Gambling with Billions

Torontoist

2 Comments

cityscape

Gambling with Billions

Mega-projects keep failing. So why does the mayor love them so?

Transit mega-projects like the Scarborough Subway Extension do not have a good track record.

Transit mega-projects like the Scarborough Subway Extension do not have a good track record. Torontoist file photo.

What a state we are in, Toronto. The City lacks political consensus and expert support on at least three projects that will cost billions of dollars. And yet we hurtle forward.

In 2003, Bent Flyvbjerg, Nils Bruzelius, and Werner Rothengatter surveyed more than 1,000 major infrastructure projects from around the world and examined what lessons we could be learned from their success or failure. They published their findings in a book, Megaprojects and Risk: An Anatomy of Ambition, that has only become even more relevant today. All over the world, we can see that the way we plan and build cities is now caught up in the megaproject phenomenon. Toronto is not alone in this folly.

Megaprojects are complex, large-scale, multi-year infrastructure projects, typically with a minimum budget of $1 billion. They range from pipelines to subway lines, but despite their varied nature, it turns out different megaprojects have an awful lot in common.

These projects share a dream of a “frictionless society,” where massive infrastructure will connect and move information, people and goods smoothly, reliably, and quickly, freeing us from the drag of geography. But when Flyvbjerg and his colleagues looked closely, they found this faith to be misplaced. Despite the proliferation of these megaprojects (they sell very well in political campaigns), overall, their outcomes are—to put it mildly—terrible.

Projects are rarely completed on time. Cost overruns aren’t just common, they are the norm. And generally speaking, the bigger the project, the more likely it is to run late and go over budget. Half of megaprojects exceed their budgets by more than 50 per cent.

Another damning conclusion: the economic development that is promised to bloom in the wake of such infrastructure investment simply does not materialize. Even the Channel Tunnel was a loss for its investors. There is a very persuasive 2006 study that argues the U.K. economy would have done better without it. Something is not always better than nothing.

This isn’t news. A major study of megaprojects by RAND was already sounding the alarm as far back as 1998. But it seems these reports and analyses are pitched at a frequency we can’t hear.

The negative outcomes are found in both public and private projects. Because so much money and time are poured into megaprojects, when they fail, they have the potential to bring down companies and governments with them.

They have also taken their toll on the reputation of those who perform professional analyses in support of megaprojects. As Flyvbjerg and his colleagues note, “Whether we like it or not, megaproject development is currently a field where little can be trusted, not even—some would say especially not—numbers produced by analysts.”

Flyvbjerg, who literally wrote the book on megaprojects, has been identified as one of the world’s “key thinkers on cities.” Originally a social theorist, he now teaches at the Saïd Business School at Oxford University. In the Oxford Handbook of Megaproject Management, he says there is an “iron law” of megaprojects: “Over budget, over time, under benefits, over and over again.”

A common problem with megaprojects, Flyvbjerg writes, is “overcommitment to a certain project concept at an early stage, resulting in ‘lock-in’ or ‘capture,’ leaving alternatives analysis weak or absent, and leading to escalated commitment in later stages.” This is called “failing slow.”

Megaprojects are more vulnerable to surprises, and surprises are extremely costly. That is partly because such disruptions are rarely anticipated, increasing their negative impact.

Part of the solution is better institutional practices: not just “better numbers,” but extensive systems of accountability from the earliest stages, public transparency about costs and risks, and the political space to call a halt to a bad project.

So let’s talk about the Scarborough Subway Extension. I’ve said for a long time now that I suspect the final bill for construction alone will be $5 billion. The $3.35-billion figure is based on minimal design and does not include a number of necessary costs. A 50-per-cent cost overrun, according to the research, is to be expected.

The City of Toronto does not have $5 billion to spend on the SSE, even if there were evidence that the investment would pay off in ridership, and social and economic development. But the evidence actually points the other way.

It’s not just that we will be spending $5 billion. It’s that we’re risking $5 billion. We don’t know what the outcome will be. The iron law of megaprojects is that they underperform. If it amounts to less than we expected, we don’t get our money back.

Are we considering this risk carefully? I don’t think so.

On November 24, 2016, Mayor Tory spoke to the Toronto Board of Trade: “For decades now,” he said, “we have been underinvesting in almost everything and those under investments are having an impact on our residents and our city.”

He’s absolutely right. But as he himself said, “It’s time for decisive action. But we have to do it the right way.”

In March 2017, in anticipation of a City Council vote to move the SSE project forward, the mayor wrote an editorial in the Toronto Sun arguing, “Scarborough needs better transit and they need council to get on with building that transit now.” He said we need to end “years of indecision and waffling on transit,” and “the time for endless debate and endless inaction is over.”

A few days later, in response to criticism from former mayor David Miller, Tory doubled down on the benefits of the SSE: “This will save a lot of time for a lot of Scarborough residents and, just as important, it will attract all kinds of jobs and investments to the city centre of Scarborough, which is going to bring a brand new day for Scarborough.” The promises get bigger and bigger.

The mayor’s thinking is exactly what the research identifies as a problem. Megaprojects need to go slow at the beginning, and stop if they are bad projects. The ones that go forward should have achieved broad public and political support through transparent sharing of information, as well as clear funding plans that include contingency planning for surprises.

I would argue that what we are witnessing is not the courage to make a decision, but political impatience. And political impatience is only likely to send a bad project forward, even though there is ample evidence indicating it should not be built at all.

Even worse, this impatience can also cause the bad project to go forward in a bad way, which means there will be problems during the construction, it will be unnecessarily vulnerable to disruption, and its cost and time overruns will increase.

Mayor Tory is not unique in making this mistake. Ill-conceived megaprojects are a global phenomenon; all politicians seem to find something to love about them, even as they routinely crash and burn, wasting mega-amounts of private capital and taxpayer dollars.

It just so happens that the mayor loves megaprojects. At the Toronto Board of Trade, he said the City aspired to $33 billion worth of projects over the next 20 years. His big idea for financing all this was road tolls, which was shot down by the provincial government, and wouldn’t have covered the costs anyway. And then there’s his own pet megaproject, SmartTrack, which is neither a good nor urgent nor necessary project. It’s barely even its own project, separate from the province’s pre-existing RER project, although it does create an opportunity for the City to pay for things the province was going to cover.

My point here is only that the mayor so loves megaprojects that he will invent more of them just for the fun and expense of it. And he loves them so much, he has repeatedly ignored the advice of his political and professional colleagues with greater experience, as well as impartial experts on the details of both the Gardiner and the SSE, including his own chief planner.

If the City goes forward with the SSE, and continues to pretend it can keep costs and schedules under control, it is spitting in the face of all the research out there about what happens to megaprojects and what we should do to manage their problems. The SSE may fail slowly, but it will fail just the same.

The SSE is a $5-billion roll of the dice. And it’s a gamble Toronto is going to lose.

Comments