Dear President Kouchi and Speaker Saiki: August 24, 2017
We appreciated the opportunity last night to meet for the first time since the end of the regular legislative session on May 4, 2017, to discuss the further funding tor the City and County of Honolulu's (City) Rail Transit Project (rail project). We have remained hopeful ever since your letter dated June 16, 2017 to the Federal Transit Administration (FTA) which states "this letter is to communicate the strength of our collective resolve to craft a legislative solution that will provide the City and County of Honolulu with a dedicated revenue stream that, along with the Full Funding Grant Agreement (FFGA), will enable the City and County of Honolulu to complete construction of the Minimum Operable Segment (MOS) of the Honolulu Rail project." We remain hopeful that legislation would be crafted to meet the funding goal stated in your letter.
At last night's meeting we were presented with a two page worksheet enclosed, entitled "Executive Summary of Potential Funding for Rail". We were asked by the House Finance Chair to accept the terms and conditions of the worksheet, and told that this was not a negotiation but a take it or leave it situation. I asked for time to review the terms and conditions of the worksheet with HART's Chief Financial Officer and the City's financial team before responding. We were not provided the legislation containing the terms and conditions of the worksheet. We understand such legislation has been drafted.
In the interest of transparency and open government we will need to review the actual legislation to ensure that the almost one million residents and taxpayers and our rail project are not adversely impacted by the proposed legislation. Given that the Special Session is scheduled to start on Monday, August 28, 2017, we hope to have an opportunity to review the legislation as soon as possible. It was our hope that it would have been presented to the people of Oahu prior to the informational briefing of August 14, 2017, so that we would have a bill to provide input on.
We understand that legislation is the art of compromise and we are willing to compromise in the best interest of the public through the legislative process. However, these two funding sources contained in your worksheet, while significant, are not sufficient to close the funding gap, nor provide a "dedicated revenue stream" to complete the MOS as committed to your letter to the FTA.
Please understand the City's full faith and credit stands behind the rail project and managing risk is a key component of the City's financial responsibility to the residents and tax payers of Oahu. As Mayor, I have the responsibility to protect the financial health of the City and do what is best for Oahu taxpayers without burdening them with additional and unnecessary taxes. While our rail project is important, I will not jeopardize the financial health of the City and negatively impact the residents and taxpayers. By our calculations, the gap is somewhere between $600 million to $900 million. To fund the gap with City operating revenue would place an enormous financial burden on the residents and taxpayers of Oahu well beyond what a straight forward extension of the GET would do. Having laid this foundation we wanted to comment on some of the specific terms and conditions of the worksheet.
I. GET Growth Rate.
We appreciate your adjusting your 4.5% GET growth rate to 3.0% after confirming that the FTA would stress the rate at a 3.0% level. HART has learned from two legislative sessions ago it is safer to under promise and over deliver and use more conservative growth numbers.
II. TAT Growth Rate.
You projected an 8% growth in TAT based on an average over the past 29 years since the TAT was imposed. We think this is a highly optimistic number in that it is not a growth rate based on a static TAT percentage, but a growth rate that includes increases in the TAT from the original 5% in 1987, to 6% in 1994, to 7.25% in 1999, to 8.25% in 2009, to 9.25% in 2010.
The more aggressive the percentage growth, the larger the projected revenue is from a 1% increase on the TAT. We believe that this is an inflated rate and is unsustainable and will not generate the revenue anticipated in your worksheet. We also believe it will be stressed by the FTA to a lower growth rate.
III. Adjustment for $21 million per year of revenues for rail operations through financing period ($281 million).
Without seeing the bill it appears this includes funds already paid between 2012 and 2017, and partially reimbursed by the FTA, which the City is now being asked to pay again. The taxpayers of the City may be able to afford paying HART's operations budget of $22 million from 2018 to the anticipated end of construction in 2025 or 2026. But it would be an unfair burden to make them pay it twice.
IV. Adjustment for estimated cost of marketing $51 million from 2012-2017; $10 million thereafter for 10 years ($151 million).
Again it is the same concern as above, regarding the additional financial burden being placed on the taxpayers of the City. City taxpayers would be paying twice; $51 million from 2012 to 2017 which again was partially reimbursed by the Federal government and a second time under the terms of this worksheet.
V. Adjustment for estimated financing cost savings from receiving TAT collections ($208.6 million).
This $208.6 million interest savings from the "front loading" of TAT over 14 years is based on the 8% very aggressive growth rate. If it is less or the FTA stresses it at less than 8% this interest savings will be reduced significantly. A one year extension of the County Surcharge on the GET would generate on average $300 million.
VI. $548 million construction stress contingency.
The FTA requires a construction stress contingency as part of the recovery plan pursuant to the FFGA. Every "stressed" financial model we presented included this $548 million construction stress contingency and it was testified to. This amount is missing from your worksheet and is the largest portion of the funding gap.
VII. Lack of a bill to review.
We have been asked on behalf of the residents and taxpayers of Oahu to accept the terms and conditions of a funding plan without seeing or being given the chance to review the actual legislation in the context of these terms and conditions. We have been informed by press reports that the legislation includes provisions for the State to review and approve invoices submitted to HART for construction of the rail project, prior to payment invoices. A provision, such as this or others, could place the legislation in legal jeopardy as the State is not a signatory of the Full Funding Grant Agreement entered into with the FTA. We would want to review with legal counsel and HART the legal ramifications of any bill being presented to us for our input and consideration. Transparency and open government requires nothing less.
We have come a long way since the end of the regular session. We want to work with you to provide sufficient funding through a dedicated revenue stream all the way to Ala Moana. The solution also must pass legal review and the FTA "stress test" process.
Again we want to thank you for all the time and effort you have devoted to developing a proposed funding solution for rail. We hope that for the sake of the residents and taxpayers of Oahu we are not in a "take it or leave it" situation and that there is room for more dialogue and compromise after we have had an opportunity to review the legislation you will be submitting, prior to the special legislative session.
cc: Members of the Senate, Members of the House
Enclosures: PDF of Letter with two-page ‘Executive Summary of Potential Funding for Rail’