OFFICE OF THE MAYOR CITY AND COUNTY OF HONOLULU 30 SOUTH KING STREET, AOOM00 + HONOLULU, HANA GeB19 PHONE! (68) 7-141 FAX (DH) 706-4242» INTERNET: wnt Ronlaoe OY AMEMAYA.J8 MANAGING DRECTOR DESIGNATE GEORGETTE T.OcEMER DEPUTY MANAGING DRECTOR re cauDWeLL avon February 12, 2015 The Honorable Jill N. Tokuda, Chair and Members of the Committee on Ways and Means State Senate Hawail State Capitol 416 South Beretania Street Honolulu, Hawaii 96813 Dear Chair Tokuda and Senators: Thank you for the opportunity to address the Joint Committees of the Senate Ways and Means and House Finance on Monday, January 26, 2015. In response to the questions raised during the informational briefing, | am pleased to provide the following responses and documentation: 1. Provide a copy of the Honolulu Authority for Rapid Transportation’s (HART) Operating and Capital Budgets, Response: HART's current (FY2015) Operating Budget is $21 million and the Capital Budget is $1.5 billion. HART’s budgets are reviewed in public sessions by the HART. Board, the Mayor and the Honolulu City Council. (See Attachment A-FY 2015 Operating & Capital Budgets and Budget Details.) 2. Provide a list of HART staff which includes contracted workers. This number should include number of positions and salaries. Response: The HART employee staff is capped at 139 positions, including 120 City and County employees and 19 seconded consultants. (See Attachment B- Position Classification Summary.) The annual salary cost, including the vacant positions, totals $9.4 million and is consistent with HART's FY2015 program budget. (See Attachment O-Vacancy Position List.)The Honorable Jill N. Tokuda, Chair and Members of the Committee on Ways and Means February 12, 2015 Page 2 3. How muchis spent by HART on Public Relations and Education efforts? Response: In FY 2014, HART spent approximately $1.28 million on its outreach programs. Outreach in FY2014 primarily included working with residents and businesses along the alignment that are impacted by construction, providing updated project information and answering public and media inquiries that come through the website, email, and the project's 24-hour hotline. The entire program amounts to about two-tenths of 1 percent of the total project budget. HART's public outreach program meets all Federal Transit Administration (FTA) requirements, as was affirmed in a recent independent review of the program by the City Auditor. From 2006 to the current year, HART's public outreach also included the following: Participated in more than 1,750 community meetings, presentations and events; Attended more than 950 neighborhood board meetings. In 2014 alone, HART’s outreach team participated in 215 community meetings, workshops and events. In addition to providing regular updates on the project's progress, these meetings, presentations, and events provide the public with the opportunity to share feedback; Produced and provided all of the project's brochures and fact sheets for the public; Answered about 100 public inquiries each month that come through the project's website, email and 24-hour hotline, amounting to more than 1,000 public inquiries a year; Kept the media and the public informed about traffic and construction work; Worked closely with businesses along the alignment to lessen the impact of construction. HART’s team works with these businesses and with its contractors to ensure access to businesses remain open, traffic impacts are reduced, and proper signage is provided; Met monthly with contractors to ensure that they meet, in tum, with area businesses and with residents in the construction zones. These contractors ‘canvass door-to-door, if necessary; and Utilized social media, such as Facebook and Twitter, and produced a weekly e-Blast and a monthly public access program on Olelo to reach an audience that may not receive their information from the mainstream media. (See Attachment D-Public Information Materials.)The Honorable vill N. Tokuda, Chair and Members of the Committee on Ways and Means February 12, 2015 Page 3 4, Ifthe sunset is extended, how long would that need to be (e.g., 35 years)? What is the rationale behind our answer? Response: The City and HART believe that the elimination of the GET sunset is the best option, however, as | stated at the hearing, “30 to 35 years” would be preferred if extending the sunset is the alternative option. The rationale revolves around sensible financing, and anticipates the following: * The completion of the current portion of the rail transit system (the “minimal operating segment’); * The extension of the system to the University of Hawaii and to downtown Kapolei (the “locally preferred alternative"); and ‘© The establishment of a reliable funding source for the long term operating of the rail transit system, ‘Completion of the current system and the extensions will require that the City float construction bonds. The least expensive bonds in the City's portfolio are 25-30 year bonds. We can only do that with a reliable flow of capital over the life of the bonds. The reason for 30-35 years is that the bonds will not all be sold at once. They will be floated as the project requires. Currently, the City is limited to floating short-term bonds and commercial paper because the 0.5% Excise Tax Surcharge expires at the end of 2022, both of which are always more expensive than long-term bonds. 