Development of Tools for Assessing Wider Economic Benefits of Transportation (2014)

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5Overview of Wider Transportation Benefits Defining the Concept of Wider Benefits What are wider benefits? Traditionally, benefit–cost analyses for transportation projects in North America have focused on measurement of transportation system efficiency, represented in terms of direct effects on travel time, vehicle operating cost, and collision incident cost—collectively referred to as trav- eler or “user” benefits. Broader measures of societal benefit commonly add a valuation of pollution emissions reduction. Other environmental and social effects on communities can also be added, but in North America they have generally been treated as externalities that are difficult or impossible to mon- etize (i.e., express in monetary terms). Sometimes other envi- ronmental and social impacts are ignored in benefit–cost analysis because adverse impacts are already covered under environmental review processes in the United States. It has also been recognized, for some time, that a transpor- tation improvement project can benefit other parties besides the traveler. In particular, the direct effects on travelers can subsequently lead to broader indirect effects on the economy. For instance, savings in business delivery costs may allow businesses to generate greater income, or products to be offered at lower prices—which in turn can lead to greater economic growth. Savings in household transportation costs may also allow households to buy more local goods and services, which can also lead to greater economic growth. The greater eco- nomic growth can be viewed in terms of added jobs, wages, or value added (gross domestic product). However, transportation improvement projects can also lead directly to wider benefits that are not captured by the previously-cited set of traveler benefits and their indirect effects. These are impacts on business productivity—factors that enable businesses to gain efficiency by reorganizing their operations or changing the mix of inputs used to generate products and services. These effects are sometimes referred to as technology change. There are at least three classes of trans- portation system impacts that can directly lead to wider ben- efits for business organization and operation. These three classes of wider effects are the focus of this report. They are reliability effects, intermodal connectivity effects, and market access. Reliability Effects Some transportation projects are designed to reduce conges- tion. Those projects may reduce not only average travel times, but also the likelihood of traffic incidents and length of traffic backups that result from each incident. That brings less vari- ability and uncertainty in freight pickup and drop-off times and hence fewer late deliveries. The reduction in late deliveries can enable reduction in inventories (safety stocks) and more cen- tralized warehousing and delivery processes to be put in place. These effects are often referred to as supply chain logistics ben- efits. It is also possible for reliability improvement to reduce employee lateness and hence enable business operations to make more productive use of workers who show up on time. This effect is often referred to as a labor productivity benefit. Figure 2.1 illustrates a typical dispersion of travel times under congested conditions and shows the difference between mean travel time (~10 minutes) and the added schedule pad- ding (buffer time) that a business must add to its schedule to ensure 95% on-time delivery (which in this case adds around 6½ minutes). An alternative measure is the standard deviation around the mean (which in this case is a range of around 7 minutes). Figure 2.1 and other aspects of reliability measure- ment and impact are discussed in Chapter 3. Market Access Some transportation projects have the effect of expanding the breadth of destinations that can be served by same-day truck deliveries from a given business location, or the breadth of C h a p T e r 2 Accounting Framework

6area from which a business can reasonably expect to draw customers and workers. These effects are often represented as changes in the effective size or the effective density of the customer market and labor market available to the firm. Expansion of the customer delivery market can enable scale economies in production and delivery processes. Similarly, expansion of the worker labor market can enable scale econo- mies through better matching of specialized business needs and specialized worker skills, and can also enable more inno- vation through greater interaction of complementary firms and their employees. These are sometimes referred to as agglom- eration benefits, insofar as they enable the benefits of closer worker and business proximity to be realized without requir- ing the physical relocation of firms or households. Figure 2.2 shows how a transportation improvement can expand the effective market area for car or truck access to an employment or activity center. In this case, it shows how a highway extension (I-90) and highway expansion (I-93) proj- ect broadened the area from which residents could access Boston’s airport within a given travel time. Further aspects of market access measurement and impact are discussed in Chapter 5. Intermodal Connectivity Effects Some transportation projects have the effect of enhancing the frequency of service and reducing total time involved for bus, car, and/or truck movements from business locations to inter- modal terminals (including airports, marine ports, rail ter- minals or intermodal truck or rail facilities), and vice versa. Other transportation projects may enhance the frequency of air, marine, or rail services, or the breadth of origins and des- tinations directly accessible from those terminals. Either way, the result is a faster movement for intermodal travel between some origins and destinations. That can be viewed as reduc- ing time and cost for existing movements, as well as enabling new movements between origins and destinations that were previously not practical or economically feasible. Trips (in 000's) 600 500 400 300 200 100 0 0 8 10 15 16.5 Minutes Standard Deviation 95 th Percentile Source: Cambridge Systematics et al. 2013. Figure 2.1. Travel time reliability metrics. Source: Economic Development Research Group 2006. Figure 2.2. Market access measurement: Effect of the Central Artery/Tunnel project (I-90/93).

