Not long after Mayor Kip Holden took office in early 2005, he began to follow up on his campaign pledge to find a less costly alternative to the so-called deep-tunneling plan that his predecessor, Bobby Simpson, had recommended as a solution to an Environmental Protection Agency mandate to repair Baton Rouge’s crumbling sewer system.
The deep-tunneling proposal was in the preliminary planning stages and wasn’t guaranteed to address all of the problems plaguing the system, including miles of leaky pipes, and overflows and treatment plant bypasses that typically followed heavy-rain events.
In early 2006, the Metro Council voted to abandon the deep-tunneling approach in favor of a plan that would focus on rehabilitating the system. Project details were vague at first, and no project manager was under contract, but estimates put the price tag at about $654 million, which Department of Public Works Director Pete Newkirk at the time said would save at least $86 million over Simpson’s proposal.
Five years later, however, that rehabilitation plan has nearly doubled into a $1.3 billion overhaul of the sewer system that involves not only fixing the old, leaky pipes, but closing one treatment plant and laying miles of new pipe to divert flow to another plant, which needs to be updated to accommodate the additional capacity.
The project has been approved by the federal government under its consent decree with the city-parish and is said to be on budget and ahead of schedule. But it’s a considerably larger project than the one that was sold to taxpayers, who will be footing its bill for a long time [please see related story, page 17].
Furthermore, when the council and public finally were presented with the new cost of the project in late 2007—then estimated to be $1 billion—DPW and CH2M Hill, the engineering firm that by then was advising the city-parish agency, already had received approval from the EPA under a revised consent decree, effectively sealing the deal before the public had a chance to weigh in.
Officials with DPW and CH2M Hill now say the $654 million estimate was based on a very preliminary design and never was a firm number. Once they had a realistic cost, they point out, they brought the project to the Metro Council for approval.
“It’s quite an irony that the administration that came in and said they were going to save tens of millions of dollars ended up tacking on more than $500 million to the cost of the project,” says former council member Darrell Ourso, who in 2006 voiced concern that the cost of the project could spiral out of control. “It just kept getting more and more expensive.”
Former Metro Council members aren’t the only people taking note of the current project and its cost. At a recent meeting, District 3 Councilman Chandler Loupe asked DPW for an explanation of how the scope of the sewer upgrade changed and why the price has continued to increase.
“No one has given me an explanation,” he says. “I don’t know how it doubled all of a sudden.”
Myriad problems
How did the cost of the sewer rehabilitation project nearly double? Not only is the answer complicated, but it raises further questions. It helps, however, to understand the project’s background.
For starters, Baton Rouge’s aging system has, like that of other metropolitan areas around the country, long been in the crosshairs of the federal government because of its myriad problems. Leaky pipes and inadequate treatment facilities routinely have led to smelly backups in residential neighborhoods and unacceptably high effluent levels into the Mississippi River.
Since the 1980s, the city-parish has entered into three consent decrees with the EPA, agreeing to take corrective action by a specific date or face large fines and other penalties. The most recent of the settlements, reached in 2002, dealt with the discharge levels at the South Wastewater Treatment Plant on Gardere Lane, which is the largest of the three facilities and is fed by miles of rotting pipes that typically are inundated by rainwater.
The Simpson administration recommended constructing large storage tanks 90 feet underground that would contain the overflow until it could be processed. During the 2004 mayoral campaign, Holden expressed concern about the deep-tunneling plan; only 5% of the leaky pipes that were the source of the problems at the South plant were scheduled for repair. In addition, there were questions about the validity of the estimated cost—about $700 million—which by then was nearly a decade old.
Shortly after his election, Holden named a new acting director of DPW, state Rep. William Daniel, who convened a symposium of several engineering firms from around the country. The experts confirmed what the administration wanted to hear: There were less costly solutions that could more effectively correct the source of the system’s problems.
Holden’s plan focused on rehabilitating the pipes by using high-tech methods that had not been available or as affordable when deep tunneling was first discussed in the 1990s. The administration hired Massachusetts-based engineering and consulting giant Camp Dresser & McKee in April 2005 to put the recommendations from the symposium to paper and come up with a preliminary design. In August, CDM presented that plan, with an estimated cost of $654 million.
