State Auditor Marion Higa in a report Friday blasted the Hawaii Department of Education over the soaring costs of student bus services.

She blamed school officials for ineffective and unsystematic management, citing a failure to even evaluate the district’s own route on the Big Island let alone the rest of the ones it contracts out.

“The department’s haphazard oversight of school bus contracts has resulted in a lack of competition among bidders, spiraling bus services contract costs, and questionable accountability among the department’s branches and its contractors,” Higa said in the report.

The auditor also pounced on the district for agreeing to contracts that let the DOE pay the General Excise Taxes for the bus companies.

“The State is not liable for GET and it is illogical for the State to pay itself taxes,” Higa said in the report. “However, the DOE estimates it will pay more than $2 million in school year 2012 for contractors’ GET. The department was unable to explain why it pays GET on most contracts.”

Civil Beat has been documenting runaway bus costs in its investigative series, Taken for a Ride. The series was the first to report that competitive bidding suddenly dropped off and transportation costs climbed at the same time. The series — and now the auditor — questioned why the DOE continued to pay whatever the bus companies asked for while doing nothing to address the issue of a lack of competitive bidding.

Student bus service costs have nearly tripled to $72.4 million since 2006. Some routes went up by 259 percent, the auditor said in the report.

Robert’s Hawaii School Bus won the bulk of the bids for contracts last school year. Smaller contractors include Tomasa’s Bus Company, Akita Enterprises, Gomes School Bus Service, Ground Transport and Yamaguchi Bus Service.

School Bus Services Financing

The auditor’s report comes just weeks after some 2,000 students started this school year without bus service. The district had to cut 74 routes in July to make up a multi-million-dollar shortfall. The Legislature gave the department less money than it had asked for to try to force school officials to crack down on the soaring cost of bus contracts.

Education Superintendent Kathryn Matayoshi acknowledged that much more work needs to be done to protect transportation funds and improve public confidence.

In an Aug. 20 letter to the auditor, Matayoshi said the DOE inherited many of the past practices relating to the procurement, delivery and oversight of student transportation services that may not have been consistent with nationally recognized best practices. In July 2000, then-Gov. Ben Cayetano reassigned the pupil transportation program from the Department of Accounting and General Services to the DOE.

Matayoshi said most of the auditor’s report is accurate, but took issue with Higa’s assertion that the department does not consolidate routes. The superintendant said for fiscal year 2012, the department consolidated 23 bus routes to save $1.37 million.

Higa, however, said the department missed the broader point that the district’s lack of systematic, routine evaluation of routes resulted in instances where underutilized routes were not consolidated.

In response to the auditor saying “unsystematic oversight has permitted escalating costs,” Matayoshi said the cost of student transportation services is market controlled. The auditor didn’t buy this excuse either.

“Again, the department misunderstands our point that it has failed to take adequate measures to monitor and bolster competition and flag suspected anti-competitive practices,” Higa said in the report. “Furthermore, the transportation branch manager acknowledged to us that the competitive market, which was supposed to have kept costs down, is no longer working.”

The superintendent also faulted the auditor for claiming “no one has drawn meaningful attention to suspected anti-competitive practices.” Matayoshi said the DOE has cooperated with federal authorities in their investigation into possible antitrust violations by school bus contractors.

Higa said the department’s cooperation with the investigation does not absolve it from its responsibility to report suspected anticompetitive practices encountered during the bid solicitation process.

“Although the department was cognizant of persistent patterns of single bidders for route group solicitations, it failed to adopt procedures or a form to report suspected anticompetitive practices,” Higa said in the report. “Accordingly, we stand by our findings.”

District Banking on Consultant

The Board of Education told the auditor that examining bus transportation costs remains a high priority and a recently hired consultant will play a key role.

“We’re very appreciative of the auditor’s thorough examination,” Board Chair Don Horner told Civil Beat Friday. “There’s nothing new that we hadn’t already identified as weaknesses, and there’s been improvement made in the last 12 months.”

The district has hired Management Partnership Services, a national transportation consultant, for additional help. The consultant will look at operations and identify corrective measures, many of which are outlined in the auditor’s report.

“The audit identified the problems, but it did not identify any solutions,” Horner said. “The consultant will identify and validate the weaknesses and opportunities for improvement.”

Specifically, Matayoshi said the consultant will work with the department to stimulate competition by redesigning the contract model in a way that will enable non-school bus entities to enter the market. She added that the DOE will ask state officials to investigate anticompetitive practices if “red flags” appear during the procurement process.

The consultant’s report, which will be fully public, is expected by early November, Horner said.

“I’m very optimistic that we can address the weaknesses that were identified,” he said.

The board will discuss school bus transportation services at its meeting Tuesday afternoon.

The audit is on the agenda for review and discussion as an executive session item. There will be a presentation and discussion on the program in open session.

The board chair said he was unsure why the audit would be discussed behind closed doors.

“I don’t see any reason for it,” Horner said. “I would expect the whole discussion would be in open session.”

Higa concluded her report by saying the DOE has “lost control” of its student transportation program. The audit says there are no easy answers, but the district must get serious about being a proper steward of state resources.

Read the full audit here:

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