A state-backed wind tower construction facility has fallen months behind schedule and doubled in price even before construction begins, according to the Times Union. And the delays may cause yet further delays and cost escalation. This is the first of what will likely be many major cost overruns as officials try to radically transform the state economy and reduce greenhouse gas emissions.
The project on Albany County’s Beacon Island is being built as part of the state’s offshore wind push, one of the key components of New York’s Climate Leadership and Community Protection Act (CLCPA), which aims to reduce greenhouse gas emissions by 85 percent by 2050.
Implementing the CLCPA is expected to cost around $300 billion, and it encompasses numerous multi-billion-dollar megaprojects that will, among other things, replace existing power plants with wind turbines and solar panels and change how people heat their homes and cook their meals. And the iron law of megaprojects is that they come in over budget, over time, over and over.
At an initial estimated cost of $350 million, the Beacon Island development is just a small part of the CLCPA and is too small to count as a megaproject on its own. But even so, as the Albany Business Review reports, the Port of Albany is asking Governor Kathy Hochul to allocate an additional $350 million in this year’s budget to finish construction. An additional $100 million may be needed to cover equipment costs.
There are many reasons why big projects’ costs tend to explode. In the Beacon Island case, it is in part due to rising costs for concrete and steel. But materials are only a portion of project costs, and inflation – while high at 6.5 percent in 2022 – has not doubled their costs. The rest of the overrun likely stems from significant errors in the planning process.
The delay has largely been caused by the difficulty of getting permits from the federal Environmental Protection Agency and the New York State Department of Environmental Conservation.
The Times Union reports that the delays have caused some subcontractors to look for other work. This means they may not all be available when the building site is finally prepped and ready for construction, potentially leading to further delays and cost increases.
The project is also the target of a lawsuit from nearby residents complaining about the disturbance of fly ash waste on the island. This, too, could increase costs or further delay the project.
No seasoned observer would be surprised by these developments. The Beacon Island project isn’t suffering from unusual complications that are unlikely to plague other elements of the CLCPA but from very typical problems of big projects.
How do such problematic projects get green-lighted? Leading megaprojects scholar Bent Flyvbjerg says that it’s not the best projects that get selected but those for which officials best promote “a fantasy world of underestimated costs [and] overestimated revenues.”
Sometimes public officials engage in “strategic misrepresentation.” As former San Francisco Mayor Willie Brown once said,
In the world of civic projects, the first budget is really just a down payment. If people knew the real cost from the start, nothing would ever be approved. The idea is to get going. Start digging a hole and make it so big, there’s no alternative to coming up with the money to fill it in.
Other times the bad estimates are not intentionally deceptive but just the product of optimism bias – which is a fancy term for wishful thinking.
And sometimes a project goes so far beyond anything that has ever been done before that nobody really knows how to do it. This makes it difficult – if not impossible – to estimate costs with any precision. When it’s said that New York’s climate agenda is “nation-leading” optimists may cheer, but realists are alarmed.
Based on the history of megaprojects around the world, the CLCPA has only a one-half of one-percent chance of coming in on-time, on-budget, and with the claimed benefits.
It is expected to cost $280 billion to $340 billion and produce benefits — primarily reduced greenhouse gas emissions (most of which will accrue beyond New York’s borders) but also reduced air pollution and health benefits from more walking and bicycling – of up to $430 billion.
If the multiple megaprojects that comprise it collectively run just 50 percent over-budget, the CLCPA will end up costing between $420 and $510 billion, wiping out the benefits. If the cost doubles, as is common for these gigantic projects – and as it already has for the Beacon Island project – it will cost between $560 and $680 billion, creating a net loss of between $130 and $200 billion.
That would equate to a loss of $6,500 to $13,000 for every resident of New York. If the benefits of the CLCPA are overstated, as is common, the losses will be even higher.
Beacon Island is just a minuscule part of the CLCPA. If the state can’t even get this project right, it bodes poorly for the rest of the policy.