5. fall the extension segments were built, i.e. Kapolei and Manoa, when would construction be completed? Response: Keep in mind that the current phase of the system will be operational at the end of 2019. If the GET Surcharge is extended into perpetuity or to a future date that will guarantee the funds necessary to complete the construction of the two extensions, the lines for the extended portions could be open for service in 2025. This is based on the project delivery timeline that would include the following assumptions: ‘+ Environmental and Planning; Procure the planning and environmental consultant by the end of 2015 (6 months); start the Supplemental EIS process in early 2016 and take 2.5 to 3 years to complete; assume completion at the end of 2018, * Design and Construction: Using Design-Build delivery, start the procurement of the design-builder in early 2019 and award in early 2020 (12 months). Construction could commence as early as mid-2020 and complete in 2024 (3.5 years design and construction duration); begin testing and commissioning (9-12 months) of the extensions in 2024; and open to revenue service in 2025.The Honorable Jill N. Tokuda, Chair and Members of the Committee on Ways and Means February 12, 2015 Page 4 © No major unforeseen circumstances that cause extended delays as occurred With the first project. This is a “best estimate” at this time. Itis important to note that IF there is a long lapse in time between the first project and the commencement of the extensions, the costs rise significantly. This is due to de- mobilization and the loss of equipment and a qualified workforce. 6 How long after construction is completed would it take to pay the debt service on bonds issued? Response: If the GET’s sunset is lited, the amortization of the bonds will be 25-30 years after the sale of the last required bond. 7. What is the contingency fund amount? Do you want to lift the sunset just to replenish the contingency? Response: As of December 2014, HART had $524 million left as contingency. Given Projections in the program budget, that contingency is expected to be spent down entirely. HART uses contingency funds to address uncertainty and unforeseen events that could occur during the life of the program. In the case of the current project, those have included delays due to a one-year delay in the signing of the FEIS, delays due to lawsuits, higher than anticipated construction costs, lower than anticipated GET revenues, and scope changes. No, the lifting of the GET is not merely to replenish the contingency on the first project. Itis also needed to plan, design and permit the extensions to the University of Hawaii, Manoa and to downtown Kapolei; to build the extensions; and to establish a reliable funding source for long-term operation of the rail transit system. Built into the request is, replenishment of approximately $242 million in contingency. HART has managed contingency in a fully detailed and transparent manner, reporting in its monthly report all contingency drawdowns. Those reports are available on line: © Section 2.3 of each report provides a high-level summary of the contingency status for the month. * Appendix B provides a narrative about contingency management and tabulates in detail all Board of Directors-approved contingency drawdowns incurred-to- date. It shows the drawdown from the FFGA baseline of $644M to the current $524 million with contingency source associated with each drawdown. * Appendix C provides Project Cost Reports detailing the current contingency status, Reports to highlight are:The Honorable Jill N. Tokuda, Chair and Members of the Committee on Ways and Means February 12, 2015 Page 5 © Project Monthly Cost Report by Standard Cost Category Summary & Details which provides Project budget and cost information for the reporting month. © Project Cost by Contract which provides the overall value of executed changes. (See Attachment E-Sections of Monthly Report). 8. Are we taking into consideration density around the rail line to help increase ridership? (Senator Donovan Dela Cruz would like to see a matrix showing density studies that we have done.) Response: Yes, the City is deeply committed to increasing ridership, density, connectivity, and housing choices by promoting more compact development close to rail stations. Current ridership projections as part of the short, mid, and long range planning were based on the most current land use, zoning, and density data available at the time of the Final EIS. HART is currently working very closely with the Department of Planning and Permitting (OPP) on overlay zoning and transit-oriented development studies that will increase overall densities, which is discussed herein. HART is confident that the ridership projections, which show daily boardings at nearly 120,000 riders, are sound. HART is also confident that, as with the City's own bus service and other rail transit systems in the U.S., the ridership projections will be met or