Commentary: Overrunitis

Long Island Business News, Oct 3, 2003 by Long Island Business News Staff

Governments tend to be wasteful because they replace competition with monopoly protection and market pricing with costly regulations.

At least that's the conclusion of policy analyst Chris Edwards, who recently studied a series of federal projects that suffered major cost overruns. Government project overruns are not the exception to the rule, they are the rule, Edwards argues.

High on his list were Boston's "Big Dig," the 1996 Farm Act and the international space station. Edwards points out that government officials said in 1985 that "Big Dig" highway project in Boston would cost $2.6 billion and be done by 1998. In fact, it's cost $14.6 billion and isn't quite done yet. The space station has cost $30 billion, not $17 billion.

Agencies and programs that chronically overspend are the Department of Energy, Medicare and Medicaid, the Department of Transportation and the Department of Defense.

Government projects often turn into financial debacles because contractors who have completed a substantial portion of a project demand more money to complete it. In the case of the "Big Dig," government officials approved 3,200 individual cost increases, according to The Boston Globe.

As Long Islanders, we would nominate our abandoned Shoreham nuclear plant, which was supposed to cost hundreds of millions, not $5 billion (not to mention it was supposed to produce electricity, which it didn't). Although Shoreham wasn't a government project, the monopoly Long Island Lighting Co. fell back on innocent ratepayers the way federal officials turn to the taxpayers.

But miscalculation of costs in the early going isn't the only major reason overruns are systemic in government projects.

Edwards, of The Cato Institute, cites one study by Danish economists that concluded that overruns tend to stem from government deceit, not honest miscalculations. Politicians use what the economists called "salami tactics," where taxpayers are shown true costs only a slice at a time, wrote the authors of the report that appeared in the Journal of American Planning Association.

Also, in the race for funding, local promoters tend to lowball estimated costs and highball estimated benefits. So the Denver International Airport that was pegged at $1.7 billion in 1989 actually cost $4.8 billion in 1995 (and had a few problems with its baggage retrieval system).

The study makes a persuasive case that most infrastructure projects should be privatized, as should industry subsidies and space exploration. Surely, taxpayers have their hands full already with bloated national defense and health care projects.