Seattle Light Rail Cost Overrun Approaches $2 Billion

Alternatives to Light Rail in Seattle: Index

By Emory Bundy (2001.08.29)

The projected cost overrun on Sound Transit's Link light rail is not $1 billion. It's closer to $2 billion. Here are the numbers:

1. When submitted to voters in 1996, Link light rail, U District to SeaTac, was to cost $1.67 billion (1995 dollars), according to Sound Move, Sound Transit's official, ten-year regional transit plan, which was the plan that was put before the voters. In an effort to make cost comparisons in constant dollars, last year Sound Transit switched to a formula for year-of-expenditure dollars. Applying its current Link light rail formula, $1995 X 1.38 = $YOE, translates the original cost to $2.3 billion ($YOE).

2. By the time Sound Transit submitted its grant request to the federal government, September 1999, it had raised the estimated cost to $1.9 billion ($1995), equivalent to $2.6 billion ($YOE).

3. Sound Transit pretended that was the true cost, all through the FTA and congressional review processes, even as right of way costs were burgeoning, tunnel bids were hundreds of millions of dollars in excess, and administrative overhead costs were ballooning far, far beyond the budget.

4. Last November, immediately after the congressional review period for its grant, Sound Transit admitted that the best Capitol Hill tunnel bid, even after hard negotiations and inducements, was still $298 million over budget.

5. In mid-December, Sound Transit "added up all the numbers," as Bob White put it, and pegged the total at $3.6 billion ($YOE). He said the discrepancy was "an honest mistake." Note that this is one billion dollars on top of the previously-admitted $300 million dollar overrun ($2.3 to $2.6 billion, $YOE).

(FYI, its a federal felony offense, under the False Claims Act, to knowingly misrepresent financial information pursuant to obtaining a federal grant or contract. It also is a federal felony offense, under the Act, if the offending parties "should have known" of the misrepresentation. Even in the long tradition of defrauding the federal government--the False Claims Act dates back to the Civil War, and was prompted by abuses in contracts for war materiel--a misrepresentation in ten digits must be rare.)

6. At the January 11, 2001 board meeting, Rob McKenna's close questioning of Joni Earl and the finance director elicited the reluctant admission that there was at least $500 million in additional, unacknowledged costs. It turned out to be closer to $600 million. The primary discrepancy was Sound Transit moving all debt service costs prior to and during construction off the books, contrary to standard accounting procedures. It's a basic point. The cost of borrowed money before and during the development of a project is considered part of the project's cost, while debt service for a completed project is accounted separately. There's no question about this. In Sound Transit's updated submission to FTA/USDOT, January 2001, it represented the project's cost at $4.16 billion. It had to conform to proper accounting practices in that venue. In the course of its inquiry, the Inspector General's Office was momentarily puzzled by Sound Transit's public representation of the project's cost as $3.6 billion, but quickly realized it simply was failing to include about $600 million, and the actual, admitted cost was indeed $4.16 billion. That's the number you will find in FTA's review, and in the IG's interim report.

7. So, the estimated cost, in $YOE, has gone from $2.3 to nearly $4.2 billion, an increase of $1.9 billion.

8. Actually, the situation's worse. There have been additional overruns since last January. But beyond those, and others to come, Sound Transit decided to reduce costs by not keeping the Convention Place Center station in operation, "saving" about $60 million. It decided to defer the Beacon Hill station--putatively the most productive station south of downtown--in order to "save" another $80 million. It decided to defer Royal Brougham and Othello stations, for more modest "savings." But such savings merely diminish the usefulness of the system, and deferring costs until later makes the ultimate costs higher.

Of course everything's changing now, save Sound Transit's determination to proceed, no matter how puny the project or how great the cost. The Capitol Hill tunnel looks unlikely, but what might replace it is unclear. Meanwhile, whatever happens, it will take a lot longer to get to the U District--and, in a big project like this, added time translates to added cost, in a big way. That was an important element of how the costs of WPPSS got out of control. There were three components: Unrealistically low estimates. higher than expected interest rates, and extended construction schedules. So far Sound Transit has been spared the middle burden, but the quality of its cost estimates and the accuracy of its construction schedule are following in the WPPSS tradition.

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