Construction Costs and Experience
The most persistent criticism I have heard of my writings on construction costs, coming from YIMBY Princeton, is the importance of gradual expertise and experience. Against my claim that Americans build subways for higher costs than the rest of the world due to poor management practices, regulations, and procurement, and scope creep, YIMBY Princeton says that high costs are a result and not a cause of the rarity of American subway investment. I believe that high US costs are endogenous and therefore the US is reluctant to fund rail transit; he believes that disinterest in transit is endogenous and if the US were willing to build more rail lines, then construction costs would naturally go down through economies of scale and steady accumulation of project management expertise. I promised last year that I would go over his argument more carefully, and am going to do so in this post.
The obvious difficulty with this debate is that we agree there is negative correlation between construction costs and the extent of construction, and disagree on causation. Wikipedia lists 55 countries with metro systems, with a handful more with under-construction metros, but this is not enough of a dataset for large-n studies. There are too many control variables – for example, it’s easier to build the first subway line than the tenth, which reduces the proper comparisons for New York to a handful of large cities. Instead, the only real way to figure out what causes what is to rely on a handful of natural experiments.
I can come up with a number of natural experiments. One is ambiguous about causation: the role of poor project management in the high construction costs in Boston and Paris. The others all suggest that high costs are endogenous to the US, rather than unwillingness to build subway tunnels. These include the history of construction costs in New York, London, and Paris in the 1930s; the construction costs in London today; and the history of construction costs in Seoul from the 1970s to the present.
I know of two overpriced rail extensions blamed explicitly on poor project management: the Green Line Extension in Boston, and Grand Paris Express. As I explained in CityLab a few months ago, the GLX was budgeted at $3 billion for just 7.5 km of light rail trench in preexisting open cuts, but the MBTA cut this to $1.1 billion in actual construction plus $1.2 billion in rolling stock and sunk costs through hiring a more experienced project manager. In Paris, one of the reasons the Cour des Comptes cited in its report about the cost overrun is lack of experience in managing such a large project; as a result, the 200 km system, with 160 km underground, is now up to €35 billion.
The problem is that even with better cost control, Boston’s construction remains pricey. At $150 million per km, GLX is expensive for a line in a preexisting right-of-way, and not far behind GPX’s $220 million per km for an 80% underground network. While both Boston and Paris can expect future construction to be cheaper if they apply the lessons of GLX and GPX cost overruns, their absolute costs remain different, with Boston spending more per unit than Paris. At best this is neutral between my explanation and that of YIMBY Princeton.
Construction costs, dieselpunk edition
New York’s subway construction costs have risen since the start. In 1900-4, the First Subway cost $32 million for 22 km of subway and 1 km of viaduct (namely, the 125th Street viaduct on today’s 1 train), and another $3 million for 9 km. In today’s money, this is $39 million per km underground and $9 million per km elevated. JRTR has some statistics for the Dual Contracts, built in the 1910s and early 20s, and the IND, built in the 1930s. The Dual Contracts cost $366 million, equivalent to around $8 billion today; the total route-length added was about 180 km, of which 70 km was underground, consistent with a cost of about $80 million per underground km. Then the IND cost $815 million, equivalent to about $14 billion today, for 97 route-km, practically all underground, or about $140 million per km.
The projected cost of Second Avenue Subway kept rising. In 1929 the projection was $86 million, or about $1.2 billion in today’s money, or $90 million per km; this was before the IND cost overruns materialized (at a time of general deflation). In 1939 it was up to $249 million, or $4.2 billion today, about $320 million per km; by 1949, it had crept up to $500 million, or $5 billion today and $390 million per km. Put another way, WW2-era America, a country that had just built massive public works in the Depression as well as the war, including the IND and Chicago’s two subway lines through the Loop, was already projecting a higher per km cost than is routine in nearly the entire world today. Moreover, the plan was to build Second Avenue Subway cut-and-cover, a technique that is cheaper today than the deep boring typical of comparable infill subways in the first world.
I have less data than I’d like for other cities’ construction costs in the interwar era, but where they exist, they are a fraction of New York’s. The London Underground extension to Cockfosters in the Depression cost £4m for 12 km, 60% underground, per Wikipedia. In today’s money it’s $45 million per underground km. In Paris, there was little growth in real costs between 1913 and 1930: according to a presentation by Pascal Désabres, construction costs in today’s money in both 1913 and 1930 were about €23 million per km, or about $29 million per km.
London’s mounting costs
In the 1930s, London built an Underground extension for $45 million per km. After the war, it could no longer do so. According to numbers in the Financial Times, the Victoria line cost £4.5 million per km in the 1960s, all underground, which is about $110 million per km in today’s money, while the Jubilee line, built in the 1970s, cost about $250 million per km.
The Victoria and Jubilee lines were more complex projects than the Cockfosters extension, going under older Underground lines. The Jubilee line also included the construction of a transfer station with the Northern and Bakerloo lines at Charing Cross, whereas previously they only connected at the next two stations, Embankment and Waterloo. However, the construction technique, the tunnel-boring machine, is one that is supposed to have a much smaller city-center premium over outlying construction, since there is no surface disruption.
But whereas the Victoria and Jubilee lines had excuses for their high costs, more recent Underground extensions do not. In the 1990s, the Jubilee line extension cost around $500 million per km in today’s money, going under a few older Underground lines and crossing the Thames four times (in an environment with not much underwater premium) but mostly extending the system to the east, to previously underserved areas like Canary Wharf. The under-construction Battersea extension, crossing under one older line and serving a relatively undeveloped area at Battersea Power Station, is about $550 million per km. The next Underground extension under discussion today, that of the Bakerloo line to Lewisham, is budgeted at £3.1 billion over 7 km, or about $620 million per km, crossing under no Underground lines and largely following a wide road.
