How flimsy math, shaky design and scorching steel prices tripled tram costs in three years
Thursday, January 12, 2006
On an August afternoon full of congratulations, the City Council opened the doors in 2003 to prime riverfront for Portland's biggest economic development deal in history.
The landmark $1.9 billion project hung on a $15.5 million aerial tram to tie the South Waterfront neighborhood to OHSU's Pill Hill. The council unanimously jumped on for the ride.
What the council didn't know when it approved the tram: That steel prices would rise by more than 85 percent. That the original design, while attractive, was an engineering joke. That the $15.5 million budget for this engineering feat was practically pulled from thin air, a financial analysis less complete than what's required to build a city street. And that 21/2 years later, some people would look at what's now a $45 million tram and shake their heads.
"Whether it was the budget or a guess, it was way off," says Commissioner Erik Sten. "You can't guess one-third and be credible."
The sad story is, tram managers knew early on that the original budget wouldn't cover it. But no one made that clear to the council until later.
The tram's approval set in motion the city's dream project. OHSU agreed to stay in the city and seed the new South Waterfront, which in turn attracted developers to plant high-rise condos and shops. Where the city had spent years trying to rebuild the mostly vacant industrial and warehouse district, a revived riverfront and a Pearl District cousin would take root.
Few suggest stopping the tram now -- it's scheduled to fly in September. But there's plenty to learn from how things went so wrong.
Mix billions of dollars, political reputations, development pressures, untested designs, budget guesstimating and unpredictable steel price increases, and you get one expensive miscalculation.
The tram's bottom station east of Interstate 5 sounds like the middle act of a musical. Diesel engines growl. Backhoes beep as they back up. Workers in hard hats weave around cement trucks.
Three cranes, two condo shells and OHSU's bulky 16-story research and medical building race for the sky. South Waterfront condos will outprice those in the Pearl at $477 a square foot and will outreach them, with buildings stretching 20-plus stories and million-dollar views of Mount Hood.
Vic Rhodes, a consultant who manages the work for the nonprofit Portland Aerial Transportation Inc., crunches over gravel on Moody Avenue near the lower station. The tram will dock between OHSU's new building and the Zidell Marine Corp. barge-building operation.
"Combat zone," Rhodes grumbles, dodging bicyclists and a dump truck that cut down Moody.
Up Gibbs, workers burrow through dirt for the middle tower's platform. From here, it's 2,900 feet up Marquam Hill to dock at OHSU.
The city attracted all this with the promise of $72 million toward the tram and public improvements. No single thing will cost more than the tram. Mayor Tom Potter, who inherited the project, worries the rising cost could eat up taxpayer's money for those improvements -- parks, a riverfront greenway and affordable housing.
For the tram, South Waterfront property taxpayers originally were on the hook for $2 million through urban renewal. That's now $3.5 million, a figure that could double, according to city documents. South Waterfront property owners also will share at least $5.7 million in still more taxes. OHSU, a public corporation that gets just under 4 percent of its operating budget from the state, will pitch in at least $30.7 million.
That leaves $5 million unpaid.
The tram sprang from two converging desires: OHSU's expansion pressures and the city's vision of a vibrant riverfront.
Crimped roads have choked off the hospital for more than a decade, says Steve Stadum, OHSU's chief administrative officer. So it looked to its Hillsboro campus to expand.
Reputations rode on the tram's success. Then-Mayor Vera Katz and the council, tagged as anti-business after Columbia Sportswear's flight to Washington County in 2001, couldn't lose the expansion. Katz also had adopted South Waterfront as key to her efforts to rebuild the city, along with the Eastbank Esplanade and the Pearl District.
But first, how to connect Pill Hill to the river: Shuttle buses? Cheap but circuitous, as long as 17 minutes in rush hour by 2020. A tram would cost more up front and more in annual maintenance, but the trip? A direct shot in less than three minutes.
The facts made it clear, the tram was the way to go. OHSU, Katz and the council shook on the phonebook-size agreement in 2003.
For Gordon Davis, that was a problem.
Buried in the pages was a figure Davis never thought would get that far: Tram total project costs, $15.5 million.
Davis, an OHSU consultant, and Matt Brown, a mid-level city manager, got the job to pencil out a budget for competing architects to design a tram. Neither had ever worked on a tram. Davis' expertise was planning and architecture; Brown's, managing city transportation projects.
They relied on a tram engineer's preliminary study to decide a bare-bones tram would run about $10 million. But a bare-bones design wouldn't do. The city wanted an icon for the skyline and people under the tram's path -- already balking at the very idea -- wouldn't stand for an eyesore.
To pay for the cool look, Davis and Brown padded the budget with a "reasonable" design premium of $5.5 million. No detailed engineering research. No line-item budget. No basis in reality.
