The Corner

Washington’s Phony Price Tags

One of the main reasons we are in this budget mess is that legislators, in Congress or in state governments, have a lousy record of keeping costs anywhere near their initial projections. This inability or unwillingness to accurately project what spending programs, or any programs, will cost means that we can never trust budget requests and promises of fiscal responsability. I address this issue in my recent Reason column here.

A well-known example is, of course, “The Big Dig” project, the unofficial name of the Central Artery/Tunnel Project in Boston, Mass. It’s the most expensive highway project in the history of the country. By the time the project was completed in 2008, its price tag was a staggering $22 billion. The estimated cost in 1985 was $2.6 billion. The Dig also took seven more years to complete than originally anticipated, and it ran into severe construction quality problems along the way.

Yet, this example is the rule, not the exception. According to three Danish researchers, Bent Flyvbjerg, Mette Skamris Holm, and Soren Buhl, American cost overruns reached an average of $55 billion per year. This table gives you a small sample of the problem we face:

Estimates vs. Actual Costs of Government Projects

In 2002, The Journal of the American Planning Association published one of the most comprehensive studies of cost overruns, looking over the last 70 years at 258 government projects around the world with a combined value of $90 billion. found that nine out of ten public-works projects had exceeded their initially estimated costs. The Sydney Opera House and the Concorde supersonic airplane were the most spectacular examples, with cost overruns of 1,400 percent and 1,100 percent, respectively. Budget busting occurred throughout the seven decades studied, with the totals spent routinely ranging from 50 to 100 percent more than the original estimate.

Imagine what this means for all the transportation money spent through the stimulus bill.

My Reason piece is here. Also, see Cato Institute’s Chris Edwards’s work on cost overruns.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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