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- [00:05]
A
Hi, guys. I'm Santi Ruiz. I'm senior editor at ifp, the Institute for Progress nonpartisan think tank that I think is abundance coded, if not formally an abundance think tank. Today I'm interviewing Zach Liskow. Please give him a little round of applause. Zach, my guest today is a professor of law at Yale law School. In 2022 and 23, he was the chief economist at the Office of Management and Budget at the White House. He's also now my colleague at IFP is a non resident senior fellow. And I have a little bit of a problem today, which is that, Zach, you may not be a national household name, but you might as well be in this event. I think most of you will be aware Zach's done a lot of work on many interesting economic topics, but especially on infrastructure costs, on why it costs so much to build in the US what the inputs are there, the kind of cross cutting comparisons. And the challenge for your interviewer today is that I think everybody generally gets it now, in part because of your work, that infrastructure in the US Costs a huge amount to build. I reviewed a project, some submissions for a project at IFP recently on Transit, in which almost every submission started with the fact that cost per mile to build subway in New York is like eight times more than the equivalent project in Paris. It's just like a fact that people understand. Now these stylized facts are just out there in the discourse. So that makes it a little bit hard to figure out how to have a conversation that isn't just all of us nodding in agreement that it really is a problem. Huh? I'm gonna try and tackle that problem. I just want to lay my cards on the table. This is, this is my fear. I'm gonna try to avoid it. Let me start here. So we all know infrastructure costs too much in the US and there are a lot of plausible stories you can tell about why that is one of the ones I think people would most associate with the kind of abundance narrative is we've built up a ton of regulation and the regulation creates soft costs and it increases the time that it takes to build infrastructure, and that itself creates more cost because the longer you work on a project, the more all kinds of costs accrue. And, and complying with the regulations themselves creates a cost. That's one stylized narrative. Before we get into what we actually know, just from the fact that it costs too much, what are some possible theories that get thrown around? Then we'll get to what you actually think is what's the world of potential explanations for why it costs so much to build in the U.S. yeah.
- [02:36]
B
First, delight to be here. Thanks for the very kind introduction. I divide the things that at least I think drive up transportation infrastructure costs into four buckets. The first is one that you mentioned, kind of permitting and litigiousness. The second are lots of procedural rules, including, especially on procurement for purchasing things, which often can reduce competition because it's hard to get competitors to go through the complex process. The third is personnel. We have state dots, also federal dot that's maybe understaffed, especially for more highly skilled positions. And then fourth, we just really weak data. It's hard to know actually what's going on out there in the world. And it's hard to fix a problem if you kind of don't know all the facts on the ground. So I'm not going to be able to offer exact percentages to those. And it's going to vary depending on the exact project. But I guess those are kind of the four things that I would divide the issues into and just give us.
- [03:46]
A
One more time so that it's extra memory, the four buckets. Permitting.
- [03:50]
B
Yeah, three Ps. Permitting procedure, personnel and data.
- [03:54]
A
Super. Let's start with permitting, which I think is definitely the one that I have spent in my professional career the most time thinking about. People in this room are familiar with nepa. There are other piece, many other pieces of the permitting puzzle, but I think nepa, the kind of the national level one, gets the most attention, maybe just at a high level. You can tell me, am I or are people like me spending too much time on the permitting piece on nepa, specifically relative to all the other blockers that exist?
- [04:23]
B
Yes, but I'm part of the problem. I've written a lot on nepa. I think it should be reformed. I think it's problematic, but I do think it gets, at least for transportation infrastructure, I think kind of more time than it deserves relative to the other three buckets. I do think it's an issue. There are lots of reasons to think it is. It takes four years to do the average environmental impact statement. And then there's often litigation, even if the project opponents lose on everything, including it takes a year and a half for the median lawsuit. If they went on one thing, it takes two and a half years for the median lawsuit, and then you can appeal. So there's the time issue, but I think there's also the cost issue. And it's partly it takes time and money to write the report for four years. But I think the issue is More the things that you do either defensively or reactively to the project itself, they make it a lot more expensive. So my paper infrastructure cost with Leah Brooks. We talk about this section of interstate outside of Detroit. There were some earlier sections that were built pretty cheaply, pretty quickly in the 1960s. And then various things happened. For the last segment there was a lawsuit, it was challenged under NEPA and it cost six, several times as much. But what happened? Well, they built sound walls, it was built below ground. There were parks built on top of the highway next to fields incidentally. It's like not an area where lots of open space was needed. But these things were all done to get the lawsuits to stop so that the thing could actually be built. It was really important this highway was built because it connected the other two pieces of the highway. So really drives up costs just to try to get things done in terms of what's actually done to the projects themselves.
