Costs are Rising, US Highway Edition

There’s a preliminary paper circulating at Brookings, looking at American infrastructure construction costs. Authors Leah Brooks and Zachary Liscow have tabulated the real costs of the American Interstate program over time, from the 1950s to the 1990s, and find that they increased from $5.3 million per km ($8.5 million/mile) in 1958-63 to $21.3 million/km ($34.25 million/mile) in 1988-93.

Moreover, they have some controls for road difficulty, expressed in slope (though not, I believe, in tunnel quantity), urbanization, and river and wetland crossings, and those barely change the overall picture. They go over several different explanations for high American infrastructure costs, and find most of them either directly contradicted by their results or at best not affirmed by them.

I urge readers to read the entire paper. It is long, but very readable, and it is easy to skip the statistical model and go over the narrative, including favored and disfavored explanations, and then poke at the graphs and tables. I’m going to summarize some of their explanations, but add some important context from cross-national comparisons.

Why costs (probably) aren’t rising

The authors identify four hypotheses they rule out using their research, in pp. 19-23 (they say five but only list four):

Difficult segments postponed and built later – they have some controls for that, as mentioned above. The controls are imperfect, but the maps depicted on pp. 59-61 for the Interstate network’s buildout by decade don’t scream “the segments built after 1970 were harder than those built before.”

Time-invariant features – these include cross-national comparisons, since the United States has always been the United States. I will discuss this in a subsequent section, because two separate refinements of what I’ve seen from cross-national comparisons deal with this issue specifically.

Input prices – this is by far the longest explanation the authors deal with. Anecdotally, it’s the one I hear most often: “labor costs are rising.” What the authors show is that labor and materials costs did not rise much over the period in question. Construction worker wages actually peaked in real terms in 1973 and fell thereafter; materials costs jumped in the aftermath of the oil crisis, but came down later, and were back at pre-crisis levels by the 1990s (p. 48). Land costs did rise and have kept rising, but over the entire period, only 17.7% of total costs were preliminary engineering and land acquisition, and the rest were in construction.

Higher standards – the authors looked and did not find changes in standards leading to more extensive construction.

There are several more incorrect explanations that jump from the data. I was surprised to learn that throughout the 1970s and 80s, completion time remained mostly steady at 3-3.5 years of construction; thus, delays in construction cannot be the explanation, though delays in planning and engineering can be.

The authors themselves list additional explanations that have limited evidence but are not ruled out completely from their data, on pp. 32-35. Construction industry market concentration may be an explanation, but so far data is lacking. Government fragmentation, measured in total number of governments per capita, has no effect on the result (for example, California has high costs and not much municipal fragmentation); I’ll add that Europe’s most municipally fragmented country, France, has middle-of-the-road subway construction costs. State government quality, as measured by corruption convictions, has little explanatory power – and as with fragmentation, I’ll add that in Europe we do not see higher costs in states with well-known problems of clientelism and corruption, like Italy and Greece. Work rules requiring the addition of more workers may be relevant, but unionization and left-right politics are not explanatory variables (and this also holds for rail costs).

Economies of scale look irrelevant as well: there is negative correlation between costs and construction, but the causality could well go the other way. Finally, soft budget constraints are unlikely, as the federal government can punish states that mismanage projects and take more money; it’s possible that as the Interstate program ended states felt less constrained because there wouldn’t be money in the future either way (“end of repeated game”), but the fact that costs keep rising in subway construction suggests this is not relevant.

Favored explanations

Two explanations stand out to the authors. The first is that nearly the entire increase in construction costs over time can be attributed to a mix of higher real incomes and higher house prices. While the construction workers themselves did not see their wages rise in the late 1970s and 80s, a richer population may demand more highways, no matter the cost.

Higher real estate costs could have an impact disproportionate to the share of land acquisition in overall costs by forcing various mitigations that the paper does not control for, such as sound walls and tunnels, or by sending roads over higher-cost alignments.

The second explanation is what the authors call citizen voice. Regulatory changes in the 1960s and early 70s gave organized local groups greater ability to raise objections to planning and force changes, reducing community impact at the cost of higher monetary expenditures. The authors give an example from suburban Detroit, where a highway segment that disrupted a Jewish community center took 25 years to be built as a result of litigation.

The authors don’t say this explicitly, but the two explanations interact well together. The citizen voice is very locally NIMBY but is also pro-road outside a handful of rich urban neighborhoods. Higher incomes may have led to public acceptance of higher costs, but local empowerment through citizen voice is the mechanism through which people can express their preference for higher costs over construction inconvenience.

How time-invariant are national features, anyway?

The authors contrast two proposed explanations – higher incomes and property values, and stronger NIMBY empowerment – with what they call time-invariant features, which could not explain an increase in costs. But can’t they?

