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.

25 prompted by constrained funding. In 2010, the target for non- principal arterials was less than or equal to 3% poor quality (Minnesota DOT 2010). In 2011, the target was changed to a band of 5% to 9% poor ride quality for the state highway system (Minnesota DOT 2011). In Minnesota, the ability to identify disinvestment is closely tied to the use of perfor- mance measures. Economic implications were not explicitly assessed as part of the current disinvestment situation, but were discussed anecdotally as part of the public involve- ment process (e.g., industry representatives shared stories about how they avoid certain highways to lessen damage to trucks and goods). Discussing their confidence in economic assessment meth- ods, MnDOT staff pointed out that there is a time dimension that makes it difficult to both assess and communicate the economic implications of deteriorating pavement quality. Projections of poor pavement quality are made 10 to 20 years into the future, and much is likely to change between now and then. On the policy side, the remoteness of the nega- tive impacts prompts a process of rationalization (i.e., people assume that things will change, funding levels may improve, technology available for maintenance may improve, and/or demand profiles will change). On the impacts side, the uncer- tainty of future economic conditions appears to make eco- nomic analysis intractable or at least so uncertain as to not merit the additional effort required. Both industry composi- tion and industry dependence on transportation are likely to change significantly in the next 10 to 20 years. There is a feeling within the agency that because the poor pave- ment conditions will not appear “tomorrow,” expressing impacts in performance rather than economic terms is probably all that is justified in terms of analysis and commu- nication. On the other hand, if the degradation being assessed were immediate, according to MnDOT it would make sense to start asking question such as: Which businesses are affected, and in what ways? Is the primary affected trip- purpose commuting, transport of raw materials, or delivery of goods? The decision to accept deteriorating pavement condi- tions was communicated as part of the overall outreach process for the statewide planning process. It was difficult for the public to grasp what pavement would look like 20 years into the future. A picture-based/storytelling method was used to try to overcome this. For example, presenta- tions narrated a fictitious trip from one part of the state to To provide a high-level, cross-cutting summary of case exam- ples, this chapter presents seven case examples of transportation disinvestment. Although the cases are presented as narratives, the narratives are structured to consistently assess and compare key aspects of economic understanding in each disinvestment situation. The case narratives are presented in a common struc- ture examining the circumstances and context of the disinvest- ment situation; the interviewees understanding of the decision as an example of disinvestment; the decision-making process, including consideration of economic implications; the types of scrutiny to which the decision was subject; and finally the les- sons that can be learned from the experience. The case exam- ples culminate in a synoptic comparison of the cases and what they reveal about the current state of the practice in understand- ing the economics of transportation system disinvestment. LONG TIMELINES OF ECONOMIC IMPACTS FROM DISINVESTMENT: MINNESOTA DEPARTMENT OF TRANSPORTATION For the Minnesota DOT (MnDOT), the disinvestment situ- ation arose as part of its most recent four-year planning process and was triggered by an identified shortfall of rev- enue. The agency made the decision to partially disinvest in maintenance on non-National Highway System (NHS) assets within the state, as a result of altered investment ratios triggered by the MAP-21 emphasis on the NHS. The disinvestment situation affected an entire class of roads— Non-NHS roads comprise approximately 55% of the state highway system (Minnesota DOT 2013a). MnDOT recog- nized and understood the disinvestment as it occurred, but nevertheless believed it was constrained in its decision to accept steadily declining conditions on the non-NHS system. Leading up to the decision, MnDOT conducted a program- level tradeoff analysis between different categories of invest- ment (e.g., pavement, bridge, safety, pedestrians, and bicycles) and decided to “take the hit” in non-NHS pavement. The avail- able alternatives at the state level were constrained by the pol- icy focus of federal legislation on the NHS. Pavement quality targets remained the same following the decision. However, the accepted gap between the target and projected conditions increased the percentage of poor ride quality on the non-NHS system from 7% to 8% in 2013 to 11% to 12% in 2023—well above the current standard of 5% to 9% poor (Puentes and Prince 2003). This instance of disinvestment followed an earlier decision to lower pavement performance targets, also chapter three SUMMARY OF CASE EXAMPLES OF DISINVESTMENT

26 another, with information and images presented about what kind of pavement a user would traverse in the course of that travel. User costs were not explicitly presented; however, some advocacy groups within the state did try to offer this type of analysis. Overall, MnDOT highlighted the need to communicate all investment and disinvestment situations in terms of the resulting return on investment (ROI). For example, a recent study developed in concert with stakeholder groups from both the public and private sectors estimated an ROI of 3.1 for a 20-year program of maintenance on the state’s highway sys- tem (Minnesota DOT and Smart Growth America 2013b). The analysis uses a combination of benefit–cost and life-cycle-cost techniques, along with the proprietary PRISM analysis sys- tem. Further details of can be found in the study’s technical report (Minnesota DOT and Smart Growth America 2013c). Interviewees emphasized the inherent difficulty of communi- cating and assessing impacts that occur far into the future. It is not clear from the agency’s experience whether more data would be helpful in this process; the agency would need to be shown the clear value-added of conducting an economic analysis (as opposed to just communicating effects in per- formance terms). On the other hand, there is interest, more broadly, in