The Transportation-Industrial Complex?

The California High Speed Rail Authority (CAHSRA), the entity charged with overseeing the design and construction of the proposed HSR line eventually intended to connect the LA Basin with the Bay Area (and other points as well), last week dropped a proverbial taco into the punch bowl when they announced a revised business plan with some Very Bad News: The project was now estimated to cost $98 billion dollars (in year of expenditure), and would not likely be complete until 2033. This caused some defenders of the project such as blogger Robert Cruikshank to swallow hard, critics of the project such as Randall O’Toole to gloat, and “technical” transit supporters such as Alon Levy to state that at that price, it ain’t worth it. Libertarian urbanist writer Stephen Smith, writing for Forbes, called it “the day the engineers turned against California HSR“. (Cruikshank and Levy continue a fascinating conversation here and here).

Portland Transport doesn’t normally cover transportation projects outside of the Pacific Northwest, with a focus on the Portland metropolitan area, so we’ll leave analysis of the particulars of CAHSR to those with more knowledge of the turf, but I wanted to focus on a comment by Clem Tellier, who wrote:

Agree, 1.5 bil for electrification is a ridiculously inflated sum. Like everything else. The fundamental issue is that we are seeing the emergence of a transportation industrial complex [emphasis added], very much like the military industrial complex and using the same tried and true playbook to transfer enormous sums of public wealth into private pockets.

Is this true, and to what extent?
Iron triangles
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The military-industrial complex, which Tillier’s words evoke thoughts of, is a well-known example of what political scientists refer to as an iron triangle–a tripartite relationship between politicians (particularly legislatures), administrative/regulatory agencies (which ideally ought not be too involved in politics or policy-making outside their areas of expertise), and private-sector special interests. Special interests lobby legislators and provide support for the ambitions of agency administrators. Politicians in turn draft legislation friendly to the special interests, provide funding to the bureaucracy, and may even include “earmarks” for specific projects, often designed to benefit specific political patrons. Bureaucrats provide political cover (often under the guise of technical advice and expertise) to politicians, and generate demand for the products and services provided by the special interests. In addition, private special interests and agency staff often share professional competencies and training, and there is frequently much cross-pollination (and personal contact) between the two.

Not all such relationships are necessarily corrupt. Many agencies and their staff (and outside supporters) are staunch believers of the importance of their organizational mission, and believe sincerely that their work is beneficial to society. The logical extension of this is more of such work is often considered more beneficial. Here at Portland Transport, we support public transit, and thus support, in the overall sense, the work performed by agencies such as TriMet, SMART, Portland Streetcar, C-TRAN, and Metro (though not always agreeing on specifics). And even if some special interest is seen to profit “unfairly” from a public service agency, this is not necessarily a badthing–many agencies still manage to provide usable public service despite private-sector skimming; and wouldn’t otherwise be able to function. Plus, determining when an arrangement produces unfair profiteering is often difficult, and often in the eye of the beholder.

Sometimes, two sides of the triangle will overpower (or even seek to harm) the third–bureaucracies and special interests can often overwhelm a legislative body which is composed of amateurs or is politically constrained; alliances of politicians and special interests can often completely disable an administrative agency from its intended purpose, and alliances between the legislature and the bureaucracy can give rise to political machines which then seek rents from the private sector.

The above model, which focuses (particularly the picture) on the United States government and its agencies and contractors, gets further complicated when multiple levels of government enter the picture, such as occurs when a standalone transit agency has to deal with Uncle Sam, state government (including a politically-isolated departments which are subject to limited political oversight), a regional MPO, and numerous county and city governments, some of whom may be openly hostile to its mission.

Critics of transportation policy, on both the left and the right, have been complaining of a transportation-industrial copmlex for years; so this certainly isn’t a new idea. (Far too many critics, though, focus on one segment of transportation or another–conservatives often painting transit agencies as corrupt, and liberals attacking road agencies. Certainly, this blog has taken its fair share of shots at ODOT over the years, and many criticisms of the CRC center around the belief that it represents pork-barrel politics of the worst sort). It’s also important to note that labor can frequently be part of an iron triangle; this is an issue of particular importance for public transit, as both transit and organized labor tend to side with Team Blue in US politics. (Given that transit is more labor-intensive than roads and highways, this correlation might well not be accidental).

