Here is our office's second round of providing answers to questions raised in blog comments on the tram lifecycle cost analysis we posted about a week ago. In an effort to be as transparent as possible, we will continue to post as quickly as possible as much information as we can get our hands on. Hopefully, in doing so, we can adequately address any and all questions raised on this site. While it sometimes takes a couple days to find the answers to the questions being posted (we are juggling other job responsibilities, as well, after all), we are trying our darn'dest to make sure that nobody feels as though there is a "deafening silence" eminanting from our office. We thank everybody for their patience as we compile the requested information from various sources - and wish to underscore that we will continue to do so and address questions to the best of our ability.
-Roland Chlapowski
(06/15/2006)
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6/15/2006
Publius: The voice of the public majority was ignored in greenlighting the Tram.
Sam Adams: Focused on the tram issue, I have completed three public townhalls and attended meetings of those neighborhood associations most affected. These outreach efforts were at my initiative. I listened very carefully. I sought answers to all questions. I still do. I weighed the facts. I voted to proceed with the tram after it became clear that stopping the project would cost a lot more than proceeding.
Gecko: Cost of liability insurance?
Rob Barnard: The City is self-insured. There are no current plans to part with normal city policy and purchase an additional separate liability insurance policy.
Gecko: Status of FHWA Airspace Lease?
Rob Barnard: It has been secured.
Gecko: Was Doppelmayr made aware of your annual operating plan (4,450 hours/year) when they projected a 50 year useful life? How long is their warranty in force?
Rob Barnard: Doppelmayr is fully aware of the intended operation hours. Their proposal assumed operating 365 days per year at 18 hours per day (6,570).
Steve: Aren't these the same group that told us this would originally cost $15M to build? Why would anyone believe them now?
Sam Adams: Obviously, if you are referring to PDOT, yes, they are still providing oversight for the city on the tram project. But, since I have become the new commissioner-in-charge of the project I have disbanded the PATI board and have placed all new staff people in charge. An entirely different group of people are now working on the project, though still within the Office of Transportation.
Steve: "Each piece of their metal is hand formed by Swiss craftsmen who came out of retirement to build this cabin" I can hardly wait to see what replacement parts will cost on this thing.
Rob Barnard: The exteriors of the cabins are handcrafted. The need to replace these items during the 50-year life span is unlikely. Replacement parts are included in the life cycle cost analysis.
Steve Schoop: Why did you mix operating costs with debt service in your answer?
Sam Adams: I asked Rob to provide the LID debt service cost information in his answer as a matter transparency in terms of public costs related to the tram. But the debt payments are not borne by the tram and thus Rob did not include them in his life cycle analysis. The outside consultant will double check that this approach is valid.
Bob B: If it turns out that 60% of the Tram's riders are NOT OHSU staff, patients, visitors, etc. than the City will pay 60% of the Tram's operating costs. Is my understanding correct or have there been changes in the way the City and OHSU will split the Tram's operating costs?
Rob Barnard: For at least two full years, the 85-15% split will be used to allocate costs between the city and OHSU, regardless of actual ridership patterns. After two years of ridership data is collected, the 85-15% split will be recalibrated based on the actual ridership observed.
Gecko: Helllooooo? Constituent service on aisle three, please.
Sam Adams: I wait until we have a bundle of questions before we answer them all at once.
Steve Schopp: They are still covering up the full life cycle cost estimate.
Sam Adams: We have provided more details of the tram project and provided more answers to follow up questions online than I have ever seen provided on any other project. And we will continue to do so.
Steve Schopp: Who told PDOT's Rob Barnard to exclude debt service and other fundemental components of a life cycle cost estimate?
Sam Adams: The City’s treasurer advised that it should not be included in this type of lifecycle cost analysis. We will get that advice double checked by the outside consultant that will review it.
Jerry: With the city being a good negotiator, they will agree to looking at the first year numbers when the novelty of the tram will create a large percentage of riders being tourists, first time- taxpaying riders wanting to see what they paid for, thrill riders, etc. And since there will be only one so-called OHSU bulding (the health club and some doctor offices) the OHSU ridership portion will be very low.
Rob Barnard: We will be basing the operating costs split looking at the actual ridership year-by-year after year two. Both tram cars will have an attendant to check payment or OHSU employee and patient credentials. The income from the tram will be pledged against costs split 50/50, then the remaining costs will be split based on actual type of riders.
Larry: I've been hoping to see a response from one of you on the issues brought forth on this issue. Some of the comments may have been a bit harsh (mine included?), so maybe I don't blame you for not doing so.
Sam Adams: This is a busy week for us given the on the ground work we have to do on the tram. We always try and respond to the questions posted on this blog. Even if the comments or questions are a “bit harsh.”
