- Special Projects
UPDATED 9/22/2011 12:01 a.m.
Editor’s Note: Four well-known opponents of rail published an opinion piece in the Aug. 21 edition of the Honolulu Star-Advertiser. Civil Beat has identified seven claims worthy of a closer look. This is one of those Fact Checks.
Perhaps the most common refrain from rail critics is that the proposed technology is more than is needed for our small island, that the $5.3 billion price tag is too high, and, basically, that we can’t afford it.
In their Aug. 21 op-ed, four well-known opponents made the following statement:
Even with such cherry-picking and wildly optimistic forecasting, however, the city reluctantly acknowledges that if rail were to be built, another $100 million would need to be “found” each year, just to keep the trains running. The obvious sources are substantially higher fares for riders and substantially higher taxes for everyone.
Asked for support documents, one of the piece’s authors, Cliff Slater, provided the following statement to Civil Beat:
See DRAFT Financial Plan for Entry into Final Design April 2011, Cash flow attachment. Subsidy for first full year of operation in 2020, less Handi-Van, is $216 million. For 2010 it is $97 million.
Since both Slater and the Honolulu Authority for Rapid Transportation pointed to the same table to argue their case, let’s take a look at it.
The opponents compare the current transit operating subsidy against the transit operating subsidy the first year rail is fully operational. The logic there is that any change between the no-rail cost today and the with-rail cost then must be due to the addition of the rail system.
Here’s their math: The 2010 operating subsidy for the transit system — including TheBus and TheHandi-Van — is $127 million. That’s the amount taxpayers need to kick in to keep the system running.
TheHandi-Van provides door-to-door service for disabled people who can’t use the bus. It’s not for the general population. Opponents remove its costs and revenues from the equation. In 2010, its operations and maintenance costs are $32 million, and its revenues are projected to be $2 million.
So the 2010 operating subsidy for the transit system, excluding TheHandi-Van, is $97 million. For 2020, the same equation yields an operating subsidy, excluding TheHandi-Van, of $216 million.
The difference between those two numbers is $119 million.
The problem with using that figure as the annual cost of rail operations is that it fails to account for the rising costs to operate TheBus, and for inflation in general.
But bus operations and maintenance costs are projected to rise by $83 million from 2010 to 2020. After adjusting for a $22 million increase in fare revenues and a $4 million increase in federal assistance, the operating subsidy needed to run TheBus is projected to be $57 million higher in 2020 than 2010.
That would leave $62 million needed to subsidize the rail line.
That doesn’t approach the $100 million figure claimed by opponents.
University of Hawaii Professor Randall Roth, one of the authors of the opponents’ op-ed, told Civil Beat that distinguishing bus from rail “makes little sense in light of the City’s plan to have a unified fare structure; and that your attempt to separate O&M costs is similarly flawed in light of the City’s plan to integrate TheBus with TheTrain.”
“We noted that there would be $100 million in additional subsidies in 2020. The city’s cash flow statement projects an increase of $119 million in bus/rail subsidies from today to 2020. Any reasonable fact check would stop there and judge our statement to be TRUE,” Roth wrote in an email “Instead, you pursue (City Transportation Services Director Wayne) Yoshioka’s line of advocacy, which is straight out of Hamer’s, The Selling of Rail Transit, to cast doubt on ‘our’ number. It’s the City that is forecasting an increase in transit subsidies of $119 million for bus and rail in the first full year of operation.”
Basically, it appears the opponents are arguing that if rail didn’t exist, the transit subsidy would stay flat into the future. That is not believable, given that bus costs are projected to rise $37 million before a single passenger even boards the train and fares are only going to go up $20 million in that time.
The city’s financial plan as outlined in the document used by opponents does account for the integration between bus and rail, but keeps the two modes separate in one important way. The plan notes that fare revenues are split between bus and rail, with half of the formula determined by boardings and the other half determined by passenger-miles.
Those split fare revenue numbers offer another way of looking at the problem.
The first step is to isolate the city’s projected operations and maintenance costs for the “Fixed Guideway” (aka the rail), stated plainly in the table above. The rail-specific O&M costs are projected to start at $31 million in 2016, rise to $92 million in the first year of full operation in 2020, and continue rising to $116 million in 2030. (All these figures are expressed in Year Of Expenditure dollars, so inflation is factored in.)
The average annual cost for rail operations over the first 15 years of rail outlined in the city’s table comes to $88.6 million. If you drop the first four years before the system is fully operational, the annual average for the remaining 11 years is $100.6 million.
Perhaps this approach will support the opponents’ claim that $100 million is needed “just to keep the trains running” every year. It is true that number does represent the average annual cost of running rail.
But it’s misleading because opponents also claimed that the full $100 million needs to be “found” each year — via “substantially higher fares for riders and substantially higher taxes for everyone.”
The table includes, just a few lines above the operations and maintenance costs, figures for projected ridership revenue for each of the years in question. The city predicts that fares will cover somewhere between 30 and 40 percent of operating costs.
Here’s a year-by-year breakdown, in case the table above has you squinting or you’re not so good at subtraction. (The formula we used to determine the required subsidy is operating cost minus fare revenue.)
|Year||Fixed Guideway O&M
($ millions YOE)
|Rail Fare Revenues
($ millions YOE)
($ millions YOE)
|Full Operations Average||$100.6||$38.5||$62.1|
Source: Civil Beat analysis of financial plan
If the 11 years of full operations described in the project’s most recent financial planning document are the source for the opponents’ claim, then $62 million is the right amount of money that needs to be “found” each year, not $100 million. (By means of comparison, the city’s bus system will require, on average, a $209.3 million annual operating subsidy during the same 11 years.)
Even if opponents believe the city’s ridership projections are too high or operating cost projections are too low, it’s not reasonable to leave fare revenues out of the equation entirely.1
And there are the annual federal grants for maintenance to consider, because they would further lower the subsidy required from city taxpayers. The Honolulu Authority for Rapid Transportation (HART), using 2024 as a representative year with $99 million in projected total rail O&M costs, said $8 million of that year’s costs will be covered by the rail portion of federal 5307 transit funds.2
In that case, the city subsidy would be $54 million. In later years, the city’s operating subsidy for rail will be higher than that. HART says the gap will be paid by a combination of highway funds and general funds.
Bottom line: Opponents are correct that higher taxes, fees and/or fares will be needed to subsidize the rail system. But they exaggerate the size of the subsidy. In fact, in a representative year, they nearly doubled it.
In our estimation, the actual additional cost to Honolulu taxpayers is about half what opponents say it’s going to be. Our view is that their claim is Half True.
Here are the related Fact Checks:
Check out two pieces from Civil Beat’s award-winning series about rail finances for a closer look at both operating revenues and costs. Those pieces looked at the city’s August 2009 financial plan. In its April 2011 financial plan, the city changed its forecast for Section 5309 “Bus Discretionary” funds from $419 million to $117 million “to reflect the year-to-year variations in this discretionary program. The forecast now based on City average historical receipts of 5309 bus discretionary funding.”
(Skeptics will astutely note that 2024 happens to represent the city’s largest projected haul in 5307 formula funds for preventive maintenance.)