“big dig files are reportedly missing, computer hard drives have allegedly been destroyed, and...
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Cost-Benefit AnalysisCost-Benefit Analysisof of
Boston’s Central Artery/TunnelBoston’s Central Artery/Tunnelaka “the Big Dig”aka “the Big Dig”
Joanlin HsuJoanlin HsuShannon McKayShannon McKay
Markques McKnightMarkques McKnight90-77490-774
April 23, 2003April 23, 2003
“Big Dig files are reportedly missing, computer hard drives have allegedly been destroyed,
and many documents continue to be shielded from the public by
attorney-client privilege.”
Robert A. CerasoliCommonwealth of Massachusetts
Inspector GeneralMarch 2001
The 3 Major Parts of the Big Dig
• Demolition of Existing Central Artery and Replacement Underground
• Ted Williams Tunnel: Connects I-90, I-93, and Logan International Airport
• Leonard P. Zakim Bunker Hill Bridge: I-93 Bridge over the Charles River
Why Boston Needs the Big Dig
• Alleviate serious traffic congestion
• Eliminate a troublesome eyesore
• Reconnect old neighborhoods
• Create open space in the middle of a historic city
Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).
Original Cost Estimate: 1982 $
$ 2, 564, 000, 000.00
Project Features:• New Charles River
Crossing• Joint Venture Contract• Right of Way/ S. Boston• Extend I-93 South• Tunnel Covers• Utilities Relocation• Workmen’s Compensation• Other
Completion Date: 1998
Source: Final Environmental Impact Statement,1985
Revised Cost Estimate: 1992 $
• Original Estimate: $2,564• Features Added: $471
– I-90 and I-93 HOV Lanes– South Boston Haul Road– Material disposal/
hazardous materials– Deleted interchange– Other
• Scope change to existing project features: $2,151
$5,186,000,000.00
• Escalation to 1992 Dollars: $2,554
• Total estimated cost in 1992 Dollars:
$7,740,000,000.00
1982 Dollars 1992 Dollars
Source:GAO/RCED-95-213R, Central Artery/Tunnel Project
The Game of Exclusion• Connections to Turnpike Facilities: $248.9• Logan Airport: 177.0• State-Only Funded Items: 169.5• Environ Mitigation & Interagency Agreements: 105.7• Transit Authority/Amtrak: 68.6• Surface Restoration: 69.4• Maintenance & Support Facilities: 52.7• Tunnel Fire Testing: 44.6• Scope Deferrals: 18.1• Temporary Facilities: 19.1• North-South Rail Link: 6.3• Other: 29.9
Total Cost (1994 Dollars): $1,009,800,000.0
Source:GAO/RCED-95-213R, Central Artery/Tunnel Project
B/PB’s December 1994 Forecast (millions $)
Final Design $679Other Consultants 116Force Accounts 356Right of Way 94Program Management 1,712Police Details 63PCA (Potential Change Allowance) 831Construction Contingency 651Ft. Point Channel 1,268Central Artery Area (11, 17, 18) 1,206Area North of Causeway (15, 19) 1,228Insurance Program 635Other Construction 2,189
Subtotal 11, 028
Prior to ICE (Interstate Cost Estimate) 255Air Rights Credit 225Contract C08A1 Rt. 1A (deferred) 135Metropolitan District Commission
agreement 85Excluded scope items 261Mitigation agreements 61PCA over 11 percent 526
Total Exclusions 1,548To-go escalation 8/94 to completion 1,215
Total “Apples-to-Apples” BIG DIG forecast
$13, 791,000,000.00
Source: Office of the Inspector General, Commonwealth of Massachusetts, A Historyof Central Artery/Tunnel Project Finances 1994-2001.
Cost History ($ millions), Part 1aCurrent Dollars of Each Year
2,5643,175
4,4365,193
5,7806,443
7,740
10,468
0
2,000
4,000
6,000
8,000
10,000
12,000
1985 EIS 1987 ICE 1989 ICE 1991 ICE 1991 APF 1992 APF 1992 APFw/ NCRC
1994CSU6 w/Inflation
Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).
