DAVID LUBEROFF, RAPPAPORT INSTITUTE FOR GREATER BOSTON: Good morning. Thanks for coming out early. I am the executive director of the Rappaport Institute for Greater Boston, a co-sponsor of this event. Our goal today is to have a discussion about some problems and successes of the Big Dig project that many of you have been intimately involved with. Our goal is not to rehash what happened last summer or other problems on the project but to step back and ask what the history of this project teaches us about urban infrastructure, about how we choose projects and fund them. For a long time, people came to look at this project and look at what they should do. Some people here who are younger know that people look at it as what not to do. What are the positive lessons and cautionary tales here? There are four questions we are probing at. What kind of project should we be building? What kind of information do we need to make decisions? How should we pay for them? How should we manage them? What kind should we build? Any project involves tradeoffs between benefits, access, costs and impacts. Robert Moses, the great master builder in New York, quoted a French proverb – you can’t make an omelet without breaking eggs – to justify the massive projects he undertook in New York City. So some people had to suffer so that the greater good could be advanced. The Big Dig is emblematic of a kind of project that really went against that theory. The Big Dig is a prime example of do-no-harm planning. It’s doing projects that arguably leave everyone better off. It’s worth remembering what Mike Dukakis, who started as an anti-highway activist, said in 1983. He said we would not bulldoze neighborhoods or take one person’s house. He said there is a question about being fair to those whose quality of life is impacted by living near a major facility like an airport or a tunnel. He said there is a question of whether those who use facilities have an obligation to give back to neighborhoods, to go the extra mile. There is no question, he said, that we do. This planning, as we know from the artery, can be expensive, to get access benefits. When Mike Dukakis made his announcement, the official estimate then was $2.3 billion, roughly $4 billion in today’s dollars, and project advocates thought that the federal government would pay 85 percent. Today, the project costs $15 billion, not including several billion dollars in transit commitments made as a condition of permitting, and the federal government is only paying 60 percent and of that, and only half of that is money Massachusetts would not have otherwise seen from regular formula programs. We are using significantly more of our resources. It’s worth asking, should we reconsider the basic tenets of do-no-harm planning? If so, should we stop building major projects or return to an approach that harms some people in the name of providing a greater good for many people? Does the paradigm work as we move forward? What kind of information do we need to make good decisions about projects? It’s important in three areas. One is cost. Should we have done a better job of estimating what the real costs were going to be? If we had done a better job, would we have gone ahead in 1985, particularly if we thought the state, not the federal government, was going to pay for it? If the answer is no, does that mean we should not have asked the question? I know in some circles in Boston that question borders on heresy. But it’s important to ask. Similarly, this project went through extraordinary environmental review and led to mitigation costs of several billions of dollars, some in project costs and some outside the project. I have argued, to the dismay of some people, that some commitments were based essentially on political and legal considerations but really had no relationship to the data, specifically the transit commitments made in the name of clean air. And even the advocates of those commitments will now tell you they knew those commitments really had no basis in clean air policy, but they were good things to do and that happened to be the legal vehicle. Is that a good way to make decisions? Should we say the ends justify the means or say no, we really want to make decisions based on information before us. The third information area is did we sufficiently assess the technical difficulties of this project? This is an extraordinary project from an engineering point of view. It required extraordinary design and construction and it’s not clear whether we understood that well. Third big question: how should we pay for major projects? Would the state have gone ahead with this program if it knew the federal government would pay 60 percent and only 30 percent was new money? Does it matter where the money comes from and how do we structure a funding system to get people to ask the right questions and come up with the right answers? Finally, the question that’s most current, how do we manage big projects? This project’s management is in the hands of a management consortium of Bechtel and Parsons Brinckerhoff (B/PB) overseen by a relatively small staff of state officials. There is a reason why that was set up in the mid-1980s. The state decided that the state Department of Public Works, now MassHighway, and its various authorities did not have the capacity to manage a project of this magnitude. And between them, B/PB had probably most of the expertise in slurry wall construction. They both had fairly extraordinary records for managing complex projects. Things have not worked out as well as we hoped. So the question is, was the basic model flawed of hiring project managers to manage the design and oversee the construction? Or was the basic concept right in terms of where we put the line between public and private and the execution was flawed? We didn’t have the right procedures, or the right people or enough people? Panelists will help us decide the lessons for going ahead. Each question has tremendous implications for the future of the Big Dig. These are the kinds of questions that the new Patrick administration will have to ask as it thinks about moving forward with this project and with questions about project management. The answers go beyond the Big Dig and Massachusetts. These are the kinds of questions to ask as we are looking at a massive transportation capital plan over the next 20 or 30 years and grappling with how to pay for that system and decide which of the competing projects we are going to go forward with and how we are going to manage those. The questions don’t stop in Massachusetts. Every state and locality that is thinking about major projects is confronting these same questions. We have an opportunity to reflect on the experience. These are big questions. I don’t expect us to fully answer them today, but we can get a head start.
