Six Reasons the Treasurer should say no to the CRC

By Joe Cortright of Portland, Oregon. Joe Cortright is a long-time opponent of the Columbia River Crossing, testifying publicly against the CRC at City Council, Metro, the City Planning Commission and the Bi-State Commission in 2008.

Since 2010, Mr. Cortright's firm Impresa has been retained by Plaid Pantry to prepare economic analyses of the CRC.

Cortright is Chair of the Governor's Council of Economic Advisers, has been a Non-Resident Senior Fellow at the Brookings Institution, and the principal of Impresa, Inc. an economic consulting firm; Cortright is a nationally recognized expert in regional economics and transportation policy. Impresa counts among its current or past clients CEOs for Cities, the Knight Foundation, the National Governor's Association, the Ford Foundation, the MacArthur Foundation, the Port of Portland, and the Portland Development Commission.

Treasurer Ted Wheeler will be asked by the Legislature to weigh in on the financial merits of the proposed Oregon-only Columbia River Crossing. Here are six reasons he should tell them to walk away from this risky deal.

First, Oregon-only doubles the risk. Compared to the version of the CRC adopted with great reservations and extensive conditions less than twelve months ago, this version doubles the financial risk to the State of Oregon because of Washington's exit from the project. In addition, legal questions surrounding Oregon's legal ability to undertake construction in Washington State and to collect tolls from Washington State residents further increase these risks. If anyone had any doubts about this project a year ago, those have been doubled by this change alone.

Second, CRC Cost estimates can’t be trusted. Actual costs of transportation megaprojects routinely exceed their budgets, on average by a third, according to the best available scholarship. ODOT has a demonstrated track record of huge cost-overruns on its major projects. Its Pioneer Mountain-Eddyville Project has experienced a 200 percent cost overrun, which has added more than $200 million to that project's cost. Already the CRC is years behind schedule, and its planners have made repeated mistakes--first pursuing an "open-web" design that their own experts pronounced un-buildable, and then ignoring repeated warnings from the Coast Guard and designing a bridge too short to accommodate the needs of river users. These errors have already led to extensive delays and additional costs, even before construction has begun. It is imperative that the financial plan for this project allow for likely cost overruns of as much as $1 billion or more, and it has not done so.

Third, ODOT has no meaningful capacity or strategy to manage project costs or prevent cost overruns. For the past several years, it has repeatedly testified that it would rely on Washington Department of Transportation's (WSDOT) allegedly superior capability to manage megaprojects, and specifically its "Cost Estimate Validation Process (CEVP)." That process, of dubious value, given the current problems with the two Seattle area megaprojects—the Alaska Way Deep Bore Tunnel (a disabled tunnel boring machine) and the SR 520 Floating bridge (leaking pontoons)—which the CEVP process failed to anticipate or prevent. The CRC has not carried out the CEVP risk-assessment process in more than two years. In addition, the federal government's independent Project Management Oversight Consultant has not issued a report in more than six months. And in its communication with you this fall, ODOT simply ignored its demonstrable failures in controlling costs on the Pioneer Mountain-Eddyville project. An agency that cannot even acknowledge its existing management problems will find it impossible to solve them. To wit, the agency asserts that design-build contracting will insulate this project from financial risk, yet ODOT's only large-scale experience with design-build contracting was the Pioneer-Mountain Eddyville project, which has experienced huge cost overruns.

Fourth, CDM Smith revenue estimates are frequently over-optimistic. CDM Smith has a demonstrated track record of frequently over-estimating the revenues from toll projects. Projects that have relied on or had their financial projections vetted by CDM Smith in California, Virginia and Texas have gone into bankruptcy or had to be restructured. As the major bond rating agencies have recently opined, over-estimation in endemic in toll-financed projects. While you may not feel that your office has the technical capability to second-guess the accuracy of the Smith forecasts, that is not the relevant question. It is clear that even in the best of circumstances, there is a substantial risk that Smith is wrong, and it is very much in the state's interest, and within the authority and expertise of your office, to assess the consequences to the state's budget and credit of undertaking that risk. What happens to project finances and the state's credit rating if, as is highly possible, CDM Smith is wrong?

Fifth, Tolling I-5 will produce unacceptable traffic diversion. The CDM Smith estimates show that tolling the I-5 bridges will produce enormous traffic diversion to I-205; on the order of 40,000 to 50,000 additional vehicles will use I-205, jamming it to capacity. If this project does not work as a transportation investment, it is highly likely to fail financially. We know that this is true because of the experience with the proposed tolling regime for the Alaskan Way Viaduct Deep Bore Tunnel in Seattle. There, the Washington Department of Transportation claimed--based on studies very much like the Smith estimates--that tolling could contribute $400 million toward construction costs. Only after the project was approved, did WSDOT undertake further analyses, which confirmed the concerns about diversion. Tolling to produce $400 million, while feasible, they determined, would cause unacceptable traffic impacts; therefore, the amount of money to be generated from tolls has been cut, first to $200 million and now to only $140 million. Claims that there is ample "headroom" to increase CRC tolls, without consideration of how tolling will affect traffic flows, are idle and misleading at best. Unless this project's toll regime is consistent with a functioning regional transportation system, it will not be implementable in practice, with the result being that the state will be responsible to make up the revenue shortfall, which is exactly what has happened with the Alaskan Way Viaduct Deep Bore Tunnel.

Sixth, ODOT's financial model is broken and unsustainable. By its own reckoning, it has relied excessively on debt financing, and will, over the next few years have to reduce by half its capital outlays. It has gone from spending about 2 percent of its state revenues on debt service a decade ago, to now facing the prospect that it will spend 35 percent of its state revenues on debt service. This project would add to that debt burden. At the same time, the agency has over-estimated its revenues, by a cumulative amount over the past five years, of half a billion dollars. The department’s dire financial straits and dwindling resources are plainly presented on its own website: This record of financial profligacy should prompt a prudent financial advisor to counsel caution and retrenchment, not taking on further debt and a larger level of risk.

Comments

connect with blueoregon