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April 02, 2017

Add proven ‘P3’ option for rail funding

Categories: Featured | Transportation

Published on April 2, 2017 in Honolulu Star-Advertiser 

When it comes to the Honolulu rail project, delays and cost overruns have irked taxpayers and elected official alike, resulting in debates about ending the project at Middle Street instead of Ala Moana. Eliminating the critical City Center segment, however, would substantially reduce the project’s public benefits.

Oahu drivers routinely endure 2- to 3-hour commutes, with wasted time and fuel spent in congestion costing us nearly $616 million each year. Getting more people out of their cars and onto rail helps bring down those costs.

The rail project would also facilitate transit-oriented development (TOD), which brings more bus, biking and walking options to urban cores. TOD can save billions in additional roadway expenditures and spare thousands of acres of agricultural land from development by lessening the pressure to urbanize rural communities.

Electrification of ground transportation is also one of the key means of reducing our dependence on imported fossil fuels. The rail is thus helping the state to meet its environmental objectives.

In an attempt to help public officials better understand the options and issues facing the rail project, Ulupono Initiative commissioned an independent assessment by Jones Lang LaSalle (JLL), a global leader in infrastructure finance.

First and foremost, the study concluded that continued public funding is required to close the current $2 billion funding gap needed to finalize the project. Whether through the extension of the general excise tax or leveraging other taxes, public funds are necessary. The reason for this is that the rail does not provide sufficient revenue opportunities to repay investments. The project was designed to be — and continues to be — dependent on public funding.

Second, based on data from similar projects in the U.S. and abroad, JLL suggests that a public-private partnership (P3) delivery model could maximize benefits to taxpayers. Not only could a P3 potentially accelerate project delivery, but it would also eliminate costly delays due to funding shortfalls and provide better budget predictability.

The study suggests that switching from the current design-build (DB) pay-as-you-go model to a design-build-finance (DBF) model for the City Center segment could have many benefits. Under a DBF, a fixed amount for the remaining, uncontracted portions of the rail project would be paid only after the project is complete. Based on similar projects examined in the P3 study, a DBF could potentially save 15 percent in capital costs, while also resulting in accelerated completion.

Given the history of the rail, it is understandable that some may question whether potential bidders would be interested in a P3. JLL’s research, however, confirms that there would be interest in the rail project as a P3, assuming that the transaction is properly structured. Public authorities all over the country have shown success with P3, and there is a well-defined list of best practices that the Honolulu Authority for Rapid Transportation can use to form the basis of any new P3 venture.

The P3 study shows that public-private partnerships have the potential to decrease costs, reduce risks and improve the delivery of the rail project. Importantly, taxpayers wouldn’t have to pay until after construction is successfully completed and the project is delivering public benefits.

We believe the rail project is good for Hawaii. The opportunity to reduce congestion, offer reliable commute times along the route, spare rural lands and offer more bikeable, walkable communities along the route is too great an opportunity to squander. We also believe, however, that transparency and accountability in the use of public funds are important — so innovative models, such as P3, should be considered when dealing with complex projects.