Stress-test stress: Lawmakers, mayor on opposite sides of rail’s money gap

An undercurrent of tension between the mayor and lawmakers has spilled over into outright mistrust over a huge money gap.

Honolulu Mayor Kirk Caldwell says he told lawmakers repeatedly to add in another half-billion to the price tag. They say they never heard it.

At issue is how much contingency, or pad, already in the cost projections is really left, and how much more might the Federal Transit Administration require in what they call a “stress test” of the financial plan.

It’s already proving a stress test of city and state relationships over rail money.

Just 11 days ago, lawmakers quizzed Caldwell at a rail tax hearing. Rep Andria Tupola, R, Ewa Villages, Ko Olina, Nanakuli, Maili, asked:

Tupola: When you assumed office, Mayor, what was the price tag of the rail?
Caldwell: $5.2 billion.
Tupola: And what is the price tag today?
Caldwell: $8.2 billion.

Fast forward 10 days, and new Honolulu Authority for Rapid Transportation and city numbers Always Investigating reviewed show an $8.7 billion cost, along with a letter from the mayor telling lawmakers their bailout is coming up short.

Why? Mostly, the mayor writes, because a federally required contingency adds another $548 million.

State lawmakers and U.S. Rep. Colleen Hanabusa say that’s news to them.

“As many of you know, I served as the HART chair, and as soon as I saw what the mayor said and tried to get through what he’s talking about, it’s definitely not something that has been presented to the Legislature or documented in the reports that they have,” Hanabusa said.

“From talking to the House and Senate, they feel that somehow this stress test of construction contingency was not presented to them, and yet we’ve had many presentations where we’ve submitted in writing that number, and it’s actually been testified too,” Caldwell said.

Always Investigating asked the mayor’s office for the presentations and testimony. Following the initial airing of our story, a spokesman provided several examples (see the full response below).

We also reviewed the record of what was submitted for the Aug. 14th hearing. The mayor’s written testimony cites a stress test, just no dollar sign.

HART’s submission doesn’t mention the half-billion extra either, though HART says an additional slide added to its presentation day-of says the FTA will stress all rates plus or minus 10 percent.

“They have admitted to us when we talked to them that they overlook that and it’s not in their calculation, which contributes to the shortfall we’re talking about,” Caldwell said. “There is an agreement to disagree, basically. They say we never told them and that’s why it’s not there. We say we told them and it should be there.”

“They can’t come out as they’ve done in the past and pick numbers out of the air,” Hanabusa said. “Given that, I think what the Legislature has worked on is the correct figures.”

Back in the spring, HART gave the feds a recovery plan with the $8.2 billion cost figure. It did not list a 10 percent or $548 million add-on, but HART did tell the feds its $8.2 billion included $1.1 billion in contingency. Borrowing costs brought it well above $9 billion.

View: Draft Update of the Financial Plan for Full Funding Grant Agreement (Dec. 2016)

With the latest stress test added plus interest, the project is now estimated at $9.7 billion, and any cost shortage will come down to taxpayers.

“We get about $1.17 billion out of real property taxes across all classifications, so if you’re looking to come up with $100 million, let’s just estimate, you would have to raise the property tax by 10 percent across all classes to come up with $100 million. So you can do the math and see how much it would take for us to come up with $600 million, maybe half of that,” said Honolulu City Councilman Joey Manahan.

How much a federal stress test could set the financial plan back isn’t the only cost risk. If collections of the general excise and tourism taxes grow slower than projected, that could create more holes to fill.


Response from the City and County of Honolulu:

In the past several days, there were statements made by certain members of the legislature that the numbers provided by HART regarding financing and construction costs were not accurately stated during the session or after.  We feel that it is extremely important to set the record straight.  If we don’t address it now we could be facing over a billion dollar shortfall to the taxpayers of the City & County of Honolulu, which would force a hike in real property taxes, affecting each and every person on this island, both homeowners and businesses alike.

Below are facts and statements which were made on the record, reported on the pages of the newspaper or on news broadcasts:

$3 BILLION SHORTFALL

As to the $3 billion shortfall, this has been stated repeatedly before the legislature, both during regular session and during the interim period, and at the legislature’s informational briefing on August 14, 2017.  The shortfall is $3 billion, of which $1.5 billion of the shortfall is construction costs, and the remainder is in financing costs, assuming a ten year extension of the General Excise Tax, which the city has been requesting since the beginning of the year.

Listed below and attached are a list of those documents.

1: a worksheet provided from Speaker Saiki to Brennon Morioka of HART dated April 27, 2017, in which it states receiving $3.5 billion in 2034 is equal to getting $1.5 billion in 2018.  Please see the highlighted portion of the attachment.

https://www.dropbox.com/s/plczj25dihcqmyk/DOC003.pdf?dl=0

2: a letter from HART to House Transportation Committee on February 28, 2017: “As part of the updated financial plan, a stress test risk analysis will be required by the federal transit administration… The second scenario stress tests the current projection by decreasing the GET growth rate to 3.0% and increasing construction costs by 10% to determine the fiscal sustainability of the plan.”

https://www.dropbox.com/s/3frqs89j26xrtql/DOC.pdf?dl=0

3: testimony by current Chief of Staff Gary Kurokawa before Senator Lorraine Inouye, Chair of the Transportation Committee on February 6, 2017, in which Kurokawa described the $3 billion shortfall.

https://drive.google.com/open?id=0B0Uq6tQc23HvaVQtei1tQm02cUE

PROJECT STRESS TEST

In addition, HART has consistently reported as early as February 2017 that the Federal Transit Administration (FTA) would stress the HART financial plan costs at a 10% level, estimated today to be $548 million.  Listed below are documents by HART to legislators regarding this point.

1: Letter dated February 15, 2017 to Senator Les Ihara, in which it stated that as part of the updated financial plan, as part of the stress test risk analysis, will be required by the FTA “… by decreasing the GET growth rate by 3% and increasing construction by 10%…” See highlighted portion of attachment.

https://www.dropbox.com/s/bs4ndd0d94jhnl3/DOC000.pdf?dl=0

2: Letter dated February 28, 2017 to Representative Henry Aquino, Chair of the Transportation Committee, and shared with members of the transportation committee. This letter repeats the same information that was provided to Senator Les Ihara in the previous document.

https://www.dropbox.com/s/3frqs89j26xrtql/DOC.pdf?dl=0

3: Letter dated April 27, 2017 to Senator Lorraine Inouye, in which the cover letter points out that the adjusted shortfall is $3.130 billion in estimated GET revenues.  The attachment further shows the projected stress test to be $530 million at a 10% increase of projected construction costs.

https://www.dropbox.com/s/bs4ndd0d94jhnl3/DOC000.pdf?dl=0

4: The 2012 Financial Plan for Full Funding Grant Agreement (FFGA), City and County of Honolulu, Chapter 4: Risks and Uncertainties, specifically Page 4-3 scenario 1 illustrates a 10 Percent Project Capital Cost Overrun.  This stress test was required by the FTA

HART will follow the same 10% capital cost overrun stress test requirement in our updated financial plan due on September 15, 2017.  Currently, the 10% stress capital cost overrun amounts to $548 million.  The $548 million number that has been alleged to be made up by HART and unnecessary is simply untrue.

https://www.dropbox.com/s/pcc9z01a3m3jodq/FFGA%20Chapter%204.pdf?dl=0

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