It now looks like Oregon DOT’s I-5 Rose Quarter $450 million freeway widening project will cost more than $1.25 billion

The project’s estimated cost has nearly tripled in just four years, and still has further cost overrun risk

Even OTC commissioners question whether it’s worth more than a billion dollars to widen a 1.5 mile stretch of freeway

The Oregon DOT has experienced massive cost-overruns on all of its largest construction projects, and has systematically concealed and understated the frequency and scale of cost overruns

One of the most viewed clips on YouTube depicts the handiwork of Oregon Department of Transportation engineers. Over 50 years ago, in the fall of 1970, confronted with the rotting corpse of a 45-foot long sperm whale on a Pacific beach, ODOT engineers planted half a ton of dynamite under the carcass; when detonated it created a rain of blubber that sent bystanders running for their lives—a  a huge chunk that crushed a nearby car. ODOT has subsequently given up on exploding stranded whale carcasses (it now carefully buries them).  But it has found another thing to explode, and something it does regularly: project budgets.

ODOT then: Exploding Whales. ODOT Now: Exploding Budgets

Deja vu all over again.

Barely 18 months ago, we wrote about the latest ODOT fiasco:  the nearly doubling of the price of the ill-advised I-5 Rose Quarter freeway widening project in Portland.  The project, which was sold to the 2017 Oregon Legislature as costing $450 million  had its price tag balloon to almost $800 million in March 2020.

Earlier this month, the agency conceded that number was low, way too low, and that now the project will cost upwards of $1.25 billion (and could cost even more).  That means that in just four years—and without turning a shovel of dirt—the price tag for this project has nearly tripled.  Not only that, but basic questions (like the design and features of a lengthy covered highway tunnel, and relocation of principal on- and off-ramps, and the relocation of Harriet Tubman Middle School) are unresolved, and will almost certainly increase project cost further.

Just as the project has nearly tripled in price, it has become increasingly unclear how it will be paid for.  The 2017 Legislature earmarked $30 million per year to go towards the Rose Quarter project (when it was told the price was just $450 million). But the 2021 Legislature allowed that same $30 million in annual revenue to go towards billions of dollars of other freeway widening projects.  So the agency has less revenue for the Rose Quarter freeway widening at exactly the time it costs have tripled.  Oregon DOT says it will now make up the difference, somehow, by a combination of borrowing and tolling.  Borrowing will require interest payments that inflate the total cost of the project still further.  And ODOT’s own consultants have said tolling this stretch of I-5 would actually eliminate the need to widen the freeway at all.  The Rose Quarter project is looking more and more like the 21st Century version of ODOT’s exploding whale.

With good reason, the higher price tag for the project is finally starting to cause Oregon Transportation Commission members some serious heartburn.  Every dollar spent on this barely 1.5 mile long freeway widening project is a dollar that isn’t available to maintain or improve roads elsewhere in the state, and as we’ve noted, bonding grants this project an irrevocable priority for state and federal funds.  According to the Oregon Public Broadcasting,  Smith argued:

[OTC Commissioner Sharon] Smith questioned the overall viability of the project and asked her colleagues whether they believe Oregonians would approve the project if it were put on the ballot.

“Do you want to spend $1.5 billion on a road project? Is that the best use of our public funds right now? And I don’t know if the answer would be yes,” she said.

But wait, there’s more:  Who will pay for school relocation and building housing?

But that’s not all.  This estimate doesn’t include other likely costs. A key part of the Rose Quarter project is mitigating the negative effects on the Albina community.  Governor Kate Brown has promised state support for relocating and rebuilding Tubman Middle School—its school grounds are in the path of the widened freeway.  That $80 million cost is not included in the new budget.  Also, as we’ve reported at City Observatory, ODOT consultants have included gaudy illustrations of housing that might be built on the new highway covers to replace the hundreds of homes demolished to make way for ODOT highways in the neighborhood, but no one has identified even a dime of the hundreds of millions of dollars that would be needed to pay for the cost of the housing ODOT pretends will be built to restore the neighborhood.

Finally, the $1.2 million (or more) is just the today’s sticker price of the project; ODOT doesn’t actually have the money in hand, so it will have to borrow it. That borrowing will entail a considerable additional expense for interest.  This is a part of the fiscal reality of the Oregon Department of Transportation that no one talks about:  Prior to 2000, it was nearly debt free, and spent less than 1.5 percent of its budget on interest expense. Since then, its gone on periodic borrowing binges, that like consumer credit, let you enjoy shiny new things now, and push the cost off (with interest) into the distant future. No one’s bothered to spell out the interest costs of borrowing for the Rose Quarter project, but that, too is likely to run into the additional hundreds of millions of dollars.