7Figure 2.3 shows how intermodal connectivity can expand and can open up new markets. In this case, it shows how fre- quent air shuttle enables markets outside of the Boston area to be readily accessible for same-day trips to and from Boston. Further aspects of intermodal connectivity and impact are dis- cussed in Chapter 4. Why Wider Benefits Matter The three classes of wider effects noted in the preceding text have certain common features: • First, they all involve change in business firm-level produc- tivity that results from changes in how a firm is organized and operated. The change in the firm’s organization and operation leads to either expanding business output achiev- able from a given set of inputs or to reducing the quantity of inputs required to generate current output. • Second, they all induce changes in trip making, as reflected in vehicle-miles or person-miles of travel. In the case of expanded market areas, the result may be to enable new trips and longer trips. In the case of enhanced reliability, the result may be to enable fewer delivery vehi- cles to serve the same market, because a more efficient truck routing pattern can be used that does not require as many returns to the warehouse. (The effect of improving intermodal connectivity is similar to that of improving access, except that the impact occurs by enabling more distant, new markets rather than expanding existing, local markets.) • Third, they all involve effects that would not be captured by traditional travel models, because they derive benefit from changes in business location and technology use (i.e., mix of labor, fuel, vehicle, and other inputs required to produce goods and services). The technology-induced changes in trip making cited in the preceding paragraph would not be captured by traditional travel modeling processes because they fall outside of the travel time and cost effects that are the basis for predicting induced traffic by even the most sophisticated travel models. In addition, there can be cost savings from scale economies in production processes that do not necessarily lead to any observable change in per capita trip rates or delivery patterns. The relationship between these wider impact factors and firm reorganization (enabling greater efficiencies of opera- tion) is shown in Table 2.1. The table shows that the reorganization of business opera- tions tends to fall into two broad classes: 1. Changes that enable less consumption of certain labor or capital inputs because use of those inputs can now be recon- figured (e.g., centralized dispatch and warehousing), and 2. Changes that enable scale economies due to expansion of existing markets (for workers or customers) or expansion into new market areas. This class of impact is sometimes referred to as “agglomeration effects” because they allow firms to effectively achieve scale economies of higher den- sity markets (though this has occurred through time and schedule changes rather than changes in the spatial loca- tion of firms or their markets). An example of wider business benefits not captured by tra- ditional travel models is the real-world case of a new bridge across the Mississippi River. Before the bridge was built, a small ferry carried only cars and operated most but not all of the time (depending on water levels). The closest alternative bridge required 40 miles of extra travel from the ferry location. So it was not surprising that travel demand analysis showed no trucks and few cars crossing the river in that region. And thus, the traditional benefit calculation—multiplying the con- siderable time and cost savings of a 40-mile detour times a small number of vehicles—showed a relatively small benefit. But regional business and economic development advocates argued that the economically depressed area around the pro- posed bridge would be an economically efficient and desirable location for industry if only it were accessible by a reliable con- nection to surrounding urban labor and delivery markets. In other words, the benefit came in the form of business efficiency Source: Economic Development Research Group 2013. Figure 2.3. Illustration of port/terminal as a gateway to new markets showing cities within 2 hours total travel time from downtown Boston based on driving a car or flying to destinations that have hourly or more frequent air service during business hours.

8gains that depended on expanding market access, and that helped justify the new bridge. application of Wider Transportation Impact Measures Calculation of Wider Transportation Impacts While the above-cited processes explain how wider eco- nomic benefits occur, it is also necessary to establish that these processes are capturing effects not already incorpo- rated in the traditional measures of travel time and vehicle operating cost. In benefit–cost analysis, it is imperative that different classes of benefits and their valuations be added without dou- ble counting. In economic impact analysis, many of the same elements of user time and cost changes are also recognized as direct effects that are inputs to regional macroeconomic impact forecasting models. And thus, there is a similar need to avoid over-stating direct effects, as that would lead to an over-estimate of total economic impacts. Concern about double counting can apply for reliability, intermodal connectivity, and market access measures because they are all affected by changes in travel speeds as well as other factors. This is illustrated in Figure 2.4. Figure 2.4 shows that all three measures can reflect changes in characteristics of transportation facilities and their use patterns. These mea- sures are distinct from changes in travel time, though there is still a potential for overlap insofar as all of these benefits can also be affected by changes in speed. For instance, congestion reduction affects average travel times as well as the variation in travel time (reliability), so care must be taken to avoid adding a reliability effect that is already partially reflected in the valuation of faster travel times. Another issue that arises is that faster travel times also enable broader market access (which may be measured as changes in the effective scale or effective density of markets). So again, care must be taken to avoid adding a market access effect that is already valued in faster travel times. To address concerns about overlap, the project team made an effort to isolate the added effect of these wider benefits from the potential overlap effect. For instance, the discussion and documentation of the reliability tool shows that an effort has been made to distinguish recurring delay (caused by con- gestion), which affects average travel times, from nonrecur- ring delay, which is due to changes in the frequency and severity of traffic incidents (e.g., crashes or disabled vehicles) in congested conditions. Similarly, the accessibility tool attempts to measure both the expansion of (1) labor market access to jobs and (2) truck Table 2.1. Wider Transportation Benefits and Their Economic Effects: Relationship Between Transportation Changes and Firm Reorganization Transportation Change Effect on Firm Reorganization: Business Operation Change Improved Reliability: Freight Delivery Tighter delivery schedule – More daily deliveries per vehicle – Fewer vehicles and trips required – Less fuel used – Less staff driver time required Less overtime required at loading dock Less warehouse “safety stocks” required More centralized dispatch & distribution enabled Improved Reliability: Workers Fewer late worker arrivals and earlier start of full operation – More hours of full operation per day – Potential for less overtime or extra workers kept on hand Expanded Access: Freight Delivery Reconfigure delivery routes for broader scale service area – Larger scale warehouse & more centralized distribution enabled – Longer average trip distance Expanded Access: Labor Market Broader scale of labor market available to firms – Better matching of specialized business needs & worker skills – More innovation through interaction with complementary firms (and their employees) – Longer average trip distance Enhanced Intermodal Connectivity: Freight Delivery Same-day (or 2-day) delivery to more origins and destinations – Larger scale warehouse & more centralized distribution enabled – Scale economies Enhanced Intermodal Connectivity: Business Travel Same-day business interaction with firms in more markets – More innovation through worker interaction with complementary firms