- [06:23]
A
So given that kind of backdrop, why should we think Deepa is not the core? Issues like this all sounds very compelling. And this is a story in. It's a version of a story that I've told before to like my parents about like what's the permitting thing? So why. I mean it might be under discussed out there in the world, but maybe it's over discussed by people in this room. If so, why?
- [06:46]
B
So I think there are two pieces to it. One is there are lots of issues of permitting, especially at the state and local level that are not nepa. So there are all sorts of water permitting rules and local mini nepas and these things all matter as well just in terms of permitting. But then there's this whole other half as well. And it's going to vary depending upon the kinds of project that you're talking about. So especially for building a highway, a linear project that's above ground or where you're going to have to knock stuff down that's going to have significant environmental impacts. People are really going to be, some people are really going to be ticked about it. There's a good chance of a lawsuit. Permitting is really, really important there other things, you know, a tunnel underground in New York that's below ground. It's like the environmental impacts on people, the litigation because of the environmental impacts. That's not the main thing that's going on. And yet the miles in New York City are the most expensive ever built in the world for no reason having to do with geography. And for that I think you want to look to procedures, personnel and just at a high level the data that we lack for understanding what's really going on.
- [08:01]
A
Let's talk about personnel, which is a piece of the puzzle. I keep alliterating, this is terrible. The three Ps is really horrible, which is a piece of the puzzle that you've been spending a lot of time on recently. You just had a paper out. Was it last night or this morning that I just want you to talk about what's the role of personnel?
- [08:18]
B
Play costs, paper. With Kaylin Slattery and Will Nober studying in part transportation construction in California, we assemble data on the individual engineers who are involved in building transportation projects, engineering in the state. And what we found really surprised me and shifted my views about the basic issues that drive up costs. So we found a couple things. First, we found that when an extra 1% of state engineers retire, costs go up by 4.5%, which is like a really, really big effect. Furthermore, we measured the quality of the engineers who work for the government in the state. We found that if you increase the quality, as we measure it from the 25th to the 75th percentile, that results in huge cost savings. Cost savings that amount to three times the amount that it costs to hire one of these engineers. You should be willing to pay just a gigantic amount to increase quality because it would pay for itself. So it would pay for itself to reduce the retirements. It would pay for itself to increase quality.
- [09:33]
A
And just by reduce their retirements, you mean just to keep these people on for a few more years is like hugely valuable?
- [09:40]
B
Yeah, I mean a lot of these, these highly skilled people because of a phenomenon called wage compression in the public sector, state governments just don't pay that much for highly skilled workers. So they maybe work in state government for a handful of years and then they go work in the private sector and have a much, much higher salary. And if you could retain them, you could benefit from their, you know, from their expertise.
- [10:05]
A
One thing that was really striking to me about that paper, just reading it last night was you talk about not just these kind of individual level effects, but about the kind of broader issue of talent across state dots that like for the last 20 years, both the total number of employees at most departments of transportation at the state level has been dropping and that the share of like the relative size of dot relative to the rest of the state government is shrinking. So you're, you're just a smaller piece of the government and you're smaller numerically. That's a 20 year phenomenon. And it's, my impression is it's pretty consistent across the US that this is happening, maybe with some variation. Why is that happening? Why are we just generally bleeding talent over this period?
- [10:48]
B
Yeah, it's a huge issue. You know, state departments of transportation are doing more, yet they have fewer people there. So I think that there are a few theories. One is we had a financial crisis that imposed huge pressure on the states. And what you often see, this is definitely the case in Connecticut even recently, is like the thing that you cut is not Medicaid. You instead cut the workers who are the bureaucracy that implement the things across government. And you could tell stories where that's the case. The impacts of these things are often kind of diffuse and long term. Whereas like a salient cut to some benefits program or spend paving fewer highways would be kind of salient and opposed. And states have balanced budget requirements. So the fiscal constraints really bite. States are under more fiscal stress since this appears to be the way that the states have dealt with it. And what my paper suggests is that they've dealt with it in a way that's counterproductive and self defeating.