I spent years plugging the theory that common law correlates with high subway construction costs, and it does in the developed world, but upon looking at more data from developing countries as well as from before the last 25 years, I stopped believing in that theory. It started when I saw a datapoint for Indonesia, a civil-law country, but even then it took me a few more years to look systematically enough, not to mention to wait for more civil-law third-world countries to build subways, like Vietnam. By last year I was giving counterexamples, including Montreal, low rail electrification costs in some common law countries, and the lack of a London cost premium over Paris until the late 20th century.

In lieu of common law, what I use to explain high costs in the US relative to the rest of the world, and to some extent also in most first-world common law countries as well as third-world former colonies, is weak civil service. In the developed world, the theory behind this is called adversarial legalism, as analyzed by Robert Kagan. Adversarial legalism enforces the law through litigation, leading to a web of consent decrees. Some are naked power grabs: for example, in Los Angeles, a union sued a rolling stock vendor for environmental remediation and agreed to drop the lawsuit in exchange for a pledge that its factory be unionized, which may play a role in why the trains cost around 50% more than equivalent European products.

American litigiousness developed specifically in the 1970s – it’s exactly how what the authors of the paper call citizen voice is enforced. In contrast, on this side of the Channel, and to some extent even generally on this side of the Pond, laws are enforced by regulators, tripartite labor-business-government meetings, ombudsmen, or street protests. French riotousness is legendary, but its ability to systematically change infrastructure is limited, since rioting imposes a real cost on the activist, namely the risk of arrest and backlash; in contrast, it is impossible to retaliate against people who launch frivolous lawsuits.

I bring up the fact that I said most of this last year, and the rest at the beginning of this year, whereas I was not aware of the paper under discussion until it was released a few hours ago, to make it clear that I’m not overfitting. This is something that I’ve been talking about for around a year now, and a jump in American construction costs in the 1970s and 80s – something that also looks to be the case in subway construction – is fully compatible with this theory.

28 comments

  1. Alan

    Rising income inequality also increases the ability of a privileged few to launch frivolous lawsuits without any noticeable effect on their quality-of-life.

  2. michaelrjames

    Thanks for this.
    I’ll try to read it.
    First thing I look for in such reports is who the sponsors/funders are. As far as I can see, it is not anywhere in that preliminary report. I suppose the Brookings commissions these studies themselves and funds them out of their ‘own’ budget, and perhaps it is part of a long-running permanent program. That budget comes from big private donors like Gates and Hewlett foundations, Qatari Foundation etc. Brookings does have a fairly good “non-partisan” reputation, which is not to say any given author(s) won’t have their intrinsic biases. FWIW, in 2017 the BI had income of $117m with expenses of $97m, and an investment asset base of $524m (providing 13% of its annual income).

    From what you say, they haven’t really got to the crux of the cause of this cost explosion. Of course, as you know, I perfectly concur that a big factor (not mentioned by Brookings?) is “weak civil service”*. This is an extremely political and politicised issue, especially in the Anglosphere who have systematically undermined their own civil services over the past 40 years. The irony is that this philosophical quest for smaller government and outsourcing everything to the “more efficient” private sector has had the exact opposite effect. Not only hugely more expensive but also much more opaque and difficult to tell where all the money has gone.
    ………………………
    *While not infrastructure per se, this recent example shows just how absurd things have become. In Australia our conservative government (misleadingly named Liberal) awarded a half billion dollar contract related to conservation of the Great Barrier Reef to a tiny private foundation, without competitive tender. Not only does this foundation have no track record in handling such a large amount of money, it turns out they didn’t even request it and were reported to be in shock that the government awarded them this money; they had trouble responding to the sudden media interest. The contract allows them to spend upwards of $86.4m on their own administration! Next is the bit devised by Joseph Heller/Milo Minderbinder. Simultaneous with defunding the government R&D outfit CSIRO who has almost all the expertise and repository of 70 years of studying the reef, this foundation has said they will “award” the CSIRO and the associated Australian Institute of Marine Science, some big contracts to continue their work! Stupendously inefficient, and stupendously nakedly political. This is because this government is in deep denial about climate change and the negative effect overall, and specifically the gigantic coal mines & LNG ports in Queensland, on the health of the reef (for which tourism employs at least ten times what mining does). Not yet clear how this will play out, but as per my inquiry about Brookings, this reef foundation will have de facto control of CSIRO’s research and quite possibly on any reports released to the public. Confidentiality clauses and NDAs will doubtless be part of any contract. It adds huge costs and brings opacity to its operations.