ROBERT KEOUGH, COMMONWEALTH MAGAZINE (MODERATOR): We are here to talk about what we can learn from the Big Dig. When it came to putting together a package of interviews for Commonwealth magazine following the collapse of the ceiling panel in July in the I-90 Connector, my contribution was to have a long conversation with Fred Salvucci (former state transportation secretary). Anyone who has talked to him will understand that he did most of the talking. But he stressed that when he talks about the Big Dig and he lectures on it frequently, he looks at it from two vantage points. Was it the right project? And was the project done right? I want to explore both questions. We are not going to rehash the question of whether we should have done the Big Dig 30 years after conception. I think we can all agree that the Big Dig was a good thing to do – depressing the artery and building a tunnel to the airport. The Big Dig has improved traffic flow in and around Boston, created an unprecedented opportunity to knit the downtown back together and create an attractive new urban landscape, and also to develop a new city neighborhood on the waterfront. Now we can get down to what we in Boston do best, which is to fight over real estate. For all intents and purposes, the Big Dig is done, or will be once repairs are made to the I-90 Connector Tunnel. So if there are lessons to be learned, whether it was done right is the question on most people’s minds. But there are lessons to be learned about how do we determine whether a project is right or not? We have four people here who are familiar with major projects, with the Big Dig and other infrastructure projects that have benefited from the Big Dig’s example, both positive and negative. I’d like to start with whether the Big Dig was done right. From what we have seen about how it was managed and overseen, could it have been done better? Let’s start with Doug MacDonald. Much has been made of the contrast between the Big Dig and the Boston Harbor cleanup? The cleanup was completed on time and on budget. The Big Dig was not. As far as I know there has been no major failure of the water and sewer system. What were the clearest differences between how the Big Dig did this and how the MWRA did its job?
DOUGLAS MacDONALD, WASHINGTON STATE TRANSPORTATION SECRETARY: Well, it’s nice to be here. I wanted to come by this morning on my way to the turnpike authority, which is meeting at 10 and I thought I would offer citizen commentary on the insanity of taking tolls off the Mass turnpike. Surprisingly, I have lasted as long as I have. An interesting larger issue in management is how difficult it is to maintain continuity of management. I am the fifth senior transportation secretary in the United States and I have only been there for five years. Most people like me are serving a year or two or three. When I went out to Seattle and began to work on two or three mega-projects – I became a transportation guy – we looked at our mega-project organization. The first thing we did was set up the WWFD Committee. It’s What Would Fred Do. It’s an interesting question as you reflect on these things. The trouble with that was no one could figure it out except for Fred. On what kind of projects should we be building? Not very many and only the ones that are going to work to improve transportation systems as opposed to continuing to do wrong all the things we’re already doing wrong in transportation. The information, it’s how we process it and the most important insight we need to deal with is the paradigm of MEPA as a planning process. It was intended to develop information that people who are making decisions could use rather than serving as a forum for decision-making. It’s also a question of how the information is being used. We need to pay for projects with user fees. And ultimately we have to figure out how to pay for new projects and face the fundamental question of maintaining the infrastructure we already use, which is even a greater challenge and goes to the complete poverty of infrastructure cost in Washington D.C. How do we manage big projects? The questions are now obsolete. We are moving into a whole new way of delivering projects. I am enormously skeptical of public-private partnerships. The main problem is the old paradigm of design-bid-build – we have to move into new contracting forms where you can open the books on projects and deal with them in a far more transparent way. Those are frontiers we are just beginning to move into. It’s important for people to get their heads around the questions fundamentally about contracting. The strong owner role is absolutely fundamental to get a project done right. On the harbor cleanup, the fundamental thing people talk about are the judge and the court order, which can’t be understated. There was a forum for accountability. There was a difference in tone between the two projects. Our project was seen as much more kind of adversarial. We went at it with contractors about costs. In the end, it’s not because you don’t like contractors. It’s that the money should stay in your pocket unless it’s really earned by them. The issues of public transparency are very important.
KEOUGH: Doug, can you elaborate on just one point, the matter of how we should be doing contracting considerably differently?
MacDONALD: The thing I am most interested in is the stuff that’s coming out of Australia. Oddly enough, we do it in federal procurement for the Armed Forces, despite what you hear. The basic notion is that rather than design 90 percent and then put it up to bid and setting up the whole change order claim process, you set up a dynamic that does not focus on people working together to get the project done at the lowest costs. It does not set up on the key thing of people working together. The alliance contracting focuses on a best-value basis. It’s not easy to do. You work toward a series of negotiated target costs. You build in both gives and takes for incentives so the contract is brought in at price or below price. That means from day one the decisions have to be made to maximize people’s gains together. There has been a lot of writing done about it. We’ve got to move in that area. For this kind of project, we can’t go on contracting for projects in a format that is 15 years out of date.
KEOUGH: Ken Meade, in your interview in Commonwealth you spoke about the degree of closeness you found between project officials in the Big Dig. At the Department of Transportation, from your review, what were the consequences of the chummy atmosphere on the Big Dig? How did this contrast with other projects you have seen before or since that you think were better run or perhaps worse run?
