Major questions still bedevil Honolulu rail

from Grassroot Institute of Hawaii, May 9, 2022

So what’s going on with the Honolulu rail, construction of which began in 2012?

It is over budget and behind schedule, barely two-thirds completed, threatening major havoc as its construction nears the city center, unlikely to meet its latest cost projections and time tables, and unsure about its future funding sources.

That’s the takeaway from Keli’i Akina’s discussion with community activist Natalie Iwasa during the latest episode of his “Hawaii Together” program on ThinkTech Hawaii, March 9, 2022.

Appearing on the program as a private citizen, Iwasa has valuable insights into the operations of the rail project because she also is a non-voting member of the Honolulu Authority for Rapid Transportation, which oversees the so-far nearly $13 billion boondoggle.

A CPA and certified fraud investigator who also has been a longtime critic of the agency, Iwasa praised HART’s executive director of the last two years, Lori Kahikina, for being more open with the public than previous directors, but said transparency at the agency still is a problem.

Asked whether HARTs future funding assumptions were reasonable, Iwasa replied; “That a good question.”

Asked whether lawmakers are considering more tax increases for the rail, Iwasa replied, “That’s a really good question.”

Asked whether the rail in general is a viable project, she replied, “That’s a really good question.”

To find out why those were such good questions, watch the entire conversation above. A complete transcript is provided.

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5-9-22 Natalie Iwasa with Keli’i Akina on “Hawaii Together”

Keli’i Akina: Aloha, everyone, and welcome to “Hawaii Together” on the ThinkTech Hawaii broadcast network. I’m your host, Keli’i Akina, president of the Grassroot Institute. 

Well, we all know that the Honolulu rail project is both over budget and behind schedule, but today, we have an expert with us who’s going to be able to address that situation and tell you anything else you’d like to know about the rail. Her name is Natalie Iwasa. She’s been my guest before and I really appreciate what this individual does for our community.

Natalie is currently an appointee to the Honolulu Authority for Rapid [Transportation]. But in her capacity as a private individual, she’ll be sharing today what her personal thoughts are. She’s not necessarily representing the HART, but in any case, I think you may know her. She’s become well known because of her position and her boldness and her willingness to stand up and speak the truth. Natalie, I so appreciate you being with us today. Aloha, and welcome to the program.

Natalie Iwasa: Aloha, Keli’i. Thank you for having me.

Akina: Well, if you put everything into context, we started talking about 2012; that’s when the rail kind of took off. Back then, it was supposed to run from Kapolei all the way to Ala Moana. We estimated that it would cost somewhere between $3.5 [billion] and $5.1 billion and would be completed by 2020. 

Now, here we are in 2022. Give us a snapshot of where the rail is and just a status check. What is the condition of the rail at this point?

Iwasa: Sure. Well, basically, construction overall is at 64% and sometimes we’ve heard that, oh, we’re at 75% because we’re at Middle Street. But there’s a lot that hasn’t been done yet, like the stations at the airport guideway section. So keep in mind we’re about 64% complete. They’re working on finishing up some of those stations there. 

The wheels and track issues, some people may be familiar with that. That has all been resolved, so that’s a good thing. They’re working on their final checklist to be able to do the testing for the interim run. They have to have 90 days of no problems with their testing, and then once that’s done, they can turn the whole system, the interim portion, over to the city for their part in actually getting it running for passengers.

Recently, we had the recovery plan approved by the HART board. I think a lot of people are aware of that. Well, I’m sure we’ll talk about that a little more, but that plan has to go to the City Council, it has to go through a committee meeting, and also a full Council hearing, so that offers people an opportunity to provide input. 

And something that people may not be aware of is that because the system now is called what’s truncated at the [Frank F. Fasi] Civic Center, the full-funding grant agreement has to be amended. So that will come, I imagine, later this year. But that’s also another opportunity for people to provide input. Then we have the estimated date of completion of March 2031. That’s for the full line, the full 20 miles, 21 stations. 

Did you ask about hurdles as well?

Akina: Well, yes. As a matter of fact, I was just about to ask that. There have been lots of hurdles but there are some major hurdles perhaps standing in the way of finishing the project. What would those be? Give us an overview.

Iwasa: Yes. So I think people are familiar with the Dillingham area. That’s really been a sore spot for the entire project. When they went into there, they didn’t realize the situation — as often is the case with infrastructure on this island. They have, I think it was, 13 utilities that they have to be aware of, and the biggest two are the water and sewer. 