Moving the goalposts to understate the cost overrun

Media accounts of the latest escalation of the project cost actually understate the size of the cost overrun:  They omit the fact that the project’s original cost estimate, from just four years ago, was a relatively paltry $450 million.  Instead, they compare the project’s price tag only to its now 18-month old update (in which we were told that the highest likely cost of the project was a little under $800 million.  Two major local news organizations were fooled into under-reporting the size of the cost overrun:  The Portland Oregonian overstated the project’s “original” pricetag.

The original proposal was expected to cost between $715 million and $795 million and had a projected “midpoint” construction timeline of 2025. ODOT projects that the larger freeway caps — as well as relocating a freeway ramp to accommodate them— will cost between $1.8 [sic] billion and $1.25 billion and reach its midpoint of construction in 2027.

Likewise, Oregon Public Broadcasting was duped into mis-stating the project’s initial cost estimate and thereby minimizing the cost overrun:

The project’s cost has risen significantly from its initial price tag of between $715-795 million to upwards of $1.18 billion. The project could top $1.4 billion if a more robust cap over the freeway was pursued to allow heavier development.

Incidentally, sending earlier cost estimates and project schedules down the memory hole is a routine practice at ODOT, which enables them to always claim that a project is “on-budget and on-schedule” by simply forgetting any and all previous statements.

ODOT:  Where cost overruns are just the way we do things

To some, a cost increase of this magnitude may seem like an aberration.  For anyone who has followed ODOT closely, its apparent this is very, very common.  Over the past decade and a half at least, ODOT has blown through the budget estimates of virtually every large project they’ve undertaken.

Like other highway agencies, ODOT has consistently underestimated the cost to complete its major highway projects.  A review of ODOTs own reports for the largest projects its undertaken in the past 20 years shows a consistent pattern of cost overruns, as summarized here:

Source: Compiled from ODOT reports. Note: Newberg Dundee estimates are for entire project, which is only partially complete. Other projects latest cost reflect total cost as completed.

There’s abundant academic evidence about the consistent tendency of “megaprojects” to overrun early cost estimates.  Bengt Flyvberg has literally written a book about it.

The problem isn’t unique to Oregon.  Two of the biggest bridge projects nationally (rebuilding the Tappan Zee Bridge N. of NYC, and SF’s Bay Bridge West Span both produced colossal overruns).

No Accountability for Overruns

There have been furtive efforts to oversee ODOT.  In November 2015, Governor Brown said she was commissioning an performance management audit of ODOT.

ODOT did nothing for the first five months of 2016, and said the project would cost as much as half a million dollars. Initially, ODOT awarded a $350,000 oversight contract to an insider, who as it turns out, was angling for then ODOT director Matt Garrett’s job.   .

After this conflict-of-interest was exposed, the department rescinded the contract in instead gave a million dollar contract to McKinsey & Co, (so without irony, ODOT had at least a 100 percent cost overrun on the contract to do their audit.)

And what McKinsey produced amounted to a whitewash, as I explained at Bike Portland.  The audit covered up a long series of ODOT cost overruns, and instead focused on a long series of meaningless measures of internal administrative processes, such as the average time needed to process purchase orders. Meanwhile, the state’s million dollar auditors excluded from their cost overrun calculations the US20 Pioneer Mountain project, the single most expensive project that ODOT had undertaken, and even though excluding it, managed to understate and mis-label the 300 percent cost-overrun.

The final report from McKinsey recommended that ODOT could become more efficient by giving more money to consultants like McKinsey (as humorist Dave Barry would say “I’m not making this up.”)

Which, in a way, brings us full circle:  Dave Barry was one of those principally responsible for popularizing the exploding whale story.  With ODOT, the explosions just keep coming, but now they’re confined mostly destroying project budgets, rather than raining blubber. At least with whales, ODOT learned from its mistakes.  When it comes to massive cost overruns, it’s simply become the way this agency does business. We give the last word to Barry, who narrates the whale explosion:

So they moved the spectators back up the beach, put a half-ton of dynamite next to the whale and set it off. I am probably not guilty of understatement when I say that what follows, on the videotape, is the most wonderful event in the history of the universe. First you see the whale carcass disappear in a huge blast of smoke and flame. Then you hear the happy spectators shouting “Yayy!” and “Whee!” Then, suddenly, the crowd’s tone changes. You hear a new sound like “splud.” You hear a woman’s voice shouting “Here come pieces of… MY GOD!” Something smears the camera lens.