When does spending, taxation, debt for rail stop?

After years of delay, the first leg of the Honolulu rail opened for service on June 30. But Joe Kent, Grassroot Institute executive vice president, said it’s time to wrap up the honeymoon phase and examine the situation with a “skeptical eye.” 

Joining host Rick Hamada on KHVH News Radio 830, Kent gave listeners a reality check of the actual cost of the rail. 

For example, tickets for the rail are technically $3. But based on current ridership levels and the annual operating cost of $85 million, the real cost is about $54 per passenger — making it the most expensive light-rail per passenger in America. 

Kent also expressed concern that rail officials are now talking about building the system “beyond” its current stretch from Kapolei to Kakaako, which means the city’s temporary 0.5% general excise tax surcharge, implemented in 2005 to help fund the rail project, could become permanent.

Furthermore, despite Honolulu’s bond rating having been recently downgraded, Kent said city officials are seeking an additional $200 million in bonds to fund the rail. 

“[O]ur finances are hitting the wall. Taxpayers are getting pushed to the edge on this,” Kent said. “[W]hen [does] the spending and the taxation and the debt stop?” 

Kent said that with rail’s ever-changing price tag and talks of an even longer route, “We really need a counteracting voice in this discussion. We can’t just listen to the rail officials. Their voice is important; they’re good people. But this is a problematic system so far, and it’s time for a skeptical eye.” 

7-13-23 Joe Kent with host Rick Hamada on KHVH News Radio 830

Rick Hamada: It’s an absolute delight that Joe Kent of Grassroot Institute of Hawaii is in studio. And Joe, it’s good to see you. Aloha.

Joe Kent: Aloha. Good to see you, too.

Hamada: Did you want to sing a couple of verses of this song before we jump in?

Kent: [laughs] “How Bizarre.”

Hamada: Yeah, “How Bizarre” It’s Sugar Ray, and there we go. 

We miss each other. It’s been a couple of weeks. How are you doing?

Kent: Good, good. I had a chance to ride the rail. I went on opening day, and that was pretty fun. It was kind of nice to see all of the benefits of taxpayer spending and this palatial … well, I don’t know if I’d call it palatial, but nice, rail station, and it’s a nice ride. 

But the whole time I kept thinking, “But what is the cost though? What could all of this money, all these billions of dollars have been spent on otherwise?”

And so, we’ve been kind of digging into those cost numbers recently, and we found some surprising figures today.

Hamada: Yeah, it’s … I get it because I have HART [Honolulu Authority for Rapid Transportation] on Fridays, and then the mayor is Wednesdays. Yesterday, I had Roger [Morton] and Jon [Nouchi] on. And I understand. I even told him: “Honeymoon period — that’s where we are.” 

Kent: Yeah, yeah.

Hamada: We should be. Just, let’s absorb and experience, and gain some perspective of what the reality is, as of right now. But even while they were in studio, and tomorrow with Lori [Kahikina] and Rick [Keene], I’m going to say, “Congratulations. It’s up and running. It seems to be in good shape. All right, where’s the money?”

Kent: [chuckles] And it’s a nice ride. My wife takes our toddler on there. It turns out it’s a nice ride for toddlers. 

But we were trying to calculate what it costs to run now because the trains are running nearly empty. There’s only 3,000, 4,000 people riding these things per day now. And what is the cost to actually run that? 

So, what we did, we divided the total cost to run for this fiscal year — which is $85 million — divided by the total number of passengers, and it’s about $54 per passenger for a ticket on the rail. That’s the actual cost, even though passengers are only expected to pay $3.

I mean, that’s like, you could buy a ticket [on] Hawaiian Airlines to a neighbor island for every single one of the rail passengers, and it would cost just as much. So, I’m just trying to draw attention to the actual cost of this. 

If you look at the breakdown of the passenger operating expenses per city in America, compared to all the other light rail lines, Honolulu is way, way, way off the charts. I mean, the next highest is like $19 per passenger. 

So, in order for us to get to $19 per passenger, we’d have to increase the amount of passengers that ride this to around 12,000 passengers per day. 

Now, you remember opening day was, you know, the rail cars were packed like sardines. It was kind of glorious for rail officials to see this. That’s about what it would have to look like every single day in order to get the project to be on par with other projects.

Hamada: So, we’re opening up a lot of different ways to go because while you were mentioning that, I had questioned a formula that I hope that we’ll be able to achieve. 

I understand this is three phases; we have to understand that there’s an associated cost to each of the legs of this. 

There’s the operations and maintenance side with the city. There’s the design and construction side with HART. However, the monies come from us, that we generate [in] various ways. 

So, I’m curious, has it been established what the first leg of this project, of what it has cost, whether it’s with HART, city, combination, et cetera? And the ridership, as you just determined. And now we get to the cost per rider, first leg. Because I’m being told by HART and by the city, it’s going to be the least-ridden leg of the three …

Kent: Yes, that’s true.

Hamada: … second to the airport. And so they’re kind of justifying [saying], “Listen, wait till it’s completed.” 

Well, I don’t know if we can because 2031 was the termination date objective for the project.

