What Happens When Projects Come In Under Budget?
Yesterday, Barack Obama hailed the fact that stimulus projects are coming in “ahead of schedule and under budget.” This is nice, but Paul Krugman worries that since the point of stimulus is to spend money this may lead to shortsighted policy:
Seriously: if the projects really are coming in cheaper than expected, that doesn’t mean we should bank the savings; it means that we need more projects.
Fortunately, my understanding is that this is what’s happening. As I heard Transportation Secretary Ray LaHood explain it, the grants are going out under a competitive process. The point of the process is to keep authorizing projects until the money is gone. So when projects come in under budget, that means more projects get funded.
My worry about this is that it seems to me the reason projects are getting done cheaply probably has to do with how bad the economy is. The massive reduction in global economic activity should be making materials super-cheap, and letting things get done at lower cost than would be necessary under ordinary times. That’s why, ideally, we should be getting started on many more infrastructure projects than are being contemplated right now. With local governments straining under the burden of falling tax revenues, things like basic upkeep of existing roads and sidewalks is going to get short-shrift even though it’s cheaper and more macroeconomically reasonable to do the fixes now. Businesses are cutting back on investment due to a lack of confidence, but policymakers should be about 100 percent confident that the United States of America will still be here in 2029, 2039, and 2049 and so people will be around to take advantage of well-maintained infrastructure. That’s not to say we should be pouring asphalt on bridges to nowhere. But I’ve never seen an American city that lacks potholes and cracked sidewalks, and the majority of the public lives in metro areas that could use more mass transit capacity. And that’s to say nothing of the things I can’t see like the bridges that are in need of repair.
43 Responses to “What Happens When Projects Come In Under Budget?”
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April 14th, 2009 at 2:02 pm
But I’ve never seen an American city that lacks potholes and cracked sidewalks, and the majority of the public lives in metro areas that could use more mass transit capacity.
Yes, those mostly-empty buses and light rail trains just aren’t empty enough. We need to run more of them so that each one has even fewer passengers and is even more inefficient.
April 14th, 2009 at 2:06 pm
Krugman is so busy he probably didn’t bother to read the whole article which says later on:
“Because these projects are proceeding so efficiently, we now have more recovery dollars to go around, and that means we can fund more projects, revitalize more of our infrastructure, put more people back to work,” [Obama] said.”
April 14th, 2009 at 2:08 pm
My worry about this is that it seems to me the reason projects are getting done cheaply probably has to do with how bad the economy is.
Exactly. Go find anyone in construction and ask them how cutthroat the bidding is right now.
April 14th, 2009 at 2:10 pm
Not planning on doing much today, “charles”, except spend the next eight hours repeating the same bullshit?
April 14th, 2009 at 2:15 pm
my professional work overlaps with some corners of the construction market, and my anecdotal observations match the empirical ones: this is a great time to be bidding construction work, and a great time to get a good buy for the public on infrastructure work.
April 14th, 2009 at 2:17 pm
You’re not fooling anyone, ‘Mixnerspotter’.
April 14th, 2009 at 2:17 pm
“Under budget?” I don’t think those words mean what you think they mean. What I think is meant is that updated estimates for those projects are coming in lower. That could be because of the crappy economy now as opposed to when those “shovel-ready” whatevers were estimated. There really hasn’t been time to complete anything but the most elementary things.
April 14th, 2009 at 2:19 pm
You REALLY aren’t fooling anyone when you write that, and admit what Mixnerspotter is saying is true, chuckles.
Thtupid thtupid thtupid! You’re tho thtupid!
April 14th, 2009 at 2:45 pm
You’re not fooling anyone, ‘joe from Lowell’.
April 14th, 2009 at 2:47 pm
The massive reduction in global economic activity should be making materials super-cheap, and letting things get done at lower cost than would be necessary under ordinary times. That’s why, ideally, we should be getting started on many more infrastructure projects than are being contemplated right now.
Matt: any chance you could let your alma mater know this, cause they’re fucking over my neighborhood but good.
We need to run more of them so that each one has even fewer passengers and is even more inefficient.
No. We need to make driving reflect its true costs. Do that and the buses will quickly get a lot fuller.
April 14th, 2009 at 2:50 pm
No. We need to make driving reflect its true costs.
What are its “true costs?” How much would this add to the cost of driving? Why shouldn’t we make using transit reflect its “true costs?”
