The Honolulu Rail Transit Project
Table of Contents
Public Goods and Rationale for Intervention
Arguments for the Honolulu Rail Project
Arguments Against the HART and Its Negative Effects
Suggested Budgeting Solutions
Managerial Issues and Ethical Considerations
The Honolulu Rail Transit Project (HRTP) is an elevated 20-mile-long rail system with a total of 21 stations, connecting East Kapolei and Ala Moana Center along the shoreline of Oahu. Although public discussions regarding the opening of a public transit line in Honolulu have been ongoing since the second half of the previous century, funding was first approved in 2005. The construction of the HRTP was initially scheduled to commence in 2009 with a preliminary budget projection of US $4 billion (Slowey 2018). From the start, however, the project has faced multiple barriers hindering its completion, and the estimated cost of the HRTP increased at least twofold by 2017. Today, the project is half-completed and continues to lag far behind schedule. For this reason, a heated debate is raging, revolving around the HRTP, its significance, impacts, and the overall adequacy of authorities’ budgeting decisions. Thus, this paper aims to explore the major controversies associated with the project and provide an analysis of the primary issues linked to it.
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Public Goods and Rationale for Intervention
One major rationale for public expenditures is the production of public goods. The decision to construct the HRPT was justified as the rail service was expected to generate multiple benefits. For example, the Honolulu Authority for Rapid Transportation (HART undated) states that the project will create at least 10,000 jobs per year and, after completion, will stimulate economic growth in the state. Nevertheless, the primary justification for building rail transit was its favorable effect on road traffic. As Boeing (2016) has noted, the Honolulu urban area is among the densest in the United States; in fact, in 2011, it topped the list of the most traffic-congested cities in the country. According to research findings presented by Cook Lauer (2018), “Honolulu drivers spend 11 percent of their driving time sitting in traffic, amounting to some 37 extra hours of driving time a year” (para. 7). Since the HRPT is intended to provide a fast and affordable transit option, it can easily compete with the automobile and, in this way, alleviate the negative consequences of excess traffic congestion. Finally, even those who choose to drive rather than take trains may largely benefit from rail construction.
Along with the reduction in the number of cars on the roads, the degree of automobile-related pollution is anticipated to decrease. The Department of Customer Services (2016) has reported that rail construction can lead to a considerable decline in the volume of gas emissions and energy consumption (Slowey 2018). In addition, research findings reveal that vehicles used in rail transit produce less noise than vehicles currently in traffic (Department of Customer Services 2016). Thus, the project is likely to bring some positive environmental changes to the area and improve local residents’ quality of life in general.
Arguments for the Honolulu Rail Project
The one advantage that is anticipated to be provided by the Honolulu Rail is the fact that it will enable the residents to have alternative methods of transport that will enable them to avoid the road transport that is marred with challenges of traffic congestion (Yu & Levy, 2017). Those who support the feasibility of the Honolulu Rail that is expected to be completed by the close of the year 2019 peg their viewpoint on the fact that the rail is expected to the extent to more than 20 miles from East of Kapolei (Love et al., 2017). Honolulu and the other municipalities that are to be covered are characterized by natural mountainous geography that is not ideal for other forms of transport apart from the rail.
In this case, the region is covered by mountains to the not and the Pacific Ocean to the south. In this context, it is important to note that the bus and the local travel agency only carry close to 236,000 riders every day (Spieler, 2018). The transport share commute for this city is more than 10%, a value that is beyond the expected heights of the cities that do not have the rail system (Spieler, 2018). Therefore, the project is within revenue adequacy since it raises sufficient revenue to fund the “legitimate” functions of government (Spieler, 2018). The role of the city administration is to make life better for the people both at present and in the future. Therefore, the project is timely and feasible for the city of Honolulu.
