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Economic Impacts

Subcategories from this category: Infrastructure
Posted by on in Infrastructure

The President’s federal budget proposal proposes $2.4 Billion in transportation spending reductions – including significant cuts in federal transit programs. Meanwhile, states from Georgia to Oregon and places in-between have looked to increase state transit funding and there is growing discussion about the role of public-private-partnerships (PPP)’s in funding transit improvements. These changes create an environment in which transit systems and proponents must make a more compelling case than ever before to business and economically savvy audiences demonstrating their economic role.

It is time for states and regions to take stock of what is really at stake in transit investment. A State or Regional Transit Economic Blueprint can be understood as a regional study showing the role of transit in the economy, and mapping out the rationale for future investment strategies.

Areas like Hampton Roads, Virginia, Fairbanks Alaska and Austin Texas in the last year have undertaken significant efforts to define the role of transit in regional economies and assess the return on investment for continuing and expanding transit capabilities. Furthermore in recent years the American Public Transportation Association (APTA) has undertaken significant studies on the role of transit in both the overall US national economy and its regional and state economies.

Without such blue-prints, most stakeholders and decision makers either under-estimate or have difficulty locating the true economic role and benefit of transit. It is easy to overlook critical economic opportunities if looking only at the ridership in the transit market, or only thinking of transit’s role in terms of congestion relief. Even when a very small percentage of trips are carried by transit on an uncongested system, transit can be central to the engine of a region’s transportation economy because:

(1) Transit plays a special role in industry value-chains: A good study of the economic role of transit can demonstrate the industry value chains in the economy where transit is particularly important. For example, many citizens may believe that if they or their customers do not use transit directly, they are economically independent of transit services. However, in reality more businesses depend on transit than even typical employees or customers realize. For example, in a hospital even if only 5% of workers use transit – and these are certified medical assistants, custodial and food service staff, the entire operation of the hospital, ranging from routine appointments to million dollar surgeries would be unsustainable without this transit-dependent aspect of the operation. In the same way, resort, hotels and tourist establishments that bring millions of dollars of revenue into local economies often depend on transit for key occupations without which entire establishments or even industries would be in-viable at existing locations. Understanding the value-chain role of transit in the economy is vital to developing (and building consensus around) a responsible transit investment strategy.

(2) Transit creates productivity by enhancing workforce accessibility: Transit does more than simply moving people efficiently. If you are a business manager or owner, there are cases where transit can expand the potential pool of applicants for any given job, enabling your business to be more productive. Imagine that you opened an engineering firm, and needed a mechanical engineer. Imagine 5 people apply. Suppose another 5 would have applied, but were unable to make it to your location within a reasonable commuting time? Would a firm with 10 applicants to choose from find a better engineer, or the firm with only 5? In cases where BRT, rail transit and other options expand the accessible labor pool, businesses can be more productive. In this way, even if relatively few people ride transit, the impact of the access it provides can have a profound effect on the business environment. This is such a powerful benefit that private firms like Google actually operate some of the largest transit fleets in America. APTA conducted a study in 2014 demonstrating how this effect plays out in multiple cities throughout America. Understanding the role of transit access in the productivity of the business environment is another key advantage to having a transit economic blueprint.

(3) Transit reduces the amount of money spent to move people: The “modal efficiency” of transit has long been understood in terms of attracting riders who would otherwise drive cars - (thus reducing the cost of operating and accommodating a separate vehicle for every commuter). However, the greatest efficiency may well be riders who do not own cars at all. For many transit riders (especially in cities with small and medium-sized transit systems), the absence of transit could mean either (1) foregoing employment and other activities entirely or (2) imposing costs on friends, neighbors or others to share rides by adding additional travel time and cost to other commuting trips above and beyond the cost of congestion. Hence the efficiency of offering transit service is not simply the idealistic desire to attract drivers to a more efficient mode – but in many cases affects employers, co-workers, friends family and an the entire support system of a transit user.

A Transit Economic Blueprint can readily identify and quantify (in terms of dollars, jobs, business sales and household income) how and where these and other critical economic efficiencies of transit occur. Furthermore, a good blueprint can compare investment strategies, assess the efficiency of the transit-land use relationship and identify emerging occupational, consumer and even new business-attraction segments for transit. Investing in this type of planning and market intelligence may be among the most responsible actions a state, metropolitan planning organization or transit authority can take.

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We all know some variation of the saying, what you measure is what you get. At EDR Group, we work with States and regions to help choose the right things to measure – whether for performance management over time or to support project evaluation and prioritization – and to understand how those choices affect long-term policy implementation.

