The cost of multibillion construction projects can be as unpredictable as tax revenues and the economy itself.

The city has a $1 billion cushion in its $5.3 billion budget for potential cost overruns on its rail project. But based on the experience of some other cities, it’s possible the total cost could exceed the budget, leaving taxpayers on the hook.

The reliability of financial projections and the implications of exceeding them are among the concerns raised by critics of the rail project. But city officials say they have an adequate cushion to absorb cost overruns and point to successful rail projects on the mainland that have come in under budget to support their view that the plan is on track.

“They’ve had to be conservative in their estimates, and that’s why there’s a billion dollar cushion in there,” said Mark Oto, the city’s deputy director of Budget and Fiscal Services Department. “They know there are going to be cost overruns.”

Honolulu residents and visitors already pay a 0.5-percent surcharge to the General Excise Tax to pay for rail. But the city dropped its rail tax projections for the fiscal year ending June 30 from $198 to $164 million, and the prediction now is that they’ll be even lower.

Even though city officials say that altering the surcharge — either raising it or extending it past its sunset date in 2022 — is not in the plan, critics fear that they could be forced to find some way to increase revenues.

Some City Council members have expressed concern about financial projections — even with the cushion. Experts can find it difficult to accurately predict costs of major construction projects, because factors such as the global demand for steel and cement, as well as oil prices, can play such an instrumental role.

“They always claim that there is the $1 billion cushion or contingency, but actually the way to look at it is how much is really needed to finance the completion of the rail,” said Honolulu City Councilor Romy Cachola, who wrote a report on the project. Uncertainty over whether the federal government will come through with the entire $1.55 billion promised for the project is another complication.

Cliff Slater, chair of Sensible Traffic Alternatives and Resources Inc., a group opposed to rail, believes if the surcharge can’t be extended or raised, officials will raise property taxes — a current source of funds for many city operations, including TheBus.

The concern over costs also comes in snippets from the federal government.

“While the city already has in place a dedicated funding source, project costs have reached a point where they exceed the projected capacity of that source,” an October 2009 Federal Transit Administration memo said. “Further, the collections have under-run projections made before the current economic downturn…. A look ahead by the FTA’s financial contractor suggests that these difficulties may cause the financial plan to fail the financial stress tests that will be applied when the City requests entry into final design.”

However in an interview at the end of April an FTA spokesman declined to discuss financing specifically related to Honolulu. Later, responding to a broader line of questioning, he explained that the FTA only tracks rail projects funded under its New Starts Program. Of these projects in the last 10 years, approximately 70 percent were completed within budget, 15 percent came in under budget and 15 percent ran over.

“It should be noted that when New Starts projects exceed their budget, no additional New Starts funds are ever provided; rather, cost overruns are typically funded with local residents,” the FTA spokesman wrote in an e-mail message.

The overruns ranged from $19 million on a $327 million project to $1 billion on San Juan’s Tren Urbano project, he confirmed.

First Hawaiian Bank Chairman and CEO Don Horner has reviewed the Honolulu numbers and deems the financial plan reasonable — “even conservative.” Horner acknowledged that the proposal overestimated revenues from the GET surcharge, but he pointed out that the capital expenses were also determined at the peak of the construction market. The first construction bids came in 10 to 25 percent lower than anticipated in the budget, according to the FTA memo.

Yet even though the numbers look good to the veteran financier, he said another analysis from independent accountants is necessary.

City officials point to success stories in Vancouver, and Seattle, where the rail project was completed 30 percent under budget.

But Honolulu is not the only place with questions about rail costs. A 2007 study by Bent Flyvbjerg of Aalborg University in Denmark cited the economic risks associated with urban rail projects. In many cases, cost data were not corrected for inflation, creating substantial errors in the fiscal outcome. He also noted that budgets are difficult to verify due to insufficient information — a point supported by the University of Hawaii Economic Research Organization, related to the Honolulu rail project. “We’re skeptical,” said UHERO specialist Andrew Kato. “It’s hard to know what they’re basing their predictions on.”

In short, Flyvbjerg’s research concludes that of all transportation infrastructure projects worldwide, rail has the highest cost escalations, typically around 45 percent. A quarter of those projects escalate over 60 percent: “For urban rail, large cost escalations combined with large standard deviations result in a particularly high level of uncertainty and risk regarding forecasts of costs.”

A case in point is Denver, which is now discussing a ballot measure that could double the FasTracks sales tax to make up the the $2.4 billion dollar gap for a rail system scheduled to be built by 2019, according to a story in The Denver Post. Metro Denver voters approved a 0.4 percent sales tax in 2004 to build FasTracks, but rising construction costs and dismal sales tax revenues shattered projections. At this point, Denver can afford to build only half its plan.

The story isn’t much different in Dallas. Gloomy sales tax revenues have raised concerns, noted a Dallas Morning News blog.

In California, a Los Angeles Times article reported that transit officials are resorting to a simpler plan to share tracks as costs escalate. “Is it a high-speed rail ride to the future or a Bay Bridge boondoggle times 10?” boomed a headline in the San Francisco Chronicle regarding the proposed rail from San Francisco to Los Angeles, which will demand $9 billion in voter approved bonds. Right after voters approved the $34 billion package, the price jumped to $43 billion, because the High Speed Rail Authority had failed to account for inflation.