collections end in 2027.

Should state leaders give the project another tax extension, rail officials might instead consider longer-term debt financing at lower interest rates, Caldwell said. “To be clear, any debt financing for the construction of rail shall not be repaid from City property taxes,” his campaign’s statement read.

Djou, Caldwell’s chief opponent, says he doubts that the project could get more state dollars based on key lawmakers’ stiff resistance so far. In order to stay the course on rail and to keep up with its skyrocketing costs, the city would eventually be forced to consider using property taxes, Djou says. He says he supports “reasonable alternatives” that don’t rely on more state tax dollars. He hasn’t yet specified what such an alternative would be.

The city, meanwhile, has until the end of the year to deliver to the FTA a “recovery” plan on what it intends to do about the rail project.

In his recent discussion with the Star-Advertiser’s editorial board, Caldwell compared the effort to keep Honolulu’s rail route on course to Ala Moana Center to treating a flesh-eating virus.

“It’s kind of like you’re sick, you’ve got some kind of infection … where it’s eating your flesh. One recovery plan could be: ‘We’ll cut off your leg, but you’ll recover.’ And I’m going to say, ‘No, I want my leg and (recovery) so pump in as much penicillin as you can,” Caldwell said. “Do whatever you can because I want to recover with all my limbs.”

“Some guys are saying, ‘Recover — not with all the limbs,’ and that’s not a recovery in my mind,” he added. “That’s not a full recovery.”