Why costs often creep on public-works projects

What do Metrorail’s Silver Line, the Columbia Pike streetcar in Arlington County and the Intercounty Connector in Maryland have in common?

They have turned out to cost far more than initially projected. And, as often happens in such cases, the public is outraged over the bill.

The script — most recently playing out in Arlington County after officials revealed that the price tag for the streetcar is $100 million more than first estimated — is fairly common.

With fanfare, officials unveil plans for a new subway line, bridge or other infrastructure improvement that, they promise, will make life easier or generate new tax revenue without breaking the budget.

Then, months or years later, they’ll sheepishly admit that the project will stretch the budget a little. And local residents revolt.

“An idea is floated or a project is put into the public domain and people may think it’s a good idea,” until the true costs are known, said John Vihstadt,who recently became the first non-Democrat in 15 years to win a seat on the Arlington County Board. He campaigned on a platform of opposition to the Columbia Pike streetcar.

To get a project up and running, public officials may lowball a cost estimate at the outset, then ask for forgiveness and patience later, said William Ibbs, a professor of construction management at the University of California at Berkeley who has worked as an adviser on transportation projects worldwide, including Boston’s “Big Dig” highway-tunnel project, which was $12 billion over budget when it was finished nine years behind schedule in 2007.

That’s particularly the case during an economic downturn, when local officials hope to create jobs and contractors are especially eager to get work.

“I’m not saying they’re committing fraud, but let’s say they’re overly optimistic,” Ibbs said about public officials whose initial cost estimates are on the low end of likely. “They’ll get the work going and then the public will be reluctant to cancel a project because they’ve spent all this money so far.”

Other reasons are more complicated and involve economic factors and conditions as far away as China.

Because of the massive amount of building going on in that country, global prices for steel, copper, concrete and other materials are skyrocketing and are often unpredictable, leading to higher-than-expected project costs, said Robert Puentes, who directs the Brookings Institution’s Metropolitan Infrastructure Initiative.

So much so that President Obama on Wednesday downgraded the official estimate of jobs that could be created through every $1 billion of infrastructure spending — to 13,000 jobs from 28,000 — during a speech in New York announcing a series of public-works projects.

“The unpredictability is a real issue,” Puentes said about the cost of building materials. “It’s being talked about quite a bit.”

Then there are the complexities of building in urban areas, where environmental hurdles and the need to buy up private property can become unanticipated — and expensive — headaches.

In Maryland, the cost of the 18.8-mile Intercounty Connector doubled during decades of planning, to $2.4 billion, because of inflation and costly environmental mitigation projects that were added to make the highway project more palatable to federal regulators and the public.

The price of the Purple Line light-rail project in Maryland recently rose to $2.37 billion — almost double the initial projections from 2001 — because of inflation, financing costs and the escalating price of property acquisition along the route, state officials said.

Once a project gets approval, planners and engineers dive deeper into its feasibility with a more-refined analysis that takes into account planned stops along a transit route or overall soil conditions, said Whit Blanton, an Orlando-based transportation planner.

“Planners are just trying to get it right,” Blanton said. “We’re trying to identify as best we can what we think that cost will be.”

Construction delays and increases in a project’s scope can also lead to cost creep, said John D. Porcari, a former Maryland transportation secretary who recently served as deputy U.S. transportation secretary. On a $2.5 billion project, inflation alone can add $60 million to $70 million for each year construction doesn’t occur, he said.

Delays stem most often from permitting problems, changes to a project’s design and shifts in political administrations, when newly arrived public officials want more time to review a project, Porcari said. The costs of major expenses such as labor, construction materials and real estate also are difficult to pin down until much of a project’s design has been completed.

Geoff Buswick, who analyzes infrastructure projects for the Standard & Poor’s credit-rating agency, said government cost estimates have begun to line up more accurately with final budgets in recent years.

Early cost estimates allow government officials to gauge public support for a project before they hire consultants to do more detailed cost analyses, he said.

“It’s not uncommon to see early estimates change up and down, but it’s good to start the discussion on the public support and legislative support” for a project, he said. “You need to put some number out there.”

The problem is, taxpayers tend to see those early figures as set in stone.

Reston resident Rob Whitfield said those living near the Silver Line project are frustrated by what has been a $150 million cost overrun on the first phase. Tolls on the nearby Dulles Toll Road have increased to help finance construction, and Whitfield said he expects even higher tolls in the not-too-distant future.

Cost overruns on major projects go back centuries — including such celebrated marvels as the Suez Canal in Egypt, which, according to a 2002 study on cost overruns, was completed in 1869 at a cost 20 times higher than initially expected.

Stewart Schwartz, director of the Coalition for Smarter Growth, argued that it’s important for taxpayers to remember the long-term benefits such projects bring.

He pointed to economic development near the Ballston-
Rosslyn corridor after the Orange Line was completed, a project that drew opposition from critics worried about costs. Public officials who are pushing for streetcars along Columbia Pike and in Crystal City said they will bring a parallel burst of economic momentum to those corridors. The Crystal City project, like its Columbia Pike counterpart, also has gone up in price.

“You often see higher costs like this, but in our view, it’s very much worth it,” Schwartz said. “These are long-term investments.”


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