exceeded. The most current land use, density and population forecast information is being used to update the ridership projections for the project. What is important to note is that the increases in ridership due to increased density would then be over and above the stated ridership projections for the Project. This is “gravy” in terms of ridership. HART definitely welcomes more passengers, and is excited about the prospects of increased residential and commercial use around our stations. This contributes to a more vibrant and complete community. But, an important consideration that HART will face is the limits on the physical capacity of the rail system in terms of length of platform, number of cars that can be on the line at one time, etc. Eventually there will be limits to the amount of thru-put on the trains. Historically most transit systems across the country are subsidized and do not break even. HART’s goal will be to set policies to achieve the highest ridership that yields the lowest subsidies, while maintaining affordable fares. HART projects to achieve 120,000 riders in the weekday, and will have 80 rail cars available running on five (5) minute headways, (See Attachment F-Consideration for Ridership.)The Honorable vill N. Tokuda, Chair and Members of the Committee on Ways and Means February 12, 2015, Page 6 Working toward more robust land use, especially increasing density, is key to achieving the City's long-range goals. While the City's neighborhood transit-oriented development (TOD) plans estimate how much growth (density) to anticipate in each neighborhood, the City does not use these figures as goals or assignments, but as a rough tool to envision the future character of the area, and to assess the need for infrastructure upgrades. While numbers are helpful, perhaps equally, or more important are the strategies and tools to make the growth happen. (See Attachment G-TOD Plans). The City’s TOD implementation strategy reflects more of a “carrot” approach, rather than a “stick” approach. The City is offering more incentives in terms of zoning, density, height, and process improvements, rather than requirements to encourage the market to build transit ridership, At the end of the day, itis the market that builds most TOD, not government; the market determines density and absorption. The City is making direct and indirect investments to spur private sector investment in TOD; particularly in affordable housing. The City’s strategy includes four major elements: 1) changes to zoning; 2) new financial tools to make more projects feasible; and 3) real property tax policy that encourages more compact development; and 4) infrastructure upgrades. A. Zoning. The TOD zoning strategy includ Reduced standards (e.g. less parking); More flexible standards (e.g. larger lot coverage, reduced setbacks); Generally higher building height limits; and A permit process to flexibly negotiate project design elements and benefits, Most areas in the transit corridor are now under “single-use” zoning districts which will be converted to “mixed-use” districts. For example, most properties along Farrington Highway in Waipahu are now zoned B-2 Community Business District. Under TOD, the zoning will be upgraded to BMX-3 Community Business Mixed-Use District. This does not make existing developments “nonconforming,” but gives the landowners the new option of adding housing units, hopefully affordable, to their commercial investments. Similarly, industrial areas are being considered for IMX-1 Industrial Commercial Mixed- Use District zoning, which allows more commercial uses. Where areas are already zoned IMX-1, the City is proposing to add a modest amount of residential use, The City compared current zoning density limits against long-term market demand for growth, as measured by additional housing units and additional floor area, For most station areas, the City found that current density limits exceed existing and future market demand (per market studies done for the TOD plans). For example, the current Floor Area Ratio (FAR) in the business district is 2.5.The Honorable vill N. Tokuda, Chair and Members of the Committee on Ways and Means February 12, 2015, Page 7 The average floor area actually built is about 0.5. So except for the Ala Moana area, no across-the-board increases in allowed densities are proposed. However, to further incentivize TOD, the City is providing individual projects the option of exceeding the density (and height limits) by providing commensurate community benefits, such as additional affordable housing, usable open space, and streetscape improvements. To estimate likely growth and increased density, the City developed potential build- out projections for each TOD neighborhood planning area by assessing available | land, likely market interest, community vision, and updated zoning. This also includes build-out assumptions for Kakaako, which is under HCDA jurisdiction. The timing of actual build-out in each area is difficult to predict, given market cycles, since housing will primarily be constructed by the private sector or in public-private partnerships. The potential build-out of approximately 52,500 units does