You may have seen the recent article in The Forecaster referring to the “hefty price” of the new Brunswick Town Hall, or as we call it, The McLellan. The article can be found here. It centers around this uplifting passage:
….the new municipal building also comes at a cost, and one far greater than anticipated when the town acquired the former McLellan Building from Bowdoin in 2011.
With renovation of the building nearly complete, the project is now expected to cost approximately $1.23 million, more than 12 times the $100,000 estimate when the building was acquired.
A quick read of the article shows that the number is very likely to climb higher, given the need for additional exterior work of indefinite scope, and a final accounting of total budget impact. Which leaves us truly encouraged for the emerging budget season.
We’re steeling ourselves for at least a 10% property tax increase this year, given the municipal and school department warning shots fired so far. And at least as much in each of the next several years, given plans for two new schools, a central fire station, and that critical town need – an “Aquatic Center.” How did we ever survive without one?
You might also ponder the mention of PDT Architects, our favorite school design and engineering firm, in the history of transforming The McLellan, and how blameless they are, as is everyone else involved in the evolution.
Councilor Dave Watson, a member of the renovation committee, is apparently unperturbed by the cost growth. No stranger to grandiose pronouncements, he offered up this carefully crafted observation:
…the new Town Hall will "provide incredible and incalculable benefits to the citizens of Brunswick."
No hyperbole there! From our vantage point, which is that of a taxpayer, the words ‘incredible’ and ‘incalculable’ are insanely appropriate, but not at all in the sense Watson probably meant them. While we haven’t been able to confirm this, we’ve heard he said Congress mandated we spend this much and more on the building, ‘because it’s close to the Maine Street railroad crossing.’
At any rate, after mulling over this civic snafu, Shirley, Chance, and your correspondent were just hanging, and Chance led us to a several year old article on cost overruns for public projects. You’ll find it at this link:
http://www.weeklystandard.com/Content/Public/Articles/000/000/011/973syeao.asp?page=1
The title and subtitle read thus:
The Next Big Dig?
There's a reason big public projects almost always overshoot their budgets.
We invite your attention to and reading of the article; it won’t take you more than five minutes or so. And don’t let the word ‘big’ deter you, because as you’ll quickly see, the tricks, the pathologies, and the general mischief described apply equally well to very small public projects (say a building renovation, like The McLellan) and even slightly larger ones like the MLF planned by NNEPRA, which with the help of worthy consultants, has grown from $4 million to $12 million and when actually paid for, is likely to be closer to $20 million than to twelve.
Among the pithiest statements in the article are these:
HISTORY SUGGESTS that these estimates are a deception designed to gain early support for a project that will turn out to be much more expensive.
Boston's notorious Big Dig, which put some of Interstate 93 beneath the city, took 20 years to complete and cost about $14.6 billion, the most expensive road project in U.S. history. The original estimate: $2.6 billion. A money sinkhole, the project ruined careers, sprung intractable leaks, and has now roused federal prosecutors.
Time and again promoters of big public projects use low-ball estimates to seduce a gullible public into supporting a project. How does this happen? An important study has concluded that the best explanation is "strategic misrepresentation, that is, lying." (emphasis ours)
Wouldn’t you just know it…an enterprising and intellectually curious academic from Denmark decided to study, analyze, and characterize the phenomenon. He has a decidedly odd name, but don’t let that throw you.
BENT FLYVBJERG is a professor of development and planning at Aalborg University in Denmark, and is founder and director of the university's research program on transportation infrastructure planning. He has twice been a visiting Fulbright Scholar. He and his colleagues studied 258 transportation projects from different eras and different regions. Among the questions they hoped to answer: How common and how large are differences between forecasted and actual costs? Are the differences random or is there a pattern to the differences that indicates other explanations?