So how do you tell?

How does one identify agencies which are acting more in the interests of political patrons rather than the public they are chartered to serve? This section focuses on agencies, as it is assumed that private-sector actors will always seek to advance their own self-interest (and have no fiduciary duty to do otherwise, beyond what the law compels), and that politicians likewise are prone to self-interested behavior (and in many cases, are not sufficiently informed in the dirty details to make informed nuts and bolts decisions on their own). In some cases of agency under-performance, the agency (particularly its directors) may be actively complicit, in other cases, the agency may simply be a political football, subject to the whims of outside powerbrokers, and unable to set its own agenda without their leave. (It is important to know the difference; for the cure is not the same).

Agencies which are more likely to be compromised in this fashion often have the following attributes.

  • A complex mission involving many players and constraints. The existence of large numbers of over-constrained projects may be a sign that an agency is not adequately paying attention to its mission. Projects that span multiple jurisdictions (such as the CRC or CAHSR) are by nature complex, and likely to attract larger numbers of thumbs in the pie than projects within a single jurisdiction; but if every project an agency does is chock full of compromises; it may be a sign that the agency’s ability to serve the public interest may be compromised.
  • Poor oversight. Poor oversight can come in two forms: Oversight which is weak and ineffective, and oversight which is hostile. Agencies which are politically and financially isolated from the voters can develop into fiefdoms, and become unmoored from the public interest. Agencies with too much oversight, on the other hand, can be essentially prevented from fulfilling their goals. There really isn’t a good one-size-fits-all solution here, as in many cases the competence of an agency will be dependent on the personalities leading it (and influencing it from outside) as on organizational structure; if the folks calling the shots are on the take, the agency will underperform.
  • Politically weak customers When the customers of a public service (those who the agency is nominally designed to benefit) are politically diffuse, and especially when they are poor–and thus less likely to be able to effectively wield political power capture of an agency by special interests is more likely. A key force which keeps an agency focused on its mission is feedback from its customers, delivered in various forms of increased (or reduced) patronage or political support; but when the customers are not in a position to deliver this feedback effectively, then the agency may find itself susceptible to other needs.
  • Supplier restrictions. The existence of monopolies and/or oligopolies among key suppliers of an agency can be a problem, as can legislative restrictions on with whom an agency does business, such as Buy America laws or other legal preferences for specific (often local) vendors; legal requirements to use union contractors or pay prevailing wages can also have the same effect. Many of these requirements are often defensible as public policy, especially when globally applied; however in some cases they are targeted toward specific agencies.

Specific signs that an agency might be in trouble include the following.

  • Criticism from friends. Opponents to an agency’s mission can be counted on to attack it on all sorts of grounds, including the grounds that it doesn’t carry out its intended purpose adequately. Such complaints can often be safely ignored. When an agency is criticized by its supporters, however, this can indicate a problem. While not all critics are friends, some are; and such advice is worth paying attention to.
  • Cozy relationships with suppliers. Other inappropriate or too-cozy ties between an agency and its contractors are often red flags. Suspension or misapplication of normal bidding rules is seldom a good sign, as are practices such as putting a private agency in charge of a project, or excessive reliance on design-build contracts (where the same firm provides engineering and construction services, and doesn’t produce the detailed design specifications which would permit an independent contractor from performing the construction work, and which serve as evidence that proper due diligence was performed in the design phase).
  • Costs that increase faster than inflation. One curious thing about the recent Great Recession (or Lesser Depression) that so far, the cost of public projects haven’t gone down much–despite there being a great deal of slackening in the broader economy, and much unused capacity therein. In such an environment, Econ 101 teaches that prices ought to go down, not up. While counter-cyclical stimulus helps to oppose this effect, and much economic counsel cautions against permitting deflation to occur, what has happened in practice is that unemployment has had less of an affect on wages and prices than one might suspect.
  • Projects which routinely go over budget, particularly after design is complete. Some cost inflation in the early design phase, as a project evolves from lines on a map to detailed blueprints and construction plans, are inevitable. And sometimes things happen in construction which are unavoidable, particularly when a project isn’t run-of-the-mill. But a history of projects which are over budget may be a sign that featherbedding and gold-plating are occurring–or worse, that fradulent cost estimates are being generated to garner public approval, and that the true cost of a project is withheld until significant amount of money is already expended.
  • Explicit touting of project goals that don’t align with the fundamental mission. If an agency chartered to do X starts to pursue projects on the grounds that they do Y instead, where the relationship between X and Y is weak, this may be a bad sign. In many cases, Y is often generic goals such “economic development”; where a project is intended to have a stimulus function. Use of public projects as an economic development tool isn’t itself a bad thing, particularly during a recession, and even blatant make-work projects can be effective stimulus tool, especially if they represent the introduction of additional money into a local economy (instead of redistributing local funds). However, if a project (or a series of projects) don’t advance an agency’s primary goals, then the question should be asked: Should something else be done instead?

