A Bridge to Somewhere (but in the wrong place)

by on August 21, 2011 at 7:37 am in Economics, Travel | Permalink

Here is an excellent economics puzzle by David Kestenbaum at NPR:

You would never look at a map of the Hudson River, point to the spot where the Tappan Zee Bridge is, and say, “Put the bridge here!”

The Tappan Zee crosses one of the widest points on the Hudson — the bridge is more than three miles long. And if you go just a few miles south, the river gets much narrower. As you might expect, it would have been cheaper and easier to build the bridge across the narrower spot on the river.

So I wanted to answer a simple question: Why did they build the Tappan Zee where they did, rather than building it a few miles south?

MR readers will no doubt guess the correct answer in general terms, Kestenbaum had to dig hard to find the interesting specifics.

The Port Authority — the body that proposed putting the bridge further south — had a monopoly over all bridges built in a 25-mile radius around the Statue of Liberty.

If the bridge had been built just a bit south of its current location — that is, if it had been built across a narrower stretch of the river — it would have been in the territory that belonged to the Port Authority.

As a result, the Port Authority — not the State of New York — would have gotten the revenue from tolls on the bridge. And Dewey needed that toll revenue to fund the rest of the Thruway.

So Dewey was stuck with a three-mile-long bridge.

The decision to locate the bridge at the much longer location has had continuing costs and repercussions:

Today, the Tappan Zee is in bad shape, and the State of New York is looking into fixing or replacing it. But none of the proposals would move the bridge to a narrower spot on the river. It’s too late now: Highways and towns have grown up based on the bridge’s current location.

We’re stuck with a long bridge at one of the widest spots in the river. The repairs are expected to cost billions of dollars.

Hat tip: Monique van Hoek and Mark Perry at Carpe Diem.

beamish August 21, 2011 at 8:42 am

I don’t think that counts as an economics puzzle (governmental entity acts to maximize revenue). The economics puzzle is to explain all the properly located, publicly funded, non-toll bridges.

Peter Schaeffer August 21, 2011 at 11:22 am

A lot of folks are missing the real point here. Back when the original bridge was built, the location didn’t make much of a difference. Stated differently, construction costs were so low that finding the optimal location (a shorter bridge) wasn’t a major consideration.

The original bridge was built in 4 years at a cost of $81 million. It would have been finished sooner. However, steel shortages triggered by the Korean War slowed construction.

In current dollars, that’s around $668 million (See “The Tappan Zee Is Falling Down” by Nicole Gelinas). If a new or replacement bridge could actually be erected for 2/3rds of a billion location still wouldn’t matter.

The real problem is that the proposed replacement bridge will run $16 billion or more. That a 24X increase in costs since the Tappan Zee was finished. Until folks start to pay attention to the real issues (pun intended) we aren’t going to make a lot of progress in dealing with these problems.

By the way, this isn’t a Davis Bacon labor problem. The original bridge was almost certainly built with union labor. Construction wages have rises 1/3rd (at most) since the 1950 and have declined (a lot) since 1973.

Phill August 21, 2011 at 2:25 pm

Interesting!

So… what IS the source of the cost increase? Raw materials?

Rahul August 21, 2011 at 3:43 pm

I have the same question. Has construction cost outpaced general inflation 20 times?

Peter Schaeffer August 21, 2011 at 11:01 pm

Rahul,

It’s hard to find apples-to-apples comparisons. However, is sure looks like construction costs have outdistanced inflation 20+ times, at least for some projects. The ARC project (cancelled by Chris Christie) was projected at $8.5 billion with potential cost overruns as high as $5.5 billion (for a total of $14 billion). That’s pricey to say the least.

Interesting comparison. The Erie Canal was built at a cost of $7 million or roughly $140 million in current dollars. The original Canal was 360 miles long.

Peter Schaeffer August 22, 2011 at 1:59 am

This is a reply to your post below about chemical plant construction costs. $1 in 1970 is $5.61 in 2010 using the CPI and $4.56 using the GDP deflator. Looks like chemical plants may have declined or stayed the same in constant dollar costs.

Tangurena August 22, 2011 at 1:01 pm

Yes.

Your “general inflation” measure is most likely “consumer price index” (CPI). The measure you would want for things like bridge construction is “produced price index (heavy construction)” but that measure was discontinued last year. The closest is now “BCON”.
http://www.bls.gov/ppi/constructionupdate.htm

The local public transportation expansion used CPI to estimate the future costs when it was put to the electorate in 2004. CPI has been running about 3%/year while PPI-heavy construction was running about 15%/year. The project is horribly overbudget because the original budget was based on wrong assumptions.

This sort of thing happens a lot, but the media doesn’t like to remark on it as it tends to bog down in technical details. But the bottom line is that the public gets lied to, in order to get them to vote for some big project, because the “sunk cost fallacy” won’t let folks cancel this sort of thing when the true price starts to become clear. And keep in mind, the public never would have voted for it in the first place if they knew what the real cost was going to be.

Peter Schaeffer August 22, 2011 at 2:47 pm

Tangurena,

Thank you for the data source. Yes, the PPI did take off after 2004. However, over the full data range (1986-2011) the BCON went up by 117%. The CPI rose by 104% over the same period. That show slightly greater inflation in construction than in the broader economy. However, the delta isn’t exactly 25X.

The explosion in the PPI after 2004 apparently reflects global shortages of steel and other raw materials. According to the OECD (http://www.oecd.org/dataoecd/21/37/43312347.pdf), an index of world steel prices rose from 100 in 2000 to 200 in 2006 and 400 in 2008. That’s a 4 fold increase in 8 years. Since 2008, the index has fallen to 150 in 2010.

Peter Schaeffer August 21, 2011 at 9:54 pm

Phil,

I checked a few raw materials. Steel prices are volatile now (they weren’t back then). On average, they appear to have declined in real terms. In any case, the amount of steel in bridge like this is trivial. The Golden Gate bridge used 83,000 tons of steel. Steel prices have averaged $500 per ton over the last ten years (with high volatility). That works out to $41.5 million in steel for a much larger (but not longer) bridge.

I don’t have any exact steel consumption statistics for the original Tappan Zee. However, one source (http://www.nycroads.com/crossings/tappan-zee/) suggests that the Tappan Zee used less steel than the GG.

Peter Schaeffer August 21, 2011 at 11:21 pm

Phil,

The real answer is… i don’t know. Nor does anyone else (at least the folks who publicly comment on this kind of thing). The sad truth is that the right is so obsessed with Davis Bacon (and privatization) and the left is so fixated on “infrastructure” that the real issues (pun intended) aren’t even mentioned. The sad truth that we can’t afford infrastructure at prevailing prices is lost in the noise. Not too many things are economic when you raise the price 25 fold. Bridges are one of them.

I do have a few theories.

1. It appears to be much more expensive to build in densely developed areas. A few U.S. projects have been completed in recent years in the boonies (notably the Hoover Dam bridge and the Sidney Lanier bridge). They were very cheap.