Steve Schopp: [Cost of] the design competition, land dedicated to the Tram, etc???
Rob Barnard: The entire tram is within the public right-of-way; the project did not have to pay for right of way costs.
Steve's reply: No the "project did not pay for it, the city provided the land and that is a cost and part of any full life cycle cost.
Rob Barnard: We disagree. The outside consultant will review.
Roland Chlapowski: I am going to take a stab at this, too, even though I have an economics background and not one in accounting. That disclaimer aside, if we (the city) are to be charged for the cost of selling the land, then we should also be credited with the payment for it, as well. The public's changing use of the land in this instance makes it both the buyer and the seller - meaning that in effect, no net revenue was expended or earned. As both the party selling the land and buying the land, it is improper to consider the cost of the land as an expense to the city, per se, unless of course you also credit the city for "selling" the land. (This is analagous to homeownership, in as much as the economist's view homeowners is that they are "paying themselves" rent for the use of the property. Yes, they are foregoing the opportunity of renting out their home to someone else [and incurring an opportunity cost because of it], but neither do they have to pay rent to someone else to cover the costs of their own personal lodging.)
Steve Schopp: Your standards are not fundementally sound. You have mischaracterized "debt service" in order to exclude it. I can only assume you were instructed to do so as part of the continued effort to withhold all SoWa debt service costs from public consideration.
Rob Barnard: The city treasurer advised against including it given this evaluation is a life cycle cost analysis. See his blog entry. The outside consultant will review.
Steve Schopp: Rob Barnard: Commissioner Adams has asked for an outside consultant to review my life cycle cost analysis. Steve's reply: Can I pick the consultant?
Sam Adams: I don’t even know who you are.
Steve Schopp: was there an earlier draft with debt service included? Were you ever provided the debt service numbers?
Rob Barnard: No.
Steve Schopp: So none of the Commissioners themselves have never seen any of this information [about PDC finances in SoWa]? And can't provide it?
Sam Adams: I asked PDC for the information two months ago. They say they are working on getting me the info.
Beth: From what I have read here alone, this Life Cycle estimate is disturbing and further demonstrates the [PDC?] city agency's willingness to use inappropriate, misleading and unreliable methods.
Sam Adams: PDC did not complete this life cycle cost analysis.
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June 13, 2006
We posted the lifecycle cost analysis of the tram last week and have gotten some good questions from bloggers. So good, in fact, that we needed to do some research. After talking with the Portland Development Commission, the Office of Management and Finance, Debt Management, and Rob Barnard - our exceptional project manager from the Office of Transportation - we have compiled a list of answers to all of the questions people posted below.
Thanks for the chance to answer all these questions.
- Sam Adams
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June 14, 2006
Question: Steve Schopp: Where is the debt service and the rest of the documentation?
Answer, as provided by Eric Johansen from the city's Debt Management department:
Eric Johansen:
Roland,
You have received questions as to why debt service costs are not separately identified in the life cycle cost analysis for the tram project. The answer lies in the conversion of debt service costs over the life of the bonds (nominal dollars) into present day dollars (present value).
In calculating the present value of a stream of debt service payments, the common financial practice is to discount the annual debt service at the interest rate on the bonds. Therefore, if one calculates the present value of a stream of debt service payments over 20 years (or 50 years), the answer comes back to the original capital cost, in this case $8.5 million (tax increment funded component). Therefore, it appears that the analysis prepared by Rob Barnard is handling the capital cost component of the analysis appropriately. There is no need to separately identify debt service costs as the present value of those costs would yield the same $8.5 million shown in the analysis. In fact, to add debt service costs to the capital costs already shown in the analysis would result in a double count, resulting in a substantial overstatement of project costs.
-Eric
(ejohansen@ci.portland.or.us [1])
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June 13, 2006
Bob R: Can you also provide the latest ridership projections?
Rob Barnard: The June 2002 Connector Study estimated the ridership on the tram at approximately 1,540 per day during the first five years of operation and 5,510 by 2030.
Bob R: What service hours and service frequency does the operating contract provide?
Rob Barnard: The contract provides for service form 6:00am to 10:00pm Monday through Friday; 8:00am to 5:00pm Saturdays; No service defined for Sundays and holidays. At peak hours of operation, the tram is capable of 13 trips per hour, or about one trip every 4 ½ minutes; During non-peak hours the frequency may be less.
Alice: Only $46k/year for alternative service? How many days of "tram down time" does that cover?
Rob Barnard: The alternative service is budgeted at $15,000 per year. This provides approximately two weeks of shuttle service during normal tram operation hours. The $46K noted in your posting I believe was generated by taking the total cost of alternative services for the entire life of the facility of $2,290,006 and dividing it by 50. To equate the results into today’s dollars it needs to be discounted.
