Surprise: Another Light-Rail Line Is Over Its Budget

“Norfolk leaders want an audit to figure out why its light rail project has gone $108 million over budget,” reports the Associated Press. The city doesn’t need to spend money on an audit. The reason for the overrun is obvious: It’s a rail-transit construction project.

As if that isn’t enough, the line was planned by Parsons Brinckerhoff (PB), the company that planned most of the rail transit lines that have gone over budget in the past 50 years. PB also planned and helped build the Big Dig, another urban-planning project that went way over budget.

San Francisco BART, the nation’s first modern rail transit project, went 50 percent over budget. Since then, some have gone more, some less, but the average has pretty consistently been about 40 percent. The Norfolk project is 46.5 percent over budget.

Why does this happen? In a 1987 paper, UCLA (now UC Berkeley) planning Professor Martin Wachs concluded, “travel and cost forecasting is deliberately slanted to produce figures which constitute technical justification for public works programs favored on the basis of political rather than economic or technical criteria.”

“I have interviewed public officials, consultants, and planners who have been involved in these transit planning cases, and I am absolutely convinced that the cost overruns and patronage overestimates were not the result of technical errors, honest mistakes, or inadequate methods,” Wachs href=”http://www.honolulutraffic.com/Wachs_2.pdf”>added in a 1990 paper. “In case after case, planners, engineers, and economists have told me that they have had to ‘revise’ their forecasts many times because they failed to satisfy their superiors.”

More than a decade later, Danish planner Bent Flyvberg found that rail transit plans still routinely underestimated costs (and overestimated demand). While he found that rail projects tended to go 40 percent over budget, American road projects went only 8 percent overbudget and planners actually underestimated demand.

Of course, instead of applauding highway engineers for building infrastructure that people want to use, planners castigate them for “inducing demand,” one of the most insane yet strangely persistent ideas ever developed. Any private company would love to find an infrastructure investment that could induce its own demand. But, as even planner Robert Cervero admits, such a thing is pretty much impossible.

Planning advocates respond respond to charges that they cook their books by saying, “It’s not our fault; the politicians made us do it.” But government planning is, by definition, political. If planners don’t or can’t take the political factor into account, they are merely allowing themselves to be tools for pork barreling elected officials and subsidy-seeking corporations.

Flyvbjerg argues that planners should use reference-class forecasting, which basically means increasing cost projections by the historic average of cost overruns for similar projects. if Norfolk had added 40 percent to its cost projection, it would only be 5 percent over budget now.

The problem with reference-class forecasting is that the politicians who made the final decisions are innumerate. “This project will cost a trillion dollars and go 40 percent over budget. But it will get two cars off the road.” “Let’s do it! We have to get every car off the road that we can.” Instead, we need to give up on the idea of government planning and rely on markets and user fees to build and operate our transportation systems.

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9 thoughts on “Surprise: Another Light-Rail Line Is Over Its Budget

  1. Tad Winiecki

    If we were waiting for free markets to plan and deploy a GPS system to help our transport networks instead of the governments doing it we would still be waiting.
    One person’s user fee is another person’s tax, and vice versa, as we have discussed several times before. One person’s expense is another person’s investment, and vice versa. Accountants have trouble agreeing on how to classify outlays and even more so politicians. If a government spends money to repair potholes in the road and you spend money maintaining your car both expenditures can reduce your life cycle cost and increase your safety, but are they user fees, taxes, investments or expenses? If you buy pollution control equipment for your power plant or vehicle is it an investment to improve the health of you and your neighbors and extend your life expectancies or just an expense?
    I believe the correct approach is to look at the overall economics and life cycle costs for everyone and try to achieve the most economical solution with whatever incentives are needed for everyone to do what will achieve that solution.
    Passenger rail hasn’t been the most economical solution since the 1930s.

  2. blacquejacqueshellac

    “If we were waiting for free markets to plan and deploy a GPS system to help our transport networks instead of the governments doing it we would still be waiting.”

    “If we were waiting for free markets to plan and deploy a satellite communications system to help our telephone networks instead of the governments doing it we would still be waiting.”

    Both of these arguments are nuts.

    “After the 1957 launch of Sputnik I, many considered the benefits, profits, and prestige associated with satellite communications. Because of Congressional fears of “duplication,” NASA confined itself to experiments with “mirrors” or “passive” communications satellites (ECHO), while the Department of Defense was responsible for “repeater” or “active” satellites which amplify the received signal at the satellite–providing much higher quality communications. In 1960 AT&T filed with the Federal Communications Commission (FCC) for permission to launch an experimental communications satellite with a view to rapidly implementing an operational system. The U.S. government reacted with surprise– there was no policy in place to help execute the many decisions related to the AT&T proposal. By the middle of 1961, NASA had awarded a competitive contract to RCA to build a medium-orbit (4,000 miles high) active communication satellite (RELAY); AT&T was building its own medium-orbit satellite (TELSTAR) which NASA would launch on a cost-reimbursable basis; and NASA had awarded a sole- source contract to Hughes Aircraft Company to build a 24-hour (20,000 mile high) satellite (SYNCOM). The military program, ADVENT, was cancelled a year later due to complexity of the spacecraft, delay in launcher availability, and cost over-runs.”

