Sunday, July 14, 2013

Mystery surrounds latest streetcar cost overrun

A curious announcement
A curiously-worded announcement came from City Hall in a Friday document dump designed to lessen the negative impact of the latest cost overrun of the Cincinnati Streetcar:
[The successful bidder] MPD has requested additional funding in the amount of $492,933 related to increased costs for materials and labor resulting from this delay. This is covered in the current project budget.

Funding history
But note the history from February of this year, when the Streetcar bids were opened until today:
1) The bid from the winning bidder, Messer Construction, was $26 million over the estimates prepared by the City and originally approved for funding by the Council. 
2)  The City then "value engineered" the project, scaling back certain components of the Streetcar capital construction budget, to bring that cost overrun down. 
3)  The day before the City voted to give the project another $17.4 million in funding, the U.S. Department of Transportation announced an additional $5 million grant to the project, but (and this is important) some or all of the modifications arising from the "value engineering" had to be restored to the project.  (The City has not said the cost of the overruns arising from the scope re-added to the project by the Feds, and they should.)
4)  Council then voted to give the project $17.4 million more. 
5)  Yesterday, the latest $1/2 million cost overrun was announced.
The new money
So, understanding that Council approved $17.4 million more in funding, combined with the new $5 million grant, equals $22.4 million in new funding.  

Reading between the lines
But understanding that the Feds eliminated some or all of the the "value engineering" and restored the cost overruns up to the full $26 million (the City has been anything but clear on this) and this week Messer Construction added another $492,933 to that cost overrun, it seems to us (in a vacuum of information from the City) that the over-budget amount is at this juncture is up to $26.5 million.

If that is so, then the new $22.4 million in funding ($17.4 million from the Council and $5 million from the Feds) is as much as $4.1 million short of the increased costs.  We believe the City's oblique announcement that "this is covered in the current project budget" (referring to the additional $1/2 million cost) means that the entire remaining $4.1 million gap in funding is within the projects' planned "contingency" line item.

And if that is true, then the room for error within the project as it goes forward is reduced before the first inch of track is laid, and thus the likelihood of further cost overruns is dramatically increased.  This means more holes in funding are more likely to need to be filled, whether that is another increase in taxes or cuts in other project.  

And once again, the lazy Cincinnati media have failed to ask the hard questions of the City to get their arms around the Streetcar budget and the risk that taxpayers will bear the full brunt of this project mis-management.

[COAST projects the Streetcar will ultimately cost more than $180 million to build, perhaps as much as $225 million.  Each announcement from the City comes closer to that number.  Stay tuned, Cincinnati.]

1 comment:

We follow the "living room" rule. Exhibit the same courtesy you would show guests in your home.