Sometime later this month, the City will publish an update on the projected cost of the LRT system from Tunney’s Pasture to Blair Road. This will be the most expensive segment, as it includes the tunnel, the maintenance yards, and startup rolling stock. Future segments (eg, to Lincoln Fields or College Square) will be much cheaper, if the public isn’t scared off the whole idea of expanding the  LRT by rampant inflating costs for the first segment.

How will Watson play it? He can either deliver

• years of rising costs and carping criticism, or
• a clean easy-to-grasp (and easy-to-sell) budget.

Recall that the last cost estimate was $2.1 billion, in 2009 dollars. Quick now, if the cost now comes in at $2.29 billion, how much has it gone up? Or if it comes in at the end of construction at $2.74 billion, how much has it gone up?

It’s a trick question of course, because the answer is… “It hasn’t gone up at all!” If you take the $2.1 billion figure in 2009 dollars, and add 3% inflation per year *, then the very same $2.1 billion in 2009 dollars will be $2.29 billion in 2012 dollars; or $2.74 billion in 2018 dollars**. But will the public perceive the real price as constant, while it is being expressed in inflated dollars?

Ha! Not likely. The Sun and CFRA will have a heyday with the “dramatically rising costs”, “ever higher taxpayer burden” headlines, and other alarmist stuff. The Citizen might take one editorial line, but will rather embarrassingly chase the easy headline. Certain columnists who pander to the alarmist constituency will have their best wet dreams for the better part of the next decade.

The above scenario is if Watson choses the “years of rising costs and carping criticism” option. But surely Watson doesn’t want to see his two terms as Mayor characterised by endless criticism of out-of-control LRT costs. Our fine Watson wants to be loved, to be the bearer of good tidings. So how can he escape this inflationary trap?

Look at his last budget. He adopted a message (which may or may not have been true, depending on who you ask) which he convinced councillors to follow, word for word. He  marketed it as a good news budget, with a modest, controlled tax increase, exactly as promised. The message was repeated over and over. Councillors did not vary the message, and if they had any qualms about it, they still toe’d the Watson line.

Does Watson have a sellable strategy for the LRT costs? Since the $2.1 billion dollar number is burned into everyone’s brain, and since journalists are usually journalists because they excel at numeracy because they couldn’t do math and get into the sciences, then he should stick to the 2009 figure.

That is, express every LRT cost update  in 2009 dollars. It may be $2.5 billion in 2015 dollars, but express it in 2009 dollars and presto, the update comes with the Mayor’s (and Councillors’) message of reassurance: it is on time, on budget, no (or at least a manageable) cost increase. When the  City future budgets comes down, distribute the LRT costs (now expressed in inflated current dollars) amongst a dozen different departments so that no two journalists or politicians can add it up and get the same total. When additional bells and whistles are added to the system, keep them in a separate line item buried in the budget***. This strategy, of course, is exactly what we do with the cost of roads, where associated works are hived off into separate budget items so the all-in cost is next to impossible to discern. With the critics confused, and the mayor herding council to sing the same song (“On budget!”) to the same tune (“aren’t we doing swell, vote for me again!”), he can sell the LRT project as under his competent control.

Note to Jim: feel free to adopt this policy, there’s no charge. No salesperson will call. If you’ve got some bad news upfront, you might try to establish a new cost baseline right now, and blame the increase on bad planning by the previous administration, and thereafter point out that your estimate hasn’t gone up in price (in constant $2011 dollars). The problem with that strategy is that every headline and story  for the next decade will start by reviewing the first cost increase …. I guarantee it, no shades of gray on that!

*for the purposes of this post, I assumed a constant inflation rate of 3% a year for the whole cost over the whole period. $2.11 billion in 2009 = $2.74 billion in 2018. It’s as if we only issued one payment cheque, at the end of the project. “Thank you for the LRT, here is your billion dollar cheque”.

**note that if the City can shave another year off the construction schedule, the $2.11 billion from 2009 becomes only $2.66 billion in 2017, for a “saving” of $80 million compared to the 2018 figure… but you see that is an imaginary saving, don’t you? And for simplicity (this is the fine print) I didn’t divvy up the numbers allowing for spending each year, since some money is spent in 2011 in 2011 dollars, and then some more in 2012 in 2012 dollars, and only a portion of the total amount will be spent in the final year in 2018 dollars, but trying to convey this in a blog post is way too complicating. Beside, economists love assumptions.

*** Chiarelli’s North-South LRT project was sunk in part because he allowed every associated or related road work, sewer pipe, or street light to be added into the cost of the LRT. They did this because the LRT project was cost shared, and all those “associated” works got partly paid for by the Prov or Feds. But, this created a never-ending story of rising costs. It is important to keep these works, which would have been done anyway but which prudence and fiscal rectitude says be scheduled to coincide with LRT construction, out of the LRT budget. He can bury the extras somewhere else too (need an access route to the new station? — call it a bike path and assign it to that budget! And if  overpasses are required for the future convenience of motorists, put them in the roads budget, don’t charge it to the LRT!).