Category Archives: Economics

Facing the rail conundrum

Honolulu’s rail project poses a particularly tricky issue at this point in its life.

We’ve already spent a vast amount on it, but the estimated total still to go keeps growing at an alarming pace.

And there’s no real reason to believe that current estimates are more accurate than those that came before.

So what do we do now?

The mayor now says we should just end at Middle Street and defer the remainder of the project until funds are available.

That’s a political fantasy. I don’t think any elected official is going to touch that political “third rail” once the first segment is capped off and the construction crews demobilized. It is just very, very unlikely to happen. And, of course, the crippled initial segment is just going to be a constant reminder of how badly this idea was executed and the costs, economic and political, of trying and failing.

UH Planning Professor Karl Kim, who has a background in transit issues, published a column in the Star-Advertiser which I hoped would have some sage advice (“Five fixes could help put Honolulu’s rail back on track“). Unfortunately, Kim’s suggestions would have been constructive if we were just starting out in designing a rail system, but not very useful when facing a mid-construction crisis in both finances and confidence.

He suggests simply getting over the blame game, finding a new consensus, coming up with a workable revenue model, developing more appropriate technology, and redesigning to incorporate elements of social justice.

It seems to me that this is all pie in the sky. Not going to happen. And can’t happen in a time frame that would give us any way forward from the current mess.

Then there was a comment on a recent post here expressing the “just do it, get it done” sentiment.

Here’s an excerpt:

Not having enough funds to complete elevated rail to Ala Moana is an entirely self-created dilemma. A funding cap BEFORE bids were opened was dumb. It’s a completely SOLVABLE problem that both HART and city council could be discussing because it’s entirely within their authority to address the funding cap issue.

It’s also within the mayor and council’s authority to discuss using property taxes. There are lots of good reasons why Honolulu taxpayers SHOULD be paying more for our own transportation system but I’ll save that for another discussion.

I have a of sympathy for this point of view, although this rail design was not my preference. I don’t agree with those who argue that if not for rail, these billions could have gone to other public projects. I don’t think that’s true. It took a truly major project like rail to muster the political forces to put an excise tax increase into play to cover the costs. We tried to get an increase for education, and that went nowhere.

And when you look around, it’s hard to say that the rail tax has crippled the economy. We’ve got low unemployment, lots of investment coming in, etc., etc. And although the big numbers are scary, the half cent out of each dollar spent isn’t one of the big factors in everyday finances. Obviously, housing is the biggie. The rail GET really doesn’t compare to those big expense categories at the micro level, only at the macro level. So would we really feel the pinch if it were extended farther into the future to pay for completing the system?

But David Johnson, a UH Sociology prof and a friend, wrote in Civil Beat that we need to challenge the idea that since we’ve gotten this far, there isn’t any alternative to just pushing forward to completion. He refers to this the fallacy of sunk costs.

He explained:

But to view rail in terms of costs already incurred is to commit the fallacy of sunk costs. A sunk cost is a cost that has been paid and cannot be recovered. In many areas of life and policy, decision-makers become preoccupied with sunk costs when they would be better off forgetting them. Couples commit this fallacy when they refuse to leave a lousy film before it ends (“We paid $20 for these tickets!”). And the United States committed a much grander version of it during the Vietnam War (“Giving up would mean our soldiers died in vain.”).

And Johnson concludes:

So I end with three conclusions: 1) Common sense says we do not need a rail project that ends at Middle Street. 2) A decent regard for reality leads to the conclusion that we cannot afford a rail project that goes where it should. 3) And recognition of the sunk cost fallacy counsels that we should walk away from this colossal mistake now.

Here’s a link to his column, “Honolulu’s Runaway Rail Project And The Fallacy of Sunk Costs.”

Perhaps we need a contest to come up with the best idea for alternative uses of the rail segments built to date if we just “walk away”. What other uses could be made of the elevated concrete platform?

It’s all just such a mess that it boggles my mind. None of the solutions really “work.”