April 14th, 2009 at 3:16 pm
Empty buses and light rial cars? at least here in Denver, that means the buses or trains are either at the very end or the very beginning of their routes, or it’s at a time of day when even the cars aren’t out. Our system is pretty well full during rush hour.
April 14th, 2009 at 3:23 pm
at least here in Denver, that means the buses or trains are either at the very end or the very beginning of their routes, or it’s at a time of day when even the cars aren’t out.
No, it doesn’t. The average number of passengers on Denver’s light rail vehicles is 14. Their capacity is over 10 times that number. Denver has one of the most inefficient light rail systems in the country.
April 14th, 2009 at 3:31 pm
We should, and are. We subsidize transit to reflect its positive externalities, such as the reduction in traffic congestion and air pollution enjoyed by those who never buy a single subway token.
April 14th, 2009 at 3:43 pm
We should, and are.
No, we should, but we’re not.
We subsidize transit to reflect its positive externalities,
What is the positive externality benefit of transit, per passenger-mile?
April 14th, 2009 at 3:51 pm
A fraction of what it could be with adequate investment.
April 14th, 2009 at 4:17 pm
A fraction of what it could be with adequate investment.
What is the positive externality benefit of transit, per passenger-mile?
You have no idea, do you?
You’re just making stuff up, aren’t you?
Same as you always do.
April 14th, 2009 at 4:29 pm
Jesus Chris, I realize I’m probably talking to myself, but Matt seems to be having an issue distinguishing between spending public funds in general, and spending public funds on a legitimate purpose.
Yes, the point of the stimulus is to be spent, to get dollars flowing. Matt doesn’t want to split hairs on how they are spent. So far, so good.
At issue here, is that when the Feds (and their minions, the States) dole out the stim cash, the recipients state what they’re gonna use it for.
In my neck of the woods, that’s mostly water works projects. Does it matter, in the grand scheme of the economy, whether I skim a few thou off the top, blow off the leaky pipes, and head straight to the BMW dealer? No. Does it matter as a matter of good public policy and keeping the taxpayers happy? Damn straight.
So, if someone comes in under budget in lines of business where cost overruns are common, it may indicate that 1) things are really shitty, and therefore cheap, and 2) the local governments and contractors aren’t STEALING as much, and Tony Soprano is going to have to lean harder on his hookers, instead.
April 14th, 2009 at 5:44 pm
No, it doesn’t.
Yes, it does.
The average number of passengers on Denver’s light rail vehicles is 14.
No, it isn’t. Provide a link.
Their capacity is over 10 times that number.
No, it’s not.
Denver has one of the most inefficient light rail systems in the country.
No, it doesn’t. What do you mean by inefficiency? How are you measuring efficiency? On what basis? Per mile? Per passenger? Per dollar spent? How? Have you even really compared Denver’s light rail systems to all other light rail systems in the country in order to make this comparison?
April 14th, 2009 at 5:55 pm
Yes, it does.
No, it doesn’t.
No, it isn’t.
Yes, it is.
Provide a link.
Not for you.
No, it’s not.
Yes, it is.
No, it doesn’t.
Yes, it does.
What do you mean by inefficiency?
Load factor.
How are you measuring efficiency?
Load factor.
On what basis?
Load factor.
Have you even really compared Denver’s light rail systems to all other light rail systems in the country in order to make this comparison?
Yes.
April 14th, 2009 at 6:31 pm
Load factor.
What do you mean by load factor? How are you measuring it?
April 14th, 2009 at 6:38 pm
What do you mean by load factor? How are you measuring it?
Passenger miles divided by vehicle revenue miles, divided by vehicle capacity.
April 14th, 2009 at 6:49 pm
What are its “true costs?” How much would this add to the cost of driving? Why shouldn’t we make using transit reflect its “true costs?”
I’d like to see research on what the automobile costs us in terms of
1) Climate change
2) Other pollution (and resulting healthcare costs, etc)
3) Loss of open space (a judgment call, to be sure, but cars enable a style of living that, while highly convenient for millions of people, does require the destruction of much natural habitat/and or countryside)
4) Deaths/healthcare costs/lost productive etc due to accidents
If we could see what these costs add up to, I’d have no problem with far less heavily subsidized costs for the operation of transit systems (though I think a modest amount of subsidy is justifiable, given the fact that, because commuting by car requires the purchase of an expensive piece of machinery, some degree of public investment in transit seems likely to result in upward economic mobility for poor people).
