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Monday, May 24, 2010

City Attorney on Tunnel Cost Overruns: "The City Cannot Be Forced to Pay"

Posted by on Mon, May 24, 2010 at 12:31 PM

Seattle City Attorney Pete Holmes, providing his first public analysis of a civic dispute, says a controversial provision in state law requiring Seattle to shoulder cost overruns for a downtown tunnel “is not enforceable.” Holmes, who represents the city in legal matters, says, “We are solid on that, we are very clear on that. It is a red herring.”

While the question of who would pay for excess costs for a deep-bore tunnel—the city or state—remains unresolved, he says, “The legislature can’t just tax a group of people in a geographic area. This is a state highway and the state is responsible for all the costs.” If the state exceeds costs in any contracts, he says, “They could send us a bill. They can’t make us pay it.”

What if overruns crop up and the state files a lawsuit to collect? “The state would have no basis for suing the city to recover cost overruns, unless we somehow caused them,” Holmes says.

Estimates for the total costs are $4.2 billion to replace the Alaskan Way Viaduct's vehicle capacity with a tunnel. The state has agreed to pay up to $2.8 billion and the city has pledged $900 million (the rest coming from county sources).

The law at issue, passed last year by the state legislature, states that any costs over the state’s commitment “shall be borne by property owners in the Seattle area…”

But another part of that same provision raises questions, not settles them.

Holmes cites an unresolved part of the law: limiting the state’s commitment to the project at $2.8 billion. If the project were to exceed that, the state can essentially dust its hands and walk away (among various scenarios). “The cap on the state’s contributions is quite enforceable,” says Holmes. “It is essentially carved in stone.” He notes that the legislature would need to pass another law to exceed that commitment.

Mayor Mike McGinn agrees that the enforceability of the cost-overruns provision isn’t the issue; the spending cap is, and the legislature is unlikely to chip in more. He says the state's sentiment is clear: “The state believes it has no responsibility for cost overruns."

“Does the clause saying Seattle has to pay for cost overruns itself raise Seattle dollars?” says McGinn. “No. But what is important here is the statement by legislature that Seattle should pay, and, conversely, the statement from the legislature that the state should not pay.”

This issue—the state’s cap on spending—is at the crux of a political volley last week between McGinn (who ran for office on a platform of criticisms of tunnel funding) and City Council President Richard Conlin (who led the council in its pledge to adhere to state law and has dismissed tunnel cost overrun scenarios as a non-issue).

Holmes notes that, even though the state can’t force the city to pay, Conlin “does not address the issue of what happens if there is a cost overrun. Saying that the city cannot be made to pay a cost overrun doesn’t address the problem of what we do if there is a cost overrun.”

Roughly 90 percent of tunnel megaprojects run over budget, according to University of Oxford professor Bent Flyvbjerg; locally, overruns have plagued a tunnel under Beacon Hill for light rail (30 percent over budget), the Brightwater sewage tunnel in east King County (24 percent and counting), and the downtown transit tunnel (56 percent over estimates). If the deep-bore tunnel also were to run 30 percent over budget—the tunnel itself is $1.8 billion, other costs are for associated expenses—that could create an unresolved expense of $600 million that the state would refuse to pay for. Within a few weeks, the city is expected to formalize a contract with the state, specifying its commitments to the deep-bore tunnel downtown.

“If the language the legislature has found to make Seattle raise the dollars isn’t upheld, they will find new language to compel Seattle to raise the dollars,” says McGinn.

More after the jump.

As an example drawn from his past work as a Congressional aide, McGinn cites the seeming contradiction over protecting the threatened spotted owl; courts would protect it from the impact of logging and, in turn, Congress would pass a new law to allow logging in the bird’s habitat.

“For us to enter into a deal where they say, ‘You are liable,’ and for us to enter into deal where we say, ‘No you can’t make us,’ that’s ridiculous,” says McGinn.

What does the state's attorney say? The law is binding, Attorney General Rob McKenna told KUOW last fall. "Once it's adopted, it's our job to defend it. A law which is adopted by the Legislature is presumptively constitutional," McKenna said, according to Seattlepi.com. Moreover, the city's agreement with the state—which is being developed now—is a bigger issue. "This is going to figured out by agreement with the city and the state Legislature," said McKenna.

Holmes says that the best option going forward may be waiting for bids to come in and see if engineers believe the project can be completed at the set budget. “If there is a cost overrun, part of question is, when will we know it?" Then Holmes adds this quandry to the debate; “Delay is the biggest factor that contributes to a cost overrun, so do you inject delay to stop overruns, when that delay may be the cause of an overrun in and of itself?” (He notes that the recession could allow the city to save money on construction.)