Although the Honolulu Rail project would definitely improve the transport system in the city, it is notable that political upheavals are some of the hurdles that have been affecting its implementation (Yu & Levy, 2017). Those who support the idea state that the proposals to the developments in the rail system that were developed in 1981 and 1992 respectively had a negative effect on the project (Spieler, 2018). In addition, the bus transit line that was later abandoned in the year 2004 indicates some of the issues that have been affecting the project’s rate of completion. It is evident that no enough is being done to ensure that the targets of the projects are attained.
Mufi Hannemann’s ascension to power as the mayor in the year 2005 ushered in a new dawn for the rail system where debates emerged concerning the opposing forces that had been crippling the project from proceeding to completion (Spieler, 2018). It was during the major’s regime that the transit tax was introduced to support the construction of the rail. However, the major met opposition from those who argued d that the feasibility of the project is no something that would have been anticipated given the fact that the costs were already too much; hence, placing additional funds on a project that had stalled for years was not a good idea.
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The recent election of Neil Abercrombie and Peter Carlisle governor and major of the region respectively in the year 2010 provided decent and effective momentum as far as the project was concerned. This is supported by the fact that this leadership marshaled the support of stakeholders who believed in completing the rail project (Love et al., 2017). One of the major arguments for those who support the project includes the stance that it inculcates a positive land use strategy that seeks to take advantage of the rather undesirable landscape for any positive economic activity or transport facilities (Fisenko et al., 2016). The supporters of the Honolulu Rail project state that the system is rather elevated. This makes it possible for trains to run quickly as opposed to the case where a smooth terrain would have been manifest (Yu & Levy, 2017). With a speed of over 30 mph on average, this means that the project will facilitate the creation of automated trains, which will affect fast transportation while minimizing the costs incurred.
On the other hand, those that are opposed to the Honolulu Rail project confirm that Hawaii landscape, as it is, will not permit the project to be completed as presently designed. In effect, this would call for close to 66 businesses and 23 residents to be removed with the help of bulldozers to allow the rail system to permeate through the anticipated regions. This means that extra costs will be required in the evacuation exercise to pay up those who will be completing the removal and compensating those that would have been forced to leave the lands where homes and businesses are established (Yu & Levy, 2017). In this case, critics for the rail project support that a ground-level railway or a busway could have been constructed instead due to the fact that rather limited resources would be incurred in the later options.
Arguments Against the HART and Its Negative Effects
Plans that inculcated the development of the Honolulu Rail Transit were started in the 1960s when there was the need to come up with a transport system that would make it possible for transport in the region to be improved (Boeing, 2018). As the project has failed to deliver on its promises so far, the public is expressing concerns regarding the possible negative impacts of the HRPT. The original deadline of late 2020 for the complete project would be later extended due to unplanned disruptions and issues associated with the budget. At this moment, the expected ending of the first page of the project, the railway linking Aloha Stadium and East Kapolei, is projected to open at the end of 2020. The second phase, which is the railway connecting the Ala Moana Center and urban Honolulu, is expected to end in December 2025. It can be argued that budgeting problems linked to the HRPT are affecting the entire community. As a prelude to discussing those problems in detail, it is appropriate to review the project’s funding sources. The Federal Transit Administration (FTA) contributed US $1.5 billion to the construction of the rail transit system in Honolulu (HART updated), but the main portion of financing comes from local sources and mainly the General Excise and Use Tax (GET).
Honolulu Rail Transit is presently financed through a surcharge that is issued on the local taxes. Also, the $1.55 billion that the Federal Transit Administration provided as a grant has been key in the project (Slowey 2018). In view of the stance that there were significant cost overruns, surcharges on tax were later expanded in the year 2016 (Slowey 2018). At this point, the target cost for the project was $1.2 billion. However, it was discovered that this could only complete the Middle Street in Kalihi. Later on, further funding for the project was facilitated by the legislature in 2017 following a budget funding that closed at $2.4 billion.
