What could go wrong when a project notorious for endless errors leaves itself with no room for any more?
We’ll find out as Honolulu rail faces another reckoning, dealing with a potentially budget-busting lawsuit by a major contractor just as it begins the trickiest phase of construction through the city center.
Rail has already run up its original $5.2 billion budget to $10 billion, even while shortening the commuter line to stop at South Street, two stations from the planned Ala Moana Center terminus.
The contract for the final leg of construction from Middle to South streets came in at $1.66 billion, $300 million over budget, and the Honolulu Authority for Rapid Transportation had to make further cuts such as eliminating a major parking center at Pearl Highlands to serve commuters from Central Oahu.
And now Hitachi Rail Honolulu JV, which has the contract to supply the rail cars and operate and maintain the system, has sued the city and HART for $324.1 million, claiming breach of contract over years of delays and costly errors.
HART has no funds for a payout of that magnitude. The same is true if costly miscalculations that have bedeviled earlier construction occur on the difficult final leg down Dillingham Boulevard and through downtown Honolulu. The contractor, Tutor Perini Corp., is reputed to be a tough negotiator on change orders.
On the operational side, ridership is disappointing for the first leg to open between Kapolei and Aloha Stadium. City transit officials have fingers tightly crossed it’ll improve when the segment to Middle Street opens, scheduled for later this year. Subpar fare box collections could balloon operating subsidies — more money the city doesn’t have.
The nasty tone of the Hitachi lawsuit and its harsh accusations against city rail stewardship point to a contentious relationship between the city and its contractor on operating costs.
There’s little chance the federal government will contribute significantly more to Honolulu rail than the $1.7 billion already committed.
The Hawaii Legislature has twice bailed out HART from its cost overruns, mainly by extending the 0.5% rail excise tax surcharge — the project’s major funding source — 10 years beyond its original planned expiration.
But key lawmakers have put the city on notice that there will be no further extension of the rail tax after it expires in five years, and this time it’ll be difficult to change their minds by rolling out the politically powerful rail lobby led by the Carpenters Union.
That’s because the state needs to keep those excise tax collections for itself to make up the lost revenues from the record income tax cut passed by the Legislature in 2024.
Unless the Legislature authorizes the city to enact its own excise tax surcharge, the city’s only apparent options for dealing with more rail shortfalls are to cut the project back further, which could lead to more lawsuits, or raise property taxes — most likely by targeting short-term rentals, second homes and luxury properties owned by out-of-state speculators, inviting politically uncomfortable blowback.
We’ll have to see whether the city continues its history of waiting until there’s a crisis to take action instead of getting ahead of the problem.
Reach David Shapiro at volcanicash@gmail.com.
