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The Honolulu Advertiser
Posted on: Monday, March 15, 2010

Hawaii rail project may not create as many jobs as city predicts


By Sean Hao
Advertiser Staff Writer

Hawaii news photo - The Honolulu Advertiser

Some are saying that the number of jobs that Mayor Mufi Hannemann has said will be generated due to the rail project is less when newer calculations are used.

ADVERTISER LIBRARY PHOTO | May 23, 2008

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RAIL JOBS

Estimate based on 2002 model (the figure used by Mayor Mufi Hannemann):

Direct 4,240

Indirect 1,847

Induced 4,079

Total 10,166

Estimate based on 2005 model:

Direct 3,332

Indirect 1,710

Induced 2,154

Total 7,196

Indirect jobs are those created by suppliers. Induced jobs are created as a result of spending by those working on the rail project.

Source: Advertiser research

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Thousands of people will get jobs working on Honolulu's planned $5.3 billion rail project if construction proceeds as planned. However, how many jobs will be created by the state's largest public works project and when they'll be created remain guesswork.

The city predicts the project will boost employment by 10,166 jobs in each of the nine years it takes to build it, including direct jobs, jobs for suppliers and indirect jobs, such as at the lunchwagon that sells meals to workers.

Hawai'i, which is grappling with its worst economy in decades, could use a major infusion of jobs. Honolulu had 15,000 fewer jobs in the fourth quarter when compared with the prior year's period, according to state labor statistics.

Honolulu Mayor Mufi Hannemann, who has made rail a priority of his administration, is using the promise of rail jobs 4,000 this year and a peak of 17,000 direct and indirect jobs in 2013 to bolster support for building the 20-mile East Kapolei to Ala Moana elevated train.

However, those job figures may be inflated, according to some local economists.

The city's job estimates are based on 2002 formulas. If the city's job estimates were restated using the most recent 2005 job creation formulas, the job estimates would be about one-third lower, said Sumner LaCroix, a University of Hawai'i economics professor. The transit project would still create thousands of jobs and have a significant impact on the local economy, he said.

However, "the bottom line is it's substantially less" jobs than expected, said LaCroix, who's also a research associate for the UH Economic Research Organization. "We're not saying the transit project isn't going to create jobs. It's just the numbers that are being used are overstated."

Additionally, the city's estimate of new local jobs could be overstated because the calculation includes spending for items such as vehicles assembled on the Mainland, interest, insurance and land purchases, which have little impact on the local job market, LaCroix said.

A study released last year by UHERO predicted the city's rail project will generate a peak of 2,000 direct jobs in 2014. That's less than half the jobs predicted by the city.

Currently, between 200 and 300 people are working full-time or part-time on the project a figure that includes city employees and those working for contractors.

THUS FAR, 350 JOBS

So far, only about 350 future construction jobs can be directly connected to the project. That's the peak number of people that Kiewit Pacific has said it would employ during construction of the first 6.5 miles of guideway from East Kapolei to Leeward Community College. Kiewit was awarded the biggest transit contract so far $483 million in October.

The city's estimate that more than 10,000 jobs will be created comes from the use of job multipliers. Job multipliers are a standard way of predicting job creation using a project's budgeted costs. The multipliers are customized for industry sectors and are based on studies of the relationships between various industries. The state Department of Business, Economic Development and Tourism determines the job creation multipliers used by the city.

The rail project's draft environmental impact statement released in the fall of 2008 predicted the project would create a total of about 22 direct, indirect and induced jobs for every million dollars spent, using job multipliers from a 2002 base. If the multiplier for 2005 is used, the number of jobs per $1 million spent drops to about 16. Indirect jobs are those created by suppliers while induced jobs are created as a result of spending by those working on the rail project.

According to the city's calculations, which were based on non-inflation adjusted costs of $4.13 billion, the rail project would create an average of 4,240 direct jobs, 1,847 indirect jobs and 4,079 induced jobs over the nine-year project.

Those projected job creation figures drop to 3,332 direct jobs, 1,710 indirect jobs and 2,154 induced jobs, based on the the 2005 job multipliers , which were released by the DBEDT in August 2008. That's the most recent job multipliers available from the state.

The difference between the two estimates is 2,970 total jobs a year.

JOB ESTIMATES

The job estimates in the city's draft environmental report were prepared by transit contractor Parsons Brinckerhoff. PB's Deputy Project Manager Mark Scheibe said the job estimates will be updated in a final environmental impact study that will be released later this year. Those updated estimates will be in line with the 10,100 or so jobs previously predicted, Scheibe said.

The updated job estimates also will be based on different multipliers than those released by the state, he said.

"Partially because that (lower state job multiplier) didn't seem to make a lot of sense, we actually looked at some other sources ... and looked at a range of different multipliers and that's what you'll end up seeing when the (final environmental impact statement) comes out," Scheibe said. "They'll be generally in the same range as in the" draft environmental impact statement, he said.

Paul Brewbaker, a local economist with TZ Economics, said the 2005 job multipliers suggest the rail project may generate fewer jobs than orignally anticipated. However, the city's estimates still could be achievable, he said.

That's because neither the 2002 or 2005 economic formulas reflect the current economic environment in which there's a surplus of labor ready to fill jobs.

"Anything today, any project, public or private, would have a greater impact on jobs and more would be created than when everybody was employed and income was growing at it's potential full employment rate," Brewbaker said. "There is no other time in the last century, other than the Great Depression, where these multipliers are closer to being meaningfully correct.

"If there was a moment to believe these estimates, this would be it."

HARD TO COMPARE

Construction activity on the project would peak around late 2012 and early 2013, according to the city's timeline.

About $910 million, or $101 million a year, of the project's costs will go toward construction labor costs.

Just how the city's rail jobs forecast compares to jobs created by the H-3 Freeway project is unclear. That's because the state did not track the number of jobs created by the $1.3 billion, 16-mile freeway, which opened in 1997. The state Department of Transportation can only say that the project employed "thousands of construction workers" during the 37-years H-3 Freeway was planned and built.

The city's estimate that rail will create an average 4,240 direct jobs annually is only about 1,000 jobs shy of the number of construction workers employed by Boston's $14.6 billion "Big Dig," which was the nation's most expensive highway project. At it's peak, that project employed about 5,200 construction workers, according to an August 2004 article in The Boston Globe.

Just when construction on the transit project will begin remains unclear. The city had planned to break ground in December, however, that date has been indefinitely delayed by a prolonged review of the project's environmental impacts.

Meanwhile, the state continues to set aside money to pay for the project via a half-percentage point general excise tax surcharge on O'ahu. That 15-year tax began in 2007 and through the first three years generated a net $460 million for the city, according to state Department of Taxation figures.

That excise tax is costing the state jobs, LaCroix said.

"The extra excise tax is a drag on market activity," he said. "People are finding that their budget doesn't go as far so they're cutting back just a little bit.

"What that means is some businesses don't get that spending. If you want to look at the jobs created by the project, you have to subtract out the jobs that have been lost from the effect of the excise tax."

At the same time it's difficult to gauge the future economic benefits of the mass transit project once it's completed, including so called "transit oriented development" projects, Brewbaker said. Those are projects that could lead to redevelopment and increased property values around train stations.