Resource Allocation of Available Funding to Programs of Work (2017)

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Summary As long as state and local transportation agencies have delivered programs, the allocation of resources to programs of work has been an essential aspect of decision making. However, as transportation agency missions, multimodal systems, transportation markets, and the costs of preserving existing assets have grown so has the complexity of transportation program-level funding needs and trade- offs. In the early days of state departments of transportation (DOTs), from the early 20th century until passage of the National Environmental Policy Act, Clean Air Act, and mass transit funding autho- rizations around 1970, the primary focus of programs was on highway and bridge expansion, with fairly limited diversity of programs or performance objectives. By the mid-1970s, a strong emphasis on balancing modes of transportation and a fix-it-first ethic to invest in programs to preserve existing highway and bridge assets emerged as a result of: • Environmental and energy legislation, • Rising costs of preserving aging infrastructure assets, • Significant growth of the public sector’s role in urban and suburban transit and freight systems, and • Increased public participation in statewide planning and through metropolitan planning organizations. Since the early 1990s, agencies increasingly have recognized that shifts in demographics, eco- nomic geography, and traveler preferences do not enable agencies to simply “keep what they have.” Instead, agencies must be flexible and strive for balance among programs, geographic areas, and per- formance objectives. Federal legislation, beginning with the Intermodal Surface Transportation Effi- ciency Act of 1991 (ISTEA), further emphasized the need for state agencies to engage metropolitan planning organizations and focus on multimodal transportation planning. The objective of this synthesis is to compile and present current knowledge and practices regard- ing how states approach the allocation of resources among programs in ways that are defensible and achieve reasonable balance among the competing needs in the resource allocation process. A literature review includes a review of published journal articles and proceedings and peer reviews among agencies facing issues of programmatic resource allocation. An online survey of all 50 DOTs (of which 42 responded, a response rate of 84%) shows current challenges and issues of the DOTs and processes in place at the state level. Four case examples demonstrate nuances of how states allocate resources, how the process is evolving in practice, how states respond to scrutiny in the resource allocation process, and how they achieve increasing discretion in programmatic resource allocation decisions. The findings of all of these sources are integrated into a series of conclusions about how states approach resource allocation among programs, focusing on the types of balance integral to the process, how states achieve such balance, and potential areas for future research. The literature shows that state DOTs use a variety of program structures, ranging from a few broad categories of assets to many small groupings of projects or, alternatively, focus on geographic or strategic pools of resources. Increasingly, in the era of performance-based planning, departments allocate resources to performance areas such as safety, mobility, and economic opportunity, often regarding such investment categories as programs. Regardless of how departments are organized, the complexity of these allocation processes has increased as a result of recent revenue shortfalls and reSource allocation of available funding to ProgramS of Work

