HOW MUCH FOR THE LOCAL CONTRIBUTION?

by lewwaters

 

Contributed by Professor Robert Dean

 

HOW MUCH FOR THE LOCAL CONTRIBUTION?

What are the direct costs of the CRC light rail project to the local community?

Frankly, I don’t concern myself too much about the projected $4.2 billion price tag[i] of the CRC light rail project. If the feds want to further squander our gas taxes, or borrow from China, there’s not much I can do or say that would dissuade them. I got a little more concerned, though, when, in 2010, Joe Cortright alerted us that the total 30 year cost of the CRC light rail project would approach $10 billion.

He published his report and it caught the attention of the public and the CRC. The CRC, by way of ODOT, posted a weak refutation, mostly arguing semantics; if you buy a house for $300,000 you don’t count up the mortgage payments and say you are living in a $600,000 house. To which Mr. Cortright answered: no, but you’d better be sure you can make those payments before you borrow to buy the house.

But, the local contribution? Now, that’s a different matter. If the total cost of the project is $10 billion and the states and feds are only kicking in about a billion apiece; who gets stuck with the remaining $8 billion? Us! The local community! Now, we’re talking after tax cash coming directly out of the pockets of local families. That concerns me. It ought to concern all of us, especially our elected representatives.

Hold on! Local contribution? Isn’t this a federal project? Isn’t I-5 one of the most vital and significant freight corridors in the nation?  Didn’t we already pay gas taxes? Haven’t those gas taxes been used on other freeway upgrades all across the country? What local contribution? I mean, if I drive to work each day and have to cross a particular overpass, and they decide to upgrade the overpass, I certainly wouldn’t expect to get a bill for my local contribution to the upgrade! Surely, if they did send me a bill, they would have asked me first!

Oh well! Apparently there’s a local contribution to the CRC light rail project/freeway upgrade and they say it comes to $1.4 billion. Haven’t heard anyone question it – must be fine and fair.

They Will Have to Collect $9 Billion in Tolls From Us to Borrow the Local Contribution

–       Local Contribution

From its inception, the CRC funding formula has been 1/3 federal + 1/3 states + 1/3 local contribution (tolls) for the total estimated $4.2 billion capital cost of the light rail project. I use the original 1/3 share = $1.4 billion because recent savings revise the amount downward by shrinking the scope and deferring (staging) construction. The deferred stages will still be built – just not yet. Pay me now or pay me later with interest.

Of course, the local community does not have $1.4 billion stashed away (or $1 billion for that matter). If we did, we would not be closing Fire Station 6. We will have to borrow it. Hang with me here:

$1.4 billion local contribution = principal on bond.

5% coupon over 30 years = annual payments of $86,735,246.77 = 30 year total $2,602,057,403 = debt service

But, bonds and tolling are not free. In fact, tolls are a very expensive source of revenue; far more expensive than simply picking pockets at the fairgrounds. Of all the tolls they collect from us only 54% goes to cover the debt service. “Debt Service (Principle (sic) & Interest Payments) 54%” per CRC. Let’s see: 2.6 divided by 0.54 = $4.8 billion = the total tolls we will have to pay just to make debt service payments.

The rest, according to the CRC, goes to cost of financing, collection, insurance, credit card fees, etc. to the tune of 46% or $2.2 billion. And that’s not including maintenance and operations of the light rail, roadways, rights of way, and bridges.

But, cost overruns are paid by the local community, also:

Cost overruns usually run 28% for all project types (Page 16 Megaprojects and Risk – Bent Flyvbjerg).

Cost overruns = 0.28×4.2 = $1.2 billion

Now, WSDOT has a new, untried, system for eliminating cost overruns called CEVP; they say there will be no cost overruns. The project has already spent $160 million on studies that they budgeted $20 million for; I hope they’re right. Otherwise, their assurances would seem to fit Rush Limbaugh’s condom bungee jumping analogy.

