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A high-stakes game of chicken is playing out at Honolulu Hale over the city’s increasingly controversial $6.6 billion commuter rail project, whose costs have skyrocketed almost 25 percent in a year.

With some Honolulu City Council members demanding more fiscal control over the project and even musing about significant changes in the route itself, who blinks first could determine the future of the nation’s first driverless rail system.

At stake is the City Council’s approval of a five-year extension of the General Excise Tax surcharge first authorized in 2007 to fund the city’s portion of construction costs — then estimated at $3.6 billion.

A bill passed by the Legislature and signed by Gov. David Ige four months ago authorized the extension, but left it to the council to actually implement collection of the 0.5 percent surcharge.

Although council members have until next July to green light the tax extension, HART officials say they can’t wait that long. They fear taking action later than December will delay construction and increase costs even more.

HART has even raised the specter of the project possibly stalling out before construction is completed if the City Council doesn’t move fast.

And HART officials say if construction were forced to stop, the city would have to repay $447 million already received from the federal government as part of its $1.55 billion commitment to finance the 20-mile rail system stretching from East Kapolei to Ala Moana Center.

City Council Chairman Ernie Martin and Councilwoman Ann Kobayashi, who chairs the council’s Budget Committee, have expressed serious concerns about the project and are demanding more accountability from HART.

They’ve openly questioned the wisdom of throwing more taxpayer money at a project they believe has been mismanaged and was approved on the basis of initial cost estimates HART now admits were calculated using unrealistic assumptions when the administration of former Mayor Mufi Hannemann began the process of seeking federal money six years ago.

HART has raised the specter of the project possibly stalling out before construction is completed if the Honolulu City Council doesn’t move fast.

Martin and Kobayashi’s reticence to whip out the city checkbook despite pressure from labor unions, contractors and other special interests invested in the project has been obvious during two public hearings over the past week. At both sessions the pair grilled HART executive director Dan Grabauskas and, on Monday night, put HART board chairman Don Horner on the hot seat.

Specifically, Martin questioned whether Grabauskas needed to be replaced as the head of HART. Martin even mused aloud about cancelling the $1.55 billion grant with the Federal Transit Administration so that the city could explore new and potentially less expensive options for rail, such as shortening the route or eliminating stations. He also floated the idea of rerouting the rail line so that it would go to the University of Hawaii at Manoa.

Too often, he said, city and HART officials claim they are being held hostage by the FTA’s requirement to build a 20-mile, 21-station system. By paying back the $447 million grant that’s already been spent and forgoing the rest, Martin said the city would have more freedom to control costs and build a system that won’t put even more pressure on taxpayers.

“That’s not something I’m very comfortable with is using that as a crutch,” Martin said of the FTA grant money. “I’d rather eliminate that particular crutch and let’s talk real facts.”

How Much Control Does Council Have Over Rail?

While it’s unlikely the City Council would actually torpedo the rail project, several members are using the opportunity to leverage its position of holding HART’s future in limbo in return for more fiscal control – something it hasn’t had since HART was created.

The issue of precisely how much authority the council has over HART finances has been the subject of a running debate between council members, former Mayor Peter Carlisle and now  Mayor Kirk Caldwell, who was managing director under Hannemann and has been a strong rail supporter ever since.

The outcome of this debate could also play a role in next year’s mayoral election. Martin is widely considered a top contender to challenge Caldwell.

The dispute centers on the interpretation of one section in the Charter Amendment creating HART — approved by an overwhelming of the voters in 2010 — dealing with appropriations for the rail agency’s operating and capital budgets.

That section reads:

“The authority shall submit a line-item appropriation request for each of its proposed operating and capital budgets for the ensuing fiscal year to the council through the office of the mayor by December 1st of each year. The office of the mayor shall submit the authority’s line-item appropriation requests without alteration or amendment. The council shall, with or without amendments, approve the authority’s appropriation requests.”

What appears uncertain is just how far the City Council can go in controlling HART budgets by amending HART appropriation requests.

Carlisle now says any plans the City Council might have to wrest control away from HART and modify the rail project is “pure nonsense.” Carlisle was mayor when HART began operations July 1, 2011, and has always been a staunch believer in the agency’s semi-autonomous authority.

“The whole point, basically, of putting this all in the hands of HART was to keep politics out of it,” Carlisle said. “I can’t begin to tell you what a calamity it would be to allow politics as usual with people trying to use the rail system for some form of political advantage.”

Giving up the $1.5 billion grant is a non-starter for Carlisle. And he said any changes to the route, such as what Martin proposed, might require a new environmental impact statement that could lead to even more delays and additional costs for the project.

“The whole point, basically, of putting this all in the hands of HART was to keep politics out of it.” — Former Mayor Peter Carlisle

Carlisle fought with the City Council in 2011 over its attempts to exert its influence over HART’s first budget, and even vetoed the council’s approval of the agency’s spending plans on the grounds that he didn’t believe they had that authority.

The fight became so acrimonious that city officials even considered taking the matter to court to get a final answer on who had ultimate control over HART finances. Carlisle left the decision with the HART Board of Directors — themselves political appointees — which deferred the matter, saying it was not in the best interest of taxpayers to pursue legal action.

But not going to court has left the matter open for interpretation, both at the City Council level and with the new administration.

Oversight And Unsigned Budgets

Each year the City Council approves a package of three ordinances appropriating money for HART’s operating and capital expenses and authorizing the sale of general obligation bonds not exceeding the amount appropriated for HART’s capital expenses.

In what has become an annual ritual, Caldwell returns the ordinances unsigned and they automatically become effective without his signature.

Caldwell claiming the charter amendment creating HART does not give the council “authority over (HART) monies and budgets” or convey to council members the “degree of fiscal oversight reflected” in the HART-related ordinances they approve.