9delivery market access to destinations—both focusing on changes that would not be captured by the valuation of time and cost savings for existing trips (based on value of time for car, bus, and truck drivers and their passengers). And, insofar as most benefit–cost analyses are oriented towards benefits for a single mode, the intermodal connectivity effect captures effects related to the interaction of the terminal’s level of ser- vice for road access to land markets and its access to outside areas via air, marine, and/or rail services. Another factor that can reduce overlap among these three elements of wider effects is the fact that they are seldom all relevant to any specific transportation project. Projects aimed at reducing congestion most often involve adding lanes or changing the design of interchanges or intersections. Projects aimed at intermodal connectivity tend to be new routes or substantial upgrades to highway routes or rail lines that directly serve an airport, marine port, or rail terminal. And, projects aimed at enhancing market access tend to be new routes or substantial upgrades to highway routes or rail lines that directly connect cities with satellite communities. For that reason, it is rare for all three of these wider effects to be relevant for any single project. Despite the fact that some effort has been made to reduce overlap of impact measures in the calculation process, and the fact that the three factors driving wider benefit rarely occur at the same time, the research team cannot rule out the possibility of remaining overlap. The existence of remaining overlap ultimately depends on exactly how the various ben- efit elements are measured and how those measurement defi- nitions interact. Those are issues for future research. Using Wider Transportation Impacts in Economic Analyses There are three analytic methods that are commonly used to compare, prioritize, and select transportation projects: Benefit–Cost Analysis (BCA), Economic Impact Analysis (EIA), and Multi-Criteria Analysis (MCA). The classes of wider transportation effects that were previously identified can be used as inputs to all three analytic methods. However, the way that they are used differs depending on the specific method of analysis. Benefit–Cost Analysis In BCA, impacts must be measured in terms of quantitative metrics that can be translated into money units and distrib- uted over time to enable calculation of the present value of all benefits and the present value of all costs. Those results are then expressed in terms of either net benefit (benefit minus cost) or benefit–cost ratio. To allow wider economic benefits to be incorporated into a BCA, each form of benefit must be measured in terms of a quantitative metric (reflecting the change in effective labor or delivery market, change in reliability, or change in multimodal connectivity) that can then be multiplied by a unit value (or elasticity factor) to calculate the total monetary value of that benefit class for each proposed transportation project. The unit valuation (or elasticity factor) may be derived from observed behavior or survey responses, and interpreted as a value of cost savings, net income gain, or willingness to pay. There is a Figure 2.4. Factors affecting reliability and access impacts.

10 literature of empirical research on this subject, which is dis- cussed later in this chapter. Table 2.2 shows the classes of wider transportation effects covered in this report and the most common breakdown of trip purposes. It shows that—in theory—any combination of wider effect and trip purpose may be represented with a value in BCA, though in practice this is usually done only for freight delivery and commuting trips. However, people can also value reliability, connectivity, and access improvements for personal travel. Once the wider benefits have been assigned dollar values, they can be added to measures of the dollar value of tradi- tionally measured benefits such as travel time, travel cost, safety, and emissions benefits. Additional adjustment for overlap or double counting may also be made, if applicable. Economic Impact Analysis In EIA, impacts are measured in terms of how they affect business output, net income generation, and job generation in the economy. For this form of analysis, a distinction is made between (1) direct effects that lead to changes in money flows and (2) direct effects that have a social value (expressed or implied “willingness to pay”) but no direct effect on money flows. Effects falling under the first category are usually input to a region-specific economic impact model to calculate the broader macroeconomic impacts on the study region, mea- sured in terms of total regional change in jobs, household income, and GDP. The first category covers savings in business operating cost or net revenue. This can include savings in vehicle operating expenses as well as savings in working hours for truck drivers and business delivery workers. The cost savings occurs as workers are able to serve more customers in a workday, or fulfill delivery requirements in a shorter time period and have the remaining time available for further productive work. However, savings in schedules or total time for personal travel (i.e., for recreation or to visit friends and relatives) fall into the second category: factors that have a real value to people but do not directly lead to changes in income or spending patterns in the economy. Once the distinction has been made between transporta- tion changes that do and do not affect money flows, the first category of benefits can be represented as inputs to an eco- nomic impact forecasting model. Table 2.3 shows how these effects can be portrayed in monetary terms: as either decreas- ing business operating cost (for a given level of output) or increasing firm-level productivity (output produced per level of input cost) for directly affected business activities. A regional economic impact model can then be used to show how those direct effects lead to broader macroeconomic effects on regional industry competitiveness, prices, employment, and business growth over time. Multi-Criteria Analysis In MCA, impacts are measured in terms of either qualitative ratings or quantitative indices. This perspective allows for the widest possible range of positive and negative impacts to be considered in decision making, and it enables consideration of essentially all ways in which any given project may affect area businesses or households. These include factors such as business cost competitiveness (reflecting change in business operating cost), congestion and supply chain effectiveness (reflecting change in reliability for freight deliveries), job access (reflecting change in labor market size or effective den- sity), and export markets (reflecting change in intermodal connectivity). For any given project, these factors may be assigned values based on either a dollar valuation or a non- dollar rating metric that portrays its relative importance. Table 2.2. Portrayal of Wider Effects in BCA for Projects Impact Element Metric for Benefit Calculation in BCA Improved Reliability: Freight & Service Delivery Tripsa $ Valuation (reflecting cost savings, net income gain, or willingness to pay, as appropriate) Improved Reliability: Worker Commute Trips Improved Reliability: Personal/Recreation Trips Expanded Access: Freight & Service Delivery Marketa Expanded Access: Labor (Commute) Marketa Expanded Access: Personal/Recreation Destinations Enhanced Intermodal Connectivity: Freight Delivery Travela Enhanced Intermodal Connectivity: Worker Business Travel Enhanced Intermodal Connectivity: Personal/Recreation Travel a Denotes elements that are most commonly addressed in BCA studies.

