Oregon economist examines the future of ODOT

Portland economist Joe Cortright says ODOT’s projects have a history of costing much more than initial estimates. He points to proposals like the I-5 Rose Quarter project which has been in the works for nearly a decade and is estimated to cost around $1.9 billion. The estimate in 2017 was $450 million. A Statesman Journal investigation found that ODOT’s projects were over budget and the agency was unable to track some of its funds and how they were spent. Cortright, the director of City Observatory, an urban policy think tank based in Portland, joins us with details of his concerns.

In a statement, ODOT writes:

Transportation agencies across the state face a structural revenue issue. This issue is driven by three causes: flattening and declining gas tax revenues as cars become more efficient, consistent inflation that eats away at the purchasing power of each dollar, and legal restrictions that prevent ODOT from using available dollars to fund maintenance and operations.

While the Legislature increased the gas tax in recent years, revenues are now at their peak and are expected to flatten and decline in coming years. When you account for inflation, the buying power of that revenue source is set to dramatically decrease.

ODOT’s major projects in the Portland metro area, supported by city, county, state, Metro and community leaders, have seen costs grow in recent years. However, the funds dedicated to these projects are specifically directed by the legislature to construction projects and cannot be used for day-to-day maintenance and operations of the highway system. We are forced to cut back on critical efforts like plowing snow and fixing potholes independent of funding these popular projects. The public and our partners have consistently told us they want us to do both.

We take our responsibility to provide safe travel for all Oregonians very seriously. The last thing we want to do is let the system we built fall into disrepair. But because of how our funding is structured, we are increasingly forced to do so.

We are focused on achieving sufficient and sustainable funding for maintenance and operations in this legislative session. We are increasingly optimistic that the legislature will take this opportunity to break the pattern of past legislatures and robustly fund the maintenance, operation and preservation of our transportation system.

Note: The following transcript was transcribed digitally and validated for accuracy, readability and formatting by an OPB volunteer.

Dave Miller: This is Think Out Loud on OPB. I’m Dave Miller. We’ve heard a lot in recent months about the Oregon Department of Transportation. The agency has said over and over that a looming drop in revenue will jeopardize transportation projects in the coming years. Lawmakers are listening. They’re talking right now about increasing gas taxes, DMV fees, and other methods of paying for roads and bridges. But the economist Joe Cortright, a longtime critic of the agency, says ODOT does not have a revenue problem. He says the real issue is mismanagement, and he joins us now. It’s good to have you back on Think Out Loud.

Joe Cortright: Thanks, Dave. It’s great to be here.

Miller: So, as you know, the agency points to a couple different factors when they talk about looming fiscal problems. They reiterated them in a statement to us that they sent this morning, mentioning both “flattening and declining gas tax revenues as cars become more efficient.” And they also talked about “consistent inflation that eats away at the purchasing power of each dollar.” So declining gas taxes going forward and inflation. What do you think that this framing misses?

Cortright: Well, I think it misses a couple of things. First of all, our fuel tax revenues are now $100 million a year higher than they were five years ago. They like to blame EVs and more efficient fuel efficient vehicles, but that’s not the issue.

Miller: Just to be clear, because we did have Travis Brouwer on – one of the high up officials there – I think just last week and he did acknowledge that they’re at record highs right now, but they said the issue is going forward.

Cortright: Yeah, the point is the crisis that we’re in right now is not a product of declining revenues. And by focusing attention on revenues again, which have actually gone up by $100 million, they’ve largely avoided saying anything about huge cost overruns on the megaprojects that they’re doing in the Portland metropolitan area.

Miller: What’s the scale of these cost overruns? Go through some of the projects, and what they were promised to be and where they are now.

Cortright: Yeah, so to pick just three big projects. First, there’s the Abernathy Bridge, which is currently under construction in Oregon City. It was promised at $248 million when it was first authorized. The current estimate right now is over $800 million. The Rose Quarter project, which the legislature approved in 2017, was supposed to cost $450 million. It’s now a $1.9 billion dollar project. The I-5 bridge was originally forecast at $4.8 billion. It may be as much as $7.5 billion.

