- The Washington Times - Wednesday, March 9, 2011

ANALYSIS/OPINION:

One thing is certain about any large government building project: It’s going to be over budget. No matter how bloated the estimates might look upon first glance, they never end up covering the full and final costs involved. We’ve already seen this with the $4 billion Dulles Metro Rail project where even at this early stage, costs are approaching $7 billion.

The business world’s answer to this problem has been to employ life-cycle budgeting. As applied to government projects, this technique would evaluate not just construction expenses but operation and maintenance costs as well. For example, if a road using pavement material A will cost $100 million to build but $3 million per year to repair, the 30-year life-cycle cost would be $190 million. If the same road using pavement material B would cost $120 million to build but just $1 million annually to maintain, the 30-year cost would be $150 million. Either way, the budget writers would need to account not just for the $100 million, but for the full, higher amount. In this case, option B is more expensive on the front end but represents a better long-term deal.

Several states have adopted this idea to insulate the public from the new taxes the unplanned cost overruns inevitably inspire. It’s time for the federal government to do likewise. Sen. Jeff Sessions, the Budget Committee’s ranking member, described President Obama’s transportation funding request as a plan that requires “$435 billion in new money over the next 10 years in magic revenue” because it doesn’t consider longterm costs. “We need fact-based budgeting,” the Alabama Republican said at a March 3 hearing, “not fantasy budgeting.”

Louisiana’s transportation department, which uses life-cycle budgeting, reported in 2007 that projects using the technique came in about 9 percent below estimates, while other project bids came in roughly 20 percent over budget. The Missouri transportation department reported similarly positive results.

Honest budgeting is the last thing politicians committed to expanding the size and scope of government want to see. Boondoggles like Dulles Rail are sold to the public with a low initial price tag because the project’s advocates know that the public would never embrace the true cost. As Congress debates how to balance the books, it’s a perfect time to make the move to introduce integrity into the budgeting process.


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