 Aloha, and welcome to Hawaii Together on the Think Tech Hawaii broadcast network. I'm Kayleigh E. Akina, host of the program. And as many of you know, I'm also the president-CEO of the Grassroot Institute of Hawaii. Today we have someone with us who is invaluable to the Institute and to Hawaii as well, Joe Kent, the executive vice president, who's in charge of research and policy development. Three things today. We're going to take a look at, and maybe if we have time, a little bit more than that, the rail, Airbnb, and public pensions. What do they all have in common? Well, one thing is this, they're all products that the government produces for the general public. But beyond that, there are also areas of research at the Grassroot Institute where we take a look at best practices across the country and try to bring them here and contribute to the dialogue on how to make these systems work better. Joe's an expert at that. His work has been published in most of the media, and he's often been the source of breaking news regarding these issues. Welcome to the program, Joe Kent. Thank you so much. Joe, it's always good to talk with you. And today's such a wonderful day, you could be out here surfing. I know. It looks really great out here. A little small ways, at least I can handle them. But instead, you're usually indoors with a crew of people doing the work of a think tank. That's right. And that's what Grassroot Institute is. But that's kind of a strange thing, a think tank. It sounds to me as though it's a room full of eggheads who have calculators and computers and are thinking, what exactly is the Grassroot Institute? Yeah, I know. Sometimes I'd say, oh, I need to do a bit more work. Let me think a bit harder. Think about that. Right. Right. But Grassroot Institute is a public policy institute that researches ideas and helps educate the general public about matters, about economics, society and the government. So we always try to search for a better, how to create a better Hawaii. And when you do that, I know we come from a certain frame of reference. A lot of times people like to use catch-all words, conservative, liberal, progressive, and so forth, or even libertarian. But would you use those words to describe the Grassroot Institute? Well, I like to think of it as independent, actually. You know, ideas, no group has the monopoly on great ideas. And great ideas are available for everyone of all parties and of all partisan groups. So we want everyone to get involved with great ideas, basically. To an important extent, research is at the heart of anything we produce at the Grassroot Institute. It's not about advocating for any client. We don't take clients. We don't advocate for special interests. Instead, you go to where the research leads. Do you want to talk a little bit about that? Yeah, that's right. I mean, at the end of the day, a lot of the arguments or the biggest issues in our society have to do with someone calculating the numbers and seeing, does the math pencil out? So someone's got to do that math. And oftentimes, that's me and our team at the Grassroot Institute. And we basically see, will this idea produce good or ill for society? And we present the research. You were very much involved in our work that helped transition the Maui hospitals from a purely government entity to one in which there was a public-private partnership. And at the heart of that, it wasn't about representing any one group. It wasn't about representing the hospitals or the workers or the unions or just taxpayers. It was really based on research. I remember at one point you did a survey across the country of what kind of system works best and you brought that data back and gave that to leaders here in Hawaii. That's right. We proposed doing a public-private partnership model instead of the 100% government-run model. The government-run system hospital in Hawaii was losing about almost $50 million every year. And that's money that taxpayers would have to pour into the system every year just to keep the hospital barely afloat. And we saw the numbers and it showed that if this continued, then the hospital may have to shut down eventually. So we proposed doing a public-private partnership to help save that almost $50 million a year. And the measure passed. The hospital is now joining with a private partner to help move the care forward and we're seeing better quality and lower costs. And what I like about it is it was a solution that helped everybody. It helped the taxpayer by lowering costs. It helped union members by saving their jobs actually in a hospital that had begun to shut down clinics. It helped ultimately people on the street who needed those services and couldn't afford the standard care that others may have had. They needed to have a public hospital. And so this was not about protecting or defending the rights or viewpoints of any one group. It was really based on research, being independent, trying to help everyone. That's right. I used to live on Maui and I've been sick on Maui trying to find a hospital. And I remember I had to sit on a bus for two hours one time just to get to the hospital. So health care on Maui is a big issue. And if the one hospital system that services Maui shuts down, that could really be devastating for that island. So saving the hospital is imperative and we helped to do it. Well, when I asked you what you and the