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Tuesday, September 15th, 2009

Chicago Transit: From Good to Great, Part 3 – Cost Control, Governance, the Racquet

Continuing my series on taking Chicago’s public transit system to the next level, I wanted to address a few miscellaneous topics before moving on to the matter of how to pay for it. For those of you who did not see them already, click through to read part one on building the vision and part two on raising the bar on design.

Cost Reduction

I mentioned in my previous installment how we need to raise the bar on the design of the system. While some of this would be nearly free, other items, particularly L stations, would appear to legitimately cost a lot more money to do right. How do we reconcile this?

In the spirit of Burnham’s “more study, not more money” quote, I’d like to suggest we need to take a serious look at how to drive step-change reductions in the cost of heavy rail projects. Consider this: the proposed Red Line extension to 130th is 5.3 miles and $879 million – a cost of $163 million per mile – nearly $21,000 per new daily rider. This is for a line with limited ROW needs. And my numbers are very generous, since they are current year, not construction year numbers, and they exclude a $200 million yard reconstruction that is part of the project. Frankly, at those rates, highway investment actually starts to look like an attractive option. IDOT’s Dan Ryan reconstruction, which included adding a lane south from 67th or so to 95th, was about the same the cost as this proposed extension.

The proposed Orange Line proposal is even more expensive on a per unit basis. It is $455 million in current year dollars for 2.26 miles – a cost of $197 million per mile. This is for 7,800 new boardings per day, or over $57,000 per boarding (likely around $100,000 per passenger assuming most people make round trips).

I’ve read of estimates up to $4 billion to renovate the North Main embankment. Just that segment would cost more than the Kennedy reconstruction + the Stevenson reconstruction + the Dan Ryan reconstruction + the Kingery reconstruction and widening + the recent resurfacings on the Edens and Calumet Expressways + the Ike bottleneck reconstruction from a while back – all combined.

I’m not saying anyone is making these up or anything, but the numbers themselves just seem way out of line.

Let’s consider some rail transit construction costs from around the world. Seoul, Korea is building a heavy rail route called the New Bundang Line as a public/private partnership. It will cost 1.1809 trillion won ($966 million) for 18.5km (11.5 miles). This is a cost of $84 million per mile – far less than Chicago’s expansions. And the New Bundang line is partially underground, requiring tunneling, and is a fully automated, driverless system with state of the art technology too. Read more here.

Madrid too has a much lower cost approach. Its Metrosur line (admittedly opened in 2003) was euro1.55B ($2.25B) for 40.5km (25 miles), including 29 new stations, six of which permit transfers with commuter rail. This is $90 million per mile, again, far less than Chicago’s proposed expansion even if you inflate the numbers to current dollars. Again, this included extensive tunneling (full on boring, not just cut and cover) in terrain where that was very difficult. See here for more info on the line, or this excerpt from an article titled simply, “Madrid confirms its low cost approach“.

It seems like every time I read about a metro line outside the United States, except in the UK, it is way cheaper than we can do. I don’t think there’s anything unique to Chicago about this. We seem to have a system in the US that significantly inflates the cost of construction vs. the rest of the world. Many of the typical complaints as to why this might be would seem to have no merit. Other countries are heavily unionized and regulated, for example, so don’t blame organized labor. (South Korean unions are famously militant). Spain is not exactly a low cost country. And basically all new systems world are fully compliant with equivalents to the ADA.

Any dollar we can take out of the cost of these systems is found money. It can either be invested back into quality of design, used for more projects, or returned to the taxpayers and riders.

I would propose that we create some sort of a task force with a mandate to drive significant reductions in the cost of construction – I’m talking a target of 25-50% or greater. This would include the CTA and FTA, but also outside experts brought in from overseas and from outside the fairly small circle of US transit consulting firms. US engineering firms need to be included, but frankly outside leadership and new seats at the table are going to be needed to really drive new thinking. We need to examine every aspect of these systems. What is the minimum we are legally required to build? What requirements are driving excess construction costs versus overseas systems and can we eliminate them? Are there new techniques such as pre-fabrication that could drive large savings? Can we pool purchasing with NYC or elsewhere? Can off the shelf systems be used where possible instead of bespoke (admittedly, maybe difficult in an other legacy system like Chicago)? Can we use more grade level construction and street crossings instead of expensive elevated construction and viaducts? What could we do with public-private partnerships? There would appear to be all sorts of things that could be investigated as means of materially reducing the cost of the system. Some of them might require legal or regulatory changes, but given the dollars at stake both locally and nationally, it is worth fighting that fight.