understanding economic implications of the con- ditions of the transportation system. MnDOT is involved in various case-based research efforts seeking information from industry stakeholders on their transportation needs. Addi- tional work is also underway to extend current ROI meth- odology to include impacts on economic competitiveness, environmental stewardship, social equity, public health, and livability (C.A. Zelle, MnDOT Commissioner, personal communication, draft invitation to join transportation stake- holder group, July 8, 2014). The ongoing Transportation Planning to Support Eco- nomic Development in Minnesota project is being conducted by the Humphrey School of Public Affairs at the University of Minnesota to “identify the relationship between transpor- tation and economic development by investigating how firms use transportation networks and what role they play in the formation and growth of industry clusters” (Minnesota DOT 2014). Previously, a pilot study of manufacturers’ perspec- tives on transportation in southwest Minnesota was com- pleted (October 2013) in a joint effort between the University of Minnesota and MnDOT (University of Minnesota 2013a). The agency believes that these types of efforts can create sig- nificant value. However, interviewees expressed reservations as to whether the case example approach is clearly replicable or scalable. The agency staff also believes that case example material from elsewhere would be useful as long as certain common baseline characteristics were shared (e.g., industry composition). Interviewees believed it would also be produc- tive to do a comparative analysis among different areas of the country to identify the significance of particular variables (transportation or otherwise) in supporting industry activity and clustering. DEFERRED MAINTENANCE, BRIDGE CLOSURES, AND THE MOBILITY–PRESERVATION TRADEOFF: SOUTH CAROLINA DEPARTMENT OF TRANSPORTATION In South Carolina, the decision was made to temporarily sus- pend state-funded resurfacing, and more broadly to reduce the state’s budget for routine maintenance and operations. The disinvestment situation was triggered by funding shortfalls that made it difficult for the state to meet its federal-aid match requirements. To not lose out on federal funds, cuts had to be made elsewhere in the state’s budget. The cuts were made for the more than 50% of the state’s highway system that is not eligible for federally funded resurfacing. From the agency’s point of view, this was a forced dis- investment (not to do so would mean a much greater loss of funding from the federal program). It was made with a broad understanding of the consequences; however, there was no specific analysis of economic implications. Interviewees dis- cussed the generally understood life-cycle cost of deferred maintenance (i.e., if a section of pavement had been a candi- date for a particular treatment but did not receive it owing to funding shortfalls more costly reconstruction is likely to be needed in the future). Another operations-related disinvest- ment situation that occurred was the decision not to replace equipment and to continue sinking money into an asset that has little salvage value, simply because the capital is not available to purchase new equipment. The department did not undertake any economic analysis addressing the disinvestment situation. According to inter- viewees, a more informed decision would not necessarily have changed the resulting disinvestment scenario. More broadly, the agency is working to improve its asset manage- ment approaches and hopes that as they improve the agency will be better able to make specific decisions about how to spend the very limited state discretionary operating funds. The state does not currently have specific performance targets for pavement; these will be developed to comply with MAP-21. South Carolina DOT (SCDOT) staff believes that establish- ing performance targets will aid in communicating the gap in funding and its performance implications. All investment and disinvestment situations within SCDOT receive general scrutiny from both the public and the legislature. According to interviewees, the types of decisions that elicit feedback from the public and elected officials are those with high visual impact (e.g., the decision to cut back on mowing the grass). Pavement deterioration, on the other hand, is a slower process with less immediately visible outcomes. Interviewees also discussed the issue of posted and closed bridges, noting that they had not necessarily thought of those as instances of disinvestment. There are two general types of bridge closures and restrictions. The first type includes tem- porary closures of bridges that may already be on a priority list but have not yet progressed through the process of design and implementation. The second type encompasses what this

27 project considers to be a disinvestment situation: the closing of bridges with very low volumes. From a priority perspective, these bridges will never be ranked high enough to receive fund- ing. Prioritization is based primarily on the Pontis system (a software application developed to assist in managing highway bridges and other structures based on expected needs and user costs), with some allowance for engineering judgment based on factors such as the district’s ability to maintain or repair a bridge and the location of schools, fire stations, or emergency medical facilities in an area. Economic assessments are not performed. SCDOT believes that in most situations traffic vol- umes and the length of the necessary detour are good enough proxies for the economic impact of closures. However, there are cases where industry-specific information might be of use— such as where there is a closure or posting of a bridge used by the timber industry. Even though that usage many not amount to high volumes, these connections are important determinants of the “cost to haul” for the industry. SCDOT understands this cost implication and has been alerted to it by stakeholders; however, the cost implication is not explicitly quantified. In considering economic assessments of bridge closures or post- ings, the agency notes that such analysis is unlikely to “move the needle” much within the current assessment framework. It is, therefore, unclear from the agency’s perspective whether the extra effort is worth the resource cost. Finally, interviewees identified an agency-wide struggle between preservation and mobility. They framed the decision in the following