Innovative Budgeting Practices Could Help Clarify Long-Term Infrastructure Costs

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Louisiana transportation department reports on potential savings

Flawed accounting practices that do not properly evaluate the long term costs of infrastructure projects could further exacerbate budgetary shortfalls in Louisiana and other states, reports from the Congressional Budget Office (CBO) demonstrate.  Unfortunately, this means state taxpayers would foot the bill for unanticipated maintenance work.

Some policy experts have recommended that state officials convert over to “life cycle” budgeting practices that reveal the full cost of construction efforts up front. The intent is for government officials to accurately account for the operational costs over the life-span of a particular project. Under current accounting practices, taxpayers are only informed of the initial construction costs. Life cycle budgeting presents policy makers and taxpayers with a compelling, transparent alternative to short-sighted practices that heighten costs over the long-term, proponents have argued.

There are three tools available to policymakers as part of the “life cycle” budgeting method. They are:

1)      Transparent Life-Cycle Cost Analysis (LCCA), which requires transparency in all infrastructure investments by accounting for the direct and indirect costs incurred in initial construction, maintenance, and repair over a 50-year life-cycle window.
2)      Mechanistic Empirical Pavement Design Guide (MEPDG), which optimizes the efficiencies of structural engineering inputs based upon regional differences from the first stages of design, resulting in cost-savings and roads that last longer and require less maintenance.
3)      Alternate Design/Alternate Bid (ADAB), which creates competition and ensures that the most cost-effective project designs are considered for final selection.

Louisiana’s Department of Transportation and Development (DOTD) has already experienced potential cost savings with “life cycle” practices. ADAB project bids came in about 9 percent below estimates, while other project bids were about 20 percent above estimates, the agency reported in 2007.

Other state officials who have responded forcefully to infrastructure cost overruns have benefited politically from strong public support. In N.J., for example, residents ardently support Gov. Chris Christie’s decision to cancel the $8.7 billion commuter rail tunnel to New York City.  A Quinnipiac University survey shows 53 percent of those polled support the governor versus 37 percent who do not. Over 30 percent of Democrats also said they support Christie’s actions. The project initially was estimated to cost $5 billion but this figure rose to $10 billion.

Accounting for the total cost of a project over its life cycle is the key to ensuring that infrastructure projects remain cost effective, the CBO has concluded. A separate CBO study also determined the use of life cycle costs extended the life of equipment eliminated redundant systems, reduced the cost of operations and maintenance as much as 40 percent, and improved systems’ reliability by roughly 70%.

Kevin Mooney is an investigative reporter with the Pelican Institute for Public Policy. He can be reached at kmooney@pelicaninstitute.org. Follow him on Twitter.

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