The head of the Federal Transit Administration said the agency would withhold the release of $250 million in grant money for the city’s $6.57 billion rail project unless it gets assurances that the City Council will pass an extension of the 0.5 percent surcharge on the general excise tax.

That’s according to Mayor Kirk Caldwell, who met for about an hour this week with FTA Acting Administrator Therese McMillan.

Caldwell said that McMillan also made it clear that the agency expects the city to carry through with its agreement to construct a 20-mile, 21-station rail line from East Kapolei to Ala Moana Center as promised.

Council Chairman Ernie Martin, who has suggested the city consider scaling back the project in the face of rising costs, responded by saying it’s time for Council leaders, Caldwell, Honolulu Authority for Rapid Transportation officials and the FTA meet to discuss the project’s future.

HART officials declined comment Friday, saying they first want to review an FTA letter that Caldwell said is forthcoming.

The city is supposed to receive $1.55 billion from the FTA for the project under a full-funding grant agreement. So far the city has spent about $470 million of that and has received congressional OK for its latest allotment of about $250 million, Caldwell said.

The Council Budget Committee, meanwhile, is in the midst of hearings on Bill 23, which would approve the five-year extension for the surcharge through 2027, a move that is projected to generate $1.6 billion. A final vote is not expected until after December, Council members have said.

HART officials say the project has run into unanticipated costs making it impossible to complete it without the surcharge extension.

Martin has introduced an amended version of the bill that would cap the amount from the surcharge going to rail at $910 million.

In the last two weeks, Martin and other Council members have also urged HART to present alternatives to the surcharge extension, including talking to the FTA about reducing the length and scope of the project.

At a Budget Committee meeting Monday night, Martin told HART Chairman Don Horner that the board should also explore the idea of ending its deal with FTA altogether, forgoing the roughly $1.1 billion in remaining federal money not yet used for the project. Doing so would let the city come out from under the restrictions of the federal agreement, he said.

The Budget Committee is set to take up the tax extension bill again Wednesday.

Caldwell, in a telephone interview during a layover in Chicago, said McMillan “made it clear in no uncertain terms that … the FTA needs absolute assurance that the money will be in place to complete the full 20-mile project.” Further, he said, the FTA will hang on to the next federal increment of about $250 million “until they have that assurance that the Council votes, and at a level high enough to complete the 20 miles.” The FTA does not believe the $910 million cap that Martin is suggesting will be sufficient to finish the project, he said.

McMillan told Caldwell she is pleased that the Legislature gave its OK to the surcharge extension last spring, but is “frustrated” by the slow pace of the Council’s deliberations and by the suggestion that the surcharge money going to rail should be capped, Caldwell said.

The mayor said McMillan indicated the FTA would be open only to pushing back the completion date of the project as sought by HART.

He and McMillan spoke generally about the federal agreement, but they did not get into the different scenarios posed by the Council, Caldwell said.

“As mayor, I think it is insanity to give money back that we’ve already used to build part of our rail transit system … forgo (other money) that’s been appropriated and then say we’ve got to find the money some other way,” he said.

Caldwell said he’s also concerned that if the city chooses forgoing federal funding this go-round, it could jeopardize potential funding for other future transit projects. Federal officials committed significant funding for various rapid-transit projects in the past only to have the city reject local funding late in the process, something transit officials have not forgotten, he said.

“My hope is that the full, five-year extension will be granted,” he said.

Martin, who is on a fact-finding trip for homeless solutions in Seattle, said by telephone that the time has come for all the particular parties to sit down to discuss “how to do rail better.”

The main topic, he said, would be “specifically what are the FTA’s concerns with respect to this project.”

“I am committed to the project, but I still believe where we are at, the situation is very daunting,” Martin said. “We don’t want to leave ourselves with such a deficit that it’s going to jeopardize other essential city services and programs.”

As for Caldwell’s comments that rejecting federal help would give Honolulu a black eye in the eyes of FTA officials, Martin said the city’s failure to handle the project on time and on budget is in itself an embarrassment.

The project’s deficit has risen to about $1.5 billion now from $910 million during the spring, he said.