KENNETH MEAD, US DEPARTMENT OF TRANSPORTATION IG (1997-2006): I’d like to first say you all should be congratulated for hosting this event. I don’t know if it’s commonly understood how many mega-projects there are compared to just seven or eight years ago. There are probably 30 or 40 megaprojects, or projects exceeding $1 billion. Right here in Boston though, the Big Dig still has the highest price tag. I don’t know of really any project that comes close. These megaprojects are not just confined to highway projects or bridges – they go into airports like in Chicago, and into transit systems. So that’s one point I’d like to make. This is a timely retrospective and prospective event. Secondly, the way in which we finance highway and bridge projects is changing. One reason is because there’s not enough money going into the highway trust fund. So when you hear ratios like 90 and 85 percent, 65 percent, well those days are probably coming to an end unless you see a very sizeable increase in the gas tax. That’s because demand is simply outweighing the amount of revenue. So you’re going to see different kinds of financing. We did do a lot of audit and investigations on the Big Dig and we did observe a degree of closeness between Bechtel Parsons Brinckerhoff and the Artery. And there simply wasn’t anybody really with an independent voice that was there in real time to check on the people making the big decisions. Now what were the consequences of that? There were multiple consequences. One that comes immediately to mind is the public confidence. This project has a reputation of being an engineering marvel but done at an extremely high price, with scheduling problems and with hiding the ball on the real costs of the project. I think there were, I know there were real problems on speaking straight about what the costs to the public would be. There just was not a degree of credibility until the 2001 or 2002 period. The artery today is sailing a lot straighter than it was. I know you said it started at $2.3 billion, then it goes to 4, then it goes up to 5, and then it goes up to 7. In 2002 we did an audit and found almost $2 billion in costs that were not included in the finance plan. One of the principle reasons was the degree of closeness. You should have an independent group that is multi-disciplined and is there from the beginning and throughout the project to check on the people that are executing the project. The people that are executing the projects are the wrong ones to be checking on themselves. Enough said on that. In terms of lessons learned and how does that apply to other projects, I point to the road and bridge project in Washington D.C., which started out with a $2.5 billion estimate and they are sticking to that. The project is coming in on budget and probably ahead of schedule. One reason was they reflected on lessons learned from the Big Dig. One other point about cost estimates, when you throw out an estimate, get ready to live with it. You are going to live with it forever and ever. That will become the base from which you are measured. I want to congratulate Doug. He is considering some mega-projects in Washington and set up an independent panel to scrub the cost estimates. You are not going to come up with something that is perfect, but that was good stewardship in my opinion.
KEOUGH.: David, you came under some fire for a Boston Globe op-ed you wrote just after the ceiling collapse in July in the Big Dig. In it, you argued project officials and public officials watching over them became obsessed with the problem of cost at the expense of the potential problems of quality. You wrote why would project overseers underemphasize safety concerns? Because they fell victim to an iron law of project management – fast, good or cheap, pick two. Fred Salvucci is one of the observers who came back at you and said it costs no more to do a job right than to do it wrong, especially if you figure in the cost of repair and maintenance that come from having done the job wrong in the first place. My question is if the project was not fast or cheap, how can we now be so worried about whether it turned out to be good?
LUBEROFF: Let me note that I am in a sense I am subbing for Andy Natsios today. I was not originally a panelist. But I will still answer the question. Perhaps instead of fast, good or cheap we should have said faster, cheaper or better. Which is to say I think the judgment was made in the project in the 90s as it moved into construction, that the question of how much time do you spend particularly bringing in outside experts to challenge your assumptions was one where the project managers at the time made a decision that they wanted a more efficient organization. And so they wouldn’t set up the panels that Doug set up in Washington to scrub cost estimates, or an independent body of experts reporting to the secretary of transportation, and they didn’t have a board of directors, a real board of directors that was sort of holding project managers accountable and forcing them to look back at their assumptions. So I think what happened, I believe it more strongly than when I wrote it in the summer, was there was an intense focus on at least holding the costs down in what turned out to be the short run and trying to move the schedule as fast as possible. The project may have gone too far in not setting up mechanisms that would have allowed people to challenge assumptions. I want to be clear about one other thing. I know many of the people who worked on the project. Many are in the room. I don’t think there is an engineer in the world who willfully ignored safety concerns. If anybody thinks I said that, I really want to correct that misperception. What happens is when we look back at other engineering flaws that led to major problems, it often is a series of small decisions that align just wrong. My hunch is that’s probably what happened with the artery.
KEOUGH.: Jim, two weeks ago the National Highway Transportation Safety Board released a report on the ceiling collapse in the I-90 Connector Tunnel. As I read the press reports, I thought back to the interview with you in Commonwealth magazine. Among the problems cited by the national board were changes in design that came late in the game, changes like switching to cheaper but heavier concrete panels to be suspended from the ceiling and then putting up the ceiling in a section of the tunnel already constructed without a provision for suspended anything from the ceiling. That is how we end up with holes drilled into the concrete ceiling and hangers mounted with epoxy, which subsequently failed. In your interview, you described the hazards of having a project driven by schedule to contain costs. What to you were the consequences that you saw at the Big Dig of putting schedule above all else and what kind of a different tack did you take in managing design and construction of the Boston Convention Center?