    -That’s from the NASA web-site http://www.hq.nasa.gov/office/pao/History/satcomhistory.html

    Let me repeat: “In 1960 AT&T filed with the Federal Communications Commission (FCC) for permission to launch an experimental communications satellite with a view to rapidly implementing an operational system. The U.S. government reacted with surprise”.

    Yup, ‘surprise’.

  3. Mike

    Tad Wieneki:

    If we were waiting for free markets to plan and deploy a GPS system to help our transport networks instead of the governments doing it we would still be waiting.

    History suggests otherwise.

    If a government is going to drop hundred dollar bills on the sidewalk, you have to expect that people will interrupt whatever they are working on to pick those bills up. That doesn’t mean that the private sector will never build things on its own… just that they won’t foot the bill for anything that they can get others to pay for. The correct answer is not to have the government pay for more things, but to have it pay for fewer things: specifically, a military, police, court system, and subordinate functions.

    EDIT: Echo blaquejacque’s post as well, since it provides even more examples.

  4. John Thacker

    The problem with reference-class forecasting is that the politicians who made the final decisions are innumerate.

    I’d say that another problem is that if you announce reference-class forecasting as an official rule, then the same people who pressure to get estimates down within an acceptable number will simply adjust to the rule and fudge the numbers even more.

    If you say “we’ll inflate these numbers by 40% to get the real number,” they’ll just fudge by the same factor.

  5. Dan

    Of course, instead of applauding highway engineers for building infrastructure that people want to use, planners castigate them for “inducing demand,” one of the most insane yet strangely persistent ideas ever developed. Any private company would love to find an infrastructure investment that could induce its own demand. But, as even planner Robert Cervero admits, such a thing is pretty much impossible.

    IIRC I have repeatedly castigated Randal for cherry-picking and quote-mining Cervero wrt induced demand, and pointed out Randal’s blatant selection bias wrt induced demand overall. Yet here he is trotting it out again. Shocking, surely. Again.

    DS

  6. Tad Winiecki

    Mike and blacquejacqueshellac have put up private communication satellite systems to improve telephone service as a strawman argument against the government GPS navigation aid satellite system I was writing about.
    A much closer analogy functionally is lighthouses, which were government-run in the USA since at least 1789. See http://www.independent.org/publications/working_papers/article.asp?id=757 for a discussion of lighthouse ownership and feasibility of private ownership and governments’ role in navigation aids. Just as it took an expensive government effort to build the Bell Rock Lighthouse (see http://en.wikipedia.org/wiki/Bell_Rock_Lighthouse) it took an expensive government effort to build the GPS. If there were an organization of ship owners and insurance companies that had enough will and resources the Bell Rock Lighthouse could have been built and operated privately. A private GPS could be built eventually, but we would lose many of its benefits in the meantime.

  7. Mike

    Tad Winiecki,

    You posit a case example using satellites, and we counter with an example using satellites. Not good enough, you say: a proper analogy would be lighthouses. Do you see the problem here?

  8. Tad Winiecki

    Yes, I see the problem.
    The problem is my thinking function and your thinking technology.
    Let’s go back to the original topic, a light rail line. Thinking technology you could say private railroads have been making money carrying freight and they could be profitable carrying people and be more efficient than a government transport organization. History (in the USA and a few other countries) tells us that private railroads were not profitable carrying people and that’s why they stopped doing it. Thinking functionally you would ask what is the most economical way to take people where and when they want to go? If you consider all the costs you would find that personal transport means such as bicycles, motorcycles and small cars are the most economical for most trips in a metro area.
    For another satellite example not related to transport, look at the Hubble Space Telescope (and other orbiting telescopes). It is a NASA project which has greatly advanced astronomy and we would have to wait a long time for a private company to do a similar project because there is small probability of making a profit on such as project. Governments fund and perform basic research because there are long-term benefits for their citizens and the payoff period is too long and uncertain for private investors. Communication satellites have comparatively short payoff periods and have been profitable for decades. Navigation satellite systems have no business plan that I know of to make a profit for their owners, but the equipment manufacturers such as Garmin do make profits and the users benefit from improved safety and productivity.
    I would expect most economists who study private vs public ownership would classify the development, deployment and maintenance of navigation aids such as GPS, LORAN, lighthouses, marker buoys, and NOAA weather satellites as appropriate to the public sector, while the GPS and LORAN receivers would belong to the users.

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