Borrowing deal would fine-tune rail bond strategy

PHOTO BY DENNIS ODA ON DEC. 3, 2
20141203-1736 CTY RAIL TOUR The media and government officials were given a tour of the elevated rail guideway under construction in East Kapolei under unusual rainy skies. It’s the first completed mile of the elevated guideway east of Kualakai Pkwy. that runs parallel to Farrington Highway. The height from the ground to the top of the guideway deck is about 35 feet in most areas. The guideway also includes a three foot high sound walls located on each side of the guideway designed to deflect the train noise. A typical guideway segment is about 11 feet long by 30 feet wide by 7 feet tall. Each pre-cast segment weights about 50 tons. A span, which is the area from one column to the next, consists of an average of 12 segments. The first mile of mass transit guideway includes 42 column spans, 516 segments and 15, 900 cubic yards of concrete. About 5, 200 segments will make up the first 10 miles of the alignment. Dan Grabauskas (Exec. Dir. and CEO for the Honolulu Authority for Rapid Transportation (HART) and Mayor Kirk Caldwell were present. These are some crew walking up to the top of the guideway. PHOTO BY DENNIS ODA. DEC. 3, 2014.

As transit officials start the year scrambling to get a handle on rail’s ballooning price tag, the Honolulu City Council will consider a measure this week that Mayor Kirk Caldwell hopes will help ease the pain of the project’s budget woes a little, trimming $60 million to $70 million from the total cost.

Under that measure, Resolution 15-7, the city would issue bonds and commercial paper in smaller increments than it had originally planned to help fund rail later this year, when construction heats up across all 20 miles of the project and its revenues won’t keep pace with the costs.

By issuing those bonds incrementally, instead of in one large lump sum, city budget officials say they expect the rail project to save tens of millions of dollars in interest payments.

Even before rail’s most recent budget trials, it’s always been the plan for the project to borrow hundreds of millions of dollars during the height of construction, using bonds backed by the city’s general fund.

However, it’s still not clear exactly how much the rail project will need to borrow, and the plan hasn’t always sat well with some on the City Council, including Transportation Committee Chairman Joey Manahan. He and others criticized the borrowing plan’s lack of detail during a budget meeting last year.

Nonetheless, Honolulu Authority for Rapid Transportation officials have in the past delivered repeated assurances that no city dollars will be used to pay back those bonds. Rail dollars from Oahu’s 0.5 percent general excise tax surcharge and federal transportation funds specifically for the project will do that instead, they say.

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On Friday, Caldwell touted the borrowing agreement that the Council will consider on Wednesday. The deal is commonly known as a "memorandum of understanding," and Deputy Director of Budget and Fiscal Services Gary Kurokawa said it will give city budget officials extended financial oversight and allows them to directly seize rail assets and rail dollars to pay off the city bonds should the project fall into trouble.

"If we’re going to be the person funding your project, we need to know everything you’re doing before you do it," Caldwell said. "No surprises."

The deal will allow the rail project to borrow as much as $350 million in commercial paper backed by the city, Kurokawa added.

Still, the roughly $70 million in interest payments that rail officials hope to save with this borrowing deal is just a fraction of the $500 million to $700 million deficit facing the roughly $6 billion project.

Rail officials have pointed to several potential yet vague solutions to help address the rail deficit, such as by forming "public-private partnerships," repackaging contract requests before they go out to bid, and seeking out more federal dollars.

But the main solution they’re clearly pursuing is to lift the 2022 sunset on the Oahu GET surcharge, which funds most of the project.

It’s an idea that rail officials were exploring even before rail fell into financial trouble, as a way to fund extensions to the University of Hawaii at Manoa campus and Kapolei — even though the Legislature in 2005 authorized the surcharge with a clear expiration date.

Caldwell, who was a legislator in 2005 and voted in favor of the surcharge to fund rail, recalled on Friday that "everything was on the table" during lawmakers’ discussions to get the measure passed, including the idea to "come back later" and try to lift the sunset date.

He acknowledged that’s what’s happening now.

Caldwell further said Friday that he intends to visit all 76 state legislators in hopes of persuading them during their upcoming session this year to lift the sunset.

If they don’t get it lifted this year, he said, the public transit system is "in trouble" of seeing construction stall. State procurement laws don’t allow government agencies to sign contracts without the dollars to pay for them.

Without sufficient funds, "we’re not completing the system that we promised to the people of this island," Caldwell said in an interview Friday. "It’s an incomplete system that doesn’t get you into town. And if you don’t have a system that gets you into town, who’s going to ride it?"