2. Design upgrades appear to have taken a vast toll. All of the interest groups regard the original Tappan Zee as an abomination. It was cheaply built (considered to be a virtue back then). These days America is “too good” for simple, practical approaches to getting things done.

3. Appeasement appears to have taken a large toll. Every interest group gets a veto and demands “payoffs”. Not literal payoffs (which would be vastly cheaper), but goodies of some kind that cost vast amounts of money.

The real answer isn’t clear. However, the really interesting point is that no one even asks the question. Instead we get a political analysis as to why the bridge was built in the “wrong” place. Of course, that’s a minor point compared to the constant dollar cost escalation but fits with the contemporary obsession of seeing disputes in political terms rather than focusing on the core economics.

TallDave August 21, 2011 at 11:32 pm

I don’t see why it isn’t clearer. Why can’t we just look at the costs of an actual project in from the 1950s and compare the line items to today?

A 25x cost inflation should be… unsubtle.

Peter Schaeffer August 21, 2011 at 11:46 pm

TallDave,

“Why can’t we just look at the costs of an actual project in from the 1950s and compare the line items to today?”

I have. Steel and concrete haven’t gone up in constant dollars and may have fallen significantly. Labor rose from around $15 per hour in the 1950s to $28 per hour in 1973 and has fallen to roughly $20 per hour now (in constant dollars).

Even allowing for tighter worker safety standard, productivity appears to have risen significantly (this is disputed).

I asked one person whose father works in the business. Her answer was “studies” and the delays associated with studies. No doubt studies cost money and impose long delays. However, the vast majority of the dollars are spent after the final permits are issued. To be honest, her explanation didn’t add up.

TallDave August 22, 2011 at 12:11 am

You shouldn’t have to ask anyone. Just look at the numbers and tell me which ones got bigger or didn’t exist before.

The hardest part should be getting ahold of the costs from two similar projects.

Tangurena August 22, 2011 at 5:56 pm

Land acquisition is a huge part of urban projects. I’ve been involved in some public transport projects and people howl with rage when I tell them that light rail projects in urban areas run about $40,000,000/mile and high speed rail runs about $120,000,000 in urban areas. The large overruns in California’s HSR project are approaching my numbers.

There are a number of scams that can go on in large projects. One type is to inflate the “value” of a property by having a number of sales between members of a ring. Each sale being much larger than the previous. One gang inflated the “sale” price of one property along a light rail route here in Denver from about $1,000,000 to about $60,000,000 over a couple of years. The gang claims that they plan to get the property rezoned residential so the project will be worth that much, but the property is currently zoned heavy industrial (and is adjacent to a heavily travelled railroad line), and the “50 year plan” for the city shows that area remaning heavy industrial out to 2050 and beyond. They aren’t getting their ransom, but the legal fight will be expensive (they are probably expecting it to be expensive enough that they’ll get a few million dollars to “go away”).

Peter Schaeffer August 22, 2011 at 6:53 pm

Tangurena,

Thank you for your comments about land acquisition costs. Your example fits my appeasement / congestion model rather well. I have looked at a few HSR projects and design inflation was also large factor. The locals want the trains buried in some cases and up on trestles in other cases. Both are more expensive than building at grade or on earth berms.

An interesting note is that 19th century railroads were built for around $50-70,000 per mile. The CPI is up 20 fold since then. Costs appear to have risen 1000+ fold.

Rahul August 22, 2011 at 11:44 pm

Do public projects pay market price for land they acquire? (in India the state paid a pittance and there was nothing you could do about it) How are such land-parcels priced? Average price in area? Last sale? etc.

Would things be any cheaper if eminent domain were used?

Laura S. August 21, 2011 at 3:28 pm

Its not the labor costs per-hour; its the work-rules. That’s how union labor kills.

I’m involved with a small traveling art exhibit from Serbia. Temporary space was donated at a famous tourist venue but other fees to install the exhibit have to paid by us. The venue is run by the city and union labor is mandatory. There are nine different work classifications of relevance to setting up the exhibit. No worker is allowed to do another’s job. For instance, we must hire ‘porters’ to move the crates but crates can only be opened by ‘carpenters’. For each type of work there is a four-hour, four-guy minimum.

Something that should have cost less than a thousand dollars to do, is going to cost to us well over twenty thousand to do at this location. That’s ludicrous, but that’s a typical result of work rules.

mulp August 21, 2011 at 4:00 pm

Are you saying the steel work on a new bridge is so limited the four hour minimum is going to cause labor costs to be too high?

Perhaps your argument is the contractor needs to have the freedom to kill or maim workers to reduce costs – the safety rules are just too expensive, and each worker killed or maimed means a new worker gets a job?

hahahahaha... August 21, 2011 at 4:27 pm

….hahahahahaa. Wow, just….wow.

John Skookum August 21, 2011 at 8:26 pm

Why the hell don’t you tell the fat union goons and their pet politicians to cram it, and take your exhibit elsewhere? That’s what the Radiological Society of North America did when union work rules were killing their convention, the largest single trade show held in Chicago each year. They moved it to Orlando until the unions came crawling back with deep concessions.

Peter Schaeffer August 21, 2011 at 11:05 pm

Laura S.,

The original Tappan Zee was almost certainly built with union labor. I don’t imagine things have changed much in that respect since the 1950s. It is however true that construction wages have fallen since the 1970s (a lot).

Union work rules notwithstanding, I don’t think labor costs account for a 20+X increase in real costs over a period of decades.

JG August 21, 2011 at 11:46 pm

Work rules dictated by unions, but more so, dictated by government regulations, are probably the biggest cost source. Mentioned by Peter Schaeffer is the “cost of appeasement”: you have include government bureaucrats and the laws of the government in that category.

And before someone starts: just because there’s a work rule or regulation doesn’t mean it actually adds any benefit or value at all.

Usually the original reason for any bureaucratic “rule” or law is lost and forgotten and then the original reason that created the need for the rule changes or goes away. But the overhead and waste of the rule does not. It happens in government. It happens in industry as well.

It’s part of what makes infrastructure in the US a hopeless cause. Not just old, rotting infrastructure needs to be torn out and replaced with something different (not car-based) but also laws, regulations and bureaucracies need to be torn out and replaced with something very different as well. Without that, I’m banking on “anything but America” until the infrastructure just rots out as the laws of physics do what politicians, bureaucrats and citizens can not. Maybe then it can all be swept away. But it will take stuff like the I30 bridge collapse x1000 to probably do that.

Like I said. A losing bet. Better winners are out there to lay money on.

Peter Schaeffer August 22, 2011 at 12:16 am

JG,

“Work rules dictated by unions, but more so, dictated by government regulations, are probably the biggest cost source.”

I have looked for actual construction productivity data from the 1950s to present. Of course, there are work rules that cost money. Some come from OSHA and others from the unions. However, work rules notwithstanding, construction productivity appears to have risen (slowly) over time. This is disputed by some sources. However, most agree.

