LOS ANGELES – Honolulu’s controversial 20-mile elevated rail project is facing a storm of financial and construction challenges.

“There are doubts about the cost information,” said Tom Yamachika, president of the Hawaii Tax Foundation. “There are doubts about the ability to control costs. There are doubts about ridership projections. And, there are doubts about operational costs.”

A train for Honolulu's rail transit system.
The latest estimate is that Honolulu's driverless train system won't begin operating until 2020. Honolulu Authority for Rapid Transportation

The entire project linking the island's west side to past downtown Honolulu on the island's leeward side, was once expected to be completed in 2019. It offers the promise of automated, driverless trains moving passengers efficiently across Honolulu's congested landscape.

The first, less challenging phase of the project, linking East Kapolei and Aloha Stadium, is now scheduled to open in late 2020, while the second phase of the project continuing the project across Honolulu's urban core to Ala Moana Center is in financial trouble.

Existing funding is only sufficient for construction to Middle Street in Kalihi, but the Federal Transit Administration has made it clear its $1.55 billion contribution is contingent on completion of the line to Ala Moana Center.

Estimates have ballooned for the price of finishing a project that originally anticipated to cost $5.2 billion.

The Honolulu Authority for Rapid Transportation released estimates in December putting construction costs at about $8.2 billion with a reported shortfall of between $1.4 billion and $2.3 billion.

The state legislature in 2015 already extended by five years to 2027 the expiration date on the general excise tax that supplies the project's local funding -- a half-percent general excise and use tax surcharge for rail collected on goods and services purchased on Oahu since 2007.

New estimates released late last year indicate the GET will not be enough to fund the project.

Dan Grabuaskas, the executive director of HART, stepped in August 2016. He was replaced by interim executive director Krishniah Murthy, who worked for seven years as the Los Angeles County Metropolitan Transportation Authority’s executive director of transit project delivery.

Federal money totaling $1.55 billion provided as matching funds by the federal government is considered in jeopardy on two fronts, Yamachika said.

The FTA wants assurance that Hawaii has the money for the whole line before it will give the state its next installment of funding; and there are questions as to whether the Trump administration will honor the existing agreement. The state has already received more than half of the FTA funding. There are also concerns that the state might have to give the funding back.

The state legislature has scheduled a special session to begin in late August after it could not reach an agreement during its regular session on additional funding for the project.

Some legislators wanted to extend the GET; some wanted Honolulu to raise its property tax to pay for the project; and others think the half-completed project is dead on arrival.

The project has always had its detractors and supporters.

Former Gov. Ben Cayetano has opposed to the project from the beginning. He argues it will not provide the traffic relief supporters contend that it will – and that the tourist-dependent island should not be constructing something that will block views of the bay.

He sent an emailed letter this spring asking the Trump Administration to scrap the project by pulling federal funding.

Opponents sued in the early years of the project contending it would harm native burial grounds. After years of litigation, the courts ruled in the project’s favor, but the litigation slowed construction.

The project also faces legal challenges from a state Supreme Court case brought by the Tax Foundation. Oral arguments were heard Thursday.

A decision from the higher court awaits.

Honolulu City and County Mayor Kirk Caldwell campaigned as a rail supporter, and won the position in 2012. Caldwell, then Honolulu's managing director, ascended to the position of acting mayor in 2010 following the resignation of Mayor Mufi Hannemann to launch an unsuccessful bid for governor, lost the ensuing special election to fill the rest of Hannemann's term to another rail supporter, Peter Carlisle, then unseated Carlisle in 2012

“I am pleased the Hawaii State Legislature has scheduled a special session and look forward to working with lawmakers in both the House and Senate on a sound financing mechanism that allows the city's rail line to be built all the way to Ala Moana with all 21 stations,” said Caldwell in a prepared statement provided in response to a request for an interview on the topic.

The latest battle in the City Council – and among state legislators – is on whether the additional cost should be footed through a GET increase or property tax increase, both of which Yamachika says are regressive taxes.

At least with the GET, he said, it’s only a little at a time – can be seen reflected on a receipt – as opposed to an all-at-once large payment increase on a property tax bill.

The Tax Foundation, a taxpayer watchdog organization, has not taken a formal position on the project.

The City Council has been debating a proposal to issue general obligation bonds to fund the project, but has not reached a decision.

Long-time Hawaii Sen. Daniel Inouye, a Democrat, championed the rail project since the 1980s – and it became a reality, partly riding on his popularity and stature in the state. Former Gov. Neil Abercrombie also supported the project.

But the project has faced lawsuits from opponents almost since its inception. It nearly did not get off the ground – weighed down by the lawsuit delays.

After the original lawsuits were resolved, other problems began to crop up. The legal delays meant that construction costs had risen.

Accusations flew that HART was not keeping the City Council informed about cost increases – resulting in the lawmakers requesting more frequent updates with better financial information.

New HART board member Ember Shinn was criticized after she told a reporter that the HART should not spend money on an audit because an audit looks to the past, and the board needs to look to the future. Shinn, appointed by Caldwell in May, is Honolulu's former managing director.

"Yes, except that people who don't consider the past are destined to repeat the same mistake," Yamachika said.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.