Mayor Mufi Hannemann plans to start building the first two phases of the $5.3 billion rail transit system with city funds collected from the 0.5 percent increase in the general excise tax on Oahu.

The mayor announced yesterday that the city awarded the first major contract to design and build 6.5 miles of raised guideways between Kapolei and Pearl Highlands near Leeward Community College.

Hannemann said the $483 million contract with low-bidder Kiewit Pacific Co. will create jobs and stimulate the sagging economy. He also noted that by awarding the contract in a down economy, the bid came in $90 million under the original estimate.

Because of the lower construction costs, the city will put out to bid next month the second phase of the project, a 3.9-mile leg from Pearl Highlands to Aloha Stadium, he said. The bids were originally scheduled for 2012.

“;The money is there,”; Hannemann said. “;We want to make it happen.”;

But rail critics said the mayor is rushing the project by starting construction without a commitment of federal funds.

“;It's a huge risk,”; said rail opponent Cliff Slater. “;It may be a risk the mayor is willing to take but it's not his money, it's ours.”;

City Councilman Charles Djou questioned whether politics has something to do with yesterday's announcement.

“;I think the mayor needs to show he's doing things for his governor's campaign,”; Djou said.

Djou acknowledged that the mayor is saving money by awarding the contracts now. But, he asked, “;Is it penny-wise and pound-foolish, not knowing if we're getting $1.5 billion in federal funds? Is that really financially smart?”;

Hannemann said the project has the support of key federal and congressional officials, including U.S. Sen. Daniel Inouye, and starting the project with city funds shows commitment to mass transit.

Earlier this month, the Federal Transit Administration gave the city approval to begin preliminary engineering. No project that has reached that stage has been denied federal funding, Hannemann said.

The mayor still hopes to break ground in December on the rail system. Construction would take three years and the first phase of the project would begin operating in three years with the entire 20-mile route finished 10 years from now.

“;This is a major economic stimulus. We cannot afford not to do this,”; Hannemann said.

The contract awarded yesterday includes construction of the guideways, installation of train tracks and restoration of road surfaces along the route. Separate contracts are to be awarded next year for a storage and maintenance facility and for the train vehicles and core system. Other contracts will be awarded to build the train stations.

Before construction can begin in December, the city must get federal and state approval of its final environmental impact statement, which is expected to be released later this month.

Slater and Djou said it's not clear if the federal and state governments will move fast enough to approve the EIS in time for a groundbreaking by the end of the year.

Court challenges to the EIS could also hold up construction.

Djou and Slater also questioned the need to start the project in Kapolei when many of the homes along the proposed rail route have not yet been built and D.R. Horton's nearly 12,000-home Ho'opili development proposal is having problems getting a zoning change.

“;Is it really smart to start in a dirt field?”; Djou asked. “;The risk is you build a white elephant that no one can use.”;

Hannemann said naysayers need to come up with a better alternative to build transit and create jobs.

“;It's easier to grumble, grumble, grumble, to complain, complain, complain, monku, monku, monku,”; he said.