But McGinn doesn’t buy it. He says that the issue should be resolved regardless of bids that may show the project under budget—if the project exceeds costs during construction, there needs to be a payment mechanism in place. As for delays: “It seems to me is that the argument is that there is some sort of voodoo here," McGinn says, "that cost overruns are caused by talking about cost overruns.” Citing Brightwater and other tunneling projects, he says, “Are cost overruns caused by a delay or that the tunneling machines broke? Or is it that they ran into soil conditions they didn’t think they were going to hit?”

McGinn cites Flyvbjerg's book on Megaprojects and Risk that says the difference between the forecast costs and actual (over budget) costs “may be explained by project proponents succeeding in manipulating forecasts...”

The project can't proceed until the city council approves a contract with the state, and it's scheduled to be completed by the end of the month. The parties are currently hashing out details of that contract—including contingencies for who pays for problems with soil settling, moving utilities infrastructure, conditions of bonds for contractors, etc.—which will go before the mayor and ultimately to the city council for approval. That contract must be approved before the bidding process can begin next month.

Thus far, the council and governor have argued, in essence, that cost overruns won’t occur because all contingencies are being planned for. “We are working in partnership with the state to ensure that the project is completed on budget and on time,” Conlin wrote in a blog post last week. McGinn responded by calling for a debate, which Conlin then refused to engage in last Friday.

McGinn, in response, invokes this Star Wars reference: “Whenever someone raises the issue of cost overruns, they just say there will be no cost overruns, like a Jedi mind trick: These aren’t the droids you are looking for; there will be no cost overruns.”

 

Comments (16) RSS

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Will in Seattle 1
Mayor McGinn is right.

Which is why the Billionaires Tunnel will fail to get a majority of the vote in the required public vote.

Since it's above the bonding authority of the City Council.
Posted by Will in Seattle http://www.facebook.com/WillSeattle on May 24, 2010 at 12:52 PM · Report this
2
"Mayor Mike McGinn agrees that the enforceability of the cost-overruns provision isn't the issue."

He does? Since when - since this morning after he heard what Pete Holmes said?
Posted by gloomy gus on May 24, 2010 at 12:53 PM · Report this
Vince 3
Cost overruns=Corruption.
Posted by Vince on May 24, 2010 at 12:59 PM · Report this
Cato the Younger Younger 4
Screw it, I'm moving to the east coast in a couple of years anyway. Fucking build it and pave it with GOLD!!!

HA HA HA HA HA HA!!!!!
Posted by Cato the Younger Younger on May 24, 2010 at 1:28 PM · Report this
5
Sounds like Pete Holmes drank Gregoire's koolaid; delay is not the only, or biggest cause, of overruns in urban megaprojects. The tunnel boring machine hitting an unexpected obstacle, and stall out; there could be a seismic event during boring; inaccurate analysis of the tricky water table could lead to site flooding; ground vibration or settlement could cause a sinkhole under one or more downtown buildings; ground vibration and soil settlement could cause failure in rickety Pioneer Square water infrastructure; there could be a labor dispute. You can't prevent these technical problems by going faster.

WSDOT has said that their #1 tool to control project costs and avoid overruns is to ‘manage project scope’. This means that if a costly problem emerges during boring, for instance, then some other part of this complex project will get its budget axed.

That puts Seattle electeds in a bind.
There will likely be cost control / scope reduction tradeoff decisions down the road, and WSDOT is likely to suck the funding needed for the dig from the other parts of the project. What decision authority does Council have to protect Seattle's interests, if any?
Is funding protected for the parts of the project important to Seattle, such as the $290 million for the waterfront street replacement, funding for lids at the portal areas, and reconnecting the street grid at Thomas, Republican, and Harrison? Or are they OK with the state simply defaulting on these promises, as they did with $190 million for transit funding?

Posted by C Moon on May 24, 2010 at 1:30 PM · Report this
cressona 6
Good explanation, Dominic.

Count me in the camp of people who aren't dead-set against the tunnel, who consider it the lesser of two evils (the greater evil being a new viaduct), and whose primary concern is that Seattle not be stuck with the cost overruns. Frankly, I'm satisfied with Pete Holmes's assessment. He has allayed my concerns.

Gloomy Gus @2, I too am confused now by the mayor's position. It is strange that Mike McGinn is now saying his issue isn't that the overruns provision but rather the spending cap by the state. McGinn: "Saying that the city cannot be made to pay a cost overrun doesn’t address the problem of what we do if there is a cost overrun.”

I'll tell you what we do if there's a cost overrun. Just let the project sit there until the state comes up with the rest of the money. I'd have no problem with the aborted remains of an underground highway sitting underneath downtown Seattle indefinitely. We can leave it there as a monument to our fiscal shortsightedness, circa early 21st century.