research team would like to talk about today, you mentioned the rail, Airbnb, and public pensions here. And we'll dive into them and maybe some other issues if we have time. But when I go back to the rail, I think that one of the things we've seen at Grassroot Institute is that the argument has shifted. It used to be the existential argument, should there be a rail or should there not be a rail? And these things were clearly divided between pro-rail and anti-rail. And at a certain point, that conflict became unproductive. We were at a stalemate pretty much in terms of the way we measure public opinion and the opinions of policy makers. And it wasn't going anywhere to just simply clash on should there be a rail or shouldn't there be a rail. And instead, we've seen that evolve over time. Would you agree? Right. Well, they've already built about $2 billion or $3 billion worth of the rail already so it's hard to stop that. But yes, this clash between pro-rail and anti-rail can sometimes distract from some of the very important issues that the rail is dealing with right now. And important issue is that both pro-rail and anti-rail folks should be weighing in on. Right. In fact, one of the things we discovered at the Grassroot Institute is that whether people are for the rail or against the rail, they're concerned deeply about the finances and accountability for those finances. And so we were very pleased to sponsor a campaign a couple of years ago that took off, which was not pro-rail, not anti-rail, but audit the rail. That's right. And it was remarkable to see constituents and various stakeholders from both sides, pro-rail and anti-rail, come together around a single issue. And that is whatever happens, we have to be accountable for the costs. Whatever happens, government has to give an account for all of the money going into it and use it much better. Which brings us to a question. Catch us up. I mean, the costs have been a one-direction skyrocketing line going upward from an estimate early on of about $2 to $2.5 billion. We've well surpassed that. What's the current? That's right. Current is about $9 billion more than. Last year it was $8 billion too. So $1 billion here and $1 billion there and pretty soon we're talking about real money. And that's basically manufacturer's suggested retail price. It's not going to be the sticker price. That's the sticker price. That's not what you're going to pay when you go out the door ultimately. Well, that's the Black Friday price. I know. It's rising. What's going on? Why are the costs going up so much? Well, a lot has to do with change orders or just different things. And we're seeing these costs rise much faster than anyone anticipated. And it's catching even the FTA off guard. The FTA recently sent some in from a letter to Honolulu that said, hey, wait a minute, what's going on with your costs? In fact, yes, this is an important issue which confuses some people. Who's paying for the rail? We know it's a service to the residents of Honolulu proper, the Honolulu city and county, but the entire state's involved in it to some extent and residents on the neighbor islands are also being taxed to pay for it. And we also have to go to the federal government. So the federal transportation administration is deeply concerned. What are they telling the city and county of Honolulu about the rail now? Well, they said that the rail is about $100 million off on their books. They think that the rail was projecting cost estimates that were too low. They said, well, wait a minute, you forgot about all these other costs that should be tallied into your budget. And so at the FTA said, we're going to give you a time limit to get back to us and give us the real costs, the higher costs that we think the project is loaded with. And so just recently they passed, you know, they basically told the FTA that the new price tag is $9 billion. And that is a sticker shock. That is now the highest costing rail project in the world per person. It's about $9,000 per person in Honolulu right now. So this is a significant increase and it might even increase even more than this. Now people have called for an audit and there are all kinds of audits that take place for the rail, the financial statements audits, audits of federal funding, the performance audits and so forth. But we have at the grassroots institute called for an audit for fraud, waste and abuse, a very extensive one. What's the status of that? Well, last year there was a big campaign to audit the rail and we were part of that. There were two audits that passed. They were financial and management audits, one at the county level and one at the state level. So as you mentioned earlier, there are more monies that are attached to this rail. There's federal monies. There's state monies. There's county monies and not just Oahu county but all the other counties as well. And that means there's more strings attached to this project and there's more of a need to put a microscope over this project. And so we have two audits that are going on. They've been going on for about a year now and we may see them, I ask the auditors when we'll see them and they say in sometime in 2019. So those audits are clunking through. The heart officials and the rail management officials say that the audits are kind of annoying to deal with. They don't say the word annoying, but it's taxing to try to deal with