With cost overruns on bridge, road and other infrastructure megaprojects in Wisconsin as certain as death, taxes and Packers’ title-run failures, budget hawks are on high alert with new federal money about to inundate the state.
The Infrastructure Investment and Jobs Act is expected to spread an additional $5.4 billion out over the next five years, on top of the $1.4 billion to $2.2 billion in state and federal funding the Badger State has spent annually on highway construction alone.
“For many decades … infrastructure projects and cost overruns have gone hand in hand,” says state Sen. Duey Stroebel (R-Saukville). “While some infrastructure projects have been far more egregious than others, we’ve historically seen cost overruns of 25 to 50 percent for transportation projects and projected benefits that often fail to fully materialize.”
Even The New York Times, often a booster of government spending, warns of “Years of Delays, Billions in Overruns: The Dismal History of Big Infrastructure.”
And along with the waste, 10% — or roughly $540 million — of Wisconsin’s Infrastructure Act money could be used fraudulently, says Stephen Street, state inspector general for Louisiana and president of the Association of Inspectors General.
“There’s built-in fraud with such a gargantuan amount of money,” Street says. “Any time you have that amount of money, it’s almost impossible to oversee every dime… it just can’t be done. There’s not enough personnel, not enough man hours in a day.
“And at the end of the day, it all comes out of taxpayers’ pockets.”
Even the most ardent proponents of big-government spending on infrastructure can’t deny Wisconsin’s sad history of cost overruns:
- The recently completed, six-year project to widen I-39/I-90 from Madison to the Illinois state line, originally estimated to cost $715 million, came in at more than $1.2 billion.
- The cost of reconstructing part of Madison’s Beltline (U.S. Highway 12), initially budgeted for $150 million, now is expected to almost double.
- An expansion of the Babcock Hall Dairy Plant at the University of Wisconsin-Madison was, at last count, more than $33 million over budget.
- A bridge over the St. Croix River between Oak Park Heights, Minnesota, and St. Joseph, Wisconsin, cost $27 million more than its initial $647 million price tag.
The national examples — the Los Angeles-to-San Francisco bullet-train project, $70 billion over budget and counting; and the Big Dig, the highway, bridges and tunnel project in Boston, that ran roughly $20 billion over budget — are legendary.
A study of 258 large transportation projects built between 1927 and 1998 in 20 countries found that 90% of projects were more expensive than expected. Rail projects ran an average of 45% above estimates; tunnels and bridges an average of 34% more expensive; and road projects an average of 20% over budget.
Bent Flyvbjerg, co-author of the study and perhaps the world’s preeminent expert on infrastructure costs, calls it the Iron Law of Megaprojects. These projects always are “over time, over budget, under benefit, over and over again.”
Audit criticizes practices
Wisconsin’s Legislative Audit Bureau (LAB)— an independent, nonpartisan arm of the state Legislature — often has criticized the Wisconsin Department of Transportation’s (WisDOT) budgeting practices for highway programs.
An LAB spokesperson declined requests to answer questions about those criticisms and instead referred the Badger Institute to State Highway Program, a 5-year-old study. Although a bit dated, the report is damning.
The cost of 19 major road projects from 2006 to 2015 totaled about $1.5 billion — roughly twice as much as the original $772 million total estimates.
Another 16 projects underway in 2016 cost $5.8 billion, more than twice the initial $2.7 billion estimate.
WisDOT is not consistently using its performance measures to manage and improve its operations, State Auditor Joe Chrisman said in the report.
“We make recommendations for DOT to use its funds more effectively and improve its management of the state highway program,” the report says. “In addition, the legislature could consider modifying statutes to require DOT to provide it with cost estimates that include all costs associated with potential projects, including the effects of inflation, and to regularly report information to it about the ongoing costs of each major highway project.”
Why are cost overruns so pervasive? “The larger the project, the greater the likelihood the costs of materials, labor and other inputs will change in ways that were not properly accounted for at the front end,” Stroebel says. The layers of bureaucracy, regulations and labor requirements that accompany federal funding for infrastructure projects only add to those costs.
Strong civil service and union protections make it difficult to control labor costs and discipline managers for poor cost estimates, according to a report compiled in 2015 by Chris Edwards and Nicole Kaeding of the Cato Institute.
Steve Hanke, who has been studying infrastructure projects for more than 50 years, lays the blame on bloated government agencies not held accountable for budgeting, planning and cost-benefit errors in the same way as private companies.
Hanke, a professor of applied economics at The John Hopkins University in Baltimore and a water infrastructure specialist on President Ronald Reagan’s Council of Economic Advisers, call it “the bureaucratic rule of two.” A public infrastructure project will cost twice as much compared to a private company doing the same project.
“Private companies build infrastructure all the time that’s on time and on budget,” he says. “They know shareholders don’t want projects coming in late and over budget because that reduces profits and dividends.
“But with government, who cares about cost overruns? They’re irrelevant. Name one politician who gets in hot water because of cost overruns. It just doesn’t happen.”
Stroebel agrees, noting that most privately funded projects that don’t pass cost-benefit muster probably would be abandoned.
“There is no similar built-in corrective mechanism for government projects that run over budget,” he says.
“The politicization of infrastructure spending and decision-making also exacerbates these problems, as bringing home the bacon for one’s legislative district too often trumps the careful consideration of opportunity costs and crowds out the private sector.”
Read more at the Badger Institute.
Ken Wysocky of Whitefish Bay is a freelance journalist and editor.