Archive | May, 2011

Public projects, political capital, and the sunk cost fallacy

How the sunk cost fallacy, particularly applied to political capital, can cause public officials to insist on the timely completion of dubious projects.
A few months ago, I went “meta” and did an article on the Gordian knot of compromises the political process forces on public projects (and on private ones, too; though we seldom get to see the dirty laundry that results from corporate cock-ups). This article, likewise, switches gears from the nitty-gritty of transport projects and politics to the higher-level topic of what forces drive public policy decisions. Today’s article is dedicated to the Sellwood Bridge replacement project and the reaction to the news that Clackamas County voters are unwilling to help fund the project.

Rather soon after the vote was announced, Multnomah County commissioner Deborah Kafoury had this to say:

Now that Clackamas County voters have spoken, we will roll up our sleeves to try to complete this important project without their help. Safety concerns dictate that we must fix the badly deteriorated bridge, the busiest two-lane bridge in Oregon. Replacing the bridge must remain our top transportation priority.

This prompted a few howls of outrage those opposed to the project or its funding scheme (including a regular PT contributor who is a well-known local transit critic), noting that the campaign in favor of Measure 3-372 suggested dire consequences, including possible closure of the current bridge (which is in poor structural condition, and already closed to large vehicles, including trucks and busses) if funding is not secured.

I’m not going to debate here whether the “yes” campaign crossed any ethical lines. Bluffing and FUD (fear, uncertainty, and doubt) are part and parcel of political campaigns, and the “no” side engaged in some rather speculative claims of their own–suggesting that approving a $5 vehicle license fee to help pay for this project would pave the way for many more such levies in the future (“its not just $5” was a popular campaign slogan used by opponents). But it was fairly obvious that Multnomah County was bluffing, somewhat–and that they are not about to permit the existing bridge to close without a replacement being built.

This article takes a look at why.

Sunk costs

There’s a well-known economic fallacy known as the sunk cost fallacy. In the sunk cost fallacy, already-expended (or committed) capital is cited as justification for continuing some course of action, even when that action may be no longer viable. Commonly expressed, it goes like “we’ve already spent $x on this, so we might as well finish it”. Rational analysis shows that the money spent is already long gone, so ought not factor into any decisions going forward–only future costs and benefits should be considered by decision-makers.

Why does the sunk cost fallacy frequently trip up decision-makers? It’s not because they can’t read a spreadsheet. In many cases, it’s because changing direction is tantamount to an admission of error. And in some cases, a decision-maker may have even higher personal stakes riding on a project than just ego or pride–in my professional career, I’ve been on several projects deemed vital to the health of the enterprise–with the clear implication that heads will roll if the project does not run to completion. Many of these projects ended badly, with heads rolling anyway.

Another way to approach the issue is to note that decision-makers are managing multiple different “resources”, only one of which is the money of the organization. Another is their personal political capital–in many cases, a manager (or an entire organization) will need to expend significant amounts of this in order to bring a project to fruition, with the payout only coming if the project completes. And political capital is typically spent all up front–if a change of direction occurs, the political capital is gone.

Yet despite this, a scene that plays out all too frequently in the boardrooms of the world is the executive asking the subordinate if he/she is willing to “bet their job” on a particular course of action. While such queries may be helpful in sniffing out BS (and in providing continual motivation once a course of action is approved), it effectively commits the subordinate to the project–and may cause her to defend the project even when common sense makes it obvious that the whole thing ought to be scrapped.

The public angle

Many aspects of the public sector make the sunk cost fallacy particularly troublesome. For one thing, most public works projects are financially back-loaded: most of the money isn’t spent until concrete starts to pour. Given that, prior to the start of construction, there ought to be ample opportunity to explore options and ensure that the project is really the right thing to do. The Columbia River Crossing is often criticized for the over $100 million spent on planning to date, but that figure is still a drop in the bucket compared to the over $3-$4 billion the project is expected to cost (a figure which many critics think is ridiculously low).

Yet the project sponsors are proceeding as if there is a gun to their heads, effectively declaring the current plans closed to any significant modifications. Project leaders, and their sponsors in Salem and Olympia, speak of deadlines and dates as though their life depended upon it–even though the project hasn’t secured all its funding yet, and is facing harsh criticism from many quarters.

One likely explanation is that many involved in the project–Governor Gregoire, to a lesser extent Governor Kitzhaber, and numerous officials in both DOTs, have bet a lot of political capital on the project, and thus have quite a bit at stake in seeing it run to completion. Many sponsors of the project all have their wants and desires, and have been promised these (ample highway lanes, green elements like light rail and ped/bike facilities)–and are expecting that they be delivered. A significant change in the project’s direction would cause many of these fine upstanding public officials to lose face–and in the case of the elected ones, would provide plenty of ammunition for political opponents. (Both Kitzhaber and Gregoire won election in close races).