April 14th, 2009 at 6:51 pm
What are “vehicle revenue miles”? How are you measuring vehicle capacity? How are you arriving at those figures? And vehicle capacity based on what vehicle?
April 14th, 2009 at 7:04 pm
1) Climate change
2) Other pollution (and resulting healthcare costs, etc)
Air pollution, including GHG gas emissions, is a negative externality of both transit and automobiles. The cost per passenger-mile is about the same for autos and transit.
3) Loss of open space (a judgment call, to be sure, but cars enable a style of living that, while highly convenient for millions of people, does require the destruction of much natural habitat/and or countryside)
I don’t understand why you think this should be considered an externality.
4) Deaths/healthcare costs/lost productive etc due to accidents
Accident costs are mostly internalized through insurance.
If we could see what these costs add up to, I’d have no problem with far less heavily subsidized costs for the operation of transit systems
The burden is on those who support transit subsidies to make the case that those subsidies are justified.
(though I think a modest amount of subsidy is justifiable, given the fact that, because commuting by car requires the purchase of an expensive piece of machinery, some degree of public investment in transit seems likely to result in upward economic mobility for poor people).
The efficient and equitable way to provide transportation subsidies for poor people is to give those subsidies to poor people directly, as cash or in-kind transportation credit. Each recipient could then decide for himself how best to use that credit to meet his transportation needs. For some, it might be buying transit tickets. For others, it might be an inexpensive car, or a scooter, or a bicycle. For others, taxis, or dial-a-ride services, or something else.
April 14th, 2009 at 7:10 pm
What are “vehicle revenue miles”?
The number of miles of travel by all the vehicles in the fleet in revenue service.
How are you measuring vehicle capacity?
Number of seats plus maximum number of standing passengers.
How are you arriving at those figures?
From transit agency and vehicle manufacturer specifications.
And vehicle capacity based on what vehicle?
The vehicles that are used by the transit agencies.
April 14th, 2009 at 7:29 pm
Air pollution, including GHG gas emissions, is a negative externality of both transit and automobiles. The cost per passenger-mile is about the same for autos and transit.
No it’s not. That’s a ridiculous statement. Do you even know what you’re talking about?
Accident costs are mostly internalized through insurance.
Again, no. You really have no clue, do you?
The burden is on those who support transit subsidies to make the case that those subsidies are justified.
No, the burden is on those who oppose transit subsidies to make the case that those subsidies are unjustified. You haven’t made any sort of case.
The efficient and equitable way to provide transportation subsidies for poor people is to give those subsidies to poor people directly, as cash or in-kind transportation credit. Each recipient could then decide for himself how best to use that credit to meet his transportation needs. For some, it might be buying transit tickets. For others, it might be an inexpensive car, or a scooter, or a bicycle. For others, taxis, or dial-a-ride services, or something else.
What are you basing your measurements of efficiency and equitability on? Efficient compared to what? Equitable under what standard?
April 14th, 2009 at 7:47 pm
No it’s not.
Yes, it is.
Do you even know what you’re talking about?
Yes. You clearly have no clue what you’re talking about.
Again, no.
Again, yes.
No, the burden is on those who oppose transit subsidies to make the case that those subsidies are unjustified.
No, the burden is on those who support the subsidies. If you want to take money from one person and give it to another, you have to make the case that that forced redistribution is justified. If you think transit subsidies are justified, make your case.
What are you basing your measurements of efficiency and equitability on?
Economics and justice.
Efficient compared to what?
Subsidizing transit.
Equitable under what standard?
Under the standard that subsidies for poor people should go to poor people and not non-poor ones.
April 14th, 2009 at 8:07 pm
Bullet Trains. I love the sound of that. Bullet Trains. A North American intercontinental Bullet Train network. So cool.
Unfortunately, the concept is just too advanced, to futuristic for our current science. Someone somewhere will come up with the breakthrough, allow humans to make those first, tiny little baby steps towards developing a Bullet Train prototype. I suspect it will be an American, we are SO GOOD at this stuff, but, you never know.
April 14th, 2009 at 9:06 pm
I just want to point out that in Chicago the trains are so full during rush hour that they have introduced standing room only trains. So the “mostly-empty” meme is a complete lie in so many places. Just like so many of Chuck’s lies.
April 14th, 2009 at 9:23 pm
I just want to point out that Benny Lava is such an ignorant, moronic liar that he thinks the Chicago CTA at rush hour is representative of American transit in general.
