Is Honolulu Rail Debt Causing Budget Cuts?
Rail debt is going up, and spending on other capital projects is coming down.
Case closed?
To hear Ben Cayetano and his “truth squad” tell it, yes.
Cayetano, the former state governor now running for mayor, called a press conference Tuesday afternoon where former city government leaders made the case that ballooning debt to construct the controversial $5.2 billion rail transit system is handcuffing Honolulu Hale. They said rail has made Mayor Peter Carlisle gun shy about incurring additional debt for other projects like police equipment, flood control improvements and road repairs.
“As more of the city’s financial resources are diverted to rail, the city is forced to change its spending priorities,” former Honolulu Finance Director Toy Arre, who served under Mayor Frank Fasi, announced to reporters. “In the proposed Fiscal 2013 budget alone, approximately $17 million in public health and safety projects are on the chopping block. More cuts are slated in forthcoming years.”
Later, Jeremy Harris’ former deputy managing director, Malcolm Tom, said: “HART is impacting the city’s ability to fund general obligation bond-funded CIP projects.”
They went on to give numerous examples of Carlisle’s proposed cuts — 22 projects in the FY2013 CIP budget alone, and graphs that show long-term downward-sloping trends in city spending on police and fire equipment acquisition, flood and storm drain improvements and road rehabilitation work. They said the ratio of debt service payments to the annual operating budget will skyrocket in coming years due to rail, and further general obligation bond debt would put the city at risk of a credit rating downgrade.
Here’s the full presentation they shared, topped by the press release:
Source: Cayetano for Mayor
Arre, Tom and Cayetano are right about the existence of Carlisle’s budget cuts and the long-term patterns, but is it a bridge too far for them to say rail is responsible for those cuts and trends?
Asked if there’s a cause-and-effect relationship between rail debt and the cuts, Cayetano said he believes so.
“We think there is because there’s no other reason, I think, to make these cuts, except for the fact that they may be worried about the bond rating being downgraded,” he said. “Also they’re going to be so high over the 20 percent affordable ceiling that was set by the City Council, it’ll require tax increases. We’re sure of that, real property tax. Those things I think are very, very consequential, and I think they’re a consequence of what’s happening with the rail system.”
One of Cayetano’s source documents is the rail project’s most recent , which points out that the city “will need to balance the Project’s debt requirements with other City projects requiring debt financing” because rail debt “is not self-supported or in the form of revenue bonds.”
After the other reporters left Cayetano’s campaign headquarters, Tom acknowledged that that rail is not responsible for the entirety of Honolulu’s debt growth over the next decade. Arre and Cayetano conceded that there might be a legitimate explanation for some of Carlisle’s cuts. All three made the case that the real takeaway is the pattern of spending reductions in coming years as rail debt grows.
An hour later at Honolulu Hale, Carlisle gathered reporters to explain the pattern of cuts in his own words.
Carlisle’s a self-described fiscal conservative who ran on a platform of putting the city’s financial house in order, and promptly cut last year’s budget. He’s talked repeatedly about bending the debt curve downward, and said he’d like his legacy to be leaving the city with a billion-dollar rainy day fund.
At , Carlisle insisted rail debt and the CIP budget are not causally linked.
“Let me be very clear: Rail debt is paid for by rail revenues,” he said.
General excise tax surcharge revenue and federal funding are projected to bring rail debt back down to zero by 2024. In a conversation after Carlisle finished taking questions, Budget Director Mike Hansen said the policy of reducing bond-funded projects was about rehabilitating the city’s debt picture, irrespective of rail. He argued that bond rating analysts understand rail debt is short-term financing.
Was it simple fiscal conservatism that motivated the budget cuts, or a fear that rail spending will bankrupt the city? At the end of the day, you can take Cayetano’s word for it, or Carlisle’s. And who you believe probably comes down to who you support for mayor, and whether you support the rail project.
That’s cause, and effect. Case closed.
