Wednesday, April 16th, 2014

How State DOT Math Works

Here’s a small gem for you. Remember that $260 million tunnel under the trees in Louisville? It’s part of the boondoggle Ohio River Bridges project. Would you believe the price went up by almost $80 million at the same time Indiana claimed it “saved” $209 million on it through design changes? Of course you would.

In 2010, the state DOTs were saying that the tunnel would cost $260 million. (See “The $260 Million Home.”) Keep in mind, this is back when the project scope called for a six lane freeway in the East End and when the entire project was supposed to cost $4.1 billion. The East End approach that included the tunnel was estimated at $753 million.

Then in 2012 the two states revised the project to reduce the number of lanes in the East End bridge to four among other changes. This reduced the total project scope to $2.6 billion. The Kentucky approach (including the tunnel) was estimated at $795 million (over $100,000 per foot, incidentally), which was actually an increase. Even if we assign 100% of the cost increase in the approach to the tunnel, which would make it $302 million. Keep in mind that media reports continued to describe the tunnel as being in the $255-260 million range.

Yesterday the Courier Journal reported that the actual tunnel was cost $338 million – that’s a $78 million increase over 2010 and a $36 million increase over our max burn scenario in 2012.

Yet the Indiana Department of Transportation is claiming that they saved $209 million on the tunnel. From the C-J article: “Design changes for the tunnels earlier this year cut about $209 million from the initial $547 million estimate made before bids were submitted. The tunnels have been shortened 200 feet, to a total of 1,800 feet. The number of initial lanes to be constructed was reduced in 2012 to a total of four with eight-foot shoulders on both sides, allowing for expansion to the original six lanes if eventually needed.”

I googled “drumanard tunnel 547″ and got 19 hits. There was nothing I could find prior to January 2014 (after the bid was let) with an estimate of $547 million listed for the tunnel cost in this or other searches. Dittos for the $209 million savings. The two figures appear to have come into existence at the exact same time.

Or did INDOT actually know all along this tunnel would be $547 million, but kept the info from the public? Even at the original price, they were under huge pressure about building it because it was so self-evidently ludicrous. For example, the lede in a 2012 investigative story in the Indianapolis Star was “All that stands between Indiana taxpayers and $200 million in savings is 11 acres of woods in Kentucky.” This was not long after the bridges project manager was claiming it would cost money to remove the tunnel. According to the News and Tribune, “[Bridges Project Manager] Sacksteder said removing the tunnel is not an option and would actually cost the project too much time and money.” Can you imagine them actually getting away with building the tunnel if they admitted to the public it was going to cost over half a billion dollars?

At this point I’d have to say it looks like either 1) INDOT created a ludicrously inflated estimate for the tunnel right before construction that was used for the purpose of generating bogus claims of savings, or 2) They were suppressing knowledge that the tunnel was vastly more expensive than they were telling the public. Take your pick.

In any case, only in the world of state DOT land can costs that escalate from $260 million on a six lane road to $338 million on a downscoped four lane road translate into a “savings” of $209 million.

PS: INDOT has been crowing that they saved $228 million during their contracting for the East End bridge. The tunnel was $209 million of that. So 92% of their claimed total savings are bogus right there – costs actually went up. What are the chances the other $20 million are bogus too? I know where I’d place my bet. I noted over six months ago that the amount of money flowing into this project – including increased taxpayer subsidies – indicated that costs were going up, not down. This is just more confirmation. That’s why INDOT has been frantically trying to land the plane by cutting scope and looking for “value engineering” like radically changing the architectural design of the East End bridge. That’s what project managers should be doing, actually. But let’s at least be honest about what’s going on.

14 Comments
Topics: Transportation
Cities: Louisville

14 Responses to “How State DOT Math Works”

  1. John Morris says:

    We could expand the concept & say that most government “accounting” includes fraud.

    Private companies cook the books and make poor assumptions. But at least they use accrual accounting methods that attempt to calculate long term costs & liabilities. (See pension crisis)

    Only holding individuals personally responsible for blatant fraud will control this.

