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Thursday night’s press conference was really about celebrating Hawaii Gov. Neil Abercrombie‘s signature giving the green light to the Honolulu rail project.

But when he was asked about the project’s financial picture in light of a state consultant’s report released earlier this month that predicts the city will need to supply an additional $1.7 billion to build and run the transit system, Honolulu Mayor Peter Carlisle directed his staff to distribute the city’s eight-page refutation of that report.

The city document says the $1.725 billion shortfall predicted by Infrastructure Management Group includes a $910 million shortfall for rail construction; a $375 million shortfall for ongoing capital expenditures; and a $440 million shortfall for operations and maintenance. It then proceeds to analyze each of IMG’s claims.¹

Tax Surcharge Revenue

The section dealing with a projected $505 million shortfall in general excise tax surcharge revenue is a carbon copy of the response the city provided to Civil Beat last weekend.

That response came after the first story in our series comparing the two competing financial analyses. We found that the city’s tax plan is optimistic.

The city says that IMG should have looked at the Council on Revenues‘ most [pdf], which say state general fund tax revenues between will grow at a compound rate of 6.7 percent between 2011 and 2017. Civil Beat found earlier this year that the Council on Revenues is rarely on target and when it’s off it’s always too optimistic. Looking at seven-year projections is different from 15-year models, so it’s questionable whether the council should be relied upon.

Construction Costs

The city acknowledged that the project timeline was delayed by Gov. Linda Lingle‘s refusal to sign the Final EIS, likely causing an increase in project costs. But it disputed that the whole project has been shifted back two years, as IMG has stated in its report.

“Construction activities on subsequent guideway sections were not anticipated to begin before 2011 and so receipt of a Record of Decision later than anticipated in the August 2009 Financial Plan should have little, if any effect, on the costs of those contracts,” the city said.

Civil Beat found a $227 million error in IMG’s projections for construction costs. The city highlights the same apples-to-oranges comparison in its analysis, calling IMG’s attribution “simply incorrect.”

The city also points out that it’s gotten favorable contracts on some of the first deals it’s struck on construction work. If that continues, it would obviously benefit the project’s bottom line.

Operating Revenue

IMG had also said the city’s projections for a federal bus grant to run the transit system were unrealistic, and Civil Beat found that the city’s expectations for $419 million in grants over the next 20 years were questionable.

The city argued that the cost of maintaining its bus system is “independent” of the existence of rail. And while it agreed that allocation of federal funds by Congress “is open to speculation,” the city also argued that if federal bus funds are not available in the projected amounts, the city can simply leave buses in service beyond their recommended 12-year window, saving costs.

Interestingly, the city also says that “many of the buses in the city’s fleet are more than 12 years old.” This is designed to show that nothing bad happens when you ignore federal guidelines, it also begs the question: How long can we continue to push the limit before buses need to be replaced?

The city also hits back on what it terms “faulty” IMG analysis of ridership and fare revenue.

The city’s new response includes points on lessons from other rail projects and the city’s fiscal capacity.

Read the full document below:

Civil Beat will incorporate the city’s analysis regarding operations and maintenance costs and ongoing capital expenditures into the fourth story in its series and into its final story, a wrap-up evaluating the two projections.