The process of selecting contractors for the project was commenced once again in 2017 (Slowey 2018). At this instance, it was anticipated that the project would take close to 18 months. The first contract for this case stands at $400 million, which was completed in May 2018.
In 2005, the council voted for an increase in the GET to raise money for project design and construction (Reyes 2005). Nowadays, the counties of Honolulu, Kauai, and Hawaii are authorized to adopt a surcharge on getting and use tax at a rate of up to 0.5% (County of Hawai’i 2018). In 2004, GET revenue amounted to $1.8 billion compared to $3.1 billion in 2016 and $3.2 billion in 2017 (State of Hawaii Department of Taxation 2019). Cook Lauer (2018) states that GET surcharge“ is projected to raise $10 million for the fiscal 2018-19 budget year … and $25 million a year after that” (para. 6). In addition, to GET, the rail construction is funded by the transient accommodations tax (TAT) that is imposed on visitors who rent accommodation in the state. As noted by Hawai’i Budget and Policy Center, “in 2017’s special legislative session, the TAT was raised by one percent to 10.25,” and it brought revenue of $508 million (2018, 16).
From the perspective of budgetary institutions, the latest cost estimates seem unrealistic due to strict balanced budget regulations. Recent increases in tax rates were used as tools to avoid the negative effects of deficits on budgetary decisions (Slowey 2018). However, Boeing (2016) states that as the project cost estimates continue to rise, the current rate of tax surcharge will not be enough to cover expenditures. Noteworthily, the initial cost estimates of $4 million grew to 5.2 billion by 2012 (Boeing 2016). Later, when one of the project’s contractors declared that the project was five years behind schedule and would not be completed without additional financial investments, the FTA stopped making payments and requested to submit a financial recovery plan to construct a minimum operable segment of the railroad (plan options suggested by the HART are discussed in the next section). After this, “the City immediately raised its baseline cost estimate to $8.1 billion and increased the upper-bound number to $10.8 billion” (Roth 2016, 4). The HART explained these overruns mainly by construction cost increases and inflation within the period of the last six years ((Boeing, 2016). Nevertheless, Roth (2016) indicates that the reports on construction cost inflation issued by the City contained higher numbers than reports by other researchers and analysts.
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According to the findings of the Office of the Auditor State of Hawaii (2019), as the project progressed and costs started increasing from $5.122 billion in 2012 to $9.188, HART began reporting public information that was often contradictory to the internal projections of the organization. In the 2018 revised recovery plan of the project, HART stated, “consistent with FTA direction, the project will be completed at a cost under $8.299 billion excluding financing costs with a revenue service date (RSD) for the full system no later than September 2026” (Office of the Auditor State of Hawaii 2019, p. 31). However, the report continued with the statement that HART was committed to the residents of Honolulu and intended to complete the railway at a different cost ($8,165 billion) and open for complete service in December 2025 (Office of the Auditor State of Hawaii 2019). This points to the significant misalignment between what is promised and what took place.
Additionally, in light of the ongoing delays and suspended progress in the construction of the system, taxpayers are experiencing several serious negative effects. First, Coleman (2017) points to multiple lost opportunities for wiser use of money either for personal purposes or for urban area improvement. Second, even if the HRPT is canceledin the near future, a significant amount of time will be necessary to pay off rail bonds and eliminate the special taxes the authorities have introduced to collect funds (Coleman 2017). Nevertheless, Mayor Kirk Caldwell of Honolulu has stated that since a lot of construction work has already been finished, it is unlikely that the project realization will come to an end (Nagourney 2016). At this moment, the first half of the transitway, from East Kapolei to Aloha Stadium, is already constructed (Friends of Rail undated). Some of the major structures, including the rail operations center, have been completed as well, while all stations remain under construction (Friends of Rail undated).
