The theory is that a life-cycle analysis will look ahead at all future costs, not just the initial cost, of transportation projects. At first glance, this sounds great. Most transportation fixed infrastructure needs to be replaced every 30 years or so, and rolling stock needs even more frequent replacements. Transit agencies tend to look ahead only 30 years, thereby pretending that such replacements are not needed.
The first clue we need to be suspicious of life-cycle budgeting is that its advocates overpromise the benefits. For example, they claim life-cycle budgeting could have prevented the kind of cost overruns experienced in the Big Dig or the now-cancelled Hudson River tunnel.
Spin me another one. Cost overruns take place because some of the costs were unforeseen (possibly because planners didn’t want to see them). Simply looking further ahead at the costs does not give planners any better crystal balls (especially if they didn’t want to see those costs in the first place).
The second problem with life-cycle budgeting is that its advocates want some sort of federal law imposing it on transportation agencies. “Congress should investigate life-cycle budgeting for infrastructure,” says one article. Just what those agencies need: more red tape consuming scarce transportation dollars and delaying needed transportation projects.
The real problem with federal transportation spending is that Congress has split federal funds into 40 or 50 pots of money and greatly restricted how state and local agencies can spend from each pot. If Congress puts out a pot of $10 billion or so that can only be spent on rail transit, requiring a city to analyze whether rail transit is the best of several alternatives will only insure that the analyses are warped.
Better incentives are the solution, not more bureaucracy. Congress should give state and local governments more flexibility in how to spend the money, combined with incentives (see pp. 7-8) to insure the money is effectively spent. Then it can let the agencies themselves decide what kind of analyses they want to use in making their decisions. If they decide to use life-cycle budgeting, fine, but if not, the truth is that any costs after 40 years or so, when discounted back to the present, are simply not as important (and are far less predictable with any degree of accuracy) as near-term costs and benefits.