- [12:00]
A
Do they end up paying more for those short term decisions? I think part of the stylized story that I've heard, and I think I repeat, is that you cut headcount in a downturn, so you've got to get rid of costs. And then later you pay contractors, maybe those same people on the private sector, a premium to come back and do the same work. How correct is that toy model?
- [12:22]
B
So if you look at civil engineers, who are the people who build transportation as well as other things, if you look at that over the last quarter century, the number in government has been basically flat. There's just been this explosion of those outside of government. So what that says to me is we're just outsourcing more and more and more. And to be clear, we need to outsource the people who actually build the transportation infrastructure. They're 100% private contractors, basically. But you need to have the capacity inside of government to manage this very, very complex process to choose what to build and, and to permit it and to put the thing out to bid and then to manage this often pretty complex thing. If you don't have enough people inside of government, you're maybe not going to have enough contractors who actually bid on the thing. You're not going to manage them well. You're going to change your mind, which is very, very expensive. You're going to let them do things that kind of take you for a ride. So there's lots and lots of reasons to think that if you have just too few people in government, you're going to outsource too much, which ends up being very, very expensive.
- [13:30]
A
Why is it the case that if you don't have really good folks in your Department of Transportation, you get fewer contractor bids? Is it because you're writing bad contracts and nobody wants to take you up on those contracts? Just flesh that out for me.
- [13:41]
B
Yeah. So one finding in the study that we have is that the quality engineers matter most in places with less competition. Which to us suggests that one of the ways in which state engineers really matter is that they call up some people and bring in more bidders. They have simpler procedures that are easier for bidders to understand. One possible mechanism of what's going on is they bring in more competition. The level of competition in these bids is astonishingly low. The typical bid for one of these things has three bidders. And yet states basically do almost no outreach to try to increase the number of bidders. And if you have like the same bidders coming over and over again and there aren't very many of them, you know, competition, reduced competition tends to drive up prices. And sophisticated bureaucrats are going to try to increase competition to reduce costs.
- [14:39]
A
If you're talking to a policymaker who's not a transit wonk, but you want to explain to them which kinds of capacity at the state level you want to build in your state Department of Transportation, what's the quick explanation? Because the answer isn't hire more people, period. Presumably you want, I think, more engineers. How do you represent that to somebody who's not really familiar with transit world?
- [15:03]
B
Yeah, in the context of transportation, the real choke point are these highly skilled engineers. And so that's where the pay compression, the state really hits these people. Like they're highly educated. They're if they're good, they're talented people and they command high salaries. So my view is we need more of them and we need to retain those that we have and we need higher quality ones. And this amounts to creating more slots and paying the ones that we have more to increase the talents of those who are working for the government.
- [15:38]
A
I have like a political economy follow up question here, which is I can imagine if I'm the head of my state Department of transportation and this is pure speculation, but I want you to tell me if this is right or wrong. I can imagine totally understanding this problem. Understanding, yeah, we pay the same people three times more in the private sector to do this work. I would be able to keep down costs better. I would be rewarded Politically, if I would bring these people in house, is there pressure from politicians, from the kind of civil servants who run these organizations to bring this stuff in house to improve their own state capacity? And if not, why don't we see huge pressures from people who want to succeed and be seen as succeeding and keeping costs down to solve all these problems? Or do we? And it's just, I mean, I don't know. Help me understand that.
- [16:25]
B
I think it's a very interesting set of questions that folks should look into more. I'm going to give you one hypothesis about part of what's going on. So if you think about the incentives of the engineers who work in government, many of them are going to leave and then go make a lot more money in the private sector with private contractors. Maybe they don't want to really rock the boat with the private contractors who they want to be their future employers.
- [16:56]
A
The last 20 years of your career are going to be spent making all that money on the back end.
- [17:01]
B
Yeah. So listen, I have not worked for a state Department of Transportation, but from the outside, as an economist, just looking at the raw incentive structure, there's reason for concern.