In fact, the Chicago CTA heavy rail system averages just 17 passengers per vehicle.
April 14th, 2009 at 9:31 pm
I can tell you this… As an employee of a federal agency being strongly encouraged to spend stimulus funds, I am seeing much more reasonable bids for a change. Because the barrier to entry for even bidding on a project is so high for government work, frequently I would see outrageous bids for simple work. I am talking about margins 20% to 300% higher than they would have been if it had been out in private industry as a standard practice. However, now that the prospective bidders know that it is likely that someone will come in closer to reality just to get the work that they so desperately need, almost all of them are coming in closer to the mark. In one office that I know of, almost all of the bids are coming in roughly around 30% lower than the official government estimate. Of course, those estimated figures had been developed assuming a larger government work mark-up that had been experienced over time.
I am not saying that people bidding on government work don’t deserve a profit margin. They most certainly do. They do not, however, deserve to charge 20% to 300% more than they normally would just because this is government work.
April 14th, 2009 at 9:41 pm
In fact, the Chicago CTA heavy rail system averages just 17 passengers per vehicle.
No it doesn’t. You’re clearly lying.
April 14th, 2009 at 9:50 pm
No it doesn’t. You’re clearly lying.
Yes, it does. You clearly have no clue what you’re talking about.
April 14th, 2009 at 11:05 pm
Don’t forget about the cracking dams we built in the New Deal.
April 15th, 2009 at 12:23 am
Those above can be as petulant as they wish, but if they can’t provide a link or at least some sort of evidence for their claims, there’s no reason to believe any of what they say is true.
April 15th, 2009 at 12:50 am
charles: “Passenger miles divided by vehicle revenue miles, divided by vehicle capacity.”
I think we can finally prove that “charles” is “Mixner”. Both are infatuated with “Magic Load Factor”.
April 15th, 2009 at 12:58 am
By the same logic, there is no traffic congestion in Honolulu, because the average vehicle density is quite low on the Kalanianaole Highway. Yet somehow, it takes forever to drive from downtown Honolulu to Hawai’i Kai every weekday afternoon and the traffic is always stopped.
April 15th, 2009 at 1:22 am
By the same logic, there is no traffic congestion in Honolulu, because the average vehicle density is quite low on the Kalanianaole Highway.
If you seriously think that, you don’t understand the logic. A transit route can experience short periods of high demand but still have a low overall efficiency. Efficiency depends on average demand, not peak demand.
Just for Jeremy, since he’s new here, I’ll give you the data for the Chicago CTA heavy rail system:
Annual passenger miles, 2006: 1,143,033,898
Annual vehicle revenue miles, 2006: 67,180,033
Average number of passengers per vehicle, 2006: 17.01
Revenue from fares, by the way, covered less than 24% of the cost of providing the heavy rail service. The other 76% was subsidies.
April 15th, 2009 at 4:09 am
“The massive reduction in global economic activity should be making materials super-cheap, and letting things get done at lower cost than would be necessary under ordinary times. That’s why, ideally, we should be getting started on many more infrastructure projects than are being contemplated right now.”
Yes, yes, yes. There’s an exhibit in the National Building Museum which includes a note about a midwestern businessman/developer (Kress, iirc) who took advantage of the low prices of goods and labor during the Great Depression to get a shitload of stuff built.
There are worse economic ideas. We’ve even tried a bunch of them…
April 15th, 2009 at 9:04 am
Not it isn’t. You made that up. You’re always thcrewing up, becauth you’re tho thtupid!
April 15th, 2009 at 8:02 pm
Seriously: if the projects really are coming in cheaper than expected, that doesn’t mean we should bank the savings; it means that we need more projects.
Bank the money or do more projects; well, although I would prefer to bank the money, either one of those* is superior to the third option: overpay for a project so as not to come in underbudget.
*Provided the the project provides somethign useful, obviously. If fixing a road comes in 25% underbudget, it would be better to use the extra money to repave another pothole-filled road than to simply give the people working on the first raod a 33.3% bonus. But it would be better to give the 33.3% bonus than to spend the money on re-paving a road that was already re-paved a week ago, because the former simply redistributes wealth whereas the latter actually destroys wealth by consuming resources to no purpose.
April 15th, 2009 at 8:04 pm
Obviously in my example I am assuming that the second road is a cheaper one to fix than the first.