Does Line-of-Credit Rail Plan Leave Honolulu Taxpayers on Hook?
Honolulu has not answered one big question about its plan to convince the federal government that it has the financial capacity to build its rail line.
The Federal Transit Administration is demanding a strengthened financial plan before it will approve $1.55 billion in federal grants the city is counting on to build the $5.2 billion rail line. This week, the city said it had come up with an answer that had been signed off on by the FTA.
The plan would expand the city's existing line of credit from $350 million to $450 million, putting taxpayers on the hook for possible extraordinary rail costs in the event that HART can't pay. But HART, not the city, would be "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 a city press release.
Asked why he was confident HART would be able to reimburse the city, Interim Executive Director Toru Hamayasu responded, "I understand what you're asking. But our answer is that we don't intend to draw down on that."
That sounds like circular logic. If the city will only draw on the line of credit in the event that HART exhausts its contingency funds, how can it expect HART to make city taxpayers whole?
But HART defends the plan, saying that depending on when the financial emergency hits, it might be able to pay back the loan from the city with years of general excise tax revenues.
That doesn't satisfy rail critics, concerned that Honolulu taxpayers will have to foot the cost.
"In the end, the taxpayers are going to pay the bill," Mayoral candidate Ben Cayetano told Civil Beat Wednesday. "At least with the half-percent surcharge, you have maybe 15 to 20 percent of that being picked up by tourists. This line of credit, all of it is going to be paid for by people who live and who are residents here, not tourists."
Officials Tuesday painted the line of credit as preferable to traditional funding mechanisms like floating general obligation bonds. In the release, Budget and Fiscal Services Director Mike Hansen said the city consulted lawyers that determined increasing the line of credit from its existing $350 million level to $450 million would not negatively impact the city's bond rating.
When Carlisle rolled out the line-of-credit proposal Tuesday, with support from Honolulu City Council Chair Ernie Martin and Honolulu Authority for Rapid Transportation Finance Chair Don Horner, he presented it as an alternative to extending the half-percent GET surcharge.
Neither Hansen nor Horner have responded to repeated requests for comment since the press release.
Hamayasu downplayed the likelihood of needing to draw on the line of credit, instead portraying the plan as merely a demonstration of the city's powers to act in the event of an emergency, natural disaster, unanticipated cost increase or funding shortfall.
"This is an example of what the city's capacity is," Hamayasu told Civil Beat Wednesday. But, he said, there are lots of other mechanisms the city might end up relying on down the road.
The plan was discussed with the Federal Transit Administration when Hamayasu and Carlisle took separate trips to Washington D.C. in the weeks after the FTA told HART to shore up its financial plan in late December. Hamayasu said the FTA signed off on this specific proposal, and said the $100 million increase is sufficient to move forward. He said the FTA made those statements verbally and not in writing.
Hamayasu said he'd like to have a bill — to be introduced at the Council at the request of the Department of Budget and Fiscal Services — passed before he sends a final request to the FTA for the full funding grant agreement. He intends to send that request by May 1, and hopes to have the FFGA through Congress by October.
Hamayasu said there's a small fee to keep the line of credit open, even if the city doesn't draw on it. He compared it to annual fees for high-limit credit cards. How much will those fees cost taxpayers? That's among the many unanswered questions about the plan.
DISCUSSION: Does the city's new line of credit plan for a rail funding emergency leave city taxpayers on the hook? Chime in below.