Honolulu High-Capacity Transit Corridor Project DRAFT Financial...

Honolulu High-Capacity Transit Corridor Project

DRAFTFinancial Plan for Entry into Final Design

September 2011

Prepared by:City and County of Honolulu

City and County of Honolulu, Hawai’i Draft Financial Plan for Entry into Final Design

Table of Contents

SUMMARY OF KEY FINDINGS I

CHAPTER 1: INTRODUCTION 1-1DESCRIPTION OF THE PROJECT SPONSOR AND FUNDING PARTNERS 1-1DESCRIPTION OF THE PROJECT 1-3SUMMARY OF THE FINANCIAL PLAN 1-6CHANGES TO FINANCIAL PLAN SINCE REQUESTTO ENTER PRELIMINARY ENGINEERING 1-6

CHAPTER 2: CAPITAL PLAN 2-1PROJECT CAPITAL COSTS 2-1PROJECT CAPITAL Cosm IN YOE DOLLARS 2-3SYSTEM-WIDE AND ONGOING CAPITAL COST 2-3CAPITAL FUNDING FORThE PROJECT 2-4FINANCING OF THE PROJECT 2-8SYSTEM-WIDE CAPITAL FUNDING SOURCES 2-12LOCAL CAPITAL ASSISTANCE FOR THE SYSTEM-WIDE AND ONGOING PROJECT CAPITAL NEEDS 2-15

CHAPTER 3: O&M PLAN 3-1OPERATING COSTS 3-1OPERATING REVENUES 3-4

CHAPTER 4: RISKS AND UNCERTAINTIES 4-1CAPITAL PLAN 4-1OPERATING PLAN 4-6

ATTACHMENTSATTACHMENT A: SUMMARY CASH FLOWS — BASE CASEATTACHMENT B: SUMMARY CASH FLOWS — SENSITIVIV,’ANALYSESATTACHMENT C: HISTORICAL GET DATAATTACHMENT D: O&M COST ESCALATION ASSUMPTIONSATTACHMENT E: LOCAL FINANCIAL COMMITMENT CHECKLIST

Honolulu High-Capacity Transit Corridor Project September 2011Page!


List of Tables

Table 1-1, Summary of Major Project Development Milestones 1-5Table 1-2, Project Capital Cost Summary, FY2O1O—2030, YOE $millions 1-6Table 1-3, Project and System-wide Sources and Uses of Funds, FY2010—FY2030, YQE $millions 1-7Table 2-1, Annual Project Capital Costs, Excluding Finance Charges, FY2O1O—FY2020 2-1Table 2-2, List of Major Project Contracts 2-2Table 2-3, Project Capital Costs by Standard Cost Category, Excluding Finance Charges, FY20 10—FY2020 2-2Table 2-4, Project Capital Expenditure Schedule by SCC, FY2O1O — FY2020, YOE $millions 2-3Table 2-5, Assumed Section 5309 New Starts Revenues, YOE $millions 2-7Table 2-6, Historical FTA Section 5307 and Section 5309 FGM Apportionments, 1996 — 2010, YOE $millions 2-8Table 2-7, Summary of Federal and Non-Federal Funding Sources 2-9Table 2-8, Debt Proceeds, FY2O1O — FY2030, YOE $millions 2-10Table 2-9, FTA Sec. 5307 and 5309 FGM Apportionments and Impact of the Project, FY2O1O — FY2030, YQE $millions 2-14Table 3-1, Level of Service Variables and Unit Costs for the O&M Delivered Directly by HART 3-1Table 3-2, TheBus Level of Service Variables & Unit Costs 3-3Table 3-3, TheBus Fare Structure and History 3-7Table 4-1 Summary of Sensitivity Analysis Scenarios 4-5

List of Figures

Figure 1-1, Project Location Map 1-4Figure 2-1, Project Sources and Uses of Funds, YOE $millions 2-1Figure 2-2, Ongoing Capital Expenditures, FY2O1O — FY2030, YQE $millions 2-4Figure 2-3, Total System-wide Capital Expenditures, FY2O1O — FY2030, YOE $millions 2-5Figure 2-4, Annual GET Surcharge Revenues, FY2007-FY2023, YOE $million* 2-6Figure 2-5, Proposed Project Sources and Uses of Funds, FY2O1O — FY2030, YOE $millions 2-9Figure 2-6. Total Annual Debt Service, FY2O1O — FY2030, YOE $millions 2-11Figure 2-7, Total Annual Finance Charges, FY2O1O — FY2030, YOE $millions 2-12Figure 2-8, Use of Non-New Starts Federal Revenues, FY2O1O — FY2030, YOE $millions 2-13Figure 3-1, Project O&M Costs, FY2O1O — FY2030, YOE $millions 3-2Figure 3-2, TheBus Peak Vehides by Bus Type, FY2O1O — FY2030 3-2Figure 3-3, TheBus Revenue Vehicle Miles, FY20 10 — FY2030 3-3Figure 3-4, TheBus Total O&M Costs, FY2O1O — 2030, YQE $millions 3-4Figure 3-5, Total System-wide O&M Costs, FY2O1O — FY2030, YOE $millions* 3-5Figure 3-6, Average Fare growing at CPI vs. Periodic Increases, FY20 11 — FY2030, YQE $ 3-6Figure 3-7, Rail and Bus Farebox Recovery Ratio (FRR), FY2O11 — FY2030* 3-6Figure 3-8, Historical and Forecasted Linked Trips for TheBus and the Project, FY2004 — FY2030, millions of Trips 3-7Figure 3-9, Operating Costs and Revenues, FY2O1O — Ff2030, YOE $millions 3-8Figure 3-10, Operating Revenues and City Contribution, Ff2010 — Ff2030 3-9

Honolulu High-Capacity Transit Corridor Project September 2011Page ii


List of Supporting Documents*

• GET SURCHARGE HISTORICAL REVENUE DOCUMENTATION

• BEGINNING PROJECT CASH BALANCE DOCUMENTATION

• COUNCIL ON REVENUES REPORT — MARCH 15, 2011

• THREE YEARS OF HISTORICAL OPERATING AND CAPiTAL IMPROVEMENT PROGRAM (UP) AND BUDGET

• THREE YEARS OF HISTORICAL AUDiTED FINANCIAL STATEMENTS/COMPREHENSIVE ANNUAL FINANCIALREPORTS (CAFRS)

• FY2O11 TO FY2014 TRANSPORTATION IMPROVEMENT PROGRAM (TIP)

• FY2O11 TO FY2014 STATE TRANSPORTATION IMPROVEMENT PROGRAM (STIP)

• BUS AND RAIL FLEET MANAGEMENT PLANS

• CAPITAL COST ESCALATION RATES REPORTS

• HONOLULU AUTHORiTY FOR RAPID TRANSPORTATION (HART) LEGISLATION

• LATEST BOND PROSPECtUS

• O’AHU REGIONAL TRANSPORTATION PLAN

• FINAL ENVIRONMENTAL IMPACT STATEMENT AND RECORD OF DECISION

*providJ to FTA in April 2011.

Honolulu High-Capadty Transit Corridor Project September 2011Page Iii


List of Acronyms

AD

AH

ARRA

Artic

BANs

BLS

CapEx

CAGR

CARP

COR

CPI

CY

DBEDT

DBOM

DEIS

DRMDTS

FD

FEIS

FFGA

FGM

FRR

FTA

FY

GANs

GDP

GET

H-i

H-2

H-3

HART

HRS

HTPIX

JARC

LONP

M

MSF

N EPA

NTD

NTP

O&M

ORTP

PB

PE

Pv

RCHROD

RTD

S

SAFETEA-LU

SB

SCC

TECP

TIFTOD

YOE

Hawaii Revised Statutes

State of Hawai’i Department of TaxationJob Access Reverse Commute

Letter of No Prejudice

Millions

Maintenance Storage Facility and YardNational Environmental Policy ActNational Transit Database

Notice to ProceedOperations and Maintenance

(2030) O’ahu Regional TransportationPlan

Parsons Brinckerhoff

Preliminary Engineering

Peak Vehicles

Revised Charter of HonoluluRecord of Decision

Rapid Transit DivisionStations

Safe, Accountable, Flexible, Efficient,Transportation Equity Act: A Legacy forUsers

Standard Bus

Standard Cost CategoryTax Exempt Commercial Paper

Tax Increment FinancingTransit Oriented Development

Year of Expenditure

September 2011Page iv

Articulated Diesel

Articulated Hybrid

American Recovery and ReinvestmentAct of 2009

Articulated

Bond Anticipation Notes

U.S. Bureau of Labor Statistics

Capital Expenditures

Compound Annual Growth Rate

Capital Asset Replacement Program

Council on Revenues

Consumer Price Index

Calendar Year

State of Hawai’i Department ofBusiness, Economic Development andTourism

Design-Build-Operate-Maintain

Draft Environmental Impact StatementDirectional Route MilesDepartment of Transportation ServicesFinal Design

Final Environmental Impact StatementFull Funding Grant Agreement

Fixed Guideway ModernizationFarebox Recovery Ratio

Federal Transit Administration

Fiscal Year

Grant Anticipation NotesGross Domestic ProductGeneral Excise and Use Tax

Interstate H-i, which runs through theProject corridor

Interstate H-2, which feeds intoInterstate H-i

Interstate H-3, which feeds intoInterstate H-i

Honolulu Authority for RapidTransportation



SUMMARY OF KEY FINDINGS

This report provides a revised Financial Plan forimplementing and operating the high-capacity transitcorridor project in Honolulu from East Kapolei to AlaMoana Center via the Honolulu International Airport (theProject), as well as operating and maintaining theexisting public transportation system. This version of theFinancial Plan is a revision to the Financial Plansubmitted in August 2009 for approval to advance theProject to the Preliminary Engineering phase. It supportsthe City and County of Honolulu’s (the City’s) submittalto the Federal Transit Administration (FTA) for approvalto advance the Project to the Final Design phase. TheFinancial Plan provides a summary of the fundingsources that will be used to fund the construction of theProject, as well as any additional vehicles andrehabilitation and replacement needs through FY2030.The plan demonstrates that the City has adequatefinancial resources to fund the Project capital cost, aswell as the ongoing capital and operating expendituresfor the existing transit system, comprised of TheBus andTheHandi-Van, through FY2030.

The Financial Plan describes how the City has fullycommitted its share of local funding for the Project. Thefollowing sections describe key findings within theFinancial Plan.

With 70 percent of capital funding provided fromnon-New Starts sources, the City’s finandalcommitment to the Project merits a high ratingby FTA. The City is requesting only 30 percent federalparticipation from the FTA New Starts program.

AU of the local capital funding for the Project isfully committed. With local funding committed andbudgeted, design accelerated, and contractor selectioninitiated, the Project will be shovel-ready upon receipt ofthe Full Funding Grant Agreement (FFGA). Thededicated local funding source for the Project is anestablished one-half percent (0.5 percent) surcharge onthe State of Hawai’i’s General Excise and Use Tax (GETSurcharge). The GET Surcharge is projected to generateapproximately $3.2 billion from FY2O1O to FY2023, withfunds to be used exclusively for capital or operatingexpenditures of the Project. The GET Surchargecommenced on January 1, 2007, and will be leviedthrough December 31, 2022.

While it has a diversified and growing revenuebase, the GET Surcharge is sensitive to thecontinued recovery of the local, national, andglobal economy. Unlike a sales tax, which is typicallylevied on retail activities only, the 0.5 percent GETSurcharge is levied on all business activities that takeplace on O’ahu including retail, services, contracting,

theater, amusement parks, interest, commissions,hotels, real property, tangible personal property, allother rentals and other uses. Honolulu’s local economicsituation is therefore an important factor in assessingthe financial capacity of the Project.

Approximately $244 million in FTA Section 5307revenues would be used for Project capital costsbetween FY2013 and FY2019. This amount willbe substantially offset by additional FTA formulafunds that will be apportioned to Honolulu as aresult of the implementation of the Project. TheCity is expected to receive approximately $149 million inadditional Section 5307 funds and $88 million inadditional Section 5309 Fixed Guideway Modernizationfunds between FY20 18 and FY2030, for a total of $237million in additional funds that can be used to supportsystem-wide needs.

The debt financing plan for the Project has beendeveloped with the goals of preserving the City’sfinandal condition, minimizing debt service coststhrough use of general obligation bonding andshort-term revenue anticipation instruments, andproviding for repayment solely from GETSurcharge revenues. While available GET Surchargerevenues will be used first to pay Project costs, the useof debt financing instruments will be required and willenable the Project to be completed as currentlyscheduled.

The capital cost estimate for the Project reflectsmore advanced levels of design and costestimation methodologies to reduce cost risk.Supplementing the use of refined bottom-up costestimation, extensive risk assessment, and incorporationof ongoing involvement with FTA’s ProgramManagement Oversight Contractors, approximately39 percent of the Project’s costs are known as the Cityhas awarded contracts for several major projectcomponents: design and construction of the WestO’ahu/Farrington Highway guideway; design andconstruction of the Kamehameha Highway guideway;design and construction of the maintenance and storagefacility; and design and construction of core systems(including railcars). Additionally, even with a significantlevel of Project costs defined through these awards,capital cost estimates include a 20 percent contingency,in the event unforeseen issues arise as the Projectmoves toward implementation.

The capital plan includes ongoing costs toreplace, rehabilitate and maintain capital assetsin a state of good repair as well as necessaryexpansion of the existing system to accommodateforecasted 2030 demand levels. In addition toimplementing the Project, the Core Systems Contractspecifies annual expenditures to provide for periodic

Honolulu High-Capacity Transit Corridor Project September 2011Page I


overhaul, rehabilitation, and replacement of majorcomponents, equipment, and facilities through theProject’s Capital Asset Replacement Program (CARP).The City is also committed to maintaining the existingtransit system in a state of good repair. This includes afleet replacement schedule, which will result in anaverage bus age of 4.1 years by FY2020, the first fullyear of operations of the Project. This is nearly half theage of TheBus’ current average bus age of 8.1 years.

Rail provides the most cost-effective option forhandling future transit demand. In part due to laborcosts accounting for a smaller percentage of the Railproject’s cost structure than bus, the Rail project willhandle larger volumes of passengers at higher levels ofproductivity. In 2030, the Rail project will move eachpassenger at a cost of $0.34 per mile, whereas bus willmove each passenger at a cost of $0.72 per mile.Similarly, in 2030 rail will have a farebox recovery ratioof approximately 40 percent while bus will have afarebox recovery ratio of approximately 27 percent. Thisillustrates the fact that, once fully implemented, theProject is expected to carry a larger load relative to itsoperating and maintenance cost than bus. The combinedfarebox recovery ratio for bus and rail will be consistentwith City policy.

Operating costs for the Project and the existingtransit system have been refined. The O&M costestimates for the Project have been refined to reflect theterms of the Core Systems Contract and currenteconomic conditions. Project costs that fall outside ofthe Core Systems Contract (and thus covered by theCity) were calculated separately using ETA’s resourcebuild-up approach. Bus O&M costs have been revised toreflect the City’s latest operating budget. Refinedinflation assumptions were also applied to non-coresystems Project O&M costs, TheBus O&M costs, andTheHandi-Van O&M costs for each object class, includingwages & salaries, health care, other benefits, materialsand supplies, fuel, and other.

Operating revenues are supported by the City’sfarebox recovery policy. Historically, the City hasachieved a balanced budget for transit operations.During the economic crisis of the last few years, TheBushas taken steps to ensure it is providing the most cost-effective and efficient services. This has resulted in therestructuring of services that did not meet performancestandards. Additionally, the City recently increased faresto ensure that farebox recovery rates remain between27 percent and 33 percent and keep pace with inflation.The Financial Plan assumes that fare recovery policy willbe maintained through FY2030 and assumes periodicfare increases, which is consistent with historic trends.

Strategies to assure adequacy of capital revenuesand to reduce revenue risk are being studied.

Based on input from bond underwriters on interest ratesand bond structures, a series of sensitivity scenarioswere produced to develop strategies to overcome thefollowing: 10 percent cost overrun; lower thananticipated GET Surcharge growth; elimination of theuse of FTA Section 5307 formula funds for the Project;and lower annual amounts of FTA Section 5309 NewStarts funds. Potential strategies for considerationinclude short-term extension of the GET Surcharge aswell as incorporation of additional sources of funding.Additionally, the City has access to $100 million short-term financing to help address potential shortfalls thatmay occur during Project implementation.

The Project will enhance mobility for O’ahuresidents, workers and visitors across the island.The Project will provide enhanced mobility for over77 percent of O’ahu’s residents and over 88 percent ofits workforce who live and work in the areas within andconnecting to the corridor, and for its many visitors. Inaddition to the initiation of rail service, TheBus andTheHandi-Van services will be enhanced and the busnetwork will be modified to efficiently coordinate withthe rail system. Some existing bus routes, includingpeak-period express buses, will be altered or eliminatedto reduce duplication of services provided by the railsystem. Buses removed from service in the studycorridor will be shifted to service in other parts of O’ahu,resulting in improved transit service island-wide.

The new rail and expanded TheBus and TheHandi-Vanservices will provide additional travel options, increaseservice frequencies, expand the hours of operation,minimize wait times, reduce total travel time, improveservice reliability, and enhance comfort and conveniencefor riders, resulting in over 20 million hours of userbenefits annually.