Compare the machines in use now versus then. In the 1950s we didn’t have concrete pumping machines, nail guns, or reliable fasteners (bolts). Cabled stayed bridges were still a rarity. Big projects were still built with rivets (my dad was a riveter for a while). Materials have also improved to a degree. Back then high quality steel was produced via the open hearth (Siemens) process. Cheap steel was made using the Bessemer / Thomas process. These days almost all of the world’s steel is made using the LD approach which is both cheaper than Bessemer and yields better metal than open hearth.

Rahul August 22, 2011 at 1:06 am

Here’s some indices from the Chemical Engineering construction industry

http://www.ulrichvasudesign.com/CEPCI.pdf

Gordon August 21, 2011 at 8:51 am

So the alternative to NY State was the Port Authority. And what is the PA up to? http://www.osc.state.ny.us/audits/allaudits/093011/09s87.pdf

Keith August 21, 2011 at 8:58 am

Isn’t this a violation of the Coase theorem?

Seth Burn August 21, 2011 at 9:43 am

Coase theorem presumes transaction costs are low. In this case NY had no mechanism for extracting the gains of the more Southern bridge had it been built. The Port Authority could not “bribe” NY to build the bridge in a more Southern location and NY could not break the autonomy and monopoly of the Port Authority. If we can’t do business, the Coase theorem no longer applies.

Dan Weber August 21, 2011 at 10:16 am

Why not? What would stop the Port Authority from accepting $20 million and, in return, saying “we relinquish control over the Tappan Zee bridge”?

Gordon August 21, 2011 at 11:12 am

Why think that the cost *to Dewey* of striking a bargain with the Port Authority was less than the increased cost of the longer bridge?

Rahul August 21, 2011 at 3:39 pm

I was thinking the same as Keith. What about Coase? On second thoughts, why is it that I so much more often come across examples where Coase ought to have operated but did not. Can’t think of many real life examples where Coase held true.

Sid the sidious August 23, 2011 at 6:53 pm

Transaction costs are by nature elusive, making examples of Coase at work debatable. Smaller, informal examples are usually used ie. two neighbours working out disputes.

Chris Dornn August 21, 2011 at 9:13 am

Hmn — is the design of the original bridge flawed? In building a bridge to cross over the Severn from England into Wales in 1966 the UK highway authority diverted the M4 to a narrower 1 mile crossing but the design of the bridge meant it couldn’t operate in the high winds that the crossing is prone to.

To upgrade the crossing they opened another bridge following the natural line of the M4 in 1996 — the new bridge is over 3 miles long (note, built by a private consortium).

It looks like they need more capacity on the Tappan Zee crossing. Perhaps the narower bridge should be built anywy, which should make it easier to overhaul the original. Given that the bond markets is practically throwing money at the federal government, and given the many idle construction workers, perhaps not doing so is the really perverse and unaccountable thing (and likewise the NJ tunnel).

But its difficult to do the right thing when there is such a concerted and hysterical effort to distract and focus attention on the wrong problem. No?

anonymous... August 21, 2011 at 10:41 am

Knowing nothing about the specifics of the geography and the politics, you could still confidently predict that the narrower bridge cannot be built and never will be, for the same NIMBY reasons as anywhere else in the US nowadays.

Greg Rehmke August 21, 2011 at 9:23 am

A Bridge Too Far (1977)
175 min – Action | Drama | History – 15 June 1977 (USA)
7.3 Your rating: -/10 Ratings: 7.3/10 from 18,761 users
Reviews: 176 user | 44 critic
An historic telling of the failed attempt by the Port Authority to capture several bridges to New Jersey in a campaign called Operation Market-Garden State.
[slight alternations to IMDb info.]

TallDave August 21, 2011 at 10:15 am

Government efficiency at its finest.

Popeye August 21, 2011 at 11:33 pm

Yes, this sort of thing could never happen in a free market.

Veridical Driver August 22, 2011 at 9:51 am

It is hard to find cases in the free market where cost of something has increased 30 times the original with no additional benefit… Baring industries like health care and construction which is government micromanaged.

Aaron August 21, 2011 at 11:07 am

Robert Caro has an excellent book called The Power Broker that covers the same sorts of awful deals that lead to gigantic infrastructure projects often being built in less-than-optimal locations: http://www.amazon.com/Power-Broker-Robert-Moses-Fall/dp/0394720245/ref=sr_1_1?ie=UTF8&qid=1313938949&sr=8-1

Orange14 August 21, 2011 at 12:30 pm

And remember at the time the Tappan Zee bridge was built, Robert Moses was at his most powerful. No way Dewey was going to be able to roll him and get the bridge built closer in.

Ed August 21, 2011 at 11:29 am

The state could induce the Port Authority (which it half controls anyway) to do a deal by agreeing to call off their threatened audit.

Its interesting that the Port Authority is getting alot of bad publicity over fare hikes and corruption right at the time the state needs to build a replacement for the Tappen Zee Brigde.

Alan Gunn August 21, 2011 at 11:36 am

I hope people remember this story the next time the cry of “the federal government needs to repair our infrastructure because bridges are crumbling” gets raised.They are, but mostly in a couple of states (Missouri is the other one) where politicians had priorities other than keeping bridges in repair. No reason I should pay taxes to bail out states richer than mine.

streeteye August 21, 2011 at 1:09 pm

This doesn’t explain why it wasn’t built a little further north, though.

In late-breaking news, politics is sometimes a factor in political decisionmaking.

Also, Generalissimo Francisco Franco is still dead.

Bernard Yomtov August 21, 2011 at 1:23 pm

Suppose one state built a bridge over a river that was longer and more costly than one that could be built nearby, in a different state. Would conservatives be complaining about the inefficiencies and problems of federalism?

And by the way, is it possible that the actual location made more sense than the more southern one because there was more population in the area, so that the reduction in travel time more than made up for the greater cost of the bridge? I have no idea as to the answer to that question, but certainly it needs to be addressed in any discussion of why the bridge is or is not intelligently located.

Bill August 21, 2011 at 3:06 pm

When you see billion dollar numbers, what is the cost per year over the expected useful life?
Are there revenues (toll fees) that bring in revenue, and should there be? If so, what is the net subsidized cost versus the social cost of not building.

John August 21, 2011 at 6:13 pm

Knowing plenty about the geography having grown up there, having walked on the toll plaza before it was opened, having taken the ferry from Tarrytown to Nyack and back to watch the construction in the early ’50′s, how about we all drop the libertarian disquisition on the economics of the original idea and take a cold clear eyed look at the topography. Expand your map view. As a matter of fact, look at Google Maps on “Terrain” view. The Thruway comes up the same Saw Mill River Valley as the Saw Mill River Parkway, then cuts west to the river at the obvious point, i.e., the least expensive (and at the time least populated), not a lot of rock to blast through. Three miles may seem like a long way for a bridge but most of it is very shallow. Look at the terrain on the west side. Nice easy slope to get over to where they wanted to head north. Look up and down the river for alternatives. Run the numbers on blasting and moving rock then. Now we have folks who want to do it for location, location,location. See the Tuckahoe toll plaza. Then, not so much.
If they don’t put a rail line on it this time round, that will be a mistake.

mulp August 21, 2011 at 6:42 pm

Ah come on, economists can’t be held accountable for the natural world interfering in their economic theories that government always forced the wrong investment decisions.