Two EDR Group efforts, one recent and one ongoing, address this directly:

  1. Freight Accessibility Measurement. Naomi Stein and Glen Weisbrod presented a poster titled Freight Accessibility and Economic Development, Case Studies in Practical Measurement at this year’s TRB annual meeting. Walter Hansen famously defined accessibility as the potential of opportunities for interaction.” The poster focuses on different approaches to measuring freight accessibility, using readily available information, and argues that freight accessibility is an important performance measure and indicator of economic development and growth potential. Examples of common metrics include the number of employees within a one-day truck delivery market (approximately 3-hrs one direction) and travel time to the closest intermodal rail terminal. These measures capture how well a business can access customers, suppliers, and the broader long-distance freight network. An important conclusion of the research is that while traditional measures like travel time or level of congestion on a network link can help you understand the sources of accessibility constraints, accessibility metrics are necessary to truly understand how those problems affect the scope of economic opportunity available to businesses that rely on the freight network. Using accessibility metrics, you can start to compare the competitiveness of different locations, or forecast how accessibility might change over time, all with an eye towards economic viability.
  1. Prioritization Methods for Low-Volume Roads. EDR Group is currently working on a synthesis of practice for NCHRP on Investment Prioritization Methods for Low Volume Roads. This research was sponsored by AASHTO to address the problems faced by low volume roads in the transportation planning and funding process. Traditional approaches to measuring the importance of an investment tend to focus on volume, or on other measures like travel time savings or vehicle-miles saved that also scale with volume. For low-volume roads this creates a disadvantage and also leaves out some of the wider social and economic objectives of these facilities, including maintaining access to markets, labor, health care, and education. The synthesis project will collect information on how States address this challenge, particularly with respect to processes, procedures, and examples that integrate economic, social, and environmental metrics into the decision-making process.

EDR Group’s work fits within a national conversation as well. Just recently, USDOT modified its rules regarding measurement of delay to reflect person hours rather than vehicle hours, in an effort to make sure that all users of the transportation system are counted. Going forward, as states and regions develop greater and greater capacity for data collection, performance measurement, benchmarking, and forecasting, it will be critical to ensure that our measures truly reflect our goals and values.

                       

Naomi Stein at TRB 2017 presenting on Freight Accessibility.


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Changes in the administration, debates in Washington, and  ongoing developments in technology, climate change and infrastructure costs make it harder than ever to undertake meaningful transportation plans, corridor studies and prioritize public investments.

 

Choosing between different mixes of long-term transportation infrastructure investments for such an uncertain future is a bit like trying to walk ashore in a rising tide. As soon as you find your path, it disappears! 

The cost of over-build on an asset or transportation system can have life cycle costs that jeopardize an agency’s ability to respond to new challenges. However the societal costs of under-build in terms of safety, congestion and environmental loss can be even more taxing. It is time for transportation planners and engineers to consider the implications of different economic trajectories when assessing future traffic volumes and investment needs. 

What if energy prices (including motor fuel) rise at triple the price currently anticipated? What if foreign trade policies or changes in exchange rates significantly alter the purchasing power of the US dollar and the sourcing of American freight? What if the economy faces another major recession, or changes in trade volumes overwhelm the capacity of US ports? Changes of this type can alter the fundamental assumptions that transportation plans hold about commuting levels, freight traffic, trip patterns, highway and inter-modal capacity and overall system performance.

New tools and data sources are being developed to enable planners to build such considerations into their forecasting and scenario planning. It is increasingly possible to consider aggressive, moderate and conservative estimates of transportation needs, as well as to create investment scenarios that balance and account for different economic possibilities. Incorporating economic possibilities into planning can transform the planning process by:

(1) Adding a level of credibility and relevance to salient economic issues

(2) Responding to tough questions from business stakeholders and elected officials

(3) Enabling plans to account for up-side and down-side risk of proposed projects

(4) Demonstrating how the rationale for prioritization may change with the economy

(5) Clarifying the appropriate overall size of transportation programs

(6) Showing ways to “Right-Size” the life-cycle preservation cost for existing assets

It’s time for a conversation about serious ways to integrate economic uncertainty into the transportation planning and decision making process. 

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It is the often untold story of project evaluations: We can never be fully certain about the results. Whether it is about the selection of the best alternative for a project or about setting priorities among different projects, the results depend to a considerable extent on assumptions we make. Assumptions are embedded in our analytical choices and results: what are the appropriate weights for each factor in a multicriteria analysis? How about the discount rate in a BCA? How accurate are the data sources we rely on? Do we truly know how much a project will cost or the level of future demand?

To be unaware of uncertainties in evaluation results means missing important pieces of information that can help support smart decision-making. Tackling this challenge, Mark Sieber, Chandler Duncan and Naomi Stein of EDR Group presented a poster at the TRB Annual Meeting in D.C., whose purpose was to show a number of different ways to deal with uncertainty in evaluations.

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The poster demonstrated how when presenting the results of evaluations, it helps to avoid the appearance of deterministic accuracy and to account for both the multiple sources of uncertainty, and their respective scopes. Scenario-analysis and exploring sensitivities can help make evident that results consist of ranges of values rather than of one single value. 