manner: If you decide first and foremost to maintain what you already have, you are making an implicit decision not to invest in mobility. The erosion of mobility then appears in the form of congestion costs. This conflict is com- pounded by the issue of regional equity. From a mobility per- spective, the bulk of investment needs in South Carolina will always be in urban areas. On the other hand, in rural areas the argument is that infrastructure is needed to attract develop- ment and jobs. There is an economic tradeoff that the agency struggles to quantify: between the potential for economic development as a function of infrastructure provision in rural areas and the cost of congestion and the eroding mobility to the economic activity within urban areas. Consequently, SCDOT staff indicates a belief that economic implications can be an important determinant of combined investment and disinvestment strategies. INVEST TO DISINVEST AND UNINTENDED CONSEQUENCES: NATIONAL PARK SERVICE NORTHEAST REGION Within the National Park Service (NPS) Northeast Region (NER) a series of disinvestment situations have been prompted by implementation of national guidelines on asset manage- ment. The nationally defined approach is based on a joint deter- mination of asset priority and condition (for all park assets, including roads and bridges). The resulting score is used to prioritize investment and to identify projects for disposal (dis- posal meaning removal from the NPS preserved assets). The asset priority index (API) is used to quantify the rela- tive importance of NPS infrastructure. Calculated out of 100 possible points, the API is a weighted scoring system based on five criteria aimed at linking asset performance to the NPS core mission: (1) natural resource preservation, (2) cultural resource preservation, (3) visitor use, (4) park operations, and (5) asset suitability. The first four criteria capture different facets of the core functionality of the NPS. The fifth criterion, “asset suitability,” represents the degree to which a comparable sub- stitute is available for a given asset. Scoring in this category answers the question: “if the asset were lost, what would be the impact?” This question is particularly applicable when consid- ering the network-nature of road systems. The Facility Condi- tion Index (FCI) is the ratio between an asset’s projected cost of repairs and its current replacement value. The FCI is used to rate the facilities along a spectrum from good to serious condition. The API and FCI scores are then used to place each asset into one of five “optimizer bands” that define the appropriate level of investment for the existing asset (National Park Service 2014). Funding is (by policy) channeled toward Band 1 and 2, leftover funds are directed to Band 3, and Band 5 is flagged for disposal. The NPS NER case is an example of a program-wide dis- investment policy, managed internally within each region and subject to scrutiny from the national agency. Despite the inten- tionality of the prioritization policy, there are ambiguities about what constitutes disposal (e.g., is it simple abandonment of a road, bridge, or parking lot or does disposal require costly full removal of the asset and restoration of natural conditions?). Although the disposal policy was made intentionally, the NPS NER believes that outcomes of these disinvestment situations are not fully anticipated or accounted for—particularly in the category of disposal costs and network effects on other portions of the park system. According to the NPS NER, the economic consequences of the disinvestment situation are not defined or well-understood. The types of unaccounted for economic implications include: (1) impacts on the ability of a park to attract and handle increased visitor traffic, and (2) changing patterns of visitor spending within adjacent communities as a result of changes in the transportation network. By prioritizing maintenance on the most important transportation network segments (defined in terms of the park assets that those network links serve), traf- fic will tend to be funneled into a small subset of the parks area, thus creating congested conditions, putting disproportionate pressure on certain parts of the system, and redirecting visitor engagement from one portion of the park system (and adjacent communities) to another. In addition, the NPS NER believes that the path-dependence of disinvestment is not adequately considered. If policy changes and the NPS wants to restore a piece of the transportation network to operable conditions, this will likely require a significant amount of investment. Overall, the NPS NER experience offers two primary les- sons. First, disinvestment is far from zero cost; significant costs are likely to be incurred, ranging from enforcement of

28 closures to the expense of physically removing an asset and restoring the condition of the area afterwards; and these costs need to be weighed against both the savings on maintenance and the performance effects of removing part of the transpor- tation system. Second, a prioritization scheme that focuses on top priority assets can only result in a form of unintended blindness to the role played by lower priority assets. Although prioritization is undoubtedly important for making due within fiscal constraints, it might be accompanied by a strategy for quantifying and monitoring the system-level effects of removing portions of the transportation network. CHANGING DEMAND, DISINVESTMENT AS A BASE CASE, AND BUSINESS INPUT: SOUTH DAKOTA DEPARTMENT OF TRANSPORTATION Although the focus of the current synthesis is on highway and bridge assets, the rail experience can be instructive for under- standing how to approach the economics of transportation disinvestment. The details of this South Dakota rail case exam- ple do not fully fit the analytical structure of the other cases; nevertheless, the case is instructive because it highlights links between disinvestment and investment within an overall stra- tegic approach to transportation system performance and need. In responding to inquiries for cases, South Dakota DOT (SDDOT) reported a case of investment that actually reversed previous private-sector rail abandonment and disinvestment [i.e., a $28.3 million improvement of a state-owned rail line, supported by a federal Transportation Investment Generat- ing Economic Recovery (TIGER) grant (discretionary grants that fund capital investments in surface transportation infra- structure)]. Sixty-one miles of the rail line