Whither Oregon?

The CAHSR business plan had a major effect on public perceptions of the project, as it led a great deal of credence to the notion that the project has run off the rails. Some of CAHSR’s problems are due to political infighting among California cities and counties, as some of them compete to have the route run close to (or in some cases, away from; particularly if there is no station involved) their territory. The project has attracted well-funded opposition from the petrochemical industry and its allies. California politics is notoriously dysfunctional in many ways, so perhaps some of this was inevitable. However, the projected cost of the project given in last week’s report, more than double the prior estimate, has caused many to suspect that Parsons-Brinkerhoff, the design firm leading the project, is not at all interested in cost control–and may in fact be filling in a blank check with as many zeroes is it can fit in the box.

But what about transportation agencies located within Oregon–particularly ODOT and TriMet, who are routinely involved with large capital projects of the sort which are likely to attract rent-seeking special interests?

It is useful to compare ODOT and TriMet against the factors listed above:

  • Over-constrained projects: The CRC is a prime example of a highly-constrained project, one spanning multiple jurisdictions with competing visions for the result. (It is also constrained by physical factors such as the location of the Columbia shipping channel, the nearby airports, and the downstream rail bridge). Not all projects undertaken by the agencies are overly constrained, however; which is a good sign. TriMet, as a regional transit agency, also has many municipal governments that it deals with, not to mention the state and federal government on its large capital projects. (And it too is involved in the CRC). Both agencies have to deal with complexity, and may encounter many trolls when trying to cross the proverbial bridges.
  • Oversight Both agencies have somewhat weak political oversight, somewhat by design. TriMet is run by a governor-appointed board of directors; it has been a source of complaints that most Oregon transit agencies (excluding those like SMART run by municipalities) have boards that serve at the pleasure of the Governor, as opposed to local officials or electors. TriMet also has an independent funding base; which limits the state legislature (for good or bad) from using the power of appropriations to influence the agency. ODOT is similarly isolated from political opinion, also having a governor-appointed board, the Oregon Transportation Commission. Unlike the TriMet board, whose members serve at the governor’s pleasure, OTC members may not be fired mid-term. Both boards are generally staffed with lawyers, accountants, and business or civic leaders (sometimes from fields with a potential conflict-of-interest), rather with policy experts on the subject matter at hand, nor with advocates for end-users (particularly those among the general public who lack effective political clout). One notable exception is TriMet’s Lynn Lehrbach, a labor leader with the Teamsters (and a frequent critic of the agency’s direction).
  • Weak customers. TriMet, like transit agencies in general, suffers from the weak customer problem: Many of its customers are poor and disorganized. While groups such as OPAL have shown some effectiveness in organizing transit riders and getting TriMet’s attention; the clout of OPAL pales in comparison to the many professional and business interests who kibbitz on regional transportation planning. The weak customer program is less severe at ODOT; motorist lobbies (such as the AAA) are effective at representing the interests of drivers at large, and the roads have many commercial users that are able to bring concentrated political power to bear–trucking companies and other commercial shippers (and their industrial customers) frequently agitate for better roads.
  • Supplier restrictions. This also is an issue for transit agencies in the US, including TriMet, as there are often limited numbers of engineering firms and contractors who possess the competence to do major transit infrastructure projects, particularly those involving rail, Federal funding, or both. (The amount of red tape Uncle Sam imposes on those who do business with it is immense). Transit agencies and projects are also subject to the 1982 Buy America Act, whereas road projects are not, a requirement which often increases costs. There are far more design and engineering firms in the roadbuilding business, so this is probably a less severe problem for ODOT.
