Cost-Benefit Analysis

of
Boston’s Central Artery/Tunnel
aka “the Big Dig”

Joanlin Hsu
Shannon McKay
Markques McKnight
90-774
April 23, 2003
 “Big Dig files are reportedly
missing, computer hard drives
have allegedly been destroyed,
and many documents continue to
be shielded from the public by
attorney-client privilege.”
Robert A. Cerasoli
Commonwealth of Massachusetts
Inspector General
March 2001
 Overview
• History of the Project

• Costs

• Benefits

• Synthesis

• Conclusion
History of the Big Dig
 Boston’s Central Artery Dream

Source:http://www.bigdig.com
 Demolition of Boston’s West End &
Construction of the Central Artery

Source:http://www.bigdig.com
 Central Artery: Past v. Present

1959 Today

Source:http://www.bigdig.com
 What is the Big Dig?

Source:http://www.bigdig.com
The 3 Major Parts of the Big Dig
• Demolition of Existing Central Artery and
Replacement Underground

• Ted Williams Tunnel: Connects I-90, I-93,

and Logan International Airport

• Leonard P. Zakim Bunker Hill Bridge: I-93

Bridge over the Charles River
 Why Boston Needs the Big Dig
• Alleviate serious traffic congestion

• Eliminate a troublesome eyesore

• Reconnect old neighborhoods

• Create open space in the middle of a

historic city

Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).
 Central Artery: Before & After

Before: 2003 After: 2005

Source:http://www.bigdig.com
Costs
 Original Cost Estimate: 1982 $
Project Features:
• New Charles River
Crossing
• Joint Venture Contract
$ 2, 564, 000, 000.00 • Right of Way/ S. Boston
• Extend I-93 South
• Tunnel Covers
• Utilities Relocation
• Workmen’s Compensation
• Other

Completion Date: 1998

Source: Final Environmental Impact Statement,1985
 Revised Cost Estimate: 1992 $
1982 Dollars 1992 Dollars

• Original Estimate: $2,564 • Escalation to 1992

• Features Added: $471 Dollars: $2,554
– I-90 and I-93 HOV Lanes • Total estimated cost in
– South Boston Haul Road 1992 Dollars:
– Material disposal/
hazardous materials
– Deleted interchange $7,740,000,000.00
– Other
• Scope change to existing
project features: $2,151
$5,186,000,000.00
Source:GAO/RCED-95-213R, Central Artery/Tunnel Project
 The Game of Exclusion
• Connections to Turnpike Facilities: $248.9
• Logan Airport: 177.0
• State-Only Funded Items: 169.5
• Environ Mitigation & Interagency Agreements: 105.7
• Transit Authority/Amtrak: 68.6
• Surface Restoration: 69.4
• Maintenance & Support Facilities: 52.7
• Tunnel Fire Testing: 44.6
• Scope Deferrals: 18.1
• Temporary Facilities: 19.1
• North-South Rail Link: 6.3
• Other: 29.9

Total Cost (1994 Dollars): $1,009,800,000.0

Source:GAO/RCED-95-213R, Central Artery/Tunnel Project
 B/PB’s December 1994 Forecast
(millions $)
Final Design $679 Prior to ICE (Interstate Cost Estimate) 255
Other Consultants 116 Air Rights Credit 225
Force Accounts 356 Contract C08A1 Rt. 1A (deferred) 135
Right of Way 94 Metropolitan District Commission
Program Management 1,712 agreement 85
Police Details 63 Excluded scope items 261
PCA (Potential Change Allowance) 831 Mitigation agreements 61
Construction Contingency 651 PCA over 11 percent 526
Ft. Point Channel 1,268
Central Artery Area (11, 17, 18) 1,206 Total Exclusions 1,548
Area North of Causeway (15, 19) 1,228 To-go escalation 8/94 to completion 1,215
Insurance Program 635
Other Construction 2,189 Total “Apples-to-Apples” BIG DIG forecast

Subtotal 11, 028

$13, 791,000,000.00

Source: Office of the Inspector General, Commonwealth of Massachusetts, A History

of Central Artery/Tunnel Project Finances 1994-2001.
 Cost History ($ millions), Part 1a
Current Dollars of Each Year
12,000
10,468
10,000

