Economic and Development Implications of Transportation Disinvestment (2015)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

ECONOMIC AND DEVELOPMENT IMPLICATIONS OF TRANSPORTATION DISINVESTMENT This synthesis addresses the economic implications of disinvestment (intentionally or uninten- tionally funding transportation facilities at levels below those required to maintain them in their current function) and focuses on ways that agencies can make decisions about disinvestment when funds are limited. As the 21st century progresses, it is becoming increasingly evident that it will not be possible to simply transition from an era of highway and bridge expansion to an era of preserving existing facilities as built. As America’s highways, bridges, and other facilities age, geographic shifts change where the needs are the greatest; many of the nation’s oldest and most costly facilities are serving geographic markets with dwindling population and employment. At the same time, the costs of preserving existing facilities prevent investment in new and grow- ing areas that are currently underserved. These changes point to the need for a new paradigm of strategic investment in which decision makers consider not only the strategic use of transporta- tion money to support new or existing assets, but also critically examine the most efficient use of transportation facilities and how to prepare for investment or disinvestment over time. This report contains a literature review that summarizes prior research conducted on eco- nomic implications of disinvestment, underinvestment, and related decisions. It also assesses the ability of available models and tools to support strategic disinvestment scenarios through consideration of economic implications. In addition, the synthesis draws on a survey of state transportation officials and a series of case examples illustrating the current practices of some transportation agencies. The current synthesis understands a disinvestment situation to be an instance where an agency, instead of simply tolerating underinvestment, makes a conscious choice to accept a lower performance standard or the use of an alternate facility in order to channel resources elsewhere. For this reason, this synthesis offers the following working definitions: • Disinvestment: a process by which an infrastructure asset (which may be a specific facility, program, or network) is allowed to fall below previously accepted standards of condition or performance by either (1) investing resources elsewhere, or (2) simply not investing resources in the disinvested asset. This may also include choosing not to invest in new infrastructure or assets as needed to maintain an accepted level of performance on an existing facility or system. • Intentional disinvestment: a conscious policy choice to disinvest in an infrastructure asset in order to make funds available elsewhere or to manage funding shortfalls. • Passive disinvestment: a policy choice (or series of policy choices) that while not intended to allow an infrastructure asset to fall below previously accepted standards of condition or performance has just such an effect over time. The literature review of this synthesis found a robust amount of literature on the process and implications of disinvestment in transportation systems. Available literature addresses several factors contributing to the need for highway disinvestment, including: • Shifts in who uses infrastructure and how, • Aging infrastructure, SUMMARY

2 • Fiscal constraints on agencies responsible for infrastructure, and • Climate change and its associated risks to infrastructure. Literature on how investing below target levels affects the economy includes studies on the costs of congestion, environmental damage, and safety risks to individuals and businesses using the transportation system. Literature on “underinvestment” also addresses the life-cycle costs associated with allowing transportation facilities to deteriorate in such a way that makes the inevitable improvements more costly when they do finally occur. The literature on links between investment and system performance includes models that explore how deteriorating transportation conditions impose costs on households and businesses, and how households and businesses respond to those costs in ways that affect the overall economy. The literature also documents how overall levels of investment in highways and bridges relate to the resiliency of transportation systems to perform in the face of unexpected interruptions or deficiencies. A review of models used to assess transportation disinvestment scenarios was undertaken. Working from left to right, Figure 1 shows how and when different types of models are used. Assumptions about future socio-economic conditions are applied to generate economic and traffic forecasts. Risk or probability models provide an understanding of how likely these traffic levels are to occur. Needs models are then applied to decide what type of transportation facili- ties will be required to carry this future traffic. Finally, benefit and impact models assess how much money households and businesses can save from having the right transportation facilities in place and how much more productive the economy can be than if the facilities had been inadequate. In each of these models, assumptions about system capacity, acceptable transpor- tation conditions, and the costs (or savings) associated with time, mileage, crashes, and other outcomes shape how the effects of investment or disinvestment are treated. A review of available literature and models shows that there are ways for public agencies to anticipate and prepare for disinvestment situations; however, this synthesis demonstrates that states do not always utilize or synthesize the methods shown in Figure 1. Through a series of case examples informed by interviews with officials from Minnesota, South Carolina, the Northeast Region of the National Park Service (NPS), South Dakota, Connecticut, Mississippi, and Washington State, this synthesis demonstrates how agencies approach disinvestment situations and their outcomes. The case examples show that, quite often, disinvestment situations are triggered by budgetary constraints (as found in the exam- ples of Minnesota, South Carolina, NPS, Mississippi, and Washington State). In a few cases, FIGURE 1 Role of different model types in disinvestment scenarios.

