Cost and time overruns on public projects do not matter once the task is done

In a look at the troubled construction of the Salesforce Transit Center in San Francisco, one civil engineer puts the problems in perspective:

Paul Gribbon, a civil engineer who brought Portland, Oregon’s $800 million Big Pipe sewer project in on schedule and within budget, points out that, along with cost and time overruns, there’s another general law regarding megaprojects. “Once it’s up and running, once there’s a shining new bridge or light-rail station, people tend to forget about how much it cost, in all senses of the word.”

If the project eventually gets done and it all works, life moves on and the delays, frustrations, and extra monies fade into the past.

But, such challenges seem to be common in at least a few major American infrastructure projects in recent decades. What could help reduce these odds? Or, are these projects so complex that even a small issue – such as cracked steel beams in San Francisco – can create significant ripple effects and headaches?

My guess is that the civil engineer is correct: after delays and blown budgets, people just want something to work. The frustration during the process will dissipate as the public takes it as normal. They will feel relieved when the troubles are over. Yet, the long-term goal across all these projects should be to continue to seek timeliness and on-budget performance as the size of these projects can influence numerous other civic and municipal priorities as well as create inefficiencies for many.

Adding more context to Americans spending 7% of income on gas

AAA reports on how much Americans spend on gasoline:

Analysts say Americans are now spending 7% of their income on gas, a statistic that is up 1.5% from last year.

If you make $45,000 per year, you’re shelling out over $3,000 just to put gas in your vehicle.

The 7% figure may be interesting in itself but this is a statistic that begs for more background information. Is 7% a lot or a little? Should people be alarmed?

The story already includes two pieces of context:

  1. This is an increase from last year. Generally, people do not want to be paying significantly higher prices year after year. While 1.5% is a low number, drivers would probably not want this number to keep going up.
  2. A slightly lower than average income person or family – the median household income is a bit higher than this – spends over $3,000 on gas. People could read this figure and then think where else that $3,000 could be used.

But, there is more information that could be useful here.

  1. Historically, how much do Americans spend on gasoline? The article includes a one-year trend but how does this look over decades? Are gas prices going up the same way medical costs are going up?
  2. How does this 7% compare to other essential categories of spending such as food (and the groceries vs. eating out breakdown could be interesting) or housing?
  3. What are the total costs of car ownership? Gasoline adds up but vehicle owners also have to factor in maintenance and insurance.
  4. These are average figures for gasoline consumption: how much different will gas costs be for SUV and truck owners (and these are driving the car market) versus small car owners?
  5. How does this compare to gasoline costs in other countries? The rise to 7% may seem like a lot but gasoline costs more in some other industrialized countries and people in other countries drive less than Americans.

While this may be too much to ask for a short news story, gas costs, as well as most other social and economic statistics, are complicated. The numbers do not necessarily interpret themselves. Something going up or down or staying the same is as meaningful as its context and what we make of it.

Living by “a week’s pay for a month’s rent” in the early suburbs

Within a set of observations in Harper’s in 1953 about the new way of life in six mass-produced suburbs, Harry Henderson discusses the financial situation of the new suburbanites:

Henderson1b

Henderson2

Three quick thoughts:

  1. If we still adhered to the guideline of one week’s pay to cover housing, a lot of suburbanites would be in trouble. That rule suggests 20-25% of earnings should be for housing, not 30% which was a more common guideline today. But, with the dearth of affordable housing in many metro areas plus a desire of many suburbanites to be in communities that will help them be successful (i.e. good housing values, high-performing school districts, middle- to upper-class neighbors, a community with a good reputation, etc.).
  2. The desire to achieve the American Dream of owning a home in the suburbs is a powerful one as these residents of mass suburbia were willing to stretch financially – taking on extra work, living with in-laws – to make it happen. I would guess that this is still the case today.
  3. The full article is both an interesting snapshot of suburban life at the beginning of mass suburbia as well as an odd read since it treats suburbia as the exotic. Henderson admits at the beginning that the notes are subjective but they both provide some interesting information as well as provide insights into how outsiders viewed these early suburbs.

