Different River

”You can never step in the same river twice.” –Heraclitus

September 19, 2005

Ideas for LA from L.A.

Filed under: — Different River @ 6:08 pm

Former California Governor Pete Wilson has some ideas for the contracts for rebuilding New Orleans, based on earthquake experience:

In early 1994, a major earthquake (measuring 6.7 on the Richter scale) jolted the residents of greater Los Angeles from their slumbers and knocked houses off their foundations. Within seconds, the Northridge earthquake reduced to rubble the overpass bridges of Interstate 10, Los Angeles’s major east-west artery, and thereby instantly shut down the most heavily trafficked freeway in the world. I was advised that it would require some two years and two months to repair the bridges and restore the I-10 to use. For as long as it remained unavailable, it would mean not only driver inconvenience on a dramatic scale, but delays that would translate into economic dislocation conservatively estimated to cost $600,000 per day. The interruption to the life of the nation’s second largest city would be of a plainly intolerable magnitude and duration.

Instead, we completed the repairs and reopened the freeway to its normal heavy traffic in just 66 days. How? We did two things.

First, I quickly exercised the extraordinary emergency powers conferred upon the governor of California by the state Government Code. I suspended the operation of statutes and regulations that would have required the protracted public hearings called for before environmental impact reports could be filed and acted upon, and I suspended other normally demanded procedural hurdles. The elimination of these legal requirements drastically reduced purposeless delays that would have impeded recovery and compounded the injury inflicted by the quake.

(If they are “purposeless delays,” shouldn’t we get rid of them altogether, not just after natural disasters? I’m serious.)

Second, we took a page from the book of private-sector incentives for accelerating performance. We told contractors bidding to repair the bridges that they must submit bids that specified not only the cost but the date of completion, and that they must agree to an added condition: For every day they were late, they would incur a penalty of $200,000; and for every day they were early, they would be rewarded with a bonus of $200,000. The winning bidder, C.C. Myers Inc., put on three shifts that worked 24/7. In order to prevent any delay in the work, they hired a locomotive and crew to haul to Los Angeles steel sitting on a siding in Texas. Myers made more on the bonus than they did on the bid [price].

Incentives work. The reward to the contractor in this instance was well worth the reward to the public in achieving restoration of critical infrastructure two years early.

It’s nice to see a politician who understands the single most basic principle of economics: People respond to incentives.

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