Privatize to Solve Government Cost Overruns

May 21, 2015

On large and complex government projects, costs will double from the original estimates. This tendency is called Edwards’ Law of Cost Doubling.   

The Wall Street Journal reports on the PATH rail station at the World Trade Center. Edwards’ Law was in effect:

… it has become a budgetary boondoggle, its cost doubling to nearly $4 billion, which gives it the unenviable distinction of the world’s most expensive train station.

Some people are blaming the project’s architect, Santiago Calatrava, for the problems. But,as I noted here, the real causes seem to have been political squabbling and mismanagement by the overgrown Port Authority of New York and New Jersey (PANYNJ). The WSJ notes:

But at the World Trade Center, Mr. Calatrava’s travails signal broader disharmony and discord at the country’s most recognizable construction project. The nearly 14-year effort—for which his firm has collected more than $80 million, according to a person familiar with the payments—has been marred by frequent public fighting between the governmental and private parties involved.

Bursting budgets throughout the 16-acre site have weighed heavily on the Port Authority of New York and New Jersey, the body that owns the site. The agency has delayed other projects like renovations of the region’s airports, and tolls on bridges and tunnels to New Jersey have more than doubled in recent years to raise revenue.

Attention by agency officials and observers has focused on the PATH station, largely because it has suffered the biggest overruns and lengthiest delays. The new station for PATH, which stands for Port Authority Trans-Hudson, is scheduled to mostly open late this year, a contrast with the 2007 date targeted when state officials requested money in 2003 from the federal government for the project.

… State officials wanted it to be an anchor for lower Manhattan with an iconic design on par with Grand Central Terminal. “It was the kind of environment that inspired grand visions,” said Elihu Rubin, an architectural historian at Yale University. “The risk for overruns was there from the start. The politics of rebuilding can generate relatively modest cost estimates, when more realistic budgeting would make desirable projects seem out of reach.”

I have often highlighted government cost overruns, such as hereherehere, and here. TheWSJ story mentions two further examples. Edwards’ Law was again in effect:

… The experience at the [PATH] station has been mirrored by numerous other large-scale infrastructure projects in New York. Among the projects are the Fulton Center subway station revamp, which cost $1.4 billion, almost double the initial $750 million estimate, and the creation of a new station for Long Island Rail Road under Grand Central currently under way, set to cost as much as $10 billion, up from a planned $4.3 billion.

What is the solution to such hornswoggling of taxpayers? It is to privatize as much infrastructure as possible. The Bridgegate scandal, for example, should have prompted the privatization of the PANYNJ. It is a sprawling bureaucracy that runs bridges, tunnels, bus terminals, airports, and seaports, as well as rail transit and real estate development.

Why run these business activities as government bureaucracies? All these things could be done better by private businesses, and they are done by private businesses in cities around the world. PANYNJ owns five airports including LaGuardia and JFK. Why not split them apart, sell them to entrepreneurs, and have them compete against each other?

New York City is the center of global capitalism. It has a dynamic and entrepreneurial private sector. The city should be setting the pace for privatization reforms, not embarrassing itself with a showcase of mismanaged government projects.


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