The City is continuing its historical commitmentto public transportation. The City has been a strongsupporter of transit, with 11 percent of City funds thatare available for public transportation currently used tosupport the operation of TheBus and TheHandi-Van.With the addition of rail service beginning in FY2016, theshare of these funds used to support transit is expectedto average 15 percent through FY2030. The majority ofthese funds are to support the increased levels ofTheBus and TheHandi-Van services, with funds for railsupport accounting for only 2 percent of City funds thatare available for public transportation.

Honolulu High-Capacity Transit Corridor Project September 2011Page II

City and County of Honolulu, Hawai’i Draft Financial Plan for Entry into Final DesiQn

Chapter 1: INTRODUCTION

This report provides a revised Financial Plan forimplementing and operating the approximately 20-milehigh-capacity transit corridor project in Honolulu fromEast Kapolei to Ala Moana Center via the HonoluluInternational Airport (the Project), as well as operatingand maintaining the existing public transportationsystem. This version of the Financial Plan is a revision tothe Financial Plan submitted in August 2009 for approvalto advance the Project to the Preliminary Engineeringphase. It supports the City and County of Honolulu’s(the City’s) submittal to the Federal TransitAdministration (FTA) for approval to advance the Projectto the Final Design (FD) phase. The Financial Plan willcontinue to be updated during subsequent phases ofProject development as changes occur to estimatedcosts, funding, or external factors that affect the City’sfinances.

Unless otherwise noted, all amounts in this FinancialPlan are presented on a City Fiscal Year (FY) basis, fromJuly 1 to June 30. For example, FY2013 refers to theCity’s fiscal year starting on July 1, 2012 and ending onJune 30, 2013. All dollar amounts shown, unlessotherwise noted, are in millions of Year of Expenditure(YOE) dollars.

This Financial Plan consists of three main componentsthat are presented in the following chapters. The firstcomponent is the capital plan, which outlines capitalcosts and presents revenues available for the Project, aswell as for the rest of the public transportation system.The purpose of the capital plan is to demonstrate theCity has the financial capacity to implement the Project,while keeping its entire public transportation system in astate of good repair by replacing aging vehicles andaddressing other ongoing capital expenditure needs.

The second component is the operating plan, whichdemonstrates the capacity of the City to operate andmaintain the integrated transit system including theProject. The final component presents an analysis ofrisks and uncertainties, which is critical in assessing thepotential risks inherent to some of the assumptionsmade in the Financial Plan. The final section alsoincludes a comprehensive analysis of mitigatingstrategies to address those risks, as well as sensitivityanalyses to evaluate funding and financing options toovercome potential shortfalls.

DESCRIPTION 0 T E PROJEaSPONSOR AND FUNDING PARTNERS

PROIECT SPONSOR — CITY AND COUNTY OFHONOLULU

The City is the Project sponsor and FTA grantee. TheCity is a body politic and corporate, as provided inSection 1-101 of the Revised Charter of the aty andCounty of Honolulu 1973, as amended. The City’sgovernmental structure consists of the LegislativeBranch and the Executive Branch.

The legislative power of the City is vested in andexercised by an elected nine-member City Council whoseterms are staggered and limited to no more than twoconsecutive four-year terms. The executive power of theCity is vested in and exercised by an elected Mayor,whose term is limited to no more than two consecutivefull four-year terms.

The City is authorized under Chapter 51 of the Hawai’iRevised Statutes to “acquire, condemn, purchase, lease,construct, extend, own, maintain, and operate masstransit systems, including, without being limited to,motor buses, street railroads, fixed rail facilities such asmonorails or subways, whether surface, subsurface, orelevated, taxis, and other forms of transportation forhire for passengers and their personal baggage.” Thisauthority may be carried out either directly, jointly, orunder contract with private parties. The City is thedesignated recipient of FTA Urbanized Area FormulaFunds apportioned to the Honolulu and Kailua-Käne’oheurbanized areas. Transit services are currently providedthrough the City’s Department of TransportationServices’ Public Transit Division.

Honolulu Authority for Rapid Transportation

On November 2, 2010, Honolulu voters approved anamendment to the Charter of the City and County ofHonolulu to create a semi-autonomous public transitauthority responsible for the planning, construction,operation, maintenance, and expansion of the City’sfixed guideway mass transit system. The HonoluluAuthority for Rapid Transportation (HART) consists of aBoard of Directors, interim Executive Director, andnecessary staff.

HART began operating on July 1, 2011 and assumed theduties and responsibilities of the Rapid Transit Division(RTD) of the aty’s Department of TransportationServices (DTS) for the Project. Accordingly, FY2012 willbe the first year of business activities for HART.

HART functions as a semi-autonomous unit of the City’sgovernment. During FY2012 HART will continue to usevarious City business systems and administrative

Honolulu High-Capacity Transit Corridor Project September 2011Page 1-1


practices in the conduct of the new authority’s businessactivities (e.g., City Department of Budget and FiscalServices accounting and payroll systems). In addition,HART will continue to receive services provided by otherCity departments. Memorandums of Understanding withthe City departments are being created to set forth thescope and terms of the services to be provided. Thissupport from the City will enable HART to beginfunctioning relatively quickly and assume itsresponsibilities for undertaking the Project without anynegative impact on its implementation. During FY2012and beyond, HART will evaluate the extent to which itshould develop its own business systems.

HART will need to complete a number of steps during itsfirst year of operations in order to develop theorganizational capability and capacity to fulfill its missionas described in the preceding section. A preliminarylisting of the tasks that will be undertaken in FY2012includes the following:

• Adopt Board of Directors operating procedures andpractices including a committee structure andmeeting schedule.

• Recruit an Executive Director and other keymanagement, technical and support staff.

• Adopt Board policies guiding agency businessactivities (e.g., financial policy and procurementp01 icy).

• Develop administrative procedures and practices thatare specific to a transit agency in areas such asprocurement and contract administration; safety andsecurity; employee relations; and managementreporting.

• Develop a management reporting system on keyperformance metrics.

• Create an organizational structure that will enablefulfillment of the agency’s Mission and Vision.

During FY2012 the HART Board of Directors will considerand adopt a procurement policy and staff will developprocurement procedures for the agency consistent withfederal, State and City requirements. The procurementprocedures will be incorporated in a ProcurementManual for use by the staff and consultants in carryingout procurement and contract administration activities.In addition, HART will conduct procurements for neededservices, equipment and supplies related to the creationof the agency.

HART staff will provide the Board of Directors withperiodic reports on the status of existing contractsincluding the progress of the work being performed;change orders executed; and contract budget andcontingency status.

Department of Transportation Services — PublicTransit Division

The DTS Public Transit Division will continue to beresponsible for managing the City’s fixed route bus andparatransit services operated under contract by O’ahuTransit Services, Inc. The aty’s fixed route bus systemis referred to as “TheBus,” and is currently the 20thmost utilized transit system in the U.S. Annual transitpassenger miles per-capita are higher in Honolulu thanin all other major U.S. cities without a fixed guidewaytransit system. TheBus serves the entire island of O’ahu,including the estimated 900,000 residents and 100,000visitors on the island on an average day. TheBuscurrently has 100 routes and provides more than70 million unlinked passenger trips each year. In 1997,O’ahu Transit Services was assigned operatingresponsibility for the City’s paratransit services, referredto as the “TheHandi-Van.” With more than 13,000eligible customers, TheHandi-Van currently providesover 800,000 unlinked passenger trips per year.

FUNDING PARTNERS

The financial analysis applies and assumes capitalfunding projections from two major funding partners:the City and FTA. The financial analysis applies severalsources of operating funds, mainly consisting ofpassenger revenues and federal formula grants forpreventive maintenance activities, while additionalfunding for operations is provided by transfers from theCity’s General and Highway funds. Capital and operatingfunding sources are further described both below and insubsequent chapters of this report.

City and County of Honolulu

The dedicated local funding source for theimplementation of the Project is an established one-halfpercent (0.5 percent) surcharge on the State ofHawai’i’s General Excise and Use Tax (GET Surcharge).In 2005, the Hawaii State Legislature authorized thecounties to adopt a maximum 0.5 percent GETSurcharge for public transportation projects. Followingthis authorization, the City enacted Ordinance No. 05-027 establishing the 0.5 percent GET Surcharge. TheGET Surcharge commenced on January 1, 2007, and willbe levied through December 31, 2022. Businessactivities that take place on O’ahu that are subject tothe 4 percent GET rate (including retailing of goods andservices, contracting, renting real property or tangiblepersonal property, and interest income), are also subjectto the GET Surcharge.

This source of revenue is to be exdusively used foroperating or capital expenditures of a fixed guidewaysystem. The Hawai’i Department of Taxation isresponsible for collecting the GET Surcharge and



remitting to the City the net amount after retaining10 percent of the gross proceeds. The Financial Planprojects that revenues from the GET Surcharge will beapproximately $3.5 billion (FY2007—FY2023).

Federal Transit Administration

Federal funding assistance from FTA is assumed in theFinancial Plan for Project capital expenditures. The Cityis requesting a total of $1.55 billion in FTA New Startsfunding to implement the Project. FTA Urbanized AreaFormula funds and non-New Starts discretionary capitalinvestment funds will also fund portions of the Project,as well as continue to provide assistance for preventivemaintenance and ongoing capital expenditures for theentire transit system. In FY2O1O, the City also received$29 million in funds from the American Reinvestmentand Recovery Act (ARRA), $4 million of which wereapplied to preliminary engineering costs for the Project,the remainder being used in FY2O1O and FY2O11 forother capital needs.

DESCRIPTION OF THE PROJECT

The Project’s east-west corridor stretches acrosssouthern O’ahu. The corridor is, at most, 4 miles widebecause much of it is bounded by the Ko’olau andWaianae Mountain Ranges in the north and the PacificOcean in the south. Between Pearl City and Aiea thecorridor’s width is less than 1 mile.

Between Kapolei and the University of Hawai’i at Manoa,the corridor is highly congested with more than60 percent of O’ahu’s population residing there. The Cityand County of Honolulu General Plan (Honolulu GeneralPlan, DPP 1997a) directs future population growth to theEwa and Primary Urban Center Development Plan andthe Central O’ahu Sustainable Communities Plan area.The largest increases in population and employmentgrowth are expected to occur in the Ewa, Waipahu,Downtown and Kaka’ako Districts, which are all locatedin the corridor.

According to the 2000 census, Honolulu ranks as thefifth densest city among U.S. cities with a populationgreater than 500,000. Among those, Honolulu is the onlyone without a fixed guideway transit system.

Increasing traffic congestion has impacted theaccessibility of the corridor, reduced mobility for peopleand goods, degraded transit performance, and increasedtravel costs. The longer travel times reduce theattractiveness of new developments emerging inEwa/Kapolei. Average weekday peak-period speeds onInterstate Route H-i (H-i Freeway), which runs throughthe corridor with the H-2 and H-3 Freeways feeding intoit, are currently less than 20 miles per hour in many

places and will degrade further by 2030. Travelers onO’ahu’s roadways currently experience 51,000 vehiclehours of delay, a measure of how much time is lost dailyby travelers in traffic, on a typical weekday. This isexpected to increase to 71,000 hours by 2030, assumingall planned improvements in the O’ahu RegionalTransportation Plan (ORTP) are implemented (excludinga fixed guideway system). Without the improvements,the vehicle hours of delay could reach as high as326,000 vehide hours.

OBJECrIVES OF ThE PROJECT SPONSOR

The City’s goal for the Project is to provide high-capacity, high-speed transit service in the congestedeast-west transportation corridor mentioned above, asspecified in the ORTP. The Project is intended to providefaster, more reliable transportation in the corridor and toprovide basic mobility in areas with diverse populations.

The following objectives were used to select the Project:

• Improve corridor mobility• Encourage patterns of smart growth and support

City land use policies for growthImprove transit service reliability

Provide equitable transportation solutions for allpeople in the corridor

Implementation of the Project, in conjunction with otherimprovements in the ORTP, will moderate the growth ofanticipated traffic congestion in the corridor, provide analternative to private automobile use, and improvetransit linkages to and within the corridor. The Projectalso supports the goals of the O’ahu’s General Plan andthe ORTP by serving areas designated for urban growth.

PROJECT DETAIL

The Project, on which this Financial Plan is based, is a20.2-mile rail transit system extending from East Kapoleiin the west to the Ala Moana Center in the east and isshown in Figure i-i. The alignment will include 21stations and will be a dual guideway with 19.5 mileselevated and 0.7 miles constructed at-grade.

The Project is expected to be constructed in threephases. The first phase will be the portion between EastKapolei and Aloha Stadium, and will also includeconstruction of the vehicle maintenance and storagefacility. The second phase will constructed from AlohaStadium to Middle Street and the final phase willcontinue to the Ala Moana Center.

Honolulu High-Capadty Transit Corridor Project September 2011Page 1-3

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Engineering for the Project continues and work on thefirst construction section is expected to begin in late2011. Construction of the rest of the Project would becompleted in phases. Commencement of revenue serviceon the initial segment is proposed in FY2016, with theentire Project operating in FY2019.

Cost estimates for the Project presented in this FinancialPlan reflect a steel wheel on steel rail automatedtechnology, operating primarily on elevated guidewayusing high floor vehicles and a barrier-free farecollection system.

INTEGRATION WITH THE EXISTING SYSTEM

The Project will be fully integrated with TheBusoperations, which will be reconfigured to add feeder busservice to provide increased frequency and moretransfer opportunities between bus and rail.

The Financial Plan assumes fares will be the same forTheBus and the Project, with free transfers and passesallowed on both modes. Fare machines will be availableat all rail stations, and standard fareboxes will continueto be used on all buses. More information regarding thefare structure and fare revenues can be found inChapter 3.

PROJECT TIMING

The City initiated technical and engineering work insupport of the National Environmental Policy Act (NEPA)in late 2007 and received FTA approval to proceed intoPreliminary Engineering (PE) on October 16, 2009. OnJanuary 18, 2011, FTA issued a Record of Decision(ROD) for the Project and provided pre-award authorityfor right-of-way acquisition, utility relocation, andacquisition of rail vehicles. A summary of the majorProject development milestones is provided in Table 1-1.The Project schedule is subject to change asprocurement and phasing decisions are finalized.

Table 1-1, Summary of Major Project DevelopmentMilestones

Milestone

_________

DateFTA Approves Entry into PE - - _çqçr6, 2009FTA Issues Record of Decision — — uar,2011City Submits LONP Request for Limited Final April 2011Design Activities — — - — -- - -

FTA Approves LONP for limited Final Design [ Ma’i 2011City Requests Entry into Final Design - October2011City Submits LONP for limited Construction October 2011ActivitiesFTA Provides Final Design Approval October 2011FTA Approves Limited Construcbon LONP November2011City Requests FFGA ___fery202City and FTA Execute FFGA - çpçp21_Open East Kapolei to Aha Stadium LbrPOpen East Kapolei to Middle Street__ October2017Open East Kapolei to Ala Moana March 2019

LONP = Letter of No Prejudice FFGA = Full Funding Grant Agreement

PROCUREMENT AND PROJECT DELIVERY

The Project will be constructed under multiple design-build agreements, where contractors will share in therisks of the Project, resulting in expected cost savings tothe City.

The Core Systems Contract (systems and vehicles) wasawarded in 2011 as a design-build-operate-maintain(DBOM) agreement, with the expectation that theoperations and maintenance (O&M) component could beextended to 10 years beyond the completion of the fullProject in FY2019. Consistent with the projectdevelopment milestones, the following summarizes theO&M periods for the Core Systems Contract:

• Intermediate O&M Period #1 — East Kapolei to AlohaStadium — December 2015 to October 2017

• Intermediate O&M Period #2 — East Kapolei to MiddleStreet — October 2017 to March 2019

• Full O&M Period — East Kapolei to Ala Moana — March2019 to March 2024

• Optional O&M Period — East Kapolei to Ala Moana —

March 2024 to March 2029

The cost estimates presented in this report weredeveloped based on contract bid prices for the CoreSystems Contract and construction contracts for the firstphase of the Project. Additional information about theprocurement and delivery strategy is provided inChapter 2.

REGIONAL ECONOMIC CONDITIoNs

Unlike a sales tax which is typically levied on retailactivities only, the 0.5 percent GET Surcharge is leviedon retail, services, contracting, theater, amusementparks, interest, commissions, hotels, all other rentalsand other uses.

The local economy has generally followed the trends ofthe nation as a whole in the recent months. Overall, theState of Hawai’i Department of Business EconomicDevelopment and Tourism (DBEDT) estimates that theeconomic recovery began in 2010, as real gross stateproduct increased 1.4 percent.

Tourism plays an important role in Hawai’i’s economy,and historical data show there has been a strongcorrelation between GET collections and the number ofvisitors. The State of Hawai’i Tourism Authorityestimates that tourism accounts for 15 percent of thestate’s economy and more than 133,000 jobs. Thedecline in tourism activity and spending has affectedHawai’i. Nonetheless, DBEDT estimates visitorexpenditures increased 11.7 percent in 2010, andforecasts a 12.0 percent increase in 2011. This recoveryis expected to continue in the long-term and would leadto increases in GET Surcharge revenues.



Employment in Honolulu is heavily influenced by theconstruction and contracting sector, and military andmilitary-related jobs. With the recent downturn in thehousing market, residential and non-residentialconstruction has slowed; however, the private residentialand non-residential construction is expected to resumeafter housing prices stabilize through FY2012.Furthermore, the infrastructure spending provisions ofthe federal economic stimulus bill have started to takeeffect and will continue through FY2012, increasingdemand for construction related labor, which couldpotentially increase tax receipts.

