HART Meeting Tomorrow: More Broken Promises and Lack of Transparency

The Honolulu Authority for Rapid Transit (HART) board of directors will meet at 8 a.m. tomorrow, and there are several things we should all be concerned about:

• a resolution requesting that the Honolulu City Council approve a bond float for the much-talked-about $44 million for HART marketing and personnel costs;

• the potential that the board “may” go into Executive Session regarding several issues that should be discussed in public; and

• the lack of a discussion item regarding the state auditor’s concern about HART management recording employees during interviews.

When I read the agenda, I was shocked to see a resolution requesting that the Honolulu City Council approve the issuance of bonds to cover the $44 million. This $44 million was initially put into the city’s capital improvement (CIP) budget by the mayor and then moved to HART’s CIP budget by the council.

During two months of budget discussions, we were told several times that HART had the money to pay these costs. We were reassured that no bonds would be needed for next fiscal year. Even as recently as the June 6 full council meeting, the $44 million was referred to as just “a placeholder,” similar to having a line of credit available.

Who knew that this was not correct? When did they know it? When will we be given accurate and complete information?

It’s also important to note that this resolution calls for the $44 million to be repaid with city funds, which breaks another promise that was made to us with respect to the rail project, i.e., that no city money (read “real property taxes”) would be used for rail construction.

If that isn’t enough for people to be concerned about rail finances, the HART board may go into “Executive Session” on five items including approval of the budgets that the council just passed, the bond approval requests (there’s another one for $450 million), a change order and the discussion on public-private partnerships. (This last one is a biggie, because it will cover the City Center Guideway and Stations – the last major piece of the rail project to be contracted.) All of these issues should be discussed in the open. Executive sessions are closed to the public, however.

What are they trying to hide? Have costs gone up yet again?

And finally, it’s notable that there is no discussion slated regarding management’s policy of recording employees during state audit interviews. During the last HART board meeting, Les Kondo, the state auditor, expressed serious concerns about this practice and asked that it be stopped. A former state attorney general has said it is illegal to record employees in this manner, and at least two board members had questions about the issue. No discussion took place, because corporation counsel stated it wasn’t allowed due to sunshine law restrictions. (Thank you to Tom Yamachika for the reminder that the board could have voted to sunshine the item onto the agenda.) Most employees will likely not feel free to openly discuss their concerns in this type of environment, yet there appears to be no follow up by the board.

I agree with HART board member John Henry Felix -– it’s time for a “forensic audit.” We cannot afford to continue the way we have.

The HART board meeting will be broadcast live on Olelo 53.

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A Sneaky Way to Approve City Funds for Rail

 

Buried in a proposed amendment to the bill for HART’s capital improvement budget (Bill 22, CD2, FD1) is the statement:

 

“Notwithstanding the provisions of Ordinance 07-001, City revenues may be used to pay for the debt service for the $44 million appropriated from the general improvement bond fund.”

 

We were told no city funds would be used to pay for rail.  Last year, however, the state legislature passed Act 1, which prohibits the general excise tax surcharge from being used to pay HART’s administrative or marketing costs, including personnel costs.  By default, that means that the bulk of these costs will need to be paid by city funds. Councilmembers then started discussions on Bill 42, which added “city” to the list of funding sources for rail.  It was opposed by most testifiers, and no final decision was made on it.

 

The mayor put $44 million of HART administrative and marketing costs into the city capital improvement (CIP) budget for next fiscal year.  Several councilmembers decried this as bad policy but then merely moved those costs to HART’s CIP budget.  

 

When asked about the $44 million, HART representatives stated they had enough cash to pay it, but according to their cash flow projections, bonds would be floated and apparently used to pay a significant portion of it.  There was no additional discussion of how the $44 million would be funded.

 

We deserve an open discussion of how and when city funds will be used to pay for rail and what councilmembers’ plans are to cover the $44 million.

 

As a side note, it is also important to consider that no significant cuts to HART’s administrative or marketing costs have been made.

 

There is one final hearing on this bill Wednesday. I will be there to oppose this bill and the manner in which the amendment is being done. I encourage others to testify as well.  The agenda and instructions on providing testimony are available here.

 

HART Errors – Lack of Acknowledgement is Troublesome

Last week I wrote about errors and inconsistencies I’ve found related to the Honolulu rail project. Councilmember Ozawa apparently followed up with HART regarding one of those errors – the West Oahu Farrington Highway summary change orders calculation. HART responded via a letter dated February 3, 2016.