It is also imperative to mention that the rising costs of the project were also initially supported by voters. The project was estimated to cost $4 billion when voters approved its construction on the ballot back in 2006, with 53% of a positive vote. As a result of the approval of the surcharge through the election, the Honolulu City Council in 2008 passed a measure that assured that “the project would be financed strictly with federal funding and a city surcharge on the state general excise tax” (Cook Lauer 2018, par. 10). Nevertheless, since that election, in which voters did not consider the issue of the unwise use of funds, much has changed. In October 2018, the Honolulu City Council passed a bill that allowed up to $26 million annually in local property taxes to be added. Therefore, the lack of attention of voters to the potential complications in budgeting resulted in the absence of control over the financial affairs in the project and increased the occurrence of budget increases.
As it stands, those who are opposed to the Honolulu Rail project claim that the fast transit times all the way from the downtown to the western parts of the island could result in sprawl in the regions that are close to the planned university in Kapolei (Yu & Levy, 2017). However, the averments made by those who are opposed to the Honolulu Rail project are limited by the fact that it is now too late to shift from a project whose contractors have already been paid and plans laid out for new ideas that would cost the average citizen in terms of taxes and funding by the mainstream jurisdiction (Yu & Levy, 2017). As the city continues to increase in population, it is plausible that some of the residents that do not its effectiveness at present would end up witnessing that in the future when the number of automobiles in use will just ramp up and be ineffective (Yu & Levy, 2017). Honolulu Rail Project is interim with the need for the need to provide the residents with other transport options, especially those that presently commute via public transport.
Overall, there is a lot of skepticism and doubt associated with the Honolulu Rail Project from the public that initially did not think about the possible issues with budgeting. Moreover, the fact that the city was using money intended for the rail project to supplement its own affairs. Such a lack of control and accountability to the public increased the severity of initial problems that were out of the influence of HART. It should be noted that the Honolulu Rail is not only transportation but also a planning tool for achieving the smart growth and the development of the city. The failure of the government to provide sufficient planning and follow the forecasted schedules and budget estimations requires the implementation of effective budgeting solutions.
Suggested Budgeting Solutions
Currently, the HART is facing the FTA’s pressures to come up with a sound decision under threat to demand the return of initially invested funds and withhold future payments. While about $750 million has already been provided, the state would have to return this sum to the federal government if an adequate recovery plan will not be provided (Roth 2016). It is possible to presume that in case this adverse outcome takes place, the authorities will use available local resources to pay back the lent sum. In other words, it will be paid from taxpayers’ pockets.
One recent budgeting solution proposed by the HART in response to the FTA’s demands is to collaborate with private companies and form private-public partnerships (P3s). P3s may foster better construction progress and increase cost-efficiency in the short term. Among the major benefits of such partnerships are improved value for money for taxpayers, lower pressure on public sector budgets, better project delivery, greater infrastructure innovation, and so forth (Hodge and Greve 2017). Nevertheless, a risk exists that the overall project costs may eventually end up being much higher than initial estimates (Kent 2018). Moreover, this solution does not resolve the problem of outstanding debt.
Just as noted by Kent (2018) noted, when a private entity lends money to a public agency and receives monthly fees in return, the debt simply appears in the books of the private party instead of those of the public one. Although the debt would have to be reflected in some way in the public agency’s accounting, it is important to point out that proper accounting would only be reflected on the part of the private company (Boeing, 2018). In the process, any issues that would arise in the process in terms of liability would be transferred on the part of the private company as opposed to the public company (Boeing, 2018). The monthly payments, in this case, would be construed to mean that the privately traded company merely invested in the public company. This is one of the feasible approaches that should have been adopted to make the project less of a burden to the taxpayers.
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In case one would want to raise a certain amount of revenue by commodity taxes, Pareto’s efficient way of doing so would setting the commodity tax rates inversely to the elasticities of demand (Boeing, 2018). This is the one approach that the city should have adopted in its progress. However, it seems that upheavals in the leadership framework have made this to be an objective that is practically hard to attain.
