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A
Riddle Wrapped in an Enigma
How
much will the Rail to Dulles project cost?
Probably a lot more than the $4 billion figure
commonly cited. But there are too many intangibles
to say for sure.
by
Peter Galuszka
Pick
a number, any number: $1.8 billion, $2.1 billion
or $2.4 billion.
That's how much the first phase of the
huge Rail-to-Dulles project might cost.
Pick
again:
$1 billion, $4 billion or $6 billion.
Those
numbers represent past and current estimates
for the
entire, 23-mile-long spur proposed to extend the
Washington Metro system to Tysons
Corner, Dulles International Airport and Loudoun
County -- all from engineering studies or educated guesses.
Confused?
Join the club. The fact is, no one knows how much
Rail to Dulles will cost. Although a $4 billion
number is widely bandied about, it is both
provisional and out of date.
Ascertaining
the cost of what is shaping up as Virginia's
biggest public works project ever is no mere esoteric exercise. Someone has to pay for all that
construction. State officials have a general idea
of where the first $4 billion or so will come from
-- that's why they're proceeding with the project.
But if more authoritative estimates exceed that number
by a significant margin, the entire funding
edifice, which depends upon fragile federal
support, could collapse.
Based
on our inquiries, Bacon's Rebellion has
found that there are so many uncertainties
associated with Rail-to-Dulles financing that
state officials would be well advised to begin
working on a back-up plan to improve mobility in
western Fairfax County.
Before anyone can come up with
a remotely accurate estimate for building the
heavy rail extension, planners have to crunch thousands of very slippery numbers. One
set is the annual
inflation rate in the price of construction
commodities that are subject to hard-to-forecast global
economic pressures. Another is forecasting the greater
Washington area's labor conditions: Will skilled
workers demand tip-top wages in a market that's
enjoyed a commercial construction boom for years,
or will pay pressures ease?
Estimates on construction cost inflation
rates run the gamut from 3.5 to 30 percent a year,
depending on who is doing the estimating and how
much credence they give other factors, including
the impact of China’s voracious building boom on
global steel and concrete supplies.
Furthermore,
estimators have to place a monetary value on risks
such as
time delays resulting from labor strikes or
natural disasters, and price spikes resulting from
disruptions to global markets. Finally, the question must be answered,
who will share those risks? Will the burden be
borne by Dulles Rail Transit, a private consortium
of the Bechtel
Corporation and Washington Group International (WGI),
which would insist upon charging more to compensate
for those risks? Or will
taxpayers in Fairfax and Loudoun Counties, or the
Commonwealth of Virginia, take on the risk of
getting stuck with a nasty, unbudgeted
surprise?
Fact
is, no one knows yet. For the moment, state
officials have a serious number only for Phase One,
which runs from the
Orange Line offshoot to Wiehle Avenue in Reston.
Initial estimates included in an Environmental
Impact Statement in the summer of 2005 indicated
the first phase would cost $1.8 billion. But this spring, a
Bechtel-WGI study concluded that the cost had marched on to $2.1 billion. A final estimate
is due soon. But
remember: Even that is only a more refined
estimate based on detailed design specifications.
Although it will be the most authoritative
estimate yet in a sea of speculation, many
uncertainties will be built into the number.
Bechtel-WGI
must factor in the fluctuating cost of
construction materials. Concrete, rebar and
other steel are rising considerably. According to the Nov.
13 edition of the authoritative trade journal
Engineering News-Record, steel prices this year
are up 11.3 percent and cement is up 5.3 percent
with skilled labor up 3.5 percent. According to
sources close to the construction industry, other
commodity prices have increased from eight to 10
percent to up to 30 percent. The one glimmer
of good news on the inflation front is asphalt, which
may
be down a bit, as oil prices have been lower
than they were last spring.
But
calculating the final estimate is not the end of
the process. In acting upon that estimate, Kaine
administration officials face a difficult
decision: Should they stick with the Bechtel-WGI consortium
to build Phase One, or should they open up the
project for competitive bids in the hope they can
get a better deal -- with the attendant risk that
delay could add millions of dollars in
inflationary costs with each passing month? On the
other hand, the consortium, which has the inside
track on winning a negotiated contract, is
incentivized to pad the estimate to protect its profit margins.
On the one hand, the group wants to
keep the estimate low enough to fend off a move to
open up the contract to competitors.
Assuming
that the Kaine administration pursues a negotiated
contract, then comes the job of horse trading with Bechtel-WGI. The contract must
stipulate who gets stuck with the tab if something
goes amiss, as it did, for instance, in
Bechtel’s disastrous Big Dig project in Boston.
“We expect,” Virginia Transportation Secretary
Homer Pierce told Bacon's Rebellion, “a final negotiated price late this
winter or early this spring that will reflect all
available information on material cost and the
extent to which risk is shared by the private and
public sector.”
So, what’s to keep huge and politically muscular
construction companies from asking for the sky and
the moon? The brake of last resort is the Federal
Transit Administration, which has a treasure chest
of $52.6 billion over six years to spend on new
public transit projects across the nation. The
Dulles rail project comes under the “New
Starts” part of the recently passed law with the
ponderous name of the “Safe, Accountable,
Flexible, Efficient Transportation Equity Act –
A Legacy for Users” (known by Washington
insiders as “SAFETEA-LU”).