JAMES ROONEY, MASS CONVENTION CENTER AUTHORITY EXECUTIVE DIRECTOR: One of the real tragedies of this project is we are not able to celebrate the positives and the successes. Some have been mentioned both during the project and after the project – the mobility issues, the opening of the waterfront to the kind of development that’s occurring down there, the jobs and economic activity, the city being able to not only survive but thrive during construction, the many engineering accomplishments. That’s one tragedy of this project, that we are not able to spend the time focusing on those kinds of things. I have spoken about the issue of closeness that Ken mentioned. I subscribe to his view that perhaps on that project there was too great a degree of closeness. I know that when I was over there in ’94 to ’96, for 18 months, there was the whole issue of teamwork and it felt good – it felt good to say the team was contractors and federal and state officials moving toward a common mission. One of my lessons learned is that that can be too extreme. It can get too close. We all had responsibilities that perhaps sometimes conflicted. That arms-length relationship that needs to be established between owner and contractor and other groups involved is very important in terms of defining in a very legal way what the expectations are. It’s very important that that relationship be carefully managed. On oversight issues, thinking back on the project, there are some lessons to be learned and some takeaways as it relates to who was looking at all that was going on. I remember during that period that there were 17 oversight agencies, federal and state and the IG and the GAO, all those people – full-time paid people with 100 percent complete access to everything the finance people were doing. As we look at what the people managing the project did, so too should we take lessons from both what those people did and the quality of those people. If they were in there with complete access to files and information and so forth, why was it that until 2001 and 2002 that some of these things were not happening? I did take away a lesson about schedule. When you think about managing a large project in Massachusetts, I think about schedule, costs and financial, quality, safety and of course political implications. You can’t get away from those. Doug’s pointing to the meeting at 10 am is evidence of that – is that a true financial conversation or a political one? That’s the environment in which we are working. The task is to balance those. If you do too much of one, in the other there are going to be implications. The schedule on the Artery, when I was there for that 18-month period, it was drive the schedule and everything else follows. It was kind of different from sort of what I expected. That was the mantra. I don’t have any kinds of anecdotes about that specifically. I do think we did a couple of things differently with the BCEC project. When I arrived at the BCEC project, it was at a point when we had just done 50 percent design and we were $100 million over budget before we set the first piece of steel. Needless to say, we made some changes. We took a deep breath with a great deal of transparency and met with the engineers, did some value engineering and gave them six months to redesign the project and apply value engineering and coordinate and complete and make correct the design documents that we were going to then bid. The other thing we did was we added eight months to the construction schedule. We changed the completion date from late-June so that we would be able to accommodate these change. I think the lesson was that the results speak for themselves. We completed the design later that year and went into six months of bidding that had complete design documents that someone could put a good bid to and those bids came in $20 million under estimate. When you think about design documents that are less than complete, contractors have to guess and the bids are going to be higher and also you set yourself up later for change orders. We wound up with change orders of 3 to 4 percent. On the other end, sometimes as it relates to schedule we set artificial deadlines for ourselves. We say we are going to open on this date. I went down to Washington D.C. to watch them open their new convention center. About three months before they were going to open, I could not believe that they were actually going to open. They had booked events on a specific date and they wound up paying $30 million in acceleration costs to make that date because they publicly said, for really no reason other than perhaps political considerations, that we’re going to open on a specific date. What we did is we had a contractual completion date of June 24. I allowed our marketing team to book the following year on January 1, so I did not have any artificial deadlines. As we got closer, I basically built in schedule contingencies and we then moved up the booking to October, then September and July. We wound up opening June 10. The bottom line is you favor one or the other, political considerations, or costs or scheduling. If you go too far in one direction, you have to know you are making tradeoffs with one in respect to the other.
MEAD: May I make a point? Jim said there were a lot of investigative and audit agencies descending on this project. The nature of the beast though on federal inspector generals and the GAO is they come in often after the fact. The change order has been executed. And they are accountable, they report to different people, in my case it was to Commerce and the Secretary of Transportation, not to the people of the Commonwealth, and with GAO they report directly to Congress. The concept I was speaking of was to have something built in as a real-time checker, particularly on very expensive projects. It’s probably worth it to spend half of 1 percent of the cost of the project to have that kind of mechanism in place.
KEOUGH.: Let’s get back to the question of the right project. The Big Dig was a once in a lifetime exercise. The maintenance and improvement of public infrastructure involves a multitude of projects that have to compete for attention and funding. Managing a program of public works as opposed to managing a particular project is about setting priorities. It’s a matter of making sound judgments about costs and benefits and also where the money is coming from. The benefits here were always well known but not always well quantified. The costs here became a moving target. Is that inevitable or is there a better way? Doug, how do you get reliable information about what projects are going to cost, what they are going to be worth in the end, and how they should and will be financed?