Under YIMBY Princeton’s theory, London’s construction costs should be decreasing as it obtains more experience tunneling in a constrained urban area with millennium-era sensitivity to environmental impact like noise. But on the contrary, costs keep growing.
Seoul’s low costs
If London is the expensive city that should under YIMBY Princeton’s theory get cheaper but isn’t, Seoul is the cheap city that should have been expensive in the 1980s but wasn’t. JRTR has data from the 1970s to the 1990s: after an increase at the beginning, Seoul’s construction costs stabilized in the 1980s and 90s at about $80 million per km in constant dollars in today’s money. These costs seem to persist today, judging by the Sin-Bundang Line, which cost 1,169 billion won for 18 km, converting to about $90 million per km in PPP dollars.
Seoul is consistent with the theory that costs are endogenous to a city or country. There is high correlation between the construction costs of different lines within the same city: having set non-US records with the Jubilee line extension, London keeps building very expensive Underground extension of the Northern and Bakerloo lines; Paris is spending around $250 million per underground km on a number of Metro extensions; Seoul keeps building subways at just under $100 million per km.
Your piece gives the impression of a last section (perhaps labelled “Conclusions”) having been cut off. I can’t quite see any interpretation or understanding of why these various costs are what they are or came to be.
I would guess that Korea is simply at the earlier point in development that places them where Europe was, say, post-war (or even earlier) when costs were still under control. The government still tightly controls all projects and there is ferocious–but all-Korean–competition.
My long-standing thesis as regards the Anglosphere is the steady removal of government control, or indeed appropriate expertise let alone authority within their public services: all aspects of these big projects is outsourced (and of course there is a revolving door between the public service and industry that serves to further undermine the former). On these pages we’ve highlighted the faintly ridiculous movement of NYC’s MTA chiefs to the companies they previously “supervised” in their public service roles.
In recent comments we discussed the explosion in costs and forever-delays in some big German infrastructure projects such as Stuttgart’s underground railway station, Berlin Hauptbahnhof, the Berlin Brandenburg International airport (BBI) which went thru attempted but abandoned privatisation then continuous cost inflation that continues to this day. Some of this appears to be under-bidding to win contracts (which one presumes in the past would have not got past appropriate experts in government).
Then with Paris, I am wondering if this relatively new cost inflation may be related to EU law forcing more outsourcing to the private sector, perhaps disfavouring earlier ‘favoured’ contractors (French of course) and tight government supervision an control?
You have written of Manuel Melis Maynar, the former CEO of Madrid Metro, and how he contained construction costs through relatively banal mechanisms (which one suspects were stock standard prior to neoliberal practices).
Note that all of this outsourcing and PPPs etc was supposed to increase efficiency and drive down costs. But the reality has turned out to be the exact opposite.
I am really tired of hearing about the Madrid Metro and why it was so wonderful. What happened on that job was a Contractors wet dream, the designs are just guidance, build what you want and bill me and don’t worry about costs because later on well award you a nice cushy contract somewhere to make up for any losses you make on this project…….not a hope in hell of that happening in the US, the State Education Laws regarding Professional Engineers, the Building Code Compliance requirements and the various liability lawyers will make sure of that, together with the FTA Procurement guidelines…..PPP will not fix everything as long as the agencies awarding the PPP project continue to interfere. I’m working on a PPP project right now and the designs for the underground portion have been rejected twice even though they are signed and sealed by a PE, and comply with the Technical Requirements of the Project. The ultimate owners Engineer deciding they should be designing the project, not the Concessionaire and the design/builder who are taking the cost risk. So knowing that’s going to happen what do you do as a concessionaire, that’s right price the risk of this interference leading to higher costs. There is plenty of experience available in the US to manage projects. Unfortunately not much of it works for transit agencies though or other agencies. So many owners think that an underground project or a multi contract program is the same as a bus garage, or a water treatment plant and decide that they will be the Project and Construction Managers on the Project because they cant trust a team of highly experienced consultants to do that. So you have people who view consultants as the enemy until they are at or near retirement supervising projects where they have no vested interest in delivering on time or budget because they have no personal reputation at play. That lack of experience and agency arrogance leads to stupefyingly stupid decisions being made by people who should at best be office engineers but are in positions of authority and responsibility. I’ve been involved in projects where the owner has completely ignored advice requested and provided by the designer and then blame the designer when the contractor fails because they cant admit that they did not manage the contractor properly. On the other hand there are many consultants and designers who should never ever be allowed anywhere near a project……
One issue that gets ignored to some degree in this discussion on costs is the make up of the companies that actually construct the work. In the US the tunnel contractors for example are a limited group of contractors owned typically by companies that are constructors. Compare that with companies like Dragages, Bouygues, Vinci, Obayashi etc. who are multi strand corporations, Bouygues for example own satellites, telecoms industries and are vastly diversified. To some degree a loss on a construction project is less likely to hurt them from a global perspective than some of the US Contractors. Does that make them more competitive, or able to lower their costs? Not sure as they are not significantly cheaper when they bid jobs in the US, but it perhaps makes them more able to tolerate risk than a family owned company. And lets face it Contractors price risk. Also the procurement and contract environment in different countries can affect costs. In the US 100% performance bonds are common, in other countries these don’t exist or are significantly lower, labor only subcontracting is permitted in some countries but not others, real estate acquisitions costs are different country to country, Buy America and Ship America can impact costs in the US, unions have different strengths and influence on work practices etc. etc. making it very difficult to truly compare costs between cities around the world.
