Cost-Benefit Analysis

of
Bostons Central Artery/Tunnel
aka the Big Dig
Joanlin Hsu
Shannon McKay
Markques McKnight
90-774
April 23, 2003

Big Dig files are reportedly

missing, computer hard drives
have allegedly been destroyed,
and many documents continue to
be shielded from the public by
attorney-client privilege.
Robert A. Cerasoli
Commonwealth of Massachusetts
Inspector General
March 2001

Overview
History of the Project
Costs
Benefits
Synthesis
Conclusion

History of the Big Dig

Bostons Central Artery Dream

Source:http://www.bigdig.com

Demolition of Bostons West End &

Construction of the Central Artery

Source:http://www.bigdig.com

Central Artery: Past v. Present

1959
Source:http://www.bigdig.com

Today

What is the Big Dig?

Source:http://www.bigdig.com

The 3 Major Parts of the Big Dig

Demolition of Existing Central Artery and
Replacement Underground
Ted Williams Tunnel: Connects I-90, I-93,
and Logan International Airport
Leonard P. Zakim Bunker Hill Bridge: I-93
Bridge over the Charles River

Why Boston Needs the Big Dig

Alleviate serious traffic congestion
Eliminate a troublesome eyesore
Reconnect old neighborhoods
Create open space in the middle of a
historic city
Source: Completing the Big Dig: Managing the Final Stages of Bostons Central Artery/Tunnel Project (2003).

Central Artery: Before & After

Before: 2003
Source:http://www.bigdig.com

After: 2005

Costs

Original Cost Estimate: 1982 $

$ 2, 564, 000, 000.00

Project Features:
New Charles River
Crossing
Joint Venture Contract
Right of Way/ S. Boston
Extend I-93 South
Tunnel Covers
Utilities Relocation
Workmens Compensation
Other
Completion Date: 1998

Source: Final Environmental Impact Statement,1985

Revised Cost Estimate: 1992 $

1982 Dollars

Original Estimate: $2,564

Features Added: $471
I-90 and I-93 HOV Lanes
South Boston Haul Road
Material disposal/
hazardous materials
Deleted interchange
Other

Scope change to existing

project features: $2,151

$5,186,000,000.00
Source:GAO/RCED-95-213R, Central Artery/Tunnel Project

1992 Dollars

Escalation to 1992
Dollars: $2,554
Total estimated cost in
1992 Dollars:

$7,740,000,000.00

The Game of Exclusion

Connections to Turnpike Facilities:

Logan Airport:
State-Only Funded Items:
Environ Mitigation & Interagency Agreements:
Transit Authority/Amtrak:
Surface Restoration:
Maintenance & Support Facilities:
Tunnel Fire Testing:
Scope Deferrals:
Temporary Facilities:
North-South Rail Link:
Other:

Total Cost (1994 Dollars):

Source:GAO/RCED-95-213R, Central Artery/Tunnel Project

$248.9
177.0
169.5
105.7
68.6
69.4
52.7
44.6
18.1
19.1
6.3
29.9

$1,009,800,000.0

B/PBs December 1994 Forecast

(millions $)
Final Design
Other Consultants
Force Accounts
Right of Way
Program Management
Police Details
PCA (Potential Change Allowance)
Construction Contingency
Ft. Point Channel
Central Artery Area (11, 17, 18)
Area North of Causeway (15, 19)
Insurance Program
Other Construction
Subtotal

$679
116
356
94
1,712
63
831
651
1,268
1,206
1,228
635
2,189

Prior to ICE (Interstate Cost Estimate) 255

Air Rights Credit
225
Contract C08A1 Rt. 1A (deferred)
135
Metropolitan District Commission
agreement
85
Excluded scope items
261
Mitigation agreements
61
PCA over 11 percent
526

11, 028

$13, 791,000,000.00

Total Exclusions
1,548
To-go escalation 8/94 to completion 1,215
Total Apples-to-Apples BIG DIG forecast

Source: Office of the Inspector General, Commonwealth of Massachusetts, A History

of Central Artery/Tunnel Project Finances 1994-2001.

Cost History ($ millions), Part 1a

Current Dollars of Each Year

Source: Completing the Big Dig: Managing the Final Stages of Bostons Central Artery/Tunnel Project (2003).

Cost History ($ millions), Part 1b

Current Dollars of Each Year

Source: Completing the Big Dig: Managing the Final Stages of Bostons Central Artery/Tunnel Project (2003).

Cost History ($ millions), Part 2a

1982 Dollars

Source: Completing the Big Dig: Managing the Final Stages of Bostons Central Artery/Tunnel Project (2003).

Cost History ($ millions), Part 2b

1982 Dollars

Source: Completing the Big Dig: Managing the Final Stages of Bostons Central Artery/Tunnel Project (2003).

