Dive Brief:

• In a paper prepared for this week's 2019 Municipal Finance Conference at the Brookings Institution in Washington, D.C., two researchers looked at U.S. highway construction from the 1960s to the 1980s in an attempt to determine why projects costs have risen, Brookings reported.
• Using data from the Federal Highway Administration and other sources, Leah Brooks, of The George Washington University, and Zachary Liscow, of Yale University, zeroed in on possible factors. One main one is the emergence in the early 1970s of what they call the "citizen voice," which includes, for example, environment watchdogs demanding more expensive project reviews. Another is that projects are staffed with more labor positions than in the past, possibly due to trade union practices. However, in a draft study, Brooks and Liscow said there was not enough evidence to bear this theory out. 
• Factors that have not contributed to increased highway costs, they wrote, are: geographically challenging routes; changes in the cost of materials and labor; acquiring the necessary rights of way: or changes in federal highway construction standards. ​

Dive Insight:

In the draft of Brooks' and Liscow's study, the two also point to higher-income communities or coalitions that demand more expensive highways as a reason for rising costs. This is because, according to the researchers, demand for many goods increases with income or wealth. Also, individuals or groups with more money are likely to have more of a voice in the process that decides the kind of highway systems that get built.

Other potential reasons cited in the study for the rising cost of highways are:

• Increased market concentration
• Required coordination between many levels of government
• Ability of state governments to effectively contract for construction services
• Economies of scale
• Soft budget limitations
• Procurement practices

The study found that environmental reviews can take years, leaving estimates made at the beginning of what is often an already lengthy planning process out of date by the time it's ready to break ground. Sometimes, in an effort to lock in the lowest contractor price possible, however, agencies will award contracts too early and wind up incurring extra costs when the contractor cannot begin work as scheduled.

But this practice is not limited to highways.

Late last year, California State Auditor Elaine M. Howle reported that the California High-Speed Rail Authority entered into construction contracts for the mostly shelved $79 billion bullet train between Northern and Southern California before it had secured rights of way, delaying construction and raising costs when contractors back-charged the authority for demobilization- and remobilization-related expenses.​