11 Once the various positive and negative factors have been assigned rating scores, they are entered into a project score- card table along with ratings for other factors that matter for prioritizing projects, such as travel system efficiency and environmental and community impacts. Table 2.4 shows examples of rating factors related to wider transportation impacts that are already being used by four states for project ranking and selection. Some of these metrics are based on quantitative analysis, while others are based on qualitative assessment. Also shown are other generic indicators that can be similarly generated by the tools described in this report. Altogether, the preceding three tables presented in this section show how wider transportation impacts can be por- trayed in a variety of different ways used to rate and rank projects via BCA, EIA, or MCA. The tools developed for this study (described in the chapters which follow) generate indi- ces of reliability effects, intermodal connectivity, and market access effects that can potentially be used for all of these forms of analysis. However, the BCA and EIA applications require transformation of the indices into money metrics, while the MCA application requires only a numeric rating that can be derived from the index. accounting Framework Accounting Structure Both BCA and EIA require that all impacts of a proposed transportation project be quantified and expressed in mon- etary terms. However, different elements of impact are cov- ered, depending on the form of analysis. Table 2.5 lays out a general accounting table for defining elements to be included in the different forms of analysis. The columns represent the three most common forms of analysis. The form of BCA that is most commonly conducted by state DOTs is the assessment of direct impacts on transporta- tion system efficiency. It typically includes expected benefits of a project on travel time and travel cost (i.e., vehicle operating cost) and often also safety, measured as the sum of impacts on all affected trips (and expressed as an annualized present value to reflect impacts on future trips). These effects are referred to as user benefit or transportation system efficiency benefits because they are concerned with the quality and quantity of travel (vehicle flows) by users of the transportation system, and they do not consider effects on other parties. A broader form of BCA attempts to account for all impacts on society, including non-travelers. This is often referred to as “social” or “societal” benefit–cost analysis. Its accounting of benefits includes all of the transportation system efficiency benefits and also adds external effects on non-travelers. Envi- ronmental impacts are most commonly included in this form of BCA, though there is a growing awareness of the need to recognize and also add measures of “wider economic impacts.” These are effects on business reorganization that change firm-level productivity and occur as a consequence of changes in reliability, intermodal connectivity, and market access—all factors that are not reflected in average travel time or operat- ing cost metrics. Some freight planners contend that shippers rather than carriers are the actual “users” of the transporta- tion system, arguing that logistics cost savings for shippers should be considered effects on transportation system effi- ciency rather than external impacts. These wider economic impacts are the subject of this report. The accounting of impacts in EIA differs from the above in three ways. First, it includes only benefits that affect the flow of money (and not “willingness to pay”), which means that the value of travel time savings is included only for freight travel, paid drivers, business travelers, and situations where commuting time is also expected to affect wage rates. Second, Table 2.3. Portrayal of Wider Effects in EIA for Projects Impact Element Metric (input to econ model) Improved Reliability: Freight & Service Delivery Tripsa Business $ Cost Savings (logistics cost) Improved Reliability: Worker Commute Trips Business $ Cost Savings (labor cost) Improved Reliability: Personal/Recreation Trips — Expanded Access: Freight & Service Delivery Marketa Business Output/Cost (delivery scale economies) Expanded Access: Labor (Commute) Marketa Business Output/Cost (specialized skill matching) Expanded Access: Personal/Recreation Destinations — Enhanced Intermodal Connectivity: Freight Delivery Travela Business $ Cost Savings (logistics cost) Enhanced Intermodal Connectivity: Business Travel Business $ Cost Savings (labor cost) Enhanced Intermodal Connectivity: Personal/Recreation Travel — a Denotes elements that are most commonly addressed in EIA studies.

12 the regional economic impact models count changes in busi- ness travel cost as reductions in the cost of production, while changes in household costs are considered shifts in household budget or spending patterns. Third, it counts business attrac- tion and inward investment effects on economic growth, including effects of cost competitiveness changes that lead to spatial and business sector shifts in trade flows, investment flows, and prices. This latter category of effect also requires use of a regional or national economic impact model. Valuation of Wider Benefits All benefit and cost elements used in BCA, as well as the direct inputs to EIA models, must be expressed in monetary terms. To accomplish this, it is necessary to quantify measures of direct benefit and cost—which may be expressed in terms of time, distance, crashes, or an index value impact—into money units. Table 2.6 classifies the factors that are most commonly considered as benefits from transportation investments. The first group in that table represents those benefits that are commonly measured in BCA: travel time, cost, safety, and emissions. There is standard guidance available from U.S. DOT and other nationally-recognized sources on the per unit valuation of changes in those measures. The second group represents wider transportation effects that have direct economic consequences for businesses, yet have been hard to quantify in the past and hence are not yet not com- monly measured. The third group represents other social and environmental impacts. This report focuses specifically on the second group, comprised of three key classes that pro- duce wider benefit: reliability, intermodal connectivity, and market access. The measurement of each is discussed in the following text, and valuation factors are then summarized in Table 2.7. The first class of wider benefit is reliability. This is most commonly measured through a statistical indicator of travel time variation, either the “standard deviation” or “buffer time,” as explained earlier in text discussing Figure 2.1. Both indica- tors are measured in units of minutes or hours, and the two tend to generate numbers of roughly the same magnitude. They are typically assigned a reliability ratio of 0.7 to 1.5, which means that they have a value/hour in the range of 0.7 Table 2.4. Portrayal of Wider Effects in MCA for Projects Impact Element Alternative Metrics (Indicator Criteria) Improved Reliability: Freight Delivery Trips • Freight Productivity (WI) • Reliability Index–Freight Deliverya Improved Reliability: Any Trips • Volume/Capacity (OH, NC) • Congestion Relief (MO) • Reliability Indexa Expanded Access: Freight and Service Delivery Market • Promotes Freight Movement (MO) • Promotes Exports from State (WI) • Same-Day Delivery Market (ARC) • Truck Delivery Access Indexa Expanded Access: Labor (Commute) Market • Promotes Job Growth (OH) • 45-min Labor Market Boundary (ARC) • Labor Access Indexa Expanded Access: Personal/Recreation Destinations — Enhanced Intermodal Connectivity: Freight Exports • Promotes Exports from State (WI) • Freight Time to Global Markets • Access time to Intl. Gateway (ARC) • Index of Access to Intl. Gatewaya Enhanced Intermodal Connectivity: Any Trips • Multimodal Impact (OH) • Intermodal Connectivity (MO) • Connections to Network (WI) • Access time to Intermodal Terminals (ARC) • Index of Access to Intermodal Terminala Enhanced Intermodal Connectivity: Personal/Recreational Travel — Note: Alternative metrics are shown for multi-criteria rating factors used to rank projects in four states: WI = Wisconsin DOT, OH = Ohio DOT, NC = North Carolina DOT, MO = Missouri DOT. ARC = Appalachian Regional Commission: performance indicator used in reports on project impacts, though not for ranking projects. a Denotes indicator developed in this report that can be used directly for multi-criteria rating or used to generate other indicators listed in the table.