One other thing to add about recent costs escalation is that there is so much tunnel work right now that skills are in short supply leading to a spike in costs.
Oh, and underbidding contracts and experts in government. If low bid is your decision for an underground project, experts don’t enter into it. Look at MTA and the award of CQ028 in the mid 2000’s on ESA. Massively underbid, but MTA procurement rules state that unless the contractor is not responsive or responsible you have to accept the lowest bid, similar rules are in place around the world. For example in Hong Kong projects were low bid, and you could during the bidding process request a contractor to adjust prices that appeared to be based on rates that were too high or too low, but he could refuse to do that and still be awarded the job if he was low bidder. Many times all you get is the price, and a bid spread designed for risk management, not the actual cost of doing the work.
Even in the US, low-bid isn’t universal. California in theory awards HSR contracts by a combination of price and a technical score, and in Boston I’m told they’d blacklist anyone who tried doing what Tutor Perini does in California on a regular basis.
The problem is that the MTA will deem a contractor “responsible” even if they build a station below water level which isn’t watertight, as happened at South Ferry.
Boston would put the contractor on a blacklist for that. So would *Indiana*, for goodness sake.
There’s something fundamentally corrupt about the way the MTA awards contracts. I think the idea of an in-house construction division is probably correct. They can’t do any worse.
Tunnel Vision 2018/03/19 – 13:34
(Nice name …)
In as much as your words are coherent, they actually appear to confirm why Madrid managed to contain costs for ambitious Metro projects: there was someone in charge who was motivated to do it (and who must have been supported by the politicians … I assume). I think this must be the case in all places that manage this feat (including in the contemporary world, Korea, Hong Kong, Singapore, China and–until recently?– France and Germany). Though I am unclear what Alon is saying about Paris since in his recent article Bryan Rosenthal said that the Paris M14 extension was being done at one sixth the cost per km of the SAS. Rosenthal also noted the sparse use of consultants in Paris versus the hundreds to thousands in any NYC project. And he wrote:
Combined with the revolving door “of the 25 M.T.A. agency presidents who have left over the past two decades found that at least 18 of them became consultants or went to work for authority contractors, including many who have worked on expansion projects”.
I am disappointed Alon doesn’t dive more deeply into these issues. I think it is obvious that this is where the real differences lie. Yesterday I read thru the whole sorry history of the Berlin Brandenburg Airport (official IATA call sign = BER) and many media reports on it (CityLab actually called it a “clusterfuck of epic proportions” which is pretty strong for that newsletter) yet it still requires someone to give an overview of how it went so wrong. All of these words indicate what went wrong but it remains unclear how it was ever allowed to progress thru the (assumed) multiple levels of experts and management etc involved in such a mega-project. For example, it turned out one of the main engineers wasn’t an engineer at all but was merely an engineering draughtsman (ie. someone who drew technical drawings for engineers) . The wiring was amateur-hour with comms lying side-by-side with high-power cables, and most of all the fire safety was beyond description, contravening convention at so many levels it is inconceivable how it ever got approval (well of course, once it was built, it didn’t get approval as the horrorshow was revealed but this only happened literally weeks before they were rolling out the red carpet for the opening (quite literally the red carpet was on-site, the media gleefully reported)).
What it points to is that there was no one ultimately in control. Probably this was set up from the beginning when the German governments (three levels, city, state + federal) wanted to privatise it, essentially to outsource all responsibility, and in the “new” Germany have private industry apply cost-control (hah! one of those failed economic theories). When the privatisation failed it seems they continued with the mentality that private players would “self regulate” and ensure the project–at least its engineering FFS–would be the ‘usual’ high standard Germans expect. The players involved in the failed privatisation were the same bidders for the project, and they seriously and almost certainly knowingly underbid to ensure the same consortium got the job. Then the relevant authority (formed by the three governments) was forced to raise billions of euros on the private market, yet again putting pressure to falsely keep costs low.
So, TV, the reason Melis Maynar gets mentioned in any of these discussions it is for this very remarkable phenomenon: someone actually in charge, with authority, not undermined by politicians and motivated to contain costs while building to a high standard. As far as I can tell, you haven’t added anything significant to the discussion except to reinforce these conclusions.
Hong Kong and Singapore have very high construction costs, though. They market themselves as competent; that doesn’t mean they are so.
I quote Madrid a lot because it’s cheap by European standards. The significance of this is that nobody in Paris thinks “oh, we’re cheaper than London and New York, so we’re doing well.” The main comparison within France is not the UK unless the French are trying to denigrate someone, but Germany, the Nordic countries, and maybe the Low Countries. Within its peer group Parisian construction isn’t unusually cheap, and Parisian operations are if anything on the less passenger-friendly side (the trains are not as punctual as in Germany, let alone Switzerland or the Netherlands). This is why you have railfans complaining about M18 and M17 being wastes of money. But Madrid is the cheapest in its comparison group, so it thinks of itself as cheap, pushing back against local mistrust in government authorities.
