‘Life Cycle’ Budgeting Could Lower Total Infrastructure Costs

Published January 28, 2011

With government cost overruns becoming the norm—and notorious—scientists at the Massachusetts Institute of Technology is proposing a solution.

The examples of such cost overruns are all too numerous:

Boston’s “Big Dig,” which rerouted part of Interstate 93 through a tunnel dug beneath the city and included other road work, was projected to cost $2.8 billion when announced in 1985. By the time it was finished in 2006, nearly $15 billion had been spent. In 2008 the Boston Globe reported the interest payments on the money borrowed for the project could bring the total cost to $22 billion.

That most beloved of government agencies, the Transportation Safety Administration, told us in 2002 the costs of airport screeners to be hired would be $104 million. Within five years the costs had climbed nearly 700 percent, to $741 million.

The project cost estimate for the New-York-New Jersey commuter rail tunnel under the Hudson River grew from $5 billion in 2005 to $8.7 billion when New Jersey Gov. Chris Christie (R) cancelled it last fall, and New Jersey taxpayers could have been stuck paying for several billion dollars of cost overruns on top of that.

Better Understanding
Noting that it’s common for any project run by government to end up costing far more than anyone is told at the beginning, Nicholas Santero argues there is a way to end these . . . deceptions? . . . mistakes? . . . surprises? . . . on many projects.

It’s a process called “life cycle” budgeting.

“There’s a lack of understanding between the actual costs of any project and the consequences of what you do,” says Santero, a research scientist at the Massachusetts Institute of Technology’s Department of Civil and Environmental Engineering. MIT has been gathering research on life cycle assessments to give government officials and citizens more accurate pictures of the true environmental, social, and financial costs of infrastructure projects.

The information is still being polished, but Santero says the preliminary research confirms what many have long suspected: Federal, state, and local governments often lowball estimates. Or they avoid analyses that consider the full impacts, so the financial, environmental, and social costs appear lower than they really are.

Life cycle assessments more thoroughly and accurately present these costs, Santero says. And they can often suggest ways to save money in the long run.

Deeper Look
“If we start looking deeper at these things, there’s always a better way to do something. It takes better analysis at the front end to find ways to hold down costs over the life of the investment,” Santero says. “If we need to improve a bridge or expand a highway, for instance, what’s the best way to do that with the lowest cost and least environmental impact? To determine that, you have to look many years ahead.

“Many times, if we make a different decision in year zero, we may save money years out,” he added. “But we don’t seriously look at impacts 20 years down the road. We’re very poor at looking at the life cycles of this stuff. What to build, how to build, maintenance strategies, user costs, reconstruction, . . . these and other things need to be looked at for the expected life of the infrastructure. Sometimes we might have to spend more at the start to gain in the future.”

For instance, MIT research indicates concrete pavements can lead to big vehicle fuel efficiency savings over asphalt pavements. Over the long run, concrete pavements could have lower total costs as drivers save money on fuel and less pollution goes into the air.

Broader Look
In addition to considering a longer term, life cycle assessment also look more broadly than typical assessments. Santero points out many aspects of a project often are ignored or downplayed. With the Big Dig, for instance, traffic diversions put stress on other roads and bridges not designed for such traffic. Also, traffic delays resulted in lost productivity and wasted fuel.

“In road construction, cost overruns often have a lot to do with prices of materials changing,” Santero says. “Caltrans [the California Department of Transportation] and other DOTs [departments of transportation] are trying to integrate user costs. They’re interested in user delays, how long will they need to shut down roads, and how many cars will be affected. I know there is a push to be more transparent, but there’s not a lot of knowledge about how to do this.

“Eventually, with life cycle assessments, we’ll have a triple bottom line: minimize social, economic, and environmental impacts. No one is doing that at this point. These things are tallied separately. One agency is interested in the environment, another in the financial costs. Life cycle assessment brings the social, environmental, and financial factors together.”

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.