Thursday, December 06, 2007

Is Metro's budget train about to derail?

This post is actually not about Metro's FTA problems. Instead, it's about this ominous Dallas Morning News article on DART rail budgets spiraling out of control. A new line from downtown through Irving to DFW airport has a new cost estimate that is almost double the original: from $988 million to $1.8 billion.
DART officials said that project could be delayed and others could be deleted, as the higher costs force it to re-evaluate the scope of its long-range plans.
...

But the impact on the Orange Line may be the least of the changes wrought by its huge cost increase. Other projects – including a second rail alignment in downtown Dallas – could be delayed for years, as DART looks to free up money to pay for the Orange Line.

Mr. Thomas said DART will begin immediately re-evaluating nearly all of its other major projects in the 2030 plan for possible savings.

...

DART officials realized only recently that the cost projections for the Orange Line were badly flawed, Mr. Thomas said.

The Green Line, now under construction, will cost between $60 million and $65 million per mile, more than anticipated. With Orange Line construction still several years away, officials at DART began to worry that its cost estimates were flawed.

Rising costs are nothing new in construction, however. The Texas Department of Transportation has been sounding the alarm for years about soaring costs of raw materials. Costs for highway projects – which use many of the same raw materials as transit projects – have jumped 62 percent over the past five years.

Experts put the blame on a seemingly insatiable demand for new infrastructure in India and China, which together are spending trillions of dollars on roads, rail and bridges.

"This is not a DART problem. It's not a Dallas problem or a Texas problem," Mr. Thomas said. "It's a global issue."

DART estimated Orange Line costs years ago, and used a 4 percent rate of inflation. Mr. Thomas said Tuesday the agency has only just now begun designing the project in detail.

...

Some changes may be necessary to save money, however. Those steps could mean a lower maximum speed – 45 mph – for the trains, and a single track, rather than a double track.

Map and schedule of the DART plan here
Is it possible that the estimates for Metro's new lines are similarly out of date? These lines have the same target dates we do around 2012. One thing in our favor is that our lines are much shorter than Dallas - meaning fewer raw materials to drive up costs. Nevertheless, it doesn't look good. Could they be forced back to BRT? In light of the DART announcement, it would be good to hear some sort of official statement from Metro reaffirming their confidence in their cost estimates.

Later in the article, it talks about privatization options similar to toll roads. Of course, a key difference is that toll roads are profitable, and rail lines are far from it, so it just means a steady stream of subsidy payments to a private builder/operator. Not really sure where the value would be there. My understanding is that Metro is not allowed to issue debt, so this would be a way of getting around that, by having the private operator take on the debt and Metro commits to regular payments. Of course, that liability is just as big a constraint going forward as debt would be, with the taxpayers ultimately on the hook.
"Rail is very different from highways," Mr. Reinhardt said. "The success that we've seen in the highway side is impressive, but it doesn't easily translate in the rail side. Rail is a lot more complicated in every way."
No doubt. One issue immediately comes to mind: it would be no problem to have several different operators operating several different toll roads in a region (just have to have an EZ tag standard), but I would think an interconnected rail network would really need a single operator of both track and vehicles. Sure, you can have competitive bidding for the first phase, but aren't you then stuck with them for all future extensions too? Monopoly lock-in. In which case, you might as well kept it all within the public transit agency all along.

(to clarify: talking about operations and maintenance here. Obviously private contractors should always competitively bid for the actual construction projects.)

Hat tip to Erik for the heads up on the DMN story.

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19 Comments:

At 8:59 AM, December 07, 2007, Anonymous Neal Meyer said...

Tory,

You observations regarding having a single line operator are of interest. In my readings on the history of the London Tube system, this very issue came up many decades ago. Eventually an operational consolidation did take place under government auspices by the 1930's.

Having said that, in 1999 the Blair government then tried to reverse course and have the private sector take over operation of the London Tube system via a public private partnership. Two thirds of the operation went to a consortium called Metronet, composed of two electrical utilities, Bombadier, the Balfour Beatty Group, and a design firm called W.S. Atkins.

Unfortunately, the Metronet consortium threw in the towel early this year. Even a powerful consortium of massive private sector companies could not stomach the huge costs and risks of running and rehabilitation of a 100+ year old subway system under the terms that were being offered by the government. Meanwhile, fares have skyrocketed for those (mostly tourists and visitors) who do not have Oyster cards (the local electronic fare card).