Steve Schopp: Where is the debt service and the rest of the documentation?
Rob Barnard: Cost for debt service is not borne by the tram operating costs city. The debt service costs are carried by the private funders of the Local Improvement District, the Tax Increment Financing and Oregon Health Sciences University.
Information on financing costs for each type of debt revenue resource is available from the Portland Development Commission and OHSU.
Steve Schopp: [Cost of] the design competition, land dedicated to the Tram, etc???
Rob Barnard: The $57 million capital amount shown in the life cycle analysis includes all the costs for the design competition, engineering, city staff, OHSU staff, permits, owner furnished furniture, ticket machines etc. All costs that have been expended from July 2002 to now plus all planned expenditures to open a fully operational facility are included in the $57 million amount except for debt service. The $57 million also includes $2.4 million in contingency. The entire tram is within the public right-of-way; the project did not have to pay for right of way costs.
Steve Schopp: How did you get to the 50 life span?
Rob Barnard: The 50-year life span was selected in consultation with Doppelmayr who is constructing the tram; Many trams in operation are over 50 years old.
Mr. Magoo: Isn't there a lot that's been left out of this analysis? Interest? Land? City Staff time? What else is not in this "life cycle cost analysis"?
Rob Barnard: Interest is paid for by OHSU, private property owners or as part if Tax Increment Expenses; again, no charge for land; city staff time is billed to the $57 million project costs.
Mr. Magoo: Why not get an independent analysis? Wouldn’t it make the anser more credible?
Rob Barnard: I am a member of the Office of Transportation committee that developed standards for how to generate and use Life Cycle Costs analysis for the Bureau. We will have an outside consultant review my work.
Adron: …aerial trams don't cost fifty million plus to build. They just don't. Someone has screwed the design and financing.
Rob Barnard: This particular tram is a custom one-of-a-kind facility. The tram’s cabins are hand built: Each piece of their metal is hand formed by Swiss craftsmen who came out of retirement to build this cabin. The intermediate tower is designed as a sculptural icon. The upper station cantilevers twenty stories out of the ground and is resisting 160 million foot-pounds of force. A simpler, off the shelf tram would have been less costly.
Nick: What business would pick-up the % that OHSU has put in for a public transportation system???
Rob Barnard: The transportation study estimated that 85% of the ridership would be OHSU employees, patients and students. Their share of the financing and yearly operational costs are based on this percentage. This percentage of which jurisdiction is responsible for operation costs will be reviewed based upon a census of riders in year three and beyond.
Steve Schopp: Did Commissioner Sam instruct Roland to post this reason why a professional life cycle cost was not prepared?
Rob Barnard: No, Commissioner Adams has always let his staff offer their own point of view. Commissioner Adams has asked for an outside consultant to review my life cycle cost analysis.
Steve Schopp: Has Mr. Barnard ever prepared a project life cycle cost before?
Rob Barnard: Yes. I am a member of the Office of Transportation committee that developed standards for how to generate and use Life Cycle Costs analysis for the Bureau.
Steve Schopp: Was there an earlier draft or two? Who Ok'd the final draft?
Rob Barnard: The final draft was reviewed by the Director of the Bureau of Transportation Engineering and Development and now the public.
Steve Schopp: Did Mr. Barnard use professional Life Cycle cost estimating software or any other helpful means?
Rob Barnard: Custom software was not used.
Steve Schopp: Is Mr. Barnard free to openly discuss his estimate?
Rob Barnard: Yes, I am willing to discuss this estimate.
Steve Schopp: Can Mr. Barnard be interviewed by a local journalist?
Rob Barnard: Yes.
Steve Schopp: Can Commissioner Adams office obtain the full life cycle debt service costs?
Rob Barnard: The debt service on the LID is shown as $691,035 on Ordinance 179297; PDC should have estimates for debt service on the TIFF bonds.
Steve Schopp: If a professional company is willing to complete a thorough and complete full life cycle cost for a nominal fee will the city pay for it?
Rob Barnard: The will be built into the cost of the project. Again, Commissioner Adams asked that an outside firm review my analysis.
Steve Schopp: Will it take months to get any more basic information?
Rob Barnard: The time it took to develop the life cycle cost analysis included waiting for negotiations for the final contract amounts with the tram operator to be completed and discussion with OHSU security forces, etc.
Steve Schopp: Who keeps track of money spent on SoWa?
Rob Barnard: Portland Development Commission.
Steve Schopp: Where can one get a list of all SoWa payments to date with names or recipients and what the payment was for?
Rob Barnard: Portland Development Commission.
Steve Schopp: How many other projects in SoWa are over budget? What is the current estimated budget overrun? Where is a genuine SoWa budget to be found?
