A recent column by Win Gruening disparaged the conclusion in the “Easy to Start, Impossible to Finish” report by Lois Epstein that the Juneau Access project should not be allowed to continue. Mr. Gruening claimed that the report focused on costs and dismissed any potential economic benefits. The significant finding from the Department of Transportation’s draft Supplementary Environmental Impact Statement (SEIS), however, is that a road along Lynn Canal to Katzehin with shuttle ferries to Haines and Skagway does not make economic sense. In fact, none of the alternatives being considered beat the existing ferries in terms of net public benefits.
I am stunned that after the state spent over $30 million on endless studies for this economic loser, proponents still want to build it. Let me explain why.
In the private sector, where I have reviewed large-scale projects for over 15 years, companies frequently have more potential projects that they would like to progress than they have funds (or resources) to complete. This is a situation not unlike what the state of Alaska now finds itself in. As a result, successful companies have adopted a rigorous Stage Gate Process in which funding is released in stages as more detailed information becomes available. To get through each stage gate, the project team must provide rigorous justification to peers and directors showing that the project adds value, i.e. has a positive Net Present Value (NPV), and is a competitive use of the company’s funds. The objective is to kill a bad project as early as possible before it consumes valuable resources and gains a life of its own.
It should be obvious that the Juneau Access Project should not be considered for development given that the DOT estimates it has a negative NPV of $309 million and a benefit cost ratio of just 0.28. This project destroys value — for every $1 spent the project returns a benefit of just $0.28. No sane business or individual would ever knowingly spend more money on a project than the value they expect to get in return. Otherwise, they would quickly go bankrupt.
This project may even be significantly worse than DOT calculated:
• The $574 million cost estimate for the road construction, vessels and ferry terminals includes a contingency of just 5 percent for zones 1,2,3 and 5, and 10 percent for zone 4. This is very low for a project in such an extreme topographic environment with unique challenges:
• In 2005, DOT estimated a 23-mile pioneer road that was part of the Juneau Access project would cost $30 million, but the lowest bid came in at $51.5 million, some 34 percent higher.
• According to a 2011 national study measuring performance among 39 states (Alaska did not participate), 53 percent of state DOT projects exceeded their budgets. The cost overruns increased with the size of the projects.
• The Alaska DOT SEIS analysis ignored the 45 percent of ferry travelers who currently walk-on. In the future, these passengers will have to find their own transportation for the 90-mile journey between the Katzehin terminal and Juneau. No allowance was made in the economic analysis for their surface transportation costs. Many of these passengers may balk at the $400 round-trip taxi cost and decide not to travel.
Alaska DOT has authorized the Office of Budget Management to spend up to $900,000 to finalize its SEIS and bring the project to a record of decision. If common sense prevails, a non-road decision will be agreed to, allowing millions of state general fund dollars originally set aside for the project to be repurposed. This would have a positive impact on the state budget with no requirement to return any funds to the federal government.
While every project has winners and losers, the benefits that some residents in Southeast may gain from this project are far outweighed by the losses to the state and federal governments. Building this road would deprive other state projects of funding, potentially postponing needed safety improvements.
Application of prudent project management principles would have killed this project years ago. Now is the time for the Legislature and the governor to pull the plug on the Juneau Access Project.
• David Clarke is a project manager professional with over 35 years of industry experience, most recently evaluating the viability of private sector mega projects in Alaska, the Lower 48 and internationally.
