The Washington Post reported the other day that there are more delays and cost overruns at the new Capitol Hill Visitor Center.
How should government officials decide on whether to fund big projects such as fighter aircraft, highways, bridges, and other types of infrastructure?
First, they should check the Constitution to see whether they are legally allowed to spend on the object in consideration.
Second, they should assume that the item will cost at least twice as much as initial estimates indicate. There should be a 2-to-1 hurdle when the price tag of a project is being considered.
The Washington Post reported yesterday that the cost of new combat ships from Lockheed Martin and General Dynamics will likely be at least $350 million each, instead of the originally budgeted $220 million.
That 59 percent cost increase is routine for big federal procurements. The table below summarizes official government estimates of costs for various defense, energy, and transportation projects.
The Washington Post reports yesterday on cost overruns for weapons procurement. “It is not unusual for weapons programs to go 20 to 50 percent over budget, the Government Accountability Office found.”
That’s for sure. As I’ve documented, it’s not unusual for weapons to more than double in cost. I’m talking about the F/A-22 Raptor, the V-22 Osprey, the CH-47F helicopter, the Patriot missile, and on and on. See here, and see the discussion in Downsizing the Federal Government.
The same pattern occurs in federal highway projects, energy projects, and many other government endeavors.
Part of the reason this occurs is that contractors and government officials have a quiet understanding that the initial cost numbers that are used to get projects launched should be low-balled. Both sides know that later on, after projects are underway, excuses can be found to raise the price tag. “The scope of work has expanded.” “We couldn’t have foreseen those additional problems.” “The mission requirements have changed.” “There are new regulatory requirements.”
On August 18, the Washington Post ran a story on the post-9/11 technology investments at the FBI. The story concludes, “five years after the Sept. 11, 2001 terrorist attacks and more than $600 million later, agents still rely largely on the paper reports and file cabinets used since federal agents began chasing gangsters in the 1920s.”
With Boston’s Big Dig highway project in the news, a brief review of the project’s finances is in order.
As the project was getting started in 1985, government officials claimed that it would cost $2.6 billion and be completed by 1998. The cost ultimately ballooned to $14.6 billion and new problems continue to arise as the project finally nears completion. (The federal share of the project’s cost was $8.5 billion). In 2004, hundreds of leaks were found in the project, which added millions of dollars in taxpayer costs. And in recent weeks, parts of new road tunnel ceilings have collapsed.
Raphael Lewis and Sean Murphy wrote an excellent Boston Globe series a couple of years ago revealing how the Big Dig had been grossly mismanaged. A key problem was that Massachusetts repeatedly bailed out bungling Big Dig contractors instead of demanding accountability. Contractors were essentially rewarded for delays and overruns with added cash and guaranteed profits.
When federal money is involved, state and local profligacy and corruption are usually the result. For background on the general problem of cost overruns on federally funded projects, see my compilation of evidence here.
The Washington Post reports today on the series of corruption scandals to hit Connecticut in recent years.
One scandal involved former Governor John Rowland, who was sentenced to jail for illegally accepting gifts. The Post quotes Rowland’s defense attorney lamenting that a new state legislature effort to crack down on corruption by imposing tighter rules will mean that “government will operate less efficiently.”
A new government auditor’s report finds that at least $1 billion out of $6 billion in one FEMA aid program for Hurricane Katrina was paid out fraudulently. Examples of waste ranged from $300 spent on Girls Gone Wild videos to $20,000 in aid paid to a state prisoner calling FEMA over the phone with a fake property damage claim.
As I discussed today with Bill O’Reilly on his radio show, FEMA’s wasteful spending is deep-seated and long-standing. A year before Katrina, there was Hurricane Frances in 2004. FEMA rushed in with aid and auditors later found that 12,000 claims were paid to residents not even hit by the storm.
At the time, USA Today said, “The findings are the latest to point at questionable disaster relief payments made by FEMA. Audits dating back at least a decade have shown similar problems elsewhere.”
What to do? The answers are in Downsizing the Federal Government.