Total tolls they will need to collect from us = ((1.4 capital + 1.2 overruns) at 5% over 30 years) divided by 0.54 = $9 billion we will have to pay in tolls just to pay the “local contribution.”

They will also have to collect tolls from us to pay for maintenance and operations. However, since we do not have a workable design yet, nobody knows how much that might be. It’s apparently even too scary to hazard a guess. The Mayor of Vancouver, Timothy D. Leavitt, posited on the Columbian on-line forum that the cost of light rail maintenance alone would be $2.5 million annually. That’s $75 million over 30 years. But we don’t have $2.5 million annually either; we will have to get it from tolls. But if Portland’s tram is an indication we should double that to be safe. Still and all, when you’re talking about $billions what’s a few hundred million here or there?

Now, you might think that $9 billion is a lot of money for a county the size of Clark County to come up with. But, bear in mind it is only slightly more than the cost of the Apollo space craft ($8 billion); and the bridge is a lot bigger.

They Will Have to Collect $12 Billion in Tolls From Us to Pay the Total Local Contribution Plus the States’ Contribution

–       TIFIA LOANS

If Oregon and Washington take out TIFIA loans for their $1.4 billion one third share that will be almost double the amount of tolls that will need to be collected from the local community. The local contribution tolling bond will then be supplemented with a direct tolling loan from the feds (TIFIA). The tolling loan will have to cover both the $1.4 billion principal plus interest on the TIFIA loan (currently 3% and rising). Estimate $2 billion debt service on the TIFIA loans. However, there are costs associated with tolling that will also have to be included in what they collect from us.

Credit Card Fees 3%
Toll Collection Operations and Maintenance 23%
Facility Operations and Maintenance 1%
Uncollectable Tolls 5%
Net Revenue Available for Debt Service 69%

Therefore, the total tolls they will have to collect from us to pay the debt service on the TIFIA loans is $2 billion divided by 0.69 = $3billion.

Note: it is unknown, and not discussed here, what affect introducing additional tolls (to pay back TIFIA loans) will have on our ability to sell local contribution tolling bonds and at what cost (see Cortright pages 30, 31) .

Estimated total after tax cash in tolls that will need to be collected from the pockets of the local community over 30 years = $9 billion + $3 billion = $12 billion.

Now, $12 billion used to be a lot of money. Not so long ago, Jefferson County, Alabama, a county with twice the population of Clark County, went bankrupt over a $4 billion infrastructure project. The Mayor of Birmingham went to jail. Why, even the whole state of New Jersey balked at an $11 billion tunnel to New York – Chris Christie got himself elected over nixing the hairy thing.

CAN WE AFFORD IT?

Too bad New Jersey and Jefferson County didn’t think to use tolls.

Tolls are the great untapped revenue stream. Washington State is moving away from gas taxes and taking a closer look at user fees, tolls, to finance WSDOT (The Impreza study points out that this, also, will affect the cost of our bonds as investors will be wary of competition). To his credit, Democrat Tim Probst joined with the Republicans, Don Benton and others, and voted against tolls this last time. However, whether it’s tolls, license tabs, sales taxes, or traffic fines, it’s all after-tax money out of our pockets. The Washington Legislature is currently trying to scare up $2 billion to balance its budget. Good luck! You can’t squeeze blood out of a turnip.

Oh, well! Let’s do the exercise, anyway.

Currently, 135,000 vehicles cross the I-5 Interstate Bridge each day. Put a $1.00 toll on and you raise your $1.4 billion over 30 years, right?

Oops, we will need to raise $12 billion – that’s an $8 toll each way, right?

No! A lot of people will not use I-5 if there’s a toll; it’s called diversion. Look at the 520 in Seattle or the Tacoma Narrows Bridge – 40% diversion is pretty normal whenever there is a toll-free alternative. Let’s see, if we get conservative and use 40% diversion, we will have to make the toll $13.00 each way to raise the money to service the debt, right?

