 Okay, we're talking tax. We're talking tax with Tom. Tom Yamajika. He's the president of the Tax Foundation of Hawaii, which is a Hawaii non-profit concerned about tax and citizen and community and all that, right? And public finance, yeah. And public planning. Oh, I forgot. That's very important because you need to know about tax and deal with tax to do good public planning, which takes us to the subject of our show. And it's not an example of good public planning, I'm sorry to say. It's rail with a capital R. And there's big news today. It's just hitting the media now about the first audit, a state audit report came out about rail long and coming. What happened? Well, let me just give you some background first. When the last bailout of the rail program happened in 2017, there were some new expenditure controls written to the funding that the rail project was getting off the surcharge from the general excise tax. And one of these was that they had to let the state auditor come in and look around and then issue reports. So that's what happened. The state auditor went in there, took a look around, and he's issued the first of several reports. I think there are going to be four reports coming. And the first one came out just today, just this morning. And it was a blockbuster. This was kind of a scoop, you know. We got it first. Go ahead. I don't think we got it first, but we're going to want to... At least on our media, we got it first. Okay, there we go. And the state auditor had some very interesting findings. Basically, he said that the heart management basically lied to their own board and to the public and to oversight agencies like the legislature. So... What was the lie? It was about the financial projections and the financial health of the project. They had certain estimates that they were sharing with the federal government, but are those the ones they gave to the legislature and the press and the public? No. We got a different set of numbers. Like double books. Like double books. And so when the feds were raising red flags and saying, well, you got a problem here. You got to really do something about this. And there were folks apparently at heart who were kind of like in denial. And they said, well, you have to tell the public this will be all right. Wow. And they did. And then thank goodness for Les Condeau, our state auditor, who's ferried it all this out and released this blistering report just earlier today. Use the word lie, then. I believe he did, yeah. Yeah, that's strong. Usually that's reserved for only one public official that we read about every day. Looks like it happens elsewhere. Well, so first, I mean, let me back up a little and say why is the tax foundation of Hawaii interested in rail? Because it's part of public finance and it affects all of us. Certainly it affects your pocketbook and mine. And those are probably all of the listeners to this show. We talked before about the unliquidated liabilities in the state and we have plenty of them, many tens of billions of dollars of unliquidated liabilities. And the liabilities we can't, unfunded liabilities. Unfunded liabilities. Yeah, unfunded liabilities. We can't. We have no real good prospect of paying without incredible increases in tax. So that would be something you'd be concerned about. Oh, of course. But we have obviously several different governments. We have the state government which has this unfunded liability problem. The local governments kind of share in that, but the biggest impact is with the state government. But today we're talking primarily about local government and that's the one that is, you know, the city and county of Honolulu and the Honolulu Authority for rail transit. Yeah. Well, let's talk a minute about unfunded liabilities at the county level. Because, you know, the arrangement between the state and the counties is both different. So if we have a big expense like say, let me take some liberties here and say that I believe that the rail is going to cost us more than $20 billion. That's my estimate, just following the track the way it works. Remember Parker, was it Brinkerhoff, Parsons Brinkerhoff? Following the track, right? Following tracks. Thank you. You did not intend that. Parsons Brinkerhoff, the contractor, right, did the big dig in Boston and that came out multiples of what the original budget was supposed to be. And this is already here now, multiples of what the original budget was supposed to be. It was like $3 or $4 billion. Now it's up to $10 or more. And before you know it, my estimate will take on a new reality, maybe $20. So assuming we have that and assuming we don't have the money to pay all these expenses and assuming also, and this is an assumption that's being realized now, the federal government is not going to provide that much help. You know, I think we were all led to believe the federal government would step in and it would pay for rail. No problemo. But that hasn't been materialized at all. Well, not only that, but the Fed's commitment was for, I believe, $1.55 billion. That's a fixed number. That's it? So if there are cost overruns and they're crushing, it's not their problem. It's our problem. And that's a big problem because as it goes up, we pick up the spread and