HB 2025: Fiscally irresponsible, feeding the megaproject machine

It doesn’t add up:  You can’t be accountable, unless you actually do “accounting.”

HB 2025, the “transportation package” in the Oregon Legislature purports to address ODOT’s massive financial problems, but only makes them worse

The bill provides only a fraction of the money needed to actually pay for promised mega-projects.  HB 2025 provides just $1.75 to $1.95 billion in resources for five listed projects that together need about $3.5 billion–and likely more.

HB 2025 also provides nothing to cover entirely certain and predictable cost overruns on the largest highway project in the state, the Interstate Bridge Replacement, which is likely to end up costing $9 billion–when long delayed cost estimates are finally released.  The bill also provides nothing for the $1.1 billion Hood River Bridge. Adding these projects would push the mega-project hole to $5 billion; far greater than the funds allocated in HB 2025.

In all, its an excuse for ODOT to pretend that funding is available, to launch mega-projects based on low-balled cost estimates and optimistic assumptions, only to come back and demand more money later–exactly the same management failures that produced the agency’s financial problem.

Missing accounting for Anchor Projects

A key part of HB 2025 is a newly christened “Anchor Projects” fund, which would receive $125 million per year out of the state highway fund.  It would be dedicated to paying for five named projects:  the I-205 Abernathy Bridge, the I-5 Rose Quarter freeway widening, the Newberg-Dundee Bypass, widening I-205  between Stafford Road and West Linn, and the Salem Center Street Bridge.  What’s utterly missing from the bill is an estimate of how much those projects will cost, and how much money that stream of funds will provide.  Let’s take a closer look.

Here are the estimated total costs of these five projects, per the publicly released numbers from ODOT (but not included in the bill or supporting information).  The following table shows the initial cost estimate prepared for each project by ODOT, the current latest cost estimate, and the percentage cost-overrun (to date), and our estimate of the additional unfunded liability for each of these projects.

ODOT has some funds for these projects:  The 2017 Legislature provided about $450 million for the Rose Quarter project, which ODOT shifted to the Abernathy Bridge, and more recently has shifted back to the Rose Quarter.  In addition ODOT has been borrowing against future gas tax revenues to pay the high (and rising costs of Abernathy).  It’s very unclear from ODOT’s reports how much money is actually available under current law for the three projects.  In addition, the Rose Quarter is counting on about $450 million in federal grants, but provisions of the Budget Reconciliation Bill (aka “Big Beautiful’) passed by the US House of Representatives would rescind that funding.  In addition its worth noting that the cost of all of these projects is likely to increase further:  ODOT has admitted that the one project under construction, the I-205 Abernathy Bridge will have further cost increases beyond $815 million.  Oregon Transportation Commissioner Alicia Chapman testified that the Rose Quarter project could cost as much as $2.5 billion.  ODOT’s track record shows that they consistently under-estimate project costs.  To complete the named projects, ODOT will probably need at least $3.5 billion, and very likely even more.

The critical question is whether the funds allocated to the anchor projects fund are sufficient to cover these costs.  Clearly, they are not.  Against a liability of $3.5 billion and likely more, the value of the annual $125 million allocation, when bonded, is perhaps worth about half of the total unfunded costs of these projects.  Here’s how we calculate that amount.

How much is $125 million per year worth?  Because ODOT needs this money now (or in the next few years), and the amount is vastly greater than will be generated, the plan is to borrow against that stream of revenue for at least the next two decades.  ODOT should be able to issue bonds at an interest rate of between 4 and 5 percent.  A 25-year bond issued at those interest rates, paid back from a stream of revenue of $125 million per year would support roughly $1.75 billion to $1.95 billion in bonds.

When cost overruns are such a serious problem, and when budgeting failures are routine at the Oregon Department of Transportation, one would think that everyone would take great care to fully document all of the financial assumptions underlying these spending proposals and revenue estimates.  But here we are, in the waning days of the 2025 legislative session, with no detailed information on either revenues or costs.  (We’ll happily update this commentary when and if more specific data is released).  The critical point here is that you cannot have accountability if you don’t have accounting.

And it appears that the legislative authors of HB 2025 don’t even know how much money it raises, much less how large is the liability they are creating for the five named anchor projects.  As Dirk Vanderhart of Oregon Public Broadcasting noted,

As of Thursday afternoon, Democrats had not released an analysis for how much revenue their plan is expected to raise — a fact that opponents have seized on. Sen. Chris Gorsek, a Gresham Democrat and key author of the plan, said earlier this week he expected the number would be more than $1 billion a year.

Unfunded elephants in the room

It is bad enough that HB 2025 is promising projects that will costs an additional $3.5 billion or more, but only offers up about half that much funding, the bill also completely omits funding for the largest and most expensive highway project in the state, the Interstate Bridge Replacement.  It also makes no mention of the $1.1 billion Hood River Bridge, which the state is expected to pay a major portion of construction costs.

The “transportation package” has absolutely no mention of the “Interstate Bridge Project.”  Here’s a search of the bill:

As we’ve related, that is ominous because for the past 18 months, ODOT has admitted that the cost of the IBR project is going to go up, and has repeatedly failed to meet its own deadlines for releasing a new cost estimate.  It now says that it will have a new pricetag “by the end of the year,” conveniently after the legislative session.  Not only is the cost going up–likely to $9 billion–but hoped for federal funds are very much in doubt, especially $1 billion in federal money for light rail.  The result is that there’s a huge unfunded liability for ODOT to step up and pay even more for this project.

Similarly, Oregon is also likely to find itself liable for rising costs for the Hood River Bridge, which was supposed to have cost $520 million, but which has ballooned in cost to $1.1 billion.  Again, nothing in the transportation package provides any money for the increased costs of this project.

In effect, what this means is that even after enacting massive tax and fee increases in HB 2025, there won’t be nearly enough highway money to fund these mega-projects, which will undoubtedly lead to ODOT seeking to raid General Fund/Lottery Fund revenues–the money that pays for schools, health care, housing and state services–to cover these cost overruns.

The “Driving Stakes, Selling Bonds” Scam

As we’ve said, this is the root of the ODOT budget problem.  They’ll say almost anything, promise anything, make optimistic assumptions about revenue, ignore risks, and cobble together funds to just get a project launched.  Once ground is broken, and construction starts, they know that whatever it ends up costing, the state will have to come up with the money.  That’s exactly the lesson of the Abernathy Bridge project.  It wasn’t even included in HB 2017, yet ODOT found a bit of money to get it started based on a cost estimate of $250 million.  Once bids we’re opened, but price doubled to $500 million; As construction proceeded, costs escalated further first to $600 million, then $750 million, then to $815 million, and now further increases are expected.  ODOT paid for the project by borrowing against future tax revenues and transferring money from the Rose Quarter project.  Meanwhile, promised funding from tolling evaporated when the Governor terminated that program.  ODOT is now preparing to repeat the same process with each of these other projects.  It will find money to get the projects started, issue bonds that commit future state revenues, and then present the Legislature with the bill for virtually certain cost overruns.

Sadly, nothing in the accountability charade that the Governor, the Legislature and ODOT have performed in the past few months will prevent this outcome.  The consultants hired by ODOT (WSP) and the Legislature (AtkinsRealis) have massive conflicts of interest:  they have literally profited from billings on cost overruns on two major projects.  WSP has billed nearly $80 million on the Interstate Bridge; AtkinsRealis just spent $300 million to acquire David Evans and Associates, which is the second largest contractor for the Rose Quarter, and which auditors found had submitted $17 million in questionable claims for the Columbia River Crossing.

This post has been revised to correct typographical error