If it hadn’t been for the politics behind the location, the sides of the river would have been thousands of feet lower at the narrow part, the narrow part would have been in the ideal central point of the river section between NYC and Bear Bridge.

It was the politicians who put the wide shallow part of the river in the right place because the economists would have been sure to have the narrow shallow part of the river be the best place – after all, narrow, deep, and rapidly flowing rivers and uneconomical and would never been designed by a libertarian god – only big government liberal gods would make big rivers that were wide and shallow or narrow and deep.

Jeff August 21, 2011 at 7:42 pm

Information worthy of retitling the post!

Peter Schaeffer August 21, 2011 at 11:36 pm

John,

Thank you for the well-informed comments. People with considerable expertise in one realm frequently succumb to the folly of thinking they know more than the experts in some other realm. Only occasionally are they right.

In my experience, engineers tend to be very careful about picking optimal routes for major projects. When the transcontinental railway was constructed there were allegations about “stretching” the route to get more construction financing (payments were on a per-mile basis). Subsequent surveys over a period of decades refuted those charges (with tiny exceptions).

Notably the politicians of the era wanted the railway to go through Denver and Salt Lake City. The engineers said it couldn’t be done (with 1860s technology) and in fact the railroad followed I-80 over the continental divide near Cheyenne. It was an extremely remote area at the time but was the only place where Great Plain over-topped the Rockies.

TallDave August 21, 2011 at 11:41 pm

The author of the piece states directly that the alternative was cheaper, and he’s actually seen both proposals.

Do you have an engineering background? It’s hard to imagine those factors would justify making the bridge three times longer.

Peter Schaeffer August 22, 2011 at 12:04 am

TallDave,

How much cheaper? Any numbers? Numbers matter.

TallDave August 22, 2011 at 12:09 am

I agree, but why are you asking me? Sorry if my name confused you, but I am not David Kestenbaum. You should ask him, since he’s seen the proposals.

I would also be happy to see some numbers. If the author is not willing to share them with you, perhaps there are some in the Wikipedia cites.

TallDave August 22, 2011 at 12:04 am

As luck would have it, Wikipedia has several cites on the matter:

The site of the bridge, at the Hudson River’s second-widest point, added to construction costs. The site was chosen to be as close as possible to New York City, while staying out of the 25-mile (40 km) range of the Port Authority’s influence, thus ensuring that revenue from collected tolls would go to the newly-created New York State Thruway Authority, and not the Port Authority.[9][10][11] A unique aspect about the design of the bridge is that the main span is supported by eight hollow concrete caissons. Their buoyancy supports some of the loads and helped to reduce costs.[12]

http://en.wikipedia.org/wiki/Tappan_Zee_Bridge

TallDave August 21, 2011 at 11:46 pm

BTW, the author of the piece

1) Has a doctorate in physics
2) Covers engineering issues for NPR, and
3) is, as best I can tell, not a libertarian.

He’s probably not lying about the bridge.

josh August 22, 2011 at 8:02 am

Great theories everyone but here’s a clue for you all:

http://www.hudsonvalley.org/content/view/12/42/

John August 22, 2011 at 9:02 am

Sticking with topography in Terrain view, Look at the route of I-287, the cross westchester expressway. Note how it doesn’t go up hill and down dale as it would further south. Nor does it cut through the center of Scarsdale, a fair village that was as wealthy then as it is now. I’m sure they would have rolled over and played dead.
Also remember that the interste highway system was built to connect cities and towns and factories (back when America had those). At the time there was a Chevy plant in N.Tarrytown churning out over 60 Impalas and Belairs an hour. Anchor Motor Freight loved that bridge.
Today most of the traffic on that bridge goes to and from I-287. It is quite stunning how little traffic is on I-87 until you get to the bottom of Westchester. Like it or not, they aren’t moving the bridge more than a few feet.
P.S. Always take Wikipedia with a grain of salt.

Ric Locke August 22, 2011 at 10:21 am

The other problem with cost comparisons is that the Official Inflation Measures are a crock.

Look at the prices of gas and food. Look at wages and salaries. The real inflation rate between the mid-Sixties and now is something between 10X and 12X. The CPI is lower than that because manufactured consumer goods have become incredibly cheap, both in real-money terms and in “quality”, which the inflation measures consider. In 1965 a car with power windows was ‘way upscale and expensive in real terms. Nowadays power windows are a feature of the cheapest econoboxes, but the inflation measure considers that an increase in quality (you’re getting more for your money!) and discounts car prices, which reduces the stated inflation rate. There are many other such adjustments.

And the real inflation rate between the early Fifties and the mid-Sixties is roughly 2, probably plus a little. The mid-Sixties are when candy bars went from a nickel to ten cents, and simultaneously went back to the size they’d been in 1950, when Dad was a “jobber” for the Curtis Candy Company. There is other evidence if you look for it.

Taking those two into account, a 25X increase in the stated cost of a construction project is right in line with what real, non-Government people have had to live with over that period of time.

Regards,
Ric

Tangurena August 22, 2011 at 3:15 pm

The measure for inflation that is reported in the media is “core CPI” which is consumer price index excluding energy and food. It is a very politically managed index because so many things (wages and benefits) are wired to it.

Peter Schaeffer August 22, 2011 at 3:36 pm

RL,

The accuracy of the CPI is a much debated subject. Reducing the CPI by factoring in debatable “quality” enhancements is a contentious point. However, the BLS folks point out that all of the “quality” enhancements together haven’t changed the CPI that much. A more serious point is how the BLS calculates housing costs. The BLS switched to rental equivalence (RE) years ago. When actual home prices are rising, RE understates inflation. When home prices are falling RE overstates inflation.

However, this entire discussion of the CPI is almost irrelevant. Compare actual cash construction wages in the 1950s with wages now. You won’t find any increase remotely comparable to the cost of the old Tappan Zee versus the proposed new one. Same for steel prices, concrete prices, etc.

Haiku Guy August 22, 2011 at 10:30 am

Costs are not the same,
Foot for foot or mile for mile,
For different sites.

The Tappan Zee cost $710 Million in 2011 dollars, while the much shorter George Washington Bridge cost $923 Million in 2011 dollars. The higher cost for the shorter bridge reflects the fact that the center span of the GWB is much longer, required by the depth of the river and the high banks. Much of the Tappan Zee, on the other hand, rests on concrete caissons, which is a much cheaper way to build.

A bridge a few miles South of the Tappan Zee would have wound up looking a lot like the GWB, and would have cost a lot more to build.

TallDave August 22, 2011 at 1:20 pm

OTOH GWB is a 14-lane bridge.

http://en.wikipedia.org/wiki/George_Washington_Bridge

Tappan Zee is only seven.

Peter Schaeffer August 22, 2011 at 3:28 pm

HG,

“Much of the Tappan Zee, on the other hand, rests on concrete caissons, which is a much cheaper way to build.”