Here are some links of interest:

http://tinyurl.com/2xbd5m

In particular, this is a City Journal article published in August of this year, very succinct and to the point, which should be required reading by everyone on the subject:

http://tinyurl.com/2d949g

For Houston Metro, the subsidies required to operate 70 miles of light rail as per the 2003 Metro Solutions ballot will probably swallow up somewhere around $90 - $100 million per year in operational monies. This will almost certainly make it impossible for the agency to come through on its promise to increase bus service by 50 percent even if the 25 percent GM monies are all returned to the auspices of operating public transportation and not used for road building or other purposes. The agency has already demanded to be allowed to charge SOV vehicles to use the HOV lanes. No doubt other financial schemes have been thought up of for the agency to get its hands on more money.

One final comment. For all of the shouting about the building of rail lines, there is absolutely not talk by anyone - anywhere - about how we are supposed to maintain these large rail systems in the future. Are we supposed to think that the federal government, which itself will be facing the Social Security, Medicare, and Medicaid tsunami soon, is going to bail us out in 30 years when it comes time to rehabilitate rail lines? Never fear, because no doubt every other city is thinking the exact same thing, aren't they?

 
At 12:18 PM, December 07, 2007, Anonymous Anonymous said...

An increase in taxes could partly (or fully) pay for the system. I think Americans have gotten too use to paying low taxes. Compared to Western countries (I'm not sure about developed Asian countries) we have low taxes. I'm not for socialization, but we can't live off credit forever.

 
At 1:16 PM, December 07, 2007, Blogger Tory Gattis said...

There is a "conspiracy theory" making the rounds that believes Metro is building up all this rail, and the associated operating costs and long-term maintenance costs, so that eventually they will be "forced" to reclaim the 25% of sales tax revenue that currently goes to road projects - or face draconian service cuts - boxing local politicians into a corner to give them that 25% back. I certainly hope that's not the case.

 
At 1:34 PM, December 07, 2007, Blogger Michael said...

Tory and Neal,

I mentioned the 60% increase in raw materials in one of our earlier discussions.

Obviously this will impact rail projects. But it would seem to impact highway projects even more. I bet there is more raw material in the I-10 / Beltway 8 interchange than would go into several Main Street Lines. Some of those on-ramps / off-ramps are about a half mile long, and they contain far more material per unit of distance than a rail track.

Another cost is labor, which is also rising dramatically.

And Neal:
>>For all of the shouting about the building of rail lines, there is absolutely not talk by anyone - anywhere - about how we are supposed to maintain these large rail systems in the future.

If anything, maintenance of rail lines would seem to be far less of an issue than maintenance of roadways. After 2012 or 2013, Metro will have what - 60 miles of rail? And how many tens of thousands of miles of roadways in the Houston area that are maintained at taxpayer expense? I agree that maybe in NYC, they will have issues maintaining both infrastructures.

I agree with anon - I am in favor of doing things like (gasp) raise taxes on the rich and upper middle class as opposed to cutting urban transit projects or making inner-city America into one enormous tollway. Hey, Warren Buffet wants to pay more than 15% this year - maybe we should let him.

-Mike

 
At 2:14 PM, December 07, 2007, Anonymous Neal Meyer said...

What most seem to have forgotten is that in the 2003 Metro Solutions ballot language, the agency made a promise that there would be no tax increase imposed to fund the scheme.

Something will have to break - the no tax increase promise, the 50% increase in bus service promise, or a curtailing of the full rail build out. In order to avoid any of these outcomes, the agency will probably have to increase annual fare box recovery from $50 million to somewhere around $150 - $200 million. Unless the agency does in fact multiply its actual ridership (and not just boardings) by perhaps 4 times (and yes, some do use public transportation and do not pay fares), achieving this will be problematic and will require fare increases - a perenially politically hot issue.

So pick your poison gentlemen.

Neal

 
At 8:57 PM, December 07, 2007, Blogger Brian Shelley said...

"Compared to Western countries (I'm not sure about developed Asian countries) we have low taxes."

Well, except Ireland, of course. With a lower tax burden than the United States. Average growth rate of 5.6% for 20 years.

http://workforall.net/EN_Europe_dir
ect_and_indirect_tax_burden.html

In 1985, the Irish per capita GDP was 61% of France and 63% of Germany's. By 2004, it's 106% and 109% respectively. (Penn World Tables). The IMF reports it to be 125% for 2006. This would be like Mississippi becoming 25% richer than California by 2029.

From 1985 to 2004 they cut the size of the government from 54% of GDP to 35% of GDP.

Sure Europe has high tax rates. They also don't realize how far behind they are and how far behind they are going to be.

 
At 10:18 AM, December 09, 2007, Anonymous Royko said...

There is another aspect to this issue.

So as to help hide the true costs of these projects, the management districts and TIRZ's also issue bonds, paid by the taxpayers, to benefit the rail boondoggle.

