LOS ANGELES — Construction on Honolulu’s elevated rail transit system began in March, but in the face of fierce opposition it’s not clear if the $5.16 billion project will ever be finished.

Legal and political threats to the project’s existence have accelerated since construction began on the system, which is supposed to run 20 miles from Kapolei on Oahu’s west side to downtown Honolulu.

The rail project received an adverse ruling from the Hawaii Supreme Court on Aug. 24, effectively shutting down construction, and a staunch rail transit opponent became the front-runner in Honolulu’s mayoral race.

Former Gov. Ben Cayetano, who has vowed to cancel the project if elected, won the Aug. 11 mayoral primary with 44% of the vote, making him the race’s front-runner. Incumbent Peter Carlisle, a rail supporter, was knocked out of the race, finishing third with 25% of the vote.

Cayetano will face Kirk Caldwell, former city managing director and a rail supporter, in the Nov. 6 general election. Caldwell drew 29% of the vote.

Less than two weeks later, the state’s high court ruled that the Honolulu Authority for Rapid Transportation, the city agency overseeing construction, should not have been allowed to proceed with construction until an archaeological inventory survey, or AIS, had been completed for the entire line.

The court ruled that the State Historic Preservation Division erred when it agreed to allow HART to split the survey into four segments, conducting surveys for native Hawaiian burial sites and other artifacts in phases matched to the four stages of the project’s construction. As each of the surveys was completed, the agency would grant a construction permit.

HART executive director Dan Grabauskas said local and state officials’ decision to allow doing the surveys in phases “was consistent with established interpretations of the law, and minimized unnecessary disturbance of unknown historic properties and burials.”

The high court had a different interpretation of the law.

“The Hawaii Supreme Court ruling vindicates what we’ve been saying all along,” Cayetano said. “By ‘phasing’ the AIS survey in four segments, the city violated the state environmental law. The project is one — not four projects.”

The Supreme Court’s ruling could be precedent-setting in ensuring that archaeological surveys are completed before construction just as environmental impact statements are in the state, according to David Kimo Frankel, a staff attorney for nonprofit Native Hawaiian Legal Corp., who represented the plaintiff, Paulette Kaleikini, a native Hawaiian.

While work has begun on other large developments before completion of the archaeological survey, Frankel — whose firm specializes in cases aimed at preserving burial sites — said he doesn’t know of another case where segmentation was allowed.

Kaleikini argued in court documents that undeveloped areas surrounding downtown Honolulu contain ancient burial sites. She expressed concerns that if the survey was not completed before construction began on the rail system, it would be too late to make changes in the alignment.

Frankel said that it is a “very, very real possibility” that completion of the survey could bring a permanent halt to the rail project.

Grabauskas disputed claims that the ruling had halted construction on the project and that recent events could spell its end.

“There has been no shutdown of the project,” he said. “A temporary hold on construction is in place while the archaeological survey work is being completed. Work continues on the design and engineering phases of the project, including the design and manufacturing of train cars, so construction can resume promptly once the survey work is done.”

HART has completed 16 columns for the elevated line and the transitions for several others. It has also conducted soil testing and grading work at the site of the operations and maintenance facility, and has completed half of the archaeological inventory survey work for the entire alignment, he said. The archaeological survey work is also underway on the eastern half of the route in the urban Honolulu area.

Grabauskas also contends that the ruling only represents a temporary setback; and because voters approved the charter amendment creating HART by a 63% margin in 2010, there is little Cayetano could do at this point.

If Caldwell — a rail supporter — wins, it’s a different story. Voters who supported Carlisle could also vote for Caldwell in the Nov. 6 general election, giving him an edge over Cayetano, which is what Caldwell’s campaign hopes for, said Glenna Wong, a Caldwell campaign spokeswoman.

However, Caldwell said in a statement that “this issue remains in the courts and it is premature to comment on what will happen with rail.” He confirmed that he remains “a strong supporter of the rail project, as I believe it is our best option for traffic relief and modernizing Honolulu’s transit infrastructure.”

A few days after the Supreme Court made its decision, city and state officials filed a document asking the court to reconsider its ruling. The justices are expected to rule on the city’s motion on Sept. 28. But Kaleikini, the sole plaintiff, was also given the option of responding by Friday  to a brief filed by pro-rail groups Pacific Resource Partnership and Faith Action for Community Equity in support of the city’s motion.

Although Cayetano and other opponents have decried the cost of the project, HART officials say they have a solid financial plan for the rail and other capital costs for other mass transit assets the agency manages for the city.

In addition to the $120 million already committed by the Federal Transit Administration in March, the federal agency is expected to present HART’s request for $1.5 billion in federal funding to the White House’s Office of Management and Budget for a review this month with a decision anticipated by year-end, officials said.

A combination of savings from contractor estimates coming in lower than expected and interest savings on financing lowered the cost by $10 million, from $5.17 billion to $5.16 billion, from the time it first issued a financial plan in September 2011 and then in June updated the plan that will be presented to the OMB.

The agency also has determined that it will not need to issue long-term debt to complete the project, which is expected to be finished in 2019, Grabauskas said.

The project’s largest revenue source will be the $3.6 billion gained through a half-cent general excise tax, or GET, surcharge that took effect in January 2007 and ends December 2022. So far, the agency has collected $906 million from the GET, officials said. More than $500 million has been spent on planning, engineering, design work, construction and property acquisition. Funding from the federal New Starts program administered by the FTA is expected to comprise 30.3% of costs.

“The project’s finances are sound with revenue coming in on track and existing contracts currently under budget,” Grabauskas said. “There will be no long-term debt to finance the construction of the rail systems. The system will be paid for in full three years after its completion.”

His definition of long-term debt appears to be more colloquial than technical. The project’s financial plan assumes debt financing, though it would be paid off by the time the excise tax expires.

The HART financial plan assumes Honolulu will issue $1.7 billion of general obligation bonds backed by project revenues, beginning in fiscal 2014, that would be repaid by fiscal 2023. Other borrowing would be done on a short-term basis in the form of tax-exempt commercial paper.

According to the financial plan, the city expects to utilize $100 million of its existing $450 million total tax-exempt CP capacity on a 270-day revolving basis between fiscal years 2014 and 2018. After fiscal 2018, when the $100 million of CP capacity is no longer needed to finance project construction, the city would still have access to the entire $450 million in authorized CP capacity, the report states.

But delays in the project could cut into some of the savings officials have realized in other areas if the city has to pay contractors for delays while it completes the survey.

One thing that could offset the additional cost is that Honolulu officials built in a 15% contingency totaling $645 million to allow for unexpected expenses such as delays. The budget forecasts a $193 million cash surplus when the project is completed in 2019.

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.