Right but I think you are focussing solely on costs rather than what characterises these (mostly Anglosphere) projects: not just humungous out-of-control costs but also pure incompetence and lack of professional management. One expects costs to be “high” in a first-world crowded city like Paris (and for that matter Hong Kong–on the measure of developable land, the most crowded in the world, and partly as a consequence the most expensive city to buy property or rent). The thing is that these two things go together and I reckon you need to get to the ultimate cause (not the proximal symptoms). The RER & Metro expansion in Paris may be (excessively) expensive but it is a terrific project and frankly I don’t know why anyone would not have confidence they will bring it off (once they have decided to do it). It seems the same isn’t true of Germany anymore with almost all mega-projects running into trouble in the past decade. Likewise Hong Kong which built the world’s largest infrastructure project in the past quarter century (as a single unified project): the new airport with new highways, railways, bridges, terminals etc.
Hmm. I think you need to update that opinion. There seems a lot of disquiet about the neglect of the German rail system over the past 15 years or so, including punctuality:
I know it is pure Guardianista but it so has the ring of truth:
The fact is that a bunch of German mega-projects (BER airport, Stuttgart rail station, Hamburg’s concert hall) are among top of the list of projects-gone-wrong that are studied by the experts. (Berlin’s Hauptbahnhof might have once been on this list but its evident success means it is not discussed so much anymore; the same might be true for the Elbphilharmonie; so some of the hoopla is overblown; as I said earlier one needs to distinguish between projects that essentially succeed even if too expensive versus those omnishambles like BER, or even those like SAS which “succeed” but at eye-watering absurd cost.)
In my browsings to try (but failing) to locate a deeper analysis of the BER omnishambles I came across a book (below) and immediately bought it–even though its normal price (for a 2016 publication) is $100, Amazon has it at $6.60 (while their Kindle price is $94.00) I have been expecting to get a cancellation message if they detect this apparent anomaly but no, it is apparently winging its way to me now.
Large Infrastructure Projects in Germany: Between Ambition and Realities, May 24, 2016
by Genia Kostka and Jobst Fiedler; ISBN-13: 978-3319292328.
Not that I hold any hopes much will be revealed as the blurb says “Overall, the case of Germany also offers the opportunity to assess various new forms of project delivery, such as public-private partnerships (PPP) …”
As I see it, their attempt to run BER as a de facto PPP is what lies behind the disaster. That a review by so-called experts in 2016 is circling back to PPPs, and calling it “new”, tends to signal that maybe they haven’t passed thru their disastrous phase of neoliberalism quite yet. Well, Schäubel is gone but Merkel is still in power, and looks like another 4 years wait for her 4th term to run its tedious course.
What people who take trains all over the Continent seem to think is NL/CH > Germany > France > Italy > Middle Ages > US.
Alon Levy 2018/03/20 – 18:27
I am sure you have impeccable statistical studies to support that contention …
But ok, I can live with that.
Especially when one realises that France is 15 times the size of NL & CH, and about 1.8 x Germany.
Michael James: I think you’re right about the outsourcing. I think it’s the major cause of the cost inflation.
Boston is still using contractors, but its major cut in Green Line costs came from *insourcing* the management — and blacklisting the contractor who had been scamming them, so that only legitimate contractors tried to bid next time.
IIRC in St Louis and San Diego, light rail costs were very cheap for the initial line, then grew for later lines. Possibly elsewhere too.
In San Diego the initial line was mostly a rebuilt existing rail line, the extensions involved new construction.
A couple of nitpicks regarding the Green Line Extension costs: The costs were reduced not only by bringing in more experienced management (and changing the acquisition process), but also by radically scaling back the stations from full fare-gated stations with grade-separated access including redundant elevators, to simple open platforms with access at grade or via ramps and on-board fare collection (this was made possible by the T’s plan to go to all-doors boarding on the Green Line with the upcoming new fare collection system).
And, while the GLX is being built in a preexisting right-of-way, it’s one that’s shared with an active commuter rail line, which greatly complicates matters.
What they SHOULD have done is just added a few infill stops on the commuter railway, and electrified it. Instant 90% cost savings…
No. The Green Line needed to be extended.
The commuter rail simply isn’t fast frequent enough or high enough capacity. It would need to be electrified first. Yeah, they should do that too… but good luck…
Couldn’t the whole MBTA commuter rail network be electrified for the cost of the Green Line Extension? This should probably have been a higher priority.
Nope. Start adding up the costs of catenary, substations, and new equipment, and it comes out rather high — particularly since the US has so little experience with high-voltage overhead, and the FRA has exotic unique-to-the-US regulations for “heavy rail”. 😦
It’s still worth it, but it’s much more expensive than GLX. In order to substitute for GLX, you’d also have to add a bunch of infill stations ($$$) and then a turnback for the local runs, and then you probably want to run local and express, which means another pair of tracks…. you end up building GLX without through-running to downtown.
And about 10% of the service level, even with electrification; not even remotely close to meeting the requirements of the project.
That 10% would include new trains to provide a higher service level.
In terms of raw capacity, 10 trains per hour with 2-car light rail trains with 72-foot cars is less than 4 trains per hour with 5-car commuter rail trains with 85 foot cars.
(1) Nobody in Cambridge or Somerville wants to deal with repeated 15 minute waiting times — it’s very tied to Boston. It needs high frequency.
(2) It would pack the commuter rail so much that the people on the outer edge of the commuter rail lines wouldn’t be able to find a seat.
Then interline the Lowell and Haverhill Lines to get higher frequency through the trunk.