MacDONALD: In Washington we face a huge deficit in transportation finance. We have addressed some of that through two gas tax increases voted by our Legislature, one of which survived a public referendum to repeal it. How did that happen? The first question is prioritizing projects. The Legislature took charge of the politics of getting a tax increase that would stick and in doing that, for all practical purposes, the Legislature prioritized the projects. There has been some criticism of that, that that was a political prioritization process rather than analytical. I don’t agree with that. The Legislature actually rolled out a lot of information we had provided them. We found a political process of paying for people’s expectations. The problem is it is based on a forward-looking expectation. Those projects were costed in a climate that is two years old and has been largely destroyed by two years of construction inflation. So no more than two years into a program, we are already in deep trouble because of the erosion of the purchasing power and the funds provided not being sufficient for the projects to be built. The heart of the question is public expectation. Public expectation comes down largely to this cost issue. Management of cost expectations becomes critically important. In setting up the program, we did a lot of cost work. There is much, much more attention today to costs. Some of that has to do with expressing costs as ranges and assessing risk components as part of the actual cost rollout. We have done a fair amount of this in Washington state. Our actual cost methodology now includes a whole rollout of risks and calculations and even those have not protected us from inflation impacts. Oddly enough, to our astonishment, we rolled out new cost estimates in September on two projects and in both instances we rolled out for public review 25 percent cost increases, mostly due to construction cost inflation from a year and a half ago. And surprisingly, because of the transparency involved in the process, which goes to Jim’s point. Transparency is the key word and we woke up the next morning and we did not get blasted. The essential takeaway from the media was we’ve got to get going on these projects because if we don’t make some decisions and get going, this is going to get worse and worse. So it actually boosted our ability to move the projects forward. So some of what is going on here is counterintuitive and the real key is to tell the public the truth about what is really going on with a project. The big difference between how that has to be done and what was done with the Big Dig is the public was not told the truth at critical points about what everybody on the inside seems to have known.
KEOUGH.: What are hallmarks of a good decision-making process?
MEAD: Not to be redundant, but the independent checking is key, particularly on the big, big projects. Reporting lines have to be to the top. Transparency is very important. Some other things in this state struck me as kind of bizarre. You have a Department of Transportation that did not have very many transportation responsibilities. The largest transportation construction project in the U.S. for example was not under the jurisdiction of the transportation department. Regardless of what party is in power, you have to have lines of accountability. I don’t think you have them to your governor or secretary of transportation. That struck me as kind of bizarre almost to the point of being dysfunctional. The project had a lot of change orders. They have quality and cost consequences. I think the leaks as well as the roof caving in, both those are obviously quality problems and I think you can trace them to change orders. You have to have consequential change orders checked off at the very top.
KEOUGH.: David, at the risk of making you persona non grata among environmentalists and not for the first time, I want to ask you about the role of environmental laws in evaluating costs and benefits of transportation projects. As the controversy rages over eliminating tolls on the Mass Turnpike, I am struck that both proponents of removing the tolls and opponents of removing the tolls are both citing air quality as part of their rationale. Some say we won’t have idling on toll plazas and others who want to keep the tolls in play say air quality would be harmed because a free turnpike would attract more drivers and traffic and pollution. Are environmental laws any way to guide and make decisions about transportation projects?
LUBEROFF: Yes, but I am not sure the current dispute or the issues with the Artery are the way to review that. I am struck by Doug’s comments about environmental review. The federal environmental laws say we require you to sort of assess the environmental impacts. It’s not in and of itself a consequential review. It’s only consequential if you discover you are going to violate some other federal law. The state environmental law as I understand it says if you identify a negative environmental impact, you have to mitigate it. The danger in the state’s approach is it does not allow you to make a tradeoff between conflicting values in a very visible way – to say we understand there may be this kind of a problem, here’s why we still think we should move forward. The real tragedy to me of both the Artery environmental review process and, in a sense the current fight over the turnpike tolls, has been a real blurring of substantive decisions and tactical decisions. What I think is going on in the case of the turnpike is folks who don’t want the tolls taken down are trying to figure out how to run the clock out on the Romney administration and it turns out one of the ways to do that is to force them into the environmental process. That’s a perfectly legitimate goal. But you have to assume there will be more traffic on the turnpike, it’s going to be traffic that’s not from people who would be on other free roads like Route 20, and you have to assume they will be driving very, very dirty cars. For the most part, most of the cars on the road are not generating significant amounts of pollution we care about under the Clean Air Act, put aside greenhouse gases for a second. The probability of all those things being true strikes me as very, very small. The probability that you could use that process to run the clock out on the administration strikes me as very, very high. Substantively, it strikes me as an argument that has no merits but tactically it’s exactly the approach you ought to take. We ought to worry a little bit about a process where substance matters so little and essentially people are gaming the system tactically.