So that whole area is still going to be a major issue. They think that they have a lot of that worked out, but there’s still some stuff that needs to be done there.

The other big area is the remaining funding. They truncated it at the Civic Center for just under $10 billion, but the remaining section has been stated often that it’s going to be the most difficult. And you can tell by the cost, because that portion along with the Pearl Highlands garage is slated — right now, estimated — to be $1.4 billion. That’s 1.25 miles of guideway for a huge chunk of money. Those, I think, are the hurdles, at least as I see them.

Akina: Well, notwithstanding these hurdles, Natalie — and forgive me for the simplicity of this question — but do we have a viable project? Does it look like this rail is going to be finished and up and running within a reasonable amount of time?

Iwasa: Yes, that’s a really good question. If you listen to what the board is saying to the director of the transportation services at the city level, they believe that by truncating at the Civic Center and then beefing it up, that section will be viable. I just felt that this was so ironic at the last HART board meeting, when it was stated that the Civic Center is going to have some BRT — that’s bus rapid transit.

Now for anybody who’s been paying attention to this project, you know that was brought up eight, nine years ago as an alternative to rail, but they said, “No, we can’t do that.” So I just thought that that was really interesting. 

What they plan on doing is, at the Civic Center, having buses every six minutes alternating for those going to UH [the University of Hawaii] and those going to Ala Moana and beyond to Waikiki. So I don’t know, it’s just interesting, the way that that all has come about.

Akina: Well, it’s certainly a hybrid system. Now, you mentioned federal funding earlier, and federal funding has always been an issue with moving forward with the rail. It’s also been part of the process by which government at the federal level has been trying to either incentivize or otherwise put a carrot in front of the HART board. 

The Federal Transit Administration has held on to currently $744 million in the balance right now. Why is it so difficult to get that federal money? What are the obstacles we’re looking at? What are the challenges?

Iwasa: Well, so what the federal government is asking for and requiring, actually, is that HART show that they have the funding available to cover the cost to go to Ala Moana initially, and, with this new plan, to the Civic Center. 

The last recovery plan was done in 2018 and then it was amended in 2019 because the FTA [Federal Transit Administration] felt that the costs that were being used were too low. That plan included the P3 — that public-private partnership — to get that last major contract from Middle Street to Ala Moana.

As you recall, I’m sure many others recall, the city was working on that, HART was working on that, and it failed because those costs, when it went to those bidders — I think there were finally two that actually put in bids — the costs were so outrageous, so high, that the mayor at the time, [Kirk] Caldwell, said, “We’re not going to do this, it’s just too expensive.” 

That was a major chunk of what the FTA had counted on in that recovery plan. and when that didn’t happen, and then we had turnover in administration and again, higher costs, the FTA said, “Wait a minute, you can’t do what you said you were going to do, so show us now, again, through a revised recovery plan, what it is you can do and how you’re going to do it.”

So they’re holding onto that money because that’s the only leverage that they have. If they were to give that money to HART, there’d be really no reason [for HART] to follow through with whatever they say that they’re going to do in that contract, other than, potentially down the line, there could be consequences, but that’s basically the reason that we’re still waiting for that federal money.

Akina: Now, as you mentioned earlier, HART has recently approved a plan to stop the rail about perhaps a mile or so before Ala Moana Center, closer to the Civic Center. Can you give us a little more detail about that? What went into the reasoning behind stopping at that point? What was the deciding factor?

Iwasa: Well, the cost of the funding, that was the major thing. You know, when you project that you’re going to have $9 billion coming in and your costs are at that time were close to 12, or more with the finance charges, then you can’t do it. It’s like trying to build a million-dollar house and only having $700,000. You can’t do it. So they were forced into that situation. 

And they did these things called “value engineering” and “risk refreshes,” a lot of meetings with the FTA, a lot of meetings with the experts and the staff, and trying to look at what could they change in the current plan to make it viable, but cut down that cost so that they can build to where the funding will get them. 

And along with that, they also projected the revenues, the GET surcharge, the new county-level transient accommodations tax. They took all of these factors into consideration and came up with this proposal to stop temporarily at the Civic Center.

Akina: There are other decisions being made with respect to costs as well, such as, most recently, not to build the Pearl Highlands parking garage, and that’s caused quite a bit of commotion in the community. How will that affect the project, as well as the public sentiment for the project?