New Starts provides
federal funding for a plethora of rail and light
rail public transit across the country. The
biggest projects include rail and light rail in
Portland, Ore., Seattle and the Dallas-Fort Worth
area. New Start’s budget for fiscal year 2007 is
$8.9 billion, with a pool of $1.5 billion
earmarked for discretionary projects. Rail to
Dulles would compete with other projects for a
share of the discretionary funds.
As of last spring’s estimate, all of
Rail to Dulles' Phase One
including build-out is estimated to cost $2.1
billion. Some $900 million of that would come from
the Federal Transit Authority and New Start. About
25 percent of the sum, about $525 million, would
come from the state of Virginia through Dulles
Toll Road revenues, while another 25 percent or $525
million would come from Fairfax County through a
special tax district set up by private business
entities along the rail corridor. A source for
about $125 million, or any overruns, has yet to be
identified.
If
FTA funds the $900 million for Dulles
rail, that is equivalent to 60 percent of its budget for the
entire country for fiscal year 2007.
The feds won't pay the entire sum in
one fiscal year, but the comparison shows how big Phase
One is compared to the funds available.
That
makes Rail to Dulles problematic because,
observers say, the
FTA is under enormous pressure from
members of Congress to spread the transit pork
around.
“The FTA is there to delay things so they can
satisfy all those Congressmen on Capitol
Hill," says Ken Reid, an
anti-Dulles rail activist and a city council
person in Leesburg. "They all want money for the transit projects in
their district, so the bureaucratic game is to slow
things down so they don’t give all away to
projects in a few districts."
Whether Reid’s analysis is
correct or not, the
FTA does have a complicated system to assess
whether projects should be funded or not. A
complex matrix considers such factors as how many
automobiles are
displaced by rail, how many minutes of car
commuting are saved and how many low income
neighborhoods are served, to ensure that the project is economically
efficient, socially just and politically justifiable. The FTA doesn’t have
the power to nix projects outright, but it can
recommend withholding federal funding -- a club
that Virginia's congressional delegation takes
very seriously indeed. Says one FTA official:
"We rate projects nationally."
Because
the Dulles Rail Project is one of the top
three projects in the New Start program, it is getting
special scrutiny. The FTA is wielding enormous pressure on
how fast the Dulles project proceeds, what form it
will take and what physical and financial
requirements will be made.
If there's one thing
that everyone associated with the project agrees
upon, it's that the project cannot proceed without
the federal contribution. The state's
transportation coffers are nearly empty.
The
difficulty, sources say, is that when FTA runs the projects
numbers through its New Start matrix, Dulles
rail looks marginal. That's why this summer
the Kaine administration pulled the plug on the
idea of running a tunnel underneath Tysons Corner
-- an option favored by a broad cross-spectrum of
developers, conservationists and civic boosters.
(As
an aside, the tunnel controversy shows just how
squishy the numbers are. One group
estimated $200 million for the tunnels, while other
group of engineers thought $250 million would do
it. Bechtel and WGI, meanwhile, came in with a
whopping $800 million figure.)
When
federal officials ran the tunnel numbers through
the FTA matrix, they blanched, says Homer. “They told us, ‘You can’t even
show us what the numbers for the tunnel are. Even
$200 million more might be too much and put it
over the edge." Despite his earlier
support for the tunnel option, which was better
suited to re-developing Tysons Corner as a more
cohesive, pedestrian-friendly urban center, Gov.
Timothy M. Kaine nixed the tunnel in favor of aerial
tramways over Tyson Corner.
The tunnel story shows the importance of another
nebulous consideration: the time sensitivity of
the project. One reason
FTA administrators strongly advised against the tunnel plan was
that it would add months to the
construction time, which could jack up the
overall price considerably. As Homer notes, “You
have to be able to move in and build these
quickly."
FTA
officials are notoriously tight lipped. They
refused to illuminate their thinking about the
Rail to Dulles project for Bacon's Rebellion. And their
decision- making process has been opaque to
state officials. One conclusion that Homer drew from the
tunnel controversy, however, is that there is a ceiling
price for Phase One. Says he: "The FTA
cost/benefit analysis effectively caps Phase One
at from $2.3 to $2.4 billion.” If Homer’s
deduction is correct, it
means there isn't much room for cost escalation.
If history is
any guide, even that figure may be off. Bill
Vincent, general counsel of the Washington-based
Breakthrough Technologies Institute and a
proponent of Bus Rapid Transit, notes that only 10 years
ago, the estimate for the entire Dulles rail line
was a mere $1.45 billion.
The 1997 study that came up with the figure
was done by engineering Parsons Brinkerhoff, which
was a partner with Bechtel in the ill-fated “Big
Dig” in Boston. “If you go back to that
figure, all you see is one escalation in price
after the other,” Vincent says. The final cost
figure, assuming the project actually gets built,
is anyone’s guess.
--
November 13, 2006
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