A new federal estimate that Honolulu rail construction could cost up to $8.1 billion — nearly $3 billion over the original budget — is forcing city officials to re-evaluate the size and scope of the largest public works project in the state’s history.
The Honolulu Authority for Rapid Transportation board has scheduled a special meeting June 8 in response to the news and will likely discuss alternatives to building the planned steel-on-steel rail line all the way from West Oahu to Ala Moana.
“We know we have got to finish part of this rail system,” said Colleen Hanabusa, chairwoman of the HART board, at a press conference last week. “The question is, how much can the people and the City and County of Honolulu afford?”
But there is another option: Pulling the plug on the entire project.
HART officials said they couldn’t provide updated figures last week on what the financial effects of this option would be.
Civil Beat analyzed HART estimates from last fall and what’s transpired since. The analysis found that Honolulu would pay approximately $1.74 billion less by stopping the project now instead of finishing it, based on the feds’ estimate of an $8.1 billion total price.
But there is at least one unknown quantity that would almost certainly decrease those savings: The HART estimate of what it would cost to remove what’s already been built was $150 million as of last September. This estimate hasn’t been updated, but the additional construction since then is bound to have increased that cost.
HART board member Terrence Lee said abandoning the project is a last resort if none of the other alternatives for changing the project, or getting more money for it, pan out.
“The only costs that we should be taking into account are the costs that we would bear by stopping the project and the costs of finishing the project.” — Carl Bonham, UH economics professor
“That’s an extreme alternative, but you can’t rule it out,” he said. “We are at a very precarious juncture.”
HART board members Hanabusa and Ivan Lui-Kwan didn’t respond to requests for comment, while Mike Formby, George Atta and former chair Don Horner declined to comment.
But University of Hawaii economics professor Carl Bonham said the city shouldn’t take into account how much it has already spent — known in economics as “sunk costs” — when it decides what to do next.
“The only costs that we should be taking into account are the costs that we would bear by stopping the project and the costs of finishing the project,” Bonham said.
In a letter to City Councilman Ikaika Anderson last fall, HART estimated it would have had to repay $450 million in already spent federal funds and spend another $450 million for remaining contract obligations if the project had come to a halt as of last September.
HART also estimated spending another $1.42 billion to terminate existing contracts and ensure it had enough money to cover potential lawsuits, and said it would cost another $150 million — as of then — to tear everything down.
That added up to about $2.47 billion in additional spending just to stop the project as of then.
From last October to March, HART’s monthly progress reports show it spent another $79 million in federal funds that would have to be repaid if the work was stopped. The agency has also awarded several contracts since September, including $115 million for the Kamehameha Highway Station Group, $20 million for an on-call construction contractor and nearly $31 million to design, build, operate and maintain fare systems.
Thus, even if the project were stopped today, Honolulu could pay at least another $2.71 billion, not including any increase in the cost of demolition and removal.
The price of completing the project is still up in the air as federal and city officials haggle over the best estimates. But if the Federal Transit Administration’s $8.1 billion cost estimate is correct, finishing the project as planned could require additional expenditures of Honolulu funds totaling $4.45 billion.
In that case, the savings in local tax money by stopping would be about $1.74 billion. In addition, the federal government would get its $1.55 billion back.
But local economist Paul Brewbaker said the monetary savings of abandoning the project doesn’t take into account how such a move would derail Honolulu’s efforts to achieve higher urban density and improved urban mobility, and would further discourage companies from investing in Hawaii.
“Whether it’s TMT, Superferry, every development that got blown up … this would be sort of the crowning reputation blow-up on top all the stuff that’s accumulated,” Brewbaker said. “Credibility is huge. Investment by its nature is a long-term commitment.”
“If you can’t come up with an alternative that makes sense, then necessarily you’re either looking at finishing the project as designed or abandoning it.” — Terrence Lee, HART board member
Even some longtime rail opponents have said it’s a better idea to build the railway to Middle Street and get it up and running, rather than tearing it all down.
Panos Prevedouros, an engineer who has staunchly opposed the project, said he came to that realization in January because so much time and money had been invested into the project. He thinks ensuring the line runs to Middle Street could help residents on the west side of the island.
Former Gov. Ben Cayetano, who campaigned for mayor on an anti-rail platform in 2012, also supports the Middle Street option rather than giving up on rail completely.
“I think it’s a little late to tear everything down,” Cayetano said. “You have to find some way to cut the cost and maybe salvage what’s left.”
Bonham agreed that shutting the project down seems like a political impossibility.
“(HART’s) job is to complete the project and they should be looking at every alternative that affects costs,” he said.
|Expenses incurred/expected if project stopped||Estimated cost|
|Amount spent as of March||$2.1 billion|
|Reimbursement of FFGA money||$529 million|
|Remaining contract obligations||$450 million*|
|Litigation for terminating contracts||$1.42 billion|
|Tear down what’s been built||$150 million *|
|Pay out recently awarded contracts||$166 million **|
Lee agrees, but the HART board member thinks it will take at least six months to thoroughly vet the alternatives. In the meantime, he says it’s a “definite possibility” that the board will not award additional contracts as planned this summer.
“The last thing we want to do is award a contract and then decide we’re not going to build it,” he said, adding the caveat that he’s just one of 10 board members and others may not agree with him.
Discussion of abandoning the project will only come into play if none of the alternatives is feasible, and taxpayers don’t want to spend more money on the project, Lee said.
“Whatever alternative that you look at, if the ridership diminishes to the point where it’s not going to significantly diminish traffic and it’s just going to raise the operating costs of rail, then all you’ve done is saddle the taxpayer with more cost with no benefit,” he said.
“Clearly that makes no sense, you’re better off abandoning the thing,” Lee said. “If you can’t come up with an alternative that makes sense, then necessarily you’re either looking at finishing the project as designed or abandoning it. That’s just what you’re left with.”
If the project is built — full-size or smaller — Honolulu will then have to figure out how to pay the difference between operating costs and fare revenue.