Anyway, it seems like the real deciding factor here could be this contract the city and state are expected to sign within a week.
Posted by cressona on May 24, 2010 at 1:36 PM · Report this
cressona 7
God, it's times like this when I wish I could step inside that dank, murky place that is Frank Chopp's brain and find out what he knows that the rest of us don't. I think Chopp knows exactly what will happen if and when there are cost overruns, and he's not saying because to do so would create a political firestorm.

I'd love to ask anyone else in the know for their opinion of who picks up the tab, but I'm afraid most of the people in the know have a vested interest one way or the other.
Posted by cressona on May 24, 2010 at 1:44 PM · Report this
8
You're confused over McGinn's flip-flop? Really?

Any time a FACT runs up against his blather, the blather shifts and he says, "No, that's what I meant all along."

Thank goodness the new urbanists got such a dweeb in office. After this debacle perhaps they'll go away.
Posted by You're not serious on May 24, 2010 at 2:02 PM · Report this
cressona 9
Hey, "You're not serious" @8, so you think it's so overwhelmingly obvious that McGinn is on the wrong side of the "FACTS"... Then, instead of taking another shot at him, why don't you explain to the rest of us why you are--and apparently have always been-confident that Seattle taxpayers have nothing to worry about when it comes to cost overruns on the tunnel? If you're so knowledgeable, then tell the rest of us how things are going to unfold when there are overruns?

P.S. It's apparent to me that all these personal attacks on McGinn are nothing but blowing smoke, an attempt to distract us from the real issues at hand.
Posted by cressona on May 24, 2010 at 2:21 PM · Report this
Will in Seattle 10
@7 - Frank's running the long game.

The actual Billionaires Tunnel being built is not required for the Long Game to work, just his backing of it.

But silly people who have no idea how easy it is to leverage the new EPA emissions regs, native population sites, or other things have no idea how easy it is to stop the SR-99 Billionaires Tunnel.
Posted by Will in Seattle http://www.facebook.com/WillSeattle on May 24, 2010 at 2:21 PM · Report this
Will in Seattle 11
@9 - Mayor McGinn is very popular in Seattle amongst the actual voting electorate.

It's just whiny millionaires in the suburbs and their lapdogs that have a problem with him.
Posted by Will in Seattle http://www.facebook.com/WillSeattle on May 24, 2010 at 2:22 PM · Report this
12
@Cato the Younger Younger

Good idea. Nobody on the East Coast would ever think about spending billions on a tunnel.
Posted by 2cents on May 24, 2010 at 6:14 PM · Report this
Spicy McHaggis 13
@11

McGinn won by 50.5%. He was lagging in the polls till he moderated his anti-viaduct stance and said he wouldn't oppose the project. That does not sound like "very popular" to me.
Posted by Spicy McHaggis on May 24, 2010 at 7:24 PM · Report this
MrBaker 14
2 things, first, who does the mayor think would pay the cost overruns on a surface option?
Why the fuck does that shithead think the legislature would kiss his ass on that option?
Second, Holden, your math is fucked up. Look at the beakdiwn of the cost items and you will see continency/risk dollars of 415 million dollars that are not counted in overrun, they are consumed, and there is another 400 million in more tolling not attached to anything. The actual drilling portion that the mayor is now trying to ignore is 350 million dollars. With the contingency, and the extra tolling, how do you get to 600 hundred million dollars?

The mayor even says that is not his point (likely because he knows he has been overstating the risk for 8 months), he has now settled on the language of the lagislaturs, see my first point.
The state will try to fuck Seattle with either option, why would anybody pretend that they would act differently after Mayor McSandbag drags this thing out?

Apply the same criteria if you are going to do analysis, thanks in advance.

Put down the beer, Mike, you are the Mayor of Fuck You Seattle.
Posted by MrBaker http://manywordsforrain.blogspot.com/ on May 24, 2010 at 9:49 PM · Report this
15
Well, my other concern is that if we (Seattle) don't settle the cost overrun provision before signing the agreement with the state, we could start the project, and run out of money in the middle of the construction, and the state will send us the bill, the city will refuse, and we will have half build tunnel forever. This will be disaster for Seattle, and a major disruption for down town Seattle. Let us make sure that we know who is responsible and paying the cost overrun because the cost overrun will happen—guarantee
Posted by African1 on May 26, 2010 at 8:34 AM · Report this
16
This cost over-run impass will continue right up to the 2011 legislative session. Then the State will announce that since they are expected to pick up the whole cost, they will NOT fund a Tunnel solution which was Seattle's idea anyhow.
They will fall back to other previously announced alternatives. A new Viaduct will not fly in Seattle. The no-replacement option will not be accepted by the State. What is let is a Retrofit of the Viaduct which they should have done back in 2001. It will get done sooner, cost less and cause the least disruption. And will maintain the same traffic volumes we already enjoy. It will also continue to provide access to downtown.

And that's the truth!

Art
Posted by arties on May 26, 2010 at 11:56 AM · Report this

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