13 Table 2.5. Accounting Table: Difference in Benefit Factors Covered by BCA and EIA Benefit or Impact Element BCA EIA Transportation System Efficiency Benefit Full Societal Benefit Econ Development Benefita $ Value of Travel Time Savings (driver + passengers) Yes Yes Yes (F, C) $ Value of Vehicle Operating Cost Savings Yes Yes Yes (F, C, P) $ Value of Safety Improvement (Crash reduction) Yes Yes Yes (F, C, P) $ Value of Reliability (Logistics) Cost Savings b Yesc Yes (F, C) $ Value of Market Access (Agglomeration) Benefit b Yesc Yes (F, C) $ Value of Intermodal Connectivity Benefit b Yesc Yes (F, C) $ Value of Environmental & Social Benefits b Yes d $ Value of Indirect Impacts on Economic Growth (through changes in competitiveness, prices) b b Yese Note: F = freight delivery and other business travel, C = commuting, P = personal travel. a For economic impacts, only certain classes of trips are covered, and only to the extent that there is change in business cost, business output, wage rates, or household spending patterns. b Denotes effects that are not typically included in this form of analysis. c Denotes effects that fall within the category of full societal benefits, but which are commonly not measured. They are the subject of this study. d Denotes effects that are typically ignored because they affect quality of life rather than money expenditures, though they may be included if a money cost to business or households can be established. e Denotes effects that are generated by macroeconomic impact models; all other effects listed in this column are inputs to a macroeconomic impact model. Table 2.6. Classification of Transportation Project Benefits Benefit or Impact Element Units for Measuring Change in $ Traditionally Measured Benefits Travel Time Savings Value of driver + passenger travel time savings Vehicle Operating Cost Savings Cost savings from reduced vehicle-miles or vehicle-hours of travel Safety Improvement Value of reduction in crash incidents $ Value of Environmental Benefit Value of reduction in tons of emissions Wider Economic Benefits Reliability Benefit Cost savings or income gain from less nonrecurring delay Market Access Benefit Income or GDP gain from effective size or density gain Intermodal Connectivity Benefit Income or GDP gain from intermodal connectivity benefit Other External (Environmental and Social) Benefits Other Environmental Impact Value of reduction in water, noise, visual, other pollution Social Impacts Value or enhancement in social factors to 1.5 times the value assigned to changes in average travel time (see Chapter 3 for further discussion on this topic). The reliability spreadsheet tool presented in Chapter 3 derives measures of recurring and nonrecurring congestion delay. Recurring delay is defined as the added time that occurs due to slower average traffic movement on congested routes. Non- recurring delay is the additional travel time which occurs due to traffic incidents and associated traffic queues (backups), which increase exponentially in severity as congestion worsens. The nonrecurring delay is computed based on a conservative mea- sure that reflects the 50th to 80th percentiles of travel times. In other words, it represents the added travel time buffer or schedule padding (beyond the median or average travel time) that is needed to ensure on-time performance 80% of the time. The nonrecurring delay metric and associated travel time index can be directly used as a factor in multi-criteria rating schemes, and it can also provide the basis for monetary valua- tion of reliability in BCA (or as input to EIA models).

14 The reliability spreadsheet tool calculates the value of reli- ability improvement based on the following assumptions: (1) for passenger travel, it assumes a $19.86/hour average value of time multiplied by a 0.8 reliability ratio, and (2) for busi- ness travel, it assumes a $36.05/hour average value of time multiplied by a 1.1 reliability ratio. However, all these values can be changed within the reliability tool. Table 2.7 shows that significantly higher or lower values of time delay and reli- ability ratios may be appropriate for some types of travel. In particular, there is evidence that both the value of time delay and the reliability ratio should be significantly higher than the business default level when the route serves delivery of time- sensitive, high-value products used in just-in-time production processes. Another class of wider benefit is market access. This is most commonly measured through a statistical indicator of the effective market size or effective market density. The market scale metric reflects the magnitude of workers’ opportunities (for a labor market) or customer delivery opportunities (for a delivery market) that a business can access from a given location. The density metric merely standardizes the market scale, based on a per resident, per worker, or per square-mile factor. The value of increasing accessibility is defined by an elasticity: the percent increase in economic activity (income or GDP) that is generated per 1% increase in effective market scale or effective density. The market access tools presented in Chapter 5 calculate market scale and effective density for two forms of market access benefit: (1) access to broader buyer-supplier markets for truck deliveries and (2) access to broader labor mar- kets which enable greater matching of worker skills to spe- cialized labor needs. The former is addressed through change in the effective density of business markets, measured in terms of employment base. The latter is addressed through change in the effective labor market size, measured in terms of jobs accessible from a given population location (or vice versa). The market access tools also illustrate how the benefit value of market access enhancements can be calculated (though care must be taken in its use for BCA). The tool for assessing deliv- ery market access multiplies the expansion of the effective employment base by a measure of average GDP per worker. This yields a measure of gross impact, reflecting the added GDP that can be reached for deliveries from a given location as a result of improved transportation. This can be used as a metric for multi-criteria rating of delivery market growth, and as a benchmark for analysis of localized economic impacts. However, for BCA (and input to EIA models), it is necessary to consider that the added delivery market was already being served in other ways prior to the transportation improve- ment, so only the smaller net gain (attributable to more effi- cient business operations) should be considered as an added benefit. Table 2.7 shows the range of elasticity measures that can be used to capture the net percentage increase in aggre- gate business income or GDP that can be attributed to a given percentage increase in effective delivery market size or density. For assessment of labor markets, the market access tool also calculates the value of commuter cost savings for induced trips enabled by the greater job opportunities. This can be useful for sketch planning applications in which induced trip changes are not otherwise estimated, and it can also be useful as a metric for multi-criteria rating of labor market expan- sion. However, for BCA (and input to EIA models), it is nec- essary to distinguish economies of scale in business operations that are beyond trip cost savings. These are the incremental benefits related to specialized skill matching that come from access to larger scale markets and enable firms to achieve greater labor productivity and hence offer higher wage rates. Table 2.7 shows the range of elasticity measures that can alter- natively be used to estimate the firm-level productivity effect of changes in labor market access. These values can vary depend- ing on the mix of industries affected by enhanced labor market access. In particular, there is evidence that the percent increase in labor productivity from a given percent increase in labor market scale (or effective density) tends to be greatest for indus- tries that provide specialized services or manufacture tech- nology products requiring specialized workforce skills. The scale (or effective density) of the local labor market appears to be less of a factor for businesses that provide natural resources or resource-based products. Intermodal connectivity is also another class of wider ben- efit. This is most commonly measured through a statistical index that reflects both (1) the average travel time to the near- est intermodal air, marine, and rail terminals, and (2) the magnitude of connecting services and number of connec- tions to outside origins and destinations that can be accessed from each of these terminals. The value of this index is reflected by an elasticity that shows the percent productivity increase resulting from a 1% change in accessibility to each type of intermodal terminal. The intermodal connectivity tool presented in Chapter 4 calculates intermodal market access for airports, marine ports, and rail terminals in the United States. The calculation is based on three scale factors: (1) the scale of activity (person-trips or vehicle-trips) using the intermodal terminal, (2) the scale of connecting services provided there, including the frequency of air, marine, or rail services and the number of different origins and destinations that can be accessed by using them, and (3) the scale of surrounding population or business activity that can easily access that terminal. The tool provides three outputs. One is a measure of truck pickup and delivery time saved by enhanced access to a specific intermodal port. The second is an index of connectivity importance, based on the

