Thursday, January 21, 2016

Honolulu Rail Project Cost Approaching One Half of Boston’s Big Dig!

Thanks to Honolulu's Civil Beat for publishing my article with the title $10 Billion: The Ultimate Price Tag for Honolulu Rail?

Below is the same article but this version includes three graphs that clearly illustrate why the FTA is partly responsible for HART's cost overruns and deserves to be sued.

Many people can recall Boston’s Big Dig, the nation’s largest infrastructure fiasco with a final price tag of about $15 billion. Surprisingly, Honolulu is building a rail system that’s expected to cost at least one-half the cost of the Big Dig! On a per-capita basis, this will be the nation’s largest infrastructure fiasco.

Despite the preponderance of evidence that Honolulu’s rail will do little to mitigate chronic traffic congestion on the island of Oahu, the project garnered marginal (50.6%) public support on a 2008 referendum. Despite a couple major lawsuits, it completed the Federal Full Funding Grant Agreement process in 2012.  A summary of the highlights of Honolulu rail’s development can be found in my blog.

What are the major causes of this project failure in progress? First is the local political preference for a “gravy train” e.g., why build a $1 Billion taxpayer project such as Bus Rapid Transit when you can build a $5 B rail project? Second is local decision making incompetence in terms of having a clue about the constructability, cost and payoff of heavy rail, e.g., decision makers paid client-focused consultants to tell them what they wanted to hear. And third is FTA’s project-approval-by-politics and vested interest in transit empire expansion.

A major infrastructure project is considered a failure if it exhibits at least two out of three bad outcomes: 1) Large cost overruns, 2) Long project delivery delays, and 3) Much lower usage than forecast.  Tren Urbano in San Juan, Puerto Rico is a peer project that HART rail will likely match in failure-to-meet-targets. Tren Urbano’s actual construction cost was 80% over the planned estimate, and its ridership has been only one quarter of what was projected! HART rail and Tren Urbano were planned by the same consultant (PB) and had the same oversight (FTA.)

At the end of 2015, five miles of the HART guideway, and the rail yard appear to be complete. HART, the voter approved “independent authority” that runs the project with many of its budget strings controlled by the city council, claimed a 25% project completion in December 2015, although 15% is a more realistic estimate given what can be seen on the ground. Several segments and columns have suffered large cracks, concrete delamination and segment misalignment, and in less than two years, the guideway construction company (Kiewit) submitted 40 work change orders and recently demanded a $20 million price adjustment. Then on January 5, 2016 HART discovered an (unbelievable) annual cost escalation of 10% and increased the cost of current contracts by another $240 M. Yet these increases are minor compared to the total escalation of cost figures.

The world authority the analysis of big infrastructure projects is Oxford University professor Bent Flyvbjerg whose “Over Budget, Over Time, Over and Over Again: Managing Major Projects” and “Megaprojects and Risk: An Anatomy of Ambition” have detailed the consistent flaws in big project development and have identified rail projects as particularly susceptible to these flaws. One of the flaws is strategic misrepresentation, or cleverly worded lying to the public and decision makers such as the HART board members and the Honolulu city council members, none of whom have any expertise in rail.

For decades we know that costs tend to escalate as projects go from planning to design, to initial construction and finally to completion.  It’s the rule, as shown in Figure 1 by Dr. Flyvbjerg (2009); the red line is mine.

Figure 1. Generic project cost escalation.

However, project advocates including the FTA turned a blind eye to facts and in 2009 they presented to the people of Hawaii Figure 2, a gem of strategic misrepresentation, which simply fit the political line that the proposed 20-mile rail will cost $4.6 billion, as applicable during the 2008 rail referendum.  Notice that the FTA cost development in Figure 2, line labeled MEAN, goes against decades of real world evidence shown in Figure 1. This FTA-sponsored report contains one point of truth: There is a 10% chance that HART rail will cost about $10 B. This is where HART construction costs are headed.

Figure 2. HART expected cost over time.
Source: FTA, Project Management Oversight Program, Honolulu High-Capacity Transit Corridor Project, July 2009, Final.

One would think that only three years into construction, with only about 15% of the project completed and only about half of the project gone to bid, HART would be sitting comfortably on a pile of money generated by a general excise tax surcharge being collected since 2007 (about $140 M per year) plus $1.55 B from the full funding grant agreement. Not so. In late 2014 HART announced a $910 M expected shortfall and lobbied the Hawaii legislature to extend the 0.5% surcharge from end of 2022 to end of 2027.

In another move of strategic misrepresentation, rail planners pretended that the rail is like an electric car that one buys and then goes homes and plugs it in. Likewise, HART builds rail, which “just” plugs into the city grid.  However, rail’s 30 MW to 50 MW power draw is a major requirement. The utility’s reaction was unpleasant for HART which is now negotiating another expensive arrangement. 

The combined cost of substations, power generation agreement, and the (still in limbo) airport utility relocation tasks are likely to cost about $500 M plus the construction cost escalation charge of $240 M brings the known total to $6.9 B with none of the 21 stations constructed and the second half of the project not gone to bid.

HART rail’s cost development is plotted in Figure 3. Not surprisingly it agrees with Figure 1 and is opposite to Figure 2. A smart mayor would sue the FTA for their negligent cost data representations which were used by city mayors to manipulate the public and City Council votes of approval.

Figure 3. Actual and expected cost plot.

Looking at the bigger picture for Honolulu which includes a $5 billion consent decree with the EPA for secondary sewer treatment, increasing dependency on imports, including 90% of food, with prices escalated by the Jones Act requirements, and the nation’s fifth worst unfunded pension liability, the future is worrisome: At best Honolulu will experience large increases in taxes and congestion, at worst those plus bankruptcy.

The second half of the project includes the complex construction through urban Honolulu. There are discussions to terminate the project at the Middle Street transit terminal which is approximately at the 16th mile of the rail route. This is a welcome possibility because Honolulu will be spared of the heavy construction and debilitating lane and road closures which will be deleterious to general economic activity and tourism. But local leadership appears to be too weak in taking on FTA and sparing Honolulu from crippling rail construction congestion and cost. I expect that the last four miles of rail from Middle Street to Ala Moana Center will cost $1 B each in combined construction costs and economic losses, so the option of a 16 mile route should be given a serious consideration.