MacDONALD: May I just comment on this. The fundamental problem in transportation – we can’t fix anything until we fix this – is we can’t continue to give the use of roadways away as a free good. It is absolutely insane. If we said in Washington state that we want to build a water system and we want you to have all the water you want whenever you want it, however you want it – water your lawn on the hottest afternoon – it’s free water, and then we want you to then finance the water system we are going to build to provide that configuration for water supply, people would look at you and say you are crazy. The MWRA experience showed water rates rose in Boston. On the roadways we are going to try to continue to use the paradigm for planning that I just said would be utterly insane for a water system. And we can’t keep doing it. This is about induced demand. If we are going to continue to give away the use of roads for free, we can never build enough roads and we are never going to deal with the environmental implications of roads and we are never going to do a single thing towards the Holy Grail that everyone talks about of linking land use and transportation planning. The simple way to link transportation and land use planning is to charge people for driving out there. When we do that other things will fall into place about transportation demands and resources and costs. The problem with MEPA is it’s a process that drags you off into tangents of adversarial posturing in ways that do not structure actual strong decisions about what makes sense to do. It hasn’t changed. In Washington state, I said why are we having this antagonistic discussion between transportation and environmental values? Most citizens would like a transportation system that will work. We have got to have the thing come together where transportation projects serve the right environmental values and we do so through a coordinated process that takes the adversarialness out of the process. So the biggest challenge we face in transportation nationally is start charging for the use of roads.
KEOUGH.: I want to turn to a different kind of construction project. A convention center is one of the trickiest because the end product is not a road or a building, but a business. With the Boston Convention and Exhibition Center, there was plenty of controversy before it was built and even after it was open, about whether it would be an economic engine for Boston or a white elephant. Does that make a project like that an act of faith?
ROONEY: Let me address the notion of paying for transportation projects. One accomplishment I was involved in back in 1996 that I have mixed emotions about today was figuring out how to pay for this. In the context of what was going on at the time, there were some pretty strong mandates that thou shall not even talk about the gas tax. Meaning the challenge we faced in the financing of the Central Artery project was this will be incredibly expensive over a long period of time and we had to prove to a lot of people, including back then the federal government, that we had the wherewithal to pay for it. I was involved in creating the mechanisms around tolls and what became known as GANs, or grant anticipation notes, that handed leaders who didn’t want to deal with the issue of paying for transportation projects a way to do it and have it paid for in the future. Now the reason I have mixed emotions is that having not come up with that financing scheme which was very successful, I don’t know what would have happened to the project and I don’t know whether there would have been the courage to do things like gas tax and user fees that would have been necessary at the time. We did come up with a mechanism that was spending future money to pay for the project, a current project in an extraordinary way. The mixed emotions are that we handed them a kind of convenient solution and they didn’t have to make those difficult decisions. I do agree with Doug that there’s an issue of paying for and recognizing and appreciating these decisions. It’s one that should be grappled with. As it relates to the convention center and feasibility studies, the thing you should always keep in mind with cost estimates is any kind of benefits and projections that are made about a project, you are going to live with them and you are going to be reminded of them every day by people like David and the newspapers and so forth. Feasibility studies say it’s going to cost this much or you are going to have this much improvement. I was not there for the feasibility study on the convention center. It can be frustrating to live with some unrealistic expectations. One of the things I agree with my friend Charlie on is the people who do convention center feasibility studies have never found a project that they didn’t like. They’ve never said to a city, state, towns, advocates, chambers of commerce that you should not build that. It’s never happened. Everyplace that asks for that gets an answer that says yup, you can do it and it will be successful and there’s a market and it’s crazy so those people should all be taken out and shot as far as I’m concerned. We had that situation in Boston back in the mid-90s when people created expectations about the convention center in Boston. Just as an aside, the convention industry is a business. It is a very positive business – there is $160 billion spent on conventions and meetings each year. There is a market out there but the issue is it is what economists call a mature market – the demand is not growing and the supply has exceeded demand so that people that are getting into the market are competing with other cities for existing business, not taking advantage of new markets or new demand. It’s a real competitive industry in which there is going to be winners and losers. And when you look at markets, there’s evidence of this. Trade Show Week, the industry paper, puts out a top ten cities list for big shows that happen each year. Boston for the first time in 22 years was on it in ’06 and will be on it in ‘07. The ten cities are the same. What’s happening is the winners are winning. And those cities – St. Petersburg, Buffalo and the others that are trying to compete with Chicago and Boston in a mature market are finding this consolidation going on into these winners, and that there’s losers out there. When consultants say you can compete and you can win, it’s just like any other business and there are going to be winners and losers. What will happen into the next decade is there are going to be cities that are going to be sorry they made the kinds of investments they made. Thankfully, Boston is not going to be one of them.
KEOUGH.: One more round of questions, before opening it up to the audience. About governance of these projects, I can’t help but to focus in on the question of user fees, gas taxes and tolls. How do we pay for these projects? Are we moving in the right direction? Should we get rid of the remaining tollbooths, boost the gas tax, or look to put up more tollbooths everywhere on all major arteries? What is the future of both providing the transportation access that we all want but also managing and controlling what is otherwise a really bottomless pit of demand for transportation?
