Questions continue over the newly opened rail system’s ability to generate enough paying customers and fare revenue to cover current and future operations and maintenance costs — and the financial ramifications if it doesn’t and who will make up the deficit.

Skyline’s uncertain financial situation is not unusual.

The American Public Transportation Association told the Honolulu Star-Advertiser in an email that “our data shows no transit operations cover projects or operational costs with fare revenues alone.”

The Federal Transit Administration agrees.

“Fare revenue typically does not cover all operating and maintenance expenses,” the FTA told the Star-Advertiser in an email last week. The agency did not respond when asked how other urban systems typically cover their expenses.

The possibility of using federal funds to help cover Skyline’s annual operation and maintenance costs seems unlikely because Honolulu, with nearly 1 million residents, is too populous.

The FTA does help finance “operations for transit agencies in small urban (fewer than 200,000 individuals) and rural areas,” the FTA said.

President Joe Biden has asked Congress for the flexibility to help larger communities with rail operations and maintenance costs through the “Urbanized Area Formula program,” the FTA said. But Biden’s proposal remains uncertain in a divided Congress.

Roger Morton, director of the city’s Department of Transportation Services, which operates the rail system, said in an email that “I can’t predict what Congress will do but agree it would be an uphill battle given the current partisan split.”

“Transit systems across the county are facing a fiscal cliff as operating funding provided through the various COVID relief programs are ending,” Morton said. “Additionally, transit, as an industry, has not fully recovered from the drop in ridership that occurred during the COVID crisis. As a response, the federal administration has proposed a higher level of operating support for impacted transit systems.”

Asked how other rail projects make up for their fare shortfalls, Morton said, “Most transit systems around the country have a dedicated source of revenue such as a percent of local sales taxes or other taxes such as a payroll tax. Many systems receive significant funding from state government.”

NOW THAT passengers are riding Skyline trains, public support could be critical to how Honolulu’s rail expenses are covered, said Colin Moore, who teaches public policy at the University of Hawaii and is an associate professor at the University of Hawaii Economic Resource Organization.

The state Legislature already agreed to help fund rail construction through the state’s general excise tax and approved a new transient accommodations tax aimed at tourists for all counties in Hawaii, which included a portion of Honolulu’s new hotel tax to help balance rail’s $9.8 billion construction budget.

The idea of the new county TAT was supported in November 2021 by an overwhelming 70% of Oahu voters — and 56% approved if it helped fund rail, according to a poll conducted at the time by Omnitrak for Move O‘ahu Forward, an organization that supports rail.

Enthusiasm for the tax was even higher on the Leeward Coast, which is expected to benefit the most from rail. The Omnitrak survey found that 72% of respondents from Ewa to Waianae liked the idea of a new countywide TAT in general, and 63% supported the tax if a portion would help fund rail.

The June 30 opening of Skyline to free ridership showed the public the city could run the initial 11 miles of track and nine stations from East Kapolei to Halawa, even if the first segment is not practical for most commuters, Moore said, “but to be fair, most people knew that.”

“It did help public sentiment to some degree,” Moore said. “People can start thinking about it as it expands to more useful connections. The rollout was pretty successful to give a flavor of how this public transit system might operate. It was helpful in getting people to think about what this means for later.”

Given rail’s history of delays and cost overruns, rail ridership showed a skeptical public that “this time you should believe us,” Moore said. “This time is different.”

Now it appears up to either the Honolulu City Council or state Legislature to make up for financial shortfalls in rail’s operations and maintenance budgets moving forward.

“The (Legislature) feels like it’s done its part and, to be fair, it has,” Moore said. “I would be surprised if the (Legislature) is willing to give them more money. It just might be a city and county problem because there may not be a lot of other places to go, which is property taxes, which is the third rail of local politics.”

THE ASSOCIATION of American Railroads believes that rail systems help employers and employees overall and, especially, economically in high-traffic, urban areas like Honolulu.

“Companies benefit from an increase in the number of workers who can commute to their jobs, especially in places with lots of traffic congestion,” the association told the Star-Advertiser. “Individuals benefit because they can save money by taking public transportation rather than other modes.”

During the first truncated four-hour window of free ridership June 30, an estimated 8,952 riders packed into trains, culminating in a total of 71,722 passengers riding for free through July 4.

Ridership was expected to drop with the initial start of paid ridership, when the novelty of riding rail trains first and for free wore off.

And it did.

Over the next five days of paid rail ridership, the number of passengers fell to 18,329.

The city’s DTS estimates that it will cost $85 million annually to operate the system, which the Grassroot Institute of Hawaii originally and incorrectly said did not include maintenance expenses.

The institute then calculated that the per-passenger cost of operations will be about $54, which it called “the highest cost among all light-rail systems in the United States” in a statement Thursday. Factoring in the cost of a $3 ticket, the per-passenger cost would be about $51, it said.

But the Grassroot Institute, which calls itself “a nonpartisan, nonprofit research and educational institute devoted to promoting individual liberty, economic freedom and limited, accountable government,” based Honolulu’s rail costs and its conclusions by comparing Skyline’s 2024 projected expenses to COVID-era 2020 costs for other transit systems around the country that were compiled by the Association of American Railroads when the world was largely locked down and rail ridership fell overall.

At a projected total cost of $9.8 billion to build rail to Kakaako by 2031, Joe Kent — Grassroot’s executive vice president — called Skyline “the most expensive rail system per capita in the world” in a statement. “When construction began in 2012, the estimate was $5.1 billion.”

“Taxpayers are already paying an enormous amount to build the project, but now are paying even more to run it nearly empty,” Kent said. “Given the enormous cost to shuttle so few passengers around, I wonder why the Skyline is being run at all. This is $85 million that could be spent in other ways, rather than paying $54 for each train ride extending for only a few miles. City officials should ask whether this is a wise use of tax dollars.”

DTS disagrees with several conclusions and statements made by Kent and his organization.

“The numbers we gave him are correct,” DTS spokesperson Travis Ota said in an email to the Star-Advertiser. “Everything else isn’t.”

The 18,329 passengers who rode Skyline in the first five days of paid ridership already show that rail trains are not running “nearly empty,” Ota said.

And the Grassroot Institute made other inaccurate statements and assumptions, Ota said, such as confusing the Honolulu Authority for Rapid Transportation with DTS.

HART oversees rail’s construction, DTS operates the rail system.

“Officials with the Honolulu Authority for Rapid Transportation, which is in charge of building and operating the rail system, say they expect the Skyline’s ridership to increase to 10,000 riders per day after the summer, which supposedly will bring down the operational costs per passenger significantly,” Kent wrote in his critique of rail’s estimated expenses.

The Grassroot Institute said that HART’s estimate of 10,000 riders per day would lower rail’s operating costs to $23.29 per passenger, which it called “still the highest in the nation.”

Later Thursday, the Grassroot Institute issued a correction clarifying that DTS’ financial projections do include maintenance costs.