Nature, driving, and states closing “old-fashioned” rest stops

When money is tight at the state level, one way to save money is to close highway rest areas:

Cash-strapped transportation agencies are shuttering the old ones to save money, or because they don’t attract enough traffic or are in such bad shape that renovating them is too costly. Or, the stops have been overtaken by tourist information centers, service plazas that take in revenue from gasoline and food sales, or commercial strips off interstate exits.

Florida, Michigan, Ohio and South Dakota are among the states that have closed traditional rest stops in the past two years. And a battle is brewing in Connecticut over a proposal to shut down all seven stops on its interstate highways to save money.

But advocates of maintaining traditional rest areas say even if motorists are offered flashier options for pit stops, the ones that sprung up as highways did are still needed for driver safety and convenience. Some view them as a tranquil, environmentally friendly alternative to crowded service plazas and commercial strips…

But unlike service plazas, rest areas on federal interstate highways are prohibited from selling gasoline or food other than from vending machines, the proceeds of which traditionally go to people who are visually impaired. State transportation departments run the rest areas and are responsible for cleaning and maintaining them. That can take a chunk of their budget, depending on staffing and amenities, officials say.

It almost seems quaint that highway driving should be broken up to stops at state rest areas where drivers can experience nature and rest. Can highways and nature go together, especially on a small patch of green land within earshot of the interstate? Highways can of course be used for pleasurable trips but the majority of highway traffic is likely for practical purposes such as going to work or conducting some kind of personal business. In contrast, given our reliance on the trucking industry, the issue of spaces for truck drivers to stop seems like a bigger deal.

Ultimately, this seems to be about whether Americans deserve to have some spaces in life where commercial interests are severely limited or not allowed. Given the encroachment of economic life into many life domains, this change isn’t too surprising.

The infrastructure devil is in the (financial) details

Here is an interesting argument: generally, people like the idea of improving infrastructure until the details about finances and completing the project come up.

But beyond the potentially divergent approaches looms the question of how the expansion and improvements will be paid for. Abernathy’s colleague Eric Harris Bernstein pointed to an infrastructure proposal released by the Trump campaign in October that would rely on public-private partnerships, tax credits, and other private-sector incentives, which would likely require toll roads and bridges to entice investment. Bernstein characterized this approach as “a huge departure from this sort of populist message Trump ran on.”“They’re talking about having it all be financed by private investment, which is essentially the opposite of targeted [investments],” Abernathy adds. “It’ll go to the communities that have the potential to pay user fees and have the highest profit and ultimately reduce access and equity and basically turn our highway system into a bunch of toll roads.”

Richard Geddes, a professor of policy analysis and management at Cornell University and a visiting scholar at the conservative American Enterprise Institute, says that there is harmony across the political lines on “the notion that overall spending on infrastructure has been inadequate.” He suggests that the best way forward is to eschew the moonshot in favor of a more “surgical” approach to improving infrastructure quality. “The spending really has to be targeted on better, more efficient maintenance and operation of what we have, plus targeted expansions in the system,” he says. “We’re not going to rebuild the entire highway system, we’re going to add capacity—meaning a lane here, a lane there, expand facilities, particularly in urban areas as people move there.”

To pay for it, Geddes suggests there is some bipartisan consensus  for public-private partnerships, but he also believes the private sector will be instrumental in funding the work ahead. One solution he encourages would include making tax-exempt municipal bonds, which citizens buy to help communities pay for local projects, available to the private companies to incentivize them to renovate infrastructure. Another possibility he offered would be to update the gas-tax system to collect revenue from drivers based on miles traveled rather than gallons purchased, which would generate more revenue from hybrid or electric cars…

Of course, many Democrats and the Roosevelt Institute suggest that some infrastructure projects be financed by tax increases, be it on the wealthy or by closing of corporate loopholes or instating carbon taxes. These suggestions are anathema to Trump and many Republicans, some of whom have vowed not to raise taxes and not increase the debt. Meanwhile, on Tuesday, The Washington Post reported that House Democratic leader Nancy Pelosi said that she would oppose an infrastructure bill that banked heavily on tax breaks and privatization.