I do not know specifically what Ozawa requested (his communication to HART is not posted on the council’s website).  I do know, however, that HART did not address the issue of the error.

We all make mistakes. Shouldn’t agencies like HART at least acknowledge that an error was made?  Wouldn’t it be a lot easier than clouding the issue with explanations that may be correct but don’t address the concerns?

I’ve taken the liberty of showing the change order calculation (suggested presentation) as it would be if HART had included the credit and the full administrative costs from its detailed spreadsheets. Using this presentation, we can see how much rounding is included in the approved change order.

How many other errors have been summarily dismissed by HART? How much are we losing out because of this? I don’t know the answers to these questions, but I will continue to press for transparency and accountability.

 

Rail’s Numbers – A Pattern of Errors and Inconsistencies

The HART board formally accepted the audit of their June 30, 2015, financial statements at its meeting January 28. During that meeting, I mentioned that their note on “Liquidity Risk” included a statement that the federal government “may” require the return of federal funds if there is a breach of the grant agreement and that this is inconsistent with statements HART has been making.

HART chair Don Horner then made a point of asking the auditors whether they had found any “pattern of errors,” “inconsistencies” or “sloppy information.” The auditors said “no.” But what Horner failed to point out is that the errors and inconsistencies that I’ve found are beyond the auditors’ scope of work.

The reports that contain these errors have been used by legislators and councilmembers when making decisions related to rail, and I think it’s important we understand just how pervasive this problem is.

Here are the errors, with more detailed information below:

Accrual Basis Mixed with Cash Basis

The legislature had good questions for HART last year when they were discussing the extension of the general excise surcharge tax. One report that HART provided in response was “Revenues from January 1, 2007 to December 31, 2014.” The report shows a mixture of accrual basis and cash basis numbers for revenue. For people who are unfamiliar with these concepts, an analogy would be creating a table of temperatures with some listed as Celsius and others as Fahrenheit. It doesn’t make sense and just isn’t done.

Incorrect Revenues and Inconsistent Expenditures

The revenues report led me to HART’s monthly “Planned vs. Received Project Funding” figure, which is included in HART’s progress reports and the monthly ad that is published in the Honolulu Star-Advertiser. This report double counts $298 million of revenue. This is not an obvious error but had been repeated many months (possibly years – I didn’t go back to check) until it was finally corrected in the August 2015 PMOC report.

HART provided a number of reports to the Honolulu City Council in response to questions about the surcharge tax extension.  Table A-1, “Capital Plan Cash Flows @ 4% GET Surcharge Growth Rate” projects“All Other” revenue to be only $6 million, but as of the date it was given to council, other revenue had already exceeded $9 million. This is the table that Chair Martin based his amendment on for the floor draft to Bill 23 (the surcharge extension) that went to the mayor for his signature.

Table A-1 also shows expenditures to date (June 30, 2015) of $1,512 million, while the “Quarterly Cash and County Surcharge Revenue Report as of June 30, 2015” shows total expenditures of $1,637 million. HART’s monthly “FACTS” ad shows the expenditures at yet another amount — $1,581 million. No one on the council asked HART in a public setting why these numbers don’t match. No one from HART provided me with an explanation.

Other Types of Errors

Mayor Caldwell has stated he prefers the surcharge tax, because 33% to 38% of the tax is paid by visitors and offshore military. The amount is actually less than 20%.  Additional information on this was provided by me to the city council October 21, 2015.

When Ann Kobayashi asked HART for their ridership plan, they gave the council a table with columns of numbers that didn’t add up. Even the “Raw Data” from which the table came from had math errors.

When the city council was discussing authorization for HART to issue bonds backed by the City and County of Honolulu, HART provided the council with a cash flow projection that included a $140 million math error. This document is now part of our city law in Resolution 15-7.

HART’s updated “Project Balance” as of October 15, 2015, was confusing at best and also included a math error. Here’s my suggested presentation of that same information.

The most recent error I found was related to the $26 million change order for the West Oahu Farrington Highway Guideway. HART did not include a credit of about $5,000. However, they did round up administrative costs, so that the net impact was about $2,000 . . . in the contractor’s favor.

Update:  there was one more slide related to the WOFH change order that had an error.  The total was off by $4,000 and was presented to the HART board at its December meeting.

These are just the errors that I’ve noticed. HART produces many other numbers for decision making and “public consumption.” Isn’t it time that they were accurate, complete and consistent?