Kent: I mean, that’s a good response is like, OK, yeah, if you only run half the rail line, then not everyone’s going to be riding it. So, you’re going to have lower ridership numbers. 

But I’m just asking whether it’s even worth running right now. I mean, why even run it right now if barely anyone’s running it? 

If the trains are going to have tens of thousands of people on them when it opens, then why not wait till it opens?

I mean, this is $85 million a year that taxpayers are paying to — like I said — give the equivalent of a Hawaiian Airlines flight to a neighbor island to every passenger. I mean, we might as well do that. Just say, “Hey, who wants to go to the neighbor islands? We’re going to shut the trains off and do that instead.” That’s really equivalent to how much we’re spending on this. 

And so, yes, maybe there’s some other reason that they’re running the rail right now but, you know, I don’t see it.

Hamada: So, can we establish the cost thus far? I’ve had numbers from $9.5 billion that have gone up to $11.9 billion to even $13-plus billion. What’s the reality of the numbers?

Kent: Well, what has been spent so far is around $5 billion or less. But the total cost of what it will cost the project is $10 billion, and that’s including financing and debt and capital and all that stuff. But when they wanted to build it all the way to Ala Moana, that plan was $12 billion or $13 billion. 

And so now that they’ve stopped short — you know, they’re stopping short in what they’re calling the “city center.” I went there yesterday, the city center; there’s no center there. [chuckles]

Hamada: It’s barely a city for crying out loud. 

Kent: Yeah, it’s kind of like a grass field on one side and a small coffee shop on the other side. That’s going to be a really popular coffee shop, I think. 

But anyways, you’re stopping kind of in the middle of nowhere, and then I guess you’ll have to walk a mile, a mile and a half to get to the mall, or maybe take a bus. So, it’s kind of inconvenient. 

But the reason they had to do that, I think, is because they had to save on costs. So, that’s why you’ve seen those numbers fluctuate up to $13 [billion], now down to $10 [billion]. 

And so, I don’t know. Maybe it’s a good thing that they’re stopping short. But are they stopping short? Because now we keep hearing rail officials say the word “beyond.”

Hamada: Oh, yeah.

Kent: “It’s time to go beyond.” So what does that mean exactly? Does that mean that we’re going to go all the way to Ala Moana on some sort of fourth leg — and what would that cost? 

There’s a big building right in the way which is basically … Howard Hughes is trying to develop a building at what was once Ward Village. And he says that he wants to build housing there, but the rail wants to put their stop right there. And so, they’re in a big lawsuit — $200 million lawsuit — over that property.

And so, one way to avoid that lawsuit is just to stop short as they’re doing. But if they continue, how are they going to get around that lawsuit? 

I’ve heard rail officials say that they might want to dig under to get to Ala Moana, and you know, what would that cost? You know, the “Big Dig.”

Hamada: The Big Dig. I mean, well, we can bring [Dan] Grabauskas [HART’s first executive director] back because he was part of it. Because the cost differential between at-grade, elevated and sub is astounding.

Kent: Oh, yeah.

Hamada: I mean, it’s just incredible. 

So, you mentioned this legal dispute, which has reached our state Supreme Court. And there’s speculation as to which side will win. 

Well, one thing’s for sure is that you have tens of millions of dollars that have been expended on this suit on HART’s side of the table. When we figure in all of these hundreds of millions, is that part of the cost of rail? Does that elevate it up? And the differentiation of cost centers — how that’s made? 

But even more profound to the point … You have about three hours with us, Joe? I want to turn it back over to you in regard to finance, et cetera. And please, you mentioned before, there will be a request and efforts to extend the GET surcharge … 

Kent: Yes.

Hamada: … to make it a permanent part of our taxes. The subsidy that’s taken from room taxes, et cetera.

Kent: Oh, right. The hotel taxes.

Hamada: Exactly. So there’s a whole swirl of finance. Would you mind summarizing?

Kent: Yeah, that’s right. The general excise tax and the hotel tax are supposed to expire, what, around 2030 or 2031, somewhere’s around? 

Hamada: Which is the termination of this … 

Kent: That’s when the rail is supposed to finish too — to that “city center” we mentioned. 

But now with all this “beyond” talk, they’re talking about going beyond geographically, but they’re also going beyond financially too, because we have to have our taxes go beyond to pay for any plans like that. 

So, they want to extend the general excise surcharge indefinitely so that 0.5% added onto your tax bill that you see, although it looks very small, it’s huge. That’s hundreds of millions of dollars every year taken out of the economy. 

The general excise tax is a regressive tax. This is taken mostly from low-income individuals. And so, that means we’re going to be asking to take more from their pockets in the years to come if we want to fund this. 

Now, where do they want to go is another question. That’s something that your imagination could run wild with this forever. I mean, I’ve heard going up to UH, but even going to Waikiki, which this is the first I’ve heard of that, that they’re talking about. When is the rail done is the question. 

If you go on the HART website, there’s a FAQ, it says,  t kind of sounds like — the way they word it — the rail is done. It’s like, “We’re done.” [chuckles] 

But then they’re going to go to phase two, and then that’s going to be done in 2026. Then phase three is going to be done in 2031 to the city center, but is it done? What about phase four, five, six? How many phases are we going to add to this? 