No! WSDOT has said there will be variable tolling (required by the Washington Legislature), depending on the time of day, what kind of vehicle it is (truck, bus, motor cycle, electric, hybrid, SUV, Oregon plates, etc.), and whether the vehicle has a transponder. If an electric motor cycle can cross for $0.25 each way and Oregon plates are free, then the poor sap who lives in Clark County and still owns his used 1999 Dodge Durango will have to make up the difference and maybe pay $30.00 toll each way during peak hours. That could be $30,000 per year for a family if both husband and wife, sorry, two of the partners, live in Clark County but work in different parts of Oregon.

Obviously, the working poor who have jobs to go to in Portland can’t afford that. They will have to take the slow light rail train (1 hour each way) and connect to buses to get to work (think 1-1/2 hours each way). Oops, that’s even more diversion! We will have to raise the toll even more to make our debt service payments.

LOCAL COMMUNITY REPRESENTATIVES

This is looking more and more like a death spiral! The more we raise the toll – the fewer people will pay it. We will have to raise it some more. Didn’t they teach us something about that in Economics 101?

No wonder Tim Leavitt, Marc Boldt and Jim Moeller never talk about costs of the CRC light rail project – they’re too busy shilling for the supposed benefits. In fact, I have not seen any evidence that Tim Leavitt, Marc Boldt, or Jim Moeller have the faintest concept of how much money we’re talking about coming out of our local economy for the next 30 years.

“The question has to be asked whether a government can act effectively as both promoter of a project, and the guardian of public interest issues such as protection of the environment, safety and of the taxpayer against unnecessary financial risks. The answer is negative.” – Bent Flyvbjerg, Megaprojects and Risk, Page 91.

–       Indirect Costs

What will tolls or construction disruption do to real estate prices in, say, Ridgefield? “The impacts of construction activities on regional traffic patterns is not expected to be significant, and significant diversion is unlikely given the conceptual traffic staging plans. Therefore, there is no need to conduct an analysis of temporary effects on property values in Ridgefield.” That is unknown at this time.

Surely, for $160 million the CRC studied that!?! No! That is an indirect cost to the local community and the CRC assures me that they did not study indirect costs.

“As was communicated in the project’s previous responses to Mr. Dean, businesses cannot be compensated for loss of business.” https://lewwaters.files.wordpress.com/2012/05/crc-2-15-12-response-to-shari-hildreth.pdf.  Not my department.

No, it is the unmentionable indirect costs to the local community that are driving support for the CRC light rail project from the moneyed interests who run Identity Clark County. Tim Leavitt promises “downtown will be BOOMING!” after the 6.3 years of construction is finished. Many of the Greater Vancouver Area Chamber of Commerce leaders know this first hand since they profited handsomely from completion of the Glenn Jackson Bridge. Trouble is, none of that boom can happen until the 6.3 years of construction is completed. In the meantime, “all those undercapitalized businesses Downtown will have to fail,” as one council member put it to me. Anyone rich enough to buy up the distressed real estate during the 6.3 years of construction of Tim Leavitt’s pet light rail project will make a killing (pardon the pun).

For the names of those rich enough to profit at our expense go to identityclarkcounty.org and see who is running the show.

–       A Glimmer of Hope

Ann Rivers and Jim Moeller sit on the Washington State Legislature Transportation Committee. I raised these concerns to each of them. Ann readily proposed that a proper investment grade tolling study be conducted ($1.8 million on top of the $160 million cost of the FEIS by the CRC – Hey! I did this one for free!). Jim agreed. The study is to include regional indirect impacts due to construction.

As part of the CRC re-application for a Coast Guard permit (they designed the bridge too low) the Coast Guard is requiring them to do additional studies of the indirect costs to local businesses and of regional impacts. Congresswoman Jaime Herrera Beutler played a part, along with three other Republican lawmakers, in representing our interests to the Coast Guard. “At the same time, a regional economic impact analysis will assess the effects of replacing the I-5 bridge to I-5 users, rivers users and the region as a whole.”