In the case of public projects, time is also an important factor for many reasons. If Federal funding is involved, the NEPA process is a major headache; significant changes can add significantly delay. Securing funding requires lots of delicate negotiations, and grants often come with expiration dates–delays in the planning phase can jeopardize the receipt of funds needed for completion. There’s also the factor that politicians like groundbreaking and ribbon-cutting ceremonies, and often would prefer that these happen during their terms in office.

Finally, public-sector projects frequently attract political opposition of a nature not found in well-run private companies. (In a well-run company, disputes over the necessity and/or parameters of a project are swiftly ironed out, and bad-faith participants are removed. That said, there are many poorly-run enterprises where it is not unusual to find employees or entire departments trying to undermine the projects and initiatives undertaken by some other part of the company). But what is often considered a bug in the world of business, is a feature in democratic politics. And political actors often try to throw wrenches in the gears of projects they oppose (or which are associated with political adversaries), and this is considered all part of the game.

One way to do that is to propose major changes in a project mid-course–which is one reason that savvy decision-makers will regard any such proposals offered later in the project with suspicion. Picking on the CRC again–proposed design changes promoted by Portland mayor Sam Adams were pretty-much rejected out of hand by the project committee and by the governors–who all but accused the mayor of offering proposals in bad faith in an attempt to gum up the works on a project whose current direction the City of Portland is adamantly opposed to. And it wouldn’t surprise me to learn that this–along with the whole “iconic bridge” shtick, is exactly what Sam was up to.

Back to the Sellwood

Given that, it’s rather obvious that “we may have to close the bridge if this doesn’t pass” was a bluff. The Multnomah County commission has invested quite a bit of political capital (and planning dollars) into the current project, and thus isn’t going to fold up shop just because Clackamas County voters aren’t willing to contribute to the project. (Likewise, Milwaukie MAX is proceeding on schedule despite all the controversy around its funding, and despite the likely prospect of Clackamas County voters overruling the generosity of their commissioners on this project as well. At this point, no county ordinance has been passed to allocate the funds, so there’s nothing for opponents to refer to voters–but it’ll happen).

In some ways, this is unfortunate. The withdrawal of Clackamas County’s funding share provides an opportunity to reconsider the Sellwood Bridge project (there is much about it that I don’t care for). Asking one county’s voters to help pay for another county’s infrastructure is indeed unusual, especially when the design of the project isn’t particularly geared towards the users from the other county, so I’m not entirely unsympathetic to Clackamas County voters. More on this will come on my next article.
But it appears that instead of taking advantage of this opportunity, Multnomah County intends to press on. To be fair, given the decrepit state of the current bridge, time may be really of the essence–and that significant delays in the project might result in the existing bridge being closed without a replacement in the pipe.

But from here, it looks like there’s a lot more riding on the current bridge project than bikes, busses, and cars.

How TriMet loses over $85k/year to credit card thieves.

Credit card thieves are buying TriMet passes with stolen credit cards and reselling them to transit users for cash (at a discount), costing the agency $85k per year.
The Oregonian‘s Joseph Rose has the story.

Apparently, credit card thieves have figured out a good way to quickly turn stolen plastic into cash before the theft is discovered and the card is cancelled: Use them at TriMet ticket machines to buy monthly TriMet passes ($88), a transaction which does not require any identification, PIN number, or signature, and then sell them for cash (often $20) to transit passengers.

What happens when this occurs? The thieves, assuming they are not caught, get the $20. Whoever buys these passes gets a good deal on the pass–as TriMet passes are non-electronic and non-personalized, there is no way for the agency to revoke the pass. The person whose card it is, assuming the theft is properly recorded, gets their money back. The loser? TriMet, who has to eat the chargeback. According to Rose, TriMet lost over $85k last year to this scam.

Much of the problem stems from the fact that no ID, PIN number, or other form of security, other than a credit card, is needed to purchase monthly passes at vending machines. TriMet could upgrade the security of its ticketing machines (bank ATMs require PINs and frequently come with cameras, if nothing else to snap pictures of fraudsters that could assist the police in catching them). But according to spokesperson Mary Fetsch, upgrading the ticketing machines to deter this sort of fraud would cost more than what TriMet loses each year. As she put it, “its the cost of doing business”.

A better way to put a stop to this, and provide lots of other advantages to passengers–electronic ticketing. If nothing else, it would permit TriMet to revoke fraudulently-purchased passes, so it isn’t providing free bus rides–and were TriMet to crack down in this fashion, word would probably get out and there would no longer be a market for stolen passes in the first place.