True and much derided of late. Sanity prevailed back then. Cheap construction that actually worked was deemed a virtue in the 1950s. That doesn’t appear to be the case now.

Ape Man August 22, 2011 at 10:55 am

Where are the figures for construction labor rates coming from? I have no problem believing that the low end wage rate has dropped some what. But I would bet that the high end construction workers have seen their wages rise a lot. Find the labor rates for iron workers, not the generic construction labor rate. I guarantee you they are not $20 and hour as a previous commentator said. Also, labor and steel and other such things might not have increased much faster then inflation. But insurance costs sure have. Then you have to figure in the costs of huge increase in the amount of paper work, safety meetings, impact studies, etc, that go along with modern times.

Regardless of what the truth is about this particular bridge, I can tell that the reason it is going to be so hard to update this nations infrastructure is the abundance of red tape, the shortage of skilled labor (not your construction labor), and the huge and growing insurance costs.

Peter Schaeffer August 22, 2011 at 3:25 pm

AM,

“Where are the figures for construction labor rates coming from?”

BLS.gov

“But I would bet that the high end construction workers have seen their wages rise a lot.”

The BLS has a separate index for heavy construction. It has tracked the overall construction wage index almost perfectly. You can get the numbers from http://bls.gov/data/

“But insurance costs sure have. Then you have to figure in the costs of huge increase in the amount of paper work, safety meetings, impact studies, etc, that go along with modern times.”

Perhaps. However, I haven’t seen any actual numbers to support your thesis. Clearly something has gone up 25X in real terms.

Ape Man August 22, 2011 at 8:16 pm

In case it was not obvious, my statements were based on anecdotal experience, not any gathered statistics. So I am not inclined to be really dogmatic about what I said. I suppose it is possible that the fall/holding steady of low end workers compensates for the increasingly high wages of the skilled workers.

Having said that, your statements were enough different from my experiences that I had to go look up the data sets you referenced. And I think that by putting to much faith in the figures for the industry as a whole, you are missing the real picture. If you look at the Median Hourly wage for the heavy construction industry you will see that is just under a $20 just like you said.

But you need to realize a couple of things. If you look at what is included in that figure, you will see that it is a lot of people that are not directly involved in heavy construction. For example, administrative support makes up a little over %7 of the total. Now granted, there have always been the office ladies. But based on my anecdotal experience, the office staff has grown in response to increases in regulations and compliance burdens. This has been combated somewhat by outsourcing some of those tasks, but it seems to me that those staff are growing. The growth of such staff would hold down average wages while increasing real costs.

A bigger issue is what the government means by heavy construction. If you look at the biggest sectors of employment in heavy construction, you will see that they are Operating Engineers (just a fancy name for heavy equipment operators) and Construction Laborers. Both of these groups are what you need to pave a road. But not to be insulting to anyone doing it, paving a road is low skilled work. This country does not have any lack of ability to pave roads. A steady supply of Mexicans has seen to that.

But building a bridge or a dam or a high rise is a totally different ball game. You don’t use many Operating Engineers or Construction Laborers. Instead, you are going to be needing Iron Workers and Crane Operators (a different category from operating engineers).

Bottom line, you are looking at in industry group that is dominated by low skill labor (road paving) and wondering why it does not explain the costs in high skilled labor (bridge building).

Rahul August 22, 2011 at 11:51 pm

Hourly rates for a “Structural Iron Worker” are between $14 to $43. So a bit higher average, yes, but not quite enough to explain a 25x increase.

How about construction company profit margins? Have they changed?

Ape Man August 23, 2011 at 6:02 pm

Construction companies are going bust all the time all around me, so it is hard for me to believe that their profit margins are higher than they use to be. But a lot of things that I find hard to believe are true.

Like I said, I am not about to be dogmatic about this. I will just point out that I never said that wage increases by themselves account for a 25x increase. I suspect that insurance rates and red tape account for most of it. I mostly got started on the wage thing because it just seemed so ridiculous to me to talk about $20 dollars an hour in the context of bridge building. If the State of New York funds the project the law is going to require the contractor who builds the bridge to pay the iron workers over $50 an hour in wages. And most of the overtime these guys work is going to be double time.

(To see this for yourself look up the following link http://wpp.labor.state.ny.us/wpp/viewPrevailingWageSchedule.do?typeid=1&county=87 Go down to the Iron Worker section and look at the Derrickman/Rigger wages as these are guys who are going to be building a bridge).

I personally suspect that whoever tries to build that bridge would actually have to pay more than the State mandated prevailing wage. This is not unheard of. On the last state project of any size that I was involved with, the electricians were being payed more than the state rate. And I don’t think that there are enough Derrickman/Riggers in the New York city area to build a 3 mile bridge in a timely manner. I think they are going to have to pay a premium to bring in enough skilled guys. After all, if I had a choice between working on gulf coast or the west coast, you would have to pay me a premium to work in New York City area.

Ape Man August 23, 2011 at 6:34 pm

Also, to give some kind of context to the $14-$43 figure you are citing let me tell you the following anecdote. Early in my career, I worked for a company putting up kit steel buildings. These buildings were large commercial buildings (the ones that I worked on were additions to various manufacturing plants, but they did construct retail stuff as well) but they were called kit because salesman sold them in various pre-configured kits. Nonetheless, the guys called themselves iron workers on the grounds that they were working with structural steel. And at that time the foreman only made $14 an hour and the rest of us made less. This was in the late 90′s.

This was considered ridiculously low wages by the “real” iron worker I knew (who had been making well over $40 an hour in the early 90′s before he retired). Nonetheless he was the one who got me a job with the company as he thought it would be good place to start. To make a long story short, I did not stay with the company for long as a better offer in a different trade came my way. And shortly after I left, the foreman left as well. He went to work on bridges where he made $33 dollars an hour as a labor (or maybe it was carpenter’s assistant, memory is a little fuzzy on his title. I just know he was being paid big money to strip forms). So he went from top of the heap to bottom of the heap title wise, but doubled his money just because he was working on a bridges (and most of these “bridges” were just highway overpasses according to what he told me).

Kate August 22, 2011 at 12:03 pm

The fortyfirst parallel isn”t the only considertion in choosing the current site of the TZ bridge.
Try looking at a terrain map of the area. An igneous intrusion known as the Palisades Sill
stretches from Hoboken to Haverstraw. One gap in this wall of rock is at Piermont , three miles south of the bridge , but South Nyack is a better deal if you need space for exits.
http://en.wikipedia.org/wiki/Palisades_Sill

Boonton August 22, 2011 at 1:25 pm

The real problem is that the proposed replacement bridge will run $16 billion or more. That a 24X increase in costs since the Tappan Zee was finished. Until folks start to pay attention to the real issues (pun intended) we aren’t going to make a lot of progress in dealing with these problems.

