With the pace of construction picking up and major new contract awards on the horizon, the Honolulu Authority for Rapid Transportation on Thursday launched its plan to borrow up to $350 million to help cover the ongoing cost of the city’s 20-mile rail project.
If HART receives the proceeds from the short-term commercial debt, it will mark the first time the rail authority has borrowed to help finance the controversial rail project. Up to this point, rail has been financed with federal grant money and taxes collected from Oahu’s 0.5 percent excise tax surcharge.
Don Horner, chairman of the board of directors, said HART has been paying about $50 million per month to contractors working on the project, and that pace will accelerate early next year to approach $100 million per month at the peak of construction.
The rail contracts generally require more money as they approach completion, and "we have multiple contracts going at the moment," Horner said. "We’ll have stations under construction, track under construction, the operations center under construction, all at the same time and drawing toward completion."
The HART board voted unanimously yesterday to approve a resolution asking the Honolulu City Council to authorize the sale of commercial paper by the city to help finance the project so HART can draw down money as needed up to the $350 million limit.
HART expects to begin tapping that money in the first three months of 2016 to help with cash flow, and expects to pay an interest rate of about 0.5 percent. It will be short-term debt that is to be repaid in 270 days.
HART and the city have already entered into a memorandum of understanding governing how the financing will work, and that agreement requires that the rail debt be repaid by HART and not the city.
The Council’s Budget Committee will consider a resolution Wednesday to authorize the city director of budget and fiscal services to issue and sell commercial paper to raise money for the rail project. That committee meeting begins at 9 a.m. at Honolulu Hale.
The Council committee will also consider a proposed ordinance to reaffirm that the city administration has the authorization to issue commercial paper to help HART finance the rail project. However, Council Budget Chairwoman Ann Kobayashi said she intends to vote against both measures.
Kobayashi said that approving the ordinance and resolution authorizing the city to issue debt for the project would be like asking city taxpayers to co-sign for a loan to the project. If something goes wrong, city taxpayers would be obligated to repay the money, she said.
Horner said some borrowing was always built into the rail’s financial plan because revenue from the excise surcharge will flow to HART over a span of years extending out to 2023, while the peak demand for funding for construction will occur earlier. The borrowing is necessary to pay for construction at the front end of the project, and to amortize the repayment from federal grants and the excise surcharge revenue over the years ahead, he said.
The City Council is considering a separate measure to extend the excise tax surcharge out to 2027 to provide more money for the rail project, but that money would not arrive until years from now. Meanwhile the near-term demand for cash is increasing as HART closes out current contracts and initiates new ones, Horner said.
The rail project is approaching completion of the second five miles of guideway and is also approaching completion of the Rail Operations Center near Leeward Community College. HART has also issued a notice to proceed for construction of six rail stations and will open bids next week on another rail station construction package. That increased pace of spending means the agency needs to borrow to maintain its cash flow, Horner said.
