Paying a Price for Farm-Outs;

Subway, Bridge Costs Skyrocket
Paying a Price for Farm-Outs

When someone buys a house, a down-payment is made and the balance financed through a long-term mortgage. The total interest payment can be three to four times the principal.

Mr. Levy, a retired veteran of 35 years in the transit system who monitored the structural integrity of the subway system's below-river tunnels, is the former chairman of the Civil Service Technical Guild's New York City Transit chapter. The buyer looks at his budget and decides if he can afford the cost. If so, he buys the house and pays a fixed-interest payment (plus principal), or debt service. This debt service (in that it produces nothing) is called dead money.

Similarly, in local governments and their agencies, capital improvements are financed by long-term (tax-free) bonds, for which interest is paid. This interest is dead money.

The individual can control his dead money by asking: do I need it and can I afford it? Government will say, "I need it and damn the cost the taxpayers will pay for it." Or as the saying goes, "if you let them, they will do it."

Therefore, to reduce dead money, the cost of capital improvements must be reduced.

The cost of a capital improvement is determined by the engineering design of the project. If the design is outsourced, both the engineering and construction costs will go up.

Outsourcing means consultants and their fees depend on the construction cost of the project. Therefore, consultants have little interest in cost control.

For example, the first section of the 2nd Ave. subway, we are told, will be $3.8 billion, when the real cost should be $385 million. With this higher construction cost, they can justify a $600-million engineering cost for the 2nd Ave. line (whereas the in-house cost would be $60 million).

Another example is the LIRR Eastside Connection. This (consultant design) project is now at $6.6 billion. This project was originally estimated (by consultants) at $2.2 billion. An in-house proposal would have cost less than $300 million and would already have been in service.

The fix for the Manhattan Bridge is at most a 30-year bandage which also left the bridge aerodynamically weakened. An in-house solution would have strengthened the bridge by at least four times, at a cost of less than $50 million for a period of over 100 years.

In conclusion, just these three projects being kept in-house could have saved the taxpayers in excess of $15 billion. This would give local government an additional surplus of over $1.2 billion per year. Instead we will pay dead money. Where are our elected representatives?