Honolulu Rail Project Could Hit State Finances Hard

BY CLIFF SLATER – Gov.-elect Neil Abercrombie is correct that the rail project is primarily a city and Federal Transit Administration responsibility. However, he is wrong in declaring that it is not his responsibility “to weigh in on the finances” since rail has the potential to significantly impact the state’s finances.

Here’s why:

• There has never been a U.S. rail transit line that, once begun, has not been completed.
• Politics dictates that if the city cannot finance completion of the rail project, the state will have to step in and finish it.

What are the chances of the rail project either costing significantly more than budgeted, or not receiving the financing projected for it? Consider:

New Jersey’s Gov. Chris Christie has just canceled the New Jersey-New York tunnel, as he believed the potential cost overruns would be too risky to taxpayers. The project started in 2003 with a $4.3 billion price tag. By 2008, at the Final Environmental Impact Statement stage where Honolulu is now, the projected cost was $7.6 billion. Recently, at the “full funding grant agreement” stage, the FTA’s projected cost grew to between $10.9 billion and $12.7 billion.

Compare that with the Hono-lulu project, which began in 2003 at $2.6 billion and gradually increased to $5.5 billion at the present Final EIS stage. What will be the cost projection at the “full funding grant agreement” stage? And how about when it is actually built?

Also consider the last U.S. heavy rail project like Hono-lulu’s, the Tren Urbano line in San Juan. When actually built its cost was 74 percent more than its “full funding grant agreement” projection.

Gov. Christie was able to get the FTA to give him ranges and likelihoods of cost for the tunnel. It told him he had a 40-50 percent chance of meeting the mid-range costs of $10.9 billion, an 83 percent chance of meeting the high-range estimate of $12.7 billion, and a 17 percent chance of going over the high-range projection.

If we apply those probabilities to the Honolulu project, we would have a 40-50 percent chance of meeting the mid-range projection of $5.5 billion, an 83 percent chance of achieving a high-range of $6.9 billion and a 17 percent chance of going over that.

Proponents say that Hono-lulu’s rail project is different. The FTA has overseen it from the beginning, and has hired independent contractors to provide oversight of management and finances, and, to top it all, there is a billion-dollar contingency in the plan.

The only problem with this claim is that so has every recent U.S. rail project — and still many have gone wildly over their projected costs.

Let’s turn to the two possible sources of revenue, which are the half-percent surcharge on the general excise tax for Honolulu, and federal funding. Unfortunately, we do not yet have the independent forecast for GET collections that the FTA has called for. However, the FTA has said that the last financial plan forecast for tax revenues was “overly optimistic.” Presumably, an independent evaluation would show a significantly lesser amount than the $3.5 billion contemplated in the final EIS.

In addition, the FTA is clearly balking at the city’s use of $305 million in federal funds originally contemplated for bus purchases; it believes that substituting city funds for bus purchases will place an undue strain on city finances.

Then there is the matter of the $1.55 billion in federal New Starts funds. It is way out of line compared to what other cities have received, and it could well be that this amount will be scaled back to a more reasonable level. It should be remembered that the FTA told the city in 2004 that it would be limited to $500 million.

Let’s be clear that there are no other sources of funds now that can legally be used to fund this project; there is only the GE tax surcharge and federal funds.

It would not be unreasonable to consider that we could go a couple of billion in cost overruns, to which should be added a significant amount in GE tax shortfalls, and an FTA objection to the use of bus funds for rail construction.

It would be irresponsible of our governor-elect to sign off on the final EIS without reviewing the project’s finances unless the idea of the state possibly having to take over the project does not bother him.

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