that parallels Inter- state 90 in central South Dakota was rehabilitated between Mitchell and Chamberlain; improving access for the region’s agricultural sector. The rehabilitation decision was triggered by the availability of a TIGER grant and changing economic conditions in the area, including increased agricultural pro- duction per acre (as a result of improved agricultural prac- tices, plant genetics, and more efficient farm consolidation) and increasing global demand for agricultural products. The interviewee viewed investment and disinvestment as two sides of the same coin: “the opposite of disinvestment is investment.” Analytically, the base case of an investment sce- nario is the build case of a disinvestment scenario. Economic impacts were a large part of the story that supported both the TIGER grant application and the overall project. The DOT considered the costs and benefits associated with the diversion of goods and mode switching between truck and rail. Accord- ing to their analysis, the rehabilitation project enables greater profits per bushel reflected in the lower costs to transport grain—a function of shortened trucking distances and reduced wait times for unloading. The project also reduces the impact of trucks on highways. What makes this investment case example unique is that the rehabilitation project actually reversed a pattern of private- sector rail abandonment and disinvestment over many years. Moreover, the decision to improve the line is an example of an agency exercising a “real option” (as described in chapter two). The option was purchased much earlier when the rail line was first acquired by the state from private-sector own- ers who no longer found it profitable to continue operations. By acquiring the line, SDDOT created the option to restore higher levels of service in the future if demand improved. In the interim, disinvestment occurred because of resource con- straints and insufficient users and demand to warrant project investment. Eventually, SDDOT determined that the economic conditions and the expected demand had improved adequately to justify investment. Because the line was in state owner- ship, the cost to upgrade was less than it would have been to acquire land and build an entirely new line. In this example, SDDOT made an initial investment to acquire the option to later upgrade service without starting over (and thus incurring the greater costs required to start from nothing). Ownership of the rail line gave the agency the flexibility to wait until line rehabilitation became a prudent choice, because of changes in demand and funding. The agency then exercised its previously purchased real option. SDDOT was also asked if transportation disinvestment was studied outside the context of defining the need for a transpor- tation project or service. In response, the interviewee noted that there are resource barriers to doing so and that all analyti- cal efforts go into trying to study and support “investments that appear to offer the greatest return.” Nevertheless, the agency does believe that it can identify instances where resource con- straints have led to unintentional disinvestment or insufficient investment by users and the public. Key industry stakehold- ers often provide input when they believe additional invest- ment is needed. This highlights that defining transportation system performance can be difficult depending on the level of complexity of the regional transportation and economic system. A state with a large export-based economy such as South Dakota may be able to define tradeoffs and economic needs vis-à-vis transportation more clearly than a state with many sectors and conflicting demands. As stated by the inter- viewee: “We listen to stakeholders.” In general, SDDOT believes that before-and-after studies of economic impacts from previous projects can also be useful when faced with a disinvestment situation, as they seek to identify the for- gone benefits associated with limited revenues and resource constraints. EVOLVING PERFORMANCE NEEDS, ECONOMIC OBJECTIVES, AND THE URBAN INTERSTATE: CONNECTICUT DEPARTMENT OF TRANSPORTATION This Connecticut case example describes an instance where varying degrees of disinvestment are under consideration by the DOT for replacement of an urban interstate. The section of I-84 that runs through downtown Hartford is nearing the end of its useful life, requiring more intense

29 and more frequent maintenance and rehabilitation work. In addition, the viaduct is characterized by transportation per- formance deficiencies, including operational problems at interchanges that handle volumes as much as three times their original design capacity. The deficiencies result in what the agency views as unacceptable levels of conges- tion and an unacceptably high accident rate for the corridor. Connecticut DOT is now in the early stages of The I-84 Hartford Project, which will define needs and deficiencies, develop alternatives, move through the NEPA process, and ultimately adopt and implement a preferred alternative (Connecticut DOT 2014c). A 2010 joint study by the city of Hartford, Connecticut DOT, and the Capital Region Council of Governments (CRCOG) compared different replacement strategies (including tun- nels, at-grade replacement, and viaduct modernization) with goals related to transportation performance, urban design, and economic development (CRCOG 2010). The I-84 viaduct is just one example of an urban interstate that is currently being assessed to see if its current form still meets community needs and a current understanding of performance. The Congress for the New Urbanism, an advocacy group focused on “walk- able, mixed used development, sustainable communities, and healthier living conditions” (Congress for the New Urban- ism 2011) publishes an annual list of “Freeways Without Futures,” which has argued that there may be locations in North America where greater economic growth could be stimulated by replacing urban highways with other lower- impact forms, such as urban boulevards (Congress for the New Urbanism 2014). The conversation around “highway removal” is indicative of a planning paradigm for urban interstates that has changed over the last 50 years. Many urban communities are moving toward an increased focus on ground-level connectivity and economic development and questioning whether the large footprint of urban inter- states and access ramps should be re-designed to meet broader development goals. At the same time, the role played by interstates in