The city wants to issue $104 million in general obligation bonds to get some working capital on hand as it prepares to begin construction for the $5.5 billion rail transit project.

"We may have to have bond money earlier (in the proc­ess) to cover costs, because we’re going to be short of cash," Toru Hama­yasu, head of the city Rapid Transit Division, told the City Council Budget Committee on Thursday. The bond is subject to Council approval.

The $104 million would be part of the Hono­lulu Authority on Rapid Transportation’s $354.7 million capital improvement proj­ect budget for fiscal year 2012, which begins July 1.

Officials are concerned that the general excise tax, a main funding source for rail, might see a drop in collections after the recent disaster in Japan. About 30 percent of the tax comes from visitor spending, Hama­yasu said.

Of the $621 million collected from the half-percent excise tax surcharge since it was implemented in 2007, $200 million has been spent, and most of the remaining money has been committed to contracts, Hama­yasu said.

The use of bonds was outlined in the city’s 2009 financial plan and in the final environmental impact statement for the rail proj­ect. The city has said funding gaps will be bridged on an annual basis with city general obligation bonds. The financial plan states the bonds would be backed by future general excise tax surcharge revenues.

Hamayasu said the transit fund is still collecting close to projected amounts in excise tax collections, but "it doesn’t take too much thinking to say there will be a drop."

Councilman Ikaika Anderson expressed concern about authorizing bonds before the Federal Transit Administration announces a federal funding commitment to the proj­ect. That commitment is expected late this year or early 2012, Hama-yasu said.

For operations the city is seeking a 2012 operating budget of $21 million, including $13.3 million for 136 employees. The current Rapid Transit Division, which was budgeted for $9 million this fiscal year but has spent only $7 million, has 66 employees.

On July 1 the Rapid Transit Division will fall under the 10-member rail transit board. However, the city has raised the question of who has oversight over the rail authority’s budget.

Council members and the city’s corporation counsel went into a closed-door executive session to discuss who has oversight before Thursday’s hearing; however, the issue was not resolved, said a source familiar with the topic.

City officials have stated that the 10-member board would approve and adopt the budget. However, the City Council argues it must approve appropriation for the authority.

The charter amendment that created the authority states the board shall "review, modify as necessary, and adopt annual operating and capital budgets submitted by the executive director of the authority."

The amendment later goes on to state that the authority "shall submit a line-item appropriation request for each of its proposed operating and capital budgets" for the fiscal year to the City Council through the mayor’s office. It states the Council shall, "with or without amendments, approve the authority’s appropriation requests."

State Sen. Donovan Dela Cruz, a former Council member who wrote the charter amendment, said the amendment’s intent was for the City Council to have the final say on the budget.

Dela Cruz said the amendment was meant to have the rail board meet in public on adopting the budget, then submitting that proposed budget to the mayor. The mayor would then present that budget to the City Council for final approval. Currently there is no board in place, and the budget was created and proposed by the city administration.

"You want to make sure that there’s a broad-based policy board, as the City Council is, to ensure that all components of government are coordinated," Dela Cruz said. "You want to make sure the transit authority is meeting the needs of public safety, infrastructure. You can’t have one department going off on its own without understanding the needs of the rest of the city."

Dela Cruz said he wrote the amendment to create a semiautonomous agency that can’t be micromanaged by the mayor or the City Council, but that checks and balances must be put in place with the Council. If the Council had no oversight, "you start to erode the public confidence," Dela Cruz said.

"The Council is supposed to look out for the entire county," he said. "You can’t have transit working in a vacuum, especially in terms of development and transit-oriented development."

Anderson said although he couldn’t discuss what happened in Thursday’s executive session, he said the amendment could be interpreted as giving the City Council authority over the budget.

"And I know for a fact that it was the intent of the Council to give the Council that sole authority," he said.

The City Council also heard the proposed budget for the city Transportation Serv­ices Department, which will see a 35 percent drop in funding, from $20.9 million to $13.5 million in fiscal 2012. That’s because of the Rapid Transit Division being moved out of the transportation agency on July 1.

Oahu Transit Services, which runs TheBus system, is asking for a 4.4 percent increase, from $202 million this fiscal year to $211 million in fiscal 2012. That increase factors in expected increases in ridership, increases in the cost of diesel fuel, and about $1 million for transit related to the Asia-Pacific Economic Cooperation in November.