Another important area of Honolulu’s economy is thestability of military employment. Even though it hasdeclined by more than 20 percent in the last 10 to15 years, military employment has maintained aconsistent presence with about 59,000 U.S. Departmentof Defense military and civilian personnel each year.Federal defense spending makes up approximately11 percent of the total O’ahu economy due to militaryand supporting civilian employment. The stability of thisemployment contributes to the overall economy,although federal defense spending is not likely tocontribute to growth in the coming years as much asexpansion in private industry.

Together, all of these trends show that while Honolulu’seconomy was recently in a downturn along with the restof the country, signs of recovery began in 2010. Thisrecovery should continue through FY2012. Given thedependence of the Project’s Financial Plan on GETSurcharge revenues, the local economic environment inHawai’i is very important. Additional details regardingprojections GET Surcharge revenues can be found laterin this report.

SUMMARY OF THE FINANCIAL PLAN

Table 1-2 summarizes the capital cost of the Project withand without finance charges. The total capital costincluding finance charges through FY2020 will be theamount included in an FFGA as the “Baseline ProjectCost”, as is consistent with FTA guidelines for NewStarts projects. The total capital cost with financecharges through FY2030 includes all finance chargesassociated with the Project construction.

Table 1-2, Project Capital Cost Summaty, FY2O1 0—2030,YOE $milions

Project capital cost5 Millions YOE $Excluding Finance ChargesInduding Finance Charges through FY2O2OIncluding Finance Charges through FY2030* From the beginning or Pt (OCtober 16, 2009 through FY2020‘ As will be defined as Baseline Project Cost in FFGA

Table 1-3 summarizes the capital and operating sourcesand uses of funds for the Project, as well as for theentire transit system. Sources and uses are based on thebaseline assumptions as defined in the subsequentchapters of this report. The City is expected to balancesources and uses in aggregate over the FY2O1O—FY2030period.

CHANGES TO FINANCIAL PLAN SINCEREQUEST TO ENTER PRELIMINARYENGINEERING

The prior version of the Financial Plan was submitted toFTA in August 2009 as part of the City’s request to enterthe PE phase of project development. This version of theFinancial Plan has been revised to reflect the mostcurrent project status, costs, and revenue forecasts, aswell as the establishment of HART as the semiautonomous agency that will manage the Project. TheFinancial Plan also reflects a more refined financingstructure based on current market conditions, and inputon interest rates and bond structures from the City’sbond underwriters. Finally, the plan reflects changes torespond to comments from FTA, local officials and thepublic on the previous financial plan.

The following list summarizes the most significantchanges to the Financial Plan since it was submitted inAugust 2009. Assumptions are described in more detailin Chapters 2 and 3.

Capital Cost Changes: The capital cost estimatereflects more advanced levels of design and costestimation methodologies. The total capital cost beforefinancing is $4,879 million. Approximately $1.9 billion, or39 percent of the capital cost, is based on actualcontracts awarded in 2010 and 2011, including the WestO’ahu/Farrington Highway Guideway Design-BuildContract; the Kamehameha Highway Guideway Design-Build Contract; the Maintenance and Storage FacilityDesign-Build Contract; and the Core Systems Design-Build-Operate-Maintain (DBOM) Contract. The remainderof the capital cost not covered by these contractsreflects a bottom-up cost estimate.

$4,879- $5,126

$5,174



Table 1-3, Project and System-wide Sources and Uses of Funds, FY2O1O—FY2030, YOE $millionsSOLCES OF RKIS Y•E SM

I’roject r.aplral aources or rufusProject Beginning Cash BalanceNet GET Surcharge RevenuesFTA Section 5309 New Starts RevenuesFTA Section 5307 Formula Funds Used for the Project 1/Interest Income on Cash BalanceTransfer of Excess GET Surcharge Funds to Ongoing Capital

2983,1541,550

2487

(83)

Subtotal Project CapItal Sources of Rinds $5,174

Ongoing Capital Sources of RindsFTA Section 5309 Fixed Guideway Modernization Revenues 147FTA Section 5309 Bus Discretionary 117ETA Section 5307 Formula Funds Used for Ongoing CapEx 418American Recovery & Reinvestment Act 26Transfers to the State’s Vanpool Program (57)Transfer of Excess GET Surcharge Funds from Project Capital Plan 83City General Obligation Bond Proceeds 624

Subtotal Ongoing Capital Sources of Rinds $1,357

1UAL CAPITAL SOIJtCES OF R11)S $6,531 TOTAL CAPITAL US OF R.S $6,531

Operating Sources of RindsFare Revenues (TheSus and Rail) 1,933Fare Revenues (Thellandi-Van) 60Total Fare Revenues $1,994ETA Section 5307 Formula Funds Used for Preventative Maintenance 335ETA Section 5316 (JARC) and 5317 (New Freedom) 20CitVs Operatinq Subsidy 5,289TOTAL OPBtAflNG SOiJtC OF RR’S $7,638

1/ ETA Sectbn 5307 funds includes $4M from Amercan Recovery & Renvement Act of 2009Note: Tota may not add due to rounding

Capital Revenues: The forecast for GET Surchargerevenues, which is the main source of non-federalrevenue for the Project, has been revised to reflectactual receipts through the fourth quarter of FY2O11 andupdated GET Surcharge growth rates for FY2012 toFY2023. GET Surcharge is expected to grow at aconstant rate of roughly 5 percent per year, which is inline with long-term historical growth of statewide GETrevenues.

The Financial Plan also includes a revised forecast forFTA Section 5307 revenues. The amount of Section 5307funding being used for the Project has been reducedfrom $300 million to $244 million, and does not includeany Section 5307 revenues going to the Project fromFY2O1O through FY2012. The Section 5307 amountshave also been revised based on the latest unit valuespublished by the FTA.

The forecast for Section 5309 Bus and Bus FacilitiesFunds, which is used to support bus capitalexpenditures, has been revised downward to reflect theyear-to-year variations in this discretionary program.The forecast now based on City average historicalreceipts of 5309 bus discretionary funding.

Operating Plan: O&M cost estimates for the railsystem have been refined to reflect the terms of theCore Systems Contract. Project costs that fall outside the

Operating Les of RindsTotal O&M Costs - TheBus 5,138Total O&M Costs - Rail 1,331Total O&M Costs - TheHandi-Van 1,147Total O&M Costs - Other 23

TOTAL OPHAThGL OF RR’S $7,638

Core Systems Contract (and thus delivered directly bythe City) were calculated separately using FTA’sresource build-up approach, which applies unit costelements to key level of service variables. TheBus O&Mcosts have been revised to reflect the City’s latestoperating budget. Refined inflation assumptions werealso applied to non-core systems rail O&M costs, TheBusO&M costs, and TheHandi-Van O&M costs for eachobject class object class, including wages & salaries,health care, other benefits, materials and supplies, fuel,and other costs.

Cash Flow/Financing: The financing structureincludes a revised mix of proposed debt instruments thathave been identified with input from the City’s bondunderwriters. This version of the Financial Plan assumesa lower amount of short-term commercial paper(reduced from $500 million to $100 million) that wouldbe rolled over on an annual basis. This change wouldannually preserve up to $100 million of capacity in theexisting commercial paper program, which could be usedto help bridge short-term financing needs if required.

Additionally, this version of the financial Plan alsoincludes Grant Anticipation Notes that will be backed byFTA Section 5309 New Starts revenues committedthrough the Project’s FFGA. The plan also includes midterm Bond Anticipation Notes that will be issued each


Project Capital ueesof FundsProject Capital Cost

USES •F ftDS YOE SM

4,879Subtotal Project Capital lEes of Rinds $4,879

linance ChargesTotal Interest Payment on Long-term Debt 204Total Finance Charges on Medium-term Debt 61Total Finance Charges on Short-term Debt 15Debt Issuance Cost 15Subtotal Finance Oiarges $295Subtotal Project lEes of Rinds $5,174

Ongoing Capital lEes of RindsAdditional Railcars 35Rail Capital Asset Replacement Program (CARP 155Total Bus Acquisitions 786Other Ongoing Bus CapEx 246Handi-Van Acquisitions 135

Subtotal Ongoing Capital lEes of Rinds $1,357


year prior to the issuance of long-term generalobligation bonds.

Interest rate assumptions were updated to reflect thelatest municipal market conditions.

Risks and Uncertainties: This section addresses amore thorough knowledge of the Project’s capital costrisks that has been gained as the Project’s design andprocurements progress, and input from the ETA riskassessment process. The revenue risks have also beenrevised to reflect more recent economic conditions thataffect the City’s revenue forecasts. The Financial Planincludes a discussion of four scenarios that reflect thefinancial risks identified at this stage of projectdevelopment: an increase in capital costs; a decrease inGET Surcharge growth rates; reduction in the annualallocation of Section 5309 New Starts funds; and areduction of Section 5307 funds used for the Project.The Financial Plan presents several potential mitigationstrategies that may be employed by the City to addressthese Project risks.



Chapter 2: CAPiTAL PLAN

This chapter describes the capital costs and fundingsources associated with both the Project and the City’sexisting public transportation system. The purpose ofthe chapter is to demonstrate that there is an adequatelevel of funding for the capital costs associated with boththe Project and the system-wide needs through FY2030(see Figure 2-1).

PROJECT CAPITAL COSTS

Table 2-1 presents the Project’s annual capital costsexcluding finance charges. The total capital cost for theProject is $4,259 million in 2011 dollars and$4,879 million in YOE dollars. These costs are inclusiveof construction services, professional services (such asengineering, design, and construction management),and contingency, but exclude finance charges that aredetailed later in this chapter. Consistent with FTAguidelines for New Starts projects, the capital costestimate does not include costs incurred for planning,environmental analysis and conceptual engineeringincurred prior to entry into Preliminary Engineering.

Table 2-1, Annual Project Capital Costs, ExcludingFinance charqes, FY2O1O—FY2020

‘I1W*i2010* $80 $802011* 117 1172012 712 7342013 783 8462014 748 : 8402015 559 6552016 470 5802017 471 6032018 235 3102019 70 952020 14 21Total $4,259 $4,879

Note: Totals may not add due to rounding* Actuals

CAPITAL COST ESTIMATING METHODOLOGY

The Preliminary Engineering design level capital costestimate is organized in the FTA Standard Cost Category(SCC) format, which includes the following components:guideway and track elements, stations, support facilities,sitework and special conditions, systems, right-of--way(ROW), land improvements, vehicles, and professionalservices.

The Project incorporates multiple project deliveryapproaches, including design-bid-build, design-build, andDBOM contracts. The capital cost estimate takes intoaccount the cost of design-build, DBOM, and stationdesign contracts that have been executed or are in theaward process. The cost estimates for remaining project

Figure 2-1, Project Sources and Uses of Funds, YQE $milions

Where the Dollars Come From:* Where the Dollars Go;

FTA Section 5307 Interest Income on Beginning CashFormula Funds Cash Balance, $7M, Balance as of(including $4m 0% October2009 (net

ARRA), $248M, 5% GET revenues),$298M, 6%

FTASectlon 5309New Starla,

$1,SSOM, 29%

etGETSur hargeRevenues,

$3,.54 ,6

* Includes $83M ending cash balance from excess GET Surcharge revenues transferred to ongoing capital uses.

September 2011Page 2-1

Finance Charges,$295M,6%



West 0’ahu /FamngtonHighway GuidewayDesign-Build ConactMaintenance & StorageFacility Design-BuildContractKamehameha HighwayGuideway Design-BuildContract

Airport Segment Guidewayand Utilities

City Center Guideway &Utilities

Core Systems DBOM -

Contract (includingvehicles)

Stations, parking garage,interrnodal contracts

Elevators/Escalatorsdesign, manufacture,install, test, & maintain

Professional Services

Sealed Proposals(Best Value)



Used price inexecuted contract

Used awardedcontractor’s

proposal

Used selectedofferor’s proposal

$1,118$446

$96$905$220$214$176$922$162

$4,259

$1,321$511$104

$1,021$267$219$212

$1,031$192

$4,879

27%11%

2%21%

6%5%4%

21%4%

100%


elements are based on Preliminary Engineering. Thecapital costs associated with these projects wereestimated using a “bottom up” approach. A summary ofthe major Project contracts is shown in Table 2-2.

Table 2-2, List of Major Project Contracts

Major contract contracting Method ofBreakdown Method Estimating

Design-Bid-Build PE estimate


Sealed Proposals Used selected(Best Value) offeror’s proposal


Sealed Proposals PE estimate

Qualifications PE estimate

final step, the base estimates for the remainingcontracts were also escalated to Qi 2011 dollars byadjusting for inflation on a commodity basis.

Labor rate tables were developed using the 2010Hawai’i prevailing wage determination rates for variouslabor crafts. Material costs used were in 2010 secondquarter dollars. Equipment costs were based on vendorquotations and industry standard publications. Theestimate was developed according to a work breakdownstructure based on the FTA’s SCC format for New Startsprojects.

The total costs in 2011 and YQE dollars, by category, aredetailed in Table 2-3. Note that this table excludesfinance charges and also excludes costs incurred prior toentry into Preliminary Engineering.

CONTINGENCIES

The cost estimates include a variety of contingencies toallow for potential additional expenses related to eachcost category. The FTA typically requires a totalcontingency of 30 percent at entry into PreliminaryEngineering, 20 percent at entry into Final Design, and15 percent at award of an FFGA.

The total contingency included in the Project costestimate is currently 20 percent of the total base yearcost without contingencies, or approximately $708million in 2011$ or $815 million in YOE$. Thiscontingency is made up of allocated and unallocatedcontingency. The allocated contingency included in theProject’s capital cost estimate is 15.4 percent(approximately $546 million in 2011$ or $623 million inYOE$), based on the base year project cost withoutcontingencies. The unallocated contingency wasestablished at 4.6 percent of the Project’s capital cost in2011$ (approximately $162 million in 2011$ or$192 million in YOE$).

Allocated contingency includes contingency that hasbeen spread among the various cost categories to reflectrelative levels of risk. Unallocated contingency isdesigned to hold a reserve of capital to carry thepotential cost changes. Programs with a high degree of

Two design-build contracts (the West O’ahu/FarringtonHighway and the Maintenance Storage Facility and Yard(MSF)) are included with the awarded costs. For theKamehameha Highway Guideway contract and the CoreSystems (including vehicles) DBOM contract thesuccessful offeror’s costs were used in the capital costestimate.

Prices were de-escalated from YQE to first quarter (Qi)2011 dollars and entered into the estimate. Thesecontract values were then input as multiple lump-sumline item values over appropriate SCC categories. As a

Table 2-3, Project Capital Costs by Standard Cost Category, Exduding Finance Charges, FY2O1O—FY2020

FTA Standard Cost Category Base Year 2011 $M YOE $M Share of Total YOE Capital cost10 Guideway Construction/Track Work20 Stations30 Yard, Shops and Support Facilities40 Sitework and Special Conditions50 Systems60 Right of Way -

70 Vehicles80 Professional Services90 Unallocated Contingency (Project Reserve)Total Project Cost (Excluding Finance Charges)Note: Totals may not add due to rounding

City and County of Honolulu, Hawaii Draft Financial Plan for Entry into Final Design

uncertainty, such as tunneling and other undergroundprograms, command a higher contingency than thoseprograms where more certainty can be ascertained andlower contingencies can be used. It was determined thatthe nature of the construction process for constructingan elevated guideway with precast constructiontechniques lowers the level of uncertainty. The allocationof contingency across cost categories also reflects wherecontracts that have been awarded and have thus shiftedrisk from the City to the contractor.

PROJECT CAPITAL COSTS IN YOEDOLLARS

CosT ESCALATION

The escalation rates used for the capital cost estimateare documented in Honolulu High-Capacity TransitCorridor Project Cost Escalation Forecast, FY2O11 -2019(2010). The forecasting methodology identifies key costdrivers and makes assumptions as to how these driversaffect costs over the forecast horizon. Some of these keydrivers include: international and national marketdynamics, local market dynamics, supplychain/transportation factors, and onetime events thattemporally change the market structure.

Based on these categorizations, an escalation modelcalculated an escalation rate reflecting major underlyingfactor inputs. Projected rates of growth for each of themajor cost inputs are weighted based on each of theinput’s estimated contribution to overall Project costs.The weighted sum of all the growth rates yields thecomponent-weighted average escalation rate. Inaddition to the economic drivers that are inherent ineach component, forecasts for transportation costs ofeach component and variations in contractor margins(which are a result of the level of contractor availability

and competition) are factored into the analysis.

The individual weights are derived from a detailed focalmarket analysis and an extensive research database thatanalyzes data from the past five years. The databaseincludes research on highway and transit projects inNew York, New Jersey, Florida, Hawai’i, Louisiana, Ohio,and Washington.

PROJECT CAPITAL COST SCHEDULE (YOE DOLLARS)

Table 2-4 provides a breakdown of total capitalexpenditures by year. The largest cost item is for theguideway and track elements, which accounts forapproximately 27 percent of total capital expenditures.Professional services and Sitework and special conditionsboth account for 21 percent. All other cost items have ashare of total capital cost of 10 percent or less. Capitalexpenditures are expected to peak in FY2013 with atotal cost during that year of $846 million.

SYSTEM-WIDE AND ONGOING CAPITALCOST

The capital plan includes ongoing costs to replace,rehabilitate and maintain capital assets in a state ofgood repair throughout the forecast period. It alsoincludes necessary expansion of the existing system inorder to accommodate forecasted 2030 demand levels.

