What’s wrong with this picture?

Here are two factoids drawn from yesterday’s evening news (Tuesday, June 9, 2020).

Hawaii News Now reported that Hawaii Foodbank distributed 2,500 boxes of food at Aloha Stadium.

The depth of the need is suggested by this sentence: “Vehicles tried to get in place before dawn over two hours before the official line up began and four hours before gates even opened. Packs of groceries ran out by noon.”

And in yesterday’s financial news, the stock of Apple Inc. and Amazon stock both closed at record highs.

What does that mean? Well, let’s say you decided to invest (gamble?) just over $3,000 in mid-1981, not long after Apple’s stock began trading on the over-the-counter stock market. You could have bought 100 shares of the company’s stock with your money. In inflation adjusted 2020 dollars, that would have been about $8,770.

But if you held on to those 100 shares, through the ups and downs of the stock market, and through a series of stock splits over the years, your Apple stock would now be worth $1,926,344. That’s right, nearly $2 million.

I had to double check those figures, and I’m pretty sure they’re right.

These seem to be describing two different worlds existing simultaneously.

And that’s the problem. They are.

In a blog post on Wednesday, Bob Jones highlighted another problem that Honolulu’s rail system is likely face, if it is ever actually completed. The problem? Live-in homeless.

Bob cites how homeless have been using train systems as moving hostels, taking over areas as they would take over sidewalk areas or bus stops. It’s not a pretty picture.

Couple it with the decision not to provide restroom facilities at rail stations, and it suggests this is all going to turn into an operation headache.

But for now, I’m concerned about the impact of COVID-19 on the economics of the rail system.

We’ve been living with a .5% general excise tax surcharge to fund construction of the rail system, and that extra half-percent has been extended through 2030. Remember, we were told, that visitors pay as much as 25% of the total raised through the GED.

But that was then. This is now. Visitors are paying virtually none of the GET. And the tax receipts raised through the GET have plummeted since most of Hawaii businesses have been shuttered.

Meanwhile, Honolulu has paid much of the rail’s tab to date by issuing general obligation bonds. The state, up until Covid-19 hit, has been considered a good credit risk. One of the primary considerations of the bond rating agencies has been the strength of Hawaii’s tourism industry.

For example, when the Moody’s rating service evaluated a rail bond issue earlier this year, it cited as Honolulu’s primary “credit strength” its “Credit strength” the “Strong economic conditions that include a healthy and growing tourism industry, extremely low unemployment levels, and an expanding tax base.”

Honolulu’s economy and tax base are key credit strengths. Tourism, a primary economic driver, continues to show strength: visitor counts to Honolulu in 2019 reached 6.2 million, up 5.6% from 2018. Since 2009, visitor counts to Honolulu have increased 53.9%. Visitors to Honolulu, which is coterminous with the island of Oahu, are a mix of both US domestic as well as international travelers, which helps moderate the effects of economic swings in any particular market. While we expect some impact from the coronavirus currently impacting China and East Asia, we expect the effect to be minimal if the outbreak is contained quickly. Visitors from China and Hong Kong represented 1.3% of visitors in 2018, and visitors from other Asian countries, primarily Japan, represented 17.8%. Other metrics of a strong tourism economy, including hotel room occupancy and revenue per available room have had similarly strong trends.

Many of the factors cited among Honolulu’s strengths have suddenly and dramatically changed. The shutdown of tourism along with the rest of non-essential businesses, the almost total halt to air travel, and soaring unemployment, have certainly altered the municipal finance landscape. That’s going to make future bond financing more costly for the city, even as its other sources of rail revenue have been hit.

Without any likely path to a full reopening of the tourism industry anytime soon, and high unemployment likely to be with us for a while, the cash flow dedicated to the rail is certainly going to face significant new shortfalls in the short-to-intermediate term.

Where is the city going to turn to find the money to make up the difference and keep rail construction on track?

The board of the Honolulu Authority for Rapid Transportation (HART) is now under increased pressure to show the public that it has a viable financial plan and budget that takes into account the dramatically changed financial world.

And a postscript: After an exchange with Jones a couple of days ago in which we disagreed over how to assess the social media site Change.org, he sent the following email.

Thanks for the vote of confidence in my blog.

We disagree on the Change.org template (Word Press doesn’t put Word Press and its logo at the head of my blog, so displays no endorsement of my postings) but you are very civil about the disagreement and I in turn fully appreciate your take on the issue. If we all handled disagrements with such civil exchanges it would be a much better American experience.

Agreed. I already consider the Bob Jones Report to be essential reading. Hopefully a growing number of others will also.