The ethics questions raised in a Hawaii News Now news story this week continue to reverberate.
In reply to yesterday’s rail-related post, a reader using the name “Keith” offered up a substantive comment.
HART Does not issue or solicit or utilize consulting services related to the issuance of general obligation bonds. The entire process is handled by the department of budget and fiscal services’ treasury division. Neither the HART board or any HART employees is involved in the issuance or sale of general obligation bonds. No conflict.
This isn’t an accurate assessment of the process of issuance these bonds. To consider HART just an outside observer in the process of issuing city-backed general obligation bonds just isn’t correct, since it is legally just about as involved as the city council. Look a bit deeper and it is clear that the bonds could not have been issued by the city without an initial request to the council for the bonds.
On November 21, 2019, the board of directors of the Honolulu Authority for Rapid Transportation (HART) met and considered, among other business, Resolution No. 2019-17, “Relating to the Honolulu Authority for Rapid Transportation’s Request to the Honolulu City Council for Approval of the Issuance and Sale of General Obligation Bonds.” Toby Martyn was, and remains, chair of the HART board. According to his brief description on the HART website: “Mr. Martyn is a career financial services industry professional with over 30 years of experience in the areas of public finance, fixed income asset management, and institutional sales/trading. He is the manager of Stifel’s Honolulu branch office.”
The text of the resolution recites the provisions of the Honolulu City Charter spelling out HART’s role in the bond issue. Here’s the “Whereas” section of the resolution in full, and I’ve emphasized the sections describing HART’s role in the process.
WHEREAS, pursuant to Section 17-109 of Article XVII of the Revised Charter of the City and County of Honolulu 1973, as amended (“Charter”), and at the request of the Honolulu Authority for Rapid Transportation (“HART”), the Honolulu City Council (“Council”) may by resolution approve the issuance and sale of bonds for the capital costs of the Honolulu High Capacity Transit Corridor Project, now known as the Honolulu Rail Transit Project (“HRTP”); and
WHEREAS, the City and County of Honolulu Ordinance No. 99-11 (“Ordinance 99-11”) authorizes the issuance and sale of general obligation bonds of the City and County of Honolulu for the purpose of refunding certain outstanding general obligation bonds, including HRTP GO Bonds, of the City and County of Honolulu theretofore or thereafter issued, provided that pursuant to Section 7 thereof the sale is approved by resolution of the Council; and
WHEREAS, HART is required under Charter Section 17-109 to make a request to the Council for the issuance and sale of general obligation bonds, which proceeds will be used to finance the capital costs of the HRTP (“HRTP GO Bonds”) and the refunding of outstanding HRTP GO Bonds theretofore or thereafter issued; and
WHEREAS, HART and the City and County of Honolulu (the “City”) have entered into a memorandum of understanding regarding the issuance and sale of bonds; and
WHEREAS, the memorandum of understanding sets forth the obligations of HART to the City concerning HRTP GO Bonds and provides for HART’s reimbursement to the City for any payments of principal and interest and any other costs incurred by the City relating to the issuance of HRTP GO Bonds; and
WHEREAS, Charter Section 17-109 states that at the request of the Board of Directors of HART, the Council may by resolution approve all bond sales….
The HART board, with Martyn as chair, then voted 8-0 to approve the request to the council for issuance of these bonds. He voted again at the January 30, 2020 meeting on a technical correction to the numbering of the bond resolution adopted in November.
The link on the HART agenda for that meeting to this item is broken, and returns an error message, so I wasn’t able to look up the exact correction being made.
Then at the regular meeting of the Honolulu City Council on June 3, 2020, the council adopted Bill 22, authorizing the issuance of the GO bond series previously requested by HART.
Hawaii News Now obtained a copy of an after-the-fact “Disclosure of conflict of interest statement” filed with the Honolulu Ethics Commission by Toby Martyn on June 19, 2020 concerning the June 3 council meeting. The disclosure form described Martyn’s dual roles as manager of Stifel’s Honolulu office and as chair of the HART board. He said a matter relating to the HART budget and financing had been on the council agenda for June 3, and checked the following answer: “I did/will not participate in the decision making process on this matter.”
HNN apparently did not obtain any further disclosure statements regarding Martyn’s votes on the bond matter by the HART board.
So while Keith is correct that once approvals are in place, the technical issuance of the bonds is done by the Department of Fiscal Services, but HART has a clear, direct, and substantive role spelled out by law in the authorization process, as summarized in the resolution. The role of HART’s board is to request that the council authorize issuance of the bonds. HART’s role is as important in this regard as that of the city council, and can’t be dismissed simply because the bonds are then actually issued by the Department of Budget and Fiscal Services.
And that supports the conclusion in yesterday’s post that Section Sec. 3-8.2 Revised Ordinances of Honolulu, “Additional standards of conduct,” would prohibit someone in Martyn’s position from taking any “official action” on the bond matter because his company was a member of the “selling group” for the bond issue.
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Ian, your post’s next-to-last paragraph asserts that the role of the Hart board includes authorizing the issuance of the bonds. But isn’t the Hart board’s role one of requesting an authorization of bond issuance, not actually authorizing it?
Yes, you are correct. That was an inelegant choice of words on my part. I referred earlier to HART’s role in the authorization “process,” which I meant as the process starting back with HART’s request and continuing through to the council’s authorization vote. I’ll go back and clarify.
Thank you for the clarification on the council decision date of 6/3/20 noted in the disclosure statement. Would the EC have come to a different conclusion had a HART decision date been provided, e.g., 1/30/20?
Note that bills authorizing bonds tie to the CIP budget. The authorization for the dollar amount of bonds to issue comes via resolution and is usually not the full amount included in the CIP budget. In this case, HART Resolution 2019-17, which was voted on 11/21/19 and again 1/30/20, authorized the city to issue $375 million in bonds. The resulting council approval came via Council Resolution 19-334 on 1/29/20.
On Friday the HART board will vote on Resolution 2021-6 to request the city to issue $550 in G.O. Bonds.
I see I need to make a slight correction — the resolution to be voted on Friday is for $550 million in G.O. bonds.
That’s okay Natalie. Million, billion, who cares!
The problem with Keith’s statement was that if it was accurate, it would mean almost every large purchase by the City could have no financial conflict of interest concerns making the whole law sort of pointless. It would only apply when small purchases are being made, which have a dollar amount cap, if they exceed those they must go thru informal procurement (solicit three bids yourself) or at a higher level, formal (open bid). I’m not so worried if a department buys $2,000 from a supply store owned by a relative of the employee ordering the supplies. Voting for something which potentially is worth hundred of thousands to the employee or a close relative I am.