Project Capital Asset Replacement Program: ACapital Asset Replacement Program (CARP) consisting ofperiodic overhaul, rehabilitation, refurbishment orreplacement of major components, equipment andfacilities will be carried out for the Project elementsincluded in the Core Systems Contract. The CoreSystems Contract sets out a maximum level of CARPspending in FY2O11 dollars for each year of the contractand includes a formula based on indices of labor costsand producer prices to escalate the maximum cost

Table 2-4, Project Capital Expenditure Schedule by 5CC, FY2O1O — FY2020, YQE $milions

CityFiscalYear 2010* 2011* 2012 2013 2014 2015 2016 2017 2018 2019 2020 TOTAI

Guideway & Track Elements

Stations

Yard, Shops, Support Facilities

Sitework & Special conditions

Systems

Right of way

vehicles

Professional Services

Unallocated contingency

Total Capital CostNotes: Totals may not add due to rounding* Actuals

$146 $329 $260 $214 $228 $144

-- 7 57 66 46 124 145 46 -

-- 42 53 9 - - - - -

36 42 217 166 165 120 79 116 67 15

-- 3 13 73 72 31 26 32 17

3 2 74 62 62 16 - - - -

-- 0 0 39 38 0 56 69 10

41 73 216 140 124 123 92 89 83 49

-

- 29 27 40 26 25 28 12 4

21 $511

- $104

- $1,021

- $267

$219

- $212

- $1,031

- $192


$1 - - $1,321

$80 $117 $734 $846 $840 $655 $580 $603 $310 $95 $21 $4,879


budget to year of expenditure dollars. Ten years ofhistorical data from the U.S. Bureau of Labor Statisticswere used to escalate CARP costs for the Financial Plan.It is assumed that that the costs in the last year of theOptional O&M Period will continue through the end ofthe forecast period. Total FY2019 to FY2030 CARPspending is anticipated to be $155 million.

Additional railcars: The purchase of ten additionalrailcars is expected to be needed to accommodateforecasted ridership in FY2024. The Financial Planassumes that this delivery will be made over two years,with five railcars in FY2024 and the remaining five inFY2025. The total capital cost is estimated at $35 million(YOE$).

TheBus and TheHandi-Van Vehicle Acquisition:Most changes in the transit network will result fromadjustments to existing bus routes in order tocomplement the Project. Some lines will be re-routed tobecome feeder routes while others would be shortenedwhere the Project provides improved service. The buscapital costs reflects a gradual phase-out of thearticulated hybrid bus fleet based on a new City policydated November 24, 2010, which states that the City willconduct an analysis of the cost effectiveness of bustechnology as part of the procurement process. Formore details on the bus acquisition schedule, refer toTheBus Fleet Management Plan.

Bus Fadlities: Various facilities to accommodateongoing operations are expected to be built and/orexpanded simultaneously with aspects of the Project.The capital plan reflects expenditures for bus facilities

120

100

80>.

60

programmed in the FY2O11-FY2014 TransportationImprovement Program, approved by the O’ahu MPOPolicy Committee on July 2, 2010. The TIP includesprojects such as the design and construction of theMiddle Street intermodal center, a maintenance facilityfor TheBus and TheHandi-Van operations in West O’ahu,and transit security projects. The Financial Plan usescost estimates from the TIP through FY2016, and thenassumes that $5 million will be spent annually on busand TheHandi-Van facilities, including transit securityprojects, small transit centers, and transit preferentialtreatments.

Figure 2-2 presents the annual ongoing system-widecapital expenditure broken down by the componentsoutlined above. Bus acquisition constitutes by far thesingle biggest ongoing capital expense. The followingsection will describe the sources of funds assumed inthis Financial Plan to be used to pay for these needs.

Figure 2-3 combines total capital costs for constructionof the Project as well as additional capital expendituresrequired for ongoing bus acquisitions, Project CARP,TheHandi-Van acquisitions and bus facilities necessary tokeep the system in a state of good repair.

CAPITAL FUNDING FOR THE PROJECT

The Project is expected to be entirely funded throughtwo main sources: revenues from the dedicated GETSurcharge and federal funds. As discussed in the sectionbelow, 100 percent of non-New Starts funding for theProject is committed.

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030City FIscal Year

Honolulu High-Capacity Transit Corridor Project September 2011

Figure 2-2, Ongoing Capital Expenditures, FY2O1O — FY2030, YOE $milions

160

Handi-Van Acquisitions

140 Bus Facilities

Bus Acquisition

Additional RailcarAcquisition

Project Capital Asset Replacement Program

• —

.

—

—

40

20

Page 2-4


UI0

900

- -------

LOCAL GET SURCHARGE

The local funding source for the Project is a dedicatedone half (0.5) percent surcharge on the State ofHawai’i’s General Excise and Use Tax. In 2005, theHawai’i State Legislature authorized counties to adopt asurcharge on the GET of 0.5-percent for publictransportation projects. Following this authorization, theCity and County of Honolulu enacted Ordinance No. 05-027 establishing a 0.5-percent GET county surcharge.This revenue is to be used exclusively for capital and/oroperating expenditures of the Project. The surcharge isset to sunset on December 31, 2022 (FY2023).

The GET Surcharge revenues are projected to total$3,154 million from FY2O1O—FY2023. The total amountfrom inception of the GET Surcharge on January 1, 2007through FY2023 is expected to equal $3,528 million.Amounts for FY2007 through FY2O1O are actualamounts. This forecast is net of the 10 percent amountretained by the State. Figure 2-4 presents the actualGET Surcharge collections to date and expected net GETSurcharge revenues expected to be received by the City.Additional information about historic GET collections isincluded in Attachment C.

This section provides a summary of the net GETSurcharge revenues expected to be received by the Citybetween FY2012 and FY2023. It is important to notethat given the current uncertainties in the global andU.S. economies, this projection is likely to be refinedover time, as more actual tax collection data are

received and as the local, national, and global economicoutlook changes.

Timing of GET Surcharae Collections: The Financial Planpresents the annual GET Surcharge amounts on a cashbasis. This method accounts for the fact that the Citydoes not receive its share of GET Surcharge revenuesuntil the month after the end of each quarter. Forexample, revenue for April 1 through June 30 of 2010was paid to the City in July 2010. This delay should benoted when comparing GET Surcharge revenue asreported by the State to data presented in the FinancialPlan. Additionally, the State of Hawai’i Department ofTaxation (HTAX) sometimes experiences delays inprocessing GET tax forms, which can make quarterlyyear-over-year comparisons of historical GET Surchargecollections less meaningful.

Actual ReceiDts to Date: The first full fiscal year of GETSurcharge revenues was FY2008, with a total of$161 million in receipts. Despite the economic recession,FY2009 receipts were slightly higher than FY2008,totaling $164 million. This increase can be explained bythe 23 percent growth in the first quarter of receiptscounting towards FY2009 from the same quarter inFY2008, which offsets the negative growth of thesubsequent three quarters. In FY2O1O, continuedunfavorable economic conditions caused revenue to fallslightly to $162 million. Revenue then increased to $166million in FY2O11.


800

700

600

500

400

300

200

100

0

Figure 2-3, Total System-wide Capita! Expenditures, FY2O1O — FY2030, YQE $milions

1,000

Project Capital Cost

Handi-Van Acquisitions

Bus Facilities

Bus Acquisitions

Additional Railcar Acquisitions

Project Capital Asset Replacement Program

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030City Fiscal Year


300

250

As mentioned earlier, the growth rates assumed aresubject to numerous risks and uncertainties, includingthe magnitude and timing of the economic recovery,


Figure 2-4, Annual GET Surcharge Revenues, FY2007-FY2023, YQE $mllion*

500

450HistoriI State Holdback

• State Holdbadc400

I1istoricI Net GET Surcharge Revenues

350Net GET Surcharge Revenues

Actuals

200

150

100

50

2007 2009 2011 2013 2015 2017 2019 2021 2023

City F1sc21 Year* FY2012 includes one quarter of actuals

future inflationary pressures, the strength of the U.S.dollar (especially relative to the East Asian currencies)and U.S. monetary policy. Since the tourism marketmakes up roughly 30 percent of GET Surchargerevenues and Japanese tourists are 18 percent of thetourism market, the Japanese tourism market accountsfor approximately 6 percent of the GET Surchargerevenues. Tourism is still increasing from otherwestbound travel markets. Chapter 4 presents asensitivity analysis that examines the potential riskassociated with decreased GET Surcharge growth rates.

As discussed below, net GET Surcharge revenues areprojected to grow annually through FY 2023.

GET Surcharae Forecast Methodolociv: The FinancialPlan assumes that GET Surcharge revenues will grow inline with the long-term historical growth experienced bystatewide GET revenues. The long-term compoundannual growth rate in statewide GET revenues (FY1981to FY2O1O) of 5.04 percent has been used to forecastGET Surcharge revenues for FY2012 to FY 2023.Historical annual statewide GET revenue for FY1981 toFY2O1O is presented in Attachment C.

In FY2023, with receipt of the surcharge ending inMarch 2023, net GET Surcharge cash revenues areexpected to total three quarters worth of tax collection,thus accounting for the lower total cash revenues in thatfiscal year compared to FY2022.

As a point of comparison, HTAX, which develops aforecast of State GET revenue that is published as partof the State of Hawai’i Council on Revenues forecast ofState general fund tax revenue, projected statewide GETrevenue to grow at a compound annual rate of 5.52percent from FY2O11 to FY2018 in early September2011. The Council on Revenues prepares governmentrevenue estimates for the Governor and Statelegislators.


Federal Funding Sources

FTA Section 5309 New Starts (49 U.S.C. Section 5309)

As shown in Table 2-5, New Starts funding is assumedto provide a total of $1,550 million to the Project over aten year period, with annual amounts of up to$250 million per year. The $21 million amount shown asavailable for the Project in FY2O11 corresponds to the$15 million earmark appropriated in FY2008 and$6 million from the earmark appropriated in FY2009.The amount shown in FY2012 includes the remaining$14 million from the FY2009 appropriation, a $30 millionearmark appropriated in FY2O1O and an assumed$55 million appropriation in FY2O11. It should be notedthat the USDOT proposed FY2012 budget includes$250 million in New Starts funding for the Project, butfor the purpose of this plan, $125 million has beenassumed for FY2012.

Table 2-5, Assumed Section 5309 New Starts Revenues,YQE $milions

City Fiscal Year New Starts Revenues (YOE $M)200920102011201220132014201520162017201820192020

TOTALNote: Totals may not add due to rounding

The amount of New Starts funding being requested forthe Project is on par with several other projects thathave received FFGAs in recent years, including the EastSide Access project ($2.6 billion, or 36 percent NewStarts share), Second Avenue Subway project($1.3 billion, or 27 percent New Starts share) and DullesCorridor Metrorail Project ($900 million, or 28 percentNew Starts share). The annual amount of New Startsfunding assumed in the Financial Plan is also notunprecedented, as both the East Side Access andSecond Avenue Subway projects received over $200million in New Starts funds in FY2O1O.

It is worth noting that, after adjusting for constructioncost inflation, the assumed $1.55 billion YQE is veryclose to the $618 million YOE amount that theIntermodal Surface Transportation Efficiency Actauthorized for the Honolulu Rapid Transit Program in1991, and that was the basis for ETA approvals thatadvanced the Project in subsequent years.

The availability of New Starts funding between FY2012and FY20 18 will depend on future actions by Congressto authorize and make annual appropriations for theprogram, as well as the nationwide competitivelandscape for funding major transit capital investments.For these reasons, the assumptions on New Startsfunding are discussed more extensively in Chapter 4 onRisks and Uncertainties.

American Recoverv and Reinvestment Act of 2009(ARRA) Funding

The Project includes a minimal level of funding providedthrough stimulus monies received by the City.Specifically, the City received $4 million in ARRA fundingin FY20 10 which was used to support PE activities.

ETA Section 5307 Formula Funds (49 USC Section 5307)

To supplement the GET Surcharge and New Starts fundsmentioned above, the Financial Plan assumes thatrevenues from ETA’s 5307 formula program will be usedfor the Project between FY2013 and FY2019. In total, itis expected that the Project will receive approximately$244 million from Section 5307 during the constructionperiod, representing approximately 5 percent of totalProject capital funding.

Section 5307 funds are apportioned by ETA on the basisof a formula specified in law. The statutory basis forSection 5307, as for New Starts, is currently in forcethrough continuing resolution through September 30,2011 as the current transportation authorization hasexpired.

Activities eligible for Section 5307 funds includeplanning, engineering, design; capital investments in busand bus-related activities, such as bus replacement andoverhaul; crime prevention and security equipment,construction of maintenance and passenger facilities;capital investments in new and existing fixed guidewaysystems; and preventive maintenance. As such, Project-related expenses are eligible for Section 5307 funds.

The forecast of Section 5307 funds in the Financial Planassumes that Honolulu will maintain a constant share ofthe total amount of the national Section 5307 program.Since the apportionment of Section 5307 funds arebased in part on level of service variables, theimplementation of the Project will cause the revenues toincrease in FY2018, two years after the beginning of theIntermediate O&M Period #1. Similarly, an increase inSection 5307 revenues is expected to occur in FY2020related to the start of Intermediate O&M Period #2, andin FY2021, which is two years after the beginning of theFull O&M Period. Several zipper and HOV lane projectswill increase Section 5307 funding when buses operateon these facilities, as these are considered as fixed


$21$224$250$250$250$228$192

$98$30

$71 550



guideways by FTA. The schedule for these projects isassumed as follows, consistent with the ORTP:

• FY2022 — PM zipper lane on H-i between Ke’ehiInterchange to the Kunia Interchange

• FY2025 — H-i HOV lanes between the WahiawãInterchange and the Makakilo Interchange (one lanein each direction)

• FY2025 — HOV lanes on the Nimilz Flyover betweenthe Ke’ehi Interchange and Pacific Street (two lanes,reversible, operating inbound in the AM andoutbound in the PM)

In other years, the Financial Plan assumes no significantchange, but modest growth of funding of 2.50 percentper year. This represents a more conservative rate thanthe 4.9i percent annual growth rate experiencedbetween FYi996 and FY2O1O. Information abouthistorical Section 5307 funds is presented in Table 2-6,along with ETA Section 5309 FGM funds (described insubsequent sections of this report). More information onthe forecast of federal funds and the impact of theProject on those revenues is presented in the section onsystemwide capital funding sources.

Table 2-7 summarizes the federal and non-federalfunding sources, as well as the level of commitment foreach source based on ETA New Starts guidelines.

FINANCING OF THE PROJECT

Figure 2-5 shows the aggregate Project sources anduses of funds for capital including financing. In the yearsin which capital expenditures are greater than thefunding available on a pay as you go basis, debtfinancing is needed. GET Surcharge revenue willcontinue to be generated after construction iscompleted, which provides the funding source for debtfinancing. Details on the proposed financing approachare provided in the following sections.

* Indudes apportionments to the Kailua-Kaneohe urbanized area


Table 2-6, Historical FTA Section 5307 and Section 5309 FGM Apportionments, 1996 — 2010, YQE $milions

FTA Sec. 5309FTA Sec. 5307 Annual Growth FGM Annual Growth

Apportionments* Rate Apportionments Rate1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

20101996-2010Average AnnualGrowth Rate

$16.02

$16.47 2.80% -

$17.91 8.75%

$20.08 12.10%

$23.89 : 18.98% -

$22.80 -4.55% -

$24.58V

Z80%

$27.80V

— 13.08%V

$26.39 -5.07%

$27.03 2.43%

$24.13 -1 0.70%

VVV

$26.39 9.33%

$29.00 9.90%

$31.06 7.11%

$31.33 0.87%

4.91%

$0.20

$0.27

$0.30

$0.53

$0.63

$0.93

$1.05

$1.15

$1.12

$1.06

$1.25

$1.47

$2.00

$2.12

$2.01

34.58%

11.34%

7Z56%

18.68%

- 4Z83%

13.19%

9.44%

-2.59%

-5.05%

17.51%

1 7.77%

35.92%

6.31%

-5.19%

17.99%


Table 2-7, Summaiy of Federal and Non-Federal Funding Sources

Funding Level(Base Case) Funding

Sources of Funds YOE $millions Share Level of Commitment Evidence of CommitmentFederal:

FTA 5309 New Starts $1,550 30.0%* N/A N/A

FTA 5307 Formula Funds $244 4.7% committedStatewide FY2O11-2Ô14 TransportationImprovement Plan (TIP)

ARRA Funds $4 0.1% Committed N/A

Non Federal:General Excise and Use $3,369** 65.1% Committed and dedicated to Enabling legislation:Tax 0.5% surcharge the fixed guideway project • State Act 247

: • City and County of Honolulu Ordinance 05-027Selection of a fixed guideway system as theProject -

Interest Earnings $7 0.1% Committed City & County of Honolulu Ordinance 06-37

Total Project Budget $5,174 100%

Note: Totals may not add due to rounding* Percentage used in FFGA is 30.2%, based on Project capital cost with finance charges through FY2020 of $5,126 million** Includes $298 million in beginning cash balance and subtracts $83 million in ending cash balance transferred to ongoing capital needs

Use of ProjectCash Balance

Gross Proceeds from Bonds & Notes

Interest Income on Cash Balance

ARRA Funds Used for the Project

New Starts Revenues

5307 Formula Funds Used for the Project

Use of Net GET Surcharge Revenues

— Project Capital Cost Plus Debt Service

—— Project Capital Cost Excluding Debt Service

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030


Figure 2-5, Proposed Project Sources and Uses of Funds, FY2O1O — FY2030, YQE $milions

pr

1,200 -

1,000

800

6000

400

200

‘

4%


FINANCING AND PROJECT CASH BALANCE

The cash balance as of entry into PreliminaryEngineering in October 2009 was approximately$28 million. With the GET Surcharge projections andfederal revenues assumptions described above, theProject exhibits a positive cash balance through FY2012without the need for debt financing, as GET Surchargeand other revenues will be used on a pay as you gobasis. Starting in FY2013, the amount of financing ineach year is sized to meet Project funding needs. Onceconstruction ends in FY2019, GET Surcharge revenuescontinue to increase gradually through FY2023 whiledebt service remains constant, thereby increasing thecash balance in those years to a total of approximately$83 million by the end of FY2023. The Financial Planassumes that any excess GET Surcharge revenues willbe available after FY2020 and will not be required fordebt service on Project bonds. These funds will beapplied to CARP and railcar expenditures, therebyfreeing up Section 5307 revenues for preventivemaintenance and ongoing capital expenditures afterFY2020.

