Beware the costs of Leo’s big projects

And when the cash is about the place, Government ministers are only itching to spend it.

You can’t stop ministers these days from putting on hard hats and hi-vis jackets and the launch of Project Ireland 2040 really was party time for all concerned.

You could say it was Leo’s trip to the prom with the voters along as invited guests.

It was hard not to think of the late PJ Mara, that great Fianna Fáil political showman, as the rhetoric took flight.

This is not, in any way, to denigrate the exercise. We need ambition and focus and plenty of longterm vision as this island becomes a more crowded place, with at least one million more people predicted to come on board.

The public needs to be on board too and of course, the Government must secure buy-in from officials, business people, trade unionists, planners, as well as all the people who will be operating at the implementation coalface.

The plan has much about it that is positive. The commitment of around €22bn over 10 years to counter climate change and the emphasis on the promotion of compact growth is commendable.

As Housing Minister Eoghan Murphy has stressed, at least 40% of future housing needs — in excess of 500,000 — should be met in existing built-up areas.

This is backed up with a €1bn town and village fund — modest in the overall picture, but a sign that official Ireland is belatedly recognising the need to restore the many centres across provincial Ireland that have fallen into decline.

This is being backed up by a €2bn urban regeneration fund and the establishment of a new National Regeneration and Development Agency which will work with local authorities to release strategically located land banks and ensure effective coordination and management of development land.

Most welcome is the commitment in relation to capturing the gains in land value from investments in infrastructure.

For too long, landholders have grown rich on the back of taxpayer funding of sewerage pipes and the like.

The rethink of the Dublin metro concept is overdue.

If we are going to sink billions of taxpayers’ money into the ground — a questionable exercise — well then it is best to be ambitious rather than end up with a half-baked part metro, part light rail along the lines of the original proposal.

And yet, two big questions loom large. There is the issue of the spending of public money and sustainable development.

We are promised roads galore, yet economists question the effectiveness of much of this spend.

Of course, we need completion of an Atlantic corridor, linking cities that could challenge Dublin’s supremacy, not to mention bypasses and upgrades at safety black spots.

That said, roads are not the panacea. When allied to sloppy planning, they result in sprawl in the form of retail parks and the like.

The end result is that too much life is sucked out of long-established centres, leaving derelict sites and a sense of emptiness.

Car-based sprawl is one of the great curses of the last 50 years.

Totemic rural rail projects, busily promoted by local lobbyists but often very poorly supported by the paying public should be avoided.

If we wish to revive country towns and rural areas, why not create a fund that would allow the scrapping of commercial rates and other benefits for entrepreneurs launching start-up businesses that are genuinely wealth creating and meet Enterprise Ireland criteria in this regard?

A lower personal tax rate for people risking all to create businesses could attract people with skills back from overseas or from the crowded cities.

The second key question relates to expenditure control. Ireland does not have a great record when it comes to ensuring that capital projects stay within budget.

Put simply, the prices quoted in Leo and Paschal’s plan could well turn out to be works of fiction and by the time this becomes apparent it will already be too late.

Last November, the IMF published a review of capital investment in Ireland.

Interestingly it concluded that Ireland’s public capital investment as a proportion of national income — using the revised CSO measure — is higher than the UK and only slightly lower than that of Germany.

Our need for new infrastructure may not be as great as some would have you believe. But we do certainly need to better maintain and utilise the infrastructure already in place.

The IMF concluded that in terms of value for money secured from our investments, there was an efficiency gap of 23% between Ireland and the rest of the world. When compared with advanced countries that gap grows to 58%. Food for thought, certainly.

The IMF concluded that multi-year budgeting has improved the allocation of resources, but pointed to inadequate links between the planning process and decisions on funding.

“There is a proliferation of sector strategies with a weak results framework,” it said.

The danger is that as the plan is rolled out, economic and political realities intrude. To be fair, the Minister of Finance has pencilled-in relatively cautious growth assumptions but Ireland being Ireland, we can expect a recession or two along the way to knock things sideways.

A series of priorities will have to be identified to prevent sleights of hand or the influence wielded over Government by particular sectors, lobby groups, and connected local politicians.

Overruns on technically difficult projects are almost inevitable. Remember that promoters of the projects have a vested interest in understating the cost as they set out to dazzle politicians and their officials.

The Jim Hackers of this world do not always have a Sir Humphrey Appleby around to protect them from rapacious salespeople with a greedy eye on the public purse.

Danish expert Professor Bent Flyvbjerg has carried out a study ofmore than 250 investment projects between the 1920s and 1990s.

He found cost overruns on 90% of the projects, with an average overrun per project of almost 30%. He concluded that there has been no improvement in cost estimating over 70 years.

And supporters of the Dublin Metro, at an estimated €3bn cost, and of various light rail plans, should take note of his 2007 study when he found the average cost escalation in rail schemes amounted to just under 45%.

The academic did not have to look far to discover examples of planning disasters.

The first three stages of the Copenhagen metro project cost 157% more than initially estimated while the demand shortfalls exceeded 40%.

The period in which the project was expected to return its original capital investment jumped from an initial 14 years to 55 years, by which stage many of the assets would have long required replacing.

Don’t say you haven’t been warned.