not yet include projections for the three Airport area stations or for the Halawa Makai neighborhood (surrounding Aloha Stadium); TOD planning for those areas began in mid-2014, Full build-out of this first phase of TOD is completely dependent on the market and likely to take 20 to 30 years or more. Retums to the City over and, above the “community benefits” noted above, may take longer. a The massing study above of development frm hl fo Middle Street, eae with a market study, was used to estimate Ikely housing and commercial development in the initial phase of TOD build out.The Honorable Jill N. Tokuda, Chair and Members of the Committee on Ways and Means February 12, 2015, Page 8 B, Infrastructure Upgrades. Infrastructure projects and programs generally benefit a small number of properties or neighborhoods. However, there are some infrastructure lines, particularly sewer trunk lines that cannot be financed by a single project or even the City itself (which has its ongoing U.S, EPA consent decree obligations to satisfy in the near term, and which may not add capacity to existing lines). Therefore, the City continues to explore tax increment financing (TIF) and community facility district strategies to cover the heavy upfront cost of upgrading the capacity of the City’s aging infrastructure trunk lines. One idea, to create a new sewer line servicing urban Honolulu to the Sand Island Sewage Treatment Plant, is estimated to cost $500 million, with no funding yet available. Moreover, the vuinerabilty of the Sand Island ‘Treatment Plant with respect to sea-level rise will be crucial to the well-being of TOD growth. The City sees this as an opportunity for the State Legislature to participate in the solution to regional infrastructure shortfalls that would benefit State lands as much as privately-owned land. C. Financial Tools. ‘The City is pursuing a variety of financial assistance options for private and public- private TOD projects. These new sources of funding will help off-set the cost of development in the transit corridor. For example, the City received a U.S. HUD grant for affordable housing in the transit corridor. The majority of the grant funds have been assigned for gap or bridge financing for construction or rehabilitation of low-income housing units in the transit corridor. Last year, the City received a brownfield assessment grant from the U.S. EPA, which will be used for assessing Potential TOD project sites. The City is hopeful that additional funding for clean-up of identified brownfields will also be available in the future. In the upcoming budget, the Administration is proposing to use the City’s Clean Water and Natural Lands Preservation Fund to acquire land fronting Pear! Harbor to provide a waterfront park next to a catalytic affordable housing and bus transfer complex in Aiea. In the current budget year, TOD-related capital improvement projects received over $20 milion in a variety of improvements to the transit corridor — from acquiring land adjacent to a rail station for a bus transfer facility, to transforming stormwater drainage into green infrastructure and “blue ways" - amenities that add scenic and recreational value to neighborhoods, and still function as a public works projects. New sidewalks, crosswalks, and better signalized traffic lights at many rail station interfaces wil be installed.The Honorable Jill N. Tokuda, Chair and Members of the Committee on Ways and Means February 12, 2015 Page 9 A variety of connectivity improvements will increase the safety, convenience, and access to the rail stations to increase transit ridership. These public investments will spur private investments many times over the cost of these public investments, as we saw with City investments in Waikiki in the 1990s. Although not a financing aid per se, the City is initiating the zone changes mentioned above, rather than requiring individual landowners to request TOD zoning on an ad hoc basis. This translates into significant savings to TOD projects in term of cost, risk, and time. It is a tradeoff to encourage the development of affordable housing as quickly as possible, as well as a commitment to attracting higher density along the rail ine. D. Real Property Tax Policy. ‘The City is finalizing its “creative financing’ package for TOD. Major consideration is being given to real property “rollbacks” in return for private sector investments. This is the program used to help avert Waikiki from economic down-spiraling and allow it to continue as a rejuvenated world-class resort destination. Tax “forgiveness” could be received in retum for assistance in upgrading regional infrastructure lines or contributing community benefits, such as affordable housing or public open space. Some cities have used property tax policy to encourage redevelopment bj differentiating land and improvement assessments. Vacant and underutilized lands are assessed a higher tax. The City is exploring use of similar policies to incentivize development. ‘The City will continue to support legislative bills that create an infrastructure revolving loan fund for the counties. The City is also looking at the opportunities represented by establishment of a Community Land Trust, traditional improvement districts, and business improvement districts. These tools help address front-end costs to projects, as well as regional needs. 