Short-term bonds to help fund rail

Honolulu Mayor Kirk Caldwell said Monday that his administration will use proceeds from the sale of short-term commercial paper to supply the city’s beleaguered $8 billion-plus rail project with $44 million to show “skin in the game” being required by federal transit officials and the state Legislature.

It will be the first time the city is committing funds backed by city property taxpayers for the construction of rail, breaking a 2006 commitment to only use federal transit dollars and a 0.5 percent surcharge on the state general excise tax.

The Federal Transit Administration, which committed $1.55 billion to the East Kapolei-to-Ala Moana Center project when it was projected to cost $5.26 billion, gave the city until Nov. 20 to come up with the money as part of a recovery plan for how it intends to complete construction. It has held up $745 million of its committed amount pending receipt of the recovery plan.

The City Council voted 7-2 on Oct. 30 to approve Bill 42 (2017), giving the go-ahead for the city to spend up to $214 million in all to help finance a hole in the rail budget, and Caldwell signed the bill into law Thursday.

Monday’s press conference centered on the source of the payment.

Caldwell said he settled on using tax-exempt commercial paper after weighing three other actions because it was the option that offered the least costs and exposure to other negative fiscal impacts, was most transparent and required no further action from the Council or him.

“At this point we’re so close to this deadline, we don’t want to jeopardize (the situation) and miss it, so we’re taking probably the safest route, the least painful route, probably the most fiscally prudent route to get the $44 million over to HART by Nov. 20,” he said.

Fees for issuing the short-term bonds would be between about $5,000 and $7,000, which is about how much interest would be lost if the city opted to take the money from the city’s fiscal stability or “rainy day” fund.

The administration rejected a suggestion by Council members that the money come from the rainy day fund because it does not believe the FTA situation constitutes major, unforeseen economic circumstances for which the fund was created, Caldwell said. Taking $44 million from the $114 million reserve fund also could negatively affect the city’s bond rating, he said.

His staff also rejected transferring funds from a city fund to the Honolulu Authority for Rapid Transportation’s transit fund because it does not believe HART is a city agency as its budget is controlled by a semi-autonomous board set up to be quasi-independent in its management and control of rail construction funds, Caldwell said.

Caldwell said he also rejected the idea of reopening the city’s 2018-2019 budget to locate $44 million to make the payment. Such an action can be done through a waiver of several City Charter requirements that must be done through a request by the mayor, he said. Such a move, however, would be unprecedented for his time in office and “extremely dangerous” for funding now committed for other city responsibilities, he said.

Council Chairman Ernie Martin scheduled meetings of both the full Council and Legislative Matters for Wednesday to discuss Resolution 18-240, which would approve the waiver of charter provisions. Those meetings are still expected to take place.

Caldwell again criticized Council members for delaying a vote on Bill 42, a delay that is costing the city an estimated $1.4 million in additional fees and higher interest payments.

He denied a charge by Council Budget Chairman Trevor Ozawa that he misrepresented the Council’s position on the $44 million to the FTA, causing agency officials to send its stern September letter demanding the payment.

Ozawa told the Honolulu Star-Advertiser that he believed he had fixed the issue by assigning $44 million more to the HART capital improvements project budget and that it was only after Caldwell or his staff contacted FTA that it set the Nov. 20 deadline. Caldwell said Monday that neither he nor his staff has spoken to FTA about the financing of the money.

Ozawa was one of two Council members who voted against the authorization bill. The other was Councilwoman Ann Kobayashi, a longtime rail critic.

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