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The
Shucet Shake Up
Highway
commissioner Philip Shucet has transformed VDOT with his
financial and managerial reforms -- but there's still a lot
of road work ahead.
When
Philip Shucet took over the job in the early months of the
Warner administration as commissioner of the Virginia
Department of Transportation, the state highway
department was a shambles. Construction projects were
routinely running over budget – as much as 190 percent
– and lagging months behind schedule. In a departure
from
Virginia’s
traditional pay-as-you-go philosophy, the previous
administration had borrowed heavily against future
revenues and allocations to cram more road-building
projects into the pipeline. Yet VDOT was short of funds
to pay its contractors.
Nobody
could explain to Shucet how things had gotten so bad –
the financial systems were so poor that, in all
probability, no one really knew. But with the help of
his departmental CFO and months of digging, the
commissioner eventually pieced the jigsaw together. With
VDOT systematically over-estimating revenues and
under-estimating costs, the only thing that kept the
system lurching forward was the fact that so many
projects were running so far behind schedule that VDOT
wasn’t spending money as rapidly as it had budgeted.
“If
you’re delivering only 19 percent of your projects on
time, your spend curve is way down,” Shucet explained
to me during a marathon conversation at Starbucks the
other morning. VDOT took cash allocated to projects that
were running behind, and used it to pay the projects
that were running over budget. “It was like a big
check-kiting scheme,” he said. “At some point, it
all hit the wall.”
Bringing
order out of managerial chaos at VDOT, once the most
dysfunctional branch of state government, ranks among
the signal achievements of the Warner administration. A
former businessman, Gov. Mark R. Warner has made it a
top priority to apply up-to-date financial controls and
business processes across the state bureaucracy. Nowhere
was the need as urgent, or the pay-off as great, as at
VDOT, which is responsible for spending $3 billion a
year on road construction and maintenance.
VDOT
still has a long way to go, Shucet is the first to
admit. Last year, the department delivered 37 percent of
its projects on time, and this year it has a shot at
attaining Shucet’s goal of 60 percent. But that’s
still short of the 80 percent that the commissioner
believes is reasonable. (Due to the many uncertainties
in road construction, he says, it is unrealistic to
shoot for 100 percent.) The number of projects coming in
on budget is showing similar gains.
One
result of Shucet’s overhaul, however, is to show that
the transportation cupboard is bare. Says he: “We
don’t have nearly as much money to spend as we thought
we did.” Cost overruns and borrowing against future
revenues have cut deeply into funds available to work
through backlogged highway projects that
planners say are needed to address intensifying traffic
congestion.
Virginians
can only be grateful for the managerial discipline that
Shucet and the Warner administration have brought to
VDOT. Thanks to their efforts, we can be assured that
our tax dollars will no longer be spent with wasteful
extravagance. We also can be confident that VDOT
will have the revenue to build the projects that it says
it will – a fact that road builders, who buy
heavy equipment and hire employees based on those
commitments, no doubt will appreciate as well.
Unfortunately,
a number of people are drawing the wrong conclusion from
the greater transparency of VDOT finances. Because Virginia
has
less money available for new road construction than
previously thought, they argue, we need to raise taxes
to make up the difference – indeed, to more
than make up the difference. Even before the tattered
nature of VDOT finances were laid bare, the Virginia
2020 transportation plan estimated a revenue
shortfall
on the order of $40 billion to $80 billion over 20
years.
Shucet
agrees with the tax crowd – in part. “Additional
revenues are certainly part of the picture,” he says.
But after two and a half years on the job, he doesn’t
believe that simply building more roads will appreciably
increase mobility and access in Virginia.
“If you just say, ‘We need more money, and here it
is, all you’re going to do is spend more money.’”
Virginia
needs to spend its transportation dollars more
efficiently, Shucet argues, and by that he isn’t
talking about simply delivering projects on budget.
Policy makers have to consider the possibility that
investing in other areas – like traffic signal
sequencing to improve traffic flow, or telework to get
commuters off the roads during periods of peak
congestion – might offer a higher return on investment
than adding another lane to the Interstate. Above all,
he contends, tying transportation planning to land use
planning is absolutely crucial: The pattern of land use
is, after all, is what largely shapes the demand for
transportation.
Shucet
offers interesting insights into these issues, and I
will cover his thinking in the next edition of Bacon’s
Rebellion. As the Warner administration serves out
its last 16 months, however, he will be best remembered
for the financial and management reforms he brought to
VDOT.
Shucet
had no thought of applying for the transportation
commissioner job when Gov. Warner was elected. “I’m
not a savvy political person,” he says. “I didn’t
know who Whitt Clement (Warner’s secretary of
transportation and now Shucet’s boss) was. I’d seen
Mark Warner’s picture in the newspaper. I’d liked
what I’d read about him, but that was it.”
He
was surprised when he received a call from Warner’s
people to interview for the job, and even after the
interview with the governor, he had no expectation of
being offered the job. “Warner … talked about
running VDOT with reasonable business principles, making
sure that we could deliver what we said we could
deliver, that we could pay for it. He was looking for a
professional to run the department.”