  • Criticism from friends. Both agencies have been subjected to strong criticism from quarters which are generally considered allies. The CRC is widely regarded as being mismanaged and as pork; and the state DOTs earn the lion’s share of the blame; much of the criticism has come from conservative groups (particularly taxpayer watchdog groups) and business interests who smell a rat. TriMet, for its part, has been subject to whithering criticism on the left (in addition to barbs from the usual suspects on the right who object to publicly-subsidized transit for various reasons) flatly accusing the agency (and its planning partners) of pork-barrel politics. There is a perception among some riders that TriMet’s capital projects are actively contrary to the interests of riders, representing money that is being diverted from providing better service or lower fares in order to line contractor’s pockets. TriMet does seem to believe that its chosen course is correct, but many of its users aren’t buying it.
  • Supplier relationships. Both agencies have been accused of too-cozy relationships with the engineering, contracting, and real estate industries. The effect of transportation infrastructure on land value is old news, and the construction lobby (including both design and contracting firms and related labor unions) is highly politically effective, and a major recipient of dollars expended on major infrastructure products. In addition, many in the transit industry actively promote the concept of “transit-oriented development” (panned by critics as “developer-oriented transit”); wherein land-use goals are explicitly part of transit projects. While the relationship between the two isn’t unreasonable (land use has a significant effect on the quality and efficiency of transit), it has bad optics–particularly when new developments as opposed to existing neighborhoods are provided with new transit infrastructure. ODOT, for its part, has been burned several times when dabbling with questionable practices such as “design-build” contracts.
  • Rapidly increasing costs. This is readily observable with the transportation industry nationwide; and the effect has been pronounced at TriMet. The original eastside MAX, built in 1982-86, cost $214 million (approx $400 million in 2010 dollars) for 15 route-miles, or approximately $27 million/mile. Westside MAX (1993-1998) cost $963 million (approx $1.4 billion in 2010 dollars) for 18 route-miles, or ,$78 million/mile; the project included the Robertson Tunnel. Airport MAX (2001) cost $125 million ($155 million in 2010 dollars) for 5.5 miles ($28 million/mile). Interstate MAX (2000-2004) cost $350 million (approx $400 million in 2010 dollars) for 5.8 miles, or $69 million/mile. The Green Line and the Transit Mall extension(2007-2009) cost $575 million for 8.3 miles ($590 million in 2010 dollars, $71 million/mile). Milwaukie MAX, however, comes in at an estimated cost of $1.5 billion in YOE dollars (about $1.4B in 2010 dollars) for 7.3 miles, or about $200 million/mile, including the new bridge. However, planned road projects are similarly expensive–the proposed Sunrise Corridor freeway project in Clackamas County (as yet unfunded) is also in the $1.5 billion range for a facility of similar length.
  • Over-budget projects. Here, we get to say something nice about TriMet–if there is one thing the agency does do well, it’s to keep its projects on budget and schedule. (One person we have to thank for this is the former capital projects director and current GM, Neil McFarlane). The MAX projects have all generally come in on time and on budget; the one difficult MAX project was the westside MAX, where geological difficulties drilling the Robertson Tunnel caused the first phase of the project to be delayed–resulting in a single opening of the westside line, rather than the original plan of an initial line to Beaverton and a later extension fo Hillsboro. The same cannot be said for ODOT, which has seen quite a few major projects go ridiculously over budget. Probably one of the worst examples is the still-not-complete Pioneer Mountain-Eddyville project on US 20 between Corvallis and Newport–this project was supposed to be finished years ago, but has suffered numerous delays. ODOT approved a design-build contract, and it wasn’t discovered until work started that the chosen route went through an active landslide area. While ODOT is trying to make the contractor eat some (or most) of the cost overruns, the contractor is pushing back, and don’t be surprised if this ends up in court.
  • Non-fundamental goals. The issues and controversies around transit-oriented development have already been mentioned; needless to say, many do not consider land use issues to be a legitimate concern of a transit agency. While much of the land-use goals are pushed by project partners such as Metro and various municipalities; TriMet tends to get the credit/blame for the resulting decisions, leading to cries that it is ignoring its main mission–providing transit service–to promote upzoning and urbanization. Both TriMet and ODOT also regularly toot the “economic development” horn in selling projects. While all of the MAX lines so far do serve important mobility goals, a few other projects that the region is considering are viewed by many as having a negative impact on mobility.