all these auditors getting in your way and requesting pesky things like the financials and things like that. But it's important for the public to see all these costs and all the real numbers because at the end of the day the public is paying more and more for this project and we want to know where the money is going. One of the things that we've learned is that as heart board members play their role of governance over the rail and in particular their role of holding it accountable financially. There hasn't always been agreement amongst the members as to what the condition of the rail is and what measures are needed to hold it accountable. We've been fortunate to have a relationship with some of those members and one in particular providing some inside information and that's been helpful in our research. That's right. In fact, some of the board members have said they want an audit for fraud, waste and abuse. It sounds like they've learned some language somewhere. That sounds familiar, right? And they want the heart board itself to audit the rail. So there's definitely a need to audit this thing and we're hoping to see some really good information in the future, especially as Honolulu Council has recently broken a promise made to voters back in 2006 that they would never use Honolulu County funds, property taxes for example, to fund the rail. Now just recently this month they broke that promise and part of that, the reason they broke it, is so they can satisfy the FTA's demands to show higher budgets. Unfortunately this affects confidence in the public when the public is looking at the leadership of the rail and that's happened over and over again. We mentioned a letter from the FDA, you yourself personally have also received a letter from the FDA. You raised a question about a statement by the city administration that the FDA actually responded to and corrected something that was said publicly. That's right. This year when they were trying to pass new tax increases or extensions, one of the arguments made was, well, we can't stop at Middle Street because the FTA doesn't want to stop at Middle Street. That would be a plan B and the FTA has stated that they don't want to plan B, they only want to plan A to Alamoana. But I went and checked on that and I asked the FTA, did you guys ever say no to a plan B? And they said no, we're not presented in the most recent plan, any plan B. And that was breaking news for Grassroot Institute to really show that we have to be watchdogged in the public to make sure that our government agencies are doing what they're saying or whether they're doing what they said. You know, I want to ask you a question about something that has become a buzzword recently and that's public-private partnerships. We're going to take a short break and give us your wrap on the public-private partnerships when we come back. Sure. With respect to the rail. My guest today is Executive Vice President of the Grassroot Institute, Joe Kent. We're talking about a host of issues of recent concern in our city and our state and we'll be right back after this. I'm Kili Iakena on Hawaii Together on the Think Tech Hawaii Broadcast Network. Don't go away. Aloha. I'm Wendy Lo and I'm coming to you every other Tuesday at 2 o'clock live from Think Tech Hawaii. And on our show, we talk about taking your health back and what does that mean? It means mind, body and soul. Anything you can do that makes your body healthier and happier is what we're going to be talking about whether it's spiritual health, mental health, fascia health, beautiful smile health, whatever it means, let's take healthy back. Aloha. And Aloha. My name is Calvin Griffin, the host of Hawaii Uniform and every Friday at 11 o'clock here on Think Tech Hawaii, we bring you the latest in what's happening within the military community and we also invite all of your response to things that's happening here. For those of you who haven't seen the program before, again, we invite your participation. We're here to give information, not disinformation, and we always enjoy response from the public. But join us here, Hawaii Uniform, Fridays, 11 a.m. here on Think Tech Hawaii, Aloha. Welcome back to Hawaii Together. I'm Kayleigh Akina, president of the Grassroot Institute and I'm with Joe Kent, our executive vice president who oversees all of our research. We're talking about Airbnb, the rail and public pensions and I think we'll have enough time in this segment to finish up on the rail and get to all the other items. Joe, I was asking you earlier about a word that has become a buzzword, public-private partnerships or P3. In many cases, they've produced tremendous results across the country worth emulating. In some cases, they're massive failures, but it seems as though it's a pick-up word now and it's being applied to the rail. Tell us a little bit about that. Yeah, well, public-private partnerships, it's kind of a tongue twister, so a lot of people say P3 instead, public-private partnership. And what it is is it's a partnership between the government and the private sector to try to do something better. And normally it's a great idea. Normally public-private partnerships can bring down costs, they can increase the quality, they can benefit taxpayers and they can kind of put taxpayers off the hook and put the private partner on the hook for a lot of risky projects. What specific kind of PPP