regional access and freight move- ment remains important. Alternatives for the I-84 project are currently under develop- ment. There are three general replacement options available, which could be combined in a number of ways: replacement with modern bridges, at-grade replacement with rail reloca- tion, and a below grade tunnel. These options could be com- bined with other strategies including potential realignment of the rail line and viaducts that are located in the same corridor. One of the primary reasons that I-84 was initially built as a viaduct was to cross over the railroad (twice) (Connecticut DOT 2014d). A likely scenario that would maintain inter- state functionality while also meeting local economic devel- opment objectives would be to modernize the design to have a smaller footprint, with consolidated and/or rebuilt access ramps. This project is included as a disinvestment case example because some of the reconstruction options would lower performance in certain categories or remove parts of the structure to increase performance in other areas. The case highlights the types of choices faced by managers of aging infrastructure when both demand profiles and a community’s understanding of needs may have shifted since the original construction. The evaluation process for the I-84 project has yet to begin. According to Connecticut DOT, socioeconomic impacts will be reviewed and considered as required by the NEPA process. In terms of specific analyses, a likely assessment method for economic impacts will be to look at market conditions for residential or commercial uses on the land that would be freed up by each of the design alternatives. Life-cycle costs are likely to be a key driver of the final decision. Connecticut DOT expressed general confidence in the NEPA process to adequately capture economic implications of the different alternatives. The interviewee did, however, point out the funding risk for a large project such as this. That is, even if an alternative is determined to be the most desir- able, there is the very real possibility that funding will not materialize and the base case will become a de-facto build case. The base case carries with it significant operational costs that would be borne disproportionally by the state (as compared with the project case that would presumably receive a high percentage of federal funds). A public Advisory Committee has been convened to pro- vide input to the process. In that setting, Connecticut DOT is navigating some degree of conflict between stakeholders interested in different dimensions of economic develop- ment. There is tension between objectives related to market and freight access that depend on longer-distance, high- speed travel along the interstate and local development that could be supported by better connectivity at ground level and more developable land. In terms of lessons learned, this case demonstrates how consideration of disinvestment can be triggered by increas- ing maintenance costs, changing demand, and by a chang- ing understanding of the performance goals for a particular piece of infrastructure. This is particularly true in the case of urban interstates, but applies to other types of transporta- tion assets as well. The case also highlights the close link between disinvestment and investment. Even at the corridor or single-asset level investment and design strategies may be updated to strategically shift emphasis toward one set of objectives (e.g., improving local connectivity and land devel- opment potential) and away from another set of objectives that had previously received more emphasis (e.g., provid- ing easy access and unrestricted mobility to vehicles within the downtown area). Finally, I-84 demonstrates the influence of policy dictates on available investment strategies. The interstate system has certain mandated performance require- ments that prevent some alternatives (such as conversion to a boulevard) from being implemented, unless the status of the roadway is changed.

30 SIMULTANEOUS INVESTMENT AND DISINVESTMENT: MISSISSIPPI DEPARTMENT OF TRANSPORTATION Mississippi DOT defines its case of disinvestment as three rounds of funding cuts that were made in the last three years, affecting the entire system and all programs. This phased dis- investment was triggered by a funding shortfall; the agency had been projecting revenue growth of a few percent per year; however, current estimates are now adjusted downward to project flat funding, at best, because of reductions in VMT and revenue from the fuel tax. Cuts were made at the program level and have prompted a closer look at the prioritization process within each area. Mississippi DOT reports a slight shift toward maintenance and away from new investments. For Mississippi DOT, as with many of the other cases, addressing the disinvestment situation is closely related to investment decisions. In 2002, the state legislature passed Vision 21, which includes requirements to create four-lane highways across the state. The legislatively required invest- ments influence the overall investment and disinvestment strategy of Mississippi DOT both because of the earmarking of certain funds and because maintenance costs were not built into the funding package for Vision 21. In analyzing the effect of overall program cuts, Mississippi DOT reports not looking closely at economic impacts. From Mississippi DOT’s perspective, it appears that calculating eco- nomic implications of program cuts would be a useful com- munication’s tool. However, the interviewee was not clear on how such an analysis would change the actual content of dis- investment situations being addressed and therefore believes that the value-added for the extra effort is not obvious. Within the long-range planning process, an economic model is used in conjunction with a travel demand model to examine the eco- nomic impacts of investment and disinvestment scenarios for key corridors. The analysis is broad and does not look at project-specific details. Mississippi DOT was also asked about the economic impacts of new four-lane highways planned within the Vision 21 program. It believes that it does not have adequate tools to quantify the economic development that would be forgone if new four-lane highways are not con- structed. Thus, the tools are not sufficient to assess economic tradeoffs between budget cuts to transportation programs and investment in greater capacity. Mississippi DOT hopes in the future to more closely work with the Mississippi Development Authority