Several weeks later, Hurricane Katrina struck southeast Louisiana, and the sewer project was put on hold until January 2006, when the city-parish hired CH2M Hill to conduct a peer review of CDM’s plan, and it concurred the plan was a workable solution. With the project going in a new direction, the city-parish also hired CH2M Hill to replace MGW Global as the project manager.
Still, the new plan didn’t become official until March 2006, when the Metro Council, which doubles as the East Baton Rouge Parish Sewerage Commission, formally approved it. In news accounts of that meeting, the rehabilitation project was sold to council members as a less costly alternative to deep tunneling. There’s little doubt that at the time, it was.
Newkirk was quoted as saying the new approach would cost $654 million and could save as much as $86 million over deep tunneling. Daniel also said the upgrade was most cost-effective; the council agreed.
Benchmark number
The first thing to understand is that rehabilitation remains relatively cheaper than deep tunneling, DPW and CH2M Hill officials say, suggesting that deep tunneling would cost at least—if not more—than $1.3 billion today. But it’s even more important to understand that $654 million never was a firm estimate, they say, despite what the Metro Council and the public were told in 2006.
To the contrary, they say, CDM’s report on which that amount was based was a “high-level estimate” put together in just 90 days for the EPA. The price tag also failed to account for post-Katrina cost increases, and inflation or that the EPA had nixed one of the corrective actions that had been planned for the South plant.
“It was not a detailed estimate at all,” says Mike Ellis, CH2M Hill program manager. “There were no specific design elements to it whatsoever.”
CH2M Hill began working on specific design elements in September 2006, after it was contracted for a $1.8 million engineering plan. When that plan was completed more than 14 months later and presented to the Metro Council in late November 2007, the cost had spiraled to $980 million.
“That’s really the benchmark number, about $1 billion,” says Bryan Harmon, DPW deputy director. “That’s basically the number we’ve been using ever since.”
In retrospect, it’s curious as to why council members didn’t raise an eyebrow over the price tag, since it had come less than two years after they’d approved the much-celebrated, less-costly alternative to deep tunneling. News accounts contain no mention of any controversy over the price tag, and former council members are hazy in their recollection of how events played out.
Part of the reason there wasn’t much of a furor over the suddenly higher estimate, however, is likely that the EPA already had signed off on the revised plan under the consent decree. DPW had brought CH2M Hill’s plan to the EPA in summer 2007, months before the new cost was presented to the Metro Council. By the time council members saw the increased price tag, it had become part of the work that had to be done under the consent decree.
DPW officials say there’s nothing wrong with how events transpired. To the contrary, they say, their only responsibility is to come up with the best way to meet the EPA’s demands.
“Our program is not cost-driven,” Harmon says. “It’s compliance-driven, and we have to do things the EPA says we have to do.”
The EPA is not concerned with the cost of the project, he quickly acknowledges. The federal agency only wants to see that the deficiencies in the system are corrected. If building a Taj Mahal will accomplish that—and the state Department of Environmental Quality and local municipality want to do it—the EPA will approve it. That, however, doesn’t mean building a Taj Mahal is the only way to address the problem, or that one is even necessary.
Old South
Jim Atteberry, a retired DPW engineer, has spent a lot of time thinking about the change in direction the city-parish has undertaken with the sewer project. He is skeptical about the extent of the work currently under way.
“We’re doing a lot of work that doesn’t have to be done,” says Atteberry, who retired in the mid-1980s. “It’s a boondoggle.”
Newkirk disagrees.
“Some people who have been out of the department for a couple of decades might not really understand what’s going on,” he says. “Things have changed a lot since the 1980s.”
No one would disagree with Newkirk’s statement. But Atteberry does have a point: A lot of the work added to the plan is well beyond the scope of the original consent decree, which also helps explain how the price tag ballooned from $1 billion to $1.3 billion.
In early 2008, CH2M Hill, which was creating a master plan for the entire sewer system in addition to the EPA-mandated compliance plan, identified additional projects it said would improve the system and make more sense in the long run. Chief among those projects: closing the smallest of the three treatment facilities—Central, off Nicholson Drive and River Road between LSU and downtown—and redirecting the flow to the South plant.
