Wednesday, February 01, 2012

Honolulu to seek line of credit to improve rail's financial plan

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Honolulu Mayor Peter Carlisle presented a proposed solution to further strengthen the financial plan of Honolulu's rail project, remain on target for its successful completion and obtain full funding in the amount of $1.55 billion from the federal government.

In its December 29, 2011, letter approving entry into the final design phase of the rail project, the Federal Transit Administration declared the Honolulu Authority for Rapid Transportation (HART) financial plan to be "sound," but also asked that the plan "further strengthen" its demonstration of financial capacity to handle unforeseen revenue shortfalls or cost increases, prior to receipt of the federal funding agreement. Carlisle met with FTA Administrator Peter Rogoff in Washington, D.C., on January 18 to discuss solutions to address this comment.

Based on Carlisle's meeting with the FTA, the most cost-effective method to demonstrate the city's financial capacity is through establishment of a line of credit in a sufficient amount to satisfy the FTA.

"The city and county of Honolulu's financial health is strong, as shown by recent excellent credit ratings in 2011," said Carlisle. "The Honolulu Rail Transit Project's financial health is also strong: it has had higher than projected revenues and lower than projected contract costs so far. Because of this, we can demonstrate our financial capacity to handle unforeseen events with a simple line of credit and we can project that we will avoid an extension of the general excise tax (GET) half-percent surcharge to fund the rail project."

Proposed legislation will be drafted and submitted to the Honolulu City Council for public hearing and action. Provisions contemplated include requiring City Council approval before any borrowing from the line of credit may occur to pay for rail in the highly unlikely event a draw on the line is ever necessary.

Another contemplated provision would allow for a memorandum of understanding between the city and HART, making HART responsible for all costs associated with establishing the line of credit, or borrowing from it, as well as the debt service and debt itself.

According to the financial plan approved by the FTA, the city's rail project is projected to cost $5.17 billion. Revenue sources include $1.55 billion in federal funding and a GET surcharge passed by the Hawaii State Legislature and Honolulu City Council in 2005.

The Honolulu rail project is well underway with 25 percent of the projected GET revenue already collected, in excess of $810 million. Additionally, more than 50 percent of the construction costs have been contracted at prices that are $300 million below estimated expenses.

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