to improve its understanding of the economic impli- cations of different transportation investment strategies. Responding to questions about scrutiny for disinvestment situations, the interviewee described a parallel but unrelated task force set up by the state senate to review the transparency of decision making within the agency. Industry leaders were involved and raised questions about how Mississippi DOT prioritizes projects. The agency does not believe that that interaction offered any new understanding of the economic impacts of different investment strategies. It did, however, improve communication between economic stakeholders and agency decision makers. In addition, the process increased the visibility of the economic consequences of disinvestment to the state legislature through the involvement of industry lead- ers (e.g., the Mississippi Manufacturers Association, Poultry Association, and Road Builders Association). This case example highlights a couple of main points. First, it shows that while economic assessment can in principle be used for both communication of needs and for decision support, it is not always clear to state DOTs how decisions prompted by budgetary shortfalls would be altered by improved economic assessment. There is a certain level of “proving” that has to happen before widespread adoption can occur. Second, the effect of Vision 21 on Mississippi DOT’s investment strate- gies is indicative of a general phenomenon: given a limited budget, policy mandates for a given investment strategy will tend to have ripple effects in terms of the ability of an agency to maintain its assets elsewhere in the system. Although there is a general understanding of this effect, the tradeoff is most often not explicitly quantified. INTENTIONAL ADJUSTMENT OF PAVEMENT AND SAFETY APPROACHES TO LOWER COST AND MEET NEEDS: WASHINGTON STATE DEPARTMENT OF TRANSPORTATION The following case example reviews two specific disinvestment situations addressed by Washington State DOT (WSDOT), within a broader context of making proactive choices to change where revenues are invested in order to achieve realistic perfor- mance outcomes. As in many of the other cases these decisions were triggered by fiscal constraints. Financing assumptions and bond sales for WSDOT had previously been based on a 4% construction cost index and 3% annual growth in VMT (which determines fuel tax revenue). Leading up to 2007, VMT growth flattened out, while at the same time the state experienced double-digit cost inflation in 2006 and 2007, resulting in a $1.5 billion deficit relative to previous project funding levels. Two very large federal bonds (GARVEE and TIFIA) had also been floated based on the backing from future revenues. This put the agency in a situation in 2007 where it was looking very closely at how to use its uncommitted federal and state revenues to preserve existing assets and maintain its programs. Every past practice was “put on the table” for scrutiny. The interviewees presented details of two specific cases, but were careful to note that the general approach was similar across the board with the agency. One case relates to pave- ment and the other case is from WSDOT’s safety program. Scrutiny of the pavement program revealed high costs for asphalt paving (hot mix asphalt) relative to chip seal (bitumi- nous surface treatment) treatments. This led to a consideration of roads with higher volumes than the previously established

31 2,000 average annual daily traffic (AADT) limit for the chip seal treatment. The agency analyzed roads in the 2,000–10,000 AADT range and found that 5,000 miles in the system had a truck load profile (measured in ESALs—equivalent single axle loads) similar to that of the under 2,000 AADT roads. Based on the assumption that truck loading is the primary driver of wear and tear, the agency modified its investment rules to apply the chip seal treatment to the mileage in the 2,000–10,000 AADT range. Given that the pavement depth on the 2,000– 10,000 AADT roads was significantly greater than that in the 0–2,000 AADT range, WSDOT considered the decision to be fairly low risk. The DOT believes that while this can be viewed as disinvestment in the strictest sense, it is really an example of using a life-cycle cost-based analysis to sup- port better decision making. Moreover, the agency recognizes that there are opportunity costs associated with continuing the higher-cost investment rule. Continuing to pay for higher-cost treatments where they were not needed would mean encoun- tering a funding shortfall elsewhere in the system. Such a decision would risk cases where deferred maintenance caused other roads to lose their structural integrity and require more expensive reconstruction in the future. Those consequences would in turn amount to passive disinvestment in other parts of the network. As WSDOT views it, the agency opted for a more intentional “disinvestment” strategy to achieve and sustain the required performance characteristics across their system. In the safety program, scrutiny of investment strategies resulted in the adoption of a more “flexible” approach: WSDOT began to analyze data on the top three types of acci- dents that caused approximately 70% of fatal and serious injury accidents in the state. The analysis looked for specific contributing factors. The agency then altered its approach to target those specific factors. In their words, this meant a shift from re-designing to “address all things possible” to address- ing “all things probable.” In general, the DOT’s strategy has been to broaden its hori- zon for available solutions and to recognize that there are mul- tiple ways to achieve performance. WSDOT works to ensure that communication occurs across programs within the agency to understand tradeoffs between performance in different cat- egories or at various locations within the network. When a particular treatment or program is no longer achieving a high enough return on investment the agency retires the strategy; that is, it keeps track of and identifies cases of diminishing returns. Overall, the agency’s approach to updating investment strategies is based on transportation performance rather than economic analysis. The Gray Notebook is used to communicate with the pub- lic about performance, conditions, investment decisions, and funding. WSDOT staff refers to this as “performance jour- nalism.” The entire program of investment in Washington State is built around legislatively defined performance areas and goals. Going