The mayor justifies his actions on the basis of by Michael Hansen, the former director of the city’s Department of Budget and Fiscal Services, issued three months before HART became operational in 2011.

Hansen based his opinion on another section of the HART charter amendment which established a separate transit fund into which all rail system monies — including the GET surcharge — would be placed and over which the HART board would have “management and control.”

Since monies in the transit fund were administered by HART, Hansen believed City Council authority was limited.

“Although not express, we believe that because the Transit Fund monies are under the management and control of the transit authority … the appropriations mentioned in this provision pertain exclusively to General Fund appropriations over which the Council will have full control to approve or approve with amendments,” Hansen said.

“It is our belief that in approving the Charter amendments establishing the semiautonomous transit authority with control over the Transit Fund monies, the public believed that the non-elected transit authority board would be the body making the budget decisions regarding the Transit Fund.”

Former City Councilman Charles Djou disagreed. He was the council member who that led to the creation of HART and was chairman of the council committee referring the charter amendment to voters.

Writing to deputy corporation counsel Diane Kawauchi two weeks after Hansen’s opinion was released, Djou said he believed any legal opinion the city administration might take that would suggest the City Council lacks the power to alter HART budgets would be “incorrect,” and said in his mind the legislative intent was contrary to the city administration’s interpretation.

Djou said the language in the section dealing with appropriations was “intended to give the city council the complete discretion to alter all or part of the Transit Authority’s spending as it so pleases.”

Djou emphasized he had deliberately used the word “prepare” rather than “establish” in the final voter-approved amendment to clarify that HART “prepares, but the Honolulu City Council retains final approval authority over all (HART) budgets.” Although Djou said it was the council’s opinion that HART should be given the power to establish fares, “no such powers to establish a budget were similarly accorded to (HART).”

The transit authority bill would never have passed in 2009 if it lacked language giving the City Council the “final say” on HART’s budget, Djou said, and he would have done everything he could have as chairman of the Council’s Executive Matters and Legal Affairs Committee to block the bill placing the charter amendment on the ballot.

“The (HART) measure passed the City Council ONLY because it contained language giving the City Council the power to alter part, or all, of the budget as it deemed appropriate,” Djou said.

He reminded Kawauchi that then-mayor Hannemann had attempted to pass a similar bill in 2008 but failed because the council was not given final say on HART budgets.

“The Transit Authority bill was only intended to give the agency autonomy from the executive branch of government. Under both the plain language and council intent, (HART) must still subject its budgets to the city council for amendment and approval. (HART) lacks the power to spend any resources without specific approval by the City Council,” Djou concluded.

Kawauchi brushed Djou off, however, responding a week later saying attorney-client privilege prohibited her from discussing the matter. She added, “since you are strongly encouraging my client (the City Council) to initiate litigation against the city, it would be most inappropriate to comment further on the matter.”

Is It Time To Test The Boundaries?

Councilwoman Ann Kobayashi now says she wants to find out once and for all just how far the City Council can go when it comes to adjusting HART’s budget. In particular, she wants to take a look at agency staffing levels and the amount of money HART spends on rent for its offices at Alii Place in downtown Honolulu to see if there are ways to reduce costs.

If officials with HART or the Caldwell administration have a problem with any of the adjustments the Council makes during the budget process — such as if she cuts staff or reduces how much can be spent on rent — she said they can file a lawsuit.

“The numbers keep changing,” Kobayashi said, referring to overall project budget estimates that have continually bounced upward over the years. “With the escalating costs we just have to either stop the bleeding or at least rein in some of the expenses.”

Kobayashi, a longtime rail critic, doesn’t support extending the rail tax another five years, and she says she’s lost trust in the HART Board of Directors to provide the necessary oversight of the rail project.

She feels that the agency hasn’t been upfront with the council or the public when describing its fiscal challenges. The councilwoman also finds it troubling that the agency has refused to provide complete information about how much subcontractors are being paid to work on the project when all HART officials have to do is ask for that information.

“To me extending the tax is like a tax increase,” Kobayashi said. “I don’t know when all this is going to end. We do not have a true, clear picture of just how much the whole project is going to cost.”

Honolulu Corporation Counsel Donna Leong declined to comment on just how much control the administration believes the City Council has over HART or its budget, saying in an email that any advice her office provides would be covered by attorney-client privilege and is therefore confidential.

HART Board Chairman Don Horner, on the other hand, said he takes any recommendations from the City Council seriously. And while he did not want to weigh in on any of the politics surrounding recent attempts by council members to exert more leverage over HART, he said he appreciates and understands the desire to do so.

The outcome of this debate could also play a role in next year’s mayoral election. Martin is widely considered a top contender to challenge Caldwell.

In fact, he pointed to proposed charter amendments submitted by HART and others to the Honolulu Charter Commission that could create a single transit agency to oversee rail, bus and paratransit services. The formation of that agency would effectively give the council and the administration more control over the rail budget once the trains became operational.

The picture blurs, Horner said, if Kobayashi and the council decide to make adjustments to HART’s budget before then. While the internal operating budget is negotiable, any changes made to the capital budget would need to be stacked up against the city’s full-funding grant agreement with the FTA to ensure that they didn’t break the contract, he said.

“If the council asks us to do something that’s contrary to the full-funding grant agreement that the council signed, obviously, that would require more discussion,” Horner said. “If the issue is regarding our operating budget then it depends on the recommendations.”

It wouldn’t be unprecedented for HART to cut part of its budget based on council pressure. In 2012, the agency fired more than half of its public relations contractors after it was deemed that their work was “excessive” and “unnecessary.” Those individuals’ contracts — many of them automatically renewing — were worth about $3 million.