is being proposed for the rail system? Well, the rail system is doing what's called an availability payments type of P3. Whenever you hear availability payments, just think taxpayer payments. So what they want to do is they want to give the private company taxpayer payments or taxpayer monies in order to finish the job. And that sounds good on the surface, but there's a lot of problems with it because at the end of the day taxpayers are bearing most of the risk and most of the burden of this. So at the front end, it's almost as if we're just using contractors, subcontracting the work actually, paying them out of taxpayer money to do what needs to be done. And ultimately, as you said, the taxpayer gets caught with the bill. Now if the work isn't complete or the work is shoddy or the work fails, who gets caught? Well if the work is shoddy or if it's too late, then the private partner would get less payment. So there is a little stipulation and it helps guarantee on time and on budget. You've heard the rail managers say we want it to be on time and on budget. So that may help with that concept. But whether or not people ride the rail in the future, whether or not the rail project itself is a great idea or a winner. So you're talking about being vested in it. Yes, that's right. Typically when a private firm goes after some work or does a job and if it's private, they have to be concerned about whether, if you build it, they will come. And they have to be concerned about selling it as well. So they're not going to do things that are going to end up without a customer base. But in this case, what you've described about the proposed PPP, the private sector doesn't have that risk. That's right. The private sector simply takes taxpayer dollars, completes the work, is responsible for that, and then goes home at the end. That's right. And so if you can imagine, let's say a toll road. All right. Someone, a private company that wanted to build a toll road, could collect tolls and they could collect money from the tolls to try to make a profit on the cost to build it. So they build the road and they hope the money will come. Well, the company would bear that risk. If people don't come, then they just spend a lot of money for no reason. But if they can drum up a lot of business, then they may make a profit. If the rail were allowed to collect those tolls, if the private partner were allowed to collect those tolls, then they would have incentive to try to drum up as many people to use the rail as possible. But what the structure is right now is the private company is prevented from collecting those tolls. And those tolls will go to the city. And the city will pay tax money. So it's this weird, convoluted thing. Kind of like if the stadium were totally privatized, the private parties there would want to have a Bruno Mars concert every night to drive customers there because their profit would go up. That's right. But you're saying that in the proposed rail PPP, we're missing that incentive basis for the private companies. So they are less vested in this. They're more like contractors than actual partners. That's right. Another idea about them as contractors is exactly right, except with a contractor, normally you'd have to pay them up front. You'd have to pay them a big pile of cash up front. But with this model, what they're saying is the contractor themselves would pay for the cost of the project, and then we'll pay you later. So in a way, it's almost like a credit card, where the PPP— So the taxpayer is still paying the bill. Right. Right. Just way later. And we're not going to tell you about it right now. The PPP is nothing more than finding a contractor and a financing mechanism so that we pay later. But in the end, taxpayers are caught with the bill. That's right. And there was some criticism leveled at Mayor Kirk Caldwell, because his plan—he also plans to update the Blaisdale Center with this model. And people said, well, where's he going to get the money? Because he can barely find enough money for the rail. He's obviously going to find enough money for a billion-dollar upgrade to the Blaisdale project. He said, well, a P3 model is how we're going to do it. You've explained it very well, and I think that the point that you're making is that just because something's called a public-private partnership doesn't mean it has all the real benefits of a public-private partnership. And we have to look at it a little more carefully. And there's more information about that that we're publishing and people can find on our website. Right. GrasserieInstitute.org. Very good. Let me ask you about some of the coup law that's gone on with regard to Airbnb fines recently, especially on the island of Maui. We've seen in the news high fines and the threat of higher fines, and a lot of consternation about that. What took place? Well, on Maui, there was a vote, and they voted for $20,000 a day fines. In the city council. Well, at the ballot initiative. Okay, the ballot initiative. Right. Right. And one of the people on Maui that voted, voted to increase fines on unpermitted vacation rentals to about $20,000 a day up from about $1,000 a day. So that's a big jump. And if somebody was renting out their place for, let's say, 100 days or so, they may have to pay a million dollars to the county. So that is a value of the property itself. Right. Right. So it's very expensive