15 above-cited three scale factors. The third is the product of the first two; it reflects the magnitude of aggregate truck pickup and delivery time savings, scaled by the importance of the intermodal terminal. The intermodal connectivity tool’s output metrics can be directly used as factors in multi-criteria rating schemes. They can also provide a basis for estimating effects on firm-level labor productivity (output per worker). Table 2.7 shows the range of elasticity measures that can be used to estimate the net percentage increase in overall business income or GDP attributable to a given percentage increase in an index of inter- modal connectivity. Research studies to date have shown that elasticities at the high end of this range are associated with access to airports, and those at the low end of the range are associated with access to rail terminals. It is also important to note that only certain industry sectors depend on, and are affected by, access to intermodal terminals. In general, busi- ness and professional service industries tend to grow with air- port access while resource-based industries tend to grow with access to intermodal rail terminals (Alstadt et al. 2012). In Table 2.7, “Reliability Ratio” = [(value of a change in reliability)/(value of a change in travel time)], where an improvement in reliability is measured in terms of minutes, representing either the standard deviation or the buffer time beyond the mean. An improvement in reliability is thus mea- sured in terms of aggregate trip-hours saved and is valued by multiplying it times both the unit value of time savings and the Reliability Ratio. “Productivity Elasticity” = [(% change in productivity)/(% change in market access)], where an improve- ment in productivity is reflected by the increase in income, value added, or output generated in an area, and expanded market access is reflected by growth in the effective size or density of the market that surrounds that area. accounting Framework User’s Guide and Instructions Introduction and Purpose The accounting framework spreadsheet lays out the catego- ries of direct economic benefits that a given roadway improve- ment may have on travelers using it, and on the operation of businesses that depend on it (for workers, customers, or deliveries). It does not include environmental, social, and Table 2.7. Typical Range of Conversion Factors for Deriving Dollar Values of Benefits Benefit or Impact Element Units for Measuring Change Type of Conversion Typical Range Source Traditionally Measured Benefits $ Value of Travel Time Savings (driver & passengers) Vehicle-hours of travel (VHT) Unit value of time ($ per vehicle hour) $12.00 to $73.30 A $ Value of Vehicle Operating Cost Savings Vehicle-miles of travel (VMT) Unit value ($ per vehicle-mile) $0.44 to $1.73 B $ Value of Safety Improvement (Crash reduction) Incidents per 100,000 VMT Unit value ($ per incident) $3,285 to $9.1 million C $ Value of Environmental Benefit Tons of emissions Unit value ($ per ton) $1,300 to $290,000 D Wider Benefits $ Value of Reliability (Logistics) Cost Savings Nonrecurring delay per vehicle trip Unit value of time × Reliability Ratio ($12  0.8 = $9.60) to ($24  1.2 = $29) E $ Value of Market Access (Agglomeration) Benefit % change in effective market scale or density Productivity elasticity 0.02 to 0.08 F $ Value of Connectivity Benefit % change in intermodal connectivity index Productivity elasticity 0.04 to 0.010 G Sources: A. On value of time savings (value depends on mode and trip purpose): U.S. DOT 2012 and 2011. B. On cost per mile of vehicle operation (value depends on type of vehicle): American Automobile Association 2012 (for cars) and Trego and Murray 2009 (for trucks). C. On cost of vehicle crashes on roads: U.S. DOT 2012 and 2013. D. On cost per ton of emissions (for various pollutants and carbon): U.S. DOT 2012. E. On valuation of reliability: Stogios et al., forthcoming; Brownstone and Small 2005; Ghosh 2001; Li et al. 2010; Börjesson and Eliasson 2008; Small et al. 2005; Tilahun and Levinson 2010; Carrion and Levinson 2010; De Jong et al. 2009; Fosgerau et al. 2008; Yan 2002; Asensio and Matas 2008; and Tilahun and Levinson 2009. F. On elasticity of economic impact of agglomeration: Alstadt et al. 2012; Ciccone 2002; Eddington 2006; Graham 2007; Graham et al. 2009; Melo et al. 2009; Rosenthal and Strange 2003; Venables 2007; and Weisbrod et al. 2001b. G. On elasticity of impact of connectivity: Alstadt et al. 2012.