Actually the core of this issue to me seems to amount to a big ‘so what’? First of all, real GDP is about 5.2 times higher today than in 1955 so the core cost is actually a bit less than what would appear at first glance. More importantly, though, the cost to replace should be compared with the opportunity cost. What if instead of rebuilding the bridget for $16B we just let it rot until it falls into the river? There’s no particular reason we can’t do that. It’s not like there’s never been a decommissioned bridge or road in human history.

We don’t even consider this, of course, because since 1955 we have become an even more communting centered society that is even more dispersed from the big city. While the cost to replace the bridge may have gone up 24 times or 5 times if you factor in the rise of GDP, the fact is the value of the bridge has no doubt gone up much more.

This is partially revealed by the section of the story that says just building the replacement bridget at the ‘better’ spot is out of the question today because of all the towns that have grown up along the current route that the bridget takes. In other words, it’s cheaper to just span an extra mile or two of water than to relocate various towns and communities.

This is actually a positive story IMO. It tells us that infrastructure spending is probably worth it even if it has some stupid inefficiencies. Was it stupid to relocate the bridget to the north just for the sake of which gov’t agency would get the revenue? Sure. But our universe where the bridge was built is a richer universe than the one where the bridge wasn’t built. Perhaps the universe where the bridge was built in the ‘best’ location is marginally richer, but are we marginally better off making the perfect the enemy of the good? Perhaps not.

Second, its a positive story if you look at it as part of the epic battle of man versus nature. What essentially happened here is human fashion (shall we roll over the rich town? give the Port Authority rather than the state the toll income?) trumps in terms of cost rather than nature. IMO there’s something rather comforting in that. For thousands of years nature dictated where and how we live. Today nature seems to take a back seat to our tastes. Maybe political tastes seem silly but it does say something about our wealth that in deciding where to put a major bridge, the actual shortest point is, believe it or not, not a major factor!

Peter Schaeffer August 22, 2011 at 3:19 pm

B,

GDP may have risen by factor of 5.2 However, per-capita GDP has risen by only 180%. Per-worker GDP has risen by only 65% (see http://www.progressdaily.com/2006/09/11/gdp-per-workers/comment-page-1/). Note that other sources (Penn World Table) show greater growth in per-worker GDP. Let’s not pretend that America is vastly richer than it was back in the 1950s. It isn’t.

At a cost of $16 billion, a new Tappan Zee will require cash flow of at least $800 million per year for amortization and operation. The real number might be much, much higher. That’s assuming repayment of the bonds over 30 years and a 3% interest rate. if 50 million people a year use the bridge, that’s a $16 toll each way. or $32 per day for a commuter. How many folks can pay that much? Bankers to be sure…

Of course, the old bridge can still be maintained. According to “The Tappan Zee Is Falling Down” maintenance is running around $100 million per year. Clearly keeping the current bridge working is vastly cheaper.

Could the current Tappan Zee fail? Sure it could. The Bay Bridge failed in an earthquake in 1989. It was repaired in one month. Not the end of the world.

Let me offer the same comment I make whenever anyone says “sure we can afford it”.

“Your country is broke”

Peter Schaeffer August 22, 2011 at 3:20 pm

One additional comment. As I said before, if the new bridge was projected to cost $668 million we would not be having this debate. It would be quickly built.

Boonton August 22, 2011 at 10:34 pm

Peter

GDP may have risen by factor of 5.2 However, per-capita GDP has risen by only 180%. Per-worker GDP has risen by only 65% (see http://www.progressdaily.com/2006/09/11/gdp-per-workers/comment-page-1/). Note that other sources (Penn World Table) show greater growth in per-worker GDP. Let’s not pretend that America is vastly richer than it was back in the 1950s. It isn’t.

Doesn’t matter. We aren’t talking about how much ‘bridge per capita’ we have, we have one bridge at that spot for the entire economy.

At a cost of $16 billion, a new Tappan Zee will require cash flow of at least $800 million per year for amortization and operation.

According to wikipedia it gets 133,445 users a day who pay between $4.75-$5 for it. About $220M per year. But you base your requirement on a 30 year useful life, but the present day bridge has been in service over 55 years and doesn’t seem to require a complete rebuilding any time soon! But of course that assumes the *only* benefit to the bridge is the $4.75 per car that uses it.

Could the current Tappan Zee fail? Sure it could. The Bay Bridge failed in an earthquake in 1989. It was repaired in one month. Not the end of the world.

Indeed…..kind of interesting that there was such pressure to put it back in service so quickly. Notice how its been ten years and the WTC complex is only now beginning to rise again? If the bridge is/was such a bad deal then when an unexpected accident destroyed it why not build in a ‘better’ place? Why the rush job to get it up again? Perhaps because the bridge is very valuable, even much more valuable than $16B to rebuild it? If some meteor takes out the Tappen Zee tomorrow I would predict that double that would be found very quickly to get it up again.

“Your country is broke”

Whose country? Not the US by any means.

Rahul August 22, 2011 at 11:57 pm

If some meteor takes out the Tappen Zee tomorrow

……I think a terrorist bomb is more likely.

Peter Schaeffer August 23, 2011 at 5:18 pm

If America needed only one bridge, in one location, then total GDP growth would be the relevant metric. Of course, we have many infrastructure requirements. Given that the capacity of the bridge (new or old) to carry traffic is fixed, affordability is a function of the incomes of the users. Those incomes just haven’t changed that much (in real terms) since the 1950s. By contrast, bridge construction costs have risen 25X (in real terms.).

The current toll may be $4.75-$5.00. However, a $5 toll won’t pay for a new bridge. A $5 toll will pay for maintenance however. 30 years was the amortization period for the bond, not the expected lifetime of a new bridge. 30 year amortization is conservative. However, even switching to 50 years wouldn’t reduce the required tools by much.

Of course, the Bay Bridge was fixed faster than the WTC. Far less work is needed to fix a bridge than rebuild the WTC. However, the real difference is that the Bay Bridge is needed. There is plenty of office space to spare in lower Manhattan.

Given that it doesn’t appear that tolls can pay for the new bridge, a $16 billion new Tappan Zee is not needed. By contrast, tolls can pay for the existing Tappan Zee which shows that we should keep it and fix it as need be (for which the money already exists).

Boonton August 24, 2011 at 5:31 am

1. The bond payoff is irrelevant. You can always issue a new round of bonds at the end of 30 years. There’s no law of finance that demands a bridge be paid off just like a traditional 30 year fixed rate home mortgage.

2. Tolls of $5 today won’t buy a new bridge in a year. But they will finance one.

3. I’m not talking so much about a new bridge in competition to the existing one, I’m saying if the current bridge didn’t exist (say it was never built or the little earthquake we just had took it out) it would be pretty reasonable to spend $16B to replace it.

Peter Schaeffer August 24, 2011 at 4:46 pm

B,

1. As I pointed out earlier, raising the amortization period doesn’t change the annual charges that much. For example, going to 40 years yields annual charges of $573 million. However, this may be very wrong. As the bridge ages, maintenance charges will rise. In the out years they could be huge. Maintenance charges scale with the cost of a project. At 3% per year, the bridge will cost $480 million per year to maintain. That’s probably not true at the outset. However, over time projects that are more expensive to build are more expensive to maintain (on average).