Davis and Brown meant the number as a rough target for architects.
But OHSU's Stadum, South Waterfront developer Dike Dame, and Portland Development Commission executives plunked $15.5 million into their spreadsheets.
Davis grew nervous as the guesstimate looked more like a guarantee.
"Someone grabbed onto that figure like the word of God," Davis says. "But there wasn't a whole lot that went into that number that was precise."
He called Stadum, a tram board member and a lead negotiator on the deal, to clear up the math. Davis says he left a voice mail at Stadum's office warning that the budget was probably $5 million to $8 million low. Stadum, for his part, says he doesn't remember the message.
The architect saw red, too. After her Los Angeles firm won the design competition, Sarah Graham flagged tram managers in April 2003 that she couldn't build it for $15.5 million. The figure covered only construction, she said. Nothing for contingency funds. Nothing to pay architects and engineers. Those things, basic to any transportation project, would run as much as $8 million. That was news to some, most noteworthy to OHSU's Stadum. Though aware of the budget holes, Stadum says, Portland Aerial Transportation Inc. stuck with the original until it had a final design.
Graham nearly walked away over the dispute that followed. In June 2003, she traded e-mails with Brown and Rhodes, the tram consultant.
Graham: "I would interpret that you will have to get the players to come up with more funding for the tram BEFORE the agreement is signed or we are collectively out of luck. Yes?"
Rhodes: "I think we go with $15.5 and fix it later," once the design is fleshed out to give cost estimators something real to work from.
Months earlier, Brown realized the budget was "likely too low to accommodate the project," he said in a memo. But Brown hoped they could hold down costs to make up for the mistakes. He wrote: "On the $15.5, this is clearly something that we can amend later." Stadum, Dame and the PDC had negotiated details for "over a year and will not contemplate changes to the budget at this time."
Two months later, minutes after the council's OK, Brown looked them in the eyes and talked about a "$15.5 million tram."
In November 2003, the increases rolled in. Two professional cost estimators pegged the budget at $24 million and $30 million. That didn't please Commissioner Dan Saltzman.
He later complained at a council meeting about Portland Aerial Transportation Inc. "I sat here and asked the chairman of PATI several times whether $15.5 million was the real number and was assured that," Saltzman said. "I'm still holding out for $15.5 million. That's the cost that was presented to us, the City Council, to PDC, to OHSU, to North Macadam developers. We should be able to deliver a first-class tram at that cost."
After Saltzman finished, Katz spoke up but didn't touch the bulging budget. She focused on how the tram would fit in with its surroundings. Then-Commissioner Jim Francesconi, the council's transportation manager, disputed Saltzman, saying $15.5 million was for an unadorned "ski lift"-type tram that neighbors wouldn't like.
Saltzman fired back: "Nobody told me I was authorizing only a ski lift."
The tram advocates wanted to deflect attention from the numbers. In April 2004 John Mangan, a public relations consultant they hired, coached them to spin the story: Stay unified in messages of design excellence, engineering integrity, community responsiveness and safety.
"The obsession with our budget," he said in a memo, "seems to be subsiding."
Not for long.
The cost kept surging by millions. As the architect drew a more detailed picture, her minimalist design complicated things.
The tram's parts could move a mere three-quarters of an inch under the cable's 1 million pounds of pressure with winds at 50 mph. That meant more money for concrete, steel and time to put it together.
At the lower station, for example, the cost for pilings per foot jumped at the same time engineers required additional pilings.
The result: The foundation's cost tripled in less than a year.
Today, as construction crews drill holes for the Pill Hill station, no one knows who will get stuck with the tram's $5 million bump announced in October -- taxpayers, OHSU or developers.
South Waterfront developer Homer Williams says that when Portlanders can ride the tram high above the condo towers to take in views of Mount Hood, few people will remember the price tag. They'll care only that it helped build South Waterfront. Developers already have started construction on four buildings worth $670 million.
"We may have a bump of a few million bucks on the tram," Williams says. "But it's going great. We shouldn't lose sight of what we're doing."
Even so, the mayor plans a review of what he calls serious mistakes. "I don't know anybody that entered into this to deceive anybody," Potter says. "I sort of think it was cocktail-napkin designing."
Davis, the OHSU consultant, moved on from the tram nearly three years ago. He lives in the Pearl but works mostly with California developers. Brown left the city in December and now works for South Waterfront developers Williams and Dame.
In hindsight, Brown can't ignore the mistakes. "It's hard looking at it now and seeing things that look so obvious," he says. "But at the end of the day, what it's producing for the city and what keeps me sane about this, is that I know there's going to be 5,000 good jobs.
"I wish it didn't cost $45 million."
Ryan Frank: 503-221-8564; email@example.com