First, the Final EIS has to be accepted by whoever is the Governor at the time. Our present Governor says that the state’s responsible officers are reviewing the Final EIS and it has yet to reach her desk. The Final EIS together with its appendices and referenced technical documents contain 18,000 pages. For comparison, that is eight times the length of the new Obama Health Care Bill. The precarious state of the financial plan for rail was made clear to the City when they were given permission to enter the Preliminary Engineering process a year ago.
The Federal Transit Administration (FTA) wrote,
“Further, the City should be aware that FTA’s standards for the financial rating are higher for entry into final design than for entry into PE. The higher standard for final design includes an assessment of the robustness of the financial plan against increases in costs, shortfalls in revenue streams, and competing demands on funding sources. Some elements of the current financial plan may not fare well in the stress tests that FTA will apply to evaluate robustness. These elements include the projected revenue stream from the General Excise Tax, the diversion of FTA Section 5307 funds from ongoing capital needs of the bus system, and the increasing share of the City’s annual budget that is required to fund the transit system. Were this plan submitted today in support of a request to advance the project into final design, its weaknesses would likely cause FTA to deny the request. Therefore, continued development and strengthening of the financial plan will be a crucial part of the PE effort.”
Further, the FTA wrote in its FY 2011 Financial Assessment, “Given that GET surcharge revenues are highly leveraged in the financial plan, any shortfall in revenue would have material consequences on the City’s ability to finance the local share of project cost, unless other sources of capital funds are identified.”
These concerns were made clear to the City prior to the bombshell revealing that the City and the EPA had entered into a consent decree for a $3.5 billion revamp of the City sewer collection system to be completed by 2020 and a further $1.55 billion for sewage treatment plants to be upgraded by 2034.
Given the FTA’s warnings, Governor Lingle has told the City that if they want her acceptance of the Final EIS, they must provide her with an updated financial plan that would be sufficiently robust for the FTA to accept it for entry into Final Design, the next stage of the process.
Obviously, one of the Governor’s concerns must be a spillover of rail cost overruns resulting in the state having to step in and rescue rail. This is not unusual in the history of these projects; rail lines are never left unfinished even if the local government sponsoring the project is unable to continue funding it.
For the City to make the financial plan robust is going to be extremely difficult, if not impossible, since they the City is legally only allowed to use the GE tax surcharge and federal funds.
For example, using just the tax collection shortfalls from the Final EIS forecast for just the last two years FY 2009 and 2010, but keeping intact the City’s own percentage change forecast through 2023, results in a $205 million shortfall. Early shortfalls have a significant impact on subsequent annual collections.
In addition, the City’s forecast for FY 2011 and beyond is excessively optimistic given the current economic climate. The GE tax collection for fiscal year 2010 just ended, declined by two percent from the year earlier. However, the current year is forecast to increase collections by six percent. That seems implausible. It is not surprising that both Governor Lingle and the FTA are calling for independent forecasts of the ½ percent GE Tax collection.
In addition, the FTA made it clear that for rail construction they do not like the City using the $300 million in federal funds originally scheduled for bus purchases.
The City has nowhere else that it can legally turn to make up the shortfalls except federal New Starts funds presently forecast at $1.55 billion. That amount is so far out of line with what other cities are being awarded that only through Senator Inouye stretching his influence to the limit is Honolulu being considered for such a large sum. All in all, we do not see how the City can possibly devise a new and robust financial plan that will meet the FTA’s requirements.
Second, if the Project gets this far, the Programmatic Agreement (PA) has to be completed. It must be complete before the Record of Decision can be issued. The PA is stalled with disagreements among the signatory parties about the Archeological Inventory of native Hawaiian burial sites along the route, together with the impacts of rail transit on other historic properties.
Third, the FTA has to issue a Record of Decision to complete the environmental process. The issuance of a Record of Decision marks the first point where the FTA may face legal action over failure to follow the federal environmental statutes. Fourth, the City must apply for a Letter of No Prejudice (LONP). This would allow the City to use City funds to construct rail before the FTA has actually committed to granting any federal funds. “As noted in the Assessment and our letter of October 16, 2009 which approved the project into preliminary engineering, it is imperative that the current financial plan be strengthened to support future FTA project approval actions including entry into final design and any potential requests for a Letter of No Prejudice.”
Fourth, the City must apply for a Letter of No Prejudice (LONP). This would allow the City to use City funds to construct rail before the FTA has actually committed to granting any federal funds.
“As noted in the Assessment and our letter of October 16, 2009 which approved the project into preliminary engineering, it is imperative that the current financial plan be strengthened to support future FTA project approval actions including entry into final design and any potential requests for a Letter of No Prejudice.”
Fifth, the FTA issues the Letter of No Prejudice. If the City can surmount all these hurdles, only then can the FTA issue an LONP and the City issue a Notice to Proceed for Kiewit to begin construction on the first segment of the rail line.
We find that the City’s prospects of overcoming their financial problems are dim. Here is what the FTA wrote in their FY2011 Financial Assessment: “The capital cost estimates/planning assumptions sub-factor is rated Low. The major factors contributing to this rating are: (i) material downside risks to the GET surcharge revenue forecast, and consequently the inability to cover all debt service cost; (ii) no net debt capacity; and (iii) lack of information to substantiate the City’s capacity to absorb a material amount (up to $535 million) of cost risk. In addition to these concerns, bus capital funding – clearly needed as evidenced by the relatively old age of the bus fleet – depends on a much higher level of Federal funding than has previously been the case.”
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