I’m all for fixing the operations of the MBTA commuter rail, which could use a hell of a lot of improvements, but you know the FRA regulations: do you really think it’s going to cost *less* to bring it up to high-frequency standards on *FRA-regulated* tracks than on FTA-regulated tracks? Freight runs on these lines and the Commonwealth can’t get rid of it.
the los angeles red line:
26.4 km with 14 stations built for 4.5 billion at a cost of 170 million per km.
the full length was opened in 2000, so adjusted for inflation that is:
26.4 km with 14 stations built for 6.64 billion at a cost of 251 million per km.
caveats are a bitch, there were allegations of corruption and underbuilding tunnel wall thicknesses in the construction.
So in los angeles, the new purple line extension is 14.6 km budgeted a cost of 6.3 billion or 431.5 million per km.
Los angeles has been building a lot of rail since they started doing the red line construction groundbreaking in 1986, so if Princeton YIMBY Is correct, their extensive experience in building rail in the last 32 years should not yield this result.
What has changed in the last 18 years that has caused subway construction in Los Angeles to increase from 251 million per kilometer to 431 million per kilometer?
My theory is “if you fund it, consultants will come” and that 180 million per kilometer is being extracted to pay for a nearly infinite number of consultants and “experts” rather than the work being done by competent in house staffers.
there is no other explanation that accounts for the universal global cost explosions of the last twenty five years. this is a world wide system of consulting and it is in incredibly lucrative, and they face no consequences for nor pushback against their rent extraction, so they keep asking for ever larger consulting fees (and then getting it) leading to a positive feedback loop of ever expanding costs.
Soon we will spend more on the army of consultants than on the combined costs of the actual laborers, machinery and materials.
Yes. Rosenthal pointed out that there were very few consultants involved in the Paris M14 project compared to NYC SAS which had at least 500. (Plus overmanning of most actual construction work, sometimes grotesquely such as five to ten fold on the TBMs.)
But it is way more than simply the direct billed cost of consultants. These guys have to show they have earned their high cost, so naturally they essentially invent and impose on the project all kinds of stuff and this adds even more to the cost of the project. In addition to the delays they introduce which impose yet more cost inflation. In effect its biggest effect is that the project goes out of control.
Ordinarily I don’t have anything much against consultants, who generally know their field and can provide a reality check for in house staff.
Sometimes they are a little counter-productive, in that their job is essentially to find fault with the other workers and/or consultants on the project, and the more they do their job the slower everyone else’s jobs get – depends on whether those things really need an eye on them or not. Worst case is when they find fault with the project itself (although perhaps saving an even worse case).
In the political realm, in particular, consultants provide some other, more nefarious roles. When projects are first being considered, consultants can shape the scope and options to highlight favored choices; later on, pluses and minuses can easily be tacked onto “good” or “bad” possibilities. Construction hassles can be kept out of one’s constituents’ neighborhoods; vice versa for benefits; costs and benefits can appear enhanced or minimized. Consultants are very good at figuring out exactly who is their boss and what they want to see in the report; if you have any doubts about evolution, QED. Most of the time, this is politely subtle, but some managers and consultants are more concerned that there being no mistakes in this area, even to the point of literally talking about it with few words minced.
Additionally, and probably worse, consultants are way overused for slowing things down, as in: “Let’s send this out for a study”, which usually means: “I don’t want to look like I’m against this, but it is more controversial than I have the backbone for at the moment”; or else: “Maybe they’ll find some better reason to delay or kill this than we have so far”. If something has been put to sleep long enough, then all the initial studies and reports will need to be redone also. Opponents of a plan are usually happy enough to go along, for the same general reasons. Studies may be commissioned by both sides of an issue, and counter studies etc., on and on and on.
The Red Line was opened in four segments throughout the 90s, so the actual adjusted unit cost is probably slightly higher. But also, the Purple Line cost that you quoted is not correct. The total line budget is $7.2 billion dollars (and that’s before Tutor Perini gets started), or $497m per km.
The new purple line extension (a) runs through flammable tar, and (b) is facing some of the most expensive lawyers in the country in Beverly Hills trying to stop it. This is going to raise prices.
How’s the *Crenshaw Line* pricing in LA? That’s a more normal situation.
Construction costs, and in particular those high costs w/r subways in the US, are of course, a favorite topic in this blog. There seems to be little doubt that this is true, although the exact causes are not usually identified.
I doubt that the movers and shakers consciously sit down and endeavor to create projects that are so extravagantly costly as to make it prohibitively expensive to get any kind of approval or funding. Perhaps there is some kind of international p*ssing contest where the winner is the official who can somehow finagle the most money for a non live or death project without even bothering to convince anyone that it should cost much less???
Well we know that sometimes politicians propose straw man projects that they cost out to be so expensive that none but the most ardent supporters would buy into, or decorate alternatives which they are trying to kill with such deadly cost baggage. For example, Cuomo does that fairly regularly, like in the study for upstate HSR, or the rail alternatives associated with the Tappan Zee Bridge rebuild. Even Amtrak’s future NEC proposals seem easier to understand if viewed with this possible explanation in mind.
I’m still a little reluctant to believe this, because sometimes these things get built anyway, so if they are supposed to be so ridiculously overpriced, they are doing a bad job of doing even that.