PBOT Meeting on Potential Bike, Pedestrian Project Applications

This is kind of interesting. My belief is that in the past, PBOT’s decisions about what projects to submit for the Metro Flexible Funds process have been internal. I’m intrigued to see a public input process here.

May 13, 2011
FOR IMMEDIATE RELEASE

Contact:
Dan Anderson
503-823-3723
dan.anderson@portlandoregon.gov

Transportation bureau announces public meeting to discuss potential bike, pedestrian projects

PORTLAND, Ore. — The Portland Bureau of Transportation will convene a public meeting to receive input on potential applications for federal transportation funds for bicycle and pedestrian projects under Metro’s Regional Flexible Funds (RFF) program. The meeting is scheduled for June 1 from 6 to 8 p.m. in Room B of The Portland Building at 1120 SW Fifth Avenue.

Metro forecasts that $70.7 million in federal Surface Transportation Program and Congestion Mitigation and Air Quality Improvement Program funds will be allocated to the Portland region in fiscal years 2014 and 2015. While some of these funds have already been dedicated to construction of rail transit projects or will fund other transportation programs, $22.5 million is available for local projects. Of that amount $16.9 million is designated for Active Transportation and Complete Streets projects, which are projects that add or improve facilities for bicycling and walking and access to transit. Portland will receive approximately $6.6 million of Active Transportation and Complete Streets project funding.

Projects must meet the criteria described in Metro’s 2014-15 project nomination process guidelines. These guidelines and further information about the regional allocation process can be downloaded from www.oregonmetro.gov/regionalflexiblefund (also attached).

Beginning in January 2011, City staff has been working with two standing City committees to identify potential projects: the Bicycle Advisory Committee and the Pedestrian Advisory Committee. These committees are comprised of citizens appointed by the Mayor.

City staff has developed five candidate projects based in part on input from the BAC and PAC (attached). At the June 1 meeting, staff will present these projects to a wider audience for consideration and comment. Members of the public will also have the opportunity to suggest alternative projects. On June 17, The City will submit summaries of up to five candidate projects to Metro.

Yesterday’s election results

The results from the May 17 2011 election are in, and here’s how transport and land use issues fared.

The results from yesterday’s election are in, and here’s how transport and land use issues fared.

  • Clackamas County voters rejected the $5 license fee surcharge to replace the Sellwood Bridge, 63-37. Opponents of the levy hailed this as a victory of suburban values over urban ones (“in Clackamas County, we drive cars”)–even though the primary users of the new bridge (as well as the current one) would be automobiles. Multnomah County officials stated that they would look at other options, including deleting the big interchange with OR43 on the west end–a design feature which has been roundly criticized, but on which quite a bit of state funding is conditioned.
  • Voters in the city of Damascus rejected their comprehensive plan.
  • In Washington County, voters in the North Bethany area north of Beaverton approved a permanent tax levy to help fund the area’s transportation needs.

Thoughts and comments? In particular, what ought to be next for the Sellwood Bridge replacement?

Everything is Going 3D

Portland State University
Center for Transportation Studies
Spring 2011 Transportation Seminar Series

Speaker: Christopher Yake, Senior TOD Project Manager, Metro

Topic: TOD in 3D: How Transit Oriented is the Portland Region?

Abstract: If a two-dimensional picture is worth a 1,000 words, how much more can 3D imagery convey? As part of its recently completed Strategic Plan, Metro’s TOD Program in Portland, OR has developed a new GIS -based transit orientation tool to analyze and compare the readiness of its station areas and corridors for higher density mixed-use development. For the purposes of better capturing a more holistic view of the built environment, this innovative measure expands on the 3 “D’s” of density, diversity, and design by adopting the 5 “P’s” of people, places, physical form, performance and pedestrian/bicycle connectivity. Given the program’s interest in catalyzing near-term private development, it goes further to incorporate a strong “market strength” component. In addition to describing the tool and its future implementation, the presentation will demonstrate how the TOD Program developed and used two- and three-dimensional maps and graphics to help convey the complex methodology and findings to a broad audience of policy makers and stakeholders.

Chris is a Senior TOD Project Manager with Metro’s TOD Program in Portland, OR. Along with managing public-private development projects near transit, he led the recently completed TOD Strategic Plan and is participating in corridor planning region-wide. Prior to Metro, Chris specialized in TOD in the public and private sectors.

When: Friday, May 20, 2011, 12:00 – 1:00pm

Where: PSU Urban Center Building, SW 6th and Mill, Room 204