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Cost

Proposed land-based sewage treatment system will be hugely expensive

Whatever final design the CRD may come up with to build and operate land-based sewage treatment plants, there is one thing Victorian (and other BC) taxpayers can count on — it will cost at least a billion dollars to build, and anywhere from $500 to $700 per household in Greater Victoria to operate each year.

The dollar figures being glibly thrown around by our politicians — both provincial ones like Environment Minister Barry Penner and local CRD officials like CRD Chair Judy Brownoff — indicate that they seem to think we taxpayers can afford to put ourselves and our children into debt just because of some politically incorrect misconceptions about how we deal with our bodily wastes.

If we can’t afford to replace the Blue Bridge, how can we afford this?

It would be laughable if it were not so serious, but the City of Victoria’s own assistant city manager has said that finding a mere $60 million to replace the Johnson Street Bridge will suck so much money out of the city’s budget that it will force just about every other project off the table for the foreseeable future, including replacing the Crystal Pool, and basic but necessary work on roads and underground pipes.

You’ve got to ask yourself: What are these people thinking? Here we are in the middle of a global financial recession, with the economy struggling to hold its head above water, and the people responsible for making decisions on our behalf want us to spend a ton of money we don’t have on a project we don’t need, and that will make matters worse, not better.

And don’t put too much faith in those numbers anyway — no matter what final estimated dollar figure they come up with, you can bet the final costs will be a lot higher. You don’t have to be an economist to know that just about every government mega project done in our lifetime has ended up costing way more than the original estimate There are lots of examples just in BC, including the Fast Ferries, the Olympic Stadium, the Vancouver Convention Center, the Olympic Athletes Village, improvements to the Sea to Sky Highway, Sky Train, The Canada Line to Vancouver Airport, etc. etc.

Huge cost overruns the rule, not the exception

A recent article in California Management Review, “Delusion and Deception in Large Infrastructure Projects” noted that:

…across the globe, large infrastructure projects almost invariably arrive late, over-budget, and fail to perform up to expectations. Cost overruns and benefit shortfalls of 50 percent are common; cost overruns above 100 percent are not uncommon.

They say these typical overruns are the result of one of three things: delusion (honest mistakes), deception (strategic manipulation of information or processes) or plain bad luck (least likely to be the case, but most likely to be used as an excuse by decision makers).

Indeed, They may well have been talking about Victoria when they continued…

“According to the first explanation (delusion), the flaw consists in executives falling victim to what psychologists call the planning fallacy. In its grip, managers make decisions based on delusional optimism rather than on a rational weighting of gains, losses, and probabilities. They overestimate benefits and underestimate costs and time. They involuntarily spin scenarios of success and overlook the potential for mistakes and miscalculations. As a result, managers pursue initiatives that are unlikely to come in on budget or on time, or to ever deliver the expected returns…. According to the second explanation (deception), decision making is flawed by strategic misrepresentation or the presence of what economists refer to as principal-agent problems. Whereas the first explanation is psychological, the second is due to the different preferences and incentives of the actors in the system. In this situation, politicians, planners, or project champions deliberately and strategically overestimate benefits and underestimate costs in order to increase the likelihood that their projects, and not their competition’s, gain approval and funding. These actors purposely spin scenarios of success and gloss over the potential for failure. This results in managers promoting ventures that are unlikely to come in on budget or on time, or to deliver the promised benefits.

The article goes on to talk about ways that these flaws in planning and cost estimating can be minimized, including taking an “outside view” to gain a proper perspective on the entire issue, cost/benefit analysis, and other recognized practices which the CRD and its apparent master, the Provincial Government, should be but are clearly not using.

“The largest errors occur when delusions and deception operate simultaneously.”

“The winning bidder will be typically the bidder who most underestimates the true costs of the project.”

– quotes from the California Management Review article, see above

The “Opportunity Costs” of land-based sewage:

Opportunity cost is the cost (sacrifice) you make by choosing one option over another one that may be equally desired. The $1 billion in land-based sewage treatment system(s) (more or less)– if invested at a rate of 5%/year, would give us $50 million per year to work with. That’s 50 million dollars per year, in perpetuity. For 50 million dollars per year, we could:

Tourism

Increase Tourism Victoria’s budget to 2.8 million, and eliminate the contribution (currently 86% of the budget) from local business. This would include hiring a full-time communications researcher/writer to monitor and respond to inaccurate or misleading media coverage about how effective and environmentally benign our sewage treatment system really is.

Cost: $1.5 million/year

Businesses

Yearly grants to the Downtown Business Association, The greater Victoria Chamber of Commerce, and other worthwhile business organizations, to help and improve local business.

Cost $2 million/year

Environment – global warming

Double the proBus pas program (currently 3000 participating), by lowering the annual bus pass to $300/year from $754/year. This would remove 7,200 tonnes of CO2 from the atmosphere every year

Cost: $ 2.75 million/year

Environment – parks

Double the CRD Parks and playgrounds budget. The additional funds could be used to combat invasive species such as broom, blackberry, bullfrogs, etc., purchase new land for parks, improve CRD education programs, etc.

Cost: $6.5 million/year

Environment – marine

Currently, Victoria spends $3 million to fix broken sewer pipes under James Bay. Oak Bay has committed to spend $10.7 million over 50 years (!) to fix the combined sewer/storm drain system in the uplands that led to some of the 42 sanitary sewer overflows to the environment in January 2007 (a month of high rainfall). This should be fixed more quickly, not over a period of 50 years. Cost: $5 million/year for 3 years. After this time, spend $5 million /year on other needed upgrades in the region, as well as improved point source control and education.

Human housing

Capital Region Housing Corporation is a wholly-owned subsidiary of the Capital Regional District. Its principal activity is the provision of rental accommodation for citizens of the District. Double the yearly revenues to provide more housing for CRD residents in need.

Cost $17 million/year

Human Health

The Capital Regional Hospital District’s (CRHD) will be contributing $108 million in funding for its share of the expansion of the Royal Jubilee Hospital. Over 20 years, this is approximately 5.5 million/year.

Cost: $5.5 million/year

TOTAL COSTS: $41 million/year. This leaves us almost $20 million/year for other CRD projects and priorities. Can you think of some?? (Source – letter to RSTV.com)

“Underestimating the costs and overestimating the benefits of a given project results in an artificially high benefit-cost ratio, which in turn leads to two problems. First, the project may be started despite the fact that it is not economically viable. Second, a project may be started instead of another project that would have yielded higher returns had the actual costs and benefits of both projects been known.”

“…another factor that comes into play is the vastly different time horizons the actors use to evaluate the decision. Typically,this is very long for taxpayers, but less than a decade for the individuals that are acting on their behalf. These agents may also be concerned with being remembered for initiating monumental infrastructure or, more prosaically, being re-elected.”

…quotes from the California Management Review article, cited in column on left -