Cost History ($ millions), Part 1bCurrent Dollars of Each Year
10,841
14,075 14,475 14,625 14,625
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1994 CSU61997
Rebaseline
2000 CSU7 2001 CSU8 2002 CSU8 2002 CSU9
Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).
Cost History ($ millions), Part 2a1982 Dollars
2,5643,175 3,409 3,708 3,963 4,317
5,1875,597
0
2,000
4,000
6,000
8,000
10,000
12,000
1985 EIS 1987 ICE 1989 ICE 1991 ICE 1991 APF 1992 APF 1992 APFw/ NCRC
1994CSU6 w/Inflation
Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).
Cost History ($ millions), Part 2b1982 Dollars
5,810
7,658 7,886 7,972 8,000
0
2,000
4,000
6,000
8,000
10,000
12,000
1994 CSU61997
Rebaseline
2000 CSU7 2001 CSU8 2002 CSU8 2002 CSU9
Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).
Reasons for Cost Growth
15%
8%
7%
5%
3%
2%
5%
55%
Environmental / Mitigation
Scope Growth
Accounting Changes
Traffic
Schedule Maintenance
Contigency for Unknowns
Other
Inflation
Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).
Changes in Cost Assumptions
MHD’s Cost Estimates:– 0% Cost Growth On Design of Future Projects– 10% Cost Growth On Construction Contracts– 2.35% Inflation Rate On Unawarded Contracts
GAO’s Analysis of Historic Patterns:– 18% Cost Growth on Design of Future Projects– 15-20% Cost Growth on Construction Contracts
• Completed at 16 percent• Ongoing at 20 percent
– 3.35% Inflation Rate On Unawarded Contracts
Source: GAO/RCED-96-131 Central Artery/Tunnel Project
Project Escalation: 7 years behind schedule
1994 1996 1998 2000 2002 2004 2006
1989 PMS REV. 1
1990 PMS REV. 2
1991 PMS REV. 3
1992 PMS REV. 4
1993 PMS REV. 5
1994 PMS REV. 6
2000 PMS REV. 7
2001 PMS REV. 8
2002 PMS REV. 9
Dec 1998
March 2001
May 2004
Dec 2004
Feb 2005
Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).
What will the final number be?“Including interest on debt, interim borrowing,principal repayment, and possible future growth ofthe bottom line for construction and supportcontracts, the cost will likely total $18 billion. If theapproximately $9 billion federal cap remains inplace, the Commonwealth’s taxpayers and tollpayers will foot a bill for the remaining $9 billionover the life of the bonds. This sum is equivalentto $1,500 for each of the Commonwealth’s sixmillion citizens.”
Robert A. CerasoliCommonwealth of Massachusetts
Inspector GeneralMarch 2001
What could the benefits be?
