Last fall, when Oahu’s cash-strapped rail transit system was in need of a rescue from cost overruns, state lawmakers put together a bailout package with oversight strings attached.
Among the strings: The city must pay rail project vendors upfront, then submit requests to the state for reimbursements from dedicated tax revenue streams. Also, on an annual basis, the state auditor must scrutinize the financial records of the Honolulu Authority for Rapid Transportation (HART), the semi-autonomous agency responsible for shepherding the half-constructed 20-mile rail route from Kapolei to Ala Moana.
With rail’s price tag now set at roughly $9 billion — about double the projected figures pitched to residents a decade ago — state oversight leaning heavily on financial double-checks is welcome.
Already, state Auditor Les Kondo has raised a red flag regarding the types of expenses that are reimbursable to HART under the bailout law, Act 1. Follow-up attention is needed, of course, but it’s concerning that there’s already disagreement between city and state officials on some basic accounting methods.
Act 1 authorized an estimated, additional $2.4 billion for rail funding by extending Oahu’s 0.5 percent general excise tax (GET) rail surcharge by three years to 2030, and increasing the statewide hotel room tax (transient accommodations tax) by 1 percentage point for the next 13 years.
The law specifies that GET and TAT revenues can be tapped only for rail capital or construction costs, and bans spending on “administrative, operating, marketing or maintenance costs, including personnel costs.” As part of the bailout, state lawmakers put the city on the hook to pick up rail administrative costs, tagged at $214 million total through remaining rail construction.
The law seems clear enough. But on Thursday, Kondo pointed out that it appears his office and HART have different opinions on reimbursement eligibility. After he broached the subject at HART’s board meeting, particulars of the disagreement were not discussed in open session.
Clearly, the city now has an especially keen interest in keeping rail administrative costs to a minimum. Failure to do so would mean digging deeper into city coffers — and that could mean painful cuts to city services, for starters.
Last month, city Budget Director Nelson Koyanagi told the Star-Advertiser editorial board: “HART has an operating budget and a capital budget. But technically the whole thing is a capital project” because all funding is tied to rail construction. “Unfortunately, what HART has been reporting as its operating budget includes a lot of things that are clearly capital.”
Koyanagi said HART administrators have estimated that 60 percent of the agency’s administrative costs could be moved to the capital costs side of the ledger, which would then make them eligible for GET and TAT revenues.
How the city and state’s financial wizards resolve the accounting ground rules will be consequential to which pots of money get tapped. A swift overhaul of HART’s fuzzy financial management is needed to help bolster public confidence in Hawaii’s largest-ever public works project.
Weak confidence in the rail project prompted an Act 1 provision allowing the state House and Senate to appoint two non-voting members to the HART board, bringing the total to 14 members. That board did the public a disservice at Thursday’s meeting when, faced with the issues raised by Kondo, it quickly voted to meet behind closed doors with the board’s attorney. It closed the meeting despite Kondo — a former director of the Office of Information Practices, which administers the state’s Sunshine Law requiring open public meetings — rightly suggesting that the board rethink that move.
Public confidence in the project is based, in large part, on a basic understanding of the handling of rail finances. The board must place a higher priority on transparency.