A good read–Living through a social media backlash

Here’s one for your Sunday reading: “The Weird Redemption of SF’s Most Reviled Tech Bro,” by Lauren Smiley, from Backchannel.com.

It’s long, the kind of length we don’t see that much of these days. And it’s well written. And it’s built around a complex mix of important issues.

It’s the tale of a dot com high flyer in the politically charged atmosphere of San Francisco, where the backlash against the elite high tech world has been fierce.

It a tale involving the downside of social media, of the dramatic measures needed to recover from a online faux pas, if recovery is possible. It’s the story of the seemingly intractable problem of homelessness in another large city.

And it’s great storytelling.

Find a comfy place to read and do it.

Giant hotel merger gets little attention in local news media

If you haven’t been reading business news over the past few months, you might not have been following the bidding between Marriott and a rival, Anbang Insurance Group Co. Ltd., to takeover the Starwood hotel chain, Starwood Hotels & Resorts Worldwide Inc.

The two rival bidders each sweetened the pot after Marriott’s initial bid late last year, but in the end it appears Marriott will pull off the deal. The company’s shareholders are scheduled to vote on Friday, and both companies are recommending approval.

What’s interesting to me is that there has been little local reporting on the Marriott-Starwood buyout, despite its obvious impact on the state’s largest industry.

Here are the brands associated with the two chains, which will boast a combined total of about 5,500 hotels and 1.1 million guest rooms in over 100 countries.

About Marriott International, Inc.

Marriott International, Inc. (NASDAQ: MAR) is a global leading lodging company based in Bethesda, Maryland, USA, with more than 4,400 properties in 87 countries and territories. Marriott International reported revenues of more than $14 billion in fiscal year 2015. The company operates and franchises hotels and licenses vacation ownership resorts under 19 brands, including: The Ritz-Carlton®, Bulgari®, EDITION®, JW Marriott®, Autograph Collection® Hotels, Renaissance® Hotels, Marriott Hotels®, Delta Hotels and Resorts®, Marriott Executive Apartments®, Marriott Vacation Club®, Gaylord Hotels®, AC Hotels by Marriott®, Courtyard®, Residence Inn®, SpringHill Suites®, Fairfield Inn & Suites®, TownePlace Suites®, Protea Hotels® and MoxyHotels®. Marriott has been consistently recognized as a top employer and for its superior business ethics. The company also manages the award-winning guest loyalty program, Marriott Rewards® and The Ritz-Carlton Rewards® program, which together comprise nearly 55 million members. For more information or reservations, please visit our website at www.marriott.com, and for the latest company news, visit www.marriottnewscenter.com.

About Starwood Hotels & Resorts Worldwide, Inc.

Starwood Hotels & Resorts Worldwide, Inc. is one of the leading hotel and leisure companies in the world with nearly 1,300 properties in some 100 countries and over 188,000 employees at its owned and managed properties. Starwood is a fully integrated owner, operator and franchisor of hotels, resorts and residences under the renowned brands: St. Regis®, The Luxury Collection®, W®, Westin®, Le Méridien®, Sheraton®,Tribute Portfolio™, Four Points® by Sheraton, Aloft®, Element®, along with an expanded partnership with Design Hotels™. The company also boasts one of the industry’s leading loyalty programs, Starwood Preferred Guest (SPG®). Visit www.starwoodhotels.com for more information and stay connected @starwoodbuzz on Twitter and Instagram and facebook.com/Starwood.

Read through the list of hotel brands and you’ll see how many properties in Hawaii will be impacted by the merger. In those areas where the two companies hotels are clustered together, it can be expected to have an increased impact.

But you wouldn’t know if from the lack of local attention to the deal and its possible implications.

A search of the Star-Advertiser’s archives found several wire service stories about the deal, but no local reporting, although given the vagaries of the search engine, some might have been missed.

A similar search at Pacific Business News turned up a local story published last week, “Marriott-Starwood merger could affect Hawaii radius restrictions“.

In Hawaii, the deal would combine nine Starwood hotel properties, including the Sheraton Waikiki and The Royal Hawaiian, with Marriott’s 17 hotel and time-share properties, including the Waikiki Beach Marriott Resort & Spa.

