Taken for a Ride: Hawaii Companies Say Rising Costs = Rising Prices
Editor’s note: This article is part of a series on Hawaii’s runaway school bus costs. Read other articles in the series.
Hawaii school bus companies say rising health-care and fuel costs are only two of many reasons they are now charging so much more to drive kids to and from school.
School bus contract prices with the Department of Education have doubled since 2005, taking a toll on parents’ pocketbooks and the school district’s budget. Civil Beat has been examining what’s behind the soaring costs in its series, Taken for a Ride. Records over the past 11 years show that school bus costs started rising sharply in 2006, and contractors abruptly stopped bidding against each other two years later, in 2008.
With no competing companies to choose from, the school district began paying whatever the contractors asked. The cost of some routes tripled overnight, particularly when a contract would come up for bid again and only one company would submit a proposal. For instance, one route on the Big Island went from $35,000 in 2003 to $42,000 in 2008 and then to $105,000 in 2009.
School district officials say they can’t figure out what’s behind such sudden and dramatic price increases, because Hawaii’s school bus contracts already include annual adjustments for inflation, wages and fuel costs. They say overnight price jumps of as much as 192 percent are significantly higher than what they think any increase should be.
School bus companies have been reluctant to talk publicly about why they stopped bidding against each other and why they are charging so much more now. That may be because there is a criminal investigation of possible price fixing. Some bus company owners have told Civil Beat they have been interviewed by FBI agents looking into possible collusion.
John Radcliffe, a spokesman and lobbyist for the Hawaii School Bus Association, recently provided some answers to questions about why bids have gone up so much. He gave Civil Beat copies of memos, testimony and invoices produced by some of the association’s members to explain rising costs.
But all the expenses outlined in the documents Radcliffe provided — which give an idea of how much it costs to run a single bus on a single route — don’t fully account for the high-percentage increases the bus companies are charging the state. The impact of other possible significant factors are still unclear, such as the cost of property for a bus yard. The companies did not provide enough information to be able to evaluate those expenses.
The fast-rising bids in Hawaii have even caught the attention of the second-largest school bus company in the country. The vice president of sales at Chicago-based told Civil Beat last week he believes the local contractors’ bids are inflated, making it relatively easy for a mainland company — even considering initial startup costs — to come in and undercut them.
But Radcliffe, the local bus company lobbyist, insists the state’s annual adjustments fall far short of covering rising expenses for other costs such as vehicle registration and health insurance.
Hawaii gas prices have climbed from about $2.50 a gallon in 2006 to about $4.00 a gallon in 2011, according to — a 37 percent increase.
“As a result, anything associated with the automobile — weight taxes, etc. — has escalated dramatically,” Radcliffe said.
But fuel prices don’t tell the whole story, he says.
The state vehicle registration fee for a 72-passenger school bus has more than doubled in the last 11 years, from $407 in 2000 to $1,084 in 2011, according to a memo to Radcliffe from Lee Gomes of Gomes School Bus Service.
Health-care costs for Gomes have also almost doubled in the last six years, she wrote, from $15,500 per month in 2005 to $29,000 per month this year. The company says it pays from the low $400s to the high $500s for a single person, depending on the plan the employee chooses.
A 2010 memo from Wendy Akita of Akita Enterprises says that all operational costs have escalated over the last decade — from lease rentals, fuel, utilities and parts, to payroll costs like health insurance and workers’ compensation.
In the memo, Akita outlined the major expenses contractors have to juggle:
Vehicle-Related
| Item | Cost |
|---|---|
| 72-passenger school bus | $100,000 (one-time) |
| Vehicle registration and licensing | $395-$950 (one-time) |
| Liability insurance | $900-$1,000/yr |
| Comprehensive and collision insurance | $750-$1,350/yr |
| Fuel | $4,6441 |
| Maintenance | Varies, increases with age and mileage |
| Base yard | Varies |
Driver-Related
| Item | Cost |
|---|---|
| Permit for commercial driver’s license | $30 |
| Nationalized driver’s test | $30 |
| Commercial driver road test | $80 |
| Commercial driver’s license | $30 |
| Pre-employment & random drug testing | $45/test |
| Alcohol test, random | $25/test |
| Physical exam | $100-$250/exam (every two years) |
| CPR certification | $45/yr |
| First Aid certification | $45 (every three years) |
| Criminal clearance | $15/yr |
| State traffic history report | $12/yr |
| Wages | $19.47/hr |
Some of the smaller items listed by Akita are one-time expenses. And thanks to vehicle loans, the cost of the bus plus interest can be spread over a period of years — usually six. The national average retirement age for a school bus is 18.3 years, according to a 2011 survey by magazine.
The Hawaii Department of Education recently removed its bus age limits for new contracts, so a company could continue making money with a bus, without hefty loan payments, for years after it’s paid off.
But base yards — or operating centers for storing and managing school bus fleets — are another major expense, according to Lindy Akita. They can cost as much as $1 million, he said, because of the high price of real estate on the islands.
Maintenance is also not cheap, because it requires high-tech computer systems and highly specialized training for his mechanic. Akita said he pays his mechanic a salary of about $70,000.
“This is not an easy business, I tell you,” he said. “We want to be fair with the state, and I have been fair with the state. You’ve gotta remember that I’ve been in this business for 63 years.”
No one is going to argue with the fact that buying a qualified school bus is a large capital investment, said James Kauhi, transportation services manager for the Hawaii Department of Education, but what matters is how you pay off that investment over time.
“Some people know how to build recovery cost into an agreement like that, and some use it as a crutch,” Kauhi said. “It’s a matter of business sense to find a creative way to make a capital investment of that type and still be able to amortize it over a period of time, and make it affordable for the state and make it a profitable venture for yourself.”
While it may appear some of Hawaii’s school bus companies are making less-than-savvy business decisions, Radcliffe told Civil Beat that they are just trying to stay afloat, financially.
“I can tell you from watching them work, I see mostly mom and pop operations working as hard as they can to keep their heads above water,” he said. “I don’t think there’s been any attempt on the parts of the bus companies to take advantage of the state.”