the spread is increasing. That's going to be our bill. That's right. So how does the city make self-mayor for a minute? I mean, you'd be an unhappy mayor. You'd be, you know, facing all these troubles. I mean, how do you fix an escalating cost and a limited, you know, tax base? In fact, it was an article not too long ago about people leaving Hawaii. Well, that shrinks the tax base. It hasn't, you know, had a significant effect up till now, but it may. And you can also say that it's not just that they're leaving, is that they're not coming, right? So the opportunity cost is there. If we were still getting a lot of people to come to Hawaii, that would be increasing the tax base. But no, we're not getting that. So the question is, if I make you mayor, and you don't want to be mayor trust me. I don't want to be mayor trust me. If I make you mayor, when you have this escalating cost, and it's just, and no additional help from the federal government, what do you do to raise the money in the city and county of Honolulu to pay my estimate anyway of $20 billion? Well, you know, as a mayor of a city, my options are very limited. Either I can raise revenue, which is increased property tax, which will put an end to my job security, probably, but it's coming to an end anyway. Nobody likes an increase in property tax. For that matter, nobody likes an increase in tax. But for some reason, isn't it true that property tax is iconic? People really hate that. Oh, yeah, there's a lot of visceral reactions to, you know, and that's why, for example, that the council initially passed and the mayor signed into law a resolution saying, you know, we are not going to use property tax revenues to pay for real. We will not. And he made it a promise to the people, and I'm thinking why? I mean, that's not realistic. They didn't have to do that. And it turns out that, you know, that promise will not be kept. I mean, the legislation has already been repealed. Well, they enacted it and they repealed it. Yeah, basically because they had to kind of satisfy the feds that they hadn't, you know, their entire body in the game. I see. So that's already gone. But, you know, there's so many other ways. Yeah, so there's like increasing revenues. So there's like property taxes, also the, you know, county fuel tax, a vehicle registration, almost everything involves cars or vehicles somehow. But those produce a lot less money. There are user fees, which don't produce that much money. There's cutting expenses. Now that's, you know, perhaps a fruitful avenue of attack. Or, you know, does the city have properties that it's not using? Maybe we can sell those. Yeah. Okay? So to get like some, but it's a one-time revenue infusion, that's what that would be. Right? And we hope we never have to do it again because you can only do it once. Right? You can only sell the property once. Right. Right. You can't do that again. Right. Yeah. I mean, that's what I was referring to, that there's so many ways. There are 57 ways to leave your lover, which means, you know, you can move it here and there. It's like Sim City. It's like the game of Monopoly. You move it around the board. And instead of bringing money in to support the bus system, you take money out from the bus system and you raise the rates of the buses. And all these other things are being moved around. So it's not just real property tax, although that would get a reaction. It's everything else from parking to trash pickup to, oh gosh, every kind of charge you could think of could all go up. We'll all go up. We'll all go up. Don't anything? Oh yeah. Yeah. I mean, there are, of course, multiple levers to turn, but with a deficit in the kind of numbers we're talking about, you know, you got to turn on a whole bunch of these. You got to do everything you can possibly do. Yeah. Because you want to hold back on increasing real property tax. Yeah. How does the TAT and the cross-sexized tax work? I mean, how much is the tourist industry going to foot of this increased expense? Well, they're already, you know, paying a bit more because, as you remember in 2017, the TAT went up one percentage point to go into this mass transit special fund to pay for rail. Okay. So yeah, the tourist industry is going to be feeling that too. There's also a part of the TAT that is shared with the counties that has been a fixed number for the past few years. The, you know, the counties have been at the legislature for the past three or four years saying, you know, come on, make it a percentage like it was. So, you know, we have a bigger piece of the pie to share instead of the fixed amount you're giving us now. And of course, the state legislature's response has been, well, look, you wanted predictability and stability. You got it. A fixed number of voters, predictable and stable as you can get. So, you know, be careful what you ask for, because you might get it. Well, this is a, it's a kind of a dance. I don't want to call it a kabuki dance because it's an interactive dance where every move has an effect on every other move and every part of the economy has an effect on the tax base and therefore the ability of the county and the state to collect taxes. And, you know, the city, for example, for example, if tourism goes