Stephen Goldsmith is a professor of government at the Harvard Kennedy School. He was formerly the two-term mayor of Indianapolis and deputy mayor for operations for New York City.E-mail: email@example.com
In a recent post on value engineering, I concentrated on how to rethink capital projects in a way that reduces costs without sacrificing important design features. Traditionally, governments have approached value engineering with a primary emphasis on reducing costs, and the column focused on strategies to do so.
Yet value can also be enhanced by recognizing and leveraging benefits. This broader approach to benefits presents challenges: The positive effects often accrue to other agencies, and in most cases the benefits cannot or should not be used to rationalize higher costs. Yet when done correctly, a comprehensive review of benefits can produce dramatically better value engineering.
Philadelphia's "Green City, Clean Waters" approach to remediating the city's combined sewer overflow (CSO) problems represents an alternative wherein benefits are emphasized in addition to a lower-cost solution. Many of these benefits will be realized by the community and the environment, but many also may be directly captured by the city as increased revenue and/or lower expenditures.
The proposed "green" system seeks to inject the city with an infrastructure of stormwater-managing habitats and building technologies rather than constructing costly new sewer pipes and holding tanks. As a result, Philadelphia is able to meet the Environmental Protection Agency's goals for CSO mitigation — the EPA has approved the city's alternative plan — while creating a number of additional benefits.
Philadelphia's water commissioner, Howard Neukruig, considered a broad range of benefits in determining how to configure the capital program. These spanned from environmental to public health to economic to aesthetic. Among the expected benefits are reduced emissions of greenhouse gases and particulates, along with their increased absorption by trees; the mitigation of the "urban heat island" effect through greening; and increased park usage — especially near bodies of water — along with an overall improvement of their aquatic habitats, allowing CSO mitigation funds to play double duty in support of the city's parks and recreation department. Additionally, the program is expected to create many green jobs that would be accessible to the city's low-income population without carrying excessive job-training needs.
While Philadelphia's cost-benefit analysis was commendably inclusive, particular benefits in the form of tangible values created and city operation costs eliminated over the long term can be singled out as true successes of value engineering. Some of these benefits do not result in any direct benefit to the city's budget. But others do. For example, the proposed green alternatives are expected to increase property values surrounding habitats rehabilitated for stormwater capture by 3.5 percent, enhancing property-tax revenues. Some of the designs factor in reduced maintenance costs, while the prospect of new jobs created would help hundreds of workers remove themselves from city entitlement programs. These represent real budget savings over the years.
When city officials decide where to inject precious capital, and when they decide how to value it, direct hard costs should be the main area of concern. But each dollar a city invests in infrastructure produces value, and calculating that value in an intentional and organized fashion will greatly assist policy decisions.