- [17:15]
A
Another political economy question, I guess is why is this a pretty consistent pattern across states, including liberal states? I think you can tell a very natural story where red states, they're happy to cut headcount at their dots in fiscal trouble. You do that, that's your first instinct, is to cut people, cut services. I guess it's kind of curious. It seems to have happened pretty broadly across the US that dots have less capacity, fewer people than they used to. Why is it such an even distribution?
- [17:48]
B
Yeah, I think it's a great question. Your underlying question is shouldn't blue states be kind of pro state employee? So one hypothesis is that it's the blue states that are often under more fiscal pressure. So blue states spend a lot more, often spend more on Medicaid, but don't.
- [18:08]
A
They tax more to make up for it?
- [18:09]
B
Well, so if you look at Connecticut, for example, a blue state where I live, we have one of the couple of highest debt loads in the country. So we're under like, I think we have like three times the debt per person as Texas does. So we're just under much, much more fiscal stress than Texas does. Texas also, it's growing and kind of grow out of the debt that they do have in a way that blue states typically are not growing. So I think that the fiscal stress really hits in blue states on average substantially more than in the red states.
- [18:40]
A
I'll just flag. I talked a few months ago to Randy Clark, who's the head of the D.C. metro system, seeing some cheers in the audience.
- [18:48]
B
Great podcast.
- [18:49]
A
And he, in an earlier conversation, I think with Axios, he talked about the consultant industrial complex. That's the term he'd use. And when I asked him about it, he said, I think what I mean is the transit industrial complex. And he kind of pulled back from saying the consultants are the problem. I kind of poked him on it. But I think he had a point, which is that people like him need these consultants because they don't have the capacity in house to do all this stuff. And even when they do, sometimes you need consultants for specific things you don't want to. Like you said, you don't want to bring everything in house. So I guess to go a level deeper, like in an ideal, Zach Liskow, like directed and advised Department of Transportation, you're adding a bunch more engineers. Like, what's the role of the consultants in the private sector besides literally pouring the cement?
- [19:34]
B
Yeah, totally agree that you definitely need consultants not just for actually building the things, but also for planning them. So take the example of the Second Avenue subway, big tunneled project. Like, it does not make sense for New York City to hire for 30 years people who are tunneling experts because they're only tunneling a small share of the time. You need to hire large international firms who are experts in this to do it. So you definitely have to, you need enough to manage the project well, and that's going to depend upon the context. I've shifted my views about the importance of personnel in part from my own work, but also in part from the really, really excellent work at the, from the transit cost project. They talk about the Green Line in California and California high speed rail. These are just like billions dollar projects. And at one point for the, in the Green Line, they had five people managing this couple billion dollar project and you need enough people to at least manage the contractors, and they just did not have that.
- [20:35]
A
That's really interesting because California is not a state that I think of as having insufficient access to good civil servants.
- [20:42]
B
Well, so the structure that was done for the California High Speed Rail was to create a whole new organization and it takes time to staff it up. And they were managing huge amounts of money with 10 or 12 people and they started things and they realized, oh, wait, that doesn't work. And they had to go back and do it. It's really, really expensive to start something and then stop it and undo it when you're talking about concrete on the ground. So there are questions about the right institutional structure. But their own audit suggests that it did not work out well for California. RSP Rail has lots of issues, but this is one of them.
- [21:18]
A
Sure. Let me ask you about other big blockers. We've talked about personnel and permitting. I'm trying to remember my P's. There's a lot of other things that I think you could and the people in this room would point to as blockers. Some people like me would say we don't talk enough about the unions here. But you could also talk about maybe it's about like Anglo common law practices and that's why it always costs more in, in you know, English speaking countries than in France or in Morocco. You could talk about like citizen voice. The problem is too many people. Citizens get a say in projects generally. How should we think about that? Kind of. There's like a whole bunch of other things you could point to and presumably it's not one of these things. But like you said, not, not all of them are the same, are the same level of importance here. Like how should we prioritize?
- [21:59]
B
Yeah. I think that part of what makes the infrastructure costs at least so interesting to me as an academic is that there's not one answer. There are several things that are going on simultaneously and sometimes they're related and sometimes they're just multiple issues going on. So you gave a great list. Something that I think really does not get enough attention. Maybe because it's the most boring word in English dictionary is procurement. And super important. I think the ratio of discussion of permitting to procurement is not where it should be and I'm part of the problem.