forward, the agency hopes to more closely tie decisions at the planning level down to the specific level where performance is measured. The interviewees reported that they are, as an agency, cur- rently grappling with understanding the economic implica- tions of different investment and disinvestment strategies. The interest level in new methods is quite high. For example, the agency would benefit from an improved understanding of the land-use implications of transportation investment. They would like to be able to understand how an intersection re-design might trigger new development, which in turn cre- ates the need for further investment in the local road net- work. Land-use outcomes are viewed as important because they affect not only the economics of the region but also the funding needs of the DOT. In general, WSDOT staff view performance-based planning as a key prerequisite to economic analysis. The agency is also working to incorporate a broad understanding of risk (beyond cost-related risk) into their management; for example, political risk is considered when dealing with safety. If the agency works with a community early on, before performance degrades too far, it can imple- ment lower cost solutions and avoid “mega-fixes” that might be forced from the political arena. As with some of the other agencies interviewed, WSDOT staff indicated that tradeoff analyses are often missing from higher-level policy discussions, particularly at the national level: Any modification to policy or design standards has both financial and performance implications for state DOTs. WSDOT would like to develop a process that recognizes those implications and then asks if resulting changes are acceptable, given the objective of the proposed policy modification. In their own words, “they’re all great decisions; it’s just those great decisions have great counterparts.” SUMMARY AND LESSONS LEARNED Tables 1 and 2 summarize the key dimensions of the seven case examples detailed in this chapter. As can be seen from the tables, there are certain commonalities among the cases. Many of the disinvestment situations are triggered by bud- getary constraints (Minnesota, South Carolina, National Park System, Mississippi, and Washington State). A few are associ- ated with changing demand profiles and performance require- ments (South Dakota and Connecticut). In many of the cases, agency staff indicated that their investment and disinvest- ment strategies were partially or fully dictated by higher-level policy decisions, either at the state or federal level. 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. They nevertheless viewed economic analysis as important to their ability to communi- cate the implications of disinvestment, particularly to the pub- lic, legislators, and policymakers. Across the case examples, understanding system-level performance was viewed as an

disinvestment; • Case example material and outreach to industry would be valuable; and • Agencies are grappling with the economic tradeoff between investing in mobility and investing in preservation; and • The cost to dispose (enforcement, physical removal) and the performance effects of removing part of the transportation system should be weighed against savings on maintenance; and • Defining performance is more straightforward in an example like the South Dakota railroad situation than it might be in more complex or urban systems; and • Investment and disinvestment strategies are influenced by national policy. • Investment and disinvestment strategies are influenced by national policy. • Focusing on top priority assets should not mean forgetting about the role played by lower priority assets. • Case example material of project-level economic impacts can help define the forgone benefits from not investing. Minnesota DOT South Carolina DOT NPS Northeast Region South Dakota DOT 1. Circumstances of the Decision Triggered by funding shortfall; within the long-range planning process. Triggered by funding shortfall; difficulty in meeting federal-aid match requirement. Prompted by national policy to implement asset management and identify non-critical/poor condition assets for disposal (a cost savings initiative). Changing economic conditions (increased agricultural productivity) increasing demand for rail service. 2. Defining Disinvestment Intentional but constrained decision to accept declining pavement conditions on the non- NHS system; prior decision to change performance targets. Intentional but constrained decision to suspend state-funded resurfacing and reduce the state’s budget for routine maintenance and operations; also discussed bridge closures. Funding channeled by policy to Band 1, 2, and 3 assets; Band 5 flagged for disposal; ambiguity about the definition of disposal (closure versus full removal) Rail rehabilitation based on improved demand that reversed a previous process of gradual disinvestment; exercising a real- option that was purchased when the agency acquired the abandoned line. 3. Decision Process Program-level tradeoff analysis; no economic analysis (discussed anecdotally). Broad understanding of consequences—life-cycles costs of deferred maintenance and equipment replacement—but no specific analysis. Bridge closures based on asset conditions and traffic volumes. Based on a joint scoring with the Asset Priority Index (API) and the Facility Condition Index (FCI); no economic analysis or consideration of the up-front cost of disinvestment. The base case of an investment scenario is the build case of a disinvestment scenario; analysis projected greater profits per bushel due to lower costs to transport grain. 4. Confidence in Assessment Methods Long timeline of performance changes makes it difficult to project future economic impacts (given that much will change in the future). No economic analysis, but agency is unsure if a more informed decision would have changed the decision. For bridge closures, transportation performance viewed as an adequate proxy for economic impacts. Prioritization scheme neglects the consequences of disinvestment; unaccounted for effects on visitor usage patterns within the parks due to disinvestment in part of the transportation system (which has implications for visitor spending patterns). Resource constraints tend to focus assessment efforts on investment rather than disinvestment; input from stakeholders can be helpful in identifying likely outcomes and cases of passive disinvestment. 5. Scrutiny of the Decision Part of outreach for statewide planning; picture-based storytelling method used to communicate pavement conditions 20 years in the future. Highly visual disinvestment receives feedback from the public (e.g., reduce grass mowing); pavement deterioration is slower and less visible. Internal process within the Northeast Region, for compliance with national policy. The more complex the system is, the harder it is to anticipate the effects of disinvestment. South Dakota provides an opportunity to consider a reasonably straightforward example. 6. Lessons Learned • Long timelines of performance impacts make predicting economic outcomes more difficult; • The value added from additional economic analyses is not always clear to an agency faced with • Disinvestment is far from zero cost; • Investment and disinvestment may occur cyclically over time to respond to demand shifts; TABLE 1 SUMMARY OF CASE EXAMPLES—PART I

