“Big Dig files are reportedly missing, computer hard drives have allegedly been destroyed, and many documents continue to be shielded from the public by attorney-client privilege.” Robert A. Cerasoli Commonwealth of Massachusetts Inspector General March 2001

Overview History of the Project Costs Benefits Synthesis Conclusion

History of the Big Dig

Boston’s Central Artery Dream Source:

Demolition of Boston’s West End & Construction of the Central Artery Source:

Central Artery: Past v. Present 1959 Today Source:

What is the Big Dig? Source:

The 3 Major Parts of the Big Dig Demolition of Existing Central Artery and Replacement Underground Ted Williams Tunnel: Connects I-90, I-93, and Logan International Airport Leonard P. Zakim Bunker Hill Bridge: I-93 Bridge over the Charles River

Why Boston Needs the Big Dig Alleviate serious traffic congestion Eliminate a troublesome eyesore Reconnect old neighborhoods Create open space in the middle of a historic city Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).

Central Artery: Before & After Before: 2003After: 2005 Source:

Costs

Original Cost Estimate: 1982 $ $ 2, 564, 000, Project Features: New Charles River Crossing Joint Venture Contract Right of Way/ S. Boston Extend I-93 South Tunnel Covers Utilities Relocation Workmen’s Compensation Other Completion Date: 1998 Source: Final Environmental Impact Statement,1985

Revised Cost Estimate: 1992 $ Original Estimate: $2,564 Features Added: $471 –I-90 and I-93 HOV Lanes –South Boston Haul Road –Material disposal/ hazardous materials –Deleted interchange –Other Scope change to existing project features: $2,151 $5,186,000, Escalation to 1992 Dollars: $2,554 Total estimated cost in 1992 Dollars: $7,740,000, Dollars1992 Dollars Source:GAO/RCED R, Central Artery/Tunnel Project

The Game of Exclusion Connections to Turnpike Facilities: $248.9 Logan Airport: State-Only Funded Items: Environ Mitigation & Interagency Agreements: Transit Authority/Amtrak: 68.6 Surface Restoration: 69.4 Maintenance & Support Facilities: 52.7 Tunnel Fire Testing: 44.6 Scope Deferrals: 18.1 Temporary Facilities: 19.1 North-South Rail Link: 6.3 Other: 29.9 Total Cost (1994 Dollars): $1,009,800,000.0 Source:GAO/RCED R, Central Artery/Tunnel Project

B/PB’s December 1994 Forecast (millions $) Final Design $679 Other Consultants 116 Force Accounts 356 Right of Way 94 Program Management 1,712 Police Details 63 PCA (Potential Change Allowance) 831 Construction Contingency 651 Ft. Point Channel 1,268 Central Artery Area (11, 17, 18) 1,206 Area North of Causeway (15, 19) 1,228 Insurance Program 635 Other Construction 2,189 Subtotal 11, 028 Prior to ICE (Interstate Cost Estimate) 255 Air Rights Credit 225 Contract C08A1 Rt. 1A (deferred) 135 Metropolitan District Commission agreement 85 Excluded scope items 261 Mitigation agreements 61 PCA over 11 percent 526 Total Exclusions 1,548 To-go escalation 8/94 to completion 1,215 Total “Apples-to-Apples” BIG DIG forecast $13, 791,000, Source: Office of the Inspector General, Commonwealth of Massachusetts, A History of Central Artery/Tunnel Project Finances

Cost History ($ millions), Part 1a Current Dollars of Each Year Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).

Cost History ($ millions), Part 1b Current Dollars of Each Year Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).

Cost History ($ millions), Part 2a 1982 Dollars Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).

Cost History ($ millions), Part 2b 1982 Dollars Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).

Reasons for Cost Growth Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).

Changes in Cost Assumptions MHD’s Cost Estimates: –0% Cost Growth On Design of Future Projects –10% Cost Growth On Construction Contracts –2.35% Inflation Rate On Unawarded Contracts GAO’s Analysis of Historic Patterns: –18% Cost Growth on Design of Future Projects –15-20% Cost Growth on Construction Contracts Completed at 16 percent Ongoing at 20 percent –3.35% Inflation Rate On Unawarded Contracts Source: GAO/RCED Central Artery/Tunnel Project

Project Escalation: 7 years behind schedule Dec 1998 March 2001 May 2004 Dec 2004 Feb 2005 Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).