to become permitted in the first place for vacation rentals. Now, in Oahu, we're seeing something similar. Very similar, except instead of a $20,000 fine, it's $25,000 to $100,000 per day fine. So these fines are what you might call excessive. Well, what's the problem with it? And let me play devil's advocate for a moment. Suppose I'm a homeowner on a cul-de-sac, and I want to keep my area quiet and neat. I don't want other cars there. I don't want a bunch of short-term people coming into my neighborhood and so forth. What's wrong with these kinds of fines? Well, apart from the neighborhood issues, the fines themselves are excessive. I mean, if you operate your Airbnb in Honolulu for 10 days, you might have to pay a million dollars. That's what they want to do. And the Constitution in Hawaii says that prevents excessive fines. So there is actually a constitutional provision, Article 1, Section 12, that says excessive fines shall not be required. Well, so while I may not like the noise level of the cars, the medicine is actually worse. In other words, making the government far more powerful and giving it the ability to take away my own rights. So there must be other solutions that work for everybody. What would be a better way of handling companies like Airbnb? Well, one way would be to make it easier to become permitted. And that would help alleviate the black market aspect to this. Part of the problem with Airbnb is it's a black market activity for a lot of it. And you have to kind of sneak around. And if there's a party, you have to be hush-hush about it and parking issues and all of these kinds of things where you have to connect with neighbors are in the black market currently, if they were permitted, they'd be more visible and maybe more easier to deal with. I mean, we have laws against noise violations or parking violations and things like that. Maybe it would be easier to deal with if we had more permitted and more visible activity. And enforce the laws that are in place rather than get new laws that oppress people. That's right. That's a good idea. One of the mainstays of Grassroots Institute research has become well known in the news and that is the existence of unfunded liabilities with respect to our public pension and our public health care program for retirees from the public employment. What's the levels of unfunded liabilities now? I know we actually broke news on this level several years ago. It has been covered extensively. It's become a buzzword. Everybody says unfunded liabilities today. What are we talking about today? Well, we're talking about $12.1 billion of unfunded liabilities in the pension system. That's the employee retirement system, the ERS. And $12.9 billion of debt in the health benefits system. So a total of $25 billion, which means this is fundamentally money that's not there that is owed to pensioners. That's right. This is money that should be there in order to make good on the promises in the future. And the fact that it's not there puts retirees in the future at jeopardy. And it puts taxpayers at jeopardy, too. It not only is missing, should there be the need of it now, it also is a burden on future taxpayers, including our children and grandchildren and so forth. But isn't it also putting us into a more vulnerable position in terms of government finance? That's right. That's right. That increases our debt. And there was just recently some news that Hawaii has some of the worst debt in the nation, I think third or fourth. And the unfunded liability of our public pension system is a problem, like you said, that's going to cost a long time for us to fix. We've got a very short period of time left. So how would you say succinctly, what would you say is the cause of the unfunded liability? I know we've had pension spiking, but that's not the only cause. Well, over-promising and under-delivering. That's the main problem. And the setup of the pension system promises big windfalls from the pension system, but that's based on the stock market. And if the stock market tanks, then the pension fund tanks, too, and so does the unfunded liabilities. Now, Grassroot has done an extensive report on this, and you have presented that at various government bodies, and we've done public presentations. What's the name of that report, and how can people get that if we want to go deeper into this before we close? The report is called How to Resolve Hawaii's Public Pension Crisis, and you can find it at grassrootinstitute.org. Now, that's Grassroot without an S at the end, grassrootinstitute.org. Just go there, and once you're there, is there a search function? If you just scroll down to the bottom of the page, you'll find it. That sounds good. Well, Joe, thanks for the update today. I wish we could talk more, but we've run out of time doing good work with the team. Thank you. Thank you very much. Today, Joe Kent, Vice President, Executive Vice President of the Grassroot Institute of Hawaii, Hawaii's independent public policy think tank. If you need answers to questions about government finance, transparency, accountability, the rail, Airbnb, pensions, and I could go on and on, as well as solutions for our economy, everything from housing to affordable housing, homelessness, and so forth, take a look at our website, www.grassrootinstitute.org. Until next time, I'm Kaley Iacina on Think Tank Hawaii's Hawaii Together, aloha.