7,740
8,000
6,443
5,780
6,000 5,193
4,436
4,000 3,175
2,564
2,000

0
1985 EIS 1987 ICE 1989 ICE 1991 ICE 1991 APF 1992 APF 1992 APF 1994
w/ NCRC CSU6 w/
Inflation

Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).
 Cost History ($ millions), Part 1b
Current Dollars of Each Year
16,000
14,475 14,625 14,625
14,075
14,000

12,000 10,841
10,000

8,000

6,000

4,000

2,000

0
1994 CSU6 2000 CSU7 2001 CSU8 2002 CSU8 2002 CSU9
1997
Rebaseline

Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).
 Cost History ($ millions), Part 2a
1982 Dollars
12,000

10,000

8,000

6,000 5,597
5,187
4,317
3,708 3,963
4,000 3,175 3,409
2,564
2,000

0
1985 EIS 1987 ICE 1989 ICE 1991 ICE 1991 APF 1992 APF 1992 APF 1994
w/ NCRC CSU6 w/
Inflation

Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).
 Cost History ($ millions), Part 2b
1982 Dollars
12,000

10,000

7,886 7,972 8,000

8,000 7,658

5,810
6,000

4,000

2,000

0
1994 CSU6 2000 CSU7 2001 CSU8 2002 CSU8 2002 CSU9
1997
Rebaseline

Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).
 Reasons for Cost Growth
Environmental / Mitigation
15%
Scope Growth

Accounting Changes
8%
Traffic

55% 7% Schedule Maintenance

5% Contigency for Unknowns

3%
Other
2%
Inflation
5%
Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).
 Changes in Cost Assumptions
MHD’s Cost Estimates:
– 0% Cost Growth On Design of Future Projects
– 10% Cost Growth On Construction Contracts
– 2.35% Inflation Rate On Unawarded Contracts

GAO’s Analysis of Historic Patterns:

– 18% Cost Growth on Design of Future Projects
– 15-20% Cost Growth on Construction Contracts
• Completed at 16 percent
• Ongoing at 20 percent
– 3.35% Inflation Rate On Unawarded Contracts

Source: GAO/RCED-96-131 Central Artery/Tunnel Project

 Project Escalation: 7 years behind
schedule
2002 PMS REV. 9 Feb 2005

2001 PMS REV. 8

2000 PMS REV. 7 Dec 2004

1994 PMS REV. 6

1993 PMS REV. 5 May 2004

1992 PMS REV. 4 March 2001

1991 PMS REV. 3

1990 PMS REV. 2 Dec 1998

1989 PMS REV. 1

1994 1996 1998 2000 2002 2004 2006

Source: Completing the “Big Dig”: Managing the Final Stages of Boston’s Central Artery/Tunnel Project (2003).
 What will the final number be?
“Including interest on debt, interim borrowing,
principal repayment, and possible future growth of
the bottom line for construction and support
contracts, the cost will likely total $18 billion. If the
approximately $9 billion federal cap remains in
place, the Commonwealth’s taxpayers and toll
payers will foot a bill for the remaining $9 billion
over the life of the bonds. This sum is equivalent
to $1,500 for each of the Commonwealth’s six
million citizens.”
Robert A. Cerasoli
Commonwealth of Massachusetts
Inspector General
March 2001
Benefits
 What could the benefits be?
• Aesthetics/Open Space
• Time
• Accidents
• Air/Noise Pollution
• Jobs created
 Benefit Analysis Methods
Method
• Calculated time savings, income generated, and
expansion of employment due to improvement in
traffic
• Used 40 year time frame
• Used 5% and 10% discount rate
Drawbacks
• Excluded benefits from green and open space
• Excluded benefits from potential real estate
development

Source: Assessing the Economic Benefits of Boston’s Central Artery Tunnel (2000)
 Beautification of Boston
Charles River Basin
Highway corridor

East Boston
Spectacle Island
Benefits of Green Space
 The Grass is Greener
Method
• Economic Analysis of the 30 Acres of Urban Parks
(Open Space) Created by the Big Dig
• Used Econometric Techniques with change in
property value around the central corridor to
determine impact of tearing down highway and
replacing it with green space
Drawbacks
• Excluded value of potential real estate development
• Excluded benefits from areas if green space in
addition to central corridor

