The City Council gave preliminary approval yesterday to the operating and construction project budgets for city’s rail transit authority but not before adding a provision that gives the Council greater oversight of the spending.

Council members advanced an $18 million operating budget for the Honolulu Authority for Rapid Transportation, known as HART, along with a $355 million capital improvement program budget.

Both budget bills added language stipulating that no money will be spent by HART from its available funds for any purpose unless the Council appropriates them first. The CIP budget also included a provision that bond money may be encumbered but will not be expended until an agreement from the federal government to provide the transit funds is completed.

The amendments, introduced by Councilman Ikaika Anderson, give the Council more oversight of the transit authority’s finances and ensure that the project does not move forward until it is clear where the project stands with the Federal Transit Administration.

"It drove home the point, to make it clear to HART, that the Council believes we do have that authority and we are prepared to exercise it," Anderson said.

Voters last year approved the transit authority as a 10-member, semiautonomous body to oversee all aspects of the $5.3 billion rail project. Anderson said he does not believe the budget oversight provisions interfere with the intent of the charter amendment.

"HART would still be free to manage the mass transit system," he said. "What we’re saying here is that the City Council will look over their budget, and we will approve it or not approve it, but they still do have the authority to run the day-to-day operations of the transit system as envisioned by Honolulu’s voters."

Council members approved the budget bills on second reading; they now go back to committee for further vetting.

Members also advanced a bill that authorizes the city to issue and sell general obligation bonds to help pay for the rail project. The bill does not specify an amount. The administration would have to come back at a later date, when it is ready to complete a contract, to ask for the specific amount.

The city wants to issue about $104 million in bonds to get some working capital for the project.

Anderson’s amendment requiring a grant agreement with the FTA before bond money is spent addresses concerns of several Council members who have balked at the idea of approving bonds for the project. They echoed concerns raised by rail opponents asking why the city needs to borrow for the project when administration officials have said it would be paid for with money from the general excise tax surcharge and federal funds.

The city stated its intent to use bonds to finance the project in the environmental impact statement and in its financial plans dating back to 2009.

City Transportation Services Director Wayne Yoshioka said short-term borrowing would be needed midway through the project because more money would be going out than would be coming in from the surcharge and the federal government.

Transportation officials said they wanted to work with the Council to be able to meet the criteria set forth in the budget, but that they were exploring options on how to proceed in case the agreement with the FTA is delayed. Those options include using cash instead of the bonding, delaying the encumbering of the bonds or working with the FTA to move more quickly on the grant agreement.

"To be honest, I can’t say I’m comfortable" with the amendments, said Toru Hamayasu, general manager of the city Rapid Transit Division. "I know there’s a lot of challenges in order to meet that, but we’re going to try our best."

Anderson added that if the transit authority encountered problems with funding, it could always come back to the Council to request a supplemental budget.

One additional measure unanimously approved by the Council yesterday was a resolution naming Damien T.K. Kim, Keslie Hui and Ivan Lui-Kwan as the Council’s appointees to the HART board. They will join three members appointed by the mayor — Don Horner, William "Buzzy" Hong and Carrie Okinaga — along with the state and city transportation directors and the city planning and permitting director, who serves as an ex-officio, nonvoting, 10th member.

The ninth member will be chosen by the eight voting members. The Rapid Transit Division will become the Honolulu Authority for Rapid Transportation on July 1, and will be directed by the 10-member board and a yet-to-be-hired executive director.