bigdig_finalslides

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

Overview

• History of the Project

• Costs

• Benefits

• Synthesis

• Conclusion

History of the Big Dig

Boston’s Central Artery Dream

Source:http://www.bigdig.com

Demolition of Boston’s West End & Construction of the Central Artery


Central Artery: Past v. Present

1959 Today


What is the Big Dig?


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).

Central Artery: Before & After

Before: 2003 After: 2005


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


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


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


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


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


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


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.”



Benefits

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)

Beautification of Boston

Highway corridor

East Boston

Charles River Basin

Spectacle Island

Benefits of Green Space

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

Synthesis

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,”


The Financing was insufficient in each scenario proposed in 1996

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,”


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

Conclusion

“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.”



Lessons Learned

• The discount rate drastically makes this project look less and less attractive

• Politics can make anything feasible and beneficial

• Cost-benefit analysis is an imprecise tool

bigdig_finalslides

Documents

central artery source

cost history

inflation source

total cost

big dig files

apples big dig forecast

ice interstate cost

revised cost estimate