Source: On Top of The Big Dig: Economic Analysis of the Urban Parks Created by The Boston
Central Artery/Tunnel Project
 What can be counted as benefits?
Yes No
Aesthetics Property values

Jobs from Project EIR

Time EIR

Accidents No, included in time

Air Noise Pollution No, included in

change in property
values

Income generated Yes, but scaled

down
 Our analysis method combined
data from two reports
• 40 year time frame for time savings and green
space
• 25 year time frame for economic benefits from
reduced time travel
• 5% and 10% discount rates
• Confidence intervals where appropriate

Source: Assessing the Economic Benefits of Boston’s Central Artery Tunnel (2000); On Top of The
Big Dig: Economic Analysis of the Urban Parks Created by The Boston Central Artery/Tunnel Project
 Our Analysis Methods (cont’d)
• Calculated price of developed property based on
real estate value
• Estimated dollar value of increased jobs due to
improved transportation
• Estimated the value of other areas of green
space created by the project (Spectacle Island,
East Boston, Charles River Basin, etc) using
contingent valuation

Source: Assessing the Economic Benefits of Boston’s Central Artery Tunnel (2000); On Top of The
Big Dig: Economic Analysis of the Urban Parks Created by The Boston Central Artery/Tunnel Project
Annual Economic Benefits of Green
and Open spaces
$300,000,000

$250,000,000

$200,000,000

$150,000,000

$100,000,000

$50,000,000

$-
Large Parks Small Parks Highway

Parks Total: $104,856,932

Parks and Highway Total: $380,634,629
Total Change in Property Values
(2000 dollars)
$1,000,000,000

$1,000,000

$1,000

$1
Condominiums Other Residential Commercial
 Total Change in Property Values
(2000 dollars)
Condos Other Commercial
Residential

Mean $2968 $917 $160,064

Total $448,493,976 $2,319,346 $866,104,681

Source: On Top of The Big Dig: Economic Analysis of the Urban Parks Created by The Boston
Central Artery/Tunnel Project
 Annual Wages from Jobs Created
$25,000,000

$20,000,000

$15,000,000

$10,000,000

$5,000,000

$0

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Total Annual Wages = $98,320,745

Numbers from EIR report (1990), calculated using REMI model

(Source: Assessing the Economic Benefits of Boston’s Central Artery/Tunnel Project)

 Allocation of Green Space
East Boston
22%

Charles River
Basin

Charlestow n +
Fort Point

Spectacle Island
55%

21%

2%
Willingness to Pay from Survey: mean of $42.91 per acre, standard
deviation of $8.36
95% Confidence Interval = $26.27 to $59.55
(Source: On Top of the Big Dig: Economic Analysis of the Urban Parks Created by the Boston
Central Artery/Tunnel Project)
 Annual Time Savings Benefits
$500,000,000
$450,000,000

$400,000,000
$350,000,000
$300,000,000

$250,000,000
$200,000,000
$150,000,000
$100,000,000

$50,000,000
$0
Auto Travel Time Savings Truck Travel Time Savings

From EIR Report (1990) in 1990 dollars

(Source: Assessing the Economic Benefits of Boston’s Central Artery/Tunnel Project)

 Net Regional Benefits
• Calculated net regional benefits by estimating
income created by project
• Estimated $3.3 million in 1990
• Number should be $9.6 million according to
incremental model, but we use $3.3 million
($2.79 million) because of the strong economy of
the 90’s

Source: Assessing the Economic Benefits of Boston’s Central Artery Tunnel (2000);
Final Calculations (in 1982 Dollars)
Discounted Total

5% discount rate $14,280,447,271.10

10% discount
rate $8,270,036,232.50
Low and High Estimate at 5%

low estimate $14,286,778,249.50

high estimate $11,471,377,794.10

Low and High Estimate at 10%

low estimate $8,276,353,887.20

high estimate $8,270,051,988.90

Synthesis
 Blame Politics and Money for Cost
Misrepresentations

Cost
Cost

Strategic
misrepresentation of
Availability of money potential costs via
from Federal Exclusions
government

Source: Office of the Inspector General for Commonwealth of Massachussetts, “A History of Central Artery/Tunnel
Project Finances 1994 – 2001”
 Funding came from both the State and
Federal governments
Federal
National Economic
Intermodal
Interstate Crossroads Transportation
Surface
Highway Transporation Efficiency
Transportation
Program Efficiency Act (TEA) - 21
Efficiency
Act (NEXTEA)
Act (ISTEA)