Again, we need an aggressive target for cost savings and incentives to drive results. At a minimum, someone should be able to detail why our costs are so much higher than the rest of the world’s as right now there is no prima facie reason evident.

Regional Transit Governance

Chicago has three more or less independent transit service boards: the CTA, Metra, and Pace. The RTA provides financial oversight and is also chartered with coordinating these agencies. It’s been long noted that in fact the three agencies mostly don’t cooperate that much, and there are frequent turf battles, etc.

I think a bit of this is overblown. I don’t subscribe to the idea that a lack of integration between the CTA and Metra is a major barrier to improved transit regionally. Would integrated fares and more coordinated schedules help? Sure, but that’s not the secret sauce to really moving the bar.

However, the various turf battles do lead to challenges on occasion, and the fact that these agencies are so independent in their operations leads to bad “optics” and provides ammo to those who would oppose change in the region. It’s like when the CTA had a bus on Lake St. Regardless of the merits or lack thereof of that route, it was really minor in the grand scheme of things. But it was always something people could point to as an example of misplaced priorities. (“As long as the CTA has a bus running underneath the L, I’ll never take them seriously” and such). It plays into the whole “gotcha” mentality of politics.

So this is something we should probably take a look at while putting together that vision. And there are some legitimate items that need to be addressed. Again, I won’t be prescriptive as to what that more integrated vision is, or how governance would change, just say that it ideally ought to be part of the discussion.

Unfortunately, this is likely to be the most troublesome aspect in many ways. Consider this: the CTA carries 80% of the region’s transit ridership. But the CTA gets far less than 80% of the money. This is true of the RTA tax, the stimulus, the recent capital bill, etc. Someone labeled my winning entry from the Chamber of Commerce competition as “suburb infuriating”. Actually, I’m not anti-Metra. I think they are a fantastic agency and love riding Metra trains. In fact, I budgeted for heavy increases in Metra ridership and significant investment in that system in my winning entry. The but the fact remains that the lion’s share of the region’s transportation ridership is on the CTA. All service boards aren’t created equal.

For their part, Metra also has some legitimate complaints. They’d no doubt say that since they carry passengers over longer distances, passenger-miles, not passenger counts is the best measure. There’s something to that. (Though I’d argue it leads to certain perverse outcomes such as rewarding service to far exurban areas like Elburn. Why are we using precious transit dollars to subsidize non-transit oriented sprawl developments even further from downtown?) Also, Metra provides significant service in the city, but doesn’t receive any of the RTA sales tax in the city. It should come as no surprise to anybody that their service priorities follow the funding. And Metra is arguably the long pole in the tent when it comes to feeling the pain of transit underinvestment. As Metra trains get more crowded and turn into standing room sardine cans, this is going to very negatively affect the perception of the Loop as a business destination. It won’t take that much ridership growth to get there.

So there is a lot to consider here and it will obviously be something difficult to pull of politically, but a challenge that should be tackled along with the rest.

The “Racquet”

Lastly, I received an email followup to part one of this series from someone who had some interesting insights as to offer about why Chicagoans don’t seem to demand better transit. Presented here in an anonymized fashion.

Your discussion of what Chicagoans want or are willing to pay for vis-a-vis world-class mass transit reminds me of a concept I learned in the early ’90s.

The concept is “Racquet”. I learned of it related to organizational behavior but it sounds like the inhabitants of Chicago may have a racquet as well. A racquet is when folks have something they complain about and commiserate about but don’t fix it. Upon delving into the roots of racquets one finds that the folks don’t really want it fixed – the subject of the racquet is a unifying force that if corrected will remove the common complaint and thus the unifying force. The cultural changes that would ensue from the change in practices that “no one wants” are not acceptable to the people (the complainers).

