Cost-Benefit Analysis of Boston’s Central Artery/Tunnel aka “the Big Dig”

1. Cost-Benefit Analysisof Boston’s Central Artery/Tunnelaka “the Big Dig” Joanlin Hsu Shannon McKay Markques McKnight 90-774 April 23, 2003

2. “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. Cerasoli Commonwealth of Massachusetts Inspector General March 2001

3. Overview • History of the Project • Costs • Benefits • Synthesis • Conclusion

4. History of the Big Dig

5. Boston’s Central Artery Dream Source:http://www.bigdig.com

6. Demolition of Boston’s West End & Construction of the Central Artery Source:http://www.bigdig.com

7. Central Artery: Past v. Present Today 1959 Source:http://www.bigdig.com

8. What is the Big Dig? Source:http://www.bigdig.com

9. 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

10. 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).

11. Central Artery: Before & After Before: 2003 After: 2005 Source:http://www.bigdig.com

12. Costs

13. $ 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 Original Cost Estimate: 1982 $ Source: Final Environmental Impact Statement,1985

14. 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 Revised Cost Estimate: 1992 $ 1982 Dollars 1992 Dollars Source:GAO/RCED-95-213R, Central Artery/Tunnel Project

15. 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

16. Final Design $679 Other Consultants 116 Force Accounts 356 Right of Way 94 Program Management 1,712 Police Details 63 PCA (Potential Change Allowance) 831 Construction Contingency 651 Ft. Point Channel 1,268 Central Artery Area (11, 17, 18) 1,206 Area North of Causeway (15, 19) 1,228 Insurance Program 635 Other Construction 2,189 Subtotal 11, 028 Prior to ICE (Interstate Cost Estimate) 255 Air Rights Credit 225 Contract C08A1 Rt. 1A (deferred) 135 Metropolitan District Commission agreement 85 Excluded scope items 261 Mitigation agreements 61 PCA over 11 percent 526 Total Exclusions 1,548 To-go escalation 8/94 to completion 1,215 Total “Apples-to-Apples” BIG DIG forecast $13, 791,000,000.00 B/PB’s December 1994 Forecast (millions $) Source: Office of the Inspector General, Commonwealth of Massachusetts, A History of Central Artery/Tunnel Project Finances 1994-2001.

17. Cost History ($ millions), Part 1aCurrent Dollars of Each Year Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).

18. Cost History ($ millions), Part 1bCurrent Dollars of Each Year Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).

19. Cost History ($ millions), Part 2a1982 Dollars Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).

20. Cost History ($ millions), Part 2b1982 Dollars Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).

21. Reasons for Cost Growth Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).

22. 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

23. Project Escalation: 7 years behind schedule Feb 2005 Dec 2004 May 2004 March 2001 Dec 1998 Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).

24. What will the final number be? “Including interest on debt, interim borrowing, principal repayment, and possible future growth of the bottom line for construction and support contracts, the cost will likely total $18 billion. If the approximately $9 billion federal cap remains in place, the Commonwealth’s taxpayers and toll payers will foot a bill for the remaining $9 billion over the life of the bonds. This sum is equivalent to $1,500 for each of the Commonwealth’s six million citizens.” Robert A. Cerasoli Commonwealth of Massachusetts Inspector General March 2001

25. Benefits

26. What could the benefits be? • Aesthetics/Open Space • Time • Accidents • Air/Noise Pollution • Jobs created

27. 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)

28. Beautification of Boston Charles River Basin Highway corridor East Boston Spectacle Island

29. Benefits of Green Space

30. 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 corridor Source: On Top of The Big Dig: Economic Analysis of the Urban Parks Created by The Boston Central Artery/Tunnel Project

31. What can be counted as benefits?

32. 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

33. 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

34. Annual Economic Benefits of Green and Open spaces Parks Total: $104,856,932Parks and Highway Total: $380,634,629

35. Total Change in Property Values (2000 dollars)

36. Total Change in Property Values (2000 dollars) Source: On Top of The Big Dig: Economic Analysis of the Urban Parks Created by The Boston Central Artery/Tunnel Project

37. 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)

38. 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 (Source: On Top of the Big Dig: Economic Analysis of the Urban Parks Created by the Boston Central Artery/Tunnel Project)

39. Annual Time Savings Benefits From EIR Report (1990) in 1990 dollars (Source: Assessing the Economic Benefits of Boston’s Central Artery/Tunnel Project)

40. 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);

41. Final Calculations (in 1982 Dollars)

42. Synthesis

43. Blame Politics and Money for Cost Misrepresentations Cost Cost Strategic misrepresentation of potential costs via Exclusions Availability of money from Federal government Source: Office of the Inspector General for Commonwealth of Massachussetts, “A History of Central Artery/Tunnel Project Finances 1994 – 2001”

44. InterstateHighwayProgram IntermodalSurface TransportationEfficiency Act (ISTEA) National EconomicCrossroadsTransporationEfficiency Act (NEXTEA) TransportationEfficiency Act (TEA) - 21 Mass. Highway Dept.formerly (Mass. Dept. of Public Works) Mass. TransportationAuthority Mass. Turnpike Authority Mass. Port Authority State Bonds (Issuing authority unknown) Funding came from both the State and Federal governments Federal Big Dig… State Source: “Transportation Infrastructure: Progress on and Challenges to Central Artery/Tunnel Project’s Costs and Financing,” July 1997. GAO/RCED-97-170.

45. The Federal Government Promised to Finance Most of the Big Dig State Funding, 10% Federal Funding, 90% Source: Federal Interstate Highway Program’s Funding Scheme which was approved in the Interstate Cost Estimate

46. Massachusetts has received more than its share of federal funds 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.

47. Uncertain Funding Scenarios for cost overruns affects CB ratios Funding Scenarios of 1996, 2000, & 2003 Costs Estimates Benefit Calculations

48. The Sources for Financing were not completely reliable Source: “Transportation Infrastructure: Progress on and Challenges to Central Artery/Tunnel Project’s Costs and Financing,” July 1997. GAO/RCED-97-170.

49. The Financing was insufficient in each scenario proposed in 1996

50. 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 The 1996 & 2000 Finance Plans had two funding schemes Low Funding Scenario High Funding Scenario 2000 Plan only 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.