The danger, and what can be done

TriMet, despite the strong transit culture in the Portland metro area, is exposed to significant political risk–far more so than ODOT. Unlike the road system, which hauls freight (and thus directly impacts the bottom line of local business), TriMet’s patrons are primarily individuals, so it has less of a political support base. Being a transit agency, it has significant and well-funded organized ideological opposition from a variety of groups–libertarians and taxpayer-advocates who object to its public funding, suburban and rural interests who view it as urban pork, motorists who view it as a diversion of transportation funds which ought to go to roadbuilding, those who associate transit with crime and poverty; petrochemical interests who oppose any alternatives to gas-guzzling private automobiles, and a few who even regard it as an instrument of totalitarianism. It is safe to say that few of these groups are terribly interested in transit outcomes or in improving the lot of the transit rider.

The risk is, that if TriMet (or any similarly situated agency) is seen as corrupt; the public may demand reform–and that those who oppose the agency’s mission will be given the job. We’ve seen examples in several other states, where conservative governors won elections and started cancelling projects and defunding agencies left and right. TriMet may have dodged a bullet last November–who knows what actions a Governor Dudley might have taken had he and not John Kitzhaber won the election. It’s a lot easier to break things than build things in politics–projects cancelled in states like Wisconsin, New Jersey, and Florida may well be set back a decade or more, simply because of the complicated nature of large-scale infrastructure projects. (I don’t speak of the engineering effort–old designs can generally be taken off the shelf and re-used; I instead speak of the political decision-making and funding process).

This is a quandry for organizations like TriMet: What would happen–long term–were they (and Metro) to announce a moratorium on capital projects? Many ideological critics probably would not be silenced; and many political allies would vanish–and possibly become adversaries should they find money to be made in competing infrastructure. And the money not spent on transit projects wouldn’t magically be returned to taxpayers; it would instead be spent on other things (projects elsewhere, or on road projects). And as a practical matter, the region would lose hundreds of millions of dollars of federal funding–money which is essentially “free”. (It’s not free of course–our tax dollars fund Uncle Sam–but declining federal grants won’t reduce our income tax bills any). But in building these projects–even those with inherent worth, and which have clear benefits to transit users–the agency thus needs to lie down with the dogs, enabling its critics to point out it has fleas.

What might be done?

