Lessons on expanding infrastructure projects from the state of Massachusetts.
According to the Congressional Budget Office’s (CBO) estimates, the “multiplier” for federal transfers to state governments for infrastructure spending is 2.5. The multiplier is the dollar increase in output (GDP) for a dollar increase in public spending — the “bang for the buck.”
Of course, Bostonians like me are all too familiar with a different, much bigger, negative multiplier: the multiplier effect that planned spending has on actual spending.
In 1985, city officials projected that the Big Dig would cost about $6 billion (adjusted for inflation), making it the biggest highway infrastructure project in history. This figure represented the costs for the entire project, including moving the Expressway underground, building a bridge to Charlestown, and improving access to the airport. When the project finally reached completion — years overdue — the check came in at $15 billion, plus an additional $7 billion in interest on the debt for a total of $22 billion. Divide that 22 by the original 6 and you get the insidious self-perpetuating spending multiplier: over 3.5.
It wasn’t supposed to happen that way. As
Nicole Gelinas explained in a 2007 City
Gov. Michael Dukakis had sold the Big Dig to Massachusetts
residents on the premise that the Federal Government would fund
90 percent of the project. Massachusetts taxpayers expected to be
on the hook for only about $345 million, including interest
payments on the debt. They also anticipated only a few years of
construction marring the city. Instead, they got an $18 billion
bill and seemingly interminable construction.
Today, the Commonwealth is retracing its steps and fixing some of the shoddy work done by parasitical construction companies. Despite Gov. Mitt Romney’s best efforts to right the ship before he left the state, Massachusetts residents are anticipating making interest payments until 2038 — a burden so heavy it crowds out all kinds of other worthwhile infrastructure projects. To cap it all off, according to a Boston Globe study, the Big Dig didn’t even solve the original congestion problems so much as push them further out to the suburbs.
Even before he assumed the presidency, Barack Obama asked state governors and officials to submit lists of “shovel-ready” projects to be included in the stimulus bill. Congress is likely to approve at least $50 billion for such projects. While Massachusetts submitted only relatively conservative proposals, other states have asked for funding for projects approaching the original scale of the Big Dig. For example, Miami has requested $2.5 billion for subway construction. If only Miami knew the lessons Boston has learned the hard way.
True, the whole point of the stimulus is to prop up demand to stave off a vicious circle of layoffs and reduced consumption. This aspect of the stimulus is beneficial.
But the benefits must be weighed against the costs, and our experience suggests that the costs of massive infrastructure investment are far, far higher than the CBO or Congress are considering in their models.
The gains from the stimulus are intended to accrue to consumers otherwise facing hard times ahead. Obama, however, has signed an executive order encouraging the exact kind of project-labor agreements that were the basis of contracts awarded for the Big Dig. So infrastructure projects in the stimulus are likely to reward the kinds of characters who mooched off the Big Dig for so many years.
For those of short memory, the Big Dig winners included Bechtel/Parsons Brinckerhoff, the negligent project managers who settled with the Commonwealth out of court for shoddy work, and Powers Fasteners, who were found liable for the accidental death of a woman driving through a tunnel when a roof tile fell down. We’d like to believe that no money ever found its way into the hands of mobsters like Carmen “the Cheeseman” DiNunzio, who was caught looking for a piece of Big Dig action. But we can’t be sure.
The stimulus package is funded entirely by the federal government, but taxpayers are still on the hook. Where are the extra funds going to come from when the bills come back much bigger than expected? Either the state or the federal government will pick up the slack, but either way taxpayers will learn how Massachusetts residents feel when facing 30 years’ worth of extra taxes.
Let’s hope that the federal debt-financed stimulus successfully crushes the pessimistic expectations that threaten to send the economy into a prolonged depression. But let’s also be realistic about the level of accountability and restraint we’re likely to see from the bureaucrats cutting the checks. Those of us from Boston know what it’s like to see a spending project go out of control — and this time around I don’t see a Mitt Romney waiting in the wings to clean up the mess.