Smallgov.us

In an effort to bolster flagging support for a plan to use billions of tax dollars — both U.S. and Canadian — to build a new Detroit River International Crossing (DRIC)  the Michigan Department of Transportation has released a report detailing the results of a 240-page study it did of the project.

Determinedly credulous advocates of the public sector have received with eager delight this official proof that DRIC will not only facilitate anticipated growth in cross-border traffic, but will actually be a cost-effective investment for taxpayers, as well!

Among the MDOT predictions:

• The project will cost $2.3 billion to build
• Tolls will produce $70.4 million in gross revenue from 5.9 million vehicles in 2016 (first year of operations)
• Tolls will rise to $238.2 million in gross revenue from 11.7 million vehicles by 2040

For the more skeptical among us, however, a few questions come immediately to mind with respect to these advocate-supplied numbers:

1. How is it that the estimated cost of construction is rounded to the nearest hundred-million dollars, while projected revenues are to the nearest hundred-thousand dollars? Is it really possible to be a thousand times more precise in projecting usage and revenues from decades hence than immediate construction costs?
2. Why is the estimated construction cost quoted as a net figure, while revenue projections are quoted in gross numbers?
3. Why are the revenue projections not adjusted for inflation?  Or are we to believe that a less than doubling of traffic volume from 2016 to 2040 will generate nearly three and half times the revenue?

Undoubtedly, these questions — and many more — are also vexing DRIC competitor, the Detroit International Bridge Company (DBIC), led by Ambassador Bridge owner, Matty Moroun, who has the temerity to want to build a privately owned and operated, parallel span using his own money.

Insinuations by the intelligentsia that nefarious intent necessarily attends all private ambitions notwithstanding, a twin span alongside DIBC’s long-serving Ambassador Bridge would hardly give Mr. Marroun a monopoly.

Indeed, the same MDOT study goes on to suggest that even the larger DRIC project will have slight impact on the three exisitng, international conveyances, asserting that by 2025:

• The Ambassador Bridge would lose 20% of its business
• The Detroit-Windsor Tunnel would lose 8% of its business
• The Blue Water Bridge in Port Huron would lose 7% of its business

Thus, according to MDOT, the DRIC bridge would account for a total of 35% of the intercourse between Michigan and Ontario.  While Mr. Marroun estimates the impact on his Ambassador Bridge traffic alone to be more on the order of a 75% decline, whichever figure (or some other) is correct, two things are undeniable:

1. The total volume of traffic between Michigan and Ontario (even should we share in MDOT’s optimism with respect to future growth) will be unaffected by the location of a fourth option when the alternatives are within easy walking distance of one another.
2. Competition for that traffic among the four (i.e., two bridges and a tunnel in Downtown Detroit and a bridge in Port Huron) is what the mathematically-inclined would call: “zero sum.”  That is, gains by one necessarily come at the expense of one or more of the others.  For as logicians have long noted, the whole cannot be greater than the sum of its parts.

Still, it is vital in planning a project of this magnitude to have some confidence in the reliability of economic projections.

In the case of DIBC the burden of making the estimates — and the risk of error — are on Mr. Marroun and his investors.

In the case of DRIC, however, the burdens and risks are on taxpayers.  And, frankly, even those among us with a predilection for the public over the private sector ought not be sanguine about the reliability of this MDOT study.

When was the last time a government agency — for example, MDOT — accurately estimated either the costs or revenues of a proposed project?  Indeed, has it ever produced a project study that correctly projected both?

Given that track record — and the fact that someone is fighting to provide an alternative at his own expense that would obviate a publicly-funded project — here is a modest proposal that would at least bring some measure of reassurance to beleaguered taxpayers:

1. Review all previous MDOT studies like the one just produced for the DRIC project from, say, the last ten years
2. Compare the cost and/or revenue estimates in the studies with the actual costs and/or revenues generated by the completed project
   
3. Calculate the percentage of deviation — whether over or under the actual numbers
   
4. Adjust the numbers in the DRIC study by that percentage.

Not having access to the necessary data, we can’t be sure of the size or (in point of fact) direction of the adjustments.  However, adopting such a  policy would have two, salutary effects.

If projections by MDOT experts were adjusted to take into account their historical reliability, taxpayers would have more confidence in the cost, revenue and traffic volume estimates for the proposed DRIC project.

For the longer run MDOT would have a direct and ongoing incentive to provide realistic figures in producing all future, project studies.  Expectations of substantially more reliable project estimates a decade hence — when consideration of the last of those produced under the current regimen ends — would not be unwarranted.

In fact, this policy would be an excellent one to apply to all government projects and programs.  Indeed, given the perennial underestimate of expenditures and overestimate of revenues by the legislature, the state budget would be a very good place to start.

Of course, if you think that is going to happen, I have a bridge in New York I’d like to sell you.