GENERAL DEBT STRUCTURE AND DEBTINSTRUMENTS

In years where GET Surcharge revenues and Federalfunding are not by themselves sufficient to meet thecash flow requirement to cover Project capitalexpenditures, a mix of long-term general obligationbonds (implicitly backed by GET Surcharge revenues),medium-term, and short-term borrowing would be usedto bridge the funding gap. Table 2-8 shows the annualmix of short and long-term bond proceeds issued tofund the construction of the Project.

Consistent with the requirements of Chapter 47, Hawai’iRevised Statutes (HRS) and the State Constitution, aconventional mortgage-type amortization schedule witha level debt service repayment is assumed for each long-term bond issue (as shown in Figure 2-6). Each year thelong-term bonds are issued the final maturity decreases

since the GET Surcharge sunsets in FY2023. The typesof debt included in the Financial Plan are summarizedbelow:

General Obligation Bonds (Long Term): Althoughthe Project’s debt requirements will be solely repaidfrom GET Surcharge revenues, the State Constitutionrequires that these bonds be classified as generalobligation bonds. Given that these long-term bonds willbe supported by the full faith and credit of the City, noadditional coverage has been included, as is consistentwith the terms of the City’s other general obligationbond issuances.

Bond Antiapation Notes (BANs, Medium Term):The use of medium-term and short-term debt duringconstruction is necessary and advantageous becausedebt instruments of shorter maturity generally bearlower interest rates than longer term debt. BANs areassumed to be issued between FY2015 and FY2018, andwill be repaid in each subsequent year when long-termdebt is issued. BANs are a type of short-term municipalbond issue whose proceeds are generally used to paythe startup costs associated with a future, long-termbond-financed project.

Grant Anticipation Notes (GANs, Medium Term):Another form of medium-term financing, GANs, will beissued between FY2013 and FY2015 and repaid betweenFY2015 and FY2020. The GANs will be repaid uponreceipt of appropriated FTA New Starts funding.

Tax Exempt Commerdal Paper (TECP, ShortTerm): The Project will also utilize the Oty’s existingTECP program. Short-term construction finance providesa particularly low-interest form of borrowing in whichinterest-only payments are made and the principalbalance is simply either rolled over or repaid withavailable cash annually during construction. Currentlythe City has access to $200 million in TECP, of which theProject is expected to utilize $100 million betweenFY2013 and FY2018. Depending on the cash flowrequirements of other projects in the aty’s CIP, the

Table 2-8, Debt Proceeds, FY2O1O — FY2030, YOE $milions

City Fiscal Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total

Net Proceeds from Long-term Debt — — — — — $100 $350 $350 $250 $158 $1,208

Net Proceeds from Medium-term — — — —

— $88 $71 $133 $58Notes (BANS)

— —— $174 $360 $221

— —— $100 $100 $100 $100 $100 $100

Total Net Bond Proceeds — — — $274 $460 $509 $521 $583 $408 $158 $2,913

Note: Totals may not add due to rounding


Net Proceeds from Medium-termNotes (GANs)

Net Proceeds from Short-termConstruction Financing (rolled over)

— $350

— — —

— $755

— $600


600

Figure 2-6. Total Annual Debt Service, FY2O1O — FY2030, YQE $milions

Finance Charges on Short-term Debt

Short-term Financing Due

500 Medium Term Interest Due (GANS)

400

200

100

Medium Term Notes Due (GAN5)

Medium Term Interest Due (BANs)

Medium Term Notes Due (BANS)

Long-term Debt Interest Payments

Long-term Debt Principal Payments

Project could make use of additional TECP if needed tomeet short-term cash flow needs.

Financing Costs and Maturity

Interest rate: The Financial Plan assumes an interestrate on long-term debt of 4.50 percent, consistent withthe City’s current AA+ rating. Interest rates on medium-term BANs and GANs are assumed to be 3.00 percent,while rates on short-term construction financing areassumed to equal 2.50 percent. The interest rates areconsistent with current interest rates for debtinstruments with similar maturities, and increased by 25to 50 basis points to reflect potential increases in thefuture. Risks and uncertainties related to interest ratesare discussed in Chapter 4.

Issuance cost: Upfront costs associated with theissuance of long-term bonds and medium-term notes areassumed to equal 0.75 percent and 0.50 percent of thepar amount, respectively. Issuance costs for short-termfinancing are assumed to be embedded in the TECPinterest rate.

Maturity: All long-term bonds have a final maturity inFY2023, corresponding to the last fiscal year of receiptof net GET Surcharge revenues. Medium-term and short-term construction financing issues are assumed to beeither refinanced annually or repaid through acombination of available cash or refinanced into long-term debt.

Debt Capacity

The City’s ability to issue debt and maintain its creditrating is defined by legal limits included in the State’sConstitution. Furthermore, the City has implementedpolicy guidelines that define appropriate levels of debt inrelation to its funding base.

Legal Debt Limit: The State of Hawai’i Constitution(Act VII, Section 12 and 13) requires any one county tohave a total outstanding funded debt equal to no morethan 15 percent of that county’s total assessed value ofreal property for tax purposes. This test represents theprimary legal restriction on the amount of debt that theCity could issue for the Project. Based on currentestimates there is significant debt capacity under thelimit. As of August 2010, the City had $153.1 billion inassessed value of real property, which represents $23.0billion in total legal debt capacity. Of the total capacity,$18.2 billion was available for future use.

City “Affordability Guidelines”: The City hasestablished affordability guidelines, as last amended byResolution No. 06-222 in June 2010. These policiesinclude the following:

• Debt service for general obligation bonds, includingself-supported bonds and enterprise and specialrevenue funds, should not exceed 20 percent of theCity’s total operating budget.


x

300

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030City Fiscal Year


• Debt service on direct debt, excluding self-supportedbonds, should not exceed 20 percent of the GeneralFund revenues.

• Other guidelines include a limitation on the City’svariable debt rate and debt refunding policy.

Assuming the Cit:y’s current credit rating is maintainedand the affordability guidelines are applicable in futureyears, the limitations on General Obligation (GO) debtcan be calculated for future years based on growthassumptions in assessed property values, General Fundrevenues, and the City’s operating budget.

The City will need to balance the Project’s debtrequirements with other City projects requiring debtfinancing. The policies above are applicable to anyprojects being financed by the City, given that theProject debt is not self-supported or in the form ofrevenue bonds.

Finance Charges

Based on the above assumptions, finance chargesincurred for the Project are projected to total$295 million. As shown in Figure 2-7, the majority offinance charges correspond to interest payments onlong-term general obligation bonds. The remainder iscomposed of interest expense on medium-term andshort-term debt.

For detailed annual cash flows for the Project, refer toAttachment A.

50

SYSTEM-WIDE CAPITAL FUNDINGSOURCES

While the assumed New Starts funding, GET Surchargerevenues, and a portion of the FTA Section 5307 formulafunds will be adequate to fund the Project capital costs,other sources of funds will continue to be relied upon tofund capital costs for the existing TheBus and TheHandiVan systems. The following section discusses thesefederal and local funding sources.

Finance Charges on Short-term Debt

Medium Term Interest Due (GANs)

Medium Term Interest Due (BANS)

40

zIJ0 30

Totai Interest Payment on Long-term Debt

0

2010 2012 2014 2016 2018 2020 2022rItvFkt-i Yeir

2024 2026 2028 2030


60

Figure 2-7, Total Annual Finance Charges, FY2O1O — FY2030, YQE $milions

Issuance Costs


FEDERAL FUNDS

The three main sources of federal funds for system-widecapital costs are as follows:

• FTA Urbanized Area Formula Program (49 U.S.C.Section 5307)

• FTA Capital Investment Grants (49 U.S.C. Section5309) — Fixed Guideway Modernization Program

• FTA Capital Investment Grants — Bus and Bus-RelatedEquipment and Facilities Program

The City should expect to see increases in the levels offunding from the first two of these funding sources oncethe Project is implemented. The following sections detailthe expected revenue from each source before and afterthe Project is in operation. As a general rule, theFinancial Plan assumes that Congress will pass a newauthorization and appropriate the authorizedapportionment each year.

FTA Urbanized Area Formula Program (Sec. 5307)

Year-by-year Section 5307 revenues are presented inthe summary of federal non-New Starts capital fundingsources in Figure 2-8. Under federal law, Section 5307funds may be used for preventive maintenance, which ispart of a transit system’s operating budget. Section 5307apportioned funds are used for the Project betweenFY2013 and FY2019, but will again be available for othertransit uses starting in FY2020. Ps a general rule for theFinancial Plan, Section 5307 funds are first applied to

ongoing capital needs, with any surplus beingtransferred to preventive maintenance. Estimatedapportionments have been made by FTA for FY2O1O. Forall subsequent years, the methodology used to forecastSection 5307 funds is as follows:

• First the total national funding available for theSection 5307 program was projected using a modestgrowth factor, in line with the growth in revenuescurrently expected to flow to the Highway Trust Fundin FY2O11. Honolulu’s share of the total nationwideSection 5307 amount was then assumed to remainequal to the FY2O1O share of 0.69 percent. Thisshare was applied to the forecasted national amount,and an adjustment was then made by deducting afunding transfer to the State for its vanpool program.

• In addition to the base growth rate mentioned above,Section 5307 revenues are further increased twoyears after the opening of the main segments of theProject in FY2016, FY2018, and FY2019. Similarincreases occur in FY2022 and FY2025 following theimplementation of other projects in the region,consistent with the O’ahu long-range transportationplan. The implementation of the Project is expectedto generate an additional $149 million Section 5307funding through FY2030. Table 2-9 presents theannual forecast of 5307 revenues, and breaks out thefunds expected to be received as a result of theProject implementation.

Figure 2-8, Use of Non-New Starts Federal Revenues, FY2O1O — FY2030, YQE $mi/ions

120

ARRA Funds Used for Ongoing Capital Cost5309 Bus Disaetionary Grants5309 Fixed Guideway Modernization Funds

100 5307 Used for Ongoing Capital Cost5307 Formula Funds Used for Preventive Maintenance5307 Formula Funds Used for the Project

80

z60

40

20

2010 2012 2014 2016 2018 2020 2022City Fiscal Year


2024 2026 2028 2030


City and County of Hono!ulu, Hawai’i Draft Financial Plan for Entry into Final Design

Section 5309 Capital Investment Grants — FixedGuideway Modernization Program (FGM)

Similar to Section 5307 funds, Section 5309 FGM fundsare apportioned using the federal formula specified bylaw. Honolulu’s apportionment is based on the amountof fixed guideway directional and revenue vehicle mileson facilities in operation at least seven years. Forecastfixed guideway directional route miles play an importantrole in the formula for calculating Section 5309 FGMapportionments. In addition to the increase due to theProject, the zipper lane and HOV projects assumed to beintroduced between FY2022 and FY2025 would increasethe directional route miles. As with the Section 5307funds, the Project will lead to an increase in the formulaapportionment amount due to the increased amount ofservice on fixed guideway facilities. Of the total$147 million expected to be received by the City fromFY2O11 to FY2030, $88 million is expected to begenerated from the implementation of the Project.

FTA Section 5309 Bus and Bus-Related FacilitiesProgram (Bus Capital)

Bus Capital funds can be allocated at the discretion ofthe Secretary of the U.S. Department of Transportation,although Congress has been fully earmarking allavailable funding. Eligible purposes for this fundingsource include: acquisition of buses for fleet and serviceexpansion; bus maintenance and administrativefacilities; transfer facilities; bus malls; transportation

centers; intermodal terminals; park and ride stations;acquisition of replacement vehicles; bus rebuilds; buspreventive maintenance; passenger amenities, such aspassenger shelters and bus stop signs; accessory andmiscellaneous equipment, such as mobile radio units;supervisory vehicles; fareboxes; and computers, shop,and garage equipment.

The discretionary nature of this program makes the levelof funding difficult to predict. Based on Honolulu’ssuccess at receiving earmarks in the past, this analysisassumes that Honolulu’s Bus Capital allocations betweenFY2O1O and FY2030 will be equal to the average ofHonolulu’s Bus Capital funding revenues from 1996 to2009, which is about $6 million per year.


Table 2-9, FTA Sec. 5307 and 5309 FGM Apportionments and Impact of the Project, FY2O1O - FY2030, YQE $milions

—---

2011 $30.24 $30.24 0.71%2012 $30.97 $30.97 2.41%2013 $31.71 — $31.71 2.41%2014 $32.48 $32.48 2.41%2015 $33.26 — $33.26 2.40%2016 $34.06 — $34.06 2.40%2017 $34.87 — $34.87 2.40%2018 $35.95 $2.40 $38.35 9.96%2019 $36.81 $2.46 $39.27 2.40%2020 $37.84 $3.87 $41.71 6.21%2021 $39.85 $12.15 $51.99 24.67%2022 $43.46 $12.71 $56.18 8.04%2023 $44.51 $13.03 $57.54 2.42%2024 $45.57 $13.36 $58.93 2.42%2025 $48.09 $13.93 $62.02 5.24%2026 $49.24 $14.28 $63.52 2.42%2027 $50.42 $14.64 $65.06 2.42%2028 $51.63 $15.00 $66.63 2.42%2029 $52.87 $15.38 $68.25 2.42%2030 $54.13 $15.76 $69.89 2.42%Total $847.99 $148.97 $996.96

Note: Totals may not add due to rounding1/ Section 5307 funds are net of transfers to the State’s Vanpool program

Actuals

M6 $2.06 2.50%$2.12 $2.12 2.50%$2.17 $2.17 2.50%$2.22 $2.22 2.50%$2.28 $2.28 2.50%$2.34 $2.34 2.50%$2.39 $2.39 2.50%$2.45 — $2.45 2.50%$2.51 $2.51 2.50%$2.58 — $2.58 2.50%$2.64 — $2.64 2.50%$2.71 — $2.71 2.50%$2.78 $2.45 $5.23 93.09%$2.85 $2.51 $5.36 2.50%$2.92 $3.96 $6.88 28.29%$2.99 $14.69 $17.68 157.09%$3.78 $15.40 $19.18 8.51%$3.87 $15.79 $19.66 2.50%$3.97 $16.18 $20.15 2.50%$5.14 $16.89 $22.02 9.28%

$58.78 $87.87 $146.65


LOCAL CAPITAL ASSISTANCE FOR THESYSTEM-WIDE AND ONGOING PROJECTCAPITAL NEEDS

For ongoing system-wide capital needs, the City intendsto apply GET Surcharge revenues on a pay-as-you-gobasis for CARP expenditures and additional rail carsneeded between FY2024 and FY2030. The excess GETSurcharge revenues, totaling approximately $83 million,will be available after FY2020 and will not be requiredfor debt service on Project bonds. These funds will beapplied to CARP and railcar expenditures, therebyfreeing up Section 5307 revenues for preventivemaintenance and system-wide capital expenditures afterFY2020.

The City is expected to continue to issue debt forconstruction of bus facilities and to purchase rail and busequipment and rolling stock as it has done in the past.The City is required to match all FTA funding programswith at least 20 percent in local funds. This FinancialPlan, therefore, assumes that at least 20 percent of eachyear’s ongoing capital needs are matched at that level.With the federal revenues described above, the City issometimes required to contribute more funds to ensurethat projected capital needs are met.



Chapter 3: O&M PLAN

______

This chapter describes the City’s plan to fund theoperating and maintenance costs associated with theProject and the overall transit system. This discussionbegins with a summary of the O&M cost estimate andmethodology and then presents the planned fundingsources for O&M.

OPERATING COSTS

O&M cost estimates were developed for the Project,TheBus, and TheHandi-Van, and include all costsassociated with operating and maintaining theseservices, including labor, materials, fuel, and electricity.The following section describes the methodology andestimates used in this analysis.

PR0JEcr O&M CosTs

The O&M costs for the Project were developed usingdata from the Core Systems Contract awarded inFY2O11. Escalated O&M costs are provided for theIntermediate O&M Period #1 and Intermediate O&MPeriod #2. For the Full O&M Period and the OptionalO&M Period, the Core Systems Contract provides O&Mcosts by year in FY2O11 dollars. The contract includes aformula based on indices published by the U.S. Bureauof Labor and Statistics (BLS) for labor costs, electricityprices, consumer prices, and producer prices to escalatethe costs to YOE dollars.

