In a May 1 report, the city said transit-tax revenue will fall an estimated $500 million short of what is needed to complete the proposed $5.3 billion elevated commuter rail line from East Kapolei to Ala Moana.

The report and a follow-up July 15 e-mail outlined several options the city could pursue to make up for the lost revenue, including asking for more money from the state, the federal government, the military, private developers and the Honolulu International Airport.

The city also considered, but has since rejected, diverting federal funds intended for TheBus to pay for the rail project and extending the half a percentage point general excise tax surcharge beyond its original 2022 expiration date.

Toru Hamayasu, deputy director of the Honolulu Department of Transportation Services, said in an e-mail yesterday that the May 1 report was "an outdated and no longer accurate early draft financial plan."

The city sent a new draft last week to the Federal Transit Authority and "we'll make it available when it's finalized," Hamayasu wrote.

The failure of city officials to disclose in May that they knew of a potential $500 million shortfall in projected tax revenue for the rail project upset City Council members, including those who had supported the project and those opposed to it.

A $500 million shortfall is information the City Council and public should have, said City Council Chair Todd Apo.

"Five-hundred million dollars is definitely material. The question is, is there a plan that solves that gap?" he said. "That's going to be the question we'll have before we're willing to, at least for me, move forward with a bond issuance."

The council is considering issuing $1 billion in transit bonds to help fund the rail project. "Clearly the council is not going to approve that bond issuance without that information," said Apo, a supporter of the project.

City Council member Romy Cachola said the council and public needs to know if the project is in financial trouble.

"We should be fully aware of all that — we want to be upfront, transparent and accountable," said Cachola, who supports the project. "I don't want to accuse them of hiding something, but that's exactly what it is. They're not being forthright and upfront with us."

City officials did not respond when asked why the May 1 report was not made public or shared with City Council members when it was first issued.

The report dated May 1 and titled "Financial Plan for Entry into Preliminary Engineering" was sent by the city to the Federal Transit Administration, the agency that will determine if Honolulu can get more than $1 billion in federal money to help fund the rail project.

Cliff Slater, chair of www.honolulutraffic.com, and Rich Ubersax, a local resident opposed to the project, obtained the report through the Freedom of Information Act and made it available to The Advertiser.

YOSHIOKA TESTIMONY

In City Council testimony in June, city transportation Director Wayne Yoshioka said the project didn't have a funding shortfall. Yoshioka also said there was no completed, updated financial plan for the project.

During the June 10 hearing, Yoshioka said an updated financial plan would be made public as soon as it was ready.

"There's one in the works right now, in fact it's undergoing revision to reflect these latest financial conditions," Yoshioka said under questioning from Cachola. "This thing is going through review, and when everybody feels it's a valid document based on all the revisions that it goes through — it goes through a lot of scrutiny — when it's gone through that scrutiny and everybody is satisfied that it is an accurate document, that's when it will be ready" to release, Yoshioka said.

Yoshioka said again in a July 27 memo to City Council member Charles Djou that there was no updated financial plan.

Yoshioka did not return messages left Tuesday and yesterday for this story.

The city plans to begin construction of the 20-mile train in December.

The $500 million shortfall is the result of a drop in tax revenue due to the slowing economy. A half a percentage point surcharge was added to the general excise tax in Honolulu in January 2007 to fund the rail.

The city had anticipated tax collections during the 2009-10 fiscal year, which began July 1, to average $16.5 million a month. In July, the tax raised only $12.3 million. Out of the past 13 months, tax collections matched projections only once.

The near-term outlook for state tax revenues has worsened since the May 1 financial plan.

On May 28, the state Council on Revenues reduced the forecast growth rate for General Fund tax revenues for fiscal 2010 from 0.5 percent to 0.0 percent. Actual state tax revenues in fiscal 2009 fell 9.4 percent.

Overall, the transit tax was expected to generate an inflation-adjusted $4.1 billion before it sunsets at the end of 2022. That, combined with the $1.4 billion in federal funds, was expected to provide all funding needed to build the train.

The May 1 financial report is the first indication that has surfaced acknowledging the city may not meet its goal. The report estimates the transit tax to raise about $3.6 billion, which will be combined with nearly $1.6 billion in federal funds.

To make up the shortfall, the May 1 financial plan anticipated $301 million of federal funds that otherwise would go to pay for buses and bus-related activities from 2011 to 2019.

That idea has been rejected by the city, said Hamayasu, with the city department of transportation services. "The city will not use the bus funding if it would in any way compromise the quality of the city's bus service," he said.

The city has also rejected extending the general excise tax surcharge beyond 2022 to fill the shortfall, Hamayasu said.

"Mayor (Mufi) Hannemann strongly rejected the concept and it will not be examined further," he said.

ALTERNATIVES

According to the May 1 financial plan, the city hoped to make up some of the anticipated transit tax shortfall by seeking $119 million more from the federal government.

The city also raised the possibility of new taxes, fees for development rights and the possible use of military and airport funds to pay for the train. The city also has raised the prospect of keeping some of the 10 percent transit tax administration fee that's being retained by the state.

Whether the city can get federal and state officials and private sector leaders to kick in more money to help pay for Honolulu's train remains to be seen. The May 1 report anticipates the city getting a total of as much as $1.7 billion from the federal government, $150 million from the airport and $60 million in private investment.

However, Honolulu International Airport and state legislative leaders have said they're not likely to give the city more money to build the train.

State Sen. J. Kalani English, D-6th (E. Maui, Moloka'i, Lana'i), said the state is unlikely to reduce the 10 percent it takes off the top to administer the transit tax.

The May 1 report suggested having the state reduce its take from 10 percent to 5 percent.

"We are close to a billion (dollars) short," of balancing the state budget, said English, chairman of the Senate Transportation and International Affairs Committee. "It's almost impossible to extend (the transit surcharge), but it's more possible to get an extension than to give 5 percent back (to the city)."

The Honolulu Airport is also unlikely to chip in money for the rail project, said Brennon Morioka, state Department of Transportation director.

The airport does not have money to pay for the train, he said.

"Our position hasn't changed since the last time this came up," he said. "We do have our own airport modernization program that is based on a very aggressive financial plan, so right now all of the monies that we have available are slated for use."

The city will face challenges making up lost tax revenue, said local economist Paul Brewbaker of TZ Economics. However, that challenge could lead to a more taxpayer-friendly approach to financing the project "if the outcome is that a more active search for revenues sources that are directly transit related such as transit-oriented development, or for example, congestion fees on motorists coming in from outlying areas."

"There are a number of different ideas out there," Brewbaker said. "I mean, there was only one idea (for raising money) in the original plan."

The potential for a tax revenue shortfall could lead to renewed calls to build portions of the train at ground level to save money and reduce aesthetic impacts. It also could spur debate over whether construction of the train should start in urban Honolulu rather than in East Kapolei should the project run short of funds.

According to the city's May 1 financial plan, the inflation-adjusted cost of the project is $5.33 billion.

A July-dated report by project consultant Jacobs Engineering found that the project cost estimate was reasonable and acceptable for the project at its current stage. Jacobs Engineering is not the main consultant hired to oversee the finances of the project. They recommended that the project's financial management oversight consultant — Porter & Associates Inc. — review the city's financial plan to substantiate projected finance costs.