The contractors are probably greedy, the oversight is probably somewhat lax and there is likely to be some graft, bribery, theft or other malfeasance going on, but I find it hard to believe that there is so much of that stuff going on. I think that elements like excessive zeal in environmental or safety regulations, or litigious activity on behalf of NIMBYs (or those using any of those as excuses for attempting to derail a project), or political opposition to those proposing the project or the established leadership/government are more likely to be behind massive upgrades in costs (i.e. by paying for delays or lawyers or in things like making a rail tunnel bored rather than cut and cover). The almost certain knowledge of these kinds of cost upgrades sets the stage for contractors to price in massive amounts for contingencies (which will remain even if the contingencies don’t materialize). And of course there is “all of the above”, including a degree of expectation that such ridiculous costs are the norm.
I really thing that the MTA ought to attempt to build a lot of this stuff on its own. Clearly there is enough potential work to occupy a standing construction division. They already have some of the trades represented, like track laying and signal work, for example. Rather than private contractors creating new entities to take on an MTA project, and buying a complete set of construction equipment on the MTA (at least some of which will survive to be part of their future business, the MTA buys (and keeps it for future business) for itself, They need managers anyway to support the projects, so why not do the actual management instead of managing the contractors managers.
Could they do worse? Maybe, but there would be fewer cracks to hide in and fewer levels of operations to confuse the issue. They would have a more or less constant budget (as much as anyone does) and could continue working without the constant stoppage waiting for new funding. Obviously institutional knowledge would be a big winner. Maybe things would seem to take longer, but maybe the tortoise sometimes wins the race. Perhaps it would actually even work.
Mmmm, I don’t know about using London as a natural experiment. The soil south of the Thames was always considered awful for tunneling, which is why there were so few tunnels under it until very recently. I would expect that this would raise the prices of any line which ran south of the Thames, as they had to use Earth Pressure Balance machines and do a lot of dewatering work; the stations were equally complex. How’s the Crossrail pricing, which is almost all in the hard rock north of the Thames?
Further, while Boston and LA tunnel pricing seem high compared to other parts of the world, they’re not insane-outrageous high (now that the grifting contractor was fired in Boston), and there are a lot of possible explanations.
I think the real outlier is New York City, which has outrageous pricing even by *US* standards, has nearly perfect geology for tunneling, and has massive amounts of experience. The grifting-contractors theory — which clearly applied to Boston — has TONS of support in the NYC case and I am almost certain it is the primary cause of the grossly excessive NYC construction costs.
You mention government regulation as a factor in higher modern costs; so is taxation. The first line was built in an era without federal, state or city income tax. In order to cover those and get the same return contractors must up their prices by 82%. If you want to factor this out in your comparisons then reduce current amounts by 45%.
There was also significant private investment in the first subway lines. The city paid the lion’s share but the IRT and BRT contributed on average 38% of total construction costs. Since they were in it to turn a profit they had motivation to control cost that’s lacking today.
But construction costs aren’t lower in low-tax states (Singapore, Hong Kong) than in high-tax ones (Nordics)…
Have you factored in the differences in scale? The Scandinavian systems are still classified as pre-metros; Hong Kong’s is about as heavy as you can get. Oslo has at most two double-articulated cars in a train, HK trains run up to 12 cars. No mezzanines in Oslo as it’s a POP system. HK has entry doors and dual platforms to provide the Barcelona Solution. It carries over 14 times the number of people. HK crosses water four times and has a number of grade separated crossings. All the Oslo lines run through a central loop.
Costs don’t grow linearly as a system grows. It becomes more complex. Its components become larger. That was a point I thought of putting in my original post but left out for brevity.
Stockholm is not a pre-metro. It’s a full-scale grade-separated metro system running long trains, and the current extensions include underwater segments since Stockholm is on an inlet.
Oslo’s system is between Copenhagen’s and Stockholm’s in size and therefore more representative. It’s also the one I know. Stockhom’s long trains are still 40 ft. shorter than IRT and 20 ft. shorter than B division locals so it comes in at the short end. Stockholm is on fairly flat ground, it’s at sea level while at some distance from the open sea. Hong Kong is basically mountains falling into the ocean. That probably has an effect on construction costs.
But I only brought up the effect of taxes in context of New York’s historical costs. If the builders see half their profits taken back as taxes won’t they need to charge more? And if we’re taking that much back and spending it again, do we even care?
I don’t know what Oslo’s construction costs are; Stockholm’s are very low. The platforms in Stockholm are approximately the same size as Singapore. The mountains don’t really matter if you’re doing deep boring (which both cities are – Stockholm has very hard rock, which forms a natural arch).
I bring up Stockholm because just on the level of sanity check, taxes don’t seem to correlate with costs much. The explanation is that taxes are levied on profits, not income, and the profit margin is not 100%; contractors might charge a bit extra to beef up the profit margin (or not – corporate taxes mean you just get lower after tax returns economy-wide), but when bidding is competitive the profit margins are low to begin with.
You’re describing the sales tax model where taxes are only assessed at the highest, the retail level. But all subcontractors, suppliers and employees are subject to income tax as well and must pass this on in higher prices and wages. I think it’s fair to look at costs as being the aggregate of other guys’ income taxable events. Just indirect rather than direct.
Now not all entities will have the same cumulative tax burden which last year was 51% for the biggest players. Coporate income taxes are usually fixed but some contracted businesses might be small enough to qualify for the half rate on city tax. And hopefully most employees are taxed below the corporate level. So I used 45% which I admit was more SWAG than educated guess.
Again I offered this up for depth rather than width; for time comparisons within New York. It’s been a heck of a lot of fun looking up details on those foreign systems though. All the more so since I plan to be in Stockholm this time next year.