    • dhdaines

      Weak civil service also explains the similarity of construction costs between civil-law Québec and common-low Rest-Of-Canada (ROC as we say). Québec has also hollowed out its civil service, particularly in the transport ministry, since the 1990s, with all the consequences that you’ve noted already. Sadly, even though the Liberals (centre-right, as in Australia) get the blame for this, and were objectively more corrupt when in power from 2003-2012, the attack on the MTQ and the civil service in general was quite bipartisan. This is unlikely to get better with our lovely new populist government.

      • Brendan

        When would it have been that Quebec had a quality transportation ministry then? In the ’70s they were building crumbing overpasses with the mafia and in the ’50s they were only paving Union Nationale voters’ roads

  3. IAN! Mitchell

    Are toll roads more expensive, similar, or less expensive per-mile?

    I’m curious given that in Florida and Texas (the fastest growing large states) almost all new freeways in the last two or three decades have been tollways.

  4. Tonami Playman

    I don’t know if a similar effect is playing out in Healthcare. It would be interesting to see the relationship between litigations, Healthcare privatization and rising Healthcare costs.

    • Alon Levy

      Yeah, so health care costs in non-US developed countries don’t display any Anglo premium, although generally in the Anglosphere the quality of care is lower. The problem there is that the headline cost – cost per capita – is compromised by artifacts like population aging (Israel has low per capita spending on health and high per capita spending on education), lifestyle factors (smoking rates, car use, diet, etc.), and even health-selective labor migration.

  5. Reedman Bassoon

    Perhaps “American Rule” litigation in infrastructure is much more expensive than “English Rule” (loser pays) litigation.

    • Alon Levy

      For what it’s worth, Israel is a mixture – the court may require the loser to pay the winner’s litigation expenses, e.g. if the plaintiff loses and the judge deems the lawsuit to have been frivolous, but it’s not automatic.

  6. John

    Even ignoring the effect of citizens demanding certain things as a part of infrastructure projects, I would guess that the National Environmental Policy Act (NEPA) has probably driven up costs all by itself. First, NEPA extends the duration of the planning process, so more money for consultants and more delays in construction. Second, NEPA forces designers to at least try to avoid, minimize, and mitigate impacts to the human and natural environment (even if NIMBYs aren’t asking for it), all of which could have monetary costs. I’m not saying NEPA is bad. I think it’s mostly good, but I would think that less willingness to accept adverse impacts of infrastructure projects probably has financial trade-offs.

    • michaelrjames

      That’s a tired old trope that was exhausted last decade, if not the old millenium. If it were true places like France or the Nordics or most of the EU (with exception of UK headed to Brexit) would be even worse. But, lo and praise be, they’re not.

    • Alon Levy

      I don’t think your second point is really correct. Under NEPA (and CEQA), the mechanism through which people can challenge development with adverse impact is through lawsuit. There’s no bureaucratic mechanism for disputes, unlike with (say) endangered species. So if a tree is felled in a forest and no NIMBY hears it to bring suit, the impact does not exist as far as American law is concerned.

      • John

        What I was suggesting is that the designers on the public and private side also make decisions on their own to reduce impacts in exchange for adding costs. No lawsuits are necessary. Engineers are good at following rules. If the rules are avoid, minimize, or mitigate impacts (per NEPA), that’s what we will do. I don’t have any data on this, so it could be entirely baseless “trope” (didn’t realize it was tired and old too). I’m just guessing based on what I’ve seen as a professional engineer going through the NEPA process on a few major projects.

        • Alon Levy

          They make decisions on their own to reduce impacts to litigious people more than anything. For example, one of the people who worked on NEC Future told me that there was an unspoken agreement among the senior planners not to propose anything in Fairfield County for fear of angering rich NIMBYs.

          • adirondacker12800

            Half an hour from Stamford to Manhattan or half an hour from Stamford to Union Station New Haven is good enough. Two hour-ish to DC or 90 minutes to Boston is good enough. Send the very high speed trains through Long Island where there are more than twice as many people. And a nice straight ROW that is owned by the government in one form or another.

          • Eric

            “Good enough” is not good enough. Every minute of extra running adds more delay to the traveler and more cost to the ticket. Minutes matter even for a half hour journey. Also, even if Boston-NY were “fast enough”, Boston-DC would not be and it uses the same tracks.

            As for Long Island, you have to explain how the trains will get across Long Island Sound to Boston, and for what price.

          • adirondacker12800

            On a trestle. For less money than digging a tunnel under thousands of very expensive parcels in Connecticut.