down, say because of extreme weather, because of something that happens elsewhere in the world, because of the national economy, directions in the national or global economy and tourism goes down, that's going to have an effect on the ability of this jurisdiction to pay the expensive rail. And it's all out of our pockets. It must come from down home here. Right. But at the same time, you have to you have to wonder, you know, where's the cost control? I mean, how do we have any? A week or two ago, it was announced that the heart made a settlement with Hawaiian dredging, one of the bigger, one of the bigger contractors, for seven and a half million in delay damages. That's out of our pockets. Yeah. And then, you know, the heart management people said, well, we have a contingency for that. So no problem. It doesn't give me any comfort. Okay. But and that's one of the problems that was flagged in the audit report. You see, a lot of people were kind of committing the contingency and there was no coordination between them. So, you know, person A, with contractor number one says, oh, you know, don't worry about it, the contingency will pick it up. Person B, with contractor number two says, oh, don't worry, the contingency will pick it up. And then when you add A, B, C, D, E, F, and G, they won't pick it up. It's not big enough to pick them up, all of them up. Yeah. So there's really got to be some, you know, leadership and coordination to make sure we have decent cost control. And transparency. And lying is out. Yeah. I mean, if you have a governing body, like the heart to board members, you can't lie to them. I mean, that's, you know... Well, they can't do their jobs. And the result would be they make huge mistakes if you lie to them. It's like lying to the people. I mean, there's like, you know, some heads have got to roll. Yeah. Yeah. So, okay, this just came out. And you alluded to the fact that it was the first audit, or the first audit report by the state, you know, auditor... Yeah, I think they're contemplating four. Four of all. So what's the division? I mean, what's going to happen in two, three and four? Well, we don't know. I mean, I'm just thinking, isn't this number one bad enough already? Well, number one sounds really terrible, but I was telling you before, I never had closure on the whole thing about the condemnation of the rail, the rail bit, because it comes through, you know, what, I would say Helico-Wheel Street, and then it comes down and does a kind of jog into Queen Street, and then it comes down into Ward Avenue, and it jogs again to Kona Street, and it ends a couple of blocks later at the entryway to Eleanor shopping center. And all these are 90-degree angles. So in order to do the path of the rail, you have to get the land. And that means you have to get the land in the arc of a railroad, a train. They don't train. And I go on record about this. They do not make 40 90-degree angles. They make curves. You can't do 90-degree angles with a railroad. So that means stop, turn, like a roundhouse, you know, can't do that. So so you got to figure out a way to make it happen. New technology. So what you got to do is you got to you got to condemn half the block or the whole block to get a 90-degree turn through that corner of the block. Okay, and there are many blocks like this, the way they created that. So what you're saying is that there are a whole bunch of unanticipated expenses that they're probably going to run into. That's what I'm saying. And I don't know if we know all of those expenses yet, whether they are included in the you know the current estimate, the sliding estimate as it were. Maybe I kind of include them in my 20 billion dollar estimate, but I don't think we know all of the expenses we're going to have to put this together. And I mean at the very least, you know, the credibility of the people who are who are now running the running the authority has been drawn into question. Can we believe these financial projections anymore? So if I make you marry again, sorry, how would you fix this? I mean you have a report that really sort of indicts them. How do you fix this so that we have a responsible organization making, getting appropriate data, all of it, and true. And then it takes steps to make this work somehow because we're already a good way into it. It's hard to stop in the mid course. We need to do something forward or backward and let's say forward is the more, well, the more realistic, that's a hard word to use in this context, but forward is the more natural approach. And so the question is, how do you reorganize it so it works better? Well, in my humble opinion, it's got a role. If you have, you know, people in there that the public doesn't trust, you're not going to be able to get things done at all. So you really got a clean house, bring the swamp, get people in there that at least those the public doesn't know about to see if the ship can be righted because like right now it seems to be in bad shape. What's the profile of the individual you as mayor would want to see sitting on this rail commission? Probably, you know, I mean, and I'm not really faulting the board. Okay. Because it looks like they were kind of shielded from this too, or they were lied to as