3 disinvestment situations are associated with changing traffic profiles and desired travel con- ditions (as found in the case examples of South Dakota and Connecticut). In several cases, agency staff indicated that their investment and disinvestment strategies were partially or fully dictated by higher level policy decisions, either at the state or federal level. Further- more, multiple agencies expressed reservations about conducting economic analysis, given the level of effort, because they were unsure whether the added information would actually change the selected disinvestment strategies. Nevertheless, most agency staff consulted in the case examples viewed economic analysis as important to their ability to communicate the implications of disinvestment situations to the public, legislators, and policymakers. Across the case examples, understanding system-level performance was viewed as an important pre- condition to making strategic disinvestment and investment decisions. Case studies of previ- ous projects and input from industry stakeholders were generally viewed by agency staff as a useful approach to understanding the economic implications of disinvestment. The case examples in this synthesis contain valuable information about how agencies around the United States approach disinvestment situations. The Minnesota DOT case example highlights how the long timelines of negative transportation consequences of disinvestment can make it challenging to predict economic impacts with a reasonable amount of certainty. South Carolina and Mississippi DOTs both point to the challenges faced by agencies seeking to understand the economic tradeoffs between investments in preserving existing facilities and investing in new capacity in developing areas. The case example from the NPS emphasizes that disinvestment can be a costly process, even if it achieves long-term savings in operations and maintenance. South Dakota DOT’s rail rehabilitation case demonstrates how investment and disinvestment may occur cyclically over time to respond to changes in transportation patterns. The I-84 project in Connecticut shows how, even for a single highway, designs can be changed to shift emphasis between different aspects of desired transportation conditions. The Washington State DOT case example clearly paints a picture of how decisions to over- invest in one part of a system (even passive or unintentional decisions) can result in passive disinvestment elsewhere, because of limited funding. The implications of disinvestment situations for transportation conditions are a recurring theme in all the case examples. They also consistently identify a link between a decision to disinvest in a facility and the associated decision to invest in other facilities. Many of the case examples explicitly considered the risk associated with making transportation investment choices when uncertain about future traffic levels, the actual condition of existing facilities, and potential changes in financial, policy, economic, and political realities. In addition to the literature review and case examples, a survey of state agencies was con- ducted in March and April 2014. Surveys were completed online or by telephone. Forty-one of the 50 state DOTs plus the District of Columbia and Puerto Rico replied to the survey. Based on the survey data, it was determined that states were divided evenly in terms of those that had made an intentional disinvestment choice in the last five years and those that had not. Among those agencies that did contend with disinvestment situations, most (70%) tended to face choices regarding disinvestment in entire programs or classes of roads. Among agencies facing disinvestment situations, another 50% faced a choice about disinvesting in a specific corridor or facility. Agencies did not appear to face disinvestment situations often at the corridor or sub-area level. The five-year process of developing a state transportation improvement program (list of funded projects) was by far the most likely circumstance for disinvestment situations, with 55% of respondents indicating these processes as the context of a disinvestment situation. Survey respondents indicated that, unlike new construction or other types of analysis, disinvestment is often more of an internal than a public process. The most common responses indicated that most of the scrutiny on the disinvestment process was internal to the agency, with only some degree of external scrutiny. Most of the respondents (75%) who had faced disinvestment situations had engaged in some type of process to ascertain likely economic

4 outcomes. However, the type of analysis varied from simply talking to businesses to engag- ing in formal impact modeling. When asked to assess the desirability of the analysis meth- ods, respondents expressed a desire for more rigorous analytical approaches. Ultimately, the reasons agencies do not conduct economic analysis (for those that did not) reflect pragmatic considerations (limited budget to conduct analysis), combined with some skepticism as to whether the analysis would not have affected decisions. In conclusion, key ongoing trends in infrastructure conditions, fuel technologies, changing demographics, and climate change are all driving the need for agencies to confront disinvest- ment decision making. Combining the results of the case examples, literature review, and survey yields insight into how and when agencies can most effectively address disinvestment situations. Taken together, the findings suggest that discussions about disinvestment are best informed by identifying the causes and consequences of underinvestment and progressing to a more strategic and deliberate approach. The literature on disinvestment decision making emphasizes the importance of defining the role of each transportation facility in support- ing long-term system performance under changing conditions. The findings from the case examples and survey suggest a need to expand existing approaches of needs-based planning to account for risk and uncertainty in order to adequately support disinvestment decision making. Both the case examples and the survey show that many states are only beginning to proactively consider disinvestment as a meaningful choice in their planning, programming, and systems evaluations—and economic analysis of such scenarios is in its infancy. Further- more, it is apparent that traditional techniques are underutilized when agencies confront a disinvestment scenario. However, there are promising approaches and practical steps that agencies can take to better understand disinvestment options. This synthesis suggests that future research be conducted to: 1. Demonstrate how current performance and economic models and tools can be struc- tured to assess disinvestment scenarios in ways that identify opportunities associated with resource constraints. 2. Provide a “teaching case” to enable transportation agencies to build a greater capacity to consider disinvestment and its economic implications in both their long-range plan- ning and ongoing programming decisions. 3. Better pinpoint specific innovations and data requirements that could make disinvest- ment analysis more practical and useful to practitioners.