The South plant is the most problematic in the system, and it’s the focus of much of the work in the rehabilitation plan. The South plant also is the largest in the parish, handling 50% of the flow, compared to 15% at the Central facility and 35% at the North facility, off U.S. Highway 61 north of Southern University. In other words, a lot of work already was going to be done there.
But the Central plant needed upgrading, too; under the CH2M Hill plan approved by the EPA in mid-2007, $60 million was going to be spent on the facility and repairs to the lines feeding to it. Problem is, the Central plant is old and uses the outdated and smelly gaseous chlorine method of treating sewage. The facility also sits in the middle of prime real estate that’s ripe for redevelopment.
“We started looking at things and realized South has the capacity to handle all of Central’s flow,” Ellis says. “Since we’d be doing work there anyway, it made more sense long-term to close Central and do everything from just two plants.”
That idea was presented to the Metro Council in summer 2008, billed as a way to make available 20 acres of land in Old South Baton Rouge for public-private development, reduce long-term costs to the system and improve the environment around the Central facility.
The council approved, and the EPA signed off on yet another consent decree in early 2009. By then, the estimated cost of the project exceeded $1.2 billion.
Harmon and Ellis say closing the Central plant and building additional pipes to redirect its flow to the South facility are not the factors driving the increased price tag. The Central consolidation will cost just $20 million or so, they say, and that money will be made up in operational expenses over the next 20 years. Harmon says the increase is caused by incidentals, inflation and rising construction costs.
“Each year, costs keep going up,” he says. “The economy changes, there are inflationary costs and there is the cost of borrowing money.”
But some longtime industry experts frown on those expectations. They question whether the additional projects are necessary to bring the city-parish into compliance with the EPA.
“When we were first looking at deep tunneling all those years ago, we never had an oversight committee to keep an eye on costs because Baton Rouge had never spent $600 million on anything,” Atteberry says. “They got rid of the oversight committee when they changed plans. Look where we are now.”
Over and above
DPW and CH2M Hill defend the current sewer project, saying the work currently under way needs to be done and will make the system better.
So far, $619 million of the $1.3 billion has been spent on engineering and construction projects. Another $220 million has been appropriated for engineering and construction work this year.
The $619 million has paid for 10 completed projects. Another 31 projects currently are under construction, and 30 more are in the design phase. Of that money, $164 million has gone to upgrading and expanding the South plant, $107 million has gone to rehabilitating leaky pipes and $333 million has gone to improving capacity.
An additional $15 million has been spent on projects that are not directly tied to the consent decree but are part of CH2M Hill’s master plan and will improve the system overall, including backup generators at pump stations. The city-parish learned in the aftermath of Hurricane Gustav in fall 2008 that it needs the redundancy.
DPW and CH2M Hill officials say the program remains on schedule to be completed by end of 2014, which is the latest deadline in the consent decree.
“There are some things in our program that are over and above what the EPA says we had to do,” Newkirk says. “But all the programs under the consent decree are on schedule, even though the whole program may not be.”
Just how much of the program is over and above the EPA mandate is in the eye of the beholder because the pipes and plants are interconnected, and there are plenty of ways to fix the problems in the system. Furthermore, because the system is old and crumbling, it might make sense to address the problems proactively. From a long-term perspective, it’s a reasonable justification for making major changes.
But Atteberry isn’t buying that reasoning.
“They changed the scope of the work because they wanted to, for whatever reasons,” he says. “Then they got the EPA to sign off on it and say they had to do it, and we’re stuck with it.”
HOW MUCH THE FINANCIAL MANAGERS HAVE MADE
Underwriters and their attorneys, and the city-parish’s bond counsel and financial advisers, have benefited from the sewer system overhaul. Though their fees total less than 1% of the bonds issued from 2006-10, more than $591 million in debt was issued during that time, which adds up to more than $5 million in fees. Here’s a list of financial managers that have made money from the project:
Adams & Reese DEQ’s counsel $17,535
Rutledge Law Firm Issuer’s counsel $20,000
Decuir & Clark Issuer’s counsel $22,000
Crawford Lewis Underwriter’s counsel $340,700
Breazeale Sachse & Wilson Bond counsel $572,640
Government Consultants of Louisiana Financial advisory $965,935
Merrill Lynch/CitiGroup/JP Morgan Underwriter $4.1 million
SOURCE: East Baton Rouge Parish Department of Finance