• Aesthetics/Open Space
• Time
• Accidents
• Air/Noise Pollution
• Jobs created
Benefit Analysis Methods
Method• Calculated time savings, income generated, and
expansion of employment due to improvement in traffic
• Used 40 year time frame• Used 5% and 10% discount rate
Drawbacks• Excluded benefits from green and open space• Excluded benefits from potential real estate
development
Source: Assessing the Economic Benefits of Boston’s Central Artery Tunnel (2000)
The Grass is Greener
Method• Economic Analysis of the 30 Acres of Urban Parks
(Open Space) Created by the Big Dig• Used Econometric Techniques with change in
property value around the central corridor to determine impact of tearing down highway and replacing it with green space
Drawbacks• Excluded value of potential real estate
development• Excluded benefits from areas if green space in
addition to central corridorSource: On Top of The Big Dig: Economic Analysis of the Urban Parks Created by The Boston Central Artery/Tunnel Project
What can be counted as benefits?Yes No
Aesthetics Property values
Jobs from Project EIR
Time EIR
Accidents No, included in time
Air Noise Pollution No, included in change in property values
Income generated Yes, but scaled down
Our analysis method combined data from two reports
• 40 year time frame for time savings and green space
• 25 year time frame for economic benefits from reduced time travel
• 5% and 10% discount rates• Confidence intervals where appropriate
Source: Assessing the Economic Benefits of Boston’s Central Artery Tunnel (2000); On Top of The Big Dig: Economic Analysis of the Urban Parks Created by The Boston Central Artery/Tunnel Project
Our Analysis Methods (cont’d)
• Calculated price of developed property based on real estate value
• Estimated dollar value of increased jobs due to improved transportation
• Estimated the value of other areas of green space created by the project (Spectacle Island, East Boston, Charles River Basin, etc) using contingent valuation
Source: Assessing the Economic Benefits of Boston’s Central Artery Tunnel (2000); On Top of The Big Dig: Economic Analysis of the Urban Parks Created by The Boston Central Artery/Tunnel Project
Annual Economic Benefits of Green and Open spaces
Parks Total: $104,856,932Parks and Highway Total: $380,634,629
$-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
$300,000,000
Large Parks Small Parks Highway
Total Change in Property Values (2000 dollars)
$1
$1,000
$1,000,000
$1,000,000,000
Condominiums Other Residential Commercial
Total Change in Property Values (2000 dollars)
Condos Other Residential
Commercial
Mean $2968 $917 $160,064
Total $448,493,976 $2,319,346 $866,104,681
Source: On Top of The Big Dig: Economic Analysis of the Urban Parks Created by The Boston Central Artery/Tunnel Project
Annual Wages from Jobs Created
Total Annual Wages = $98,320,745Numbers from EIR report (1990), calculated using REMI model
(Source: Assessing the Economic Benefits of Boston’s Central Artery/Tunnel Project)
-$5,000,000
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
Man
ufact
uring
Constru
ctio
n
Whole
sale
Retai
l
Finan
ce +
RE
Transp
ort/Util
ities
Gov
ernm
ent
Servi
ces
Oth
er
All In
dustri
es
Allocation of Green Space
Willingness to Pay from Survey: mean of $42.91 per acre, standard deviation of $8.3695% Confidence Interval = $26.27 to $59.55
22%
21%
2%
55%
East Boston
Charles RiverBasin
Charlestow n +Fort Point
Spectacle Island
(Source: On Top of the Big Dig: Economic Analysis of the Urban Parks Created by the Boston Central Artery/Tunnel Project)
Annual Time Savings Benefits
From EIR Report (1990) in 1990 dollars
(Source: Assessing the Economic Benefits of Boston’s Central Artery/Tunnel Project)
$0
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
$300,000,000
$350,000,000
$400,000,000
$450,000,000
$500,000,000
Auto Travel Time Savings Truck Travel Time Savings
Net Regional Benefits
• Calculated net regional benefits by estimating income created by project
• Estimated $3.3 million in 1990 • Number should be $9.6 million according to
incremental model, but we use $3.3 million ($2.79 million) because of the strong economy of the 90’s
Source: Assessing the Economic Benefits of Boston’s Central Artery Tunnel (2000);
Final Calculations (in 1982 Dollars)
Discounted Total
5% discount rate $14,280,447,271.10
10% discount rate $8,270,036,232.50
Low and High Estimate at 5%
low estimate $14,286,778,249.50
high estimate $11,471,377,794.10
Low and High Estimate at 10%
low estimate $8,276,353,887.20
high estimate $8,270,051,988.90
Blame Politics and Money for Cost Misrepresentations
Availability of money from Federal government
Strategic misrepresentation of
potential costs viaExclusions
CostCost
Source: Office of the Inspector General for Commonwealth of Massachussetts, “A History of Central Artery/Tunnel Project Finances 1994 – 2001”
Funding came from both the State and Federal governments
Big Dig…
InterstateHighwayProgram
IntermodalSurface
TransportationEfficiency Act (ISTEA)
National EconomicCrossroads
TransporationEfficiency
Act (NEXTEA)
TransportationEfficiency
Act (TEA) - 21
Mass.Highway Dept.
formerly (Mass. Dept. of
Public Works)
Mass. Transportation
Authority
Mass. Turnpike Authority
Mass. Port
Authority
State Bonds(Issuing authorityunknown)
Federal
StateSource: “Transportation Infrastructure: Progress on and Challenges to Central Artery/Tunnel Project’s Costs and Financing,”
July 1997. GAO/RCED-97-170.