For the Financial Plan, 10 years of historical data fromBLS was used to escalate the O&M costs that areincluded in the Core Systems Contract. More details onthe data used for inflating core systems costs and itsapplication can be found in Table D-3 of Attachment D.It is assumed that the costs in the last year of theOptional O&M Period will continue through the end ofthe forecast period.

The remainder of Project O&M will be delivered directlyby HART. These costs will account for approximately10 percent of total Project O&M and include costs forguideway structure inspections and maintenance,security patrols (not including the Maintenance andStorage Facility, which is covered by the Core SystemsContract), fare revenue collection and equipmentservicing, fare inspection and enforcement, stationmaintenance (including escalators and elevators), andcosts associated with staffing and overhead for theHART organization.

A resource build-up approach was used to determineProject O&M costs that will be directly delivered byHART. This approach fully allocates O&M costs based onlevel of service variables. Table 3-1 summarizes the

corresponding level of service variables and unit costsused for this purpose.

Table 3-1, Level ofSeivice Variables and Unit Costs for theO&M Delivered Directly by HART

Fare revenue collection/equipment servicing

Fare inspection/enforcement

Station maintenance, induding escalator/elevator

HART costs

DRM= directional route miles 1/ S = Stations // PV = Peak Vehides

Figure 3-1 shows the total O&M costs for the Projectincluding the Core Systems Contract and HART.

THEBuS O&M COSTS

TheBus O&M costs were developed using existing busoperations as the baseline, as well as the anticipatedservice levels through 2030. TheBus O&M costingmethodology uses a resource build-up approach thatfully allocates O&M costs based on level of servicevariables. Each unit cost is broken down by object class,including wages and salaries, health care, other benefits,materials and supplies, fuel and lubes, and other, whichallows for applying different inflation rates to eachobject class. This approach is consistent with Section 4of the FTA’s Procedures and Technical Methods forTransit Project Planning, Draft Version 3 dated August28, 2008. More details on TheBus O&M cost model canbe found in the Memorandum on O&M Cost Models,dated May 2009.

LEVEL OF SERVICE

The City currently operates standard buses and amixture of articulated 60-foot diesel and hybrid buses.As described in Chapter 2, the City plans to phase out itsarticulated hybrid buses, to be replaced with articulatedclean diesel buses, which are found to be more costeffective. The peak vehicle requirements and revenuevehicle miles for TheBus system are shown in Figure 3-2and Figure 3-3, respectively. The Financial Plan assumesstraight-line growth in bus level of service betweenFY2019 and FY2030.


Resource Unit CostsCost Item Variable (2010$)

Guideway structure inspections/maintenance

Security patrols, not including MSF

DRM $21,650

DRM $15,552

S $111,697

S $82,941

S $95,134

PV $2,935


Figure 3-1, Project Q&M Costs, FY2D1O — FY2030, YQE $milions

$120• HART Share of Project 0&M Costs

Core Systems ContractO&M Costs

$100

I’ll”$80

$60

$40

$20

$02010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

City Fiscal Year

Figure 3-2, TheBus Peak Vehides by Bus Type, FY2O1O — FY2030

500

450

400

350

300

250

200

150

100

50

• Artlc Hybrid

•ArtlcDiesel

•Standard

ILL2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

City Fiscal Year



a

15wx410£

10

41

2010 2012 2014 2016 2018 2020 2022

City Fiscal Year

2024 2026 2028 2030

Unit Costs

An O&M cost allocation model was used to estimateO&M costs for each bus system component, where eachO&M cost item was assigned to one of several variables,based on its sensitivity to given O&M cost drivers. Costsassigned to each vanable were summed and divided byeach variable’s annual total. Unit costs broken down byobject class were applied to data taken from the transitservice plan and forecast model output for the Project.Table 3-2 summarizes the unit costs and the associatedlevel of service in FY2019 and FY2030.

Table 3-2, TheBus Level ofSeivice Variables & UnitCosts

Level of Service Unit CostsVariable FY2019 FY2030 ($2010)

$3.04

$4.23

$3.59

$60.90

$28,573

88 $34,002

Peak Vehicles AH 25 - $28,902

Maintenance Facilities 3 : $911,539

Unlinked Passenger Trips 98,016,332 109,831,653 $0.058

SB = Standard BusAD = Articulated DieselAH = Articulated Hybrid

Revenue Vehicle Miles SB 15,738,141 16,405,491

Revenue vehide Miles AD 4,037,774 5,145,958

Revenue Vehide Miles AN 1,147,095

1,587,661

343

Revenue Vehide Hours

Peak vehides SB

Peak Vehides AD

1,669,932

373

117

INFLATION

Inflation assumptions for TheBus were developed asfollows:

Salaries, wages, benefits (excluding healthcare),materials and supplies, and other bus O&M costswere assumed to increase at the rate of generalinflation, as measured by the Honolulu ConsumerPrice Index (CPI). From FY2O11 through FY2014, thisforecast is based on the quarterly outlook of keyeconomic indicators from the DBEDT as of February17, 2011. The Financial Plan adjusts the projectedgrowth from calendar year to fiscal year. Theresulting growth rate in FY2014, equal to2.30 percent, is then assumed to remain constantthrough FY2030.

• Health care costs were assumed to grow at a fasterrate, equal to 4.87 percent per year from FY2O11 toFY2030. This corresponds to the average annualgrowth in health care cost per hour reported in theU.S. Bureau of Labor Statistics’ (BLS) nationalcompensation survey dated March 9, 2011 for civilianworkers in the production, transportation, andmaterial moving occupations. Historical data ongeneral inflation and healthcare costs is presented inAttachment D.

• Bus fuel costs were increased based on the EnergyInformation Administration forecast for diesel fuelused in the transportation sector through 2030, as


20

Figure 3-3, TheBus Revenue Vehide Miles, FY2O1O — FY2030

Artlc Hybrid

Artic Diesel

Standard

5


published in its 2011 Annual Energy Outlook datedDecember 2010.

Figure 3-4 shows the composition of total operatingcosts for TheBus system through FY2030, with thecontribution to total cost of each LOS variable. Revenuevehicle miles is the most significant cost variable foroperating costs, particularly for standard buses, whichmake up the majority of TheBus fleet.

THEHANDI-VAN O&M CoSTS

TheHandi-Van is a paratransit service operating intandem with the current transit system and has been inoperation since 1999. In 2010, TheHandi-Van servicedmore than 880,000 trips. The projected operating costsfor TheHandi-Van are based on the 2010 cost per rider,equal to $36.47, applied to the projected ridership, andadjusted for CPI inflation. Ridership is assumed to growat the same rate as the rate of growth in the residentpopulation in Honolulu above 65 years old as forecastedby the DBEDT in its 2035 outlook dated July 2009 (seeAttachment D for historical and forecast residentpopulation data). The resulting ridership is expected togrow at an average annual rate of 2.57 percent fromFY2O1O to FY2030. Adjusted for inflation, this yields anaverage annual growth rate for TheHandi-Van operatingcosts of 4.92 percent per year.

0Th ER 0&M COSTS

Other minor O&M costs are expected throughout theplanning horizon. These costs account for only up to$2 million per year and correspond to operating costs

associated with establishing selected human serviceagencies as transportation providers who serve clientscurrently riding TheHandi-Van, and maintaining a shuttleservice for low-income persons working in Kapolei andMakakilo areas. Both of these efforts are included in theFY2O11 — FY2014 Transportation Implementation Plan.

SYSTEM-WIDE 0&M COSTS

Figure 3-5 illustrates the forecasted total annual O&Mcosts for the system broken down by mode. As seen inthis figure, the O&M costs for TheBus and TheHandi-Vanare increasing at a greater rate than the Project oncefully implemented. TheHandi-Van is expected to grow at4.84 percent on average per year between FY2020 andFY2030, TheBus at 3.70 percent, and the Project at2.70 percent. The costs to operate the City’s transitsystem are still expected to be attributable mostly to busoperations, as the Project is expected to account forabout 20 percent of total O&M cost between FY2016 andFY2030.

OPERATING REVENUES

The following section describes the operating sources offunds that the City intends to use to fund the O&M costsfor the Project and the transit system as a whole.Operating revenues include passenger fares, while otherrevenues for operations are expected to includetransfers from the City’s General and Highway Fundsand from ETA Section 5307 formula funds.

Figure 3-4, TheBus Total O&M Costs, FY2O1O — 2030, YQE $milIions

$350--Annual Unlinked Passenger Tnps

Peak Vehicles - Articulated HybridPeak Vehides - Artiailated Diesel

t300 PeakVehldes-StandardBus.Annual Revenue Vehide HoursAnnual Revenue Vehicle Miles- Articulated HybridAnnual Revenue Vehicle Miles - Articulated Diesel

$250 ---

$200 - —

—

0$150

$100

$50

$02010 2012 2014 2016 2018 2020 2022

City Fiscal Year2024 2026 2028 2030


Honolulu High-Capadty Transit Corridor Project


$400

Figure 3-5, Total System-wide O&M Costs, FY2O1O — FY2030, YQE $milions*

$100

$02010 2012 2014 2016 2018 2020 2022 2024

City FIscal Year* Project core Systems O&M cost in FY2030 was extrapolated

PASSENGER FARES

In FY2O1O, TheBus reported 73 million boardings,corresponding to about 55 million linked trips (takingtransfers into account). The corresponding average fareper linked trip was $0.83. On July 1, 2010 (beginning ofFY2O11), the City increased fares by approximately14 percent on average, to $0.95 per trip. This is just$0.02 lower than the average fare assumed in the baseyear of the travel demand model adjusted for CPIinflation. As such, it is assumed to be used as thestarting point for forecasting fare revenues.

A City resolution (00-29 CD1) stipulates that the fareboxrecovery ratio for TheBus be maintained between27 percent and 33 percent, which demonstrates acommitment of the City to keep operating costs andrevenues growing at a comparable rate on average.

This Financial Plan assumes that the same fare structurewill be maintained for both TheBus and the Project, withfree transfers assumed between modes.

Figure 3-6 illustrates the assumed future fare increasesthat are used as the basis for the fare revenue forecast,as compared to a constantly increasing average fare,which is assumed implicitly in the travel demandanalysis.

The growth in average fare is assumed as a “stepfunction” with increases of approximately $0.16 inFY2015, $0.11 in FY2019, $0.12 in FY2023, and $0.16 inFY2028. Figure 3-7 shows the farebox recovery ratio

(FRR) for bus and rail combined, as well as for bus aloneand rail alone. Consistent with City policy, the combinedFRR for bus and rail remains between 27 percent and33 percent through FY2030. This figure also illustratesthe fact that, once fully implemented, the Project isexpected to carry a larger load relative to its operatingand maintenance cost than bus, as illustrated by thehigher FRR for rail alone than for bus alone. In part, thisreflects the fact that riders are expected to use rail forlonger trips on average than for bus, and is alsoconsistent with general industry benchmarks. The FRRby mode was obtained by calculating fare revenues foreach mode, which were proportioned between bus andrail 50 percent by boardings by mode and 50 percent bypassenger miles by mode. The breakdown of farerevenues by mode is presented in the operating plancash flow in Appendix A.

The timing and amount of these fare increases areconsistent with the City’s past history. The average fareassumptions are consistent with the fare assumptions inthe travel demand analysis, which assumes that faresincrease at the same rate as inflation.

Table 3-3 presents a simplified bus fare structure alongwith the City’s fare increase history, and shows that theCity has increased fares five times over the past10 years.


$600

Other O&M CostITheBus

$500 TheHandi-Van

Rail

FY2020-FY2030 Aveine Annual Growth RatesTheBus: 3.07%TheHandi-Van: 4.84%Rail: 2.70%

$3000

$200 11111 III2026 2028 2030


Figure 3-6, Average Fare growing at CPI vs. Periodic Increases, FY2O11 — FY2030, YQE $

$1.60 —--

Stepped Increase in Average Fare

Average Fare (annual CPI adjustments)

$1.40

$1.20 --—

$1.00

__-

w0> $0.80 — --

$0.60 --- -—

$0.40 -

--- - -

$0.20 ----

$0.002011 2013 2015 2017 2019 2021 2023 2025 2027 2029

City FIscal Year

Figure 3-7, Rail and Bus Farebox Recovery Ratio (FRR), FY2O11 — FY2030*

45%

40% -

35%

30%

25% -

20% H

15% H

100/u

5% •

2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

City Fiscal Year

* TheBus and Project forecasted fare revenues as percentage of TheBus and Project O&M cost


FRR (Bus)33% FRR Ceiling

27% FRR Floor

FRR (Rail)

FRR (Bus+RaiI)


March 1, 1971 0.25 0.15March 2, 1971 0.25 0.10

- June9,1972 L0.25,0.50!O1P,Oi.March 15, 1974 0.25 0.10 I

November 1, 1979 0.50 0.25June 18, 1984 0.60 : 0.25

October 1, 1993 1 0.85 0.25July 1, 1995 1.00 0.50July 1, 2001 1.50 0.75Juty 1,2003 _15 0.75

October 1, 2003 2.00 1.00July 1, 2009 - 2.25 1.00July 1, 2010 2.50 1.25

X Not Applicable

Ridership estimates used in the Financial Plan weretaken from the travel demand model. Approximately283,000 linked trips per day are forecasted in 2030 forthe bus and rail system combined. The ridershipincreases observed in FY2016 and FY2019 correspond tothe opening of the Intermediate Operating Period #1and the Full Operating Period, respectively. The start ofIntermediate Operating Period #2 will occur in FY2018,but is not expected to lead to as sharp of an increase.Once the Project is operational, transfers betweenTheBus and the Project would also be free andseamless. These assumptions yield projected farerevenues of $138 million in FY2030. The assumed

100

90

80

70

I0

60

a 50

I

40Cz

30

growth in the interim years is based on a linearinterpolation between opening and forecast year.Growth prior to the first opening date is commensuratewith projected growth in population and employment.

Figure 3-8 illustrates the City’s forecasted linked trips,and shows an increase of 14 percent in FY2016 whenthe first phase opens. In FY2019, linked trips areexpected to increase by 4 percent, corresponding to theProject being opened for the last three months of thefiscal year. FY2020 will be the first full operating yearwith linked trips expected to grow by 11 percent in thatyear.

FEDERAL FUNDS

The City currently receives federal funds through FTA’sSection 5307 Urbanized Area Formula Program. Asmentioned in the system-wide capital plan chapter ofthis Financial Plan, the majority of Section 5307 fundsare used for capital purposes; however, when thesefunds are not needed for capital assistance they can alsobe used for preventive maintenance.

Once the Project is operational, Honolulu will receiveadditional Section 5307 funds based on the higher levelof bus service, ridership, and the addition of rail service.Beyond the Project construction period, the FinancialPlan assumes that Honolulu will distribute Section 5307funds first to fund CARP and ongoing system-widecapital expenditures; any remainder will then be used to

Honolulu High-Capacity Transit Corridor Project September 2011

Table 3-3, TheBus Fare Structure and History

Effective DateOne-way cash Fare Monthly Pass

Adult Youth Adult Youthxxxx

15.00 -

15.0020.0025.0027.0030.0040.0050.0p60.00

xxxx

7.507.507.50

12.5013.5013.5020.0025.0030.00

Figure 3-8, Historical and Forecasted Linked Trips for TheBus and the Project, FY2004 — FY2030, millions of Trips

Historicals

Forecast

1 In ia F.. 00010.N I’ Ifl ID F 00 010 I Nm In ID. 00010g g I .4 N N N N N N N N N N

0000000000 oe 000000 oeN N NN N NN NN N NN NN N r4NN NNNN NN NN N

City Fiscal Year

20

10

Page 3-7


fund preventive maintenance. Increased Section 5307funding attributable to the full Project opening forrevenue service does not become available until FY2021because of the 2-year lag between the start of serviceand the reporting of that increased service to theNational Transit Database.

Over the long term, the City is expected to receive acumulative amount of approximately $967 million fromFY2O11 through FY2030 from Section 5307 funds,including $149 million generated from theimplementation of the Project. Of this, $335 million isassumed to be used for preventive maintenance and theremainder ($418 million) going to ongoing transit capitalneeds and the Project.

The City is also expected to continue receiving fundsfrom the FTA Section 5316 (Job Access ReverseCommute) and Section 5317 (New Freedom) programsto fund operations for projects serving low-incomepersons. The corresponding amount is projected torange from $1 to $2 million annually.

SYSTEM-WIDE OPERATING PLAN

Given the assumptions in this Financial Plan, the federaland local revenues are assumed to be adequate tooperate and maintain the Project while continuing andmaintaining the existing bus and paratransit systems.This further assumes that the City will continue tosupport transit operations through transfers from its

General and Highway Funds, as it has done in the past.Before the Project opens, between FY2O1O and FY2015,the City is expected to contribute on average 69 percentof TheBus and TheHandi-Van operating costs. Theaverage subsidy is expected to increase slightly,averaging 70 percent of total O&M costs betweenFY2016 and FY2030 once the Project opens. Figure 3-9shows the breakdown of operating revenues comparedto total operating costs.

CITY CONTRIBUTION

The City’s contribution to transit operating andmaintenance expenses is funded using local revenuesfrom the General and Highway Funds. The General Fundcomprises revenues from the following taxes:

• Real Property Tax — tax on real property based onassessed value; rates vary with property class.

• State Transient Accommodations Tax — 7.25 percenttax on a dwelling that is occupied for less than 180consecutive days. The City has historically received aportion of these revenues.

