Thursday, February 18, 2010

No Free Parking

Veronique de Rugy has a revealing piece at Reason Magazine on the history of government cost projections not even coming close to what the projects or programs ultimately ended up costing. She draws heavily on a study of cost overruns prepared by some Danish economists.

Nor is the problem limited to Washington. In 2002 the Journal of the American Planning Association published one of the most comprehensive studies of cost overruns, looking over the last 70 years at 258 government projects around the world with a combined value of $90 billion. The Danish economists Bent Flyvbjerg, Mette Skamris Holm, and Soren Buhl found that nine out of 10 public works projects had exceeded their initially estimated costs. The Sydney Opera House and the Concorde supersonic airplane were the most spectacular examples, with cost overruns of 1,400 percent and 1,100 percent, respectively. Budget busting occurred throughout the seven decades studied, with the totals spent routinely ranging from 50 to 100 percent more than the original estimate.

How did the United States do? According to the Danish researchers, American cost overruns reached an average of $55 billion per year. The table shows a small sample of these boondoggles. The Big Dig, the unofficial name of the Central Artery/Tunnel Project in Boston, Massachusetts, is the most expensive highway project in the history of the country. By the time the project was completed in 2008, its price tag was a staggering $22 billion. The estimated cost in 1985 was $2.6 billion. The Dig also took seven more years to complete than originally anticipated, and it ran into severe construction quality problems along the way.

These blown estimates aren't merely mistakes either:

According to the Danish study, such inaccuracies aren't just errors. They reflect widespread, deliberate lying on the part of public officials. "Project promoters routinely ignore, hide, or otherwise leave out important project costs and risks in order to make total costs appear low," the authors conclude.

Something to keep in mind as we're promised that the health care reform bill will be "cost neutral" by politicians whose track record in such matters doesn't exactly inspire confidence. A table in the article lists nine of the biggest boondoggles including the estimated and actual costs of the project/program. One of the more amusing was the Kennedy Center. The original price tag was tabbed at $18.3 million in 1995. In 2003, the actual cost was $22.2 million. A 21.3% overrun is actually stellar performance by government standards and the project wouldn't seem to deserve a place on the list had it not been for the next item; the Kennedy Center Parking lot. Originally estimated to cost $28 million in 1998, by the time the parking lot was completed in 2003 the "investment" required a cool $88 million. I guess there really is no such thing as free parking anymore.

And these are the folks we want running our health care system so that we can control costs?

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