  • Publicly focus on capital cost control. TriMet, out of necessity as any other reason, has been reining in its operational costs due to the recession. Service has been cut, while fares have been raised. Non-union employees have already been subject to paycuts, benefit reductions, and layoffs, and the agency is engaged in a very public fight with ATU757 to impose the same on its unionized workers–in both cases, people are being asked to do the same work in exchange for less money. However, we haven’t seen any similar efforts in capital cost control. TriMet hasn’t demanded that its design and contracting firms accept a smaller fee for their work, at least not in public. The negotiating dynamics are different–projects are longer-term entities than labor contracts, and harder to re-negotiate, and the agency may have far less leverage with its contractors than it does with its staff and customers (and much of the money is paid from grants), but there hasn’t been much of a public effort at cost control, other than de-featuring projects. At minimum, the agency (and its partners) might make some public noise about escalating construction costs, suggesting loudly that future projects may depend on cost control.
  • Shop around. The vendor pool, wherever possible, needs to be expanded–while there may be good reasons to continue to use the same contractors for the design and construction work (the existing lines do work well, for the most part), a little competition goes a long way to keeping costs down.
  • Change the metrics. This last item is essentially PR, but it’s useful PR. Right now, the number everyone focuses on is the YOE (year-of-expenditure) project cost, using the costing methodology dictated by Uncle Sam. While this methodology is useful in that it permits apples-to-apples comparisons, it also imposes quite a bit of sticker shock. Rather than boasting about “jobs created”, many of which are temporary construction jobs rather than long-term positions, TriMet could publish figures citing things like local cost (cost excluding federal grants and the value of public ROWs, which are included in the total cost), local tax revenues generated by the project, and the like. Many projects which look outrageous from one vantage point may not look quite as bad from another. I believe that many TriMet officials genuinely consider controversial (and expensive) projects like MLR to be beneficial; but there if that is true, there is a disconnect between the internal deliberations and the messaging, and into that disconnect can creep the belief that something is rotten in Denmark. To borrow an old joke, TriMet appears to be trying to sell sushi by marketing it as “cold dead fish”.

The bottom line: This is ultimately a political subject, and in politics it is perception that matters. Regardless or not if there is a “transportation-industrial complex”, and regardless if local agencies are a willing (or unwilling) part of a corrupt enterprise to bilk the public–there is a perception among many that this is the case. And for those of us who care about public transit–whether bus or rail, whether urban or suburban–this perception is fraught with danger.

3 Comments

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3 Responses to The Transportation-Industrial Complex?

  1. Jim Lee
    November 9, 2011 at 10:44 am Link

    Excellent again, Scotty.

    Yes, I have been harping about the Sellwood Bridge replacement for, lo, these many years, as it remains the poster project for everything you have discussed. But why am I the only one?

    Everyone, except the Multnomah County Commission, knows that a fully functional replacement could be built for less than $100 million. Back when Bechtel offered to do the job for about that. Gail Achterman, former OTC chair, told me that $80 million would suffice. Analysis of comparable projects suggests that clever design could drive the cost below $70 million.

    Not nearly enough for ODOT and its constructors! $330 million was their initial proffer, since reduced to $290 million–a real bargain for the thrifty! $135 million alone for the obscene and dysfunctional west side connection to highway 35, which is more than the entire cost of TriMet’s new bridge!

    Then there is Mike Pullen, a really nice guy and MultCo’s chief PR whiz, who runs the project. Ask Commissioner Deborah Kafoury, who nominally is in charge, about the project and you get escorted down the hall to Mike’s office. Ask MultCo’s auditor about its finances, and the same thing happens. A PR guy telling a commissioner what to do? A PR guy concealing costs from the auditor? A PR guy who knows nothing about bridges running the show?

    All very odd. All very strange. One might conjecture that ODOT and construction interests are calling the tune, if one did not know better.

    In comparison, I must give TriMet, especially especially its committee for the new transit bridge chaired by Vera Katz, very high marks for openness, objectivity, thrift. Please do not tar TriMet with ODOT’s brush.

  2. NJD
    November 9, 2011 at 7:27 pm Link

    ^You are not alone, most are less vocal about it.

    But is there really a problem here?

    Let’s see… let’s start with the 35% contingency = $101.5 million (Reasoning: “all mitigation measures are estimates.” Real reason: cost overruns are ‘business as usual.’) Now what’s left is $188.5 million for: new ROW ($25.8 million), new interchange at Hwy 43 ($58 mil plus contingency in FEIS, not $135 mil as quoted above), and a new interchange on East side ($1.2 mil), and everything else including a new bridge AND removal and disposal of an old bridge AND keeping traffic moving ($103.5 million).

    You know, $103.5 million is actually pretty cheap for a new bridge.

    So really, it’s that $101.5 million contingency that we should be watching out for.

  3. NJD
    November 9, 2011 at 7:39 pm Link

    Oops, my bad, the new Sellwood bridge is finalized at $268.8 million. Therefore all the numbers above are off.

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