2. $220 million per year (proceeds from the $5 toll) will not pay for a new bridge. The bridge would have to cost $4.75 billion or less for a $5 toll to cover the cost (30 year amortization, 3% interest, zero O&M charges).

3. If the current bridge didn’t exist, it is very unclear if tolls could pay for a $16 billion bridge. $32 round-trip sounds too high to me. Note that assumes zero O&M charges.

Boonton August 23, 2011 at 11:42 am

Some additional factors to consider, GDP per per capita does not matter much IMO in terms of the bridge’s value. Suppose we had zero growth in per capita GDP but our population doubled. With twice as many people, the bridge becomes more valuable, quite possibly twice as valuable even though per capita GDP is constant.

But with growing per capita GDP, a trip over the bridge becomes more valuble per person. In other words, if you get a 2% raise, the value of being able to drive over the bridge to get to that job goes up 2%. Estimates of the cash flow from having the bridge, then, should include the following:

1. The tolls raised currently.

2. The increase in tolls that would be justified by the increased value of a trip over the bridge (this should roughly mirror the per capita GDP growth rate).

3. The increase in tolls from volumn, in other words the increase in population which alone would cause the bridge to generate more value even if GDP per person remained level.

4. The externalities, the various towns and businesses that have ‘grown up’ along the bridge route generate both cash flow in the form of taxes and benefit in the form of increased personal income. Likewise NYC itself generates additional benefit in the form of increase ‘capacity’ (it’s able to asorb more workers inside each day to generate goods and services) as well as the value of improved traffic flow at the alternative tunnels and bridges which, if the Tappen Zee weren’t there, would be much more clogged.

Peter’s cash flow issue with building a new bridge is only an accounting problem. The bridge almost certainly spins off more benefit than the $16B estimate present value cost it would take to rebuild it. The accounting question is who do you let keep the value the bridge is spinning off and who do you charge for its services?

#4 illustrates why things like the Tappen Zee are rarely built by the private sector. A private sector financed bridge would lack the power to charge for many of its benefits. The private sector cannot charge wage earners in NYC who do not use the bridge, for example, for the portion of income they earn *because* NYC as a whole generates more income. A private enterprise that raises nearby property values just by being there has no legal claim to tax or charge those property owners for improving their assets. A private bridge that lowered congestion on the other bridges can’t charge those other drivers for their reduced traffic jams.

Peter Schaeffer August 23, 2011 at 7:40 pm

“With twice as many people, the bridge becomes more valuable, quite possibly twice as valuable even though per capita GDP is constant.”

The old and new bridges are at (will be at) capacity. Doubling population won’t double bridge traffic. Value is roughly proportional to traffic volume which isn’t sensitive to population if the bridge is at capacity.

If you think the “externalities” are really that large, then a special assessment district could be created. Additional property taxes would be imposed within the district. Notably, this approach was used to help build the Golden Gate bridge. A reasonable idea might be to raise property taxes by $500 per year on the 1 million folks living closest to the bridge.

Somehow I don’t think this concept would be well received.

The bottom line is that everybody wants to use externalities to justify everything. However, resources are limited and choices must be made. Tolls are a “hard” mechanism for determining what people really want and are really willing to pay for vs. what they will take if someone else pays for it. Separately the gold from the gange so to speak.

Boonton August 24, 2011 at 5:42 am

True externalities are often used as a sort of “get out of jail” card to ignore economic realities..But the reality is that externalities do exist and we should ask ourselves what happens when the value of something is found to be more in externaities than in the actual use by customers?

The ‘special assessment’ idea is actually probably too crude to work. Just because a town’s GDP triples after the bridge opens doesn’t mean everyone in the town has benefited. The owner of a quiet hoarse farm, for example, probably considers the bridge traffice to have lowered the value of his estate and he is probably right. The new owner of a motel, on the other hand, has probably benefitted as have plenty of middle class businessmen who are leaving apartments in the city to establish their families in the suburbs….a life made easier by being able to use the bridge to get too and from work. The fact is you probably can’t capture all the benefits of the bridge by crafting a wickedly creative tax but they do exist and they likely outweigh the $16B price tag to build the bridge. Since the increase in resources from having the bridge is greater than the cost in resources to build the bridge, it clearly should be built if it hasn’t already.

As for the population increases not mattering because the bridge is ‘at capacity’, what do you mean? I’m sure the bridge gets traffic jams during rush hour but it is almost certainly not ‘at capacity’….not in the sense that many airports are at capacity meaning they are flying as many flights as can be done given the turanaround procedures of the airport. If the bridge was ‘at capacity’ they population increases would drive alternatives to the bridge such as private ferry services. We don’t see that so either the bridge is at capacity or population growth has somehow been made up of only those people who have no desire to ever use the huge bridge that is right next to them.

Boonton August 23, 2011 at 12:52 pm

Let’s also look at how reasonable the estimate of $668M for what the Tappen Zee *should* cost today to build from scratch.

Take off $48M off the top for steel. That leaves $620M presumably to cover all other materials, equipement and labor. How much labor? I can only find that it took about 3 years to build it back in 1952-1955. How many people I don’t know but I found there’s about 3,000 workers rebuilding the WTC site which seems like a good number to work with. Let’s just say that cost of equipment, fuel, and other materials besides raw steel is like $50M at todays prices. that would leave $580M to cover labor for 3,000 workers for 3 years. That works out to $64,444.44 per worker per year. That covers not only take home pay but also taxes and benefits. Even if you didn’t had union busting up the wazo and abolished Davis Bacon exactly how cheap do you think you can buy skilled labor for a job that is probably at least a bit dangerous? If I’m wrong about the cost of material/equipement and, say, only $400M is left for labor the cost per worker is $44K per year.

Peter Schaeffer August 23, 2011 at 7:29 pm

B,

Even if you assume $100K per worker, per year, the total is $998 million, not $16 billion.

Ape Man August 23, 2011 at 10:04 pm

Your point about the math is correct of course. But you seem to think that figuring $100k per worker is high when in fact it is low.

100K is way to low once you figure in comp insurance and other taxes even if you only figure on an average wage of $50K. And that is a low average wage for any kind of work being done in the New York City area. Much less constructing a 3 mile bridge across the Hudson.

Remember, we are not talking about building bridge in the Midwest, we are talking about working near New York City (A city where everything costs more) in a State with some of highest insurance costs in the nation.

Here are some price recent price rises in workman’s comp. http://enforcecoveragegroup.com/blog/ How is that for faster than inflation?

I would not dare through out a guess like Boonton without knowing the plans. But here is something for you to ponder…

For instance, a three-mile extension of Highway 509 — to create a trucking corridor from Seattle-Tacoma International Airport to Interstate 5, plus more lanes on I-5 nearby — is now expected to cost $1.3 billion to $1.4 billion, up from an earlier estimate of $900 million, said Metropolitan King County Council member Julia Patterson, D-SeaTac. Patterson is vice-chairwoman of the Regional Transportation Investment District (RTID), a planning committee of county-council members.

