Light-rail cost doubles
Estimates put extension into south Phoenix at $1.35B
A federal report finds that the cost of a controversial light-rail extension into south Phoenix nearly doubled in one year to $1.35 billion.
Between 2017 and 2018, the cost of the controversial south-central lightrail expansion nearly doubled, according to Federal Transit Administration documents. The most recent estimates now put the cost of the 5.5-mile extension into south Phoenix at $1.35 billion. In 2017, that number was $704 million.
Valley Metro and Phoenix officials say the new, higher cost is due to new transfer stations, inflation and additional requirements demanded by the FTA. But opponents of light rail, who are trying to end the rail program permanently in August’s election, say the escalating costs show the light rail is financially irresponsible.
Why did costs increase?
In an interview in late July, Valley Metro CEO Scott Smith said the cost increase of the south-central light-rail extension was due to a number of factors.
New ‘downtown hub’
Between 2017 and 2018, Valley Metro
“The scariest part for taxpayers is that they haven’t even broke ground on the project, so the price tag will likely go even higher before they are finished.” Scott Mussi president of the Arizona Free Enterprise Club
and Phoenix decided to add a significant additional component to the light-rail project.
Dubbed the “downtown hub,” the addition will create a centralized transfer area around CityScape with three lightrail stations that connect to the southcentral line and also a planned future extension to the west.
“(The project’s) really not just the south-central extension anymore,” Smith said.
The hub added $275 million to the project’s total cost.
Added contingency
The total cost of the project after the addition of the downtown hub was about $1.1 billion.
During a risk assessment completed in October, the FTA added an additional $150 million to the project as “contingency” — emergency funds that must be set aside for any unexpected costs. The $1.1 billion estimate already included about $200 million in contingency funds.
Based on the FTA’s risk assessment, the most recent total cost estimate of $1.35 billion includes about $350 million in contingency.
If the contingency money is not used — something Valley Metro and Phoenix officials said they expect — that money will be refunded to the city.
Smith said the FTA’s demand for additional contingency monies is not a reflection of the south Phoenix project’s risk, but a part of a new trend by the FTA.
According to a July memo prepared by democratic staff for the U.S. House of Representatives’ Subcommittee on Highways and Transit, the FTA’s increased contingency requirements have added hundreds of millions of dollars to the cost of transit projects nationally.
“These additional costs were generally covered by local dollars, forcing local governments to scramble to pay for federal inaction,” the memo states.
Tariffs and inflation
Smith said the cost of building rail has increased over time and continues to do so.
New tariffs implements by the federal government on aluminum and steel have led to supply cost increases. Additionally, the cost of construction labor is on the rise, particularly in the West where numerous transit projects are underway, he said.
“All construction, including light rail, has been hit with these increases in cost,” Smith said.
Through the risk assessment, the FTA increased the cost of the project by $28 million because of inflation and material cost increases.
Where does money come from?
The total price of the light-rail extension will be split among federal grants, regional transportation funds and Phoenix dollars that come from a sales-tax increase voters approved in 2015.
Here’s the current estimated payment breakdown:
❚ Federal grants: $637 million.
❚ Regional Proposition 400 funds: $280 million.
❚ Phoenix Proposition 104 funds:
$428 million.
In 2017, the federal government was slated to pick up a larger percentage of the cost of the project — about 58%.
According to a letter sent to the FTA in 2019, Valley Metro and Phoenix asked the federal government to decrease their funding share of the project, which brought federal grants down to about
47%.
Smith said the FTA had cautioned Valley Metro that there was limited funding and many transit projects across the country seeking funding, so Valley Metro and Phoenix decided to lower the amount requested from the feds to make it more likely that the feds would support the project, he said.
However, that left the city and Valley Metro to fill the gap.
Phoenix is now on the hook for $428 million, an increase of $233 million over the 2017 estimate.
Will cost increases kill other projects?
Phoenix’s portion of the light-rail extension’s cost is funded through a sales tax increase passed in 2015.
That sales tax increase is the foundation of a 35-year transportation plan that calls for six light-rail extensions, new and improved bus service, sidewalks, bike lanes, street maintenance and other transportation projects.
When the plan initially was crafted in 2015, the cost of the south-central lightrail extension was estimated at about $500 million.
Now that the total cost of the project and Phoenix’s share of the cost have increased, will the city have to give up other parts of its transportation plan?
Phoenix Deputy City Manager Mario Paniagua said no.
He said the funding for light-rail projects is forecast over the 35-year life of the tax, and that the city intentionally built extra money into the plan in case of situations like this. He said the city has enough money from the tax to cover the cost increases and does not believe it will have to take money from other planned transportation projects to fund the south Phoenix project.
Opponents: Light rail is too expensive
Valley Metro and light-rail proponents have defended the value of light rail — saying that the cost increases correlate to added benefits, like the downtown hub, and the city will get the contingency money back.
Rail opponents, however, are using the cost hikes to paint the entire lightrail system as a waste of money.
Scott Mussi, president of the Arizona Free Enterprise Club, blasted the price tag and said that Valley Metro or Phoenix should have notified the public of the increased costs.
“The scariest part for taxpayers is that they haven’t even broke ground on the project, so the price tag will likely go even higher before they are finished,” Mussi said.
Tony Cani, campaign manager of Invest in Phoenix, the committee campaigning against the light-rail-ending initiative, said opponents are using “accounting gimmicks that make it seem like (the cost is) out of control.”
“This is something that’s going to improve people’s lives and that people want,” Cani said.
August election could end light rail
On Aug. 27, Phoenix voters will weigh in on Proposition 105, which could spell the end of light rail’s expansion in the Valley.
If voters pass the proposition, the city must cancel all light-rail extensions and divert the city money it would have used to other transportation needs.
Early voting began July 31.