Tag Archives: opportunity costs

Spokesman Ritchie of the Port Authority, in response to a claim by Senators that the North Shore connector was a gigantic waste of stimulus funds, argued the project has produced as many as 4,000 jobs. Beyond the obvious problems with the jobs claim, such as the fact that many of the jobs were peripheral and of short duration, there are two greater difficulties with hyperbolic posturing around the jobs created by public sector capital projects.

First, the apologists for these projects completely ignore the concept of opportunity costs. For example, what could have been done with the $528 million that will be spent on the Connector? Many roads and bridges could have been repaired or rehabilitated resulting in many temporary construction jobs and additional paychecks. Millions of dollars in materials and equipment sales would have happened. Alternatively, the money could have been left in the hands of taxpayers who would have saved, spent, bought cars, houses, etc. thereby helping to grow or sustain private sector jobs.

Nor do the Connector apologists consider the unmeasured costs caused by the disruptions created by the construction. This would include stores losing business, commuters’ inconvenience of having to spend far more time getting to and from work, and general discouragement of travel into the City.

Second, public sector capital projects, just as private sector investment, must meet fundamental cost-benefit criteria. In short, these projects should generate a stream of benefits over time that has a present value greater than the expenditures on the development.

For some reason, Port Authority excuse makers never mention this critical point. And little wonder, the project barely convinced the Feds that PAT’s forecast of benefits produced by the Connector would warrant Federal funding of construction when the cost estimate stood at $363 million. Since the Fed approval of funding the cost of the Connector has skyrocketed to $528.8 million and the Convention Center leg, which was to be a major contributor to Connector benefits, has been dropped to reduce construction costs.

There can be no doubt that the Connector cost will greatly exceed any future stream of benefits. Indeed, conservatively estimated, using PAT ridership projections, a roundtrip ride on the Connector will cost taxpayers more than $40 in capital and operating expenses over the first 20 years of operation.

One can easily understand why Authority apologists try to obfuscate and confuse with a steady stream of spurious arguments in support of the indefensible.