well. I'm thinking about the management, you know, the people at day to day control, you know, either either now or in the past. We don't really know where the fault lies. But we do know that there is now a big problem. There's going to have a there's going to be a credibility crisis, and it's got to be purged. Yeah. And it may not be the end of the credibility crisis. I mean, there may be more coming down in reports two, three and four. I would imagine there will be more coming down. So you have actually a credibility problems on both ends. I mean, I don't I don't know exactly what either the management did or the aside from this report, or the board did. Well, some things that we did know, you know, some things that we do know was that during the course of the audit, the you know, the auditor was having problems getting good data from the from two management and staff always tell tale, isn't it? Yeah. Like, like, for example, when when management said, oh, yeah, we're going to definitely record every every single interview that you guys make. And, you know, with whether the employee, you know, wants that or not. That's very concerning. Well, you know, one thing that strikes me that also goes to tax foundation is that there are problems here that we don't know yet there. There are, for example, those delayed damage claims, such as the one you mentioned. Dillingham, was it? Point wrecking point wrecking. And so what, you know, there'll be more. I suggest to you there'll be more because things are being held up one reason or another. And there are delayed damage provisions and all these construction contracts. And so we're going to wind up paying, you know, delayed damages seven and a half million actually sounds low in terms of all the contracts that are out there. It's going to be more, I think, not only more claims, but larger claims. 7.5 million is one contractor. Right. And there's lots of contracts. Oh, yeah. Many contract. So when you start tallying that up, you get you get a bigger bill and sort of reinforces my my larger expectation of the cost of this thing. And the taxpayers will have to pay it all. It's a kind of spiral, I should say a spiral down in terms of the fact that one thing begets one problem, begets another problem, begets another problem. So as you say, you really need really good management, especially at this point now when we have baggage. I mean, would you take that job? Oh, no, not a chance. And I think, you know, there's got to be something to be said for, you know, getting these contractors together in a room and saying, you know, Hey, you got to help us out, too. You know, yes, we renegotiate. Yeah, I mean, yes, the contract provides for x, y and z. But if you like, fully take it, it's like stealing from the people. I mean, I've heard, you know, some commentators say that. And there's, you know, definitely if if everybody has to get paid, you know, according to the, you know, the chapter inverse and so forth, there are going to be a lot of unhappy people. Yeah, well, seems like that would be a reasonable thing to have done. You know, because you have multiple contracts, and you have to coordinate them, especially on the timeline, but on on general collaboration cooperation to make everybody, you know, work together to get it done. And I, and I think it's going to be hard because some of them will say yes, Mayor Mayor Yamachika. That's a great idea. Let's get in a room and work this out. And we don't mind giving up some some money in order to have it work out because we want to see it finished in the best way possible. But others will say, sorry, we have a contract. And we know it was threadbare, you guys negotiated with us. It's right down to the skin on this week, we can't afford to give up a dime on this. So it's going to take a lot to bring them all in a room, have them all agree to be good guys, don't you think? Oh, yeah. So when do you when do you see this going? I mean, people have not been optimistic about this. And it strikes me the public is less optimistic now than it was a few years ago. And I remember the words of Cliff Slater, you know, who has opposed rail from the outset back decades ago in any forum. He said, I don't think this is actually going to get built. And you know, people said, Well, wait a minute, you know, we have the city council, we have contracts, surely it will get built. But you know, the answer is the devil is in the detail. Before you build a project of this magnitude in this state, rather in this county, you really have to get through a lot of hurdles. What what is your and those hurdles could somehow, may I say derail it. So what you couldn't help yourself? No, no, I was going to put it off the tracks, but we've already done that. Yeah. And so what do you think is going to happen, Tom, in terms of, you know, the project, the taxes that will result from the project and the effect of the project and the taxes on the economy and the we call it the quality of economic life in Honolulu anyway. Well, I think this is a prime event for the voters to kind of say, you know, we want the swamp drained. You know, we have enough, we've had enough of this. There's got to be consequences. And we need to have, you know, we need to have the consequences