I worked for a rapidly growing company in the early 90’s. We were a company with many cowboys. We (the top 70 leaders in the company) commiserated on any number of things. The CEO hired two consultants to help “transform” the company into a modern, international company with cohesive leadership. They introduced us to the “racquet” theory. In corporate organizational behavior, it is important to break the racquets. It is also difficult. But, I imagine far easier in a company with some semblance of common objectives that it would be in a each-man-for-himself city.

More Chicago

Chicago Transit: From Good to Great
Part 1: Building the Vision
Part 2: Raising the Bar on Design
Part 3: Cost Control and Governance (this post)
Part 4: Paying For It
Part 5: Getting It Done

Other Transportation Related Articles
The Urbanophile Wins Chicagoland Chamber of Commerce Transit Competition
Transportation and the Burnham Plan
Metropolitan Linkages (high speed rail benefits case)
High Speed Rail (implementation)

10 Comments
Topics: Transportation
Cities: Chicago

10 Responses to “Chicago Transit: From Good to Great, Part 3 – Cost Control, Governance, the Racquet”

  1. Alon Levy says:

    First, Seoul's new subway line may well suffer from rampant cost overruns. This is what happened to Tokyo's last two subway lines, whose high costs, $250 million per km and $400 million per km, have caused Tokyo Metro to decide to stop building new lines. Deep-underground construction and new technology often incur cost overruns.

    Second, Seoul may be more unionized than Chicago, but it's also poorer. Not adjusted for living costs, its per capita income is about half of Chicago's.

    Third, pooling anything with New York won't help reduce costs. New York already pools purchases with itself (it's much bigger than Chicago, so it won't get additional benefit from pooling), and its subway construction costs stand at $1.7 billion per km right now.

  2. J.D. Hammond says:

    Seconding what Alon Levy said, to say that other countries are unionized or even quite highly-developed doesn't necessarily negate the fact that in Korea (or even Spain), dollar-for-dollar wages are significantly lower than they are in the United States.

  3. VivaLFuego says:

    Other countries also don't have nearly the same level of public involvement (the "planning" process) as exists here. This adds not only many years to the process (increasing the eventual year-of-expenditure cost due to inflation), but also adds to the cost of the project due to the various environmental mitigation steps that must be incorporated into engineering and design in order for the project to move beyond the planning stage in the first place. Anecdotally (I don't have handy examples to cite), these planning processes alone can inflate costs by 20-50% depending on the project. Most countries have stronger central governments that just build, rather than go to the citizenry every time for permission to pee =)

    Another somewhat simple point is to be careful about comparing project costs: there is first the question of present-year vs. year-of-expenditure (YOE) dollars, and secondly the question of whether the cost is "fully burdened" with soft costs like planning, design/engineering, and construction management.

    The former distinction can add, well, compounded construction cost inflation. If you assume inflation of 3%, then a project being initiated now but with most of the actual dollars spent in 8 years could have a YOE 30% higher than in current year dollars.

    The latter distinction is, again, usually in the 20-30% range depending on the nature of the project and the extent of soft costs involved.

    So compound the inclusion of soft costs and the use of YOE dollars, and you've got a project cost that is probably at least 50% higher than a present-year hard cost estimate.

    I will note here that US transit project cost estimates, per federal guidelines, are given both fully burdened and in YOE dollars.

    Is the same true for Madrid, Seoul, etc? I don't know, but it's a crucial question.

  4. Ironwood says:

    Will need to read a couple more times to fully digest this post, third in a great series. But must say, from the first three comments, that your suggestion for a study on how to reduce costs is a good one. You're already getting the type of good feedback that may, along with other data points, systematically charted, begin to isolate the cost factors that can actually be influenced.

    Are you getting any meaningful input/feedback from anyone at the CTA yet?

  5. ardecila says:

    One interesting explanation I've heard is that construction costs tend to be lower in countries with socialized medicine, since the total compensation paid out to construction workers and engineers is substantially lower when it's not weighted down by healthcare costs.

    Also, in the US, property rights tend to be much stronger than in Asian or European countries, which boast more communitarian societies. Here, a single takings procedure can delay road construction or transit for years, if the property owner has a decent lawyer. The planned Oakton station in Skokie, for example, is still bogged down in litigation with an uncooperative landowner at the station site.

  6. The Urbanophile says:

    Thanks again for great comments. I love you people.

