A federal consultant has concluded that operating TheHandi-Van and TheBus could cost city taxpayers $1 billion more in subsidies by 2030 than the city has projected.

That extra potential cost was not included in financial plans for the rail system and "may be unaffordable" for the city, Porter & Associates Inc. warned in its Jan. 25 report for the Federal Transit Administration.

The report, obtained by the Star-Advertiser under the Freedom of Information Act, says that "optimistic" city projections may be underestimating the transit subsidies required in the years ahead.

When the federal government and other analysts study the city’s financial plan for the new train system, they generally include a careful analysis of the projected costs of operating TheBus and TheHandi-Van as well.

The concern is that if the cost of running TheBus and TheHandi-Van escalates at the same time as the city shoulders the new expense of the train system, the Honolulu transit system as a whole could become too expensive for the city.

In its review, Porter focused particular attention on the city’s estimates of cost increases to operate TheHandi-Van and TheBus between now and 2030.

The city estimates the annual taxpayer subsidy to operate Honolulu’s transit system will grow by 199 percent to $372 million in 2030, but the Porter review warned that cost "could be pushed yet higher if an optimistic subsidy forecast (by the city) is not realized."

The combined bus and Handi-Van budget is $211 million for this year, with the bus carrying an average of about 230,000 riders each day and the Handi-Van carrying about 3,200 riders.

PB Americas, the consultant that helped prepare the rail financial plan for the city, said the Porter study confirmed most of the rail plan’s assumptions, including the construction and operating cost estimates for the 20-mile system.

PB Americas said in a written statement that the Honolulu Authority for Rapid Transportation is working with city Department of Transportation Services staff to ensure the subsidy rates are "appropriate."

City staff are evaluating many strategies for containing bus and Handi-Van costs, the city consultant wrote.

The Honolulu system has the fourth- or fifth-highest per-capita urban transit ridership in the nation, and city officials report the Handi-Van ridership has increased by nearly 12 percent over the past two years. The city is required to provide Handi-Van service to qualified riders who request it.

The city plans to expand TheBus system from 2019 to 2030 in part to complement the train system. About 60 percent of rail users are expected to reach their train stations by bus, according to the environmental impact statement for the rail project.

The subsidy by Honolulu taxpayers to operate the bus and van transit system was $124 million in 2010, and city officials project that taxpayer subsidy will grow to $372 million in 2030 when the city operates a combined van, bus and train transit system, according to the Porter report.

Those estimates assume the city will raise transit fares every four years, according to the report.

In its review of the city projections, Porter described some of the assumptions underlying those future taxpayer subsidy estimates as "optimistic."

The city is assuming there will be a 5.6 percent average annual increase in the taxpayer subsidy to support transit, but Porter warned that is much lower than the actual growth in taxpayer subsidies that were necessary to support TheBus and TheHandi-Van in recent years.

The average annual increase in the city subsidy of the bus and van systems from 2005 to 2010 was actually 10.9 percent, according to the consultant’s report.

PORTER ALSO ENGAGED in an exercise called a "stress test" to gauge the city’s ability to cope with plausible deviations from the financial plan.

As part of that exercise, Porter assumed the actual taxpayer subsidy needed to run the growing transit system will increase by 7.7 percent per year, which is still lower than the 10.9 percent average annual growth during the past five years.

Using that 7.7 percent annual growth in city subsidy produces an extra $1 billion cost to the city over 20 years above the current projections in the rail financial plan, according to Porter.

If Porter’s "stress test" estimates turn out to be closer to the mark than the city projections, that would mean the city’s transit system would consume a larger share of the city general fund and transportation fund.

The Porter report estimated that the system could end up consuming 19 percent of the city’s general fund and highway fund. Today, taxpayer subsidies of the city transit system consume about 10 percent of general and highway funds.

Toru Hamayasu, acting executive director of HART, said the Porter report actually underscores the importance of rail because it confirms that running the rail system will require less taxpayer subsidy than TheBus or TheHandi-Van.

Fare collections are expected to cover 40 percent of the cost of operating the rail system in 2030, while fare collections for TheBus are expected to cover only 27 percent of the cost of bus operations that year.

"By introducing the rail into it, we are actually reducing" the level of subsidy that is required, Hamayasu said.

"What we are trying to do with this project is to manage or control the future growth (in subsidies) by introducing a more efficient system," Hamayasu said.

Hamayasu also said the city’s estimates for the growth rates for the transit subsidy were based on the past 10 years, while Porter considered only the past five years.

There were unusual cost increases during the past five years that resulted in higher-than-normal growth in city subsidies during that period, Hamayasu said.

PB Americas described the "stress test" as a worst-case scenario that must be considered under FTA procedures. It does "not necessarily represent scenarios that the reviewer expects to occur," PB Americas said.