Iwasa: Yeah, that’s a big thing. Really, the cost for that garage is outrageous. It was $330 million. I think it was like $200,000 per stall. To put that into perspective, this is actually in the plan. They had asked a contractor who recently built a garage on-island — I don’t know exactly where — but that cost was like $35,000 to $45,000 per stall. You can see HART’s estimate for the Pearl Highlands Garage is like four times as much. It is just outrageous.

So they had to take it out temporarily anyway, they say. And, yeah, people are upset about it. The Mililani/Waipio [and Melemanu] Neighborhood Board sent in testimony saying, “Hey, don’t do this. We need a place to park when we bring our cars into town. We want to be able to park and then take the train.” Then there were some other people who were upset about it as well.

The interesting thing about this, though, is that this is supposed to be a 1,600-stall garage. Amd the impact that was stated in the recovery plan is only 1,500 boardings. My question during last week’s meeting was, “If the impact is only 1,500, why are we building 1,600 stalls?” Something doesn’t gibe there. It just doesn’t match up. 

So, yeah, there are a lot of questions with respect to that, and the status is that they’re looking at it. 

Personally, it sounds to me like it’s not a great place to build a garage because it’s in a flood plain. They have to build something; they talked about some aerial infrastructure. I don’t quite understand that technical part of it. To me, it doesn’t sound like the best place to build something like that.

Akina: It sounds as though it’s a very thorny situation. Whether it’s built or not built, you’re going to have a lot of people disappointed as to what takes place. 

Natalie, there are additional costs, and we have to look at the funding. I want to ask you a little bit more about that and what lawmakers are planning to do. We’re going to take a quick break. When we come back, you can respond. 

My guest today is Natalie Iwasa. She’s on the HART board, but she’s speaking in her private capacity today. We’ll return to “Hawaii Together” on ThinkTech Hawaii in just a moment.

[Intermission]

Akina: Thanks for staying with us. This is a fascinating conversation we’re having together on ThinkTech Hawaii’s “Hawaii Together” with Natalie Iwasa, member of the HART board, although she’s here in her private capacity. We’re talking about the current status of the rail project in Honolulu as well as where we’re going in the future. Now, let’s get back to that conversation. 

Natalie, lawmakers have to raise another $1.4 billion dollars in order for the project to reach its completion according to the current projections. What are they looking at to raise that money? In specific, are they considering tax increases?

Iwasa: That’s a really good question. So, what we’ve heard in the HART board meetings — and I believe before City Council as well — is that we have this new transient accommodations tax at the county level that potentially could be used in perpetuity. 

There’s that, but it’s not a lot of money. It doesn’t reach $1.4 billion dollars for, like, way beyond the next few decades, so that can’t be the only thing. 

They also talk about potentially getting some other federal money — not from the FTA, but other sources — and they haven’t provided any specifics on that.

And then, I guess, there may still be this hope that the state could provide some funding, although we really don’t think that that’s very realistic. 

The only other place that I can think of is real property tax, and one of the concerns I have — and I know other people have stated this as well — is that we still have to pay for the operations and maintenance. So I don’t think real property taxes will be funding construction itself, because that money is going to have to be used for O&M. 

So, you know, it’s a really good question. I’m sure that they’re going to say, “Well, we [inaudible 00:18:02] go to Pearl Highlands Garage, we only need a billion, and you’re going to do this change, and we’re going to get it down to this.” But that all remains to be seen.

Akina: Natalie, we were talking about the $1.4 billion, and I assume we’re referring to what it would cost to complete the construction. You mentioned operations and maintenance. That’s a lot more as well. My question is a little more general than this, however. We’ve seen cost projections rise and rise and rise over the last several years. How confident can we be in the current cost projection that we’ve only got $1.4 billion left to go?

Iwasa: I personally don’t feel comfortable with the numbers because of the history. The major contract we have is from Middle Street to now the Civic Center. We’ve seen time and time again how those estimates have been blown out of the water. So if that contract comes in higher than what is anticipated, or there’s something along the Dillingham Boulevard with the utility relocation that comes up, it’s just going to really mess things up as far as the finances go. 

So I just don’t feel comfortable with the numbers. I’ve pointed out so many times in the past as well, how the numbers haven’t been consistent or just not correct. So that’s a big concern for me.

Akina: I don’t mean to put you on the spot, Natalie, but why is there such a lack of confidence in the numbers? There can be so many factors, ranging from incompetence, through fraud and so forth, but just generally, I’m wondering if you have any thoughts as to why it is that we have had such difficulty in sticking with projections that have been made for the budget?