Big Dig…
Mass.
Highway Dept. Mass. State Bonds
Mass. Mass.
formerly (Mass. Port (Issuing
Transportation Turnpike
Dept. of Authority authority
Authority Authority
Public Works) unknown)

State
Source: “Transportation Infrastructure: Progress on and Challenges to Central Artery/Tunnel Project’s Costs and Financing,”
 The Federal Government Promised
to Finance Most of the Big Dig
State Funding, 10%

Federal
Funding, 90%

Source: Federal Interstate Highway Program’s Funding Scheme which was approved in the Interstate Cost Estimate
 Massachusetts has received more than
its share of federal funds
6.00% Mass. % of Total
Federal Funds
5.00%

4.00%

3.00%
Mass. % of US Population
2.00%

1.00%

0.00%
1993 1994 1995 1996 1997 1998 1999 2000

Based on: VanHorn, Jason. “The Big Dig: Trying to Fill in the Hole Left Behind.” December, 2001.
 Uncertain Funding Scenarios for cost
overruns affects CB ratios

Costs Estimates Funding Scenarios of Benefit Calculations

1996, 2000, & 2003
 The Sources for Financing were not
completely reliable
1996
Sources of financing Reliable?

Federal Yes/No

State Bonds Yes

Mass. Port Authority Yes

Mass. Turnpike Authority Yes

State bonds (by MTA) Unknown

Source: “Transportation Infrastructure: Progress on and Challenges to Central Artery/Tunnel Project’s Costs and Financing,”

July 1997. GAO/RCED-97-170.

The Financing was insufficient in each
scenario proposed in 1996
 The 1996 & 2000 Finance Plans had
two funding schemes
Low Funding Scenario High Funding Scenario
• Assumed that Massachusetts’ • Assumed that Massachusetts’
federal apportionments reduced federal apportionments reduced
immediately to $450 million/year incrementally from $600 to $450
– this is a loss of $381 million/yr
million/year
• Growth in costs would be $500
• Growth in costs would be limited
million
to $100 million
• Uses credits from Insurance and
Air Rights revenues to offset costs
• Utilizes “advanced construction,”
2000 Plan only more aggressively
• Reduced (monetary) losses and
good safety recorded documented
as savings
Source: “Federal Task Force on the Boston Central Artery Tunnel Project: Review of Project Oversight & Cost,” March
2000.
“Transportation Infrastructure: Progress on and Challenges to Central Artery/Tunnel Project’s Costs and Financing,”
 The 2003 Finance Plan (finally)
reflected the real costs of the project

Previous Finance Plans 2003 Plan

Had numerous exclusions Ceased “excluding” costs
Realized credits after project Only realized credits during
completion time horizon of project
Mass. minimized its role Mass assumed responsibility
where necessary
Projection: $10.8 billion Projection: $14.6 billion

Source: Federal Highway Administration, “Report on the October 2002 Finance Plan for the Central Artery/Tunnel
Project.” Report Number IN-2003-039. March, 2003.
 In the beginning, Costs were “justified”
Note: Figures are in nominal dollars

10 9.1
9
8
7
6
Billions of Cost
5
Dollars 3.9 Benefit @ 5%
4 3.2
3 2.5
2
1
0
1985 1990
Source: Assessing the Economic Benefits of Boston’s Central Artery Tunnel (2000)
 The uncertain (and unlikely) funding
scenarios decreased the CB ratios
Note: All figures are in 1982 dollars

1.2 1.14
0.96
1

0.8 0.67 0.7 0.66

0.56 5% discount
0.6
0.39 0.41 10% discount
0.4 0.31
0.18
0.2

0
1985 1994 1996 2003 2003
(incl.
int.)
Based on data previously stated
Conclusion
“This pro/con analysis resulted in
the Big Dig officials apparently
not disclosing the facts because
of possible negative political
reactions and press reports, and
the potential for increased
scrutiny of the Big Dig.”
Robert A. Cerasoli
Commonwealth of Massachusetts
Inspector General
March 2001
 Lessons Learned
• The discount rate drastically makes this
project look less and less attractive

• Politics can make anything feasible and

beneficial

• Cost-benefit analysis is an imprecise tool