- [22:36]
A
Surely that can't just be because of boringness because permitting is not the most interesting topic in the world to lay people fair. We'll have to dig into this. Why is procurement, does it really get the short end of the stick?
- [22:49]
B
Fair enough. It does involve really arcane rules. So let me give you one example. For a large number of infrastructure projects in the US you have to take the lowest cost bidder, which kind of makes sense. You put out a bid and then there are a variety of bidders and makes sense. Maybe take the cheapest one, except maybe that firm that had the lowest bid has a history of going way over budget or going way over time or having low quality or having a proposal that's worse in some way. It's often the case that you actually have to take the lowest cost bid. And in European countries to turn to international comparisons that spend much, much less on transit. They give like 25% weight to the.
- [23:40]
A
Bid in their, in their decision making.
- [23:42]
B
Criteria, Their decision making criteria and like 75% to these other quality related things that we often give little or zero weight to. There's been some progress here. Some states have reformed, but many have not. And it's an arcane thing that is not working well. Let me give you another example. So from our paper, this is a real surprise to us. So part of the paper just focuses on repaving. So it's like kind of the simplest thing that is done in transportation. So I would have thought that when a state dot puts out kind of a description of the project with the rules and regulations that need to be followed, I would have thought it would be like a dozen pages, something like that. Just like something not very long. It's like you repave and here's where you need to repave. Here are a few rules. These things are often hundreds of pages. And it is the case that states that have longer, more complex documents end up costing substantially more. So this suggests to me that these states have more complex procurement rules because there is very little across states end up having more expensive projects in part by maybe by driving out competition, in part by just having more compliance that you need to do to actually figure out what to do. So that's one set of things. Unions, Listen, I'm a liberal sport. Unions. Unions are sometimes problematic. So in the state of Connecticut, if you want to hire someone and you put up a job posting, you need to hire someone internally if that person meets the minimum job qualifications. Even if there's someone outside of government who is way, way, way better. And this is part of a union contract. This is something that does not got much attention in the state. And it's like that's not great practice for having a high quality workforce.
- [25:38]
A
Now I'm just wondering, are there places in the private sector where that's a feature of the contract? Because that's something I've heard about. I know there was a GSA Inspector General report recently on exactly this where the Inspector General slammed the GSA for trying to hire people better than the people internally who met that bar for trying to look for better talent. And it was a. The IG came down hard and said you should not be doing that. You should not be trying to find the best people for the job. It was explicit from the Inspector General. How dare you try and find people even better for this role. It just seems like a government thing that I've Never encountered elsewhere.
- [26:16]
B
Sometimes you want government to operate differently than the private sector, but I have never heard of this in the private sector. And it strikes me as good for neither the private sector nor the public sector.
- [26:26]
A
Are there places where bureaucratic bloat is the problem? We've talked a lot about under capacity and I've been really, I think I've been compelled by your work on this, by others, that in the specific realm of transportation, there's expertise that the people in government should have that they don't have for all these kind of complex like long duration reasons. Are there places where you can say the problem is there are too many cooks in the kitchen at the state dot? And if so, I guess my follow up would be like, how can we distinguish between places where there's just like too many people in this process and not enough people in the process?
- [27:00]
B
So I think two answers. One is if bureaucratic means rules, too many rules, like for sure, too many state rules, too many federal rules, too much interaction or too much conflict between the rules. Second, I do think that there are sometimes bureaucracy just in terms of too many cooks in the kitchen. This takes a couple of forms. One is when you have two different state agencies involved. Like you have the state dot, you have the state environment department. And they like, they don't agree because you're going to fill in a ditch to repair or build a highway. And that can be problematic. I want to protect the environment. But there are also, we need to build things sometimes. There's also bureaucratic bloat in the sense that you can have the state layer and the federal layer. Just to give one example of this, there is a bridge that we're rebuilding, a rail bridge in Connecticut. It's going to cost about a billion dollars and it also costs a lot to operate because it is a movable bridge, goes up and down. And remarkably, this is a movable bridge because one boat, one boat goes out once a year and goes in once a year. So. So I am told, once a year. One, one boat out once a year and one boat in once a year.