    Ironwood, the CTA has been very open to any input I've sent them. I've never had them give me any grief on anything. I'm probably jumping the gun to the next installment, but the problem of transit in Chicago is a problem of public demand and also requires solutions that take place in the political arena, not inside the CTA. Yes, the CTA could be improved, but it frankly does not control a lot of its own destiny. Changing the rules that drive up cost may be outside of their control, they have no control over any material revenue lever but fares, etc. Plus, they are struggling to operate with a collapsing revenue stream and an aging system. I suspect that the focus is heavily on the now, not a bunch of longer term, uncertain strategic change initiatives that the CTA staff can't drive in any case. I think the CTA is open to any reasonable idea that you send them. But a lot of the fundamental change has to be initiated from elsewhere.

  7. The Urbanophile says:

    JD,

    I have done extensive business in Spain. While this was not in the construction sector, I can't imagine the ratio of construction sector to other wages is that out of line versus other countries. I've got intimate knowledge of payrolls in Spain, including by person exact loaded and unloaded costs. I also ran the project that implemented our system for compensation planning, which includes Spain. I can say for certain that at least as of the last few years, while Spain is less expensive than the US, it is not 50% less. In fact, we fully classify Spain as a high cost location to do business along with all other developed nations. Clearly South Korea is a different story. But a lot the costs are not country specific (e.g., cars, signaling equipment) in terms of cost.

    ardecila,

    There is no such things as free health care. Countries with government run systems include hefty social charges on wages paid by employers to finance it. There are also many other generous and costly European benefits, such as many weeks of vacation. In Spain, for example, most major Catholic feast days are public holidays.

    As for property rights, there is no doubt that we are a strong property rights country. I'm not going to say that's a bad thing. I'm not the expert on Illinois, but I do know many states offer "quick take" condemnation for items such as transport projects whereby the state can acquire the land, then the price is set later, in court if necessary. This is something that's well within the state's power to get right.

  8. The Urbanophile says:

    First, for those of you who don't know, ardecila and VivaLFuego are both super-knowledgeable about public transit. Look for them at a message board near you.

    I tried to bend over backwards to get the lowest possible number to make the comparison as favorable as possible to the US. For both the Red and Orange Line projects, I used 2009 dollars, not year of construction. And for the Red Line I excluded the non-New Start yard replacement. These numbers came directly from the Locally Preferred Alternative Reports. Not sure if they are fully burdened or not, but I suspect Yes. The North Main estimate came from a Greg Hinz column, so no info on what it represents. The price tags on other systems were as reported in the articles.

    So granted we might not have apples to apples here. But clearly, without major reductions in cost, we're in big trouble. And projects like the Orange Line, assuming the numbers are correct, seem debatable even if we had the money.

    I'll be the first to blame our baroque transport planning rules for racking up major inflation and driving up costs. That's why I said we may need legal/regulator changes in some regard. I think that's a fight worth taking on.

  9. Alon Levy says:

    Ardecila, neither of the two most expensive subway construction projects in the world, Second Avenue Subway and the 7 Extension, features eminent domain litigation.

    Aaron, the US health care system is so inefficient that per capita government spending on health care alone is slightly higher than in France. French companies may need to pay extra taxes for other social benefits, but for health care, they pay no taxes beyond what they'd pay in the US just to support Medicare and Medicaid.

  10. neroden@gmail says:

    - the "baroque rules", as you call them, mandate huge reserves for unanticipated costs.
    - a number of cities have found that traditional design-bid-build methodology on large projects results in the contractors adding their *own* reserves for unanticipated costs, too.
    - the delays certainly push the costs up;
    - the approval process is too rigid in one particular way: often there is some relatively simple change which would save a lot of money, but it would require a whole new EIS and delay the project for a year, which would cost a lot of money.

    There needs to be some way to leave enough scope in the EIS to cover most potential changes which might be needed due to site-specific conditions.

    —-

    As for the Orange Line, it has to get over Clearing Yard on the Belt Railway, which is unsurprisingly expensive (any further extensions ought to be cheaper than that). I question the terribly low ridership estimates though.

    I cannot imagine where the enormous estimates for reconstruction of the North Main Line come from; I can only assume that there are huge reserves for the unanticipated, or possibly the famous Chicago graft. :-/ This is not rocket science, it's a very straightforward set of fixes.

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