Time for Taxpayer Protections on California Transportation Projects

The new span of the San Francisco-Oakland Bay Bridge is $5 billion over its original budget and nine years past its initial completion date. Such massive cost overruns and delays have shocked the public but one key question never gets asked, or answered: Why should taxpayers be on the hook for overruns?

They shouldn’t, and here’s a plan that goes a long way towards freeing them.

California officials should put these projects up for bid to qualified private construction companies around the world that do this type of work regularly and, one assumes, know how much it costs to complete such projects on time and at cost.

As a condition of the contract, each winning contractor should be required to post a performance bond for the full amount before they start work. Other states do this and so should California. Full performance bonds would protect taxpayers against financial loss if the contractor fails to fulfill the terms of the contract, including price and time.

If they fail to complete the project as promised, the bond ensures there is money and know-how to finish the job without taxpayer bailouts. This approach incentivizes honest, realistic bids and relieves taxpayers from paying many cost overruns.

The current system encourages lowballing the initial cost to get the project approved with minimal public resistance. Then, once approved, the construction companies or CalTrans invariably say it will cost millions or billions of dollars more than originally planned. To finish the project, they go back to taxpayers for bailouts. By now the pattern is painfully obvious.

The Devil’s Slide tunnel on Highway 1 between Pacifica and Half Moon Bay was expected to open in late 2010 at a cost of $322 million. Instead it opened in March 2013 costing $439 million.

The new fourth bore of the Caldecott Tunnel connecting Orinda to Oakland will cost at least $27 million more, despite being called “a showcase for the most advanced tunnel engineering and construction methods” by the Metropolitan Transportation Commission (MTC).

The new 2.2 mile eastern span of the San Francisco-Oakland Bay Bridge has become the world’s most expensive bridge. The price tag has reached a staggering $6.4 billion, which excludes demolition costs for the old span. And it will cost up to $20 million more to fix faulty cracked bolts on the bridge. Investigators found that construction crews for American Bridge/Fluor Enterprises, the prime contractor for the suspension span, left the bolts in open ducts for five years, exposing them for long periods to rainwater and marine air. The fix will add at least three more months to the project.

Informed of such issues on the bridge, California governor Jerry Brown said: “I mean, look, shit happens.” Spoken like a true politician. Randy Rentschler, MTC spokesman, said we should all “look at [the bridge] for what it is, not the path we took to get here.” Spoken like a true self-interested bureaucrat. Randy is also planning a $5.6 million bridge-opening celebration but it remains unclear what exactly we are celebrating. An end to the bleeding?

Consider also the California high-speed rail project, a San Francisco-to-Los Angeles “bullet” train. When voters approved bonds in 2008 they were told it would cost $43 billion. Using classic bait-and-switch techniques, now we’ve been told it will cost nearly $100 billion if completed by 2033. The rail authority admits it has no clear plan on how to fund the entire project, which creates the possibility of a partially built “train to nowhere.” Voters should be allowed to re-vote on the rail bonds knowing the more realistic price tag.

In addition to full bonding, all California highways and passenger trains should eventually be privately owned and their maintenance fully paid by user fees, not taxpayer dollars. Advances in technology permit this, but that’s another fight for another day.

Politicians love mega transportation projects with huge media attention, while the pothole on your daily commute never gets fixed. Unions and construction companies love the long-term work, and delays mean more work and more bailouts.

Meanwhile taxpayers are being played for suckers. It’s time for a new approach to building and maintaining California’s transportation system beginning with fully bonded protections for taxpayers.

Lawrence J. McQuillan is a Senior Fellow and Director of the Center on Entrepreneurial Innovation at the Independent Institute. He is the author of the Independent book, California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis.
Full biography and recent publications
Beacon Posts by Lawrence McQuillan
  • Catalyst
  • MyGovCost.org
  • FDAReview.org
  • OnPower.org
  • elindependent.org