This is where finishing under budget and ahead of schedule would be helpful. I don’t know if there is much hope that any large infrastructure project (especially for the huge projects like major bridges or tunnels) can do this these days.

Perhaps infrastructure could also be a leading indicator in current American society regarding a lessened ability to plan for the long term. Infrastructure is not a very sexy topic yet people will complain vehemently if it ends up falling into disrepair.

The difficulties of projecting costs for big tunnel projects

Cost overruns on big infrastructure projects are common but may be even worse for tunnel projects, as the case of the California high-speed rail project may soon illustrate:

“You have an 80% to 90% probability of a cost overrun on a project like this,” Flyvbjerg said. “Once cost increases start, they are likely to continue.”…

Although some large tunnels have been constructed elsewhere without difficulty, including the 3,399-foot Caldecott Tunnel in the Bay Area, others have encountered costly problems.

The 11-mile East Side Access tunnel in New York City, for example, is 14 years behind schedule, and the tab has grown from $4.3 billion to $10.8 billion. Boston’s 3.5-mile Big Dig was finished in 2007 — nine years behind schedule and at nearly triple the estimated cost.

Digging stopped on the 2-mile Alaskan Way tunnel under Seattle when a boring machine broke down in December 2013 and had to be retrieved for repairs, causing a multiyear delay with an unknown cost overrun.

The bullet train will require about 20 miles of tunnels under the San Gabriel Mountains between Burbank and Palmdale, involving either a single tunnel of 13.8 miles or a series of shorter tunnels.

As many as 16 additional miles of tunnels would stretch under the Tehachapi Mountains from Palmdale to Bakersfield.

All told, this is a major project that might just draw attention from the public and scholars for decades to come. Is it possible to even finish it? What will be the end cost? Will it enhance transportation and life in California? There is a lot at stake here and big costs will not help. From the article, it sounds like part of this is due to falling behind schedule – this adds more money as the project takes more time and costs tend to go up over time – and is also due to the unique geological features of California – fault lines and possible earthquakes – which produce additional complications.

I’ve seen numerous people suggest that projects like these illustrate how difficult it is for the United States of today to complete major projects. This may be needed and/or helpful but a lot of good things have to happen before the line even becomes operational.

Three tips for avoiding turning a $250 million bridge into a $13 billion one

A new book chronicling the long saga of the new Bay Bridge offers these lessons for avoiding massive cost changes/overruns:

Reference other projects. Frick points to a couple ideas for controlling mega-project costs. Scholar Bent Flyvbjerg, who has studied infrastructure cost overruns around the world—and who often boils them down to political deception—has promoted the idea of basing costs on a “reference class” of similar projects already completed. The fear with that is project leaders won’t bother to keep costs down if they know they can hit a certain number, but Frick says that possibility bothers her less than the uncertainty surrounding costs that goes on right now.

Widen early cost ranges. Giving a precise cost number out to multiple decimals, as the state legislature did with its $1.285 billion estimate in 1997, makes the figure seem more scientific and precise than it really is, and creates that much more public frustration when the costs keep rising in the future. “In the early planning stages, ranges in the projects would be really important to provide,” she says.

Track progress more closely. Frick also suggests that officials pay more attention to “transaction cost economics”—an approach that “analyzes project development over time,” she writes, in an effort to identify the precise “political and economic origins” of new costs. This fuller accounting also considers costs that often go overlooked, such as the time and energy that go into public participation. Without better cost estimates, projects will continue to suffer from the type of strategy described to Frick by one senior engineer:

“Basically at the onset of a project I think the higher ups prefer a dollar amount and schedule that doesn’t shock the public.”

Which, as the Bay Area knows, only makes the shock that much worse when it finally arrives.

The typical resident is going to look at this and ask how in the world this was allowed to happen. Large infrastructure projects have a lot of moving pieces but the change in price is still hard to understand. Of course, there may be a political penalty for adhering to this advice – a higher projected cost upfront is likely to limit support. Yet, going with an unreasonably low projection with no cost range borders on dishonesty.