carried out. How this is going to manifest itself, I don't know. But, you know, certainly as a concerned taxpayer myself, I really think that, you know, heart's got a public relations crisis right now, and they've got to do something. What troubles me as a taxpayer myself, is that I see this as a huge albatross on our economy. And it has an effect not only on the county, but the state, because the state will have to back it up in some way, you know, that's where that's where the pressure is going to be ultimately when the county can't afford it. And maybe, you know, other parts of the state, of course, the state is one state. And I feel that this is this is going to be such an albatross that we will not be able to do other things that really in retrospect, were more important. And I worry about that. And that means take the steps necessary to make our city, our state sustainable, and, you know, build it, harden it against storms and other physical and economic disasters that could befall us. So this could get in the way of surviving against all those challenges. Yeah, well, you know, there's a lot to be said for, you know, preparing for the end of the world. But, but, but most of our constituents are not worried about the end of the world, they're worried about the end of next week. Are they going to be able to put food on the table? Are they going to be able to pay the rent? Are they going to be able to make the mortgage payment? Are they going to have, you know, are they going to have lights? Can they pay the water bill? You know, just the just the basic things. But you know that that's an interesting problem because it exists not only in this context about rail or about taxes for that matter. It's it's you have to have planning. And planning has to involve the support of the public, it must. And the planning has to be long term. But in the world we live right here, right now, is people are interested in tomorrow and next week, not in five or 10 years. And in order to get a good plan going, I mean, Hawaii has a problem with planning. In order to get a good plan going, you have to not only have the government such as it is, try to look down the tracks. I did that purposely. I created a monster. But also have the public look down the tracks. The public has to have a kind of mindset that goes beyond tomorrow or next week. How do you get people to think along those lines? How do you get people to, you know, raise their raise their their eyes and look way down way ahead? If if you can at all? Well, I mean, why don't you why don't you start using the pieces that we've already built? I mean, can we can we like start shuttling some people from, you know, from one part of the cane field to the other? At least so people can get an idea of how this works. And yeah, oh, can we can actually use that? Yeah, that would be an interesting reality test. Yeah, like, you know, white pocket of pro-ridge or then you get you get the public to either buy in or maybe possibly buy out. Yeah. And you get a result based on data and real reaction to the system as it as it presently exists. I don't think that's going to happen, Tom. I think this is going to lurch forward. I think we'll have problems with with what they find in what less condo finds in reports 234. I think there won't be any more money from the federal government. In fact, I think the federal government's going to dig in on this, at least during the Trump administration. And I think we're going to have to find ways to raise lots more money, even when we have other more pressing, we will will have other more we already have we already have other more pressing obligations. Where does that last question? Where does that all go? If you take my view of it, my slightly pessimistic view of it, where where does it all go? What happens to the city? What happens to the state on a fiscal basis? Well, the outlook doesn't look so great as you as you know, in the world that you're you're imagining. So there's there's got to be, I think, some collaborative steps that are taken between state city and other levels of government with with heart to to get it to throw out the broken parts and get the thing working again. Yeah, well, you know, I think that's a kind of takeaway from our whole discussion. So here's a state agency, a state auditor makes this audit report. And they came in and they helped us to understand what's been going on. They helped us to find the problems, at least in report number one. But it suggests, as I was thinking before, is that the state ultimately is going to wind up taking a fair amount of the responsibility for this state. And I think going forward, you know, the shortfall, whatever it is, the state's going to wind up having to make up that shortfall. That's what'll happen. And it's going to cost everyone in the states some money that way, in terms of income tax, for example, or increase in the general excise tax. I mean, statewide, we'll have to find the money in order to reach a solution, don't you think? Yeah, if we still have population by then. Tom, it's always nice to talk to you. You helped me work my pessimism out. Tom Yamachika, President of the White Tax Foundation, will be back soon with more about this incredible process on rail.