No one knows what is happening at 1900 Main Street, as it has decayed into an Orwellian-style bureaucracy. The leadership is acting like they are playing a taxpayer-funded Monopoly game, addicted to the euphoria of squandering billions on creating a Utopian urban rail empire.

 
At 5:12 PM, December 09, 2007, Blogger Michael said...

Cost overruns are nothing unique to rail. The Katy Freeway was originally projected to cost $1.5 billion, and is now nearly $3 billion (or possibly over that). Or roughly $130 million / mile.

Why are people so biased and disingenuous about the fairly ho-hum issue of transportation? Do they work for auto dealerships and car insurance companies? I guess in Houston, it's that they all work in oil and gas. But otherwise I would say the "abhorrence of rail" in Houston is an aberration that you would only find here and maybe in the Middle East. I just don't get it.

From Kuff:

http://tinyurl.com/34y5zm

This data is from 2005:
"Auditor John Keel's report notes TxDOT's latest cost estimate is $2.67 billion, up 78 percent from the October 2001 estimate of $1.5 billion. The last estimate released by TxDOT was $2.4 billion.

"TxDOT faces a significant risk that costs will continue to rise above the $2.67 billion March 2005 estimate for total projects costs." Keel warns in his Tuesday report to Rep. Jim Pitts, R-Waxahachie, which was publicly released Wednesday.

 
At 5:34 PM, December 09, 2007, Blogger Tory Gattis said...

This is not a rail vs. roads post. Just noting that the same cost overruns hitting TXDoT and DART may also hit Metro, and asking what the impact will be if it does.

 
At 9:49 PM, December 09, 2007, Anonymous Royko said...

Tory,

I will never understand how some will rant about the cost of the Katy freeway when the discussion is about wasteful urban rail.

The two are not even remotely comparable.

The 7.5 mile "Transit Backbone" is a perverse joke, and a travesty to even consider expanding into an underutilized urban rail empire.

The Katy free way is a portion of one of the nation's key East/West arterials, and is linked to our national defense. There are well over 250k vehicles per day traveling this expressway while it us under upgrade. It supports the local, state, and national economy.

Then we look at the precious taxpayer resources squandered on the toy train.

 
At 11:39 PM, December 09, 2007, Blogger Michael said...

Royko,

You seem to be missing my point. Cost overruns are, if anything, more of a problem for our highway system than for rail - as they require more natural resources, labor, and ROW to build.

The post, and discussion, are not about "wasteful urban rail", but rather, cost overruns in transportation. I am trying to keep this topic honest by mentioning that this problem is not unique to rail, and providing figures from the Katy Freeway project. What is your problem with that? You think the Katy Freeway is worth it, at any cost? Fine, then I think rail is worth any similar cost overruns. My tax dollars and vote are worth every penny of yours.

-Mike

 
At 9:02 AM, December 10, 2007, Anonymous kjb434 said...

Michael,

If you are concerned about natural resources used, the highway system would be a more efficient use. More people will utilize the roads per any unit of natural resources used in construction than the rail.

Also, the cost per mile issue is a silly argument to say rail is better. Again, more volume of people are moved per mile on the freeway than rail can move.

 
At 10:22 AM, December 10, 2007, Blogger Michael said...

KJB,

"More people will utilize the roads per any unit of natural resources used in construction than the rail."

I think if you look at trips per dollar spent for rail versus roadways at an aggregate level (ie - the entire railway system versus the entire roadway system), you would see that rail actually gives you much more bang for your buck. The only problem with it right now, is that the same level of infrastructure does not exist as that of roadways - it is not even close.

The only reason I take I-10 in the morning is we have already spent trillions of dollars on a roadway infrastructure. I would be more than happy to take a train if one existed. My argument is that we are not "pot committed" to our roadway infrastructure. We don't have to keep playing that hand, when other sensible alternatives exist.

"Again, more volume of people are moved per mile on the freeway than rail can move."

Have you not heard of commuter rail?

Again, I am not arguing that the Katy Freeway should not be expanded - although overall I do think it is a waste of money - because it subsidized people to live in Katy and will need to be rebuilt again in 10-15 years. I was just trying to interject some balance into this conversation. After all, the natural resource issue is going to have a far greater and more noticeable impact on the existing roadway infrastructure - in terms of maintenance and expansion projects - especially in places like Houston.

-Mike

 
At 10:35 AM, December 10, 2007, Anonymous kjb434 said...

Michael,

Commuter rail will NEVER EVER be able to supplant expansion of the freeway. Commuter rail will NEVER be able to carry the volumes of people or relieve traffic to stop the needed investment in our road infrastructure. Do I need to scan the pages from my transportation courses in college to detail the calculations that show this? No civil engineer with a transportation background will (in there right mind) promise that commuter rail or light rail will help relieve traffic. Rail NEVER comes out more cost effective.