The study looked at several possible explanations for cost overruns. The first were technical reasons, and includes mistakes made due to inadequate data, honest errors, and inexperienced forecasters. But if technical reasons were the main cause for the disparities "we would expect a less biased distribution of errors in cost estimates." Significantly, forecasts are heavily biased toward underestimating the final costs. And there has been little or no improvement in forecasting as the decades pass. Gross underestimation today "is of the same order of magnitude as it was 10, 30, and 70 years ago"--which suggests that technical errors are not a significant cause of poor initial estimates.
Psychological reasons were also examined. Flyvbjerg writes, "Politicians may have a 'monument complex,' engineers like to build things, and local transportation officials sometimes have the mentality of empire builders." "But given the fact that the human psyche is distinguished by a significant ability to learn from experience," Flyvbjerg notes, "it seems unlikely that promoters and forecasters would continue to make the same mistakes decade after decade instead of learning from their actions."
In case you were falling asleep as you read, let us wake you up by emphasizing these words:
"Politicians may have a 'monument complex,' engineers like to build things, and local transportation officials sometimes have the mentality of empire builders."
Anything taking place in Brunswick and environs come to mind, readers?
A more credible explanation for the disparities between forecasted and actual costs are economic motives, both public and private.
TRANSIT PROJECTS compete for funding from the federal government. A low forecast makes a project more attractive and less likely to be overlooked in favor of another city's project. Leonard Merewitz of the University of California-Berkeley, has concluded that "keeping costs low is more important than estimating costs correctly." (emphasis again is ours.)
You hardly need to be a PhD at Berkeley to conclude that, Lenny. We read it the other day in a book by Captain Obvious.
And on a private level, promoters and investors may benefit by shading forecasts so the projects will more likely be built. Flyvbjerg says, "Having costs underestimated and benefits overestimated would be economically rational for such stakeholders because it could increase the likelihood of revenues and profits."
Is lying too strong a word? Not according to Martin Wachs, director of the Institute for Transportation planning at the University of California-Berkeley, who in a study in the Business and Professional Ethics Journal showed that "officials on a variety of transportation projects lied to ensure that the projects get built," according to a summary in the Boston Globe. Dozens of officials on a number of projects admitted to lying. "They owned up to the fact that these practices were common," Wachs told the Globe's Raphael Lewis. "But they all said they were common among other companies."
FLYVBJERG CONCLUDES that costs are underestimated in 90 percent of transportation infrastructure projects. For tunnels and bridges, actual costs are on average 34 percent higher than forecast costs, and for road projects the disparity on average is 20 percent. "We conclude that the cost estimates . . . are highly, systematically and significantly deceptive."
The punch line in all of this, which should be turned into a tapestry to be displayed in our new town council ‘chambers,’ is this:
And what do these deceptive numbers mean? "[T]hose . . . who value honest numbers should not trust the cost estimates presented by infrastructure promoters and forecasters," Flyvbjerg says. "[S]eemingly rational forecasts that underestimate costs and overestimate benefits have long been an established formula for project approval."
In our considered opinion, these symptoms and behaviors are independent of project scale. As proof, we recall a recent ‘infrastructure project’ here in town where the beginning estimate was, oh, something like $100,000.
Monuments?
How about monumental incompetence, disdain for due diligence, and refusal to learn from the blatant mis-management right in front of our collective lying eyes? Shirley is familiar with a very recent instance locally, where the town council followed the lead of a self-styled ‘authority’ on environmental regulation to take a stand against due diligence.
As we’ve suggested, other factors could be at play. Not that there’s anything wrong with that, Jerry. Or Dave. Or Suzan. Or Johnny.
PS: on the slim chance that you’re feeling kind of geeky about reading up more on the subject, you can while away your afternoon pursuing these links. As for us, we’re going to watch the Masters, if you don’t mind. Something about hitting the ball until it goes in the hole, and then seeing who took the fewest hits to do it, feels right at the moment. No estimates, no increases, no promises, and no monuments.
http://vbn.aau.dk/files/14076659/Comparison_of_Capital_Costs.pdf
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