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We Need to Resolve Cost Overruns Before Digging the Tunnel

by Mayor Mike McGinn

We are about to make a decision on the deep-bore tunnel that will have a significant impact on our future. We should make this decision by addressing these concerns head-on. Here are five critical issues to consider:

1. Ninety percent of megaprojects have cost overruns.

A comprehensive Oxford study concluded that 90 percent of megaprojects experienced cost overruns. We can see that here in our own backyard. The downtown bus tunnel, Sound Transit's Beacon Hill tunnel, and the Brightwater sewage tunnel all exceeded their budgets by significant amounts. These projects weren't the exception; they are the rule.

At the very least, we should be prepared for the likelihood of cost overruns, and anyone who is saying otherwise is not acting responsibly.

2. The state promised to pay for tunnel overruns... and then broke its promise.

When the original agreement on the tunnel was announced in January 2009, our previous mayor and Governor Gregoire highlighted the importance of each party covering its own costs. They agreed then that the state would cover all costs related to the construction of the tunnel, including cost overruns.

The ink was barely dry on that agreement before the state legislature changed the deal. It capped the state's contribution at $2.4 billion and said Seattle-area taxpayers who benefit from the tunnel would be responsible for cost overruns.

The city has agreed to cover all costs related to our own projects—for example, the cost to replace the deteriorating seawall or to relocate utilities. Seattle committed to spending nearly $1 billion on various projects, and we are moving forward in good faith on those projects. I am fulfilling my commitment to honor agreements that have been reached, and will continue to do so.

3. Seattle has to pay overruns, but has no say over the project.

Why? Because the tunnel is a state-­controlled project, and the state maintains all decision-making authority over it. This puts Seattle in a very difficult position. The state orders us to guarantee a project for which we have no direct authority.

Two recent examples highlight Seattle's lack of control over the project. Last week, after being told ad nauseam that delay is the major source of cost overruns, the state extended completion of the project by a full year.

A more serious example is the bonding requirements for tunnel contractors. Up until last year, megaproject contractors had to post "performance bonds" equal to the total cost of the job. But the state changed the law last year. Now the contractor for the tunnel only has to guarantee less than half of the project cost. The risk is passed from the contractor to the state and then, according to law, to Seattle. If the state was on the hook for cost overruns, they might think twice before reducing the bond requirements. But they're not. The city is, and we get zero say in the matter.

4. Cost overruns could lead to severe cuts to basic services.

This is a massive project. Even a small cost overrun will have a major impact on the city budget. For example, we are facing a $60 million deficit next year. It is causing us to wrestle with difficult decisions, cutting basic services that will be felt by everyone.

Now compare that to the potential of cost overruns on this project. A cost overrun of 34 percent (which is the average of cost overruns for megaprojects revealed by a recent study) would mean that Seattle could be on the hook for hundreds of millions of dollars. Even paying a portion of that would lead to severe cuts to basic services. By comparison, $2 million a year would pay for 20 new police officers; $13 million a year would fill the parks deficit; $5 million is how much we spend each year on sidewalks.

5. NOW is our last best chance to fix it.

The best time to raise and answer difficult questions about who will pay cost overruns is before they occur, which is now.

While some prefer to take a wait-and-see approach to the cost-overrun issue, I believe we have to settle this now. Seattle is currently finalizing negotiations on a master contract with the state. This is our last significant point of leverage to remove the massive risk that we face.

If the city council will stand with me and present a united front to the state, I believe we have a good chance of protecting Seattle. To date, if the council has a compelling argument as to why we can overlook the question of cost overruns, I've yet to hear it.

We Don't Need to Resolve Cost Overruns Before Digging the Tunnel

by City Council President Richard Conlin

[Conlin has refused to debate tunnel cost overruns at Town Hall, on KING 5 and the Seattle Channel, and in The Stranger. Asked why, his staff told us he's "just not interested" in debating the issue. The council is expected to vote on a tunnel contract that obligates the city to pay overruns later this month.]