The Federal Transit Administration raised concerns last fall that the cost of Honolulu's new commuter rail line could outpace the revenue the city has lined up to pay for it.

An FTA memo dated Oct. 7 stated, "while the city already has in place a dedicated funding source, project costs have reached a point where they exceed the projected capacity of that source."

The FTA memo and other documents were obtained yesterday by The Advertiser under a Freedom of Information request.

The federal agency's approval of the rail project is important because the city hopes the agency will eventually provide $1.55 billon of the estimated $5.3 billion cost.

Groundbreaking on the 20-mile elevated rail line from East Kapolei to Ala Moana has been delayed while the city gathers backing from various federal and state officials.

The bulk of the money for building the rail line is to come from a half-percentage-point surcharge that was added to the general excise tax in Honolulu in January 2007. However, the slowdown in Hawai'i's economy caused tax collections to fall below estimates for much of last year.

The FTA said "collections have under-run projections made before the current economic downturn. Consequently, financial issues may pose difficulties sufficient to put at risk the city's anticipated initiation of final design in early 2010."

City Transportation Director Wayne Yoshioka said yesterday the FTA memos are not a concern because the tax revenue has started to more closely match city projections in recent months and costs are coming in lower than anticipated.

Yoshioka also said the FTA gave the city the green light to proceed with the next stage of the project, known as preliminary engineering, on Oct. 12, demonstrating the agency's overall approval of the rail plan. "The FTA could have stopped us right there," Yoshioka said.

'LOW' RATING

In a September memo, the FTA gave the Honolulu project's financial plan a "medium" rating overall, which is comparable with many cities seeking federal aid or transit projects. But on "capital financial capacity/cost estimates and planning assumptions," the agency rated the city "low."

The low rating, "reflects concerns about revenues, debt capacity and the city's capacity to absorb potentially large revenue risks," the FTA said.

That assessment was based on August figures, Yoshioka said, and more recent numbers are looking better. He added that "the FTA is being cautious and we welcome that."

The city plans to partially offset lower tax revenues by diverting more than $300 million in federal bus money to pay for the train. Still, the financial difficulties facing the project could prevent the city from being able to enter into the final design phase early this year, the FTA warned.

The Advertiser requested information on project rating details from the FTA on Oct. 16. The documents obtained yesterday indicated that the FTA was concerned that city transit tax estimates were more optimistic than overall excise tax collection estimates prepared by the state Council on Revenues. The council's estimates are the basis for state budget planning.

If the city's transit tax collection forecasts were restated to reflect lower Council on Revenues excise tax collection growth rates, the city's transit tax shortfall could climb to $322 million through 2023, according to the FTA.

Federal concerns about the city's financial plan for the transit project don't bode well for a pending state review of the project. The project's final environmental impact statement, which is still under federal review, will need to be approved by Gov . Linda Lingle before the city can push ahead with plans to break ground.

The city wants that approval to come relatively fast. However, Lingle has said she'll conduct a thorough analysis to ensure that the project's financial plan is feasible and that alternatives were adequately considered.

Lingle's announcement is driven in part by a drop in tax revenues needed to build the train.

PUSHED TO LIMIT

Other financial issues raised by the FTA in documents obtained by The Advertiser include:

• The city's transit tax surcharge revenue could be inadequate to support project debt service payments.

• Project debt will push the city to its limit of affordability for general obligation debt.

• And operating costs are underestimated compared with near-term trends for the city and peer rail operations.

The FTA also recommended that the city obtain an independent forecast of transit tax revenues from a source familiar with the Hawai'i economy. The tax surcharge estimates used in the city's most recent publically available train financial plan were prepared by Parsons Brinckerhoff, which has a city contract to conduct preliminary engineering and environmental impact studies.

The FTA also recommended the city substantiate its capacity to provide back-up funds for the project and its ability to transfer more revenue to the project without affecting other city services.

"What's expressed there from the FTA is the concern that all of us have — the council , obviously the governor and the public and the (transportation) department as well — is making sure this financial plan works given where we are in the economy," City Council Chairman Todd Apo said yesterday.

Apo said lower construction costs could alleviate some of those concerns. He noted that the city recently awarded a $483 million contract for the first 6.5 miles of elevated train guideway. That was below initial estimates that the contract would cost $500 million to $600 million.

"Had FTA believed that (the financial plan) was so bad that there was no way it would work, they wouldn't have allowed the city into preliminary engineering," Apo added.