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Honolulu's Elevated Rail Project Gets Momentum, and Some Opposition

After years of stops and starts on a $5.3 billion elevated rail system first conceived 45 years ago, the 20-mile Honolulu transit project appears to be rolling along.

Construction began in March on the rail's first phase that runs from Kapolei on Oahu's west side to Aloha stadium.

The island only has one freeway, H1, enabling people who live in the housing developments on the city's west side near Kapolei to reach downtown Honolulu where most of the jobs are, said Scott Ishikawa, a spokesman for the Honolulu Authority for Rapid Transportation.

When there is an accident, or something else that halts traffic on the highway, there are no alternative routes for people to take, he said.

According to Frank Doyle, HART deputy project manager for administration and control, "The traffic congestion has reached a point on our island where a realistic and effective traffic solution is needed, and elevated rail is that solution."

HART in May will submit a grant application to the Federal Transit Administration seeking $1.5 billion in funding.

While the project has hit some bumps along the way, its hurdles this go-round are nothing like what it experienced in 1990.

After federal officials had fought to secure funding for the project, the City Council decided at the last moment to vote 5 to 4 against approving local matching funds.

When the idea for the elevated rail project was again proposed in 2006, federal legislators were understandably wary, Ishikawa said.

"They had already been burned once," Ishikawa said.

Support for the project has not been universal this time, either.

Former Hawaii governors Linda Lingle, a Republican who left office in 2008, and Ben Cayetano, a Democrat who is running for mayor of Honolulu, have expressed opposition to the project.

Cayetano, in fact, has made his opposition a key component of his campaign, and vowed to shut the project down if elected in November.

According to him, the project will not reduce traffic congestion and will be the most costly rail project per mile in the nation.

"With a population of only 950,000, the residents of [the island] Oahu will not be able to support and sustain the system without raising taxes significantly in the future," Cayetano said. "Honolulu is already rated the third most unaffordable city in the nation, first among cities with a population of less than one million."

However, the plan has the support of current Honolulu Mayor Peter Carlisle and Gov. Neil Abercrombie.

"The Honolulu rail transit project has successfully progressed to this point over the past several years through a collaborative effort between city, state and federal agencies," Doyle said.

But Cayetano considers the project an "aesthetic and environmental disaster," particularly for a city whose economy is based on tourism.

"By running the rail route on an elevated concrete structure anywhere from 35 to 60 feet high along the city's waterfront, rail will change the character of the city forever," Cayetano said. "It makes no sense to build what amounts to a concrete wall blocking off the view planes of the ocean and waterfront."

This is why the Hawaii Chapter of the American Institute of Architects — normally a pro-rail group — opposes the project, he said.

The entire project, which will extend the line from the island's west side to past downtown Honolulu on the island's leeward side, is expected to be completed in 2019.

HART has already received $120 million from the federal government, which is ultimately expected to fund 33% of the project. HART is poised to receive a share of $510 million this fiscal year. President Obama's fiscal 2013 budget also includes $250 million for the project.

The project's largest revenue source will be the $3.6 billion gained through a half-cent general excise tax surcharge that took effect in January 2007 and ends December 2022. To date, $810 million has been collected through the GET, which will fund 66% of the project.

The project's draft financial plan, which was completed in September 2011, calls for the issuance of long-term, medium-term and short-term bonds when GET surcharge revenues and federal funding are not enough to meet cash-flow requirements.

HART anticipates issuing $2.9 billion of bonds between 2012 and 2019, starting with $174 million of medium-term grant anticipation notes and $100 million of short-term commercial paper in 2013, according to the report. The authority does not expect to issue long-term debt, which will have a final maturity of 2023, until 2015.

The financial plan assumes an interest rate on long-term debt of 4.50%, consistent with the city's current double-A-plus rating. Interest rates on medium-term bond anticipation notes and Gans are assumed to be 3%, while rates on short-term construction financing are assumed to equal 2.5%.

Up-front costs for long-term bonds and medium-term notes are assumed to equal 0.75% and 0.50% of the par amount.

Cayetano released a report on March 27 from a nine-member "truth squad," made up of former mayoral cabinet members, that claims the rail project will increase the city's debt level to 23%-29% of the general fund.

The report also claims that the mayor is shorting essential public safety and infrastructure projects by $17 million in order to reduce debt so the city can fund the rail project. The report, however, ignores the fact that the rail project will be funded by money received from the GET, not through the general fund.

The rail debt is not considered when analysts are looking at the city's percentage of outstanding general obligation debt, because it comes from another revenue source, according to Stephen Walsh, a director in Fitch Ratings' San Francisco office.

"In this case, the rail debt would be supported by new revenue," Walsh said. "I don't think we considered the rail project in our last report, because there was no debt related to it, at that point."

According to Walsh, Fitch would review the rating if it was deemed necessary.

"The debt limit for the GO debt hasn't set off any alarms yet," Walsh said.

Fitch rated the city's credit AA-plus in its last report issued in July 2011.

Carlisle said the city briefed Moody's Investors Service and Fitch analysts on Honolulu's elevated rail project and the city's infrastructure obligations when it received the AA-plus ratings last June.

In its report, Fitch said, "Honolulu remains financially strong due to its diversified economy, stable revenue base and proven conservative management."

During a press conference responding to Cayetano's report, Carlisle said, "This is not a truth squad, it is tired old politics as usual."

Carlisle, who introduced a $1.9 billion city budget for fiscal 2013 in early March, said in a state of the state address in February that Honolulu needs to keep its borrowing low and "bend the debt curve downward."

The budget is $28 million, or 1.5%, more than his fiscal 2012 budget. It also includes a $577 million capital budget for the coming year, a 5.5% increase over his previous capital improvement budget, $295 million of which will go toward upgrades to the city's wastewater system as mandated by a U.S. Environmental Protection Agency-driven federal consent decree.

"Before I took office in October of 2010, the city's borrowing for capital improvement projects was, in a word, unsustainable, and had to stop," Carlisle said. "For every $1 we borrow, we have to pay back $1.70 over time; this debt service pretty much doubles the cost."

By taking advantage of low interest rates and refunding opportunities, next year Honolulu's debt service, for the first time in eight years, will be lower than the year before by about $7 million dollars, he said.

His budget also proposes to put $20 million more into the rainy-day fund and invest in the city retiree health care fund.

"We are doing our best this year to maintain a balanced budget that does not call for more real property taxes," Carlisle said.

He added that city leaders are not neglecting infrastructure to decrease debt to prepare for bonds that will need to be issued to pay for the rail project. "For public safety projects, I proposed funding 15% more than last year at a cost of $44.6 million versus $38.5 million," he said.

The rail project has been proposed for decades and it is happening now, Carlisle said.

"The FTA believes this project provides much-needed relief from suffocating congestion on H1 and provides an alternative form of transportation for the people of Oahu when gas prices rise," he said.

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