11.15.2010 0

Gov. Christie and Other Fiscal Hawks Should Consider Life Cycle Budgeting

By Kevin Mooney — Polls show that New Jersey voters ardently support Gov. Chris Christie’s decision to cancel the $8.7 billion commuter rail tunnel to New York City. His actions have attracted criticism from state lawmakers and transportation officials who favor the project.

However, a Quinnipiac University survey shows public sentiment very much on the side of frugality with 53 percent of voters supporting the N.J. governor versus 37 percent who do not. Over 30 percent of Democrats also said they support Christie’s actions.

Using the 2005 initial projection of $5 billion, New Jersey officials proceeded to obtain $3 billion from the federal government, spend $600 million in start-up costs, and commit another $1.2 billion in contracts and fees.  Now, as the expected cost of the project has ballooned to $10 billion – double the original estimate – construction has ceased as the state’s budget woes have worsened.  This essentially means taxpayers will have spent over $4.5 billion for nothing.

It’s difficult to overstate the public’s antipathy toward long-term debt and runaway expenditures.  Just as many Americans believe that the federal debt is as grave a threat to the country as terrorism, a Gallup poll shows.

“The overall scores for terrorism and the federal debt are boosted by the relatively high percentages of Republicans — 50% or more — who consider each of these extremely serious, putting these at the top of the Republicans’ list,” Gallup says. “The size and power of the federal government ranks third among Republicans.”

There is an alternative to the duplicitous, gimmicky financial practices the political class uses to camouflage long-term taxpayers costs known as life-cycle budgeting, which imposes strict requirements on government officials.

The full “life cycle cost” of any expenditure must be known up front under this process. Government officials must give a full accounting not just of the construction costs but also how much a project will cost to operate and maintain. This practice is particularly relevant where infrastructure is concerned.

The Congressional Budget Office reports that life cycle will generate real savings in this area. Calculating the initial costs as well as the long term operation and maintenance costs is the key to ensuring that infrastructure projects are cost-effective. A separate CBO study found that the use of life cycle costs extended the life of equipment eliminated redundant systems, reduced the cost of operations and maintenance as much as 40 percent, and improved systems’ reliability by roughly 70%.

In many respects, the budget process at the state and federal level is completely broken. Gov. Christie and other fiscal hawks who are seriously about safeguarding taxpayer interests should consider life-cycle budgeting methods that expose and highlight long-term costs that were previously hidden from scrutiny.

In this new economic climate, where federal and state government budgets are mired in unprecedented budget shortfalls and running up huge deficits, policymakers should not be permitted to continue the old short-sighted approach to budgeting infrastructure projects which has time and again derailed these critical investments.  Instead of the old politics of budget deception, we need a new, fact-based, transparent life-cycle budgeting process that shows taxpayers the true cost of infrastructure projects – from cradle to grave.

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