Why huge cost overruns are so common in Seattle
In the last year, the budget overruns of just four city projects, or run-ups over original estimates, have totaled more than $200 million. That’s quadruple the city’s yearly budget to fight homelessness, about $70 million more than the city’s previous housing levy and just shy of the total cost to launch universal preschool citywide.
There’s the seawall, now $70 million over its former budget (which, by the way, was already $30 million over its first budget). There’s the new customer information system (NCIS) for Seattle Public Utilities and City Light, $34 million over its original cost. There’s the new North Precinct police station, $60 million more expensive than the original estimate of $88 million. And there’s the Denny substation, now $209 million, up from $173 million the year before.
And with every one of them came the same reaction on the second floor of City Hall, where the Seattle City Council resides: Surprise. That’s not exactly the reaction you want from elected officials. And they agree.
“As one of the new councilmembers, I was surprised that we lack the tools to effectively govern,” says Seattle Councilmember Rob Johnson. “More often than not we were being asked to approve the resources of projects that were already under way.”
On this issue, Councilmember Tim Burgess says, "I’m not going to point fingers at anybody, except maybe ourselves.”
In response, the council, led by Councilmembers Johnson and Lisa Herbold, will take a stab at creating a sturdier mechanism for reviewing the city’s capital projects — its large-scale infrastructure items — by this fall. They will be following the lead of government bodies near and far, who have better wrangled this issue.
Revelations around cost overruns have the feeling of coming out of nowhere, as if one morning the seawall ran into a $70 million mistake. But the reality is these overruns percolate, either through error (soil conditions along the waterfront, said SDOT, were much more challenging than they’d anticipated) or expanded scope (see the new North Precinct station’s proposed yoga studio, not part of the original plans).
The seawall’s issues arose last summer, when SDOT Director Scott Kubly came to the council, adamant he’d only just learned of the massive overruns. In these sort of instances, the question becomes how much should the council keep tabs on the technical, day-to-day operations of a project.
The North Precinct station, NCIS and the Denny substation, on the other hand, all proceeded smoothly through budget approvals, with hardly a peep from the dais. The proposed 2015 capital improvement projects listed the North Precinct at $88 million and the substation at $173 million. The council gave their blessings, only reopening concerns months later. The substation has still received little attention.
Then, last fall, those same items showed up at $160 million and $209 million respectively. Additionally, there was a clear note that “delay in [NCIS] will increase costs in 2016,” although it didn’t mention by how much. Again, the council gave its blessing, including Councilmember Mike O'Brien, who recently voted against a resolution in support of the station.
The fact is that the docket of capital improvement projects is so vast and dense (this year’s clocked in at a cool 879 pages) that the council often misses big ticket items. “While we try to do a good job doing oversight of capital projects, we don’t do enough,” says Councilmember Burgess.
The life of a capital project is a vague and complicated one, marked by recessions, elections and retirements. Take the North Precinct station. Officials first brought it up in 1998, but starts and stops in the economy essentially shelved it for what ended up being decades. It picked up again in 2012 as the design process got rolling.
In a council committee meeting last June, city budget director Ben Noble told council that the $88 million was just a guess, and a poor one at that.
“We were left to the best of our abilities to come up with a number,” he said. “We knew it wasn’t right; we didn’t know how wrong it was. It was not a constructive estimate…to establish what’s a reasonable cost for a project like this…. It’s not that we migrated from $90 to $160 (million). It’s that we never had the right number to begin with.”
Not surprisingly, that methodology was not met well by council. Right or wrong, the number made it into the budget without the context that it was seen as wrong by the people proposing it. Design plans moved forward, at a cost of millions of dollars, on the assumption that the total cost would be $88 million.
Meanwhile, the commission tasked with overseeing the design cheered its way toward bigger and better additions, including the yoga studio and a skatepark. The comments of this commission are a stark contrast to the more recent protests, praising the location, encouraging it to look beautiful and to contain extensive common space.
Last November, the cost was suddenly up to $160 million.
Once upon time, says longtime City Hall dweller Herbold, the council would get a reading of capital projects. But because there were so many, they mostly flew by without analysis or context. “The feeling, even then, was it was too much information to allow for a meaningful review,” she says.
So although cost overruns feel like they’ve recently run rampant, Seattle has actually never been very good at communicating on this front.
Recently, the council commissioned a study of other jurisdictions and how they deal with this problem. In Fresno, an oversight board reviews every project over $20 million. In Los Angeles, they have special oversight committees for transportation, IT, seismic retrofits, and zoo capital programs. And in San Diego, there’s a council infrastructure committee.
Even just down the road, at the King County Council, two full time staff members oversee large capital projects. Johnson likes the Sound Transit approach, where large projects go through gates as they pass certain milestones.
Whether the council would establish an oversight committee or maybe lean on civilian commissions is unclear, but the challenge will be picking and choosing which projects deserve the most scrutiny. 800 pages of capital improvement is a lot.
But so is $200 million.