The focus on uncertainty can be an uneasy message for decision makers. Prioritizations are easier when you can entirely rely on, and rank based on, a single result. At the same time, results that do consider uncertainty are of no use to decision-makers unless they are accompanied by practical decision-oriented interpretation that help differentiate those conclusions that are possible given the available information from those which should be avoided. The TRB poster presents a number of techniques available to support decision-making in this context. Going forward, EDR Group is determined to follow up on this often-underestimated topic.

 

The poster was the result of an exchange enabled through EDR Group’s affiliation with EBP in Zurich, Switzerland. EDR Group’s Naomi Stein and Chandler Duncan teamed up with Mark Sieber, who joined EDR Group from EBP in 2016, to learn from their respective project experiences in the U.S. and Switzerland about appropriate ways to deal with uncertainty.


 

 

 

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Posted by on in Infrastructure

Every four years, the American Society of Civil Engineers (ASCE) grades the condition of U.S. infrastructure on a scale of A through F. Since 1998, America’s infrastructure has earned persistent D averages. Underinvestment is a much-studied topic. EDR Group’s recent report on this issue to ASCE "Failure to Act: Closing the Infrastructure Investment Gap for America’s Economic Future” found that the most significant investment gap across all types of infrastructure is in the transportation sector, where $1 trillion in additional investment is needed over the next ten years.

 Blog_graphic.jpgThe U.S. funds federal spending on highway and transit projects through a variety of user fees that pay into the Highway Trust Fund (HTF). Fuel taxes contribute the largest share of revenues by far. In FY 2014 they constituted 87% of the HTF’s tax revenues. However, over the past 10 years spending from the HTF began exceeding revenues, a condition forecast to worsen over time (see figure at left, source: Congressional Budget Office). Increased fuel efficiency of gas-powered vehicles and popularity of alternative fuel vehicles is key driver of this trend—one that also affects state transportation funds due to their significant reliance on state fuel taxes.

Starting in 2008, Congress addressed the HTF funding problem by transferring money from elsewhere, primarily the General Fund of the U.S. Treasury. The most recent surface transportation authorization bill, the FAST Act, continued this approach, with 25% of trust fund deposits over a five-year period to come from general tax revenue rather than broad-based user fees.

What’s going on at the federal level with the Highway Trust Fund is just one piece of a much broader conversation about how to fund transportation investments and an increasingly focused legislative, political, and research exploration of creative or alternative financing mechanisms.

The November 2016 elections saw residents in a nearly half of all U.S. states voting on a large range of transportation ballot measures and initiatives with over $250 billion at stake, according to the Eno Center of Transportation. Some passed, some did not, but all grappled with the question: who should pay for transportation infrastructure and services and how can revenue generation mechanisms be structured to support sustained long-term investment in a manner that is both efficient and fair?

EDR Group is currently involved in a number of federal and state efforts that address these questions.

In one project, EDR Group is part of a team funded by the National Cooperative Highway Research Program to develop guidance on the Use of Value Capture to Fund Transportation. Value capture (sometimes referred to as value sharing) is the idea that governments may be able to share some of the commercial value created by the access provided by public infrastructure investment, and use this “captured value” to help finance transportation system investments. The project considers a variety of mechanisms including development impact fees; land value-based fees; betterment levies and special assessment fees. The research will help State DOTs assess whether value is indeed being created by transportation investments and then assess a range of value capture mechanisms based on their efficiency, equity, revenue potential, and sustainability. Key questions being answered are: how can value created by public infrastructure investments be shared; what are the legal means and practical methods for sharing value; who benefits and who pays when value capture is implemented, and how has value capture been implemented in the past. A guidebook for policymakers illustrated with case studies and real-world examples will be produced by this project.

In another project, EDR Group is working with the RUC West, a consortium of 14 western states investigation the feasibility of implementing a Road User Charge (RUC) funding system. There are several on-going projects being sponsored by RUC West, including pilot studies, to assess the financial impacts of moving from a fuel-based tax to a mileage-based fee system. EDR Group assessed “revenue neutral” mileage-based road user fees that would be required to replace current gas tax revenues. A key equity concern for the Western states is whether there would be disproportionate impacts on rural drivers due to the greater distances involved in their daily travel. EDR Group’s analysis showed that due to the combination of travel characteristics, mileage driven, and current vehicle fuel consumption characteristics, rural drivers would actually pay less in terms of total dollars spent each year under a mileage-based fee system than with the current fuel-based tax system.

Going forward, innovative finance will continue to be a key issue in the transportation world. But as we fundamentally change the ways that we pay for our transportation investments, questions about the fairness, sustainability and the ability of these new mechanisms to meet our future investment requirements will need to be addressed. Economic principles and methods can provide the insight required to help make these changes. And fostering communications between policymakers and the public will be essential to gain the acceptance needed to make changes in how we fund transportation infrastructure investments in the future.

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