In the meantime, donate time, money, and effort to Sharon Nasset, David Madore, Debbie Peterson, Tom Mielke, Don Benton, and Carolyn Crane. Without their tireless crusading through the years to date on our behalf those bonds would have been sold already and we would all be staring bankruptcy squarely in the face. Oh, and as always, a special shout out to my good friend, Larry Patella!


[i] $4.2 billion was the high estimate that CRC engineers came up with after adjusting for their risk assessments. This is where it stood when our local leaders approved the Locally Preferred Alternative and the FEIS. The figure alarmed them (though not publicly); much as the $20 billion estimate for the Apollo project alarmed President Kennedy. So, the CRC cut portions of the needed improvements, mostly on the Clark County side of the river, out of this initial scope of project and proposed “savings” by staging construction – deferring needed improvements to a later date. Of, course, when they do build them out, presumably in the 30 year window, those later stages will be even more expensive than if they had built them at first. If the CRC would like to do these calculations using a different capital cost figure (it keeps changing) they are welcome to do so and let’s all discuss it.

23 Responses to “HOW MUCH FOR THE LOCAL CONTRIBUTION?”

  1. High praise! Thanks, Martin!

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  2. The really sick part of this is that a simple bridge, like I205, could be built for under $400 million. Add another $100 mil for SR14 and you get about $500 million.

    We should be able to get a 50% Federal match, so we only have to come up with $200 million.
    That $160 million the CRC wasted could have been 80% of the total local match to build a real bridge!!

    See: http://pdxtransport2.wordpress.com/2012/06/06/dereliction-of-duty-and-utter-disregard-for-the-well-being-of-people/

    Thanks
    JK

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  3. Jim, if the feds pay 50% who pays the other 50%? Neither WSDOT nor ODOT have anything. They will both want to use tolls and take it out of the hides of the local community (Clark County commuters who work in Portland). The only fair way to do it is save up the gas taxes and pay cash. Toll a new corridor if you must – but not an existing freeway.

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  4. Robert Dean — Jim, if the feds pay 50% who pays the other 50%?
    JK — Good question.
    My point is that they wasted almost enough to pay for the local match.
    How about a refund from the CRC consultants that failed to deliver a buildable, affordable project ?

    Thanks
    JK

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  5. Too right, Jim! This is a long article but if I did one on the comedy of errors in the project it would be even longer. The Limeliters sang a song about “just an honest mistake;” This project was one dishonest mistake after another:

    1) Project Sponsors Council met in secret to develop the Purpose and Needs Statement; this violation of Washington open meetings laws voids the Purpose and Needs Statement.

    2) The FEIS was approved before it was published and available for review by the public; ditto.

    3) They did not follow the Coast Guard Manual for bridge design that mandates they design for the tallest ship that might need to go under the bridge (design vessel); they built it too low.

    4) They did not study indirect effects to the same degree of detail as direct effects.

    5) Their tolling study is half a billion dollars off.

    6) They did not timely follow through on the C-Tran and RTC mandated vote on operations and maintenance of HCT causing a one year delay in construction.

    7) The statutorially mandated Washington review committee on light rail did not question the major assumptions underlying the project (e.g., is it being built in the right place?) and so violated their charter and failed in their duties.

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  6. I couldn’t let the following statement go by without comment:
    “ODOT, posted a weak refutation, mostly arguing semantics; if you buy a house for $300,000 you don’t count up the mortgage payments and say you are living in a $600,000 house.”

    YES YOU DO! Doesn’t ODOT have a CPA on staff?!!!? My goodness, even bookkeepers know that financing goes to the cost of an asset, (though GAO rules don’t include it for political reasons).

    Just another sign of the incompentence and dishonesty on this project.