I wonder whether such a deal will reduce competition and result in higher prices in Hawaii? Will the merger lead to reductions in executive staff, or a consolidation of suppliers? Will there be some properties jettisoned by the new conglomerate? Lots of questions, little initiative on the part of local media.

Former project architects speak out about rail design

Pacific Business News reporter Kathleen Gallagher came up with two critical stories on Honolulu’s rail project over the past two weeks.

On March 15, she reported on the departure of the project’s chief architect, who warned that attempts to cut costs and reduce the projected cost overruns could ““decrease the level of amenity for the stations and other patron facilities to reduce cost in the aesthetically sensitive, downtown section of the city.”

And she noted: “Since there are currently no plans to fill Caswell’s position at HART, the design criteria and standards for the remaining sections of the rail route will likely be left to the discretion of the firms holding the design-build contracts.”

[See “Honolulu rail project’s chief architect departs, warns of project’s future“]

Then, in a follow-up, she tracked down one of the project’s first chief architects, who quit after just a year on the job after his criticisms and recommendations were ignored (“One of rail’s first architects speaks out about elevated design“).

Douglas Tilden was chief architect for InfraConsult, the projects main consultant, in 2007.

Tilden advocated for ditching the all-elevated design and instead adopting less expensive light rail technology, emulating transit projects all around the world.

“It is nothing short of a crime to run it elevated downtown and I told them that,” Tilden said.

The architect also had harsh words for the city’s political decision to begin construction in Kapolei and work back into downtown Honolulu, calling it “sheer lunacy.”

“The key goal of any transit system is to get the people interested by having it downtown first. Honolulu has made a huge mistake.”

He concluded: “I think Honolulu will be a poster child for how not to put a transit system in the city…they couldn’t be doing it any worse, it’s mistake after mistake.”

So here’s how it looks. The city paid big bucks to consultants, presumably to get the best available advice on how to make this transit project work. But the best advice of the consultant’s chief architect was ignored in favor of a plan that supported what the city’s political leaders favored. So the money paid for the architectural consultant was squandered because the city ignored his advice and counsel, and instead pursued its own course for other reasons.

You have to wonder how many other consultants are ignored unless they toe a predetermined political line.

UH Manoa ranks high in tuition increases

A friend flagged this story from San Francisco’s SFGate (“Colleges with the biggest tuition hikes“).

It reports on public universities across the country with the largest in-state tuition increases over the period 2004-2014.

Startclass examined data from the National Center for Education Statistics to find the public schools with the highest tuition increases over the past 10 years. Of those schools, 16 saw in-state tuition double.

And where was the University of Hawaii at Manoa?

We’re #1!

According to these data, UH tuition increased 136.93 percent during that time.

My friend, a former Hawaii resident, commented:

$10.6K tuition, plus books, fees and living costs? Wow, what a change from the mid-1970s, when I supported myself 100% (cheapest studio rent in Honolulu) and paid all tuition etc., myself from a part-time construction job—and had money to buy beer…and the occasional pizza/bowl of wonton min…

How much per hour would a student now working 30 hours a week have to earn to support himself/herself and pay all tuition/fees books at UH-Manoa? My guess is around $20/hr.

I was earning $3.50/hour in 1974, would according to the BLS is worth $16.83/hr today.

http://www.bls.gov/data/inflation_calculator.htm

I was up to $5/hr in 1975, which is $22/hr in today’s money. So a student with a high-paying part-time job working 30 hours a week could probably scrape by, but how many students have the skills to earn this much? It took me 2-3 years to get enough skills to earn a decent wage….

And not to mention that working 30 hours a week means a minimum total workload of 60 hours per week (assuming 30 hours is enough to keep up with a fulltime 5-class load, so you can graduate in 4 years instead of six…)

Working your way through UH-Manoa was never easy in high-cost Honolulu, but a tremendous amount is now required of today’s undergrads who want to avoid student loan serfdom.