Friday, July 18, 2008

Big Surprise

After all of the cost overruns and incompetent management it should be no surprise that the Boston Globe reported yesterday that the cost of the Big Dig has ballooned to $22 billion from the previously reported $15 billion:
Massachusetts residents got a shock when state officials, at the peak of construction on the Big Dig project, disclosed that the price tag had ballooned to nearly $15 billion. But that, it turns out, was just the beginning.

Now, three years after the official dedication of the Central Artery/Third Harbor Tunnel, the state is reeling under a legacy of debt left by the massive project. In all, the project will cost an additional $7 billion in interest, bringing the total to a staggering $22 billion, according to a Globe review of hundreds of pages of state documents. It will not be paid off until 2038.
It is not completely clear to me from the article how the accounting works here - are they just adding back all of the interest costs until the principle is completely paid?

Regardless the Massachusetts Turnpike Authority, the agency responsible for maintaining the Mass Pike (I-90) and also the Central Artery (I-93) portion of the Big Dig, currently faces a huge budget deficit due to the interest expense on the Big Dig debt. To deal with this, the agency plans to cut the only discretionary expenses they have - road repairs:
Alan LeBovidge, the turnpike's new executive director, estimates a yawning deficit next year in the authority's operating budget, $70 to $100 million. The capital budget for construction, paving, and inspection for the Big Dig and the 137-mile Massachusetts Turnpike, meanwhile, has been slashed to $22 million, about 19 percent of the debt expense.
So this is really great. A good portion of the tolls collected on the Mass Pike are currently being used pay down the debt on the Big Dig, which has almost nothing to do with the Mass Pike. At least one member of the MTA board makes a sensible statement
"It's outrageous that toll-payers wind up footing the bill when others get a free ride," said Mary Z. Connaughton, a Turnpike Authority board member.
Yes it is outrageous and there is no end in sight if we continue to leave it to the State to deal with this. In my view the state needs to take two steps to deal with this budget issue:
  1. Institute tolls on I-93 north and south of the city - the majority of the debt on the MTA books is associated with the Big Dig construction project, but none of the tolls that the MTA collects come from this portion of road. Instituting tolls that are directly related to the construction will at least end the free ride for the commuters who benefit from the construction but have not paid any of the costs.

    View Larger Map

  2. Look to the private sector to take on the management of the MTA. Tapping private capital to pay down the debt will immediately bring increased efficiency to the operation and decision making process on I-90 and I-93. When both the Mass Pike and the Central Artery have tolls in place the firms operating will have the opportunity for financial gain by bringing their maintenance costs in line with their revenues. Since these firm will, no doubt, be highly regulated when they try to raise tolls drivers will actually be in a better position because today the regulators are the ones raising tolls.
Future posts will delve more deeply into the financial aspects of my proposals. For readers interested in the MTA finances a here is a link.