• Public Service Company Tax — Oty receives1.885 percent of all public service companies’ grossincome.

The Highway Fund comprises revenues from thefollowing taxes:

• Fuel Tax — a 16.5 cent per gallon tax on all fuel sold

Figure 3-9, Operating Costs and Revenues, FY2O1O — FY2030, YOE $milions

$600 - --

— City’s Operating Subsidy

FTA Section 5316 (JARC) and 5317 (New Freedom)

FTA Section 5307 Formula Funds Used for Preventive Maint.$500

I—Total O&M Costs

$400

2020 2022City Fiscal Year

$3000

$200

$100

$0 i1iu11 I2010 2012 2014 2016 2018 2024 2026 2028 2030



or used within the City’s jurisdiction.

• Vehicle Weight Tax — a tax on the net weight of allpassenger and non-commercial vehicles (3 cents perpound) and motor vehicles and non-passenger-carrying vehicles (3.5 cents per pound).

• Public Utility Franchise Tax — a 2.5 percent tax on allelectric power and gas companies’ gross salesreceipts.

During the period from FY1994 to FY2O1O, revenuesfrom these sources totaled $13.7 billion, of whichapproximately $1.5 billion (11 percent) went to transit.

The Financial Plan forecasts the growth in these CityFunds at an aggregate level and the resulting share thatwill be needed for transit operations. This forecastapplies the aforementioned CPI inflation forecast inHonolulu as well as a real rate of growth equal to2.50 percent, which is below the real growth of2.69 percent experienced between FY2001 and FY2O1O.

Between FY2O1O and FY2015, TheBus and TheHandiVan services are expected to receive 13 percent of thesefunds’ revenues. To meet the O&M funding requirementsfor the Project and planned bus system after FY2016,the City contribution is expected to average 15 percentthrough FY2030.

100%

90%

80%

70%

60%

50%

40%

30%

Increases in other transit revenue sources, such asadvertising, or increases to the overall Section 5307program could reduce the amounts required to betransferred from the City’s General and Highway Funds.In addition, it should be noted that the implementationof the Project is expected to result in an additional $88million and $149 million from Section 5309 FGM andSection 5307 funds respectively through FY2030,thereby increasing the amount of Section 5307 fundsthat can be used for preventive maintenance.

Figure 3-10 shows the breakdown of operating revenuesand the City contribution as a percentage of Cityrevenues available for public transportation, includingthe fund sources described above.

20%

:: ililillI 1111111111112010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Total System Operating Revenue

City Fisl Year

FTA Section 5307 Formula Funds Used for Preventive Maint.

FTA Section 5316 (JARC) and 5317 (New Freedom)

City’s Operating Subsidy

—Share of City Revenues Available for Transportation Going to Transit Operations wf the Project

Share of City Revenues Available for Transportation Going to Transit Operations w/o the Project


Figure 3-10, Operating Revenues and City Contribution, FY2O1O — FY2030


THIS PAGE LEFT BLANK INTENTIONALLY.


City and County of Honolulu, Hawai’i Draft Finandal Plan for Entry into Final Desiqn

Chapter 4: RISKS AND UNCERTAINTIES

The preceding chapters presented the Financial Planwith baseline assumptions for revenues and costs. Thischapter discusses the risks and uncertainties aroundmany of the key assumptions.

CAPITAL PLAN

CAPITAL COST RISKS

Risks and uncertainties around the Project capital costestimate are mostly related to inflationary and schedulerisks as further described below. The City has thebenefit of having already awarded contracts that makeup 39 percent of the total capital cost estimate for theProject. This includes the design-build contracts awardedfor the West O’ahu/Farrington Highway guideway,Farrington Highway guideway, the Maintenance &Storage Facility, and the design-build portion of the CoreSystems DBOM Contract. The City will also continue toidentify potential value engineering opportunities toreduce project costs without impacting the Project’sscope or performance.

Inflation

As described in Chapter 2, Project construction costshave been escalated using individual cost componentrates which vary according to demand and supply at aglobal, regional, and local level. In general, commodityprices tend to be more sensitive to global economicpressures with some construction cost componentsbeing more volatile than others. Steel prices increased in2010 as compared to 2009, fueled mainly by globaldemand in developing countries and increases inproduction capacity utilization. Similarly, othercommodity components (concrete and other materials)may be subject to similar fluctuations in prices and couldhave similar impact on Project cost.

Right-of--way costs are closely related to property values,which have recently experienced a downturn. Thecapital cost estimate reflects increasing escalation ratesfor right-of-way costs through FY2O11 and FY2012 toaccount for expectations that property values will beginto increase; however higher than expected growth couldresult in increased Project costs.

The majority of labor contracts are due to berenegotiated in FY2013 and FY2018, at which point laborprices could increase or decrease based on theavailability of labor or the level of construction activity.Furthermore, the escalation rates for labor may besomewhat different if a labor agreement is signed forthe Project, which would lock in labor contractsthroughout the construction period.

The capital cost estimate includes approximately$708 million in allocated and unallocated contingency, orapproximately 20 percent of the capital cost (in 2011dollars.) The level of contingency reflects some cushionfor potential cost escalation, within a reasonable level ofprobability.

Project Schedule

As part of the Project’s ongoing risk managementprogram and FTA’s risk assessment process, the City hasidentified several Project activities that pose potentialrisks to the critical path of the Project. As with manyprojects of similar scope and size, the most significantschedule risks involve the duration of FTA reviews andapprovals; timing of design and construction NTP5;permitting delays; delays in acquisition of right-of-way;and late delivery or acceptance of design submittals.

The Project’s master schedule has been developed inclose coordination with FTA, and reflects input on datesfor a potential Letter of No Prejudice (LONP) for limitedfinal design activities in May 2011; an LONP for limitedconstruction activities in November 2011; and a FFGA inJuly 2012. The LONP dates are critical to maintaining theearly construction schedule of the Project. Any potentialshift in these dates could impact the construction startdate, although it is likely that the City would be able toimplement schedule mitigation measures to reduce anyimpact on the construction schedule. The probability ofrisks associated with potential schedule delays havebeen included in the Project’s risk register, and thereforeare also reflected in the amount of contingency includedin the Project budget.

Interest Rates & Municipal Market Uncertainties

As in any capital project requiring the issuance of debt,the Project is subject to uncertainty around fluctuationsin interest rates. Variations in interest rates could affectthe interest earnings rate on cash balances and theinterest paid on any outstanding debt, as well as the sizeof the debt requirements to finance the Project.Variations in interest rates could also influence the levelof working capital and the ability to both operateexisting service and undertake new initiatives.

Fluctuations in interest rates are influenced by a numberof factors, including the credit rating of the bond issuer(the City) and also by external factors that are notdirectly under the control of the City, such as marketrisks. On the general market side, the global financialcrisis has severely impacted the municipal financemarkets most notably by greatly restricting theavailability of credit enhancements such as bondinsurance, and by pushing borrowing costs higher fornearly all issuers of municipal debt.



The Financial Plan assumes that the City will utilize a mixof long-term GO bonds, grant anticipation notes, bondanticipation notes, and short-term construction financingin order to optimize the leveraging of the Project’srevenue streams. All of these tools are currentlyavailable to the City and have been structured in theFinancial Plan to conform to provisions of the HawaiiConstitution. The interest rates assumed for each typeof debt instrument have been marked up by 25 to 50basis points over rates that would be available forcomparable maturities in today’s market, in order toaccount for potential future interest rate fluctuations.

Credit Rating

This Financial Plan assumes that the credit quality of theCity and County of Honolulu will remain at its currentrating. Adverse economic conditions or shifts in theCity’s debt policies could impact its credit rating andincrease the cost of borrowing accordingly. Mostimportantly, the credit quality of the City is likely to beinfluenced by the size of the City’s capital program, theCity’s reliance its general fund revenues to pay transitsystem operating costs, and its ability to remain belowthe current affordability guidelines set by the CityCouncil.

CAPITAL REVENUE RISKS

GET Surcharge Revenue

The primary source of non-federal funding for theProject is the GET Surcharge revenues. GET Surchargerevenues on O’ahu depend on a variety of underlyingeconomic factors outside of the City’s control, that mayresult in a higher or lower projection than the one usedin this Financial Plan. Nonetheless, several mitigatingfactors are important to consider for the outlook in GETSurcharge revenues:

• Inflation plays an important role in forecasting GETrevenues, as this source of funds is highly dependenton local prices. Higher general inflation in the post-construction years could increase GET Surchargerevenues without affecting Project capital costs.

• Unlike most sales taxes, the GET Surcharge has thebenefit of being levied on a broad range of businessactivities including both goods and services. Thisdiversification is usually seen positively by economistsand the investment community and is usuallyassociated with greater stability.

FTA Funding: Section 5307; Section 5309 NewStarts, FGM, and Bus Capital

The Project assumes federal funding participationthrough the Section 5307 urbanized area program; andSection 5309 New Starts, FGM, and Bus Capital

programs. Federal legislation that authorizes theseprograms (SAFETEA-LU) was scheduled to expire at theend of September 2009, but has been extended untilMarch 31, 2012. While these programs have been inplace for many years, through several authorizationcycles, there is a possibility that Congress will changedirection in the next authorization cycle. They couldincrease or decrease the amount of funds available,impose new rules on project eligibility, or revise thecriteria that are used to evaluate potential projects.

USDOT’s FY12 budget proposal includes increasing levelsof funding available for transit projects; including$3.2 billion of funds for the New Starts program inFY2012, and a total of $20.4 in funding between 2012and 2017 for “Transit Expansion and LivableCommunities” projects, which would include the NewStarts program. While it is unlikely that these exactamounts will be enacted by Congress, it signals a strongcommitment from the Administration to the New Startsprogram.

The timing of new authorization legislation could alsoimpact whether ETA would have available fundingauthority to commit to a project in Honolulu. TheFY2O1O Appropriations bill provided unlimited contingentcommitment authority for ETA, which would effectivelyrescind any limits Ofl ETA’S ability to make fundingcommitments that extended beyond the currentauthorization period. However, it is not clear whetherfuture Appropriations bills will continue to extend thatauthority to ETA.

The timing of New Starts funding is also subject toappropriation uncertainties. The amount of the ETAcontribution would be spelled out in a FFGA betweenETA and the City. The FFGA will also identify the amountto be made available each year, subject to annualappropriations legislation. History has shown thatCongress ultimately honors and appropriates the fullamount spelled out in an FFGA. Congress could delayfunding for the Project by reducing or stretching out theannual appropriations. Any delay could necessitateadditional borrowing or schedule delays, potentiallyincreasing the Project’s capital cost.

The Financial Plan assumes that the City will issue debtthat would be repaid with FFGA revenues, which arereferred to as grant anticipation notes (GANs). Thesewould allow the City to leverage future FFGA revenuesbefore they have been appropriated, and anyappropriation risk would be factored into the interestrate. This helps minimize the potential impacts of anydelays in FFGA appropriations on the Financial Plan.



OThER POTENTIAL OPPORTUNITIES FOR THECAPITAl. PLAN

While the capital plan is balanced based upon theassumptions stated in Chapter 2, a variety of additionalsources could be tapped if necessary, should the actualProject costs turn out to exceed current estimates orGET Surcharge revenues fall below expectations. Thefunding opportunities described below create robustnessto the capital plan in the sense that added financialcapacity can be brought to bear if necessary. Thissection descnbes some of the potential opportunities.

Other Federal Funding Opportunities

A number of proposals for increased funding for transitare under consideration, either as part of thereauthorization of SAFETEA-LU or other legislation. Forexample:

• The Administration has proposed to create a NationalInfrastructure Bank within its 2012 Budget Plan.Referred to as the “I-Bank’ this entity would receivefunding of up to $5 billion per year for 6 years, whichwould then be provided to transportation relatedinfrastructure projects in the form of grants, loans orloan guarantees. Based on the proposed projectcriteria, the Project would meet the eligibilityrequirements for subsidized loans, which couldreduce the borrowing costs associated with GETSurcharge-backed bonds.

• A similar proposal to create the AmericanInfrastructure Finance Authority has been made by abipartisan group of Senators. This new entity wouldreceive $10 billion in funding for one year, whichwould then be provided on a revolving basis toinfrastructure projects that contribute to regional ornational economic growth. The authority wouldprovide low interest loans, loan guarantees andalternative minimum tax exemption on private activitybonds. Any reduced interest financing tools providedunder this proposal could reduce the borrowing costsfor the City, and provide additional capacity in theGET Surcharge revenue stream.

• A bi-partisan coalition of mayors has proposed thecreation of Qualified Transit Improvement Bonds(QTIBs). QTIBs represent a new category of directsubsidy tax-preferred bonds for transit initiatives ofnational significance, and are pending legislativeapproval as part of pending or future tax legislation.It is proposed that the federal interest subsidy wouldbe set at 100 percent of the interest rate on thebonds and the bond principal repayment must bebacked by non-federal revenue source, such as GETSurcharge revenues. A 100 percent subsidy of long-

term bonds would reduce the Project interest costsby approximately $204 million on long-term debt.

QTIBs are proposed to be enacted as part of a pilotprogram, through which the Secretary ofTransportation would select nationally significantprojects or programs of projects based on highbenefit-cost ratios or other project parameters.Eligible projects would include public transportationprojects, or programs of projects, that significantlyreduce greenhouse gases or emissions, have anestimated capital cost in excess of $1 billion, andderive not more than 30 percent of their capital costfunding from New Starts funds.

The creation of a QTIB-type financing instrument isnot unprecedented. Since 1997, Congress hasenacted half a dozen separate programs authorizingstate and local governments to issue tax-preferreddebt at or near zero percent. These programs,totaling in excess of $37 billion, have been forpurposes such as public education, Gulf andMidwestern disaster recovery, clean renewableenergy, forestry conservation and energyconservation. The interest subsidies are designed toprovide federal buy-downs of 70 percent to100 percent of borrowers’ interest expense. Eachprogram has a volume cap and maturity limitationassociated with it.

Extension of GET Surcharge Revenues

The enabling legislation for the GET Surcharge revenuesrequires the state to stop levying the surcharge onDecember 31, 2022. Any change in the sunset datewould require action by the state legislature. Extendingthe collection period by 2 years, through December 31,2024, would generate approximately $740 million inadditional GET Surcharge revenues.

Lower Amount of GET Surcharge RevenuesRetained by the State

As stated earlier in the Financial Plan, the enablinglegislation on the GET Surcharge specifies that10 percent of GET Surcharge revenues be retained bythe state. The 10 percent retention is included in theenabling legislation, so any change could require actionby the state legislature. A decrease of this percentagefrom 10 to five percent would result in an increase inGET Surcharge revenues of $149 million from FY2013 toFY2023.

Lease Finanang Arrangement for Rail Vehicles

The City is acquiring rail vehicles for the Project underthe Core Systems Contract for an estimated capital costof $212 million. The City may explore the potential toenter into a lease financing arrangement through private



placement with a bank or financing institution, whichcould be secured by federal funds such as Section 5307funds. Under such an arrangement, the City would stillprocure the vehicles under the Core Systems Contract,but assign the rights to the vehicles to the lessor (thefinancing institution) under an Assignment Agreement.The lessor would then delegate the rights to the vehiclesback the City, and at the end of the lease term the fulltitle would be transferred to the Oty. The City wouldlikely structure a series of draws consistent with thecontract progress payments. Under current marketconditions, the average interest rate on a ten year leaseterm would be about 3.85 percent, whereas the rate ona 15 year lease would be approximately 4.00 percent.

One advantage of this arrangement would be toleverage the future Section 5307 revenues, and reducethe amount of Section 5307 revenues required for theProject during the construction period. This could permitmore Section 5307 funds to be utilized for the fixed-route bus system. It could also enable the City to sculptlease payments to match the progress payments underthe Core Systems contract. Because the lease term couldbe structured to extend for 10 to 15 years, it could allowsome additional GET Surcharge revenues to be availablefor other capital expenditures between FY20 13 andFY2023.

Value Capture

The Project will improve access to and spur developmentat many key areas within the City. The development ofthese sites and nearby areas will be significant, both inadvance of the rail system opening and after opening aswell. There are many ways that the Oty can benefitfrom this expected development, including through theuse of Tax Increment Financing (TIF), SpecialAssessment Districts, Development Impact Fees, orother ‘value capture’ mechanisms. These options wouldgenerate additional Project funding, which could be usedto offset any increase in capital costs or decrease inavailable GET Surcharge revenues, or used to reduce theCity’s contribution to O&M costs for the Project.

Tax Increment Financing provides a mechanism wherebyfuture gains in tax revenues within the boundaries of adefined district can be used to issue bonds to fundcapital improvements and other defined costs. TIFenabling legislation is in place under Chapter 33 of theRevised Ordinances of Honolulu. Any county councilmay provide for TIF by approving a tax incrementfinancing plan and adopting an ordinance establishingthe district.

Special Assessments involve levying a special propertyassessment paid annually within a defined area ofbenefit, with revenues used to finance Project-relatedcapital, operating, maintenance, and other

improvements. The cost of the improvements isallocated to property owners within the district andcollected based on a defined allocation formula over apredetermined number of years. House Bill 753 SD2enacted by the State in 1999 grants the authority toindividual counties to charter and authorizes the creationof Special Improvement Districts (SIDs). Each SID mustbe enacted by a separate ordinance of the County.Under local legislation in Honolulu, Ordinance 12 (April2000) authorizes the establishment of SIDs in the City.The City has experience working with SIDs and issuingSID bonds.