From this site http://seattletimes.nwsource.com/html/localnews/2003469356_highways09m.html

That is 3 miles that is not over water. And it is from 2006. Prices have gone way up since then. Heavy construction costs are heavily influenced by the price of oil. Concrete is energy intensive both to make and to get to site. And asphalt has gone out of this world. Steel has gone up as well. Booton’s prices are more realistic for building a highway over pass.

Boonton August 24, 2011 at 5:49 am

I was thinking about that too in relation to the estimate of only $50M for steel. Yea steel is cheap but you need it made into the right form, welded, huge holes have to be dug and filled with concrete in the middle of a very large river……

The labor side is going to be expensive. Hanging on top of a steel tower, a thousand feet over the Hudson River in the middle of January is dangerous, difficult work. No way around that. But I’d be very curious to know what portion of the $16B estimate is actual payment to labor versus the materials and equipment.

Peter Schaeffer August 24, 2011 at 3:32 pm

AM,

Perhaps $100K is too low. However, much of the labor used in bridge construction is not highly skilled. Iron workers are very well paid in my experience. However, the Wikipedia page gives a range of $15.85 to $39.11 per hour. Conversely, laborers and other trades earn considerably less per hour.

According to the BLS, in May 2008, median hourly wages of structural iron and steel workers were $20.68. The middle 50 percent earned between $15.18 and $29.15. The lowest 10 percent earned less than $12.25, and the highest 10 percent earned more than $37.04.

The same BLS source gives median wages for laborers as $14.08 with the lowest 10 percent earning $8.93 and the highest 10 percent earning $27.66 per hour. Overall, $100K looks rather high for a bridge project, assuming the workers are at the 90th percentile.

As I showed earlier, steel prices are almost irrelevant to the overall project cost. So is concrete by the way. Check actual concrete prices versus estimated tonnage.

Ape Man August 24, 2011 at 6:55 pm

Does not matter what Wikipedia says. As I posted further up thread, state rate is a little over $50 hour. Unless the bridge becomes a private sector project, state rate is what those guys will be paid. As I also posted up thread, I know from personal experience how low iron worker wages can go. As I also posted up thread, the low end does not apply to bridge work.

In my particular upstate region where I have personal experience and know what people are getting paid for a fact, almost no journeyman trades person is paid under $30 an hour on government jobs (in fact, I put the almost in there to cover myself. Can’t think a single one off hand). State rate is even higher down state. You can look it up for yourself by searching for prevailing wage in New York State. Or you can just look at the link I posted up thread.

As I keep trying to tell you, the wage figures you are looking up do not apply to the job you are considering. That does not mean the wage figures solve the mystery you are considering. But the fact that you are so off on the wages makes me want to go back and check your other figures.

Peter Schaeffer August 25, 2011 at 1:48 am

‘But the fact that you are so off on the wages makes me want to go back and check your other figures.’

Please do. Better explanations of why its costs $16 billion to replace a $81 million bridge would be most helpful.

However, you know as well as I do (perhaps a lot more than I do), that NYC wasn’t a cheap construction locale in the 1950s. It was already highly unionized and Ironworkers were already an elite trade

Boonton August 25, 2011 at 9:49 am

“Iron workers are very well paid in my experience. However, the Wikipedia page gives a range of $15.85 to $39.11 per hour. ”

Again we aren’t working a fence in a shop, we are hanging from a thousand foot tower a mile or two over the Hudson River in the middle of January. I would imagine this is closer to the high end of the scale for ironworkers.

More to the point, the original estimate of what the bridge ‘should’ cost today of $600M or so is clearly unworkable.

“As I showed earlier, steel prices are almost irrelevant to the overall project cost. So is concrete by the way. Check actual concrete prices versus estimated tonnage.”

Actually according to http://answers.yahoo.com/question/index?qid=20090110142602AAitrHj the current estimate for a new bridge is $6.4B, not $16B and that would be an upgraded bridge that could accomodate commuter-train tracks and high speed bus lanes.

It’s not just materials, its equipment. To build a bridge you need massive earth movers, cranes and other heavy specialized equipment. You also need expertise to build large, heavy structures on top of flowing water. I’d be interested in seeing a breakdown of costs between labor, capital and materials.

For example, here’s just a tiny piece, see page 10 of https://www.nysdot.gov/recovery/sponsors/tiger/repository/Tappan%20Zee%20Bridge%20RepairApplication.pdf

Cost to pain the main span, $11M. The main span has 275,000 square feet of surface to paint which works out to $40 per square foot. This may sound like a lot but its probably not the type of paint you get at Home Depot and its probably not in easy to access places. How much savings could you reasonably expect to achieve by, say, hiring non-union, unskilled painters for $10 and hour?

Eric H August 23, 2011 at 9:25 pm

“It’s too late now: Highways and towns have grown up based on the bridge’s current location.”

Whaaaaat? Some network externalities are … government failures?

Boonton August 24, 2011 at 9:19 am

Peter downplays externalities a bit but I decided to just play a little bit.

Let’s just say the following ‘assessments’ were added to the bridge’s funding instead of just tolls.

$25 per person for Rockland and Westchester counties, the two counties directly connected by the bridge.

$15 per person in NYC. Since the bridge’s most common use is probably to feed NYC with workers, products and visitors.

$5 per NY state resident

$5 per NJ state resident

Plugging in Wikipedia’s pop. estimates into Excel and I generate $294M per year. Add that to about $120M in net toll collections ($240M less about $120M for maintaince) and you get about $414M a year in ‘value’ coming off the bridge’s existence. Let that amount increase by 2.5% each year to represent population growth and GDP per capita growth.

In Excel, I make a rather simple model. In year 0 there’s a negative outlay of $16B. Years 1-60 are positive value represented by about $414M in value starting in year 1 growing by 2.5% per year to be both population and economic growth….rather modest. Since the bridge has stood for 55 years to date I figure 60 years is a good figure to use for the bridge’s useful life…before it absolutely needs a total overhaul…..

The internal rate of return on that value stream is 3.981% which would indicate that the bridge adds more value than it would cost to build even at the ‘inflated’ price of $16B. Of course this doesn’t mean that every person in NY or NJ literally must be taxed $5 each year. The difference between a private enterprise and a gov’t is that a private enterprise must ‘capture’ the value it creates. If having a Wal-Mart within a short distance of your home increases its value by $100, that doesn’t do anything for Wal-Mart’s books when deciding whether to pay to have it built. If gov’t having a good school or a good bridge near your home increases its value by $100 gov’t doesn’t have to tax you that $100 to make the decision worthwhile because, sorry to sound corny, ‘we are the government’.
If the bridge makes NYCer’s richer by $15 per year per person and NJ/NYers richer by $5 etc. then its good to build even if the government entity that finances it appears to be ‘losing money’ relative to the funds raised by actual toll payers.

David B August 24, 2011 at 4:05 pm

This seems a pretty flagrant violation of the Coase Theorem.

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