Friday, December 10th, 2010 | Posted by Greg Wiles |  Print This Article

Rail Critics Say State Report Will Go To Feds

BY GREG WILES - A state study that casts doubt on financial projections for the city’s rail transit project may yet be used in examining the project despite being lambasted by Honolulu Mayor Peter Carlisle as shoddy and biased work.

Two well-known opponents to the city’s proposed rail project say they believe the report released last week will carry more weight at the Federal Transit Administration, which has federal oversight of the project, and in Congress, where a Republican-controlled House of Representatives is looking for ways to cut spending.

Moreover, City Council member Ann Kobayashi said she hopes the report done by Bethesda, Maryland-based Infrastructure Management Group Inc. will receive an airing before the council meeting or that an independent community group calls for a forum to more fully discuss the study.

“I think there should be a hearing on it with both sides giving their opinion,” said Kobayashi. “We shouldn’t put it on a shelf.”

The report was roundly criticized by Carlisle last week, who said the $350,000 study contained erroneous projections and that an “anti-rail” activist helped in preparing the analysis. He questioned the credibility of the report, which found the project could cost $1.72 billion more than the city has projected over the next 20 years.

The report also said the costs could be as much as $4.5 billion more than city estimates under another scenario and raised other questions about how the project would be funded.

Carlisle this week said his administration believes the city’s financial plan for rail is solid, but that the city will examine the IMG study so that it can answer questions about it if raised.

“We’re going to do our due diligence and do our own analysis of their report to point out things the city and the mayor have issues with,” said City spokeswoman Louise Kim McCoy.

The release of the report was one of the last acts of Gov. Linda Lingle before she left office, with the study receiving a cool reception from some rail proponents who believed Lingle disliked the rail project and had ordered the review to slow or derail it.

Last week Carlisle criticized the report and vowed to push ahead with rail, which city studies show is the best solution for relieving traffic congestion along a 20-mile route between Kapolei and Ala Moana Center.

City studies have identified the elevated rail project as being superior to alternatives such as a managed lane system or building so-called “hot lanes” that buses and cars paying tolls could use.

The rail system was found to be superior to alternatives in reducing commuter delays and rush hour traffic volume while producing less pollution and using less energy. The project has won the support from Hawaii’s Congressional delegation and in the past has been favored by now Gov. Neil Abercrombie, who must sign off on an environmental impact statement before the project moves forward.

Lingle wasn’t seen as fully backing the project and turned off some rail backers when she ordered the financial study.

The report doesn’t pass judgment on the project feasibility but examines whether the project finances by scrutinizing it in a way that lenders or bond agencies might. In that respect the executive summary reads like a stock prospectus, focusing attention on potential financing pitfalls or other issues that might jeopardize its economics.

CARLISLE DEFENDS CITY ESTIMATES

The findings call into question the city’s financial projections, prompting Carlisle to strongly defend the city’s estimates and say the author’s motives were questionable.

But observers and some rail opponents believe the report will be of interest to the project management oversight and financial management oversight contractors that advise the Federal Transit Administration staff.

Rail opponents said the fact that the state and not an anti-rail group sponsored the report, along with FTA consultants’ desire to review analyses so their own critiques are more precise, means the report will find an audience outside of Honolulu Hale.

“They can kill the messenger with me and get away with it,” said Cliff Slater, who has been a persistent and vocal opponent to the rail project.

“But they can’t do that with IMG and CBRE.”

Slater noted the Infrastructure Management Group, or IMG, and report team member CB Richard Ellis are national firms whose work can’t be easily dismissed.

IMG is in the business of advising municipalities and states on managing and financing infrastructure projects and counts among its current engagements a role as the lead financial advisory firm to the California High-Speed Rail Authority.

IMG also has worked in the past with the U.S. Transportation Department’s Transportation Infrastructure Finance and Innovation Act Joint Program Office to arrange financing for projects.

Rail opponents said the FTA would most likely want to consider what’s in the report if the project moves to a full funding agreement and goes before the House Transportation and Infrastructure Committee. Ignoring the IMG study might prompt committee members to question why the numbers had not been reviewed.

The committee’s leadership is changing with Republicans coming into power in the House and will be headed by Florida Rep. John Mica. The congressman is known as a proponent of cutting government spending and once expressed doubts about funding a high-speed rail project in Florida.

Panos Prevedouros, who ran against Carlisle for governor with a stop-rail platform, said he will make sure Congress receives the IMG report.

“It’s a significant data point,” said Prevedouros, who also is contemplating a lawsuit against the project involving environmental law.

“There’s the bridge to nowhere. This is heavy rail on a tiny island.”

The FTA last year signaled that the city would have to sharpen its financial plan if it expects to meet its financial standards for moving the project into a final design phase. That includes more work looking at cost increases, possible revenue shortfalls and competing demands for funding sources.