LUBEROFF: As a policy person, of course this make sense. As somebody who pays some attention to politics, you know congestion pricing has been something about to happen for the at least 20 some odd years that I have been following transportation policy and I think much longer. There is just tremendous resistance out there in the public certainly to charging for existing facilities. I think moving forward, both for political reasons and to a certain extent for funding reasons, you are going to see more user fees. One of the intermediate steps – people will accept increases in the gas tax if they believe that they are going to get a set of projects that they want at a price that they think is reasonable. And we know that the data is quite clear because in many states people get to vote on increasing the gas tax or whether to repeal a gas tax increase. But to have that conversation, you have to do all the things that we’ve talked about, coming up with a reasonable list of projects, accept the judgment of political people about which projects – the geographic and mode mix, and you need to be able to go out and credibly say we think these projects are going to cost X even though you know inflation may be terrible. In Massachusetts, the transportation finance commission is about to come out and say we have this huge gap. The general public ought to quite honestly say why should we believe the numbers of what you think these projects are going to cost because not only the Big Dig, but just about every other major project in the last 15 or 20 years, has come in over funding and original estimates, in some cases significantly. The public ought to demand, it seems to me, that there be a really hard scrub to rebuild credibility and to make good decisions. We need to get our hands on the costs and then we can go to voters and say if tolls are not politically feasible, at least the public kind of thinks of gas taxes as a user fee – they’re not really but it’s probably a better approach than nothing.
MacDONALD: David is right on all those points and we need more gas tax increases. And eventually we will. The fundamental reason is everything we are already driving on is falling apart. Given the role of transportation as a factor in production, we can’t run a modern economy without a functioning transportation system. We are publishing in Seattle our two-year review of the deterioration of our transportation congestion. It’s bad and getting worse and this is true in most places around the country. Fundamentally, there is all kinds of transportation capacity and we have a huge peaking problem in transportation. We charge for water by time of use or we charge for bandwidth and electricity – most people are used to the notion that they will not do laundry at 6 o’clock at night – and we don’t charge anything for transportation. The issue with pricing – David is right, 20 years and this has to come. We are chasing our tail on this transportation thing. The new thing is we don’t have to have tollbooths. The correct thing about the turnpike is the booths should come down but the tolls should not come down. We can do open road tolling and make time-of-day variable pricing a feature of how we would manage the transportation system. Pricing will help manage the network efficiently. The real purpose of tolls is not to raise the money anymore. It’s important but the real purpose is to make the transportation system efficient and deal in an economically rational way with the thing we say we believe in – markets – to deal with the impossible problem of transportation demand.
ROONEY: I am not sure what I can add that Doug has not said. It does divide into kind of two phases, the planning and estimating and figuring out the right projects and what is the process by which you determine them. If you look back and did some analysis of the things we have chosen to do over the past 20 years certainly political considerations have probably played too much of a factor in terms of where people vote instead of where people commute. That process needs to be figured out. The execution side is vitally important too. Public confidence is probably a little bit struck right now. The feeling is are they going to screw it up? That’s a question in their minds. On the tolls issue, we do need to figure out a better way to sort of collect that toll money. There are business people in the room. If you’re in business and your cost of collecting each dollar is 30 cents, you would probably blow that up and we probably need to do the same.
MEAD: There is a cap in current federal law that just passed a year ago, after ten unsuccessful attempts, on interstate roads that can be newly tolled. That would have to change. The reason that cap is there is because there is lot of skepticism in Congress about tolling. There is a strong school of thought that the gas tax is the way to pay for roads. And people have been told that for the last 30 or 40 years. There isn’t enough money so there is going to have to be a big education effort on the Hill. Also, there is a lot of talk in the United States about public-private partnerships. One took place in Indiana. The governor got a $3.8 billion check for turning over a roadway to a private concessionaire for 75 years. Mayor Daley did a deal in Chicago for a century. And they get money in exchange. I think there are a lot of issues surrounding the public-private partnership to be sorted out that you’re going to hear a lot more about.
AUDIENCE QUESTION: The MHS system in 1996 separated the finances of the turnpike between the western end and the MHS. We hear about tolls going up on the MHS if they disappear out west. Does that indicate the current system violates the current agreement, the MHS legislation?
ROONEY: The concept when MHS was created was to build a financial firewall between the west and MHS at Rte. 128, both in legislation and my recollection is in bond covenants the mingling of funds was protected. I haven’t looked at their books for a long time so I don’t know sort of what’s going on with that. I do know they were structured as standalone debt. The larger point is that you can’t eliminate a revenue source and expect to pay debt and maintenance without the revenue coming from someplace else. A possible someplace else is the MHS. Something’s got to give. You just can’t give up a large revenue stream without it going someplace else. Some people feel like since the revenue opportunities of that agency are limited to MHS, that if they gave up the western tolls that their only alternative unless the state comes in would be the MHS.
AUDIENCE QUESTION: I was involved in the first Central Artery and the Big Dig. You can’t have a Monday morning quarterback session like this without realizing we are bound by our rules. The whole system was replaced while it was in use. Schedule driven requires a design-build system that the British made very effective. We are still bound by design and then build. We were bound by the federal distribution of money and their rules. That led us into some of the complications. They were obsessed with saving money.
AUDIENCE QUESTION: I am taken by Doug’s discussion of financing. Are real estate values applied to transportation infrastructure?