I should also note, all of those estimates are just as of right now. They’re all expected to go up. In fact, OPB broke the story last year that the IBR was going to be more expensive and that ODOT was working on another estimate. It promised it more than a year ago and hasn’t produced it yet.

Miller: When might we know better estimates for some of these different projects? Because lawmakers are working right now on a funding package.

Cortright: Well, that’s the problematic part of this. If you look particularly at the Abernathy project – which, as I said, is under construction – it started at $248 million, it doubled when they opened the bids to $500 million, and it’s gone up three times since then. So, it’s very much a moving target. And that’s really the problem here, is that ODOT has lowballed the estimates to get these projects started, and then they just end up costing more and there is no discipline on these costs.

Miller: So, what are the policy or structural decisions that you think are being made that make these cost overruns more likely? You said that they’re lowballing. That implies that you think they are intentionally giving lower price tags than they think is likely or reasonable, so lawmakers will give them the money?

Cortright: I mean, if you look back at the history of ODOT projects, they typically end up costing two and three times what ODOT said they would cost. And this is something that goes back for two decades, goes back to, for example, the Pioneer Mountain Eddyville project, which was supposed to cost $110 million and ended up costing more than $360 million. It’s a regular pattern in practice and it’s a management axiom that you get the behavior that you incentivize. And essentially when it comes to these cost overruns, the Oregon Transportation Commission has frowned and shrugged, and then given the same people more money to do the same thing that they’ve been doing. So it’s a flaw in the process.

Miller: Is the Oregon Department of Transportation worse at this? Are there more likely to be higher levels of cost overruns than 49 other state transportation departments or the U.S. Department of Transportation?

Cortright: Well, we know that this is a fairly common thing in big infrastructure projects and highway departments generally, and I don’t know enough detail about all the other states. There was a recent study published by the Brookings Institution, which looked at all 50 states and looked at their benchmark construction costs, and it said Oregon’s construction costs are about double the national average for the 50 states. So it appears to be worse.

Miller: I want to play you some tape from an interview that we did with Tina Kotek last month. I specifically asked her why Oregonians should trust the agency with more money, and this is part of her answer:

Tina Kotek [recording]: Even in the last year, they have started to tighten up their forecasting techniques of planning for what we need in the projects that we’re going to build. Frankly, in 2017 when the transportation package was passed – I was in the legislature at the time – we put some things in place that we thought would work. They haven’t worked, so it’s, look at them, reassess. I’m very honest with Oregonians. If it’s not working, let’s keep working on it. Nothing’s ever perfect. And I think what I’m seeing in ODOT is an understanding that they need to be better, that the legislature is going to put additional guidelines for them to maintain that level of accountability, and we got to get a package done.

Miller: So the governor says there that in the last year, ODOT has tightened up their forecasting techniques and she seemed, I don’t know, not that skeptical about ODOT going forward, saying it’s not perfect, but we’re going to make this work. What’s your response?

Cortright: Well, the governor referred specifically to a study that was done on behalf of ODOT by a company called WSP, that was a strategic review of the department that looked at its processes. And in theory, that’s supposed to take care of these problems. But in reality, WSP is highly conflicted – they are a major contractor to ODOT. They have billed over $100 million in consulting fees to the Oregon Department of Transportation. So they’re loathe, in all probability, to want to criticize their biggest client.

And the person who led that audit, Paula Hammond, is the former director of the Washington State Department of Transportation, who was the boss of the current Oregon Department of Transportation, Kris Strickler, when he was working on the Columbia River Crossing project. WSP and all of these consultants are firms that actually profit from cost overruns on these big megaprojects, and ODOT has spent something on the order of $500 million on three projects: the Columbia River Crossing was $200 million, the IBR an additional $200 million and about $130 million on the Rose Quarter project. So the consultants really seem to be a part of the problem here.

Miller: Everything you’ve outlined, I think, can give listeners reasons to have a healthy skepticism about the product that would come from consultants who, as you say, have a lot of potential ties to this. What about what they actually released, though? I mean, when you look at the potential solutions or changes that were recommended, do those give you any more confidence?