9. What are our realistic choices? Response: As | answer this question, please keep in mind that | would not be asking for the Legislature to lift the sunset on the GET if | believed that there was a better choice. The realistic choices include the following: * Lift the sunset on the GET. This choice allows the greatest flexibility at the lowest impact to Hawaii residents. The tax is in place and has been for eight years; the proposal is to continue the tax, which is currently being paid at a 0.5% level, beyond 2022,The Honorable Jill N. Tokuda, Chair and Members of the Committee on Ways and Means February 12, 2015 Page 10 This is the only one of the realistic options that imposes a significant burden on tourists as one-third of the GET is collected from tourists. | prefer placing part of the burden on visitors rather than all the burden on our residents. © Allow the GET to sunset in 2022 and understand that the County’s primary option is to raise real property taxes. To raise the revenues that lifting the sunset on the GET would raise, it requires that the City raise real property taxes approximately 40%. This places the large majority of the burden on residents. * Defer decision-making on the GET for one or two Sessions. This approach would allow the project to continue and to complete the present contracted work for the first ten miles only. By 2016 or 2017, the Legislature would have a better understanding of costs. However, it still will be an estimate as HART will not have been able to put out the next set of contracts without sufficient funds. We would, in effect, be kicking the can down the road. Under these circumstances, the project would suffer major delay costs as the remaining major contracts could ot go out in 2015 as planned. A two-year delay would duplicate the significant delays caused by failure to accept the FEIS back in 2010 and the subsequent lawsuits. * Stop the project and dismantle what has been done. This is an option, but it is the worst possible option and the one with which | am most opposed; the costs would be substantial, At a minimum, they involve the following: Repay $340 million in federal funds spent to date; Pay $400 million in remaining contract obligations; Incur $1.4 billion in exposure to terminate HART’s existing contracts; and Expend about $100 million to remove/dispose of the existing structure. 0000 These are hard numbers. But there are serious additional considerations: © The City will essentially be “giving back” $1.2 billion in federal funding that has already been designated for this project; © By defaulting on the FFGA, the City, and maybe the State, will jeopardize its abilty to receive future federal grants well into the future; and ©. The City will never get back what has already been spent ~- $1.3 billion There are other things that the City and HART are doing to improve efficiencies and minimize unnecessary expenses, but these efforts are relevant to all options that inolude proceeding. ‘These include:The Honorable Jill N. Tokuda, Chair and Members of the Committee on Ways and Means February 12, 2015 Page 11 Exercise continual efforts to value-engineer the construction of the project; ‘* Find greater efficiencies in City and HART operations (e.g., adjusting bid processes); * Seek additional Federal funds (e.g. Federal highway money for repairing state roads, dug up while building our rail project, which is an appropriate use of such funds); © Continue to adjust the FFGA with FTA to find savings; and * Continue to seek revenues by creatively interfacing with developers, land owners, vendors, major corporations looking for naming/advertising opportunities. All of these options will result in additional sources of funding for rail, but none of them in an amount needed to meet the $700 million to $900 million funding request and none in time to get all of the remaining contracts out by the end of 2015 and avoid further delays in the project. In closing, allow me to re-iterate my commitment to completing the development of the HART system. Rail is a critical element to achieving a better quality of life on Oahu. The rail system improves corridor mobility, improves the travel reliability, proves access to planned developments supportive of both State and City planning initiatives, and improves transportation equity. (See Attachment H-Summary of Purpose and Need). Building Rail is also a commitment that the State and the City made many years ago. Itis a commitment to the people of the West side of Oahu, it is a commitment to the people in our society who need mobility and have very few options, itis a commitment to the accelerated development of affordable housing, it is a commitment to saving the open spaces of our island, it's a commitment to families of the construction industries, and it’s a commitment to our children. Building a minimal system or, worse, stopping and tearing down what has already been completed, abdicates those commitments. Sincerely, ee Kirk Caldwell Mayor Attachments.