Other potential solutions address the budgeting problems indirectly and primarily focus on managerial practices and revising the initial construction plan. As stated by Roth, the completion of the rail transit project as originally intended is Plan A, while Plan B is to construct a “build-to-budget option” (2016, 5). In other words, the city government could come up with new construction ideas and make the plan more realistic and slightly less ambitious. Nevertheless, Honolulu authorities do not consider Plan B a viable option even though they acknowledge their financial incapability to proceed with Plan A (Roth 2016). In any event, before making a final decision, the authorities should conduct a “forward-looking cost-benefit analysis” and determine why projected costs have continued to rise drastically throughout the life of the project to date (Roth 2016, 5). Importantly, not only should construction and maintenance expenditures be evaluated during the analysis, but such costs as damage to the city’s natural beauty, the impact on cultural sites, and overall urban design must be included in the assessment (Boeing, 2016). Since these assets contribute to the economy by offering appeal to visitors and generating undeniable value for local residents, their deterioration can lead to unfavorable consequences.
Managerial Issues and Ethical Considerations
In pondering the reasons for steep estimated cost increases during the HRTP realization, it is impossible to ignore failure in terms of competency and honesty on the part of those in charge of this endeavor. According to Boeing (2016), the authorities were aware of actual expenditures and knew that costs would be higher since many renowned independent groups of researchers provided forecasts. Thus, officials either deliberately hid the true numbers from the public or were not sufficiently competent to critically evaluate different perspectives on the project. Such mismanagement practices have obviously hindered the performance of the HTTP.
Moreover, intentional, strategic misrepresentation of data indicates a lack of social accountability as well as a neglect of major stakeholders’ needs and interests. According to Valentine et al. (2015), ethical leadership is directly associated with positive budgeting practices: exerting greater planning control, maximizing value for stakeholders, generating greater organizational and project value through budget allocations, and so forth. Overall, compliance with ethical principles is important not only for estimating realistic rail transit construction costs but for long-term outcomes as well. Without an ethical approach to the HRTP at the governmental level, even greater financial losses and delays can be expected.
To sum up, it is desirable to point out that the Honolulu Rail project is an important project for the city given the fact that the people approved a surcharge in an election that was met with significant debates amid the parties involved (Yu & Levy, 2017). In addition, the user fees and user charges that the city had paid to the contractors already are enough justification to confirm that the project would finally realize the anticipated outcomes (Yu & Levy 2017). The model adopted by the leadership recently is consistent with the benefits received principle of distributing the public revenue burden. While surcharges were used to fund the project, other sources of meeting the costs were applied.
The HRTP may be regarded as an attempt to resolve the essential problem of congestion in Honolulu. The project could certainly produce such benefits as reducing the time spent in traffic as well as noise and air pollution (Boeing, 2016). However, from the start, many have opposed the project because of the number of potential negative impacts. For example, after construction began, some residents had to leave their property located on the rail route (Boeing, 2018). Moreover, the transit line is significantly altering the city landscape and is threatening some culturally valuable sites.
Still, the main problem involves inadequate budgeting practices. Even with an increase in taxes, city authorities are facing an enormous funding shortage and are not able to complete the project by the expected deadline, as indicated in the preceding factions of this deliberation (Boeing, 2018). Over-promising and under-delivering are considered the hallmarks of the Honolulu Rail Transit Project. Being an almost ten-year-oil stop-and-go journey ever since the announcement of the project on October 29, 2009, it is complex to make optimistic projections due to the abundance of delays, cost overruns, change orders, and budget shortfalls.
Meanwhile, the fate of the HRTP remains uncertain because the FTA may request a refund of the money contributed earlier, whereas the HART is struggling to attract private investors (Boeing, 2018). A possible solution to this dilemma is to rethink the initial construction plan and make it more suitable for the current budget (Boeing, 2018). Moreover, it is critically important for the government to shift to a socially responsible and ethical management approach in light of diminishing public trust.
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