          • Onux

            I am not sure if this is meant to be serious, but it is not reasonable to cross Long Island Sound on a trestle. I am not sure of your proposed route, but Terryville to Bridgeport is approx. 14 mi over water, while Greenport to Old Saybrook is 11.5 mi. You may be thinking of the former Lucin Cutoff trestle over the Great Salt Lake (12 mi) or the Lake Pontchartrain Causeway (24 mi), but the Great Salt Lake averages 16 ft deep, while Pontchartrain is only 12-14 ft. Crossing LI Sound you will find depths of 120-160 feet. There is also the fact that LI Sound is an active seaway, so any bridge will need to match the clearances of the East River Bridges, 135 ft below and some hundreds of feet wide in any channels. Finally, LI Sound is an ocean estuary, and the closely spaced supports of a trestle will only increase the surface area impacted by wave action. It is technically feasible to cross the sound, but bridge or tunnel it will cost more than a cheap inland waterway trestle.

            That said, I fully agree that LI should get intercity train service as a branch off of the NEC continuing south to DC as Limited or Express service. The 2.8+M people in just Nassau and Suffolk Counties is larger than Delaware and RI combined, and the ~8M on the whole island is equivalent to NJ or Maryland. The demand is clearly there.

  7. Pokemon Black Card

    At some point in the last 50 years the weighting criteria for new alignment rural changed from “quantity of land required” to “number of parcels requiring acquisition.” A highway that drops south a mile then turns 90 degrees and heads east a mile, but only crosses six parcels, became preferable to a highway that cuts due southeast but clips off pieces of twelve parcels – even though the latter option requires 30% less ROW overall.

  8. Fake Fake

    Alon,

    One other point here is that the US switched from authorizing major projects by statute (which are subject only to constitutional challenges) to authorizing projects through a regulatory process that is subject to many more process-based challenges.

    This switch coincides in part with the switch from machine-based parties to competitive primary elections. My theory is that legislators are less willing to stick their neck out because they have less job security, so they punt to unelected bureaucrats whose conduct is subject to much stricter review.

    On Mon, Jul 15, 2019 at 22:20 Pedestrian Observations wrote:

    > Alon Levy posted: “There’s a preliminary paper circulating at Brookings, > looking at American infrastructure construction costs. Authors Leah Brooks > and Zachary Liscow have tabulated the real costs of the American Interstate > program over time, from the 1950s to the 1990s, an” >

    • Alon Levy

      New York’s party is extremely machine-based; AOC’s successful primary challenge was unexpected precisely because it’s such a rare occurrence. At the state level, nearly all successful primary challenges last election came from Democrats unseating IDC members, arguing that they are real Democrats rather than coalition allies of the Republicans. There’s plenty of job security for legislators. It’s precisely this kind of seat warmer mentality that makes them not invest much in better services for the population – why does this matter when their jobs are safe either way?

      • michaelrjames

        Yes. But one has to have a tiny smidgin of sympathy for HoR members because of 2-year terms. It’s nuts and means they are in perpetual electioneering mode, perpetual fund-raising mode. The apparently unforeseen consequence is as you describe, the ultimate in short-termism combined with a fix to reduce the craziness of such short terms. But the US is stuck in originalism so it is impossible to change.
        Australia has 3 years terms, though because federal government doesn’t have fixed terms the average term is less than 2.5 years. Many state governments have 4 year fixed terms which are better, but given the nature of today’s big problems I’d say 5 year terms are required, for both members and governments. And fixed terms so as to stop political exploitation to hold elections when it suits the politicians in power.
        As it happens that is the system that has evolved, quite recently, in the UK (yeah, I know, seemingly not much to recommend it but don’t blame it for Brexit), and the French presidency.

  9. Andrew

    From the inside of a construction bidding organization I would say the article is getting close to the truth. If litigation and the logical responses to it are considered, the primary impact would be what we consider indirect costs. More complex procurement approaches would be used, contracts themselves would be much more complex, more monitoring would be required during construction and more technical and construction and management would be required. This is exactly what is happening. When we complete a large tender we are devastated to see the portion of the job that now goes to indirect costs, that is not labour and materials used directly in construction. Of course this complexity also bleeds down to direct costs as well – driving less than optimum work sequences and conservative design approaches.

    I agree weak civil service as another contributing cause. A strong civil service that can make the necessary trade offs in a preliminary design, guide a competent designer and live with the consequences can choose the Design-Bid-Build procurement approach. If the preliminary work was done well, there’s a good chance that claims and delays will be modest. With further investigation you would find this was the approach during the golden years of freeway construction in North America. A weak civil service cannot (should not?) take these responsibilities and must choose a more expensive procurement approach. As you climb the ladder of procurement approaches from Design-Build to PPP, risk is shifted to the contractor, resulting much higher risk provisions, markups and management costs. Worst case, which we see more often than you would hope, would be clients armed to the teeth with consultants, taking responsibility for nothing except a complex procurement approach, then trying to shift all risks to the contractor.

  10. Pingback: Why I Write About Rail Costs, not the Cost of Other Things | Pedestrian Observations

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.