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In World's Most Expensive City for Building, an Attempt to Lower Costs

Congress and the state of New York are trying to bring down the infrastructure bills. But what's making them so high?

infra costs NYC
Two pieces of pending legislation are aimed primarily at reducing construction costs in New York City.
(David Kidd)
Since President Trump released his long-awaited infrastructure proposal last month, much of the focus has been on the relatively small amount of federal funding -- $200 billion -- that the White House believes will jump-start $1.5 trillion in total investments from state and local governments and the private sector.

Another piece of the puzzle, however, is one that's not getting as much attention but is just as vital: why building infrastructure costs so much in the U.S.

The United States is one of the most expensive -- if not the priciest -- countries in the world for infrastructure projects. One analysis by the Urban Institute, which ranked the cost of the world’s major rail projects, found that four of the 12 priciest rail projects are based in U.S. cities: Boston, Los Angeles, New York and San Francisco. Often, costs are 10 or even 20 times higher than similar projects in foreign cities.

Part of the higher price tags are explained by stricter permitting regulations and liability standards that can drag out construction projects and increase their cost. Trump's plan calls for reduced red tape and regulations to help speed projects along.

But there's only so much the feds can do, says Urban Institute senior fellow Tracy Gordon.

The federal government plays a relatively small role in dragging down the process, she says. It’s the local governments that can really prolong construction times. “The federal government can do what it wants, but at some point you need to get local approvals,” she says. “And I just haven’t really seen that idea of better coordination fully addressed.”

New York is one of the most expensive places in the world to build, but policymakers at the state and federal level are trying to change that.

Lawmakers in the state Assembly are pushing a bill that would allow cities to use the design-build procurement method on government projects, something proponents say would lower project costs.

Meanwhile in Congress, a bill is being considered that would require New York's federally funded projects to adhere to the same liability standards found in all other states. New York has the nation's highest liability standard for property owners, a fact that several reports and groups have cited as something that drives up construction costs and causes delays. If approved, the bill could have a dramatic impact as New York received nearly $3.3 billion in federal transportation grants in 2016 alone, according to the state comptroller's office. 

New York City’s East Side Access project, which will connect the Long Island Rail Road to Grand Central Terminal, is expected to cost $1.8 billion per mile by the time it’s finished in 2023. And a recent report by New York’s Regional Plan Association found that the Second Avenue Subway is the world’s most expensive subway extension, at a cost of $807 million per track mile.

The federal legislation targets New York’s 1885 Scaffold Act, which imposes absolute liability on a property owner or construction employer in any case of a work-related fall. According to a 2013 Rockefeller Institute report, the law has the effect of increasing construction costs by about 7 percent. Although most states had such a law on the books a century ago, federal health and safety protections and state workers’ compensation laws have supplanted scaffold laws everywhere except New York. 

“It’s important to note the bill we’re advocating for doesn’t alter safety provisions,” says Tom Stebbins, executive director of the tort reform group Lawsuit Reform Alliance New York. “It just applies liability for these injuries the way it’s done elsewhere.”

The design-build state legislation, which came close to passing last year, would allow portions of projects to be bundled in the same bid rather than going through separate procurement processes. Legislation in 2011 authorized the method for only five state agencies.

According to New York City Department of Transportation Commissioner Polly Trottenberg, design-build could have shaved about two years off the construction time of an upcoming reconstruction on a section of the Brooklyn-Queens Expressway.

But stricter regulations and added construction costs don’t fully explain why it's so expensive to build infrastructure in the U.S.

As Gordon and her Urban Institute co-author David Schleicher note in their analysis, Australia, New Zealand and the United Kingdom, like the United States, are also home to common law systems that provide legal protections for property holders and allow more lawsuits, which similarly drives up costs in those countries. Yet costs in the U.S. still tend to run much higher.

And, Gordon and Schleicher point out, some non-common law countries, including Germany, also have strong legal protections yet low rail construction costs.

Stebbins offers up one reason for the gap. “In the United States, we’ve really monetized our justice system more than any other country,” he says. “We’ve turned it into a business. You don’t need to go far in any American city to see a billboard or bus spattered with the words, ‘Injured? Get cash today.’”

Political fragmentation and electoral politics are other potential culprits. For instance, elected officials compete with each other to bring more federal and private spending home to their districts. And large projects spanning multiple jurisdictions can get tied up amid conflicting political priorities within one region. Still, no one has really been able to pinpoint why exactly infrastructure costs so much more in the U.S.

“But it’s worth realizing that costly mega-projects make people distrustful that good projects will come to the fore,” write Gordon and Schleicher. “Figuring out why costs are so high may be crucial not only to bringing those costs down but to getting a real consensus on infrastructure and a reliable source of funds for the nation’s roads, bridges and transit.”

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Liz Farmer, a former Governing staff writer covering fiscal policy, helps lead the Pew Charitable Trusts’ state fiscal health project’s Fiscal 50 online resource.
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