16 other broader impacts that are also important considerations in decision-making. Also, it does not include indirect and sec- ondary effects on the economy. That is not because those fac- tors are any less important, but rather because this study was commissioned to enable more complete analysis of the ways in which wider economic benefits can occur as a direct con- sequence of individual highway projects. The spreadsheet shows how these wider effects can be incorporated into benefit–cost analysis. Many of the wider benefit metrics that are generated here can also be applicable for multi-criteria ratings and as input to macroeconomic impact models. However, this spreadsheet is intended to show how wider benefits can be portrayed in BCA. The steps described below illustrate how the various classes of benefit can be estimated in the context of “sketch planning” (i.e., where no traffic simulation or economic simulation mod- els are used, and a proposed project will enhance a single high- way corridor). The spreadsheet tool is designed for highway projects, though the same basic concepts can apply for other modes. For instance, the market access and connectivity bene- fits can also apply for transit projects and the road reliability benefits can apply for transit projects that relieve highway congestion. The overall design entails three steps: 1. On the Inputs tab, the user first selects the type of project and its objective or expected impacts, to help determine which classes of benefit need to be calculated. 2. The user then enters information on the nature of changes in use and performance of the affected facility, including relevant results from the reliability, connectivity, and access tools, as applicable. 3. On the Results tab, the user can then view how these addi- tional benefits affect the relative benefit of the proposed project. These input and result tabs are described below in more detail. 1. Click the tab labeled 1–START to see the opening screen (Figure 2.5). The bottom of the workbook on your screen displays brief instructions on using the tool. 2. To choose inputs and enter the requested data, at the bottom of the workbook, click the second tab, 2–INPUT. The sys- tem prompts you to identify the applicable project objec- tive or expected impact(s), given five major classes of impact (shown in Table 2.8). It is possible that multiple impacts are expected, though most often only a single impact will apply. Depending on the answer you enter, the system may prompt you to enter information from one or more input forms. Project C11: Economic Analysis Tools Economic Development Research Group- Prime Consultant Accounting Framework Prepared by Economic Development Research Group 'December 2012 Instructions: 1. Click Mouse on Tab 2 as "Data Entry" at the bottom to choose Inputs. Tab 2 will lead you to other data input tabs. Then Enter Inputs and Perform Tasks. 2. Click Mouse on Tab "OUTPUT" at bottom to choose Results. Then view and print out Access to Markets and/or Productivity results. Figure 2.5. Screenshot of opening tab for the accounting framework spreadsheet. Table 2.8. Inputs for Tab 2 of the Accounting Framework Spreadsheet Traffic Impact Reliability Access to Labor Markets Access to Buyer–Seller Markets Intermodal Connectivity Capacity Expansion to reduce congestion on existing route YES YES New or Upgraded Route to enhance access from residential area to employment centers YES YES New or Upgraded Route to enhance truck delivery market area YES YES New or Upgraded Route to enhance truck movement to/from air, marine, or rail terminals YES YES Highway Projects to enhance safety YES

17 3. To enter data, at the bottom of the worksheet, click the tab labeled 3–FORMS. 4. Enter data into the input forms (input examples are shown in Table 2.9). The traffic analysis assumptions may be drawn from Table 2.7 (sources are listed below it). For Form 1 (Traffic Impact), you can obtain data to enter into the top three rows from engineering estimates or a transpor- tation network model. For Forms 2 through 5, the data are drawn from the output or results tables of the relevant wider benefit wide spreadsheets (covered in Chapters 3, 4, and 5). The specific locations from which to draw this input data are shown in Figures 2.6 through 2.10. Note that when running the Reliability Spreadsheet to arrive at results such as those depicted in Figure 2.6, scenarios for Build and No Build must be run separately. Table 2.9. Inputs for Tab 3 Accounting Framework Spreadsheet Benefit Category Passenger (Commuting) Trips Commercial (Truck) Trips Personal Travel No Project With Project No Project With Project No Project With Project Traffic Analysis Assumptions Persons per trip 1.3 1.1 X Tons of freight per trip 0 8 X Value of time per person $12 $24 X Average cost per crash $3,285 $4,400 X Econ Elasticity: Labor Market 0.03 X X Econ Elasticity: Delivery Market X 0.06 X Econ Elasticity: Air Connectivity 0.03 0.04 X Econ Elasticity: Port Connectivity X 0.02 X Econ Elasticity: Rail Connectivity X 0.03 X (1) Traffic Impact Vehicle-miles of travel Vehicle-hours of travel Crashes per 100,000 Vehicle-miles of travel (2) From the RELIABILITY Form Total Equivalent Delay (annual h) X X Cost of Unreliability X X (3) From the ACCESS TO LABOR MARKETS Form Total Employment Accessible X X Concentration Index (CI) X X Commuter Cost (induced) X X (4) From the ACCESS TO BUYER–SUPPLIER MARKETS Form Effective Density of Market X X Total GDP Increase X X (5) From the INTERMODAL CONNECTIVITY Form Terminal Type: Air, Marine, Rail X X Connectivity Raw Value X X Value of Time Savings X X Weighted Connectivity X X Note: X denotes fields that are not used. This is either because the data item is not applicable or because it pertains to personal travel, which does not have any wider economic benefits that are recognized at this time.

