Monday, December 26, 2022

2022 Highlights

Hope everyone survived the arctic blast for the holidays.  Time for our annual round-up of the best posts of 2022, with this year featuring more great posts from Oscar than from me. If you missed them earlier this year - or just didn't have time to read them then - hopefully the holidays are a more leisurely time for perusal. 

I'd also like to thank MyBestPlan for their ongoing generous support. They always have the best and cheapest electricity plan for your Texas home. They have saved me a ton of money on electricity, and I suggest you contact them for a free, no-obligation savings estimate. Mention “HS” so they know you’re with us.

These posts have been chosen with a particular focus on significant ideas I'd like to see kept alive for discussion and action, and they're mainly targeted at new readers who want to get caught up with a quick overview of the Houston Strategies landscape. I also like to track what I think of as "reference posts" that sum up a particular topic or argument; and, last but not least, they've also been invaluable for me to track down some of my best thinking for meetings or when requested by others (as is the ever-helpful Google search).

Don't forget we offer an email option for the roughly once/week posts - see the Google Groups subscription signup box at the bottom of the right sidebar. An RSS feed link for newsfeed readers is also available in the right sidebar (I'm a fan of Feedly).

As always, thanks for your readership.
And don't forget the highlights from the first few years. For what it's worth, I think the best ideas are found there, often in the first year (I had a lot "stored up" before I started blogging) and most definitely in the best posts from the first 15 years and 1.5 million pageviews.


Tuesday, December 20, 2022

Update: TxDOT highway construction inflation

This week we have another always-excellent analytical post from Oscar Slotboom.
In July I blogged about the cost of highway and transit construction in Houston, and I mentioned that highway construction costs were showing a sharp upward trend, consistent with infrastructure cost increases nationwide.
More data became available at the December TxDOT Commission meeting with a presentation on the subject of inflation. Video of the presentation and discussion is online, agenda item 6B. The screenshot below from the presentation shows that between September 2021 and October 2022 the Highway Cost Index (HCI) increased by 27.6%, with most of the increase occurring between March and October. During this period the consumer price index was up 8.6%.
All projects receiving bids have an estimated cost in the TxDOT UTP, which schedules projects based on available funding. As reported at 1:29:30 in the video, bids for the period Sept 2021 to Dec 2022 exceeded the UTP estimate by $1.9 billion.
In recognition of the inflation, TxDOT raised the estimates of project cost above the UTP estimate. They call this "mark to market". However, if you look at the following chart in the presentation, low bids (orange bar) are also exceeding the "mark to market" letting estimate (gray bar).
As discussed at 1:34:00, the revised project costs for the remaining eight bid lettings for fiscal year 2023 is $8.5 billion compared to $7 billion in the UTP, for an expected cost increase of $1.5 billion.
As noted at 1:30:20, bids are exceeding estimates the most on large projects which have long construction periods. It is believed that contractors are bidding high to protect themselves in case inflation remains high during the multi-year timespan of large projects. That's a well-known problem with inflation. When it becomes established and embedded into people's behavior and thinking, it becomes more difficult to bring the inflation rate back down.
No Houston projects have been affected so far, mainly because there have not been any large projects in metro Houston which received bids in the last 6 months. At the December meeting, TxDOT rejected a $510 million low bid on a large project on Interstate 30 northeast of Dallas which was 23% above the mark-to-market estimate of $414 million.
So far, TxDOT has been able to use reserve funds to cover the inflation for most projects, with the Dallas project the only major casualty. But reserve funds won't last forever. Unless prices go down, there will be consequences, mainly projects being delayed or placed on indefinite hold as available funding can no longer cover the cost of planned projects. As for NHHIP, it was originally estimated at $7 billion, then upped to $9 billion, and the report of Monday's local agreement is now listing it at $10 billion. The 20-month delay has pushed back the start for years. The first project (I-69 in Midtown) is listed for bidding in June 2024, and the first very large job (over $1 billion), Interstate 10 on the north side of downtown, is currently listed for bidding in 2027. Of course those dates are subject to change, and the cost when bids are received years in the future is dependent on future values of the HCI.
The good news is that TxDOT officials are optimistic the inflation rate has peaked and is now in a downward trend. The HCI is a lagging indicator. As is visible in the first chart, it started to go up after the CPI started to go up. Now that the CPI has been flat for several months, the HCI should follow the same path within a few months. And if highway construction contractors can get confidence that their costs are under control, the all-important psychological influence may start to be more favorable for better bid pricing.
There's no readily available data for public transit construction cost, but it's virtually certain that costs are up by a similar amount for Metro's priority projects, the Inner Katy BRT and the University Line BRT. I'm not aware any official updated cost data for Metro projects. Recent online reports (1, 2) have focused more attention on the absurdly high cost of building rail transit in the United States. Metro's Red Line north extension appears to be years in the future, after the priority projects. When we get a new cost estimate for these three projects, we can expect a big increase.


Sunday, December 04, 2022

Should METRO reconsider eliminating transit fares? (again)

Back in 2019 I laid out the case for METRO to eliminate transit fares and essentially be free (and Bill King did it way back in 2008). which they considered but ultimately decided against. Since then we've had a pandemic that has devastated transit ridership nationwide, and momentum is building around the country for more transit agencies to eliminate fares to raise ridership and speed up trips.  Kansas City has been very successful with it, and now DC is moving ahead (hat tip to Jay). 

Houston could totally do this since fares are such a small part of their revenue (maybe 3% at this point?). And it would be especially good now because Metro is looking at a huge contract to upgrade its payment systems – all that could be completely saved! But the counterargument completely ignored in this piece is homeless semi-living on the buses, which drives off other passengers. 

I think the solution to homeless would be to kick everybody off at the end of every route before turning around. The question is how hard would that be to enforce by the driver? It might take a few months of stationing transit cops at key places to enforce and build the routine. Another option would be like with driver's licenses: you have a transit pass, and it can be revoked or suspended at any time for violations. Nobody boards without a valid transit pass. Or something similar could be done with facial recognition cameras so people don’t have to carry a transit pass, but suspended riders could be identified.

So there are options for minimizing the downsides of free transit, but METRO would have to be willing to be bold and innovate and experiment. It's potentially the second-best initiative METRO could take on (after a true moonshot of aspiring to offer half-hour or less express trip times from every park-and-ride and transit center to every major job center and both airports using a network of MaX Lanes in collaboration with TXDoT and HCTRA, with vehicle size and frequency tailored to demand).

If new METRO board chair Sanjay Ramabhadran and the rest of the Board are looking for a way to leave an amazing legacy to Houston and METRO, either or both of these would definitely fit the bill!

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