Federal Probe Has State Looking To Pull Back On Rail Audits
Proposed legislation would repeal the requirement for more audits. But added scrutiny has already led state finance officials to withhold $40 million from HART.
State lawmakers want to repeal an annual rail audit requirement in part, they say, to get out of the way of federal investigators now probing the multibillion-dollar transit project.
On Tuesday, the House passed , a measure that was overhauled earlier via the聽“gut-and-replace”聽procedure. The revised bill would free the state auditor from having to inspect Honolulu rail’s invoices each year, making sure those expenses comply with what state law allows.
A similar measure is moving in the Senate.
As part of their聽, state leaders gave the Department of Accounting and General Services $400,000 to verify that all rail expenditures are legitimate — that they relate directly to construction — before reimbursing the for the costs.
However, the state auditor said last week that his office lacks both the expertise and the funding to separately assess that DAGS’ rail reimbursements are OK.
鈥淎t this point it really becomes a policy decision,” Hawaii Auditor Les Kondo said Thursday. “If you want us to do that exercise, and it鈥檚 meaningful, then we鈥檙e going to have to hire a consultant.鈥
Rep. Sylvia Luke, who chairs the House Finance Committee and introduced HB 118, said via text earlier this month that lawmakers want to ensure the auditor’s work doesn’t interfere with the federal criminal probe related to rail that’s now underway.
She repeated that sentiment Tuesday shortly before the bill passed on the House floor.
Her proposal comes after the U.S. Attorney’s Office dropped three grand jury subpoenas on HART last month. The orders demand that the rail agency provide tens of thousands of pages related to construction contracts, change orders, federal agreements, closed-door board meetings and other facets of the project.
The proposed repeal also comes as the public awaits a separate report on rail from the state auditor — one that Kondo says will focus on DAGS and that his office is capable of carrying out. That report, the third in the state auditor’s deep-dive into the rail project, will examine whether DAGS has the right process and procedures in place to carry out its new rail responsibilities, Kondo said.
Rail aims to transform transportation and development across much of Oahu’s crowded southern shore, but its price tag has nearly doubled since late 2014 to more than $9 billion, dampening public support. The subpoenas have ensnared the effort in a criminal probe.
While rail leaders have struck a hopeful tone, it remains unclear how the subpoenas might impact the project’s much-needed federal dollars.
Kondo said his staff didn’t find potential criminality during its examination of rail — but he stressed that they weren’t looking for criminality, either.
“If we had smelled it, we would have referred it to the appropriate authority,” Kondo said.
State Withholding ‘Substantial’ Rail Dollars
Meanwhile, during their first full year scrutinizing fresh rail costs, finance officials at DAGS approved most — but not all — of the project’s invoices.
For 2018, they rejected expenditures to develop the transit line’s fare-collection system, plus costs to repave Kamehameha Highway after construction, according to HART.
If the state officials keep rejecting those invoices, HART and the city might eventually be on the hook for tens of millions of dollars in additional rail-related contracts, officials say.
That “could be pretty substantial,” HART’s then-chief financial officer, Robert Yu, in November.
Overall, DAGS approved and certified some $317 million in invoices for reimbursement in 2018, the agency’s聽听蝉丑辞飞.
The bulk of that expense came from , a mainland-based joint venture firm with an to build rail’s elevated concrete pathway and the four stations between Aloha Stadium and Middle Street
Honolulu-based , which is building six westside stations and has a $400 million utility relocation contract on the project’s east end into town, also represented much of those approved expenses.
However, DAGS returned 11 percent of HART’s total invoices聽unreimbursed in 2018, representing about $40 million,聽according to state Comptroller Curt Otaguro. DAGS seeks further documentation for those expenses, he said.
That withheld $40 million聽won’t prevent HART from paying its expenses in a timely manner, but it could lead to added financing costs, according to agency spokesman Bill Brennan.
Otaguro didn’t specify which expenses needed more explanation, but DAGS’ rejection of the fare-collection and road-repaving invoices came up at HART’s meeting in November, when Yu briefed the board.
TheBus aims to eventually share that same fare system with rail, Yu explained, so HART and the city look to split that system’s approximately $30 million in total costs down the middle. DAGS, however, has questioned whether splitting those costs evenly makes the most sense, Yu said.
Two months after the November board meeting, to take a position at the state’s Department of Budget and Finance.
Kondo said he’s not sure when the DAGS-related report will be released. The Senate will vote Thursday on its bill to repeal the annual audit.
Civil Beat reporter Blaze Lovell contributed to this report.