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  7. Martin, I have the wrong hyperlink; it should be http://www.columbiarivercrossing.org/FileLibrary/Memorandums/PlaidPantry_Response.pdf

    “The report methodology also incorrectly combines capital costs, operation and
    maintenance costs, and financing costs in a way that erroneously depicts capital costs. It
    could be compared best to the following example: A home buyer might need a $250,000
    mortgage to purchase a $300,000 home. While paying off the 25-year mortgage, the
    home owner will pay utility bills, maintenance costs and interest costs associated with the
    mortgage which will total far more than $300,000 over the 25-year period. However,
    these other costs do not change the original cost of the home, which is still $300,000.”

    I think I accurately relayed the gist of ODOT’s objections and the paucity of sense in their argument.

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  8. Thanks, Robert, never-the-less, financing costs are included in the final capitalization (for non-governmental entities).

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  9. Got it. So do you think Eric Holmes knows what the CRC true cost is to the local community? Do you think he has warned the City Council of this pending financial risk? That is in his job description as City Manager. I’m curious why Tim Leavitt or jack Burkman will not engage me in a conversation about this. Do you think they know or do you think they know the true cost to the local community is even higher than I am estimating?

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  10. Robert, it’s unclear to me what’s going through those guy’s minds? Where are they getting their information? Do they know something secret? I don’t want to think they’re corrupt or stupid but what’s the third option? Certainly no one honestly talks about the project or they would just put it out there – Portland wants light rail or there will be no bridge – period! Why won’t anybody just say it? If you can name your enemy, you can defeat it.

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  11. Martin – they are either corrupt or stupid, yes, and we know they’re not stupid. You nailed it with Portland wants light rail or there will be no bridge.
    http://www.portlandonline.com/mayor/?a=263600&c=49521
    Tim Leavitt, Steve Stuart, Royce Pollard had been fighting for us at first to get a bridge with lots of capacity for future growth and without a local contribution and certainly without tolls. It’s documented in the RTC and C-Tran resolutions approving the Locally Preferred Alternative. They went to the secret and illegal Project Sponsors Council meetings and valiantly argued with the Portland delegations that the bulk of the costs would fall on Clark County commuters if we toll the bridge. Adams said no tolls no bridge, no light rail no bridge. That is the Adams Doctrine. Metro admitted in court that they only included the bridge in their light rail extension plans so that Vancouver voters would go along. Leavitt, Pollard, and Stuart capitulated. They said tolls are OK if we get light rail. That’s the Leavitt Corollary. Are they stupid? No, they were on to the issues before we were. Are they corrupt? Well their secret Project Sponsors Council meetings violated Washington laws. Will any of them personally and inordinately benefit from light rail being extended into Vancouver? Well, we can be sure the FBI will ask those questions when they investigate our pending bankruptcy.

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  12. Thanks for that link, Robert. I’d heard of it before but never read it. It’s pretty cut-and-dried. No bridge is possible. (Portland appears to get news that Vancouver is left out of? Imagine that.) I’ve also talked with my Portland friends (all of whom dispise Vancouver) – there’s no common ground. It’s a no-win situation for Vancouver.

    Here’s my original proposal from 2008: First, Portland considers bridge traffic “Vancouver’s problem.” I say as long as all the traffic is clogging up Portland’s arterials, I’m fine with it being “Vancouver’s problem.” Second, we’re talking about I-5, the most famous freeway in the West. It’s federal – let the feds deal with it. There’s a whole Transportation Dept. in Washington DC that has the power to do what they want. I’m pretty sure engineers work there, and engineers wouldn’t let Portlandia’s truculence get in the way of doing what needs to be done.

    Unfortunately, Jaime Herrera has no balls – but she’s on the right committee. She needs to recommend the feds deal with putting a new bridge across the river. My goodness, they can make you buy health insurance, they can sure as hell keep interstate traffic flowing.

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  13. Vancouver should have called their bluff – we capitulated.

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  14. Hey Robert. I know I was watching the Project Sponsors Council and was wondering HOW things were getting done. But can you tell me where I can find information that you seem to suggest things were done behind everyone’s back and in the corner? Can you show us an example?

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  15. Jeremy, Sharon Nasset has been watch-dogging this.

