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The city hopes to reconfigure the financial plan for the $5.2 billion Honolulu rail project to make sure that tens of millions of dollars in federal funds traditionally used to replace aging city buses and Handi-Vans isn’t diverted for rail construction.

The move comes at a time when public concern is mounting about the deteriorating condition of the Handi-Van fleet, which serves thousands of disabled residents throughout Oahu. The city is also working to restore past cuts to bus routes.

In 2012, the Honolulu Authority for Rapid Transportation, the quasi-city agency in charge of rail,  in anticipated Handi-Van and bus funds for the 2013 — 2018 fiscal years into the rail budget. The added funding stream assuaged federal officials’ concerns about the strength of rail’s financial plan and helped secure a $1.5 billion funding grant from the federal government.

Rail officials assured the Honolulu City Council at the time that it was unlikely that those funds would ever be used for rail and that the city could continue to depend on the funding — known as 5307 funds per their federal code — to maintain the bus and Handi-Van fleets. 

Indeed, HART has elected not to use the funding for the past three fiscal years and the annual federal allocations have remained with the city to support bus and Handi-Van services.

Rail Construction Accelerates; Costs Uncertain

But as rail construction accelerates and millions in unanticipated costs mount, past assurances that 5307 funding would continue to support the city’s Handi-Vans and buses looks increasingly uncertain.

“I can’t say that in fiscal year 2016, given the change orders and other things that have happened, that there won’t be a need for (5307 funds),” said Mike Formby, director of the city Department of Transportation Services and a HART board member. “And that is why we are working really hard to not delay but eliminate the need for them.”

Construction delays resulting from legal challenges and contracts that were signed before the rail project had the federal go-ahead have added about $176 million to the cost.

Formby said Mayor Kirk Caldwell’s administration plans to submit a rail refinancing plan to the City Council this year that would remove a portion of the 5307 funds. Eventually, the goal is to remove all of the funds from the rail budget.

“The mayor made a commitment early on that he was going to do everything in his power to make sure those funds aren’t taken by rail.” — Mike Formby, director of the city Department of Transportation Services

Formby said it was premature to comment on how the administration hopes to plug the funding hole that would arise from the 5307 funds being taken out of the rail budget.

The decision to allocate future funding for new buses and Handi-Vans to the rail project was finalized during former Mayor Peter Carlisle’s administration. But when Caldwell took office in January 2013, there was a concerted decision made to safeguard that funding, said Formby. 

“The mayor made a commitment early on that he was going to do everything in his power to make sure those funds aren’t taken by rail,” he said. 

It’s not clear how HART had planned to get by without using the 5307 funding in the long-term. A  of the project indicates that if the 5307 funding — which made up about 5 percent of rail’s capital costs at the time — wasn’t available in future years, then other options such as extending the General Excise Tax would have to be considered. 

And while HART declined to use the 5307 funds in the 2013 — 2015 fiscal years, its overall need for the funds hasn’t changed, according to HART correspondence. In fact, HART has extended its claim to the funding by three years — to fiscal year 2021.

“The current suspension of construction activities has reduced the project’s cash flow needs in FY 2015,” HART CEO Dan Grabauskas wrote in a letter to Formby in November 2013. “While the total amount of 5307 funds required for the project has not changed, HART intends to postpone the use of FTA section 5307 funs for another fiscal year. The change means that the project would need 5307 funds from FY 2016 through FY 2021 instead of FY 2015 through FY 2020.”

End Run or Insurance Policy?

Grabauskas told Civil Beat that HART is still trying to avoid using 5307 funds, but couldn’t guarantee it in the long run.

“Before the full (federal) funding grant was signed, we said we hope that we will never tap that money and will work hard not to tap that money,” he said. 

He said financial variables could prevent use of the funds. Funds from the general excise tax could come in above projections, interest rates could decline and rail contracts could cost less than expected.

“It’s an organic document,” he said of the rail budget. “It evolves over time based on new information.”

The decision to insert the 5307 funds into the rail budget was controversial from the beginning. While HART and city transportation officials maintained it was merely an “insurance policy” for rail, some City Council members and rail opponents argued that HART’s financial maneuverings amounted to an that stipulates that rail be funded by a .5 percent General Excise Tax surcharge and federal funds, with no money coming out of the city’s general fund.

If the 5307 funding is ultimately used for rail construction, it’s likely that the mayor and City Council would consider approving the use of general funds to maintain Handi-Van and bus fleets.

Looking for a Guarantee

City Council Budget Chair Ann Kobayashi repeatedly asked city transportation and HART officials during 2012 hearings why they needed to put the 5307 funds into the rail budget if, as they claimed, the funds would likely never be used for rail.

“If the rail project won’t be using it, let’s just take it out of the financial plan and that will settle the fears of people who use Handi-Van and bus a lot,” she said.

Last year, U.S. Rep. Colleen Hanabusa wrote a to Peter Rogoff, then the head of the Federal Transit Administration, raising alarm about the future of Handi-Van service given that its funding had been inserted into the rail budget.

“The Handi-Van program is extremely important to many constituents in my district and we must guarantee it has the funds needed to adequately serve the public,” wrote Hanabusa. 

Rogoff replied that he had received assurances from the city that if the 5307 funds were tapped for rail then the city would find other financial means to maintain bus and Handi-Van services. 

In a statement to Civil Beat, the FTA said that how federal 5307 funds are used is a local decision and that the financial plan for rail is subject to change over time.

“The City and County of Honolulu may identify a different funding source other than 5307 funds (for rail), but again, that is a local decision that has not yet been made,” according to the statement.

Formby said he didn’t know why city officials were comfortable with the idea of promising the Handi-Van and bus money to rail, adding he wasn’t around at the time. 

“We are now fighting to come up with a plan to guarantee that we don’t ever take those 5307 funds,” he said.

Kobayashi told Civil Beat that she welcomed the news that the administration was working to remove the 5307 funding.

“It would be great if they don’t take out the 5307 funding because we certainly need it for bus and Handi-Vans,” she said.

You can read correspondence between HART CEO Dan Grabauskas and the city’s transportation director, Mike Formby, related to the use of 5307 funding below: