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50C H A P T E R 6 Economic FactorsBackground Literature Transportation investments have the potential to affect net economic growth and spatial and temporal distributions of wealth. They influence the economy not only by affecting user costs such as energy consumption, vehicle maintenance, accident frequency, and travel time, but also business costs associated with inventory, logistics, reliability, just-in-time processing, and fluctuations in market areas for workers, cus- tomers, and deliveries. But financial resources are always lim- ited, thus it is important for decision makers to consider economic costs and benefits of potential projects and pro- grams and select those that maximize the positive outcomes to the greatest extent possible (Lakshmanan and Chatterjee, 2005; Weisbrod et al., 2001; Lewis, 1991). There are two types of costs and benefits: those that accrue to users of the system, and those that accrue to the economy at large. Methods for identifying user costs include life-cycle cost analysis and benefit/cost analysis (BCA). Methods for determining cascading impacts throughout the wider econ- omy, known as economic impact analysis (EIA), vary with complexity. Simple methods for EIA include surveys, market studies, and comparable case studies. More complex methods include econometric productivity models and input/output models. The most advanced economic impact assessment mod- els integrate with travel demand models, land use models, and dynamic simulation economic models. Several reports review the importance of economic analysis and present technical methods, best practices, and pitfalls to avoid. (FHWA, 2003; Lewis, 1991; AASHTO, 1977; Weisbrod and Weisbrod, 1997). The Economic Development 2002 Conference (TED2002) was devoted to these and other topics related to transporta- tion economics, including rural travel, freight movement, decision-making techniques, and joint development efforts (Roskin, 2003). The methods used to determine economic impacts result in performance measures that aid decision makers in projector program selection. Thus the results of these methods, which rely on performance measures of other types (e.g., mobility through monetized travel-time savings, safety through crash reductions and associated costs) may themselves be considered economic performance measures: ⢠Life-cycle cost; ⢠Life-cycle benefit; ⢠Net present value; ⢠Rate of return; ⢠Benefit/cost ratio; ⢠First-year benefit ratio; and ⢠Payback period (FHWA, 2003; Lewis, 1991; AASHTO, 1977). A separate set of performance measures is relevant to eco- nomic development impacts. For example, studies worldwide have shown greater access to larger employment markets increases the potential for people to earn higher incomes, thus improving metropolitan economic performance. Mea- sures of accessibility to jobs have been suggested as proxy indicators for economic growth (Cox, 2007). Other common measures of regional economic development include: ⢠Jobs created; ⢠Gross regional product (GRP); and ⢠Change in personal income. Regional economic development benefits can be incorpo- rated into the economic impact measures described above (i.e., on the benefits side of the equation) although caution must be used to ensure that benefits are not double-counted with other benefits such as mobility/travel-time savings. Key Findings The remainder of this section examines important trends with respect to economic impacts of transportation investments.