Rob Barnard: Portland Development Commission.
Steve Schopp: What is the current TIF interest rate the city is paying? What rate was used in the original 1999 SoWa plan estimates?
Rob Barnard: Portland Development Commissioner would be the agency to ask.
Steve Schopp: Should the city answer these questions?
Rob Barnard: Of course, that is why Commissioner Adams asked me to post this information on his blog and answer these questions.
G Laubaugh: One very huge expense and very careful part of planning the MAX tunnel under the West Hills had to do with emergency escape routes. What is the emergency access plan for the OHSU tram?
Rob Barnard: The tram has an electrical main drive system that is connected to the utility power grid. If the power were to go down or if the main drive went off-line there are two backups.
The primary backup is the diesel hydrostatic standby drive. It can operate the tram at half speed. It has a day tank and has sufficient fuel to operate for one day. If the main drive and the standby drives are off line there is a diesel hydrostatic rescue drive that operates at 1.2 meters per second. This rescue drive is designed to bring the cabins back to the station.
The upper and lower stations are also connected to OHSU’s emergency power grid. OHSU is a level one trauma center and generates their own power in an emergency. This emergency power is used to run all the lights, computers, fire alarm panels and the like.
If all of the above are off line, the cabins are equipped with rescue facilities. The cabin attendance lowers the retrieval rope stored in the cabin floor to the ground. The Fire Bureau attaches two 10,000 psi tensile strength rescue ropes to the retrieval rope. The attendant raises the two rescue ropes into the cabins. The attendant attaches them to safety eyebolts with a self-locking karabiner. (A karabiner is a metal loop with a sprung or screwed gate. It is used as a component in safety-critical systems and is a common method use to attach a rope to a fixed anchor.) The Fire Bureau will then use these two ropes to ascend into the cabins and rescue the patrons.
As already mentioned, part of the annual tram operating costs are to operate shuttle buses in the event the tram is non-operational.
Publius: We are afraid the construction budget fiasco will be repeated in the operating, maintenance, and safety costs. This WILL adversely impact future general fund budgets.
Rob Barnard: The City’s contribution to pay for the tram’s operating costs will be from South Waterfront parking meter revenue. We have completed an analysis that shows adequate revenue over a 10 year period. This is the same operating funding approach we have used to help pay for the streetcar operations. Diligent care has been given to determine the life cycle costs of the facility. However, these costs may vary based on adjustments to the operating hours or frequency of service.
An Executive Management Committee (EMC) has been established to provide command and control authority over the tram. It includes a Citizen Advisory Committee to ensure input from neighborhoods. They are required to meet quarterly to review costs. The Chief Financial Officers for both the City and OHSU are members of the EMC.
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Periodically, we ask guest authors to post on our blog. This post is written by Rob Barnard, the PDOT project manager who has taken the reins of the Tram project on Sam's request. He has had a challenging job but is handling it terrifically. We asked Rob to write a post about something that we have been hearing requests for for quite some time: a lifecycle cost analysis of the tram which outlines its annual operating costs.
It has taken a while for us to compile this analysis because we lacked a few pieces of important information until recently. Most notably, we needed to wait for both the final capital cost of the project and for the tram operations and maintenance contract to be bid out and finalized. Now that these things have both happened, we are happy to share the lifecycle cost analysis with the public.
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06/08/2006
Post by Rob Barnard, Project Manager,
Bureau of Transporation Engineering and Development
Life cycle cost analysis is a tool used to determine the total costs of design options to facilitate decision making. The analysis calculates the cost of owning and operating an asset from installation throughout its useful life. It calculates the cost of building a facility plus the net present value of on-going maintenance and operating costs. Net present value (also called Discounting) is a calculation that allows future costs to be compared to one another regardless of when they occur during the life of the asset.
The life cycle cost analysis for the tram includes information from many sources. In an effort to be as accurate as possible, resolution of the final capital cost of the project was needed. Receipt of the tram operator’s last and final best offer to operate and maintain the tram was obtained. Consultation with a knowledgeable tram way specialist to develop estimates for a Major Maintenance Reserve fund was performed. Discussions were held with an elevator consultant on the annual cost to operate and maintain the elevator plus estimated future modernization costs. Estimates were also developed for security services, special structural inspections, City and OHSU staff costs, roof replacement, tower painting, ticket machine replacement, utilities, engineering, training and other related items.
In today’s dollars the annual life cycle cost of the tram is estimated at $2,735,200 of which the City’s share is $409,280. The City’s share contains the annual cost of $170,000 for construction of the tram plus $239,280 for operation and maintenance. (This assumes a 50 year lifespan for the tram facilities and 4% inflation.)
You look at more specifics on a pdf spreadsheet of the tram lifecycle cost anlaysis here. [2]