It's crunch time for the Honolulu commuter rail project.

In just over two months, the city plans to begin construction on its new $5.5 billion elevated train system.

Breaking ground in December will represent the culmination of decades of on-and-off planning for the massive public works project, while providing a major political victory to the train's biggest champion, Honolulu Mayor Mufi Hannemann.

But to get there the city has to avoid being derailed by a prolonged environmental impact review, legal challenges or financing problems.

The next few months are key in determining whether the project stays on schedule to launch the first phase of service between West Loch and Waipahu in late 2013, and the full service between East Kapolei and Ala Moana Center in 2018.

DELAYS COSTLY

The city has said that every month the project is delayed costs taxpayers $10 million in added inflation and interest.

Not breaking ground in December could also sap momentum from the project and lead to further attempts by state lawmakers to raid transit tax revenues to balance the state's budget, city officials have said.

The first indictor of whether the city can stick to its schedule is whether the Federal Transit Administration approves the project's environmental impact statement.

That milestone was expected to be reached in August, then September. Now the FTA approval is expected to occur this month, said city transportation Director Wayne Yoshioka. The delays shouldn't affect plans to start construction in December, he said.

"We've always said toward the fall and we thought maybe toward the end of September, but probably now we're looking at mid-October somewhere," Yoshioka said. "If we get something out by the end of October, I think it allows time for the review period, and if we can get a (record of decision) by the end of November, that still gives us time to break ground" in December, he said.

That revised timetable assumes the 20-mile train project will quickly clear any environmental legal hurdles that may arise from the report.

The project also must clear a number of procedural hurdles, including a special City Council hearing and more federal approvals to begin construction.

If the project receives needed federal approvals, it would indicate that the Federal Transit Administration has no major qualms about the project's environmental impacts. However, the project could face a lawsuit from environmental/cultural groups, private landowners or other special interests.

"I would be shocked if there were not a legal challenge to the (environmental impact statement); there are so many problems with it," said Henry Curtis, executive director of Life of the Land, an environmental and community action group.

Environmental concerns ultimately scuttled the inter-island Hawaii Superferry service. That project initially sidestepped the required environmental impact study and was halted by the courts. The city has done an environmental impact study for the train. However, several groups ranging from the Environmental Protection Agency, Kamehameha Schools and the American Institute of Architects have expressed concerns that it was inadequate.

Part of the concern is whether the city adequately explored options such as an at-grade train system, or managed, elevated highway lanes.

A lawsuit could delay the transit project, Curtis said.

"If the city thinks that they're going to break ground in December, that's weird," he said.

FUNDS TEMPTING

Another issue is the funding. The state has been collecting a tax surcharge to pay for the rail project, but a budget crisis is tempting state lawmakers to consider using that revenue to pay for more pressing services.

Earlier this year the Senate considered, but rejected, a bill that would have borrowed $150 million from Honolulu's rail-transit tax. The bill would have given the city the option to extend the tax surcharge for another two years through 2024. As an incentive for city cooperation, the state would also have repaid the city with $250 million in bonds.

Lawmakers may renew efforts to divert or borrow train taxes next spring, depending on how dire the state's finances become. Momentum for such a move could grow, if the project bogs down.

"I'm not sure what the sense of the Legislature will be at the time depending on how severe the shortfall grows between now and then and where we're at," said Senate Ways and Means chairwoman Donna Mercado Kim, D-14th (Halawa, Moanalua, Kamehameha Heights). The issue is "whether or not it will in fact derail rail."

Other milestones the city must meet to begin construction include:

• Receiving federal permission to begin the preliminary engineering phase of the project. During preliminary engineering, the city will finalize management plans, refine the route's alignment and project costs, and further identify benefits and impacts.

• The city also will need to award the biggest transit-related contract so far — a $550 million to $600 million deal to design and build an elevated six-mile guideway from East Kapolei to Leeward Community College. That estimated amount excludes an unspecified amount to cover contingency costs.

• The city also will need a "letter of no prejudice" from the Federal Transit Administration. That gives the city permission to spend city money on the project without jeopardizing the possible future influx of federal funds. The city needs $1.55 billion in federal funds to pay for the project. However, the city doesn't expect to find out whether it will get that money until early 2011.

BOND FINANCING

City administration officials also will eventually need City Council authorization to issue up to $1 billon in bonds needed to complete the project. Yoshioka said the city can begin construction without bond financing. The city has about $154 million in transit tax collections, according to an August version of the city's financial plan.

"We have enough cash on hand to start right now without bonding," Yoshioka said.

City Council member Charles Djou said the deadline to begin construction in December carries risks. That's because there are still unresolved issues relating to the train's route and finances. Federal officials have asked the city to shift the route of the planned train away from the Prince Kuhio Federal Building because of security concerns. Major landowner Kamehameha Schools also has asked the city to consider building the train at ground-level along an alternative Downtown route.

HO'OPILI UNCERTAIN

In addition, the train's current route through East Kapolei was designed to accommodate the proposed 11,750-home Ho'opili community. However, the future of that project, which would be built on prime agricultural lands, remains uncertain following a setback in August before the state Land Use Commission and increasing community opposition.

Apart from route issues, the city's latest financial plan for the East Kapolei-to-Ala Moana commuter rail line anticipates a $360 million shortfall in tax collections. The city expects to rely on increased federal funds — including diverting federal money intended for TheBus — to help make up for the lower-than-anticipated tax revenue and higher costs, according to the financial plan.

"There's just so many questions still floating out there that I think prudence would dictate that we take a deep breath and make sure we're doing this properly, instead of just rushing headlong forward into doing a project that may not be properly vetted," Djou said. "This is not a credible, cautious, prudent, dot your i's cross your t's style of doing business."

City Council Chairman Todd Apo said the council will hold a special public hearing on rail soon that will provide an opportunity to discuss questions about rail finances and alternatives. However, that hearing isn't expected to lead to any council action that could delay the project.

"We are now moving forward on this project, but we need to ensure this project is moving forward correctly," Apo said. That means "not looking back on all the decisions that have already been made," Apo said.

A delay in the start of construction wouldn't necessarily be a setback, Apo said.

"In the short term, I don't think there's any problem as long as we are progressing — coming out with the (final environmental impact state- ment) — and having the public hearing on it," Apo said. "If those things stay on schedule, then even if there isn't an actual groundbreaking in December, I think everybody will recognize the project is moving along.

"Now if something runs completely sideways, then yes, I think you run into that risk," Apo added. But, "I don't see that happening, at least right now."