Moody's deems Honolulu rail's funding prospects a credit positive
LOS ANGELES — Hawaii’s efforts to get an $8.2 billion rail construction project back on track were deemed a credit positive by Moody’s Investors Service in a Thursday report.
The state government, rated Aa1 with a stable outlook, and the City and County of Honolulu, also rated Aa1 and stable, “took major steps” last month towards generating up to $2.5 billion in additional funding necessary to finance the construction of Honolulu's driverless elevated rail transit system, according to the rating agency.
The state approved on Sept. 5 a three-year extension of Honolulu's 0.5% general excise tax and raised the statewide transient accommodation tax by 1% for the next 13 years.
The 20-mile-long rail line along Oahu’s east-west corridor is scheduled to open for full passenger service on December 31, 2025.
The increase and extension of funding are expected to raise enough funds to pay for nearly 30% of the $8.2 billion cost of the project.
The state's revenue-raising efforts laid the groundwork for the Honolulu Authority for Rapid Transportation, the city agency that is building the rail system, to submit an updated recovery plan to the Federal Transportation Administration on Sept. 15.
The updated plan, which takes into account the new tax revenue, is crucial for the receipt of the remaining $744 million of the $1.55 billion in FTA funds, part of a December 2012 agreement between the federal agency and HART. HART has not received an estimated response time from the FTA regarding the recovery plan, analysts wrote.
Rapid increases in construction costs, project delays and litigation have driven up costs from the original $4.9 billion to $8.2 billion over a five year period.
Along with the GET extension and TAT increase, the state also reduced its administrative fee for collecting the GET, which should result in an additional approximately $27 million annually for the project. As the rail project continues, Moody’s said, the city intends to provide contingent support for construction that could increase rail-related debt.
Besides debt, other potential credit challenges include financial support, continued construction cost overruns, below estimated GET and TAT collections, and/or operational subsidies above current projections. Changes in public and political support and the willingness of the city to continue to provide contingent support could also lead to additional credit effects.