But wages don’t rise in responses to rises in income taxes. E.g. American CEOs faced really high income tax rates in the 1950s and just took home lower pay; it was during the era of high-end tax cuts under Reagan that CEO pay began soaring.
Alon Levy, 2018/08/29 – 12:09
Yes, but that is an association not causation. The same thing happened in the UK and Australia where tax rates didn’t change (much) and remained progressive up to a near-50% top marginal rate. The correlation is to neo-liberal economics and the near-total jettison of restraints, along with such lame and disproven concepts such as the imperative to attract top talent (in fact it mostly just attracted the type of CEO and top management who saw that they could enrich themselves rather than the company, and at the expense of everyone else, plus extreme short-termism or quarterly account manipulation timed to optimize bonuses and share-option vesting etc). That is why it mostly afflicts the Anglosphere though of course the finance industry and globalization in general has caused it to spread. But even today there are Japanese multinationals who pay more to their branch office managers in the Anglosphere than to the CEO in Japan.
I read a study that argued it was causal, but I don’t think I’ll be able to find the reference. The argument is that lower tax rates incentivize companies to pay their CEOs more (or CEOs to demand higher pay?) since they can keep more of their salary.
And in the UK tax rates very much fell. Thatcher cut the top rate from 70% to 30%, same as Reagan.
Reply to Alon Levy, 2018/08/30 – 09:15
Sure, of course some will claim something is causal but there is no credible method to prove such a thing which is a mere hypothesis. Part, or most, of that logic rests on the outrageously incorrect theory that higher tax rates disincentivize people from seeking higher salaries and positions, something patently untrue. We have that argument constantly by conservatives who relentless try to flatten our progressive income tax system.
No. The top marginal tax rate on incomes in the UK is 45%, identical to Australia’s though our top bracket has a 2% “health levy”–applied by the conservatives (note they call these taxes “levies” because they simply hate taxes!). It is possible you are talking about the “effective tax rate”. Further, the top rate has a threshold of £150k so I’ll agree it is an extremely high threshold, and needs to be reduced (ie. the threshold). Australia’s top threshold is A$180k so approx. half the UK rate–this correlates with our lower inequality though our conservatives are trying very hard to “catch up”: they have proposed a single rate of 32.5% for $41,000 to $200,000, essentially killing our historic progressive tax system. Of course they argue that this benefits all the “working families” yet every economist in the land reports that most of the benefit flows to the top 20%. (Even econocrats admit that this does not lead to stimulating the economy.) Note, those above $180k pay an effective tax rate of 36%.
So, I repeat that I believe it was the change in attitude that caused the explosion in top management remuneration, on the back of total loss of moral commitment to shareholders, workers and greater good and a series of false inducement hypotheses (that come out of Friedman and Hayekian thinking), reinforced by increasing short-termism (quarterly financial reports; a truth revealed by even uber-capitalists like Elon Musk trying to escape this by taking companies private; Richard Branson has done it several times in his complicated company history, indubitably motivated by self-interest but also true that there is a strong desire to escape the pernicious short-termism of the “investment” industry). As I said, it is an equally valid–if difficult to “prove”–hypothesis that excessive salaries are toxically counter-productive. For example I believe it is a significant driver behind these excessive costs of infrastructure projects–the proliferation, like a disease, of over-paid consultants and top-heavy companies, especially the financialisation of such big projects. As we have discussed previously on your blog, these excessive salaries continuously poach top management from the public institutions that are supposed to look after the public interest, but today pretty overtly always have an eye open to the near-future of a rich payoff in the very companies they are supposed to be regulating. (Funny enough, Trump stumbles upon a truth in his proposition that all politicians (and govt employees?) should be subject to a 5 year prohibition on taking jobs in industries they formerly regulated etc.)
Yes, the top rate in the UK is 45%, today. Blair raised it from 30% to 40% (as did Clinton – Reagan cut the top rate to 28%, Bush Sr. raised it to 31%, Clinton raised it to 41.9%), and then the coalition’s austerity plan raised it further to 45%.
In contrast, in Sweden the top rate is 67%, counting social contributions. In France I don’t know how high it is because social contributions are complicated, but in my category it’s 57% (which I don’t pay because I’m not that rich, but if I were making deep six figures from freelancing that would be my marginal rate).
In the U.S., in a nice round number “Social Security” is 15 percent on people who don’t reach the wage threshold. One of the other reasons to take your pay as something not “wage”. Flat rates not progressive rates until you reach the wage threshold.
Yeah, but in the US there’s a cap (except on the Medicare portion of it) whereas here and in Sweden there isn’t because the strange socialists here think the rich should occasionally pay a few shekels in taxes.
I should be lucky enought to worry about marginal tax rates. Another way to look at it is that the Swedes understand that how much money you have, having actually reading the source documents, doesn’t relate to how much He loves you. Many many people in the States think that He must love them, otherwise they wouldn’t be rich. And since He obviously loves them, they should get special treatment.
But Alon, that is why you are such a happy, well-adjusted fellow, enjoying one of the finest urban environments in the world:
It is the thresholds of a progressive income tax that matters (plus the ability to exploit deductions which is one of the anomalies that favour the wealthy). France is quite similar to the UK in that the threshold between 30% to 41% is €72k, and then it is €152k for the 45% rate. This is pretty generous to the well-off so I am not going to spill tears if you are in either of these top two brackets. Australia’s income tax is considerable steeper (though currently riddled with middle-class welfare in terms of negative gearing on property and outrageous CGT exemptions on property including your tenth or nth property, both lurks which the likely next Labor government has finally decided to curb; after last trying in the early 90s; these are two of the factors that have made our housing amongst most expensive in the world). We also have a (too-low) VAT/GST of 10%.
