Government projects ultimately cost more than planned, claims Veronique de Rugy in a Reason piece that will shock none.
In 2002 the Journal of the American Planning Association published one of the most comprehensive studies of cost overruns, looking over the last 70 years at 258 government projects around the world with a combined value of $90 billion. The Danish economists Bent Flyvbjerg, Mette Skamris Holm, and Soren Buhl found that nine out of 10 public works projects had exceeded their initially estimated costs….
According to the Danish study, such inaccuracies aren’t just errors. They reflect widespread, deliberate lying on the part of public officials. “Project promoters routinely ignore, hide, or otherwise leave out important project costs and risks in order to make total costs appear low,” the authors conclude.
[Emphasis mine.] One of the projects that the Danish study uses as an example of an absolute boondoggle is Boston’s Big Dig. Almost exactly a year ago, I wrote a piece, also using the Big Dig, warning that the stimulus bill was guaranteed to overrun its projected costs by a significant amount.
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.
As I explain in the piece, the Big Dig is still incurring new costs because of the shoddy work that now needs to be repaired. And it didn’t even accomplish much, if anything, in terms of reduction traffic congestion.
The point was that it was almost guaranteed that the stimulus would end up costing more than the government’s advertised price tag of $787 billion. Sure enough, not one year later, we found out that it’s $75 billion over target already. And the crazy part is that the stimulus didn’t even have a defined project goal — it was spending for spending’s sake. The government overestimated how much it would have to spend simply to spend money. Furthermore, I would not be surprised if it ultimately costs over double the price tag to accomplish the specific items promised in the stimulus package. Many of the programs will be made permanent, and many of the projects will cost far more than advertised.
One small caveat: I don’t know how programs were selected in the study that de Rugy highlights. But it’s possible that the study has a survivorship bias problem: if you look at the programs getting funding at any one time, the ones with overruns are likely to be overrepresented because they need to be re-funded while successful, on-budget programs have already been completed. Depending on how the authors ran the study, this could be a problem.