Reasons for Cost Growth

Source: Completing the Big Dig: Managing the Final Stages of Bostons Central Artery/Tunnel Project (2003).

Changes in Cost Assumptions

MHDs Cost Estimates:
0% Cost Growth On Design of Future Projects
10% Cost Growth On Construction Contracts
2.35% Inflation Rate On Unawarded Contracts

GAOs Analysis of Historic Patterns:

18% Cost Growth on Design of Future Projects
15-20% Cost Growth on Construction Contracts
Completed at 16 percent
Ongoing at 20 percent

3.35% Inflation Rate On Unawarded Contracts

Source: GAO/RCED-96-131 Central Artery/Tunnel Project

Project Escalation: 7 years behind

schedule
Feb 2005

Dec 2004

May 2004
March 2001

Dec 1998

Source: Completing the Big Dig: Managing the Final Stages of Bostons Central Artery/Tunnel Project (2003).

What will the final number be?

Including interest on debt, interim borrowing,
principal repayment, and possible future growth of
the bottom line for construction and support
contracts, the cost will likely total $18 billion. If the
approximately $9 billion federal cap remains in
place, the Commonwealths taxpayers and toll
payers will foot a bill for the remaining $9 billion
over the life of the bonds. This sum is equivalent
to $1,500 for each of the Commonwealths six
million citizens.
Robert A. Cerasoli
Commonwealth of Massachusetts
Inspector General
March 2001

Benefits

What could the benefits be?

Aesthetics/Open Space
Time
Accidents
Air/Noise Pollution
Jobs created

Benefit Analysis Methods

Method
Calculated time savings, income generated, and
expansion of employment due to improvement in
traffic
Used 40 year time frame
Used 5% and 10% discount rate

Drawbacks
Excluded benefits from green and open space
Excluded benefits from potential real estate
development
Source: Assessing the Economic Benefits of Bostons Central Artery Tunnel (2000)

Beautification of Boston
Highway corridor

East Boston

Charles River Basin

Spectacle Island

Benefits of Green Space

The Grass is Greener

Method
Economic Analysis of the 30 Acres of Urban Parks
(Open Space) Created by the Big Dig
Used Econometric Techniques with change in
property value around the central corridor to
determine impact of tearing down highway and
replacing it with green space

Drawbacks
Excluded value of potential real estate development
Excluded benefits from areas if green space in
addition to central corridor
Source: On Top of The Big Dig: Economic Analysis of the Urban Parks Created by The Boston
Central Artery/Tunnel Project

What can be counted as benefits?

Yes
Aesthetics

Property values

Jobs from Project

EIR

Time

EIR

No

Accidents

No, included in time

Air Noise Pollution

No, included in
change in property
values

Income generated

Yes, but scaled

down

Our analysis method combined

data from two reports
40 year time frame for time savings and green
space
25 year time frame for economic benefits from
reduced time travel
5% and 10% discount rates
Confidence intervals where appropriate

Source: Assessing the Economic Benefits of Bostons Central Artery Tunnel (2000); On Top of The
Big Dig: Economic Analysis of the Urban Parks Created by The Boston Central Artery/Tunnel Project

Our Analysis Methods (contd)

Calculated price of developed property based on
real estate value
Estimated dollar value of increased jobs due to
improved transportation
Estimated the value of other areas of green
space created by the project (Spectacle Island,
East Boston, Charles River Basin, etc) using
contingent valuation

Source: Assessing the Economic Benefits of Bostons Central Artery Tunnel (2000); On Top of The
Big Dig: Economic Analysis of the Urban Parks Created by The Boston Central Artery/Tunnel Project

Annual Economic Benefits of Green

and Open spaces

Parks Total: $104,856,932

Parks and Highway Total: $380,634,629

Total Change in Property Values

(2000 dollars)

Total Change in Property Values

(2000 dollars)
Condos
Mean

Total

$2968

$448,493,976

Other
Residential
$917

Commercial
$160,064

$2,319,346 $866,104,681

Source: On Top of The Big Dig: Economic Analysis of the Urban Parks Created by The Boston
Central Artery/Tunnel Project

Annual Wages from Jobs Created

Total Annual Wages = $98,320,745

Numbers from EIR report (1990), calculated using REMI model
(Source: Assessing the Economic Benefits of Bostons Central Artery/Tunnel Project)

Allocation of Green Space

Willingness to Pay from Survey: mean of $42.91 per acre, standard

deviation of $8.36
95% Confidence Interval = $26.27 to $59.55
(Source: On Top of the Big Dig: Economic Analysis of the Urban Parks Created by the Boston
Central Artery/Tunnel Project)

Annual Time Savings Benefits

From EIR Report (1990) in 1990 dollars

(Source: Assessing the Economic Benefits of Bostons Central Artery/Tunnel Project)