18 Total Annual Weekday Delay (veh hrs) Recurring delay 27151 Incident delay 70197 Total equivalent delay 139160 Total equivalent delay (passenger) 123339 Total equivalent delay (commercial) 15821 Total Annual Weekday Congestion Costs ($) Passenger Cost of recurring delay $1,937,132 Cost of unreliability $512,390 Total congestion cost $2,449,522 Commercial Cost of recurring delay $418,622 Cost of unreliability $151,724 Total congestion cost $570,346 Figure 2.6. Screenshot of reliability spreadsheet Results Report tab. EMPLOYMENT CENTERS EA (No- Build) EA (Build) Difference in EA Base Year CI (No- Build) Reference Year CI (Build) Difference in CI 1093 28,418 35,109 6,691 1.26 1.39 0.14 1133 7,448 17,292 9,844 1.11 0.76 (0.35) 1057 11,565 20,447 8,882 0.67 0.50 (0.18) 1075 8,627 6,725 (1,902) 1.20 3.32 2.12 TOTAL 56,058 79,573 23,515 4.24 5.98 1.74 EA = Employment Accessible (sectoral) within Threshold CI = Concentration Index Figure 2.7. Screenshot from the access to labor spreadsheet—Results-1 (Labor Market Size). EMPLOYMENT CENTERS COMMUTER COSTS ($) 1093 $16,285 1133 -$4,317 1057 $94 1075 $151 TOTAL $12,213.00 Figure 2.8. Screenshot from the access to labor spreadsheet— Results-2 (Commuter Costs). Note that to use the intermodal connectivity spreadsheet tool and arrive at results such as those depicted in Figure 2.10, passenger and commercial effects must be run separately. Obtaining Results The input data are used to calculate either an absolute change or a percentage change in relevant transportation impact metrics, and those values are then multiplied by the applicable unit value or elasticity value to derive the total dollar value of impacts. To view the results of these intermediate calculations, click the tab labeled 4–INTERMEDIATE (Figure 2.11). To view the final results, click the tab labeled 5–RESULTS (Figure 2.12). The table of results shows the dollar value of rel- evant benefits for a given year. This includes traditionally mea- sured benefits, as well as the wider economic benefits that are the focus of this study. These results can be used in several ways. For benefit–cost analysis, further work is necessary. Since the benefits are shown for a single year, it is necessary to re- run the analysis for additional years in order to construct a time series of benefits. From that time series, the net present value of long-term project benefits can be calculated and compared to the net present value of project costs. These results can also be used to provide inputs to regional economic impact models in order to calculate broader and indirect effects on the economy, though of course only those impacts that directly affect the flow of money (costs incurred and income generated) would be included.

19 NO BUILD BUILD 2002 2035 ZONES EFFECTIVE DENSITY EFFECTIVE DENSITY TOTAL PRODUCTIVITY($) 1009 8970 14133 $29,483,575 1033 5980 9417 $82,572,197 1043 8153 12021 $82,440,420 1057 6137 10818 $20,758,304 1059 5835 9947 $40,412,607 1073 14666 19520 $1,182,070,836 1075 5079 8748 $18,278,858 TOTAL 54820 84604 $1,456,016,797 EFFECTIVE DENSITY/ POTENTIAL ACCESS 'SCORES' Figure 2.9. Screenshot from the access to markets (buyer– seller) spreadsheet—Results. Facility 2 Facility Details Facility Type Airport Passenger Facility Name Sky Harbor Intl Airport Value Units Activity 39,338,123 passengers Value Unique Origins/destinations 218 Facility Connectivity Raw Value 85.8 Relative Activity 45.4% Relative Value Relative Origins and Destinations 60.1% Relative Facility Connectivity Index 27.2% Project Summary Number of annual passenger vehicles 10,000 Total passenger vehicle hours saved (All passenger vehicles) 5,000 Total Value $89,387 Number of passenger vehicles associated with th 2,512 Time savings for facility 1,256 Value of time savings for facility $22,453 Weighted connectivity 1,925,503.5 index Figure 2.10. Screenshot from the intermodal connectivity spreadsheet—Results.

20 Benefit Element No Build Scenario Build Scenario Diff Multiplier Value % Diff Elasticity Value Vehicle Hours 152,885 140,546 12,339 $12.00 Vehicle Miles 2,658,120 2,658,120 0 $0.64 Safety: Crash reduction (crashes) 7.1 6.2 0.9 $3,285 Benefit for Induced Trips (trips) 0 0 0 $6.00 Cost of Unreliability 270,476 256,195 14,281 $9.60 Accessible Employment Base 56,058 79,573 42% 0.03 Effective Density for Delivery Base Weighted Connectivity Score 2,432 3,275 35% 0.04 Vehicle Hours Saved (hrs) 10,320 8,738 1,582 $24.00 VMT Savings (miles) 186,068 186,068 0 $1.46 Safety: Crash reduction (crashes) 0.1 0.5 0.4 $3,285 Benefit for Induced Trips (trips) 0 0 0 $12.00 Cost of Unreliability 81,724 75,862 5,862 $28.80 Accessible Employment Base Effective Density for Delivery Base 54,820 84,604 54% 0.03 Weighted Connectivity Score 5,925 8,342 41% 0.04 Passenger Trips Commercial (Freight Delivery) Trips Figure 2.11. Screenshot of Intermediate Calculations—Tab 4. Cells with dashes have no applicability. Benefit Element Value of Benefit in Target Year Value of Vehicle Hours Saved $148,068 Value of VMT Savings $0 Value of Safety: Crash reduction $2,957 Value of Benefit for Induced Trips $0 Value of Reliability Improvement $14,281 Value of Enhanced Labor Market Access $352 Value of Enhanced Delivery Market Access $0 Value of Enhanced Intermodal Connectivity $388 Adjustment for Overlap in Above $0 Total > $166,046 Value of Vehicle Hours Saved $37,968 Value of VMT Savings $0 Value of Safety: Crash reduction $1,311 Value of Benefit for Induced Trips $0 Value of Reliability Improvement $5,862 Value of Enhanced Labor Market Access $0 Value of Enhanced Delivery Market Access $456 Value of Enhanced Intermodal Connectivity $457 Adjustment for Overlap in Above $0 Total > $42,976 Passenger Trips Commercial (Freight Delivery) Trips Figure 2.12. Screenshot of Results—Tab 5.