Friday, August 07, 2009

On impact assessments

In earlier posts I've discussed a few of the major problems with the Sask Party's isotope reactor proposal and associated posturing. But let's take a closer look at the proposal to see just how bizarre the Sask Party's plan seems to be.

For consistency's sake, the below chart lists the top-end estimated numbers for both estimated costs and economic impacts (GDP and labour income) as presented by the Sask Party's proposal:





















Phase Costs Economic Impact Difference
Development/Construction $750 million $663 million $87 million
Operation (annual) $70 million $65 million $5 million


So what do those numbers tell us? By way of comparison, consider what would happen if Brad Wall's Sask Party government was obsessed with, let's say, dirt rather than uranium.

Presumably the Sask Party's focus on megaprojects would lead it to build the Brad Wall Centre of Excellence in Soil Relocation, consisting of paying $750 million to dig a giant pit and $70 million in annual operating costs to move dirt around. And by the Sask Party's method of counting "economic impact", that would result in a productive activity, as every dollar put into each of those tasks would be measured as GDP or labour income.

Which would seem to be a reasonable baseline result for a pure make-work project: every dollar spent would result in exactly one dollar of economic activity, with no expectation of adding any value to the economy.

Now, nobody figures to advocate for the construction of a giant pit anytime soon. And the actual public policy choices figure to involve areas like social housing, child care, etc. where the up-front economic activity generated by government funding would make for only a small part of the ultimate benefit.

But what's remarkable is that by the Sask Party's own standards, even the giant dirt pit would actually result in a more efficient means of turning government funding into economic impact.

After all, unlike any sane policy proposal, the isotope reactor proposal actually seems to be designed to hemorrhage money. By the numbers in the Sask Party's proposal, $87 million in construction costs and $5 million in annual operating costs are planned to vanish into thin air, being presented as costs in excess of any associated benefit.

But what about the perceived benefits of building an isotope reactor beyond GDP and wages? One would expect the panel responsible for presenting the province's bid to have at least some idea how to assign a value to the factors which are supposed to justify spending millions of dollars of public money. But one would be entirely wrong in that expectation.

Instead, the other "impacts and expected outcomes" are presented solely as theoretical and unquantified concepts. So as far as anybody has bothered to measure or even plausibly estimate the outcomes, the Sask Party is eager to see hundreds of millions of dollars vanish. (And never mind the total cost of the project - even the money which Wall wants to make disappear would exceed the actual cost of the two other Western Canadian proposals to generate isotopes.)

Of course, it's worth granting as noted by Lee Harding that it isn't any better to overestimate the perceived economic impact of a particular action. But when even a project proposal involves government actors paying a tithe of hundreds of millions of dollars to we're not sure who for the privilege of turning their money into economic activity, that should be an obvious signal that the project in question doesn't pass the laugh test.

(Edit: fixed typo.)

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