Construction costs for transit system exorbitant
NEW YORK — An accountant discovered the discrepancy while reviewing the budget for new train platforms under Grand Central Terminal in Manhattan.
The budget showed that 900 workers were being paid to dig caverns for the platforms as part of a 3.5mile tunnel connecting the historic station to the Long Island Rail Road. But the accountant could identify only about 700 jobs that needed to be done, according to three project supervisors. Officials could not find any reason for the other 200 people to be there.
“Nobody knew what those people were doing, if they were doing anything,” said Michael Horodniceanu, who was then the head of construction at the Metropolitan Transportation Authority, which runs transit in New York. The workers were laid off, Horodniceanu said, but no one figured out how long they had been employed. “All we knew is they were each being paid about $1,000 every day.”
The discovery, which occurred in 2010 and was not disclosed to the public, illustrates one of the main issues that has helped lead to the increasing delays tormenting millions of subway riders every day: The leaders entrusted to expand New York’s regional transit network have paid the highest construction costs in the world, spending billions of dollars that could have been used to fix existing subway tunnels, tracks, trains and signals.
The estimated cost of the Long Island Rail Road project, known as East Side Access, has ballooned to $12 billion, or nearly $3.5 billion for each new mile of track — seven times the average elsewhere in the world. The recently completed Second Avenue subway on Manhattan’s Upper East Side and the 2015 extension of the No. 7 line to Hudson Yards also cost far above average, at $2.5 billion and $1.5 billion
per mile, respectively.
The spending has taken place even as the MTA has cut back on core subway maintenance because, as The New York Times has documented, generations of politicians have diverted money from the transit authority and saddled it with debt.
The Times found that a host of factors has contributed to the transit authority’s exorbitant capital costs.
For years, The Times found, public officials have stood by as a small group of politically connected labor unions, construction companies and consulting firms have amassed large profits.
Trade unions, which have closely aligned themselves with Gov. Andrew Cuomo and other politicians, have secured deals requiring underground construction work to be staffed by as many as four times more laborers than elsewhere in the world, documents show.
Construction companies, which have given millions of dollars in campaign donations in recent years, have increased their projected costs by as much as 50 percent when bidding for work from the MTA, contractors say.
Consulting firms, which have hired away scores of MTA employees, have persuaded the authority to spend an unusual amount on design and management, statistics indicate.
Public officials, mired in bureaucracy, have not acted to curb the costs. The MTA has not adopted best practices, nor has it worked to increase competition in contracting, and it almost never punishes vendors for spending too much or taking too long, according to inspector general reports.
At the heart of the issue is the obscure way that construction costs are set in New York. Worker wages and labor conditions are determined through negotiations between the unions and the companies, none of whom have an incentive to control costs. The transit authority has made no attempt to intervene to contain the spending.
“It’s sad, really,” said Lok Home, owner of the Robbins Co., which manufactured much of the tunneling equipment used for East Side Access. “Because if they controlled the costs, they could do twice as many expansion projects and still have more money for maintenance.”
Asked about The Times’ findings, union leaders and construction executives insisted that no money had been wasted. They said tunneling is difficult and dangerous work that must be well funded.
The MTA, for its part, did not dispute the findings.
Joseph J. Lhota, who was chairman of the authority in 2012 and returned to the job in June, said he had recently appointed working groups to study costs and the procurement process.
“We recognize this has been
a problem. We’re never going to deny history,” Lhota said. “This is an issue that needs to be addressed. It needs to be attacked.”
New York’s struggles come as transit construction is booming around the world. At least 150 projects have been initiated since 1990, according to a recent study by Yale University researcher David Schleicher.
The approximate average cost of the projects — both in the U.S. and abroad — has been less than $500 million per track mile, the study concluded.
“There was one glaring exception,” Schleicher said. “New York.”
Independent online journalist Alon Levy first noted the MTA’s high construction costs, and 28 City Council members urged officials to research the issue in October.
Lhota responded by defending the costs. He said in a letter, “There are unique challenges that contribute to high construction costs in New York City in general, and for MTA projects in particular.”
Lhota listed 10 explanations, including aging utilities, expensive land, high density, strict regulations and large ridership requiring big stations.
To evaluate those arguments, The Times took the list to more than 50 contractors, many of whom had worked in New York as well as in other cities. The Times also interviewed nearly 100 current and former MTA employees, reviewed internal project records, consulted industry
price indexes and built a database to compare spending on specific items. And The Times observed construction on-site in Paris, which is building a project similar to the Second Avenue subway at one-sixth the cost.
The review found evidence for one of the issues cited by the MTA: Because most countries have nationalized health care, projects abroad do not have to fund worker health insurance. That might explain a tenth of the cost differences, contractors said.
But the contractors said the other issues cited by the MTA were challenges that all transit systems face. Density is the norm in cities where subway projects occur. Regulations are similar everywhere. All projects use the same equipment at the same prices. Land and other types of construction do not cost dramatically more in New York. Insurance is more costly but is only a fraction of the budget. The MTA’s stations have not been bigger (or deeper) than is typical.
In some ways, MTA projects have been easier than work elsewhere. East Side Access uses an existing tunnel for nearly half its route. The hard rock under the city also is easy to blast through, and workers do not encounter ancient sites that need to be protected.
“They’re claiming the age of the city is to blame?” asked Andy Mitchell, the former head of Crossrail, a project to build 13 miles of subway under the center of London, a city built 2,000 years ago. “Really?”