Civil Beat Analysis: Honolulu Estimate for Federal Funding to Run Rail Questionable
Editor’s Note: After three months of work, a state consultant in early December released a report reviewing Honolulu’s financial plan for its proposed $5.5 billion rail project. Civil Beat is taking a closer look at the two analyses and will evaluate the key areas in which they differ: construction revenue, construction costs, operating revenue and operating costs.
When it comes to long-range financial projections, there’s only one thing we can be sure of: They’re all wrong. But finding out who’s closest requires a look at the methodology and assumptions each employed in coming to their conclusions.
We’ve already explored the city’s optimistic projections for tax revenue to pay for construction and the state consultant’s $227 million error in comparing construction costs. This story, the third in our series, explores federal bus grants and ridership projections.
Other stories — including Civil Beat’s conclusion on the financial future of rail in Honolulu — will follow. A discussion of the topic has already begun.
The city says it will use more than $400 million in federal bus grants to help pay for the cost of operating its mass transit system over the next 20 years.
Some years, Honolulu’s bus grant revenue will surpass $40 million, the city says.1
The problem is that’s far and away more than any city has received in bus grants in the last 15 years, the time period for which data is available. Civil Beat reviewed the city’s financial plan and an independent evaluation of that plan and found that the city’s projections are hard to believe.
, which was hired by former Gov. Linda Lingle to conduct an independent financial analysis of the city’s proposed rail project, pointed out Honolulu hasn’t received more than $10 million in bus grants in any single year since 1998.
So-called “bus discretionary” grants are offered to states and cities by the , part of the .2 But the administration can’t make long-term promises about bus grants because Congress generally earmarks all the available funding — hundreds of millions of dollars each year.
Honolulu has been successful for a city its size, pulling in nearly $63 million between 1998 and 2009, according to the IMG report. In 2004 and 2006, Honolulu received more than any other city, IMG said. A review of confirms that IMG’s figures are roughly accurate.3
Historical “Bus Discretionary” Revenues
| Fiscal Year | Honolulu ($ millions) |
Nation’s Largest ($ millions) |
|---|---|---|
| 1998 | $4.9 | $8.8 |
| 1999 | $3.2 | $11.9 |
| 2000 | $2.0 | $9.8 |
| 2001 | $5.9 | $13.4 |
| 2002 | $8.7 | $13.4 |
| 2003 | $8.6 | $11.4 |
| 2004 | $9.8 | $9.8 |
| 2005 | $8.5 | $9.7 |
| 2006 | $7.4 | $7.4 |
| 2007 | $1.3 | $6.0 |
| 2008 | $1.3 | $5.0 |
| 2009 | $1.3 | $4.8 |
| 2010 | $0.0 | $4.0 |
Source: IMG
The city said in its that it projects it will receive $419 million in bus discretionary grants between 2009 and 2030. The grant revenue will be used to operate and maintain the rail system.
The city explains that bus grants can be used not only for acquiring buses but also for maintenance facilities, transportation centers, intermodal terminals and park-and-ride stations. It’s one of many federal revenue sources the city is counting on.