LUBEROFF: The first rule of infrastructure and project finance generally is beneficiaries should pay at least some part of the share. When you set up a system where it’s an OPM system, where it’s other people’s money, then you are going to drive a decision-making process. Coming up with some mechanism that says if this is so good for a particular area, let’s have those people put some of the money up, it seems to me is the first prescription for getting your decision-making structure right.
MacDONALD: It’s been done successfully in Colorado. The historic idea was developers reaped the benefits of transportation.
ROONEY: On the waterfront, you have the cleanup of the harbor, the transit and the highway improvements which have opened up that waterfront and made it some of the most valuable property. Back in the 80s we talked to federal transit about how to pay for the then-Transitway project. It wasn’t the Silver Line then. One of our mechanisms was value capture, to take advantage of the fact that these property values would skyrocket. It just went nowhere. In today’s world, the cost of doing the private development itself is so great that the notion that we would add a dimension to their cost structure that would be somehow dealing with infrastructure use completely eliminates the feasibility of those projects. I am not sure what happened in Colorado but my experience on the waterfront was it was nice idea, but it just couldn’t happen.
AUDIENCE QUESTION: I am a graduate student at the Kennedy School and I suggest that what constitutes a mega-project is also the size of the entity responsible for managing it. How do you translate lessons down to the local level for smaller communities?
LUBEROFF: This is a great question. Think about the travails of the school building authority and getting those estimates right. This is clearly an area where state government could provide meaningful technical assistance. A local government may build one school every ten years. They set up a process that people walk through to make reasonable assumptions about cost and schedule. Regional experts that can work with people probably make sense. The other piece of that is looking at local governments, it looks like an extra cost for example to bring in a project manager or an owner’s representative on what looks like a small project from Beacon Hill but a big project in Becket or Monterrey, but that’s probably a wise expenditure of money.
MEAD: That’s an excellent question. I probably don’t have a good answer. Each local community cannot realistically assemble the critical mass of disciplines for cost estimates. So where do they get it? There are few people with sophisticated financial expertise at the state and federal level and that has to change, the sophistication of the resources at the federal and state level so we can pass some of that on to the local level.
ROONEY: I found it interesting that we have laws to govern how a project shall be built and whenever we want to do something big and important, we pass a new bill. We had that on the convention center project. A tool it gave us is after the bids came in, we could go into a room and negotiate. We talked about the application of that more broadly, like the capacity of municipal governments or small state agencies to do that. They don’t have staff on board geared up for mega-projects. There could be consideration of saying here are good tools that worked on the convention center project. But then the question is, do they have the capacity to use them?
MacDONALD: I think you have the question exactly backwards. If you took an array of high school building projects in Massachusetts and evaluated them, you would find local government and local school boards are actually producing the best projects because they are closely connected and acting with real-time information. Those people actually understand what’s involved and make very good decisions. The same is true of people who do good kitchen remodeling – the judgments about putting the outlets in the right places. The idea is not to drive down the bureaucracy, but to capture what works well in local government, package and run it up and scale it up for mega-projects.
LUBEROFF: There is tremendous expertise in these local communities. There are folks who know how to manage projects. The MWRA board and its advisory board included local public works directors. They were really sharp and would ask basic, simple questions that underneath included astute observations about something you could easily miss. The expertise at the local level, within local governance, is actually much greater than we think if we can figure out how to tap it.
AUDIENCE QUESTION: I photographed large projects in Berlin. Berlin established platforms where people could be entertained and be involved in the projects. People knew if there was a leak or if a piece was the right type of wood and it took a lot of citizens watching over their own house to be able to say whether a project was constructed right or not. People put their hearts and minds to build something. I never really felt like that in this city. I wrote to a lot of people. Nobody let me into the site. I was even given criminal charges. There are many ways to be accountable for this kind of project. There should be some type of moral code with ethics. We should have some kind of ethical code for such projects especially with 30 to 40 projects of over $1 billion each. From a visual point of view, there are a lot of people who understand – one could have a huge web site so people could really see what’s going on and it could include schedule and financial information.
MacDONALD: I just completely agree. You are totally right. I am proud of what happened at the MWRA but never prouder than two weeks ago when I was out on the public access ways. That is actually the thing that I am proudest of. You can look at what we are doing on the Tacoma Narrows Bridge.
AUDIENCE QUESTION: Can you compare and contrast two projects, NASA and its space shuttle program and the Big Dig. Both had their own tragedies. The day after the Challenger blew up, the public managers at NASA were not asked to get pillaged and kicked out of office and private consultants were not asked to stay away. In Boston, the public managers were almost brought to Boston Common and private sector managers were asked to stay away. Which was more valuable as a way to solve problems?
MEAD: It’s interesting to point to NASA, where the model has changed. The way it was responded to then is different than today. There were whistleblowers in the more recent tragedy, and there was a lot of fingerpointing. A big distinction is one of truthfulness and transparency and I think the two are in stark contrast. I do not think in the Big Dig there was straightforwardness on what the problems were and what the project was going to cost and what the implications of the change orders was going to be. In NASA in 1986, I think there was. Also, when you are going into space, the risk factors are materially different.
MacDONALD: I agree with that but it’s worth noting that the Challenger O-ring disaster was produced by bad information used badly in an engineering context.