51Economic trends indicate increasing demand for trans- portation. Globalization and international trade are increas- ing the amount of goods moved across borders. Freight is moving over longer distances as companies decentralize and outsource their manufacturing processes. Just-in-time pro- duction technology and an increase in small, lightweight, high-value goods are increasing the importance of travel time and reliability. Intermodal goods movement is increasing, not only as a result of international trade, but also as businesses seek the most efficient combinations of modes. Business and leisure air travel is increasing as long-distance business rela- tionships increase and as wealth and personal incomes rise (Cambridge Systematics, Inc., 2002b). Agencies should attempt to consider the full range of costs and benefits in their analyses. Monetization of performance measures relating to mobility, safety, system preservation, environmental quality/health, and economic development holds promise, though measures relating to customer satis- faction, environmental justice, quality of life, security, and sustainability are more difficult to monetize (Economic Devel- opment Research Group, Inc., 2007). In addition, some state transportation agencies may be resistive to economic analy- ses for several reasons: ⢠Skepticism concerning accuracy of the available technical methods due to perceived uncertainties in valuing costs and benefits; ⢠Perception that the workload is excessive relative to agency resources; and ⢠Concern the results could conflict with preferred or man- dated outcomes. These concerns are largely unwarranted as known uncertain- ties may be managed, BCA becomes easier with practice (espe- cially for less complex projects), and objective and independent assessment of economic consequences can only contribute valuable information to a decision process (FHWA, 2003). Benefit/cost analysis and economic impact analysis are two distinct methods. BCA, and the related net present value (NPV), demonstrate whether a project is worth the resources that will be invested in it. Economic impact analysis (EIA) demonstrates how these benefits and costs will be distributed throughout the economy. The results of these studies are complementary, not additive (FHWA, 2003). Two recent statewide studies demonstrate the difference. Colorado DOT adapted benefit/cost analysis methodologies from several agencies and organizations to estimate user benefits and costs for three alternative investment scenarios based on its 2030 long-range transportation plan. The study did not quan- titatively consider wider impacts on the economy (Pickton et al., 2007). Conversely, Kansas DOT sponsored a study that used an input/output model to approximate direct,indirect, and induced output, income, and employment of the Kansas Comprehensive Transportation Program from 1999 to 2004. This study did not consider user benefits (Babcock, 2004). Economic performance measurement should differentiate between net growth and redistribution of wealth. Though the literature overwhelmingly asserts that transportation investments have a positive and significant impact on economic outcomes, it cautions decision makers to discern between eco- nomic growth and redistribution of wealth (Lewis, 1991; GAO, 2005). For example, investments targeting congestion in a central business district (CBD) may benefit the CBD only, while investments targeting congestion in an industrial zone or in the suburbs may have positive cascading effects throughout the entire metro area (Weisbrod et al., 2001). Congestion reduction efforts greatly benefit companies with highly specialized input and labor requirements and those companies that engage in a great deal of truck shipping. Redistribution of benefits may be spatial, temporal, or socio- economic in nature (Lakshmanan and Chatterjee, 2005; Weis- brod et al., 2001). Outcome evaluations should be conducted to gauge accu- racy of predicted costs and benefits. Though transportation projects are often selected based on perceived indirect bene- fits, the literature suggests highway and transit projects rarely meet projected outcomes of cost and usage. It is likely they fall short of achieving indirect benefits as well, but outcomes of transportation projects are rarely monitored so it is not known for certain. The Federal Transit Administration recently instituted a requirement for before-and-after studies of tran- sit projects funded under New Starts, however, there are no requirements for economic analysis of highway projects because those are funded under a formula program (GAO, 2005). Practitioners in the United States can look to other developed countries such as Canada, Australia, Japan, and New Zealand for their use of before-and-after studies (MacDonald et al., 2004). Economic Performance Factors and Objectives Transportation investments have significant potential eco- nomic benefits and impacts that are often considered in analyses of potential capacity expansion projects. Transporta- tion infrastructure plays a vital role in the economy at local, regional, and national levels and investments in this infra- structure provide benefits through improved accessibility, reduced travel times, and similar changes. Infrastructure investments also can disrupt economic activities by restrict- ing access to businesses during construction or taking local businesses as part of right-of-way acquisition. The framework considers two economic factors:
521. Economic Impacts â These impacts include monetized user benefits such as travel-time savings and fuel and nonfuel cost savings, improvements in reliability, and safety benefits. 2. Economic Development â Economic development captures the broader economic benefits that can accrue as a result of transportation investment. This factor includes productiv- ity effects driven by supply chain improvements, accessibil- ity benefits, and more general macroeconomic impacts such as regional economic output and employment.The SHRP 2 Capacity program is conducting research into economic factors and potential performance measures as part of the C03 project, Interactions between Transportation Capacity, Economic Systems, and Land Use and Economic Considerations in Project Development. Measures for this section of the framework will be developed as part of the C03 effort.