Source: Financial Plan for Entry Into Preliminary Engineering, August 2009
Financial Plan Bus Grant Projections
| Year | Honolulu Financial Plan ($ millions) |
IMG Assessment ($ millions) |
|---|---|---|
| 2009 | $5.6 | $0.0 |
| 2010 | $5.6 | $0.0 |
| 2011 | $17.0 | $2.6 |
| 2012 | $15.5 | $2.6 |
| 2013 | $29.8 | $2.6 |
| 2014 | $26.7 | $2.6 |
| 2015 | $28.3 | $2.6 |
| 2016 | $21.5 | $2.6 |
| 2017 | $12.7 | $2.6 |
| 2018 | $1.3 | $2.6 |
| 2019 | $11.1 | $2.6 |
| 2020 | $12.9 | $13.0 |
| 2021 | $10.7 | $13.0 |
| 2022 | $8.9 | $13.0 |
| 2023 | $9.1 | $13.0 |
| 2024 | $22.4 | $13.0 |
| 2025 | $43.3 | $13.0 |
| 2026 | $42.5 | $13.0 |
| 2027 | $40.3 | $13.0 |
| 2028 | $31.1 | $13.0 |
| 2029 | $20.6 | $13.0 |
| 2030 | $2.0 | $13.0 |
| Total | $418.6 | $166.4 |
| Difference | $252.2 |
Source: Financial Plan and Financial Plan Assessment
The city acknowledged in its report that the “discretionary nature of this program makes the level of funding difficult to predict” but said its assumptions are “based on Honolulu’s success at receiving earmarks in the past.”4 The city did not respond to a Civil Beat request to explain its optimism for the future.
Two factors complicate matters. Much of Hawaii’s past success in securing federal funds can be attributed to the work of Daniel K. Inouye, the 86-year-old President Pro Tem of the U.S. Senate, the chairman of the chamber’s Appropriations Committee and the “No. 1 earmarks guy in the U.S. Congress.” Without Inouye, the islands’ tap on federal funds could run dry, even if the earmarks process survives reform attempts between now and then.
The second concern is that it’s unlikely, according to IMG, that the city would receive such sizable bus grant allocations from Congress at the same time it’s receiving $1.55 billion in New Starts funding. Those funds are expected to pay for about one-third of the rail’s construction costs.
“(H)istory shows that properties receiving significant New Starts funds usually do not receive major Bus Discretionary dollars in the same year,” IMG writes in its assessment of the city’s financial plan.5 It points to the fact that Honolulu’s bus grants dipped dramatically in 2008, 2009 and 2010, the first three years it began receiving tens of millions of dollars in New Starts funding.
IMG took its own crack at projecting bus grant revenue.
The IMG forecast projects that $1.3 million allocations for Honolulu in 2007, 2008 and 2009 would continue for the duration of construction time, through 2019. Annual allocations would then be $6.5 million through 2030. The consultant eventually decided to simply double all of those figures because the original version differed too much from the city’s projections.6
IMG’s “base case” of $166.4 million is still more than $250 million less than the city’s estimate. While the consultant’s model fits into recent history better than the city’s projections, it’s still an arbitrary number.
Nevertheless, the consultant is correct that there’s no historical basis to support the city’s optimistic expectations for federal funding. This is another case where it’s reasonable to conclude that the city is viewing its financial future through rose-colored glasses.
Ridership Revenue Projections
The consultant’s decision to insert an arbitrary number into its critique of the city’s bus discretionary grant revenue projections is curious considering that IMG tended to let city assumptions stand when it was unable to develop a reliable alternative model. One key example of that approach is projections for ridership and “farebox revenue.”
Some media coverage of the IMG report quotes from the summary, which claims that “transit system usage and fare revenue are likely to be substantially lower than that projected in the current Financial Plan, since the Plan’s projection would require an unprecedented and unrealistic growth in transit utilization for a city that already has one of the highest transit utilization rates in the country.”7
But that conclusion isn’t based on any numbers. A table comparing the IMG “base case” and the city’s model actually projects a $46 million increase in farebox revenue.8
That’s not to say that IMG actual believes the city underestimated its fare revenue. Quite to the contrary.9
What it means is any substantial decrease in farebox revenue due to reduced ridership isn’t rolled into the $1.7 billion gap that IMG says Honolulu taxpayers will have to pick up. IMG couldn’t come up with an alternative model it had faith in, so in this case it didn’t insert an arbitrary number.
Ridership wasn’t factored into the $1.7 billion gap, but the arbitrary $250 million difference between the city’s bus grant projections and IMG’s was. Neither of the reports is going to be perfectly accurate, but in this case, it would appear that the consultant has a more believable number.