• Even at the corridor or single-asset level, designs can be changed to shift emphasis between different categories of performance. • Policy mandates for a given investment strategy will have ripple effects within an agency; and • Continuing a non-optimal investment strategy can result in passive disinvestment elsewhere within a system; and • Agencies want to quantify the economic tradeoff between investing in mobility and investing in preservation. • A risk-based approach can aid in decision making. Connecticut DOT Mississippi DOT Washington State DOT 1. Circumstances of the Decision Elevated urban interstate nearing the end of its useful life, requiring more frequent maintenance and rehabilitation; broader context of changing emphasis on local development and connectivity objectives. Triggered by funding shortfall; previously expected revenues adjusted downward because of slowing VMT growth and decreased revenue from the fuel tax. Triggered by funding shortfalls; slowing VMT growth and cost inflation eroded agency revenue; bonds backed by future revenues constrain the availability of uncommitted funds. 2. Defining Disinvestment Reconstruction options (e.g., consolidating access ramps) can be described as disinvestment as they would lower certain performance standards or remove parts of the viaduct structure in order to increase performance in other areas. Three rounds of funding cuts at the program level that prompted a closer look at prioritization within each program area; disinvestment occurred alongside a legislatively mandated 4-lane highway investment program. Changing standard for application of a lower- cost pavement treatment based on usage patterns; transition to more targeted safety solutions based on analysis of accident contributing factors. 3. Decision Process Socioeconomic impacts to be assessed within NEPA; likely to conduct specific analysis of real estate development potential on land freed up by lower-footprint replacement designs. Did not look closely at economic impacts of disinvestment; economic impact model used to assess broad investment scenarios for corridors; no project-specific analysis. Decisions based on transportation performance tradeoffs rather than economic analysis. 4. Confidence in Assessment Methods Confident in assessment methods but wary of funding risk: even if alternative is selected, funding constraints could cause the high- cost base case to become the de facto build case. Understanding economic implications appreciated as a communication tool but agency is unsure if improved analysis would alter the actual disinvestment situation addressed; tools are insufficient to assess economic tradeoffs between maintenance and capacity investment. Currently grappling with the need for economic assessment methods; interested in understanding the feedback loop between transportation investments, land-use changes, and changing travel demand; views performance-based planning as a key prerequisite to economic analysis. 5. Scrutiny of the Decision Public Advisory Committee; navigating conflict between stakeholders interested in economic impacts at different geographic scales (local vs. regional). Outreach to industry community as a part of a broad task force on agency transparency; industry involvement improved visibility of economic implications of disinvestment. The Gray Notebook is used to communicate with the public about performance, conditions, investment decisions, and funding; referred to as “performance journalism.” 6. Lessons Learned • Disinvestment can be triggered by increasing maintenance costs, changing demand, and by a changing understanding of performance; and • The value added from additional economic analyses is not always clear to an agency faced with disinvestment; • Some disinvestment situations are really examples of using a life-cycle cost-based analysis to support better decision making; TABLE 2 SUMMARY OF CASE EXAMPLES—PART II

34 important precondition to making strategic disinvestment and investment decisions. Case examples of previous projects and input from industry stakeholders were generally viewed as a useful approach to understanding the economic implications of disinvestment. The MnDOT case highlights how the long timelines of negative performance impacts from disinvestment can make it challenging to predict economic impacts with a reasonable amount of certainty. South Carolina and Mississippi both pointed to the challenges faced by agencies seeking to under- stand the economic tradeoffs between investments in system preservation and investments in system capacity. The case example from the National Park Service Northeast Region emphasized that disinvestment can be a costly process, even if it achieves savings in operations and maintenance in the long run. South Dakota’s rail rehabilitation case demonstrates how investment and disinvestment may occur cyclically over time to respond to demand shifts. The I-84 project in Con- necticut shows how, even at the corridor or single-asset level, designs can be changed to shift emphasis between different categories of performance. Washington State clearly paints a picture of how decisions to overinvest in one part of a system (even passive or unintentional decisions) can result in passive disinvestment elsewhere, because of limited funding. Overall, the interconnectivity of system performance and the relationship between investment and disinvestment is a key recurring theme. Additionally, many of the cases address risk related to uncertainties of one form or another, including uncertainties of demand; asset conditions over time; financial, policy, and political realities; and future economic conditions.