Development Impact Fees are one-time fees paid whena landowner secures a building permit within a definedarea of benefit, with revenues used to financeinfrastructure improvements. The fees themselves,generally structured per dwelling unit or per square footof non-residential space, are based on the relativebenefit the infrastructure asset provides to the propertyowner.

To provide an order of magnitude estimate of potentialrevenue generation from value capture, a preliminaryanalysis was conducted of applying the three valuecapture concepts above in three geographic contexts:within a half-mile radius of each of the planned stations;within one-half mile of the corridor alignment (excludingstation areas); and within the broader urbanized area(excluding the station and corridor areas). For each ofthe three concepts, revenue estimates were developedfor the three potential areas of benefit over a 30-yearperiod (2012-2048) in order to determine the level ofbond financing that could be supported by value capturerevenues. The analysis conservatively assumed 30-yearbonds would be issued at a rate of 8.0 percent interest.Annual revenues were projected to be twice the annualdebt service payment required (2.Ox coverage ratio) anda 4.0 percent issuance cost was assumed. Withapplication of the three concepts within a half-mileradius of planned stations only, the level of valuecapture-backed bonding that could be used to fund theProject ranged from approximately $65 million to $95million, with the lowest level of bond proceeds used for

as a potentialpurpose of sensitivity testingsupplementary source of funding.

Private Participation

As an alternative approach to value capture, the Citycould enter into an agreement directly with a privatedeveloper where the private company wouldcompensate the City for transit development costs thatgenerate economic activity. For other similar rail transitprojects across the U.S., revenues associated with thesetypes of mechanisms have generated on the order of 10



percent of total project costs, which could equal up to$500 million for the Project.

Other Transportation Funding Sources

HDOT has received on average $33 million over the lastfive years in Surface Transportation Program (STP)funds each year, and $9 million in Congestion Mitigationand Air Quality (CMAQ) funds. Transit capitalexpenditures are an eligible use of both sources offunds. HDOT could transfer these funds to the City byasking the Federal Highway Administration (FHWA) to“flex” these funds to the Section 5307 program, to bedispersed to the Project. The City will work with HDOTto examine whether there are opportunities to utilize

CAPITAL PLAN SENSITIVITY ANALYSES

Sensitivity analyses were run to assess the City’scapacity to cover unexpected cost increases or revenuereductions. This section presents the results of apotential reduction in annual amounts of New Startsfunding, elimination of Section 5307 funding for theProject, a reduction in the growth rate in net GETSurcharge revenues, and a 10 percent increase inProject capital cost.

Table 4-1 presents how the impact of these scenarioscould be mitigated. For the purpose of this FinancialPlan, the first source of mitigation is $65 milliongenerated by bonding against value capture revenues,

1- New Starts $150M Annual Cap:. $33

2 - No Project Section 5307 Funding $223

3 - Lower GET Surcharge Growth $118 $65

4 - 10% Project Capital Cost Overrun $434

1/ Represents Project cash balance after all Project debt is repaid in FY20232/ Timing and amounts of debt repayment affect the duration of the required GET Surcharge extensions

federal highway funds for the Project.

Military

Given that Honolulu has such a strong and large militarypresence, and considering that the Project will benefitmany military users, consideration should be given toseeking financial support for the Project both in the formof capital and operating assistance. Military activities willalways be a large component of Honolulu’s business anddevelopment across O’ahu, and over the long-term theMilitary will benefit from the implementation of railtransit service. Preliminary discussions could be initiatedwith the appropriate officials to consider financialsupport for the Project. Any Military support in the formof capital funds received by the Project could be used tooffset any decrease in available GET Surcharge revenuesor to cover additional cost increases of the Project.Financial support could also be used to offset thedifference between operating revenues and costs, whichwould reduce the Project O&M cost subsidy required bythe City.

while the secondary source of mitigation is assumed tobe an extension of the GET Surcharge.

Scenarios 1, 2, and 3 summarized in Table 4-1 addresslower capital revenues, while Scenario 4 offsets highercapital costs, as described further. The detailedsensitivity cash flows are induded in Attachment B.

Scenario 1— New Starts $150 Annual Cap

In Scenario 1, the annual amount of New Starts fundinghas been capped at a maximum of $150 million peryear. Under this scenario the City would not receive thefull balance of New Starts funds until FY2022. The Citywould still issue approximately $855 million in GANs toleverage the FFGA revenues, although the annual debtservice would be sized to less than $150 million per yearso that it would not exceed the total amount of NewStarts revenues expected in the following year.

Even with the issuance of GANs, the reduction in federalfunds during the peak construction period would requireadditional bonds backed by GET Surcharge revenues tobe issued during FY2014-FY2019. Without any further

Table 4-1 Summary ofSensitivity Analysis Scenarios

Financial Net Bond ProceedsGET Surcharge

Scenario Shortfall from Value Capture Extension Scenarios

(YOE sM)1 Revenues (YOE $M)to Eliminate Shortfall

(in Quarters)2

$65

$65

$65

0

3

1

5



mitigation, this scenario would result in a $33 millionfunding shortfall. The City could mitigate this scenariofully by implementing and bonding against revenue froma value capture mechanism, which would result in apositive end balance of $57 million.

Scenario 2— No Project Section 5307 Funding

This scenario assumes that the City would not utilizeSection 5307 funds for the Project, and wouldpresumably utilize these revenues for eligible capitalexpenditures for the fixed-route bus system instead.This would reduce the total amount of capital funding by$241 million between FY2013-FY2023.

The City could mitigate this revenue reduction partiallyby issuing more GO bonds backed by GET Surchargerevenues during the construction period. However, afterfully leveraging the GET Surcharge revenue stream, afunding shortfall of $223 million would still exist. TheCity could fully mitigate this scenario by implementingand bonding against revenue from a value capturemechanism and extending the GET Surcharge by threequarters, through the end of September of 2023, whichwould result in a positive cash balance of $86 million.

Another alternative for mitigating the impacts of areduction in Section 5307 funding would be to employ apotential lease financing arrangement for rail vehicles,as described above. The Oty could pledge a smallerportion of Section 5307 revenues during the constructionperiod to making lease payments, thereby allowing alarger portion to be utilized for bus-related capitalexpenditures from FY2013-FY2019.

Scenario 3—Lower GET Surcharge Growth

Scenario 3 examines the impact of a potential reductionin GET Surcharge growth in future years. This scenarioassumes 4.00 percent growth in GET Surchargerevenues in all years beyond FY2O11 (as opposed to5.04 percent annual growth in the base case). Thisscenario results in a reduction of GET Surchargerevenues of $182 million between FY2012-FY2023.

This scenario could be partially mitigated by issuingmore GO bonds than in the base case scenario, althoughthat strategy would still result in a $118 million fundingshortfall. The City could mitigate this scenario fully byimplementing and bonding against revenue from a valuecapture mechanism and extending the GET for onequarter, through the end of March 2023, which wouldresult in a positive cash balance of $39 million.

Scenario 4—10 Percent Project Capital CostOverrun

This scenario illustrates the impacts of a 10 percentincrease in capital costs occurring after execution of an

FFGA (in FY2013). This would increase the capital costby approximately $395 million and result in a fundinggap of approximately $434 million. This funding gapcould be fully mitigated by implementing and bondingagainst revenue from a value capture mechanism andextending the GET Surcharge for five quarters, throughthe end of March 2024, which would leave the City witha positive cash balance of $34 million.

OPERAUNG PLAN

OPERATING COSTS

Core Systems Contract

As mentioned in Chapter 3, about 90 percent of theProject’s O&M cost will be covered by the Core SystemsDBOM contract that was recently awarded. Theoperating and maintenance agreement includes pricingfor labor, materials, management and administrationnecessary to support the operations and maintenance ofthe Project. As such, the risks and uncertainties aroundunit prices and service plan are strongly mitigated by thepresence of this contract.

Cost Escalation: Labor Cost, Energy Prices

Inflation assumptions for O&M cost used in this FinancialPlan are considered to be reasonably conservative. Rateswere applied to each Project O&M cost category fromthe Core Systems Contract and each object class forTheBus and TheHandi-Van O&M costs. This level ofdisaggregation allowed for consideration of differencesin the growth outlook for various cost items, such ashealth care or fuel prices, which are expected toincrease faster than general inflation. Inflationary risksand uncertainties do remain, however, as the global andlocal supply/demand balance evolves. This is the case,for example, with energy costs in Honolulu, which arehighly driven by oil prices and therefore subject to itsvolatility.

OPERATING REVENUES

Fare Revenues-Ridership

Fare revenues are based upon current demand forecastsfor ridership and a continuation of current fare levels inreal terms, which could both change due to a number ofshort-term and long-term factors such as:

. The state of the economy• The local job market• Population growth• Traffic congestion on roads and main highways• Fuel prices



• Land use and development plans

While the existing travel demand forecast has madesome assumptions with regard to each of thesevariables, there are uncertainties surrounding the timingand extent of each.

The operating revenues included in the Financial Planassume periodic fare increases that would maintain afarebox recovery ratio between 27 percent and33 percent, as per the City’s current policy. However,fare revenues could be reduced if the City does notimplement the fare increases as shown in the FinancialPlan.

The fare revenue forecast has not taken into accountany temporary ridership decreases that could result fromthe fare increases, because of previous experiencedemonstrating the relative inelasticity of the City’s transitdemand with respect to fares. Furthermore, the fareincreases have been sized to increase the average fareat approximately the same rate as general priceinflation, but on a less frequent basis. Accordingly, thefare increases should have a minimal effect on ridership.However, any reduction in ridership as a result of thefare increases could lead to a lower farebox recoveryratio.

OTHER OPP0RTuNmEs FOR THE OPERATING PLAN

Other Operating Revenues - Net ParkingRevenues, Advertising Revenues, TOD (3ointDevelopment)

Additional and/or expanded sources of operatingrevenues could be considered for the Project. Thefollowing identifies selected options that could reducethe City’s contribution to offset operating costs.

Advertising and Other Non-fare OperatingRevenues

Expanding the advertising program could generatesignificantly more than the approximately $400,000received by the City for bus advertisements. With theintroduction of rail service, not only will there be anability to advertise within each railcar, but the stationswill also present potential advertising locations for localbusinesses. Based on 2010 NTD data, Honolulu receivesapproximately $0.001 per boarding in advertisingrevenues, while similar larger-sized systems receiveadvertising revenues that are 10 to 100 times greater,after adjusting for ridership. Other miscellaneousoperating revenue opportunities include the lease ofright-of-way for telecommunications or naming ofstations.

Parking Revenues

Demand for park and ride stations is strong in Honolulu,and charging even a nominal amount for daily parkingcould generate a significant amount of revenue.Collected parking funds could be used for capital and/oroperating, as parking surcharges could be used to offsetthe construction costs of the parking garages, orrevenues could be used to offset operating costs of thegarages including garage attendants and securitypersonnel.

Improve Service Effidencies in Bus and RailOperations

The addition of the Project to the existing transitnetwork will likely result in some overlap of servicebetween bus and rail. While some bus service and routemodifications are planned as the Project is implemented,there is a possibility to further reduce redundancies inthe bus service as rail ridership grows. This would havean impact on ongoing bus fleet replacement cycles,which can lead to reductions in both capital andoperating costs.



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Attachment D: O&M Cost Escalation Assumptions

Table D-1, Honolulu CPI-U and U.S. Health Care Costs Annual Growth Rates

2006 5.86% 5.06%

2007 4.83% 7.87%

2008] 4.26% 1.80%

2009 0.52% 3.08%

2010 2.11% 4.79%

2005-2010 0 0CAGR

3.54/0 4.87/o

1/ DBEDT2/ BLS National Compensation Survey, 3/9/2011, Civilian workerswith the Production, transportation, and material moving occupations

Table D-2, Honolulu Actual and Forecasted Resident Population

838,534 0.93% 91,788

20001 875,054 0.43% 118,306 2.57%

2005 899,673 0.56% 127,692 1.54%

2010 911,833 0.27% 145,148

2015 941,824 0.65% 165,988

2020 969,462 0.58% 189,347

2025 994,610 0.51% 213,784

2030 1,017,565 0.46% 234,502

2005

U.S. HealthcareHonoluluCost per Hour

CPIUWorked2

3.78% 6.77%

1980k 764,600

Honolulu County Honolulu CountyTotal Resident Annual Resident Population Annual Growth

Population Growth Rate Over 65 Years Old Rate

56,282

5.01%

2.60%

2.72%

2.67%

2.46%

1.87%

1.14%2035 1,038,316 0.40% 248,215

1/ Actuals per Revised Estimates from US Census Bureau (release date May 2009)

Source: 2009 State of Hawaii Data Book Table A-13

September 2011Page D-1



Table D-3 O&M Inflat/on Costs Appiled to Project CARP and Core. Systems O&M Costs

Hourly Earnings Hourly Earnings Street, Subway Line Haul Average of— Transportation — Services to and Rapid Railroads PPI Indices

and Utilities Buildings and Transit PPI3 PPI4Industry1 Dwellings

Industry2

2001 N/A N/A N/A N/A N/A

2002 355% 3.16% 0.18% 2.26% 1.15%

2003 6.92% 3.16% -0.83% 1.72% 0.37%

2004 3.13% 1.91% -0.23% 2.63% 1.14%

2005 -6.45% 2.17% 2.60% 6.98% 4.72%

2006 0.03%1

2.72% 2.27% 11.23% 6.70%

20071298% Z87% 2.52% 4.83%

2008 2.61% 4.50% 1.86% 8.36% 5.25%

2009 7.26% 3.15% 2.24% 2.99% 2.64%

2010 0.40% 0.51% 3.45% -0.84% 1.14%2001-2010

2.20% 2.68% 1.55% 4.40% 2.96%

. O&M Materials. . Costs and CARP

Rnandal O&M Labor costs CARP Labor Costs I Matenals and

Plan . -

: EquipmentCosts

1/ BLS, Hourly Earnings for Production Employees, Transportation and Utilities Industry, Honolulu, SMU152618040000000012/ BLS, Hourly Earnings for Buildings and Dwellings Industry, U.S., CEU60561700083/ BLS, Producer Price Index, Street, Subway and Rapid Transit, U.S.,PCU33651033651054/ BLS, Producer Price Index, Une Haul Railroads, U.S., PCU482111482111Note: CARP subcontract costs escalated using 50% average PPI of ‘Une Haul Railroads’, and ‘Street Subway, Trolley and RapidTransit, and 50% BLS Honolulu, Hourly Earnings, Production Employees, Transportation and Utilities

Honolulu High-Capacity Transit Corridor Project September 2011Page D-2


Attachment E: Local Financial Commitment ChecklistIncludedGRANTEE FINANCIAL SUBMITTAL (check one) Reason Why Information

Yes No Has Not Been Provided

20-year cash flow statement (in year of expenditure dollars) including capital and operating financial plans(provided both electronically and in hardcopy). The cash flow statement should clearly show revenues and Xexpenses for the project separated from those for the remainder of the transit system. — —

Detailed written description/discussion of all assumptions used in the financial plan including:Federal/state local/debt proceeds finding assumptionsAverage fare assumption

Previously submitted to FTAAverage weekday ridership assumptions XFMOCDebt coverage requirements/assumptions

Assumptions used in the calculation of operating expenses for each mode (i.e. -- vehicle miles, vehicle hours ofservice provided, etc.)

Previously submitted to FTAProject Description and New Starts Project Finance Temylate X as part of the FY20 13 New

Starts Report

Previously submitted to FT ACapital cost estimate for the proposed project (in year of expenditure dollars) in the Fl’A standardized cost x as part of the FY20 13 Newcategory worksheet formatStarts Report

Sensitivity Analysis (spreadsheet calculations as well as narrative summary) X

Supporting Documentation Including: — —

Background information and description of the New Starts fixed guideway project, including project status X

Historical revenue and expense data (minimum of 5 years required, more than 5 years appreciated) X —

Commitment letters, contracts, agreements, legislative referendums or other documents demonstrating localX Provided in 2009share commitment of non-Federal finding partners

Enacting legislative documents for tax referenda — X Provided in 2009

Joint development agreements, or description and supporting documentation of other innovative financingNot Applicabletechniques, if applicable

Previously submitted to FTAAnnual Operating and Capital Budgets for the past 3 years XFMOC

Previously submitted to FTAAudited Financial Statements and Compliance Reports for the past 3 years XFMOC

Previously submitted to FTAAnnual Reports/Comprehensive Annual Financial Reports (CAFR) for the past 3 years XFMOC

Background information and description of the transit agency, including organizational structure and grantee> Previously submitted to FTA

enabling legislation FMOC

TIP, STIP and Short Range Transit Plan (SRTP), if available (please provide only relevant pages of these Previously submitted to FTAxdocuments) FMOC

Previously submitted to PTARegional Long Range Transportation Plan (please provide only relevant pages) XFMOC

Previously submitted to FTASponsoring Agency’s Capital Improvement Program Document XFMOC

Previously submitted to FTABus and Rail Fleet Management Plans including fleet replacement schedules XFMOC

Previously submitted to FTALatest bonding prospectus/credit facility documents (credit lines, commercial paper, etc.) XFMOC

Local development, demographic and economic studies used in preparing the financial plan, plus documentation Previously submitted to FTAxsupporting efficiency or productivity gain assumptions FMOC

Other materials (if any), please describe: X Not Applicable

Honolulu High-Capacity Transit Corridor Project September 2011Page E-1

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