What will the final number be? “Including interest on debt, interim borrowing, principal repayment, and possible future growth of the bottom line for construction and support contracts, the cost will likely total $18 billion. If the approximately $9 billion federal cap remains in place, the Commonwealth’s taxpayers and toll payers will foot a bill for the remaining $9 billion over the life of the bonds. This sum is equivalent to $1,500 for each of the Commonwealth’s six million citizens.” Robert A. Cerasoli Commonwealth of Massachusetts Inspector General March 2001

Benefits

What could the benefits be? Aesthetics/Open Space Time Accidents Air/Noise Pollution Jobs created

Benefit Analysis Methods Method Calculated time savings, income generated, and expansion of employment due to improvement in traffic Used 40 year time frame Used 5% and 10% discount rate Drawbacks Excluded benefits from green and open space Excluded benefits from potential real estate development Source: Assessing the Economic Benefits of Boston’s Central Artery Tunnel (2000)

Beautification of Boston Highway corridor East Boston Charles River Basin Spectacle Island

Benefits of Green Space

The Grass is Greener Method Economic Analysis of the 30 Acres of Urban Parks (Open Space) Created by the Big Dig Used Econometric Techniques with change in property value around the central corridor to determine impact of tearing down highway and replacing it with green space Drawbacks Excluded value of potential real estate development Excluded benefits from areas if green space in addition to central corridor Source: On Top of The Big Dig: Economic Analysis of the Urban Parks Created by The Boston Central Artery/Tunnel Project

What can be counted as benefits? YesNo Aesthetics Property values Jobs from Project EIR Time EIR Accidents No, included in time Air Noise Pollution No, included in change in property values Income generated Yes, but scaled down

Our analysis method combined data from two reports 40 year time frame for time savings and green space 25 year time frame for economic benefits from reduced time travel 5% and 10% discount rates Confidence intervals where appropriate Source: Assessing the Economic Benefits of Boston’s Central Artery Tunnel (2000); On Top of The Big Dig: Economic Analysis of the Urban Parks Created by The Boston Central Artery/Tunnel Project

Our Analysis Methods (cont’d) Calculated price of developed property based on real estate value Estimated dollar value of increased jobs due to improved transportation Estimated the value of other areas of green space created by the project (Spectacle Island, East Boston, Charles River Basin, etc) using contingent valuation Source: Assessing the Economic Benefits of Boston’s Central Artery Tunnel (2000); On Top of The Big Dig: Economic Analysis of the Urban Parks Created by The Boston Central Artery/Tunnel Project

Annual Economic Benefits of Green and Open spaces Parks Total: $104,856,932 Parks and Highway Total: $380,634,629

Total Change in Property Values (2000 dollars)

CondosOther Residential Commercial Mean$2968$917$160,064 Total$448,493,976$2,319,346$866,104,681 Source: On Top of The Big Dig: Economic Analysis of the Urban Parks Created by The Boston Central Artery/Tunnel Project

Annual Wages from Jobs Created Total Annual Wages = $98,320,745 Numbers from EIR report (1990), calculated using REMI model (Source: Assessing the Economic Benefits of Boston’s Central Artery/Tunnel Project)

Allocation of Green Space Willingness to Pay from Survey: mean of $42.91 per acre, standard deviation of $ % Confidence Interval = $26.27 to $59.55 (Source: On Top of the Big Dig: Economic Analysis of the Urban Parks Created by the Boston Central Artery/Tunnel Project)

Annual Time Savings Benefits From EIR Report (1990) in 1990 dollars (Source: Assessing the Economic Benefits of Boston’s Central Artery/Tunnel Project)

Net Regional Benefits Calculated net regional benefits by estimating income created by project Estimated $3.3 million in 1990 Number should be $9.6 million according to incremental model, but we use $3.3 million ($2.79 million) because of the strong economy of the 90’s Source: Assessing the Economic Benefits of Boston’s Central Artery Tunnel (2000);

