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Mayoral candidate Ben Cayetano last week raised the specter that Honolulu will go up to $7 billion in debt to pay for the city’s rail project.

He made the claim in an op-ed in Civil Beat responding to the news that the federal government had given the city the green light to begin construction.

Asked about it, Cayetano at first walked back from the “debt” word and said he should have said “cost” instead. But he didn’t back off the suggestion that the city can’t afford the project, saying that the money to pay for it isn’t falling from the trees.

In his op-ed, Cayetano said he’s running for mayor “because I believe that adding $5 to $7 billion in debt for an elevated, heavy rail system that will not reduce traffic congestion and will suck the air out of the city’s ability to provide more important basic services does not make sense.”

Cayetano’s misuse of the word debt creates an impression about the project that is misleading. It implies there’s no money to cover the costs of the project and could inflame fears about the system’s finances.

The debt, according to one of the state’s top bankers who’s the chair of the Honolulu Authority for Rapid Transportation‘s Finance Committee, will at its peak be about $1 billion, and it will be paid off soon after construction is done.

“Maybe I should have said cost,” Cayetano told Civil Beat when asked about his phrasing Friday. He said the $5 billion figure comes from the project’s own estimated cost, and the $7 billion figure comes from the IMG study produced at the behest of then-Gov. Linda Lingle in late 2010.¹

“Because the taxpayers are going to be paying for it, that’s what I mean and that’s how I look at it. When you compare all the cost items that the city faces, you look at the retirement system, the EUTF and all that, that’s a lot of debt for this small state,” he said. “That’s what I meant.”

InvestorWords.com as “An amount owed to a person or organization for funds borrowed. Debt can be represented by a loan note, bond, mortgage or other form stating repayment terms and, if applicable, interest requirements. These different forms all imply intent to pay back an amount owed by a specific date, which is set forth in the repayment terms.”

The true number for the total debt the rail project will incur is, according to the project’s financial plan, about $3 billion. But even that isn’t really accurate, according to HART.

“It says total net borrowing proceeds, $2.9 billion. That’s wrong. This is federal-ese,” HART Finance Committee Chair Don Horner said in an editorial board interview at Civil Beat headquarters Thursday, pointing at the financial plan he brought with him. “The way the federal government looks at it is, how much gross debt did you incur during the life of the project. It doesn’t take into account how much we paid off during the project.”

Horner said Honolulu will actually be left with zero debt at the end of the 15-year financial plan, a few years after the project is fully operational.

“The plan calls for the project to be 100 percent debt-free at the end of the project,” Horner said. “The debt that’s in this plan is exclusively debt of what’s called ‘timing differences,’ because the plan has full funding, 100 percent funding, earmarked between the cash that we have, the general excise tax revenue and the federal government subsidies.”

That final piece is not yet guaranteed. HART plans to submit its request for a final commitment of $1.55 billion from the federal government before May 1 and expects an answer before the November election.

Horner, chairman of First Hawaiian Bank, called the zero-debt plan unusual and ambitious, “especially when the planned construction is over a relatively short period of time.”

“I think the plan is sound, including that assumption. The assumption sounds unreasonable, but it isn’t about the emotion. I think we’re better off looking at the economics,” he said. “It’s just a question of cash flows. … We’re amortizing, so at the front end we’ll have to borrow up to … a worst-case scenario, we could be close to $1 billion of debt for one to three years, approximately.”

A simple math problem: If you borrow $5 from your friend today, then pay him back tomorrow, and then borrow another $5 on Wednesday, what’s your debt? Most people would say $5. Not $10.

Here’s a table from the financial plan that shows the project’s debt over time:

Fiscal Year	New Debt Borrowed (millions)	Principal Or Notes Paid (millions)	Debt Balance (millions)
2010	$0	$0	$0
2011	$0	$0	$0
2012	$0	$0	$0
2013	$274	$0	$274
2014	$460	$100	$634
2015	$509	$334	$809
2016	$521	$401	$929
2017	$583	$403	$1,109
2018	$408	$435	$1,082
2019	$158	$347	$893
2020	$0	$214	$679
2021	$0	$221	$458
2022	$0	$231	$227
2023	$0	$242	-$15

Source: Civil Beat analysis of Table A-1

That table is only principle — not interest — for a variety of borrowing mechanisms. There’s low-interest short-term construction financing, comparatively higher-interest long-term debt, bond anticipation notes (BANs) and grant anticipation notes (GANs).

In all, over the life of the plan, HART will have to spend about $300 million in interest payments, according to its financial plan.

Concern over the size of the project is understandable, HART Chair Carrie Okinaga said in the editorial board meeting. That’s why outreach by HART is so important.

“What the education does for me is that it makes what is a very fearsome thing to most people if you’ve not gone to San Francisco and ridden, or DC. They know billions of dollars are going to be spent,” Okinaga said.

“That sounds scary, but if we can help the public understand the financial plan and the contingency built into that and the time contingencies and the money contingencies we’ve built into that, then it becomes less fearsome to me,” Okinaga said.

But Cayetano says HART’s financial plan doesn’t change the fact that the obligation to build the system is a form of debt.

Told how Horner pointed to the plan’s estimate that the project’s maximum temporary debt will be about $1 billion, not $5 billion or $7 billion, Cayetano shot back, “Did you think the rest of it fell off the trees or something?”

Revenues from the half-cent general excise tax surcharge is projected to tally more than $3 billion, and rail planners are counting on another $1.55 billion from the Federal Transit Administration.

“Horner is conducting himself as no banker should,” Cayetano said. “I doubt very much that his bank would loan $1.4 billion to Ansaldo. It’s ridiculous.”

Horner doesn’t think so.

“I’ve been impressed with the quality of the plan and so far, as a banker for 30 years, most plans I’ve seen have been overly optimistic,” he said. “And this plan looks reasonably conservative, which is a surprise to me. I was expecting more serious concern.”

He said fixed-bid contracts for the first 10 miles of track, the $200 million state-of-the-art maintenance facility, 80 rails cars and the “brains” to make the system run have already been signed, at a projected savings together of $300 million. Only the final 10 miles and the 21 stations remain to be contracted. More than a quarter of GET revenues have been collected, and the city’s ahead of schedule on the revenue side.

Opponents say the second half of the elevated line is going to be far more challenging, because they say builders are bound to run into Native Hawaiian burials and encounter other unexpected problems in the dense urban core of Honolulu. But the HART team downplayed the likelihood of encountering burials, saying that the path followed existing roadways that have already been torn up many times. Horner said HART has done 30 test digs and not found anything yet.

Horner just doesn’t think the project is that difficult.

“When you break the project apart, it really isn’t that complicated relative to what other municipalities have done,” he said. “We’re not going into the earth, we’re not going under water, we’re not going into some places that haven’t hardly had construction, and we’re talking about building basically 20 miles of a bridge and a train system.

“When the engineers explain it and break it apart into its component elements, it is not as frightening as I was first concerned about. So that gives me comfort. Yes, we will have issues. Clearly a project of this size, there will be issues. But I take comfort looking at a plan that seems reasonably conservative.”

Horner is respectful of opponents who have raised concerns. He’s thanked noted critic Cliff Slater for keeping an eye on the project and keeping the city honest.

“We welcome concerns,” Horner said. “We want to get this right.”