Fiscal Sanity

Have you ever watched the cost of a public project rise and wondered what the people in charge were thinking? The biggest example is Boston's Big Dig which ballooned from a $2.7 billion project to one that cost $22 billion (including $7 billion in interest). Even Barney Frank joked that it would have been "cheaper to raise the city than to depress the artery."

A couple of miles from where I sit in a smaller example - a bridge. Had the bridge been built similarly to a nearby one that was completed in 1992, it would have cost $10 million. Instead the mayor chose a slanted arch bridge that was estimated to cost $20 million. Estimates quickly rose to $40 million and the final cost was $60 million.

New Jersey was faced with a similar cost jump. A project to double the size of a railway tunnel between New Jersey and New York City went from $8.7 billion to $11 billion or possibly even $14 billion. Governor Christie canceled the project saying that he did not know how the state could pay for the additional cost.

Naturally the left is up in arms, complaining about the number of jobs (paid for by the government) were lost. Paul Krugman wrote an entire column on it with out mentioning the increasing costs.

So last year the project began. Of the $8.7 billion in planned funding, less than a third was to come from the State of New Jersey; the rest would come, in roughly equal amounts, from the independent Port Authority of New York and New Jersey and from the federal government. Even if costs were to rise substantially, as they often do on big projects, it was a very good deal for the state.

Notice that he only gave the original cost, not the increases. At what point does it stop being a good deal for the state? How far should government officials allow projects to go before pulling the plug? Given historic cost creep, the final cost could have been much higher than $14 billion.

Krugman is only one example of the reaction. Most of the news coverage has focused on lost (government) jobs, not on how the State of New Jersey is supposed to pay for these increases during the Great Recession.

Cost overruns happen on big projects so often that one is tempted to suspect that they are built into the system. You give a low estimate for a project knowing that once it is underway there will be substantial political pressure to continue it regardless of the cost. In fact, the higher costs mean more (union) jobs so some people see cost overruns as a good thing. The rest of us see them as a poor use of public funds.