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Final Report - Honolulu Rail Transit Financial Plan Assessment

Final Report - Honolulu Rail Transit Financial Plan Assessment

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Published by Craig Gima
Complete final report of the Honolulu Rail Transit Financial Assessment ordered by Gov. Linda LIngle.
Complete final report of the Honolulu Rail Transit Financial Assessment ordered by Gov. Linda LIngle.

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Published by: Craig Gima on Dec 03, 2010
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The financial model was built utilizing many assumptions from the Financial Plan, with certain
adjustments based on the IMG Team’s analysis of the Project and projections of the Oahu
economy. The Base Case incorporates the following key assumptions directly from the sponsor

Rail project construction costs

Fare revenue

FTA 5307 formula funds for capital costs

Other assumptions are altered from the sponsor forecast based on IMG analysis.

Analysis Timeframe: Unlike the Financial Plan model, which is a 20-year model (2009-2030) as
required by FTA, IMG’s model, as an investment-type, is a 30-year model (2011-2040) and
encompasses longer post-construction system operations in order to assess a solid long-term base
of project economic feasibility and longevity. For post-2030 years, IMG Team extended the model
by either assuming a long-term inflation rate of 2.5%, individual growth rates for different forecasts
or applying the last year (2030) growth rate in the Financial Plan.

Construction Timing: One of the variations from the Financial Plan is a two-year delay in project
development. This reflects the fact that the Project is behind the Financial Plan schedule, which
called for FTA’s Record of Decision in Fall 2009, and a Full Funding Grant Agreement by February

This two year delay assumption is based on our analysis of the nine New Start projects with
FFGAs in the most recent FTA Annual Report to Congress, showing an average period between
Final EIS (which the Honolulu project is close to, but has not yet completed) of 33.5 months, with a
range of from 16 to 65 months. The delay to actual construction commencement can b e reduced
by the utilization of a Letter of No Prejudice, which allows the grant applicant to commence wok
without and executed FFGA, with the Federal government agreeing to regard the costs of all such
work as comprehended by the FFGA to be signed in the future, but, these require the grant
applicant to pay all costs if the FFGA is not forthcoming.

The IMG Model’s initial year is 2011, hence certain Financial Plan’s inputs (capital costs, ridership
forecast, etc.) were pushed back by two years and adjusted for inflation, if applicable, based on
inflation rates reported by the Bureau of Labor and Statistics for Honolulu. Due to this delay, the
model excludes ARRA funds as a revenue source since they are assumed will be no longer
available in 2011.

Beginning Transit Fund Balance: The most recent data available to the IMG Team showed a
Transit Fund balance of $351.5 M as of April 30, 2010.18 The Transit Fund balance in the model

Financial Plan Assessment
Feasibility and Fiscal Implications of the
Honolulu Rail Transit Project

December 1, 2010

Page 35

takes this figure, and adds actual May and June 2010 GET surcharge collections ($29.4 M).
Although it is highly likely that there will be additional Transit Fund expenditures prior to the start of
construction, such as for the cost of retaining an ongoing consultant team, no estimate of such
costs was available IMG. Therefore, we are likely overstating the cash funds available for the

Financing Assumptions: For the Base Case, IMG accepts the general structure of leveraging GET
revenue through short-term and long-term debt, and uses Financial Plan interest rates. However,
the IMG model restricts the GET surcharge revenue backed debt capacity to a debt service
coverage ratio of 1.0x (excluding issuance costs) to ensure that debt service payments can be
covered in each year. Long-term debt borrowing capacity was not limited in the Financial Plan
because of the absence of debt coverage ratio requirement; hence, the Financial Plan allows
higher debt issuances than in IMG model.

The Financial Plan assumes that there is no debt service coverage requirement and no debt
service reserve requirement because long-term debt will be a general obligation of the City. Should
these assumptions be incorrect, borrowing cost would be substantially higher.

Short-term debt is restricted to $500 M outstanding, and is rolled annually. As in the Financial Plan,
a short-term construction financing is rolled over for six years and paid off with long-term debt
proceeds in the seventh year. Long-term debt is issued based upon need each year and repaid by
GET surcharge sunset in 2023.

The IMG model adds Grant Anticipation Notes (GANs) as a funding source to bridge gaps where
New Starts funds are provided at a slower rate than in the Financial Plan. Since principal will be
repaid from the future New Starts funds, the Model tracks the interest accumulated on the GANs.

Other Forecasts: The IMG Team also adjusted federal funds, GET surcharge revenue, O&M,
capital repair and replacement forecasts as described in the previous sections. These forecasts
varied for each scenario and are addressed in more detail in Scenarios section. The key
differences between the IMG Model and the Financial Plan are summarized in the table below.


Financial Plan

IMG Model


Construction Costs

$5.1 B

$5.3 B (exluding

Reflects recommendation from
FTA PMOC report

Model start year



ROD not received in 2010 as
expected in Financial Plan

Model length

20 years

30 years

Enables forecast of ongoing
maintenance investments

Beginning Transit Fund

$154 M

$381 M

Construction delay results in more
GET collections

Financial Plan Assessment
Feasibility and Fiscal Implications of the
Honolulu Rail Transit Project

December 1, 2010

Page 36

New Starts Funding

$1.55 B over 9 years $1.55 B over 12 years Project unlikely to receive more
than $150 M per year in New
Starts funding

Grant Anticipation Notes


Used to make up
shortfall from New

Bridge financing needed while
New Starts funding is pending

5309 Bus Discretionary

$419 M

$166.4 M

Capped at $2.6 M per year during
construction. Very rare for
properties to receive major Bus
Discretionary in same years as
New Starts funds

Operations & Maintenance

$7.2 B

$7.7 B

Includes wait time between bus

GET revenue

$3.5 B

$2.7 B

4% long-term growth rate
maintains historic relationship of

Appendix 1 lists other model assumptions.

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