  2. Cobo Rodregas says:

    I doubt that fraud is big part of this…

    My observation is that the initial contract often goes to the lowest bidder (I’ve never been in a situation where the lowest bidder was any good, but people would scream bloody murder if the gov picked anything but the cheapest). The lowest bidder ends up doing crappy work, cuts too many corners, has poor management, etc. So they end up needing more money. Once they get the money they use it to fix some of the mess they’ve already created and continue on doing more crappy work, etc, etc, the cycle continues…..

    Maybe penalizing the under performing contractors is the answer?

  3. John Morris says:

    Could it be that both the contractors and many officials know the job can’t be done for that amount- but know a low number gets them to the ribbon cutting? Who will kill it after a lot of money has been spent?

    Perhaps fraud is a strong word. Government has no real interest in knowing or caring about the long term cost of projects- and politicians & unions have a strong incentive to downplay costs.

  4. I Hate Scum says:

    A four-lane road is useless and should not be built. A four-lane Interstate was obsolete in 1958. The East End bridge is a good idea, but it needs to be at least six lanes.

  5. Derek Rutherford says:

    This garbage is routine everywhere I have lived. @John Morris is right that this is how contractors/pols sell the project; once the gov is “half-pregnant”, the money always shows up.

    Note that this phenomenon is at least as true about rail projects as it is about road/bridge projects.

    People (like me) who get very frustrated about this are reflexively suspicious of any government-led project, as we assume that the final cost will be much higher than advertised. I would ask Aaron’s many urbanist readers to remember this when urban boosters are gung-ho for a big transit project (high-speed rail, anyone?) and they are faced with heavy opposition.

  6. anon says:

    The whole point of the bridge project is to steer the economic vitality of the region into Indiana. Of course Kentucky doesn’t want to pay for it. This is economic warfare between Indiana and Kentucky. The result will be any new growth will be north of the Ohio River and the economy of the Kentucky side will be sapped until Louisville is the next Gary. I am surprised The Urbanophile doesn’t seem to realize this. Or maybe he just doesn’t want to mention it. If Indiana is smart they will reorganize the cities on the Hoosier side into a single municipal entity.

  7. John Morris says:

    Irony is that this money pit is now a big part of Mitch Daniels’s legacy.

  8. Chris Barnett says:

    There is no apparent irony in Indiana Republican governors favoring highway projects, whether needed or not. It’s what Indiana governors do.

    Keep in mind that Indiana has a county income tax based on where you live, though there is some kind of reciprocity with Kentucky for state and local taxes paid by Indiana residents working and taxed in Louisville. So the state and Indiana suburban counties do gain even when more jobs are on the Kentucky side of the bridge and the worker goes home to Indiana every night.

  9. John Morris says:

    It’s what Indiana governors do.

    If wasting money is what they do- they need to stop lying. We already have one party built on that.

  10. Chris Barnett says:

    Oh John. Spending on highways is a bipartisan sport in Indiana.

    Though in fairness, Mitch just recycled money he got through the Indiana toll road lease. No new taxes, you know. :)

  11. John Morris says:

    Both parties stink.

  12. Chris Barnett says:

    Sure, they’re the worst we have.

    But they’re also the best we have.

  13. Marty Merkel says:

    It just keeps getting better. Now the tenants occupying the house above the ‘tunnel under the trees’ are being evicted for not paying their rent:

    http://www.wdrb.com/story/25290400/former-owners-of-controversial-mansion-in-bridge-route-evicted-after-failing-to-pay-rent-to-state

  14. The entire cost of of the 3.3 mile Kentucky Approach (Section 4) is $338 million. It’s not just the 1,800 foot tunnel, but also the 2,000-foot approach bridge, a 1,200-foot bridge over Harrods Creek, etc. I have notified the Courier Journal reporter of the error. Source documentation is the February 2014 financial plan update at: http://kyinbridges.com/library/documents/

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