The offering of rail from the engineering standpoint only serves to give an option to a commuter for travel and has nothing to do with replacing the NEED for roads. On top of that our freeway traffic is no where near the level where commuter rail is effective. Our HOV system moves larger volumes of commuters (through bus and private vehicle) than commuter rail systems in LA, Atlanta, and Dallas. We essentially already have a very effect commuter rail system using the much more flexible bus. I would say this is one of the few successes in METRO.

 
At 10:39 AM, December 10, 2007, Blogger Michael said...

In summary:

We have invested hundreds of billions (if not trillions) of dollars into our roadways in the Houston area.

We have invested a few hundred million into our Metro.

Now the costs are going up, and Tory is asking - what is going to happen to Metro and our roadways?

My point: whatever happens to our roadways is going to be far more consequential than what happens to Metro's rail project, or DART.

The answers for our highways and roadways are either:
- More funding, possibly higher taxes (what I favor)
- More tollways and public-private partnerships (what Tory favors)
- Less likely: Possibly greater reliance on rail (I would also favor this)
- Less likely: Possible public-private partnerships for rail, if we could figure out how to do that (I would also favor this)

The question is not whether we like highways. It is what should our strategy be for roads, and to a lesser extent rail, now that costs are increasing far beyond the rate of inflation.

 
At 10:44 AM, December 10, 2007, Blogger Michael said...

KJB,

>>The offering of rail from the engineering standpoint only serves to give an option to a commuter for travel and has nothing to do with replacing the NEED for roads.

I favor freeway expansion as well as commuter rail.

At some point, I believe freeway expansion becomes much more expensive than it is now (ie - the next expansion of the Katy Freeway). At that point, commuter rail will help to alleviate future expansion needs.

-Mike

 
At 8:55 AM, December 11, 2007, Blogger engineering said...

Tory,
Isn't this fantastic. The time value of money. I am with you. I been asking if METRO has updated its costs since the Main Street rail was done before the Iraq war. Since then construction costs have gone up up to 20% per year. Include inflation (I am told today our dollar is only worth 40 cents) then the picture become very interesting. A very conservative number, 10% per year of inflation and increase construction costs.

 
At 8:58 PM, December 11, 2007, Anonymous Royko said...

Michael,

One should learn from history. Before passenger cars and the free flow of oil at market prices, we utilized urban rail.

Once folks could afford a car, they quickly adopted cars as an ideal transportation mode. So much so, that urban rail DIED, and the systems were scrapped.

The mindless "Central Planning" bureaucrats are trying to force the bus transit dependent onto the urban tram system, causing them to spend more time trying to get somewhere. They either continue to be herded like "sheeple," or they find another (rubber-tired) transit mode to reach their destination.

That's why we have the investment in streets, highways, and expressways which are available for all sorts of vehicles, 24/7.

Then we have the unsafe, unreliable, and underutilized urban rail.

Why revert to 19th century obsolete technology?

 
At 10:58 PM, December 11, 2007, Blogger Michael said...

Royko,

You are looking at the past. Your history is more or less on target, especially when looking at areas like the Southwest.

But I am looking towards the future - and trains are hardly obsolete technology. Indeed, pretty much every major sunbelt city in the US - from Charlotte to Phoenix, LA to Atlanta, Dallas to Austin, Norfolk and Orlando, to Houston - has been investing in and expanding commuter and light-rail systems. This clearly would not have happened in the 1950s. But it's happening now. And it is pretty much a tidal wave of rail - if you stop and think about it. Kind of like how in the 1990's, every obsolete MLB stadium was replaced with something new - the Astrodome gave way to Minute Maid. Someday, 290 traffic headaches will give way to commuter rail - and we can debate it all you want, but I really don't think there is any stopping it. It simply makes sense.

It's not about bureaucrats. Almost all of these new systems are voted on by the people. Again, if people vote for it, and want to pay for it, and want to ride it, what is your problem with that?

A car is also more expensive than it might seem if it carries a price tag of $3 trillion Middle East wars and a military budget in the stratosphere. These, and environmental issues, along with the cost of gasoline, and the underlying issue that moving people one by one in 6*6*10 foot long boxes is about the dumbest way possible you could choose to move mass quantities of people around (ie congestion), are causing more and more people to support rail initiatives. People do not care about partisan political objections to rail. They just want to get to work, do their shopping, go to school, and if rail helps them, and seems like it may be a wise hedge for our future, then so be it.

-Mike

 

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