Final Calculations (in 1982 Dollars) Discounted Total 5% discount rate$14,280,447, % discount rate$8,270,036, Low and High Estimate at 5% low estimate$14,286,778, high estimate$11,471,377, Low and High Estimate at 10% low estimate$8,276,353, high estimate$8,270,051,988.90

Synthesis

Blame Politics and Money for Cost Misrepresentations Availability of money from Federal government Strategic misrepresentation of potential costs via Exclusions Cost Source:Office of the Inspector General for Commonwealth of Massachussetts, “A History of Central Artery/Tunnel Project Finances 1994 – 2001”

Funding came from both the State and Federal governments Big Dig… Interstate HighwayProgram Intermodal Surface Transportation Efficiency Act (ISTEA) National Economic Crossroads Transporation Efficiency Act (NEXTEA) Transportation Efficiency Act (TEA) - 21 Mass. Highway Dept. formerly (Mass. Dept. of Public Works) Mass. Transportation Authority Mass. Turnpike Authority Mass. Port Authority State Bonds (Issuing authority unknown) Federal State Source:“Transportation Infrastructure: Progress on and Challenges to Central Artery/Tunnel Project’s Costs and Financing,” July GAO/RCED

The Federal Government Promised to Finance Most of the Big Dig Federal Funding, 90% State Funding, 10% Source:Federal Interstate Highway Program’s Funding Scheme which was approved in the Interstate Cost Estimate

Massachusetts has received more than its share of federal funds Mass. % of Total Federal Funds Mass. % of US Population Based on:VanHorn, Jason. “The Big Dig: Trying to Fill in the Hole Left Behind.” December, 2001.

Uncertain Funding Scenarios for cost overruns affects CB ratios Funding Scenarios of 1996, 2000, & 2003 Costs EstimatesBenefit Calculations

The Sources for Financing were not completely reliable 1996 Sources of financingReliable? FederalYes/No State BondsYes Mass. Port AuthorityYes Mass. Turnpike AuthorityYes State bonds (by MTA)Unknown Source:“Transportation Infrastructure: Progress on and Challenges to Central Artery/Tunnel Project’s Costs and Financing,” July GAO/RCED

The Financing was insufficient in each scenario proposed in 1996

The 1996 & 2000 Finance Plans had two funding schemes Assumed that Massachusetts’ federal apportionments reduced immediately to $450 million/year – this is a loss of $381 million/yr Growth in costs would be $500 million Assumed that Massachusetts’ federal apportionments reduced incrementally from $600 to $450 million/year Growth in costs would be limited to $100 million Uses credits from Insurance and Air Rights revenues to offset costs Utilizes “advanced construction,” more aggressively Reduced (monetary) losses and good safety recorded documented as savings Low Funding ScenarioHigh Funding Scenario Source:“Federal Task Force on the Boston Central Artery Tunnel Project: Review of Project Oversight & Cost,” March “Transportation Infrastructure: Progress on and Challenges to Central Artery/Tunnel Project’s Costs and Financing,” July GAO/RCED Plan only

The 2003 Finance Plan (finally) reflected the real costs of the project Previous Finance Plans2003 Plan Had numerous exclusionsCeased “excluding” costs Realized credits after project completion Only realized credits during time horizon of project Mass. minimized its roleMass assumed responsibility where necessary Projection: $10.8 billionProjection: $14.6 billion Source:Federal Highway Administration, “Report on the October 2002 Finance Plan for the Central Artery/Tunnel Project.” Report Number IN March, 2003.

In the beginning, Costs were “justified” Note: Figures are in nominal dollars Source: Assessing the Economic Benefits of Boston’s Central Artery Tunnel (2000)

The uncertain (and unlikely) funding scenarios decreased the CB ratios Note: All figures are in 1982 dollars Based on data previously stated

Conclusion

“This pro/con analysis resulted in the Big Dig officials apparently not disclosing the facts because of possible negative political reactions and press reports, and the potential for increased scrutiny of the Big Dig.” Robert A. Cerasoli Commonwealth of Massachusetts Inspector General March 2001

Lessons Learned The discount rate drastically makes this project look less and less attractive Politics can make anything feasible and beneficial Cost-benefit analysis is an imprecise tool