Shucet,
who was a senior vice president of the Michael Baker
Corporation, a transportation engineering firm, wasn’t
even sure he wanted the job when it was offered to him.
He didn’t want to relocate his family from Virginia
Beach, and
he wasn’t wild about seeing his pay cut in half. But
as he pondered the offer, the more he thought that the
idea of being VDOT commissioner would be “really
cool.” When his dad asked him what he wanted “in his
heart,” the answer became clear. He decided to go for
it.
Once
on the job, it quickly became apparent that VDOT
finances were a wreck. “I was surprised and
disappointed that there were so few basic business
practices in place,” Shucet recalls. He remembers
meeting with the nine district administrators. He kept
grilling them on how the cost overruns could have
ballooned so badly out of control.
“You’re
not listening to what we’re telling you,” they
replied. “We were never asked to manage a construction
budget. ... We were told, ‘There’s a bucket of
water,’ and our job was to punch as many holes in it
as we could to get as much water out. It was someone
else’s job to fill it up.”
Shucet’s
response: “Guys, the bucket is empty.”
The
first step was to get a handle on finances. VDOT put
into place a system to forecast cash flow: anticipated
revenues vs. anticipated costs. That quickly revealed
another flaw: terrible cost estimating. The estimates
routinely low-balled the actual costs.
There
was no VDOT-wide system for estimating the cost of
construction projects. Says Shucet: “It would not be
unusual three years ago to ask, ‘What’s the cost of
a project,’ and to get four different answers from
very responsible people.” One person might say, “Oh,
I didn’t include engineering.” Another might say,
“I didn’t include anything for contingencies.”
VDOT
now has a consistent methodology, which it is continually refining,
for estimating costs. At this stage of its development,
the system isn’t expected to be perfect but it is a
useful analytical tool. If a certain project had an
estimate of $10 million and was now running $20 million,
the system raises a red flag for someone to start asking questions. Had the project
encountered poor soils? Had a municipality wanted to add
a turning lane? Someone needs to find out.
Meanwhile,
as VDOT continues to add historical data, the system is
developing some predictive value. “We can take a
bridge in the Richmond
district,” Shucet says, “and with a click of the
mouse and a pull-down menu, see that it would cost in Bristol.”
But
bad estimates weren’t the only cause of the cost overruns. Shucet identifies two other factors: lack of
accountability, and mission creep. “Nobody was in
charge of a project,” he says. “We were geared to
managing tasks, not projects.” Take the notorious Springfield
interchange connecting the Washington Beltway with
Interstate-95, a project now estimated to cost $676
million. One person was responsible for design, another
for utilities, another for right-of-way, another for
construction. They all reported to different people.
No
longer. Shucet has designated managers for the state’s
15 largest projects: the Springfield interchange, the
Woodrow Wilson bridge, the Coalfield Expressway, Route
128 and others. It’s the job of these managers to spot
problems and find the right people in the organization
to deal with them. They also send out weekly reports to
the staff, updating everyone on progress. Every two
months, the project managers all meet in Charlottesville
to
swap stories and solve problems.
Mission
creep also was endemic in the old system, where the
people working on the project weren’t responsible for
the budget. “The understanding of the mission was not
to control costs, but to be responsive,” says Shucet.
“Bad things happen in the name of customer service.”
Someone
might alter the project to accommodate
environmentalists. Someone else might add a sound wall
or landscaping at the request of a municipality. The
extra work added up. Customer service is a good thing,
but it doesn’t mean “making everybody happy,”
Shucet insists. “We’re serving the taxpayers, not
the person who just called on the telephone.”
Gov.
Warner instituted a requirement for every construction
project costing more than $100 million to have its own
finance plan. These plans define the components of the
project and the amount of money available. The plans are
flexible – changes can be made. But the money has to
come from some other identifiable source. Says Shucet: “You can’t
just wish it true.”
Shucet
is a big believer in accountability. To keep VDOT’s
feet to the fire, he also created “Dashboard,” a
feature on VDOT’s website that allows citizens to
check the status of any project. What’s the original
completion date, and where does the project stand?
“We’re telling the public what we’re doing with
their money,” Shucet says. “It’s another way of
holding VDOT accountable and making us better.”
Shucet
knows the transformation of VDOT isn’t finished, not
by a long shot. But the organization has come a long
way. He praises the dedication and talent of VDOT
employees. Rarely were people the problem, he says.
Difficulties stemmed from the dysfunctional management
system they worked under.
Under
the Warner administration, VDOT’s head
count has declined by more than 900 employees, saving
$45 million in payroll. The department is doing a far
better job today, with fewer employees, than three years
ago. Every day, it appears, VDOT gets closer to
Shucet’s ideal of a professionally run organization.
Shucet
won’t comment on stories that VDOT was subject to
political influences in previous administrations. He
wasn’t there, so he doesn’t know. But he will say
that he has enjoyed nothing but support from Gov.
Warner, who put him on the job then got out of the way.
“In the nearly three years I’ve been here, the
governor has probably called me about six times,” he
says. “There’s no political intervention. Nobody’s
pulling my strings. … I truthfully feel and believe
that I run the
Virginia Department of Transportation.”
--
September
7, 2004
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