The Federal Government Promised to Finance Most of the Big Dig
Federal Funding, 90%
State Funding, 10%
Source: Federal Interstate Highway Program’s Funding Scheme which was approved in the Interstate Cost Estimate
Massachusetts has received more than its share of federal funds
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
1993 1994 1995 1996 1997 1998 1999 2000
Mass. % of Total Federal Funds
Mass. % of US Population
Based on: VanHorn, Jason. “The Big Dig: Trying to Fill in the Hole Left Behind.” December, 2001.
Uncertain Funding Scenarios for cost overruns affects CB ratios
Funding Scenarios of 1996, 2000, & 2003
Costs Estimates Benefit Calculations
The Sources for Financing were not completely reliable
1996
Sources of financing Reliable?
Federal Yes/No
State Bonds Yes
Mass. Port Authority Yes
Mass. Turnpike Authority Yes
State bonds (by MTA) Unknown
Source: “Transportation Infrastructure: Progress on and Challenges to Central Artery/Tunnel Project’s Costs and Financing,”
July 1997. GAO/RCED-97-170.
The 1996 & 2000 Finance Plans had two funding schemes
• Assumed that Massachusetts’ federal apportionments reduced immediately to $450 million/year – this is a loss of $381 million/yr
• Growth in costs would be $500 million
• Assumed that Massachusetts’ federal apportionments reduced incrementally from $600 to $450 million/year
• Growth in costs would be limited to $100 million
• Uses credits from Insurance and Air Rights revenues to offset costs
• Utilizes “advanced construction,” more aggressively
• Reduced (monetary) losses and good safety recorded documented as savings
Low Funding Scenario High Funding Scenario
Source: “Federal Task Force on the Boston Central Artery Tunnel Project: Review of Project Oversight & Cost,” March 2000.“Transportation Infrastructure: Progress on and Challenges to Central Artery/Tunnel Project’s Costs and Financing,”
July 1997. GAO/RCED-97-170.
2000 Plan only
The 2003 Finance Plan (finally) reflected the real costs of the project
Previous Finance Plans 2003 Plan
Had numerous exclusions Ceased “excluding” costs
Realized credits after project completion
Only realized credits during time horizon of project
Mass. minimized its role Mass assumed responsibility where necessary
Projection: $10.8 billion Projection: $14.6 billion
Source: Federal Highway Administration, “Report on the October 2002 Finance Plan for the Central Artery/Tunnel Project.” Report Number IN-2003-039. March, 2003.
In the beginning, Costs were “justified”
Note: Figures are in nominal dollars
2.5
3.93.2
9.1
0
1
2
3
4
5
6
7
8
9
10
1985 1990
Billions of Dollars
Cost
Benefit @ 5%
Source: Assessing the Economic Benefits of Boston’s Central Artery Tunnel (2000)
The uncertain (and unlikely) funding scenarios decreased the CB ratios
Note: All figures are in 1982 dollars
0.18
0.39 0.41
0.560.66
0.31
0.67 0.7
0.96
1.14
0
0.2
0.4
0.6
0.8
1
1.2
1985 1994 1996 2003 2003(incl.int.)
5% discount
10% discount
Based on data previously stated
“This pro/con analysis resulted in the Big Dig officials apparently
not disclosing the facts because of possible negative political
reactions and press reports, and the potential for increased
scrutiny of the Big Dig.”
Robert A. CerasoliCommonwealth of Massachusetts
Inspector GeneralMarch 2001