Constant's pations

If it's more than 30 minutes old, it's not news. It's a blog.

Friday, September 16, 2005

Katrina reconstruction cost/budget estimates unreliable, unrealistic

The President floated a number of $200B to reconstruct the Gulf Coast.

The Katrina numbers make no sense. They are orders of magnitude off what is most reasonable.

Major problem: Comparative relief and construction projects are far more costly than the current Katrina numbers.

There are a couple of rough order of magnitudes that should give people pause in this high risk environment. Based solely on the physical space, and the cross section of houses and roads destroyed, you're looking at about 80% rebuild requirements in Mississippi alone. That doesn't include annual maintenance.

Essentially, OMB wants us to believe that the problems we've had in Iraq; or the Normandy pre-invasion buildup in Great Britain is going to somehow be different in Louisiana.

Also, we're asked to believe that the problems they've had in Boston with the projects will not be duplicated.

I remain skeptical.

Based on a sheer rough order of magnitude, I find no credible basis to assert that the "get well" date for the Katrina reconstruction is earlier than 20 years. Also, I conclude that the actual total dollar figures will be in the Trillions.

Problems with Katrina Estimates

First, the geographic size of the region, about the same size as Great Britain, or Iraq. Look what's been done in 2.5 years in Iraq: Not much to celebrate, and should give pause for the Gulf Coat. The time estimated to do the job is only 3 times longer than what is currently the "progress to date in Iraq." That also makes no sense.

Second, consider the time and funding required to do relatively small projects. Think of the Boston Big Dig Project that's been dragging on for over 10 years now, way over budget. Numbers started in the low $1-2B range; now in the $10-15B ballpark. That’s for a single project. The Gulf Coast has orders-of-magnitude times this complexity. The numbers being kicked around for the entire region are roughly 20-times the amount for a single Boston Big Dig Project. That makes no sense.

Third, there's the simple matter of getting supplies into the region. Also, the ability to import goods is at least 3-times harder than in Iraq: There are more entry points to Iraq than New Orleans.

Consider the geographic access points to Louisiana: Two options, either by land [from the west] or Sea. Iraq, has five options: From one of four geographic land points [N, S, E, W], or from the Sea, near Kuwait. The physical ease of getting goods into the region is compounded by one simple factor: All the physical space to the south of the Gulf Coast is self-evidently water, unlike Iraq.

The progress to date gives pause. They said the port would be open in a matter of weeks. They've only got 2 of the offload points [of what some say are a total of 17]. That means in about 1 month, they've got 2 going. Simple math is 34 weeks, or midsummer next year.

Fourth, four years after a single hole in the 9-11/WTC in NYC, and we've still got a hole and lawsuits. Magnify that by a geographic area that is somewhat larger. The Gulf Coast is orders of magnitude on the scale of this destruction, and litigation can drag on for years.

Fifth, the big unknown is the environmental cleanup of the physical space. Plus, there’s the issue of physically removing the toxic material from the most important resource: Water. Consider what happens around toxic waste dumps. EPA lied about 9-11 dangers; there’s every reason to believe there will be more deception about the risks, progress, and compliance. [Hat tip, Mirac]

What's going on

OMB and the White House are looking for buy-in to the idea of rebuilding, but not providing a credible basis to evaluate the options.

Somebody doesn't want the world [read ="Wall Street"] to publicly acknowledge the real financial costs are going to be very high. Wall Street's goal is to sell the dream, and dump the worthless shares onto the public.

This approach undermines prudent federal budgeting. Retrospectively, if we were to know in 2025 what we are forecasting going forward from 2005, would we do something different? I think the country might be more inclined to make some tough budget decisions in 2005 going forward based on a multi-trillion dollar requirement, than on the $200B wag. It's far easier to make some small adjustments today, than make big, painful choices as the bills continue to flood in between 2005 and 2025.

Do we want to pay for both Iraq and Katrina? The issues are going to be whether we still want to go to Mars; how much effort we want to put into spreading democracy in the Middle East, or whether we're going to be clear in that the real goals of US military action is to gain access to Oil.

It may be more prudent to pull out of Iraq, let that region fall, and build up a more robust alliance with the Russians to get access to the Siberian oil fields.

The US isn't being realistic in public about the Gulf Coast reconstruction costs. More likely, given the optimistic budget and schedule forecasts, there will be plenty of investment with poor ROI.

Wall Street bond syndicates know full well the costs of the actual work will be higher; and the probability of repayment is lower. Municipalities are already in bankruptcy; going forward, given the pervasive profit vacuum, without tax revenue they're simply cash furnaces. Thus, interest rates are lower than required to cover the higher expectation of bond defaults.

It appears the plunge protection team is keeping this market afloat. With these extended project timelines, I see no basis to assert that investment in the Gulf Coast is going to be profitable relative to other options.

It will be a cold day in hell before I expose one dime to this feeding frenzy. What’s the most “patriotic” thing to do? Be prudent about your decisions.

Look to Boston, NYC, and Iraq if you want some meaningful comparisons of what is going on. OMB is spewing forth fantasy, and the bond boys are simply being parrots. And why not, they've got a Latham man to "oversee" them at the SEC.

The Roman Empire didn't simply fall. It grew too costly to maintain. Then, as the problems got closer, the Roman neighbors didn't care. The majority party is already showing signs they are less likely to fund the full requirement.

Empires can only be sustained if there is both will and resources. Lacking the resources, this Empire is deceiving the public to maintain support and avoid tough decisions.

The public will eventually bear the cost, with the human sacrifice, physical contribution, or the financial losses due to poor planning and unrealistic budgeting requirements.

Buyer beware.


The actual contract awards are already in the Billions of dollars.

Contracts signed so far include more than 15 that exceed $100m, including five of $500m or more, mostly for debris removal along the Gulf coast devastated by the hurricane four weeks ago. Congressional investigators are looking into a $568m contract awarded to AshBritt, a Florida company that was a client of the former lobbying firm of Haley Barbour, the governor of Mississippi.Ref