Iwasa: Well, I think the project started out on the wrong foot as far as that goes, because this rail project got funding authorized before a plan was complete. And Caldwell said that in his testimony. I forget if it was 2015 or 2017. He said that to the Legislature, “We’ve learned from the past, and so this time, we got our funding without having the planning in place.” 

Then not only that but the contract, one of the contracts was let back 2009 before the full-funding grant agreement was in place. And that contract alone ended up costing $100 million more.

So, we have this history of things not being done in the right order. To the credit of the current staff, they have told us that they’ve learned from the past, but I think there are still a lot of unknowns out there. 

We know that the city center is going to be more difficult just because it’s a more populated place, but I think that just adds to the question about those costs and whether those numbers are realistic.

Akina: What would you say about the quality of transparency that the HART board has displayed as well as the administration of the rail? You’ve raised some concerns yourself in the past; how transparent has the rail been with the public?

Iwasa: Well, up until 2021, I would say pretty opaque actually, because we learned when Lori Kahikina came on board that there were problems with those wheels and tracks. I forget which issue came first, but that was a known problem way before it was brought out to the public. 

And so that’s just one example. I do think Lori has been really pretty good about bringing issues as she learns about them, or as HART learns about them, but there are still things that I think HART needs to do in order to make things more transparent.

For example, we had 25+ alternatives that were looked at back in early 2021, and we’ve never had a public discussion on them. So, you know, why not? Help the public understand why we’re doing this market shift and not something else.

Or the plan for the buses. The plan is to create a lot of feeder buses and take away some of the express buses. Why aren’t we putting that out there, so those people who are planning on riding the rail understand that they’re going to have to get on a bus, off the bus, on the rail, off the rail, on a bus, off the bus. I think those types of things are still not being discussed, and I’m sure there are other examples that people can come up with.

Akina: Natalie, going back to some of the funding options, what are your thoughts about the assumptions that are being used with respect to the state general excise tax or the transient accommodation tax? Are these reasonable assumptions?

Iwasa: That’s really a good question, and one that I brought up at the HART board meeting, because, as a CPA, I’ve wondered what these assumptions are because they had expressed that this GET over the next 10 years or so is going to go up — I forget what it was, $800,000; I forget the exact number — but I’m, like, “OK, well, so what are the assumptions you’re using?”

So now, we know they’re using the actual collections from 2010 to 2019 for HART — that excluded 2020 and ’21 because of COVID, which is reasonable — but in that timeframe, Act 1 in 2017 reduced the state administrative fee from 10% to 1%. So we had a bump in collections of 9 [percentage points] just because of that, and they didn’t take that into account when they came up with this 6% — it’s not quite 6% — increase in the GET over the next — it’s not quite 10 years — but that period of time.

So when we know that something impacted the history of the GET and we’re not taking that into consideration, that for me is a big flag. 

Now the same thing can be said about the TAT or similar, because what they did with that, since there’s not that much history on the TAT at the HART level, they used the actual statewide TAT collections for the same period. But in that timeframe, again, we had an increase, I think it was from 9.25% statewide to 10.25%. That again was from the Act 1 from 2017.

So you have a full percentage point of increase that’s feeding into those collections and that wasn’t taken into account when they developed this projection. I think it’s like 9% year over year that they expect TAT to increase. 

The last thing that they haven’t considered is Bill 41, which, for people who haven’t followed City Council, that’s the change of the restrictions in the short-term rentals. So theoretically, we’re going to have a lot less people paying into the TAT, whether it’s the state or the county, at least on Oahu. 

These things haven’t been put into that analysis, if you will, and my question is, well, why not? And how can you be so confident that the numbers are going to be what you say they are, if you don’t consider these things that impacted the increases over the last 10 years?

Akina: Well, Natalie, those are indeed some troubling concerns. I wish we could keep talking but we’ve reached the end of our half-hour together. And I just would like to ask you in closing, is there something you would like to say directly to the public?

Iwasa: Yeah. I just would really like to stress that people should testify. I get it, people are tired of feeling like they’re not being heard. But it is so important, it is critical that you keep telling your decision-makers, your elected leaders, what you think. And, I tell you, it’s going to stay on the record and it’s so important, so that would be I think the most important comment that I can make.

Akina: Natalie, thank you for your service on the HART board, and thank you for being with us today.

Iwasa: You’re welcome, Keli’i.

Akina: Well, this has been “Hawaii Together” on the ThinkTech Hawaii broadcast network. My guest, Natalie Iwasa, is a member of the HART board talking today about issues related to the rail. So glad you were with us. I’m Keli’i Akina. Until next time, aloha.