Larger rail budget packs generous contingency plans

The new $12.449 billion price tag to build the city’s troubled rail project all the way to Ala Moana Center is based on more “conservative” budgeting expectations that include “every foreseen unknowables,” the board of directors of the Honolulu Authority for Rapid Transportation was told Thursday.

Lori Kahikina, HART’s interim CEO and executive director, said her administration is budgeting the 20-mile, 21-station rail project more conservatively and building in specific contingency funds for every phase of the project, compared with the more optimistic and “aggressive” budgeting approach by her predecessor, Andrew Robbins, whose contract was not renewed at the end of last year.

The actual cost estimate is $11.37 billion. But the higher $12.449 billion estimate includes financing costs and more generous but specific contingency funds.

“We’ve put every risk that we could possibly think of in there,” Kahikina said, “every foreseen unknowables in there so that you can budget for the worst-case scenario and hopefully we can come in under that. … I do understand that there’s concerns that, ‘Well, how come it ballooned just over a few months?’ …. Realistically, the costs didn’t balloon overnight. The previous numbers were very aggressive, and maybe risks weren’t calculated in that number.”

But Kahikina remained cautious in her forecasts.

“Those are estimates for the project,” Kahikina said. “Nobody has a crystal ball. Nobody can foresee the future, what the actual cost is going to be, until construction is complete. … I’m hoping every foreseeable thing that we’re anticipating is in that number.”

The meeting began with a call from Councilwoman Heidi Tsuneyoshi, who had tangled with Kahikina during a sometimes contentious and emotional City Council Budget Committee hearing Tuesday.

“I’m here to listen and to be part of the process of moving forward as we all try to come together,” Tsune­yoshi told Kahikina and the HART board Thursday.

Kahikina’s appearance before the City Council Budget Committee followed an earlier apology to the majority of HART board members for not telling them about the current $3 billion budget shortfall.

On Thursday, Kahikina asked the board for suggestions on how to simultaneously be transparent while not surprising board members, the City Council or the general public with new developments regarding the rail project.

“I’m trying to be (as) open and transparent as I can,” Kahikina said. “I would like guidance on how to disseminate information, accurate information, in a timely manner without stepping on toes.”

Kahikina received support and a suggestion that she simply notify board members if she tells others about new developments.

Board Chairman Toby Martin told Kahikina, “There’s no doubt that you’re taking great efforts to be open and transparent. I think as you sort of get comfortable with all of the stakeholders and their various needs for information and timing of those needs, I think we’ll get there. You’re doing your best, and it’s clear that everybody appreciates your candor and honest approach. But we’ll get there.”

Board member Joe Uno added, “You have my support for all you’re doing and will be doing.”

Uno’s board colleague Dean Hazama told Kahikina to simply “drop us a note.”

“I don’t think you should feel that, I guess, prevented from responding to anything or holding back any information from any stakeholder,” Hazama said.

Nathaniel “Nate” Meddings, HART’s project director, later told the HART board that the $12.449 billion price tag includes specific contingency budgets for every phase.

“Every single contingency value was mathematically derived and mathematically checked and challenged by every level of the working groups, the project manager and executive management,” Meddings said. “There’s a basis for every single contingency assignment.”

The new cost estimate also budgets for more than $200 million in “unallocated” contingency funds, he said.

“Unallocated contingency is kind of the owner’s reserve, which is that piggy bank below the line, which is at $225 million, and that’s also a pot of contingency that we could pull from with board’s approval to move that to a project that had overrun,” Meddings said.

Several members of the board tried to identify why the rail project now faces a budget shortfall of $3.577 billion.

Board member Kika Bukoski suggested that “a large portion of the $3.5 billion is just in cushion.”

He calculated that contingency budgets had grown to 127% from 25% as the rail budget expanded to $11 billion from $9 billion.

Uno also said that HART’s $1.4 billion budget to build the final four miles to Ala Moana Center proved to be unrealistic because bids came in more than $1 billion over budget.

Uno, who runs his own engineering company, said, “Industry out there is saying that it was more than $1 billion, probably closer to $1.4 billion, or almost double what we had in our estimate. … To not recognize those facts to me is folly.”

“It’s not that we’re building in fat into the estimate,” Uno said. “I believe that we’re trying to be more realistic because a lot of the criticism comes to HART because, well, we didn’t budget enough money. Now we’re trying to learn those lessons.”