So it’s time … I wanna start having conversations about that “beyond.” Not assuming that there should be a beyond, by the way, because maybe it should just be done.

Hamada: Well, part of it too … and Joe Kent with us, Grassroot Institute of Hawaii. It’s already 8:51 [a.m.]. 

I would hearken back to the draft EIS [Environmental Impact Statement] and that was established. It gave clearance for the construction project to begin. 

It would necessitate — am I correct — another EIS if there’s any extension beyond? But that EIS, if I’m not mistaken, again, has included to Ala Moana Center, cost prohibitive to get to that point. 

So it’s financing, it’s money, it’s cash. The federal government isn’t going to pony up anymore. I know there are some like [U.S. Sen.] Brian Schatz that will champion the effort, but with all due respect, Sen. Schatz is not [U.S.] Sen. Inouye.

Kent: Yeah. And we were looking at the FTA [Federal Transit Administration] back when [Mayor Kirk] Caldwell was gunning for the tax hike in 2017. If you remember, the tax was supposed to expire and they needed more tax to keep the rail going. This is back in 2017. Caldwell goes up to the microphone in the Hawaii Legislature and says, “We have to go all the way to Ala Moana Center. We can’t stop the rail short. The FTA will accept nothing less.”

And so, we asked the FTA — we at Grassroot Institute — we emailed the FTA and asked them, “Did you guys say that we have to go all the way to Ala Moana?” And they basically said, “No, we never said that.” 

And the proof is in the pudding today. We have stopped short of Ala Moana Center. It is questionable whether we needed to raise that tax in 2017. 

And so we really need a counteracting voice in this discussion. We can’t just listen to the rail officials. Their voice is important; they’re good people. But this is a problematic system so far, and it’s time for a skeptical eye.

Hamada: Can we talk a little bit about bond ratings and perhaps pursuant of even more bonds … 

Kent: Oh, yes.

Hamada: … floated?

Kent: So, the rail is looking for a hundred, 200 million dollars in extra bond monies to keep the rail going. Remember, again, it costs $85 million just to run the rail every year. And I’m questioning whether we need to even do that. 

But if they’re asking for a hundred or two [hundred] million for bonds — that’s a lot of debt. You know, it’s like a credit card. You’re putting more debt on your credit card. 

And the problem is, our bond rating has gone down. And the reason for that is ‘cause we have too much debt. 

And so, again, our finances are hitting the wall. Taxpayers are getting pushed to the edge on this, and when [does] the spending and the taxation and the debt stop? So, yeah.

Hamada: In talking with Roger yesterday — Roger Morton of DTS [Honolulu Department of Transportation Services] — I asked him about energy cost because the kilowatt-hour differential between residential and industrial, commercial is different. 

Now, I learned yesterday that the city, in regard to their kilowatt-hour cost for the new buses that have been brought on is actually below, at 26 cents per kilowatt-hour. But I clarified with him that for the rail and HECO [Hawaiian Electric], it’s at that industrial rate of 36 cents. And that estimates it’s $66 million a year between a differentiation, allocations to hit Hitachi and to HECO for utility cost out of $80-plus million. It’s just to run the bloody thing. 

Kent: [chuckles] That’s right. That’s a great point. 

And also keep in mind that Hawaii is on track to be 100% renewable energy by the year 2045. They’re saying that costs were going to go down. If we go to 100% renewable, our costs are going to go down. But just think, you’ve got the rail running on this electricity at night when the sun isn’t shining — this is renewable energy, right? So how are they going to run the trains on solar power at night in the future? So there’s a lot of questions here.

Hamada: I think they’re doing it now: You close at 7 [p.m.].. [laughter] That solves that.

Kent: I guess that’s true. [laughs]

Hamada: We have just a couple of moments left. And by the way, time flying by. Joe, please put a bow on it. Whatever you’d like to share with us in the remaining time that we have, please.

Kent: Well, let me talk about something good, which is the [Honolulu City] Council just passed a bunch of tax credits to help property owners in Hawaii. 

Basically, low-income households are able to use this circuit breaker to help with their tax bill. And so that’s Bill 37 and Bill 40 that passed at the Council. That’s great. And we supported that.

I mean, Council members, lawmakers should be putting even more tax breaks out there. But if our taxes are going down and our costs are going up though, one wonders whether there’s going to be some kind of magic trick here where they’re going to raise taxes on something else. 

But in the meantime, we want to congratulate tax reductions, but we need to advocate for spending reductions too.

Hamada: Yes. Amen. 

How do we connect with you and with Grassroot?

Kent: You can find our research at grassrootinstitute.org. And we have an email list of 40,000 people who get our research first before the news gets it — so you should get it too.

Hamada: And there we have it. Joe Kent, I can’t thank you enough for taking the time and for the information as always. Thank you.

Kent: Thanks so much, Rick.

Hamada: Looking forward to seeing Joe again. Once again, connect with Grassroot Institute for those who have concerns about our community. Stay up to speed with Grassroot Institute of Hawaii.

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