Net Regional Benefits

Calculated net regional benefits by estimating
income created by project
Estimated $3.3 million in 1990
Number should be $9.6 million according to
incremental model, but we use $3.3 million
($2.79 million) because of the strong economy
of the 90s

Source: Assessing the Economic Benefits of Bostons Central Artery Tunnel (2000);

Final Calculations (in 1982 Dollars)

Discounted Total
5% discount rate
10% discount
rate

$14,280,447,271.10
$8,270,036,232.50
Low and High Estimate at 5%

low estimate

$14,286,778,249.50

high estimate

$11,471,377,794.10
Low and High Estimate at 10%

low estimate

$8,276,353,887.20

high estimate

$8,270,051,988.90

Synthesis

Blame Politics and Money for Cost

Misrepresentations
Cost
Cost

Availability of money
from Federal
government

Source:

Strategic
misrepresentation of
potential costs via
Exclusions

Office of the Inspector General for Commonwealth of Massachussetts, A History of Central Artery/Tunnel
Project Finances 1994 2001

Funding came from both the State and

Federal governments
Federal
Interstate
Highway
Program

Intermodal
Surface
Transportation
Efficiency
Act (ISTEA)

National Economic
Crossroads
Transporation
Efficiency
Act (NEXTEA)

Transportation
Efficiency
Act (TEA) - 21

Big Dig
Mass.
Highway Dept.
formerly (Mass.
Dept. of
Public Works)

Mass.
Transportation
Authority

Mass.
Turnpike
Authority

Mass.
Port
Authority

State Bonds
(Issuing
authority
unknown)

State
Source:

Transportation Infrastructure: Progress on and Challenges to Central Artery/Tunnel Projects Costs and Financing,

The Federal Government Promised

to Finance Most of the Big Dig
State Funding, 10%

Federal
Funding, 90%

Source:

Federal Interstate Highway Programs Funding Scheme which was approved in the Interstate Cost Estimate

Massachusetts has received more than

its share of federal funds
Mass. % of Total
Federal Funds

Mass. % of US Population

Based on:

VanHorn, Jason. The Big Dig: Trying to Fill in the Hole Left Behind. December, 2001.

Uncertain Funding Scenarios for cost

overruns affects CB ratios

Costs Estimates

Funding Scenarios of
1996, 2000, & 2003

Benefit Calculations

The Sources for Financing were not

completely reliable
1996
Sources of financing

Reliable?

Federal

Yes/No

State Bonds

Yes

Mass. Port Authority

Yes

Mass. Turnpike Authority

Yes

State bonds (by MTA)

Unknown

Source:

Transportation Infrastructure: Progress on and Challenges to Central Artery/Tunnel Projects Costs and Financing,
July 1997. GAO/RCED-97-170.

The Financing was insufficient in each

scenario proposed in 1996

The 1996 & 2000 Finance Plans had

two funding schemes
Low Funding Scenario

Assumed that Massachusetts

federal apportionments reduced
immediately to $450 million/year
this is a loss of $381 million/yr
Growth in costs would be $500
million

High Funding Scenario

2000 Plan only

Source:

Assumed that Massachusetts

federal apportionments reduced
incrementally from $600 to $450
million/year
Growth in costs would be limited
to $100 million
Uses credits from Insurance and
Air Rights revenues to offset costs
Utilizes advanced construction,
more aggressively
Reduced (monetary) losses and
good safety recorded documented
as savings

Federal Task Force on the Boston Central Artery Tunnel Project: Review of Project Oversight & Cost, March
2000.
Transportation Infrastructure: Progress on and Challenges to Central Artery/Tunnel Projects Costs and Financing,

The 2003 Finance Plan (finally)

reflected the real costs of the project
Previous Finance Plans
Had numerous exclusions

2003 Plan
Ceased excluding costs

Realized credits after project Only realized credits during

completion
time horizon of project
Mass. minimized its role

Mass assumed responsibility

where necessary

Projection: $10.8 billion

Projection: $14.6 billion

Source:

Federal Highway Administration, Report on the October 2002 Finance Plan for the Central Artery/Tunnel
Project. Report Number IN-2003-039. March, 2003.

In the beginning, Costs were justified

Note: Figures are in nominal dollars

Source: Assessing the Economic Benefits of Bostons Central Artery Tunnel (2000)

The uncertain (and unlikely) funding

scenarios decreased the CB ratios
Note: All figures are in 1982 dollars

Based on data previously stated

Conclusion

This pro/con analysis resulted in

the Big Dig officials apparently
not disclosing the facts because
of possible negative political
reactions and press reports, and
the potential for increased
scrutiny of the Big Dig.
Robert A. Cerasoli
Commonwealth of Massachusetts
Inspector General
March 2001

Lessons Learned
The discount rate drastically makes this
project look less and less attractive
Politics can make anything feasible and
beneficial
Cost-benefit analysis is an imprecise tool