A federal agency helping pay for Honolulu’s rail system has agreed to release funding it has been withholding over concerns about past city handling of the grossly delayed and over-budget project.

The move tentatively makes available $744 million from the Federal Transit Administration to help finish building the $9.9 billion Skyline system where service for an initial segment began in June.

The FTA agreed in 2012 to provide $1.55 billion, or 29% of what was then estimated to be a $5.26 billion construction project. But cost increases driven in part by delays led the agency to hold back much of the grant as city officials struggled multiple times over the past decade to come up with acceptable alternate plans for the financing and scope of the troubled project.

City officials under the administration of Honolulu Mayor Rick Blangiardi decided in 2022 on a dramatic change to meet budget constraints by shortening the rail line by 1.25 miles and two stations to produce an 18.9-mile line with 19 stations ending at Halekauwila Street in Kakaako instead of a 20-mile line with 21 stations ending at Ala Moana Center, Oahu’s largest shopping mall.

The truncated route reduced Skyline’s projected cost to $9.8 billion from $12.45 billion, though the FTA now estimates the cost at $9.9 billion.

In its amended full funding grant agreement, the FTA said the city has demonstrated a financial capacity to complete the scaled-back project and justified the change.

Blangiardi on Monday said in a statement that he appreciates the vote of confidence from FTA Administrator Nuria Fernandez.

The mayor also thanked U.S. Sen. Brian Schatz for unwavering support, and described the shortened rail route from East Kapolei to Kakaako as a first phase.

“Receiving the FTA’s approval of our amended Full-Funding Grant Agreement is an important milestone towards the successful completion of the first phase of rail, to the Civic Center station in Kakaako,” Blangiardi said.

In a written statement, Lori Kahikina, executive director and CEO of the Honolulu Authority for Rapid Transportation, characterized the FTA’s grant balance as critical to complete the rail project as planned.

Kahikina also said HART appreciates hard work and support from the FTA along with Schatz and his staff on the amended grant agreement.

Schatz, chair of the Senate Appropriations Subcommittee on Transportation, said in a statement that the amended agreement recognizes hard work by HART and the city to provide more accountability and to get the rail project back on track.

“After a long and difficult process, we are close to finalizing an updated full funding grant agreement that will help us complete Honolulu’s Skyline,” he said. “I will continue to work with our federal and state partners to make sure we close the deal and finish this project for the people of Honolulu.”

An initial segment of rail service between East Kapolei and a shuttered Aloha Stadium began in June. Completion of the downsized line is projected for 2031.

Blangiardi, the fourth mayor dealing with the rail project, earlier this year recalled FTA leadership previously deriding Skyline as the worst project of its kind in America after soaring costs created a $3.5 billion budget hole before the proposed truncation.

Under the amended agreement, the FTA anticipates releasing the grant’s $744 million balance in five installments between the end of this year and September 2027 based on achieving milestones that include awarding construction contracts and completing contracted work. The chunks of funding range from $119 million to $250 million.

If all the payments are made and Skyline costs $9.9 billion, the $1.55 billion from FTA would amount to a 16% share. Most of the revenue to pay for Skyline’s development is coming from a general excise tax surcharge on goods and services across Oahu.

The FTA’s amended funding agreement is subject to acceptance by HART and the Honolulu City Council.

A HART board meeting is scheduled for Wednesday to take action on the amended FTA agreement.

If HART and the City Council approve the amended agreement, the document can then be signed by Blangiardi and the FTA. Upon executing the document, which is expected by the end of the year, $125 million of the grant’s balance would be released.