- [28:23]
A
I'm really having trouble following you.
- [28:25]
B
Yeah, so it sounds like, sounds like I'm just, I'm pulling your leg or like lying or something. As I understand it, this is the truth. And the Army Corps of Engineers or sorry, sorry, the US Coast Guards federal level has apparently insisted that because of the one boat, it needs to stay a navigable waterway and you need to have a movable bridge more expensive to build because it go up and down. Trains have to slow down because the rail is no longer continuous. You have to have someone operating it to move it up and down. Much more expensive to operate. It's going to break more because it's movable because of the one boat. So I guess political scientists call this marble cake federalism, where it's not clear who has responsibility and you have multiple layers of bureaucracy and rules. In this case, it is not working out well.
- [29:11]
A
A couple grab bag questions. One question is I want to take everything we've talked about here and then ask. You were in the Biden White House. You were at the OMB kind of critical nerve center of the federal government, of the, of the executive branch. Specifically. Was there anything that you presented here this afternoon or any of these themes that we've talked about that you had trouble convincing colleagues of or lenses that you felt like you had trouble getting across to other people in that building?
- [29:39]
B
Yeah. So there are lots of very, very talented people, lots of people I really admire from the Biden White House. Obviously we were not successful at bringing costs down, cutting costs, and I wish that had been different.
- [29:58]
A
I'll leave it at that. Well, let me, let me ask you to give us all some directives. We're both now at ifp. I'm there full time. We think a lot about tractability of policy ideas. We want to work on stuff that has a chance of happening and we don't want to work on the other stuff. If the goal of people in this room is to get transit costs down, think about the cost piece of everything we talked about. What's tractable here, what could we absolutely take a run at and make big progress on? Because I think obviously some of these problems are highly conflictual. There are people who would like the system to exist as it is and it will just be harder. Are there easy wins available that haven't been taken yet?
- [30:36]
B
So I think that there are. So for personnel, especially in blue states, which tend to have the big transit megaprojects, we're talking about spending more money on state employees who are powerful constituencies. And if you believe my highway results, they will often pay for themselves. So it's a win win. And one of the most powerful constituencies should support it because they get more money in terms of procedures like procurement. These are kind of arcane things. Sometimes the contractors may not like it. I'm talking about, you know, bringing in more competition, driving down costs, but you can reduce the rules they have to go through. This seems like the kind of thing that should not generate huge opposition. It will not Generate protests in the street to change procurement rules and something we have not talked about. Tons, just better data. Think federal mandates. Federal unfunded mandates would generate lots of opposition in state houses. But just like the. Just the tiny amount of funding that this would take to have much better data, to learn just huge amounts about the hundreds of billions of dollars a year that we spend on this stuff, it's just like it's teeny tiny with I think upsides that are many, many, many times its cost.
- [31:54]
A
Well, that's my last question for you, which is to the researchers, to the people trying to better understand these problems. What data could they be digging up that doesn't exist cleanly right now? And what are the unanswered questions that people like you are working on, but that we could just use more bodies and more minds on?
- [32:11]
B
I have just the basic data, like what's every project cost? What were the components of what it cost? What was the timeline for those projects? Those are actually, not to my surprise, took much longer to write the project than I expected. Not easily out there. So like those should be out there. It's like public spending the money. The public should have the data and then just kind of all sorts of things just have not been super well studied. There are many, many kinds of ways you can procure. There's no awesome paper on lowest cost bidding. Lots of case studies. There's intuition that this is just makes no sense. But studies where you can compare places that have one process versus another, that would be super useful. Be wonderful to have much, much more on personnel permitting. I've written papers on permitting. There's lots of good descriptive data out there, but in terms of the exact causal effects of which particular permitting regimes cause what, this paper does not exist. Heidi Williams and I are trying to write it. Maybe it will exist at some point, but others should get to it before we do. So I think this whole area is hugely important, way understudied. I think that there is a huge amount of potential.
- [33:26]
A
Fantastic. On that encouraging note, Zach, thank you very much.
- [33:29]
B
Thanks.
- [33:30]
A
Real pleasure.