Kobayashi noted the FTA’s desire to see a better financial plan from the city and said she’d like to see what others think of the report. She said the city needs to have a good financial plan if it is to avoid floating bonds because federal funding isn’t coming in on a hoped-for basis. Under a FTA Full Funding Grant Agreement any revenue shortfalls or cost overruns are paid for by the local government.

Accordingly there should be a hearing or forum on IMG’s report for its findings can be discussed further. “So that taxpayers know what’s happening,” said Kobayashi, who favors Honolulu building a light-rail project instead of a so-called heavy rail system that’s elevated.

“I’m sure IMG did an unbiased and as complete a study as they could.”

MOST LIKELY SCENARIO

The IMG report said city costs would escalate under what it deemed to be the most likely scenario for the project. It estimated rail construction, operations and maintenance would be $1.72 billion more than the city’s $5.27 billion estimate.

The IMG said in some cases it went along with city projections and in others it came up with its own models, forecasts and funding estimates.  The report includes the work of at least two other consultants, with analysis also being provided by the Land Use and EconomicConsulting Group of CB Richard Ellis and transit expert Thomas A. Rubin.

The findings included:

• Revenue from the 0.5 percent General Excise Tax surcharge will fall short by roughly $800 million primarily because CB Richard Ellis’ models show a 4 percent growth rate in the revenues rather than the 5.4 percent used in the city’s model.

• Bridge financing will be needed while waiting for $1.55 billion in New Starts funding from the federal government.

• The debt required to finance the project might push the city’s annual debt service above budget guidelines. The city is also facing a large worker pension and retiree healthcare liability.

• Honolulu could overcome some of the financial issues by extending or increasing the temporary General Excise tax surcharge.

• Funding from a federal Bus Discretionary Fund most likely will be $166.4 million compared to the $419 million envisioned.

• Construction costs will be $200 million higher, while operation and maintenance costs will also be higher than the city estimates.

• Ridership growth is unrealistic given Hawaii’s already high use of public transit already.

Report critics have raised a number of questions about the study.

Carlisle and others have questioned the GE Tax projections that were done by CB Richard Ellis and said the tax take is close to being on track with its own projections despite an economic downturn during the past two years.

Some proponents contend the study should have used six-year tax growth predictions from Hawaii’s Council on Revenues rather than correlating Hawaii economic growth rates to U.S. GDP growth and applying this to taxes over a 30-year period.

The authors also have been criticized for not having a better understanding of Honolulu and its potential for more transit ridership. They also are dinged for not adjusting construction prices lower in a scenario that contemplates slow economic growth.

ANTI-RAIL PROPAGANDA

The city has called the report suspect because IMG included Rubin, an Oakland, California-based transit consultant, as part of the report team. Carlisle called Rubin a “nationally known anti-rail activist.”

In the past Rubin has submitted papers to the Reason Foundation, a Libertarian think tank, that favor busways over rail transit systems. Among papers he has authored is one in 1996 titled “Why Rail Will Fail,” which pointed out flaws in a long-range Los Angeles County plan that favored a rail project.

Rubin also spoke with Prevedouros during the preparation of the report, leading Carlisle to proclaim the IMG report was a pre-determined rant against the project.

City Council candidate Bob McDermott said the project is critical for his district and criticized Rubin’s inclusion on the IMG team. McDermott issued a statement dismissing the report and saying it appeared to be “anti-rail propaganda that has been purchased from a known purveyor of anti-rail propaganda.”

Rubin supporters said his berth on the IMG team was based on his extensive expertise in mass transit and knowledge about rail operations as well as databases used by the FTA.

Rubin’s past experience includes serving as controller-treasurer for the Southern California Rapid Transit District in Los Angeles and founder of the transit practice for Deloitte Haskins & Sells.

Rubin’s also done consulting and auditing work for more than 100 transit operators, local governments, transit unions and the U.S. Department of Transportation, according to court testimony he gave as an expert witness in 2008. Rubin testified that among his past work were technical analyses of long-range transportation or project plans by several cities, including the City and County of Honolulu.

The IMG report said Rubin’s work was limited to helping review Honolulu’s financial plan, providing information on other transit projects, and assessing projected operating costs, revenues and service assumptions for the project.

IMG was responsible for most of the financial analysis, including coming up with three scenarios – base, best and downside cases. It also led the financial plan and peer transit project review, while CB Richard Ellis performed the GET surcharge analysis and helped in the current plan review.

Short URL: http://www.hawaiireporter.com/?p=26851

Author: Greg Wiles

Greg Wiles is a long-time business journalist who currently works for Hawaii Reporter. His previous experience includes the Honolulu Advertiser and Bloomberg News.

Greg Wiles has written 69 articles for us.