Requests by the Honolulu Authority for Rapid Transportation to borrow from the city’s line of credit won’t be going to the board first for approval.
Instead, the board just wants a heads up.
At first, HART planned to ask the board this week to sign off on borrowing $20 million from the city’s line of credit as its cash runs short in July.
Then, a few hours after we reported it, HART said there had been a change. It wouldn’t have to ask, but still needed the money.
On Wednesday, the city and HART board chairwoman Colleen Hanabusa explained what changed.
HART says it will likely need $20 million when its cash balance dips to the minimum reserve around the end of July. Its plan to patch the gap is to use city commercial paper like a line of credit.
“The money that we’re borrowing today, we know we’re going to have more than enough GET (general excise tax surcharge) and federal money to be able to pay back the amount,” said Dan Grabauskas, HART CEO. “It’s actually a really good rate. The city has an excellent bond rating.”
A resolution for board signature to let HART start drawing the funds had been on the agenda this week, but the board is saying the green light has already been given, so there’s no need to sign off for the draws.
“The authorization is there,” said Hanabusa, “and remember, it’s not authorization HART gives per se. It’s the City Council who had to authorize it because it’s the city council money. It’s the city money, not HART, per se.”
City council budget chairwoman Ann Kobayashi wants to take a second look.
“Some of the other councilmembers, they’re getting concerned because they thought that using the commercial paper would require HART to come back to us for approval,” Kobayashi said. “We’re having a discussion to see what we should do about it.”
Hanabusa says approval aside, the board still wants to know when HART wants to borrow.
“I think that what they should do, at the very minimum though, is they should at least notify us so we can notify the public,” Hanabusa said. “That’s my concern. It’s not permission to do it. It’s notification so that we can tell the public, ‘This is what happened.’”
Hanabusa also wants HART to exhaust all other sources first.
“I’m hoping that we can attribute the fact that they haven’t had to draw down on it to the fact that they’ve had the GET (surcharge) come in and we’ve been able to draw down on the federal match,” she said. “My position has always been you draw down on that money because I don’t want to pay interest and the people don’t want to pay interest if you don’t have to.”
Documentation from HART:
There is quite a bit of undrawn federal money — nearly $270 million available — but not all is immediately accessible.
“Every dollar we spend we get about 30 cents reimbursed by the federal government,” Grabauskas explained, “and every single month we go in and we draw down the maximum amount we can.”
Always Investigating asked, does the $20 million shortage already account for the maximum federal drawdown?
“That’s right, based on the expected costs we’re going to incur that month,” Grabauskas said.
The federal government has stopped granting any new money. About half of the $1.5 billion grant is on pause, withheld until a new financial plan is approved. HART is targeting turning that in by this fall.
Always Investigating asked, if for some reason the federal money being withheld is not released at that time, by when does it become a problem?
“It becomes a problem for us sometime in the late spring or early summer of next year,” Grabauskas said. “I don’t think that would happen frankly, because we’re intending to get that financial plan to the federal government.”
As for the general excise tax surcharge, HART’s last quarterly installment from the state came in April for $61 million. They expect the next check around July 31 for about $50 million.
Hanabusa says she hopes to see the cashflow outlook back in balance.
“We don’t have any major contracts out there right now,” she said. “We haven’t issued the airport section, and we don’t believe we can go to City Center because of just the constraints of what funding is there.”
She added HART came close to needing to borrow once before.
“It was last year, sometime in 2015 towards the ending of the year, and they thought we would go below the minimum,” Hanabusa said.
HART also plans to borrow another form of money within about a year.
“Some of that short-term money that we’re borrowing for short-term purposes will probably be put into longer-term bonds, the expiration of which would be coincident with the sunset of the GET (surcharge) in 2027,” Grabauskas said. “If there are favorable rates, we may want to try to take out more of that next summer.”
Grabauskas says the same source of borrowing it intends for short-term cash flow now – the commercial paper — is also allowed to be used again in a different and bigger way.
“The city council voted to pledge some of this short-term commercial paper to try to complete the project,” Grabauskas said.
He explained it would be borrowed in that case as a tail-end fallback to pay the project’s last bills if all other money runs out.
He says it’s that specific use of commercial paper – not short-term, quickly repaid borrowings — that HART meant when it told the City Council early on it wouldn’t be likely to touch it.
“People should be aware when we realized we were going to fall short back in 2014, we actually never drew on that commercial paper. Instead the community consensus was, ‘Let’s go get an extension of the general excise tax,’” Grabauskas said. “So my sense of things is people know we don’t want to draw down on that commercial paper at the end.”
If HART does borrow, there are some conditions, like prepaying the interest and having a big reserve in place by 2018 of about 40 percent of its maximum borrowing. The city can also take HART assets to help toward repaying the debt if it comes to that, before having to dip into general funds.
The city’s line of short-term commercial paper is $450 million. HART can access $350 million of that.
The city points out it still has plenty available for other municipal needs, but says it’s not being used right now.