Cortright: No, actually it’s worse because, again, it’s a management review and the first thing it fails to do is identify cost overruns as a problem. There’s no mention of the $4.8 billion in cost overruns. In fact, the six panel members that they had come do the management review, the strategic review, four of them [were] from states that have significant cost overruns, including Washington. And then when you look at their specific recommendations, they’re these very vague sort of process changes, organizational changes and better communication. There’s no specific statement, no concrete statement on how they will do a better job of managing costs, how they’ll reduce costs or even how they will measure their progress.

And I should also note that for anybody who’s been following this, they should have a strong sense of deja vu, because just before 2017, then Governor Kate Brown brought in an outside consultant, McKinsey, [and] paid them a million dollars. They gave ODOT this whitewash that said they’re really good at managing things. And that was supposed to allay the public’s and the legislature’s concerns about management. We’ve seen what happened after that McKinsey report: massive cost overruns.

So I think the purpose of that study is really just to generate a talking point for the legislature and for the media that somehow it’s gonna be different. And when you look closely at it, essentially, there’s nothing there.

Miller: What exactly do you want the Oregon Transportation Commission, the overseeing body for the agency, and lawmakers to do right now?

Cortright: Well, I think the thing they need to do is do something that Governor Kotek recommended when she was Speaker, actually in 2021. She voted against a bill in the legislature that would have given ODOT authority to borrow money, and the reason she did is because there was no provision for ODOT to right-size these projects, that is to take a good hard look at them, and try and boil them down to just the essentials that we need. And when you look at things like the Rose Quarter and the Interstate Bridge, they are massively over-designed projects – vastly – and that’s what’s driving the expenses and the cost overruns.

Miller: Well, let me ask you about that, because we’ve talked in the past about your opposition to those projects – to the I-5 Bridge, to the Rose Quarter project – on policy grounds. And you’re not alone in this, but you see them as highway expansion projects in disguise, that will induce more driving, more traffic, more greenhouse gas emissions, at a time when as a society, we need to go in the exact opposite direction. How much is your economic argument now another way to make that long-standing policy argument?

Cortright: Well, I think the two are related, but the thing I would stress is just look at the Burnside Bridge project, which is almost a billion dollar project. As far as I know, nobody’s opposed to the Burnside Bridge project, because it is a like-for-like replacement of the existing structure.

Miller: And this is at the county, right, not ODOT?

Cortright: It’s a county project, not an ODOT project. So they’re talking about literally just replacing the bridge, but that’s not what they’re talking about for the Interstate Bridge Replacement project, which is essentially branding. It’s really rebuilding seven interchanges, five miles of freeway, widening things, vastly more expensive than it needs to be. And if, as Governor Kotek suggested, you right-size the project, it would be much more affordable.

Miller: I want to run one more part of the agency statement that they sent to us this morning by you – and I should say that if folks want to read their whole statement, they can find it on our website. But this is the other major point that I haven’t yet read: “The funds dedicated to these projects are specifically directed by the legislature to construction projects and cannot be used for day-to-day maintenance and operations of the highway system. We’re forced to cut back on critical efforts like plowing snow and fixing potholes independent of funding these popular projects.”

So there they’re referring to just the statutory reality of how different pots of money can be spent. Does that have a bearing on what you’re talking about?

Cortright: Well, I think it’s frankly not true. So when you look at the Abernathy Bridge, which had a huge cost overrun, ODOT took $100 million out of bridge maintenance funds that we used to repair bridges and used it to cover the cost overrun on the Abernathy Bridge.

Miller: They’re saying that money that’s supposed to go to the Abernathy Bridge can’t be used for potholes. You’re saying because that project cost more, money that could have gone to potholes is not.

Cortright: Exactly.

Miller: Those are sort of flip sides, but you’re emphasizing a very different piece of it.

Cortright: And they routinely do that. The other thing is, they’ve issued bonds. They’ve borrowed against future ODOT revenue, and the obligation to repay those bonds takes precedence over everything else. So ODOT’s decision to essentially put this on the credit card is the one that’s actually short changing future expenditures for maintenance of the system.

Miller: Joe, thanks very much.

Cortright: My pleasure.

Miller: That’s Joe Cortright. He is the director of City Observatory, an urban policy think tank that’s based in Portland.

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