Seattle City Attorney Pete Holmes, providing his first public analysis of a civic dispute, says a controversial provision in state law requiring Seattle to shoulder cost overruns for a downtown tunnel “is not enforceable.” Holmes, who represents the city in legal matters, says, “We are solid on that, we are very clear on that. It is a red herring.”

While the question of who would pay for excess costs for a deep-bore tunnel—the city or state—remains unresolved, he says, “The legislature can’t just tax a group of people in a geographic area. This is a state highway and the state is responsible for all the costs.” If the state exceeds costs in any contracts, he says, “They could send us a bill. They can’t make us pay it.”

What if overruns crop up and the state files a lawsuit to collect? “The state would have no basis for suing the city to recover cost overruns, unless we somehow caused them,” Holmes says.

Estimates for the total costs are $4.2 billion to replace the Alaskan Way Viaduct's vehicle capacity with a tunnel. The state has agreed to pay up to $2.8 billion and the city has pledged $900 million (the rest coming from county sources).

The law at issue, passed last year by the state legislature, states that any costs over the state’s commitment “shall be borne by property owners in the Seattle area…”

But another part of that same provision raises questions, not settles them.

Holmes cites an unresolved part of the law: limiting the state’s commitment to the project at $2.8 billion. If the project were to exceed that, the state can essentially dust its hands and walk away (among various scenarios). “The cap on the state’s contributions is quite enforceable,” says Holmes. “It is essentially carved in stone.” He notes that the legislature would need to pass another law to exceed that commitment.

Mayor Mike McGinn agrees that the enforceability of the cost-overruns provision isn’t the issue; the spending cap is, and the legislature is unlikely to chip in more. He says the state's sentiment is clear: “The state believes it has no responsibility for cost overruns."

“Does the clause saying Seattle has to pay for cost overruns itself raise Seattle dollars?” says McGinn. “No. But what is important here is the statement by legislature that Seattle should pay, and, conversely, the statement from the legislature that the state should not pay.”

This issue—the state’s cap on spending—is at the crux of a political volley last week between McGinn (who ran for office on a platform of criticisms of tunnel funding) and City Council President Richard Conlin (who led the council in its pledge to adhere to state law and has dismissed tunnel cost overrun scenarios as a non-issue).

Holmes notes that, even though the state can’t force the city to pay, Conlin “does not address the issue of what happens if there is a cost overrun. Saying that the city cannot be made to pay a cost overrun doesn’t address the problem of what we do if there is a cost overrun.”

Roughly 90 percent of tunnel megaprojects run over budget, according to University of Oxford professor Bent Flyvbjerg; locally, overruns have plagued a tunnel under Beacon Hill for light rail (30 percent over budget), the Brightwater sewage tunnel in east King County (24 percent and counting), and the downtown transit tunnel (56 percent over estimates). If the deep-bore tunnel also were to run 30 percent over budget—the tunnel itself is $1.8 billion, other costs are for associated expenses—that could create an unresolved expense of $600 million that the state would refuse to pay for. Within a few weeks, the city is expected to formalize a contract with the state, specifying its commitments to the deep-bore tunnel downtown.

“If the language the legislature has found to make Seattle raise the dollars isn’t upheld, they will find new language to compel Seattle to raise the dollars,” says McGinn.

More after the jump.

As an example drawn from his past work as a Congressional aide, McGinn cites the seeming contradiction over protecting the threatened spotted owl; courts would protect it from the impact of logging and, in turn, Congress would pass a new law to allow logging in the bird’s habitat.

“For us to enter into a deal where they say, ‘You are liable,’ and for us to enter into deal where we say, ‘No you can’t make us,’ that’s ridiculous,” says McGinn.

What does the state's attorney say? The law is binding, Attorney General Rob McKenna told KUOW last fall. "Once it's adopted, it's our job to defend it. A law which is adopted by the Legislature is presumptively constitutional," McKenna said, according to Moreover, the city's agreement with the state—which is being developed now—is a bigger issue. "This is going to figured out by agreement with the city and the state Legislature," said McKenna.

Holmes says that the best option going forward may be waiting for bids to come in and see if engineers believe the project can be completed at the set budget. “If there is a cost overrun, part of question is, when will we know it?" Then Holmes adds this quandry to the debate; “Delay is the biggest factor that contributes to a cost overrun, so do you inject delay to stop overruns, when that delay may be the cause of an overrun in and of itself?” (He notes that the recession could allow the city to save money on construction.)

But McGinn doesn’t buy it. He says that the issue should be resolved regardless of bids that may show the project under budget—if the project exceeds costs during construction, there needs to be a payment mechanism in place. As for delays: “It seems to me is that the argument is that there is some sort of voodoo here," McGinn says, "that cost overruns are caused by talking about cost overruns.” Citing Brightwater and other tunneling projects, he says, “Are cost overruns caused by a delay or that the tunneling machines broke? Or is it that they ran into soil conditions they didn’t think they were going to hit?”

McGinn cites Flyvbjerg's book on Megaprojects and Risk that says the difference between the forecast costs and actual (over budget) costs “may be explained by project proponents succeeding in manipulating forecasts...”

The project can't proceed until the city council approves a contract with the state, and it's scheduled to be completed by the end of the month. The parties are currently hashing out details of that contract—including contingencies for who pays for problems with soil settling, moving utilities infrastructure, conditions of bonds for contractors, etc.—which will go before the mayor and ultimately to the city council for approval. That contract must be approved before the bidding process can begin next month.

Thus far, the council and governor have argued, in essence, that cost overruns won’t occur because all contingencies are being planned for. “We are working in partnership with the state to ensure that the project is completed on budget and on time,” Conlin wrote in a blog post last week. McGinn responded by calling for a debate, which Conlin then refused to engage in last Friday.

McGinn, in response, invokes this Star Wars reference: “Whenever someone raises the issue of cost overruns, they just say there will be no cost overruns, like a Jedi mind trick: These aren’t the droids you are looking for; there will be no cost overruns.”