The other relevant thing is that even if you, Alon Levy, were to move into a higher bracket, chances are it would be minor and gradual (unless you write a best-seller etc) and only a small fraction of your income would be subject to the higher tax. And again, if you did write a best-seller you ain’t getting any tears from me because you’d still be very well off. For all the nonsense written about high taxes (especially in the Anglosphere) it is France that happens to have Europe’s richest person (Bernard Arnault, about €40bn) and unlike most Brits he didn’t inherit it or earn it thru property speculation (or both, such as Hugh Grosvenor, the 27 year old punk 7th Duke of Westminster who inherited the freehold of most of Chelsea, worth a meagre £9bn, le pauvre).
Our new PM, Scott “ScoMo” Morrison (though I haven’t checked the news today–8 days after our last change of PM–to see if there is a new one) is a member of a Pentecostal mega-church in Sydney’s “southern shires” (kind of lo-rent version of the harbour-side rich-listers of Sydney harbour but around Botany Bay; previous PM was derisively known as Mr Harboursidemansions as he owned one of the most salubrious houses in the most salubrious postcodes in Oz, Point Piper, on the harbour of course, worth maybe $50m+). These happy-clappy churches have appeared and grown in the past few decades to provide an a la carte religion tailored to the prosperous types who want/need justification for their wealth while imposing draconian policies on everyone else. If He (and with this lot, definitely a He) wanted you to be rich you would be; if not, clearly you are not deserving. This bloke was the immigration minister who imposed the draconian Pacific Solution on the hapless boat people refugees. Most of us are in shock that our (fast disappearing) egalitarian culture can have such a person as PM (but that’s the Westminster system for you, voters not consulted … yet), but OTOH he was/is the fifth most-preferred PM amongst the top five usual suspects the polls enquire about.
Oh, I forgot to mention: does anyone in the US attempt to estimate what percentage of income one pays for (inadequate) health insurance? By comparison you happen to live in the country that regularly is rated #1 in healthcare by WHO, and that cost is inclusive in your income taxes. In all the PR showing how much of GDP various countries take, these things are omitted (not to mention free education including university for many of the “high-tax” northern EU). Thus Switzerland is in these tables as 34% of GDP (collected by all levels of govt) yet private health insurance is mandatory and not inclusive in this figure: it costs 11% GDP thus Switzerland’s true figure is 45% of GDP, pretty close to the rest of northern Europe.
It’s a stretch on my memory from living in France but there is a significant social charge that is paid by the employer, which is separate to the explicit health insurance charge taken out of your salary. One can argue that this keeps salaries lower than otherwise, but if the social charge was lowered somehow you wouldn’t get the difference as a boost to your salary (at least not in the short-term).
Health insurance isn’t a marginal tax, though – you pay it regardless of income.
The social charge is levied on the employer, yeah. I think the level is 50%, so for every euro you make the employer has to pay 50 cents on top of it (so really 33.3% of employment cost), but it depends on job category so I can’t vouch for this. For freelancers it’s 22.5% straight from the top, i.e. for every euro I make, 22.5 cents go to social contributions, and only from the remaining 77.5 do I pay income taxes.
NJTransit wants Son of East Side access under Madison Avenue so half of their trains can terminate there. Like the LIRR will be doing with a third of their trains. Run the LIRR from Grand Central to Secaucus, this is terrible, NJTransit doesn’t get one seat rides to Grand Central but they get 20 trains an hour during peak to Grand Central, change at Secaucus. When they need more capacity the LIRR gets change at Jamaica for Wall Street and NJTransit gets one seat rides to Wall Street. I have to make a drawing, it’s easier to understand with a picture/map. Instead of building Son of East Side Access in midtown build Son of ARC on Wall Street. Every other LIRR train to Secaucus is every six minutes during rush hour. Three quarters of them it’s every four minutes. Since they all run through the LIRR can squeeze it a bit harder and Secaucus gets every two and half. Change trains….. My brain hurts. NJTransit gets one island in peak direction? My brain hurts. NJTransit gets half and the LIRR gets half but oddly and peculiarly. My brain hurts. There is space to do this above ground in the Meadows, the Grand Central trains take over local service between Newark and the first/last express stop? nah that means dual electrification because they saved money and the 63rd Street tunnel is real tight. Figure out a technical solution to that – by lousy efficiency in the HVAC? – and the pantograph hides in half the air conditioner space? My brain hurts.
Someone should have knocked heads together in 1890 to get Union Station Wall Street, Union Station Times Square and Union Station Grand Central. Maybe even Union Station West Harlem and Union Station East Harlem, they didn’t. Woulda looked better to them because Midtown was on 23rd at the time and moving a block north every year. Which means if it accelerates to two blocks a year in 1960 it’s 125th. if they had done it Midtown might be 57th today. They didn’t
They had grandiose plans before automobiles. The Hell Gate line is 8 tracks wide through the Bronx. More than enough space for two tracks of freight, two tracks of Second Avenue Subway, two tracks of RER to Fairfield County and two tracks of long range suburban/Amtrak. we aren’t using it. And since the Second Ave is forever going to be two tracks the best the Bronx can hope for is half a local, the T train. Going up Third would solve more problems if the Hell Gate line is Metro North’s Penn Station Access. Four tracks going to waste…