    The foundational “Purpose and Needs Statement” was adopted by the Project Sponsors Council in December, 2005. The Council met continually to “advise” the CRC using minimally open procedures: “The decision meetings would be open to the public, but only minimum legal notices would be provided and no display advertising would be placed. We would not encourage public participation.”

    Paula Hammond now knows they did not satisfy the very strict Washington requirements for open meetings and public input. From Sharon’s complaint to the Committee: “At the August 20th meeting, Transportation Secretary Paula Hammond stated several times that Project Sponsor Council did not start until 2008, after the Purpose and Needs Statement and Locally Preferred Alternative were Adopted.”

    From: Ford, Tim (ATG) [mailto:TimF@ATG.WA.GOV]
    Sent: Wednesday, May 30, 2012 10:12 AM
    To: Coleman, Liz
    Subject: RE: I now have proof … Columbia River Crossing break Washington State Laws and
    void the Purpose and Needs Statement
    Liz,
    The Project Sponsor’s Council (PRC) is basically the governing body of the CRC made up of
    executive level representatives from eight different public agencies. In the past, the CRC has
    denied that the PRC is anything more than an advisory committee but from my very cursory
    review of public records it seems clear that the PRC was intended to be the decision making
    body for the project’s key milestones. There is additional oversight of the project by state and
    local agencies and the state legislative bodies from both Oregon and Washington.
    My informal opinion is that the PRC (as a governing body) is subject to WA state’s Open Public
    Meetings Act. The OPMA requires the meeting of a governing body to be open to the public
    with limited exceptions as provided in RCW 42.30.110. A governing body shall provide notice
    of its regular and special meetings. Regular meetings of state agencies are to be filed with the
    Code Reviser pursuant to RCW 42.30.075. Notice of special meetings shall be provided
    pursuant to RCW 42.30.080.
    Any action taken at meetings where an agency fails to comply with the notice requirements of
    the OPMA shall be null and void. Sharon is alleging that the PRC didn’t give proper notice of
    its meetings where among other actions the PRC approved the “Purpose and Needs” statement.
    I advised Sharon that my role is to provide general information and that I don’t investigate or
    enforce the WA OPMA. Her remedy is to pursue a legal action in court to enforce her right to
    attend the PRC meetings. Yet if the PRC continues to maintain that it is not subject to the WA
    OPMA then it is fair to be concerned with their compliance and the validity of actions taken
    during PRC meetings.
    Sincerely,
    Tim Ford
    Open Government Ombudsman
    Assistant Attorney General for Government Accountability
    Attorney General of Washington
    1125 Washington St, SE
    Olympia, WA 98504
    (360) 586-4802
    timf@atg.wa.gov
    http://www.atg.wa.gov/OpenGovernment/Ombudsman.aspx
    DISCLAIMER: This email is not intended or offered to provide legal advice or legal representation by the
    Office of the Attorney General to any recipient.
    From: Coleman, Liz [mailto:Liz.Coleman@leg.wa.gov]
    v]

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  16. I thought I might add that Steve Stuart talks in some length about 20 minutes about the CRC Project:

    http://www.cityofvancouver.us/cvtv/cvtvarchive2/Clark_County_Focus/2012_Events/Clark_County_Focus-Steve_Stuart_08-27-12.wmv

    Skip first 10 minute ice breaker about him and his sons…. It is only 30 minutes long, so it shouldn’t take too long to watch….

    Like

  17. Thanks, Jeremy. I like Steve Stuart a lot. I was tracking with him right up until he said “we get light rail for free.”

    Like

  18. Oh Robert, here is another wonderful post by MIZ Damewood, now at the Willamette Weekly… http://www.wweek.com/portland/article-19706-throw_voters_from_the_train.html

    Like

  19. Oh and by the way, Robert. I think we have about five weeks until the election. Do you have another piece ready? 🙂 I think it might be time for another Professor Dean teaches….

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  20. Jeremy, homework for the next lesson: read RCW 81.104 the HCT Act.

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