2 growing needs. Needs are growing in the cost of preserving the system and the cost of adapting to changing geographic and demographic patterns that place demands on transportation infrastructure. State DOTs organize their resource allocation process many ways. Among the business processes within the agencies, two are most often associated with resource allocation: the long-range transporta- tion plan (LRTP) process and the state transportation improvement program (STIP) cycle. Resource allocation processes are adapted to the many rules or constraints of individual states. Programmatic allocations often are adjusted as a result of executive or legislative inquiry or pushed within the depart- ments as agencies advocate for more resources or communicate with stakeholders. States that allocate resources based on LRTPs typically revisit their allocation levels during updates every 5 years or so. STIPs are updated annually or biannually when specific projects are assigned fund- ing for the next 4 years. LRTP-aligned allocations typically focus on programmatic priorities; STIP- aligned allocations may be more project driven. Because states are required to have an LRTP and an STIP—both the Moving Ahead for Progress in the 21st Century Act (MAP-21) and the Fixing America’s Surface Transportation (FAST) Act require investment management to be addressed explicitly—a com- plex relationship exists between these processes. A common model is to create programmatic objectives in the LRTP process but prioritize within programs in the STIP process. Some states are implementing cross-programmatic or mode-neutral prioritization (using benefit–cost or multicriteria techniques that emphasize particular performance or program areas) for LRTPs and STIPs. In this model, programmatic allocation is a bottom-up process resulting from project selection criteria that are formulated to reflect program or performance area goals. Partially in response to federal legislation, states are working to increase the amount of data and analysis used in making allocation decisions and communicating them to stakeholders. Agencies are developing asset management systems for more programs as advanced by MAP-21 legislation. These systems work with needs models to predict the impacts of programmatic funding levels on states’ systems. Asset management systems are also a major component of the performance-based plan- ning and programming efforts associated with MAP-21 and the FAST Act. Agencies are developing performance measures and targets not only for their traditional asset categories, such as highway and bridge preservation, capacity expansion, transit and multimodal programs (such as intercity, rail, and aeronautics), but also for several other programs and aspects of their transportation systems. Led by a few states, agencies are also beginning to employ performance measures to make program allocation and project programming decisions. Many states express a desire to make data-driven allocations across programs and modes, but con- siderable barriers exist to cross-programmatic allocation, even with the additional data offered by per- formance measures tracking and the review of strategic priorities that often accompany setting up performance management frameworks. Although a significant and growing amount of guidance exists on how projects might be pooled and prioritized to determine optimal program sizes, implementing these types of processes with valid data and computing regimens can be time consuming and expen- sive for most agencies. The data-driven processes proposed in guidance documents tend to use multi- criteria analysis approaches drawn from the literature and successfully applied multicriteria methods in a few agencies. Multicriteria analysis entails weighting project scores (beyond simple monetized costs) to take into consideration measures that are not typically included in standard engineering or benefit–cost frameworks. A common category beyond standard transportation efficiencies in multicriteria rankings is the consideration of economic impact measures for jobs or wage income added to the economy. These processes require subjective weighting of the criteria included in the analysis. Consequently, these relative weights are more controversial than are standard needs modeling or transportation impacts from travel demand models. The subjectivity of selecting the most valued performance out- comes and weighting investments accordingly is the primary challenge agencies face. Most multi- criteria approaches are designed for project-level ranking and need to be customized to compare programs or projects across programs.

3 Survey findings show that most state agencies include the major highway and bridge asset catego- ries within a strategic allocation process; however, a much lower number include modal programs, such as transit, aviation, or freight, beyond the required matches associated with federal programs. Causes of this include: • States continue to have difficulties comparing modes and programs outside the major high- way asset categories owing to less established practices for needs assessment and poorer data quality. • Many states provide only the required pass-through funds from federal sources to transit. They have little reason to develop strategic processes for these programs because transit agencies and metropolitan planning organizations (MPOs) make most of the project programming decisions. • States struggle to articulate clearly which needs are satisfied by different modal programs, how those programs compare with highway and bridge programs, and how sensitive their perfor- mance might be to statewide transportation policy. Pavement and bridge asset management systems are used in many state resource allocation decisions for determining programmatic investment requirements to preserve existing assets (very important for 87% of agencies and somewhat important for 13%) and determine the avail- able allocations for other programs. Most responding agencies suggest that when they have access to results from transportation performance impact and economic impact models for tradi- tional assets, such as highway bridges, and other portions of the transportation system, they can better allocate resources. Communicating with the public and policy makers is a major reason for agencies to develop stra- tegic resource allocation processes and use and track performance measures associated with their programmatic allocations. The ability to communicate the impact of program outlays has become increasingly important in light of recent uncertainty regarding funding levels. Case examples from Oregon, Florida, Massachusetts, and Idaho illustrate diverse agencies develop- ing innovative strategies for allocating their available resources. Case examples show how agencies have achieved greater discretion over their allocations by demonstrating that flexibility in funding can help them meet performance targets more efficiently, or by showing return for public invest- ment. The Florida and Idaho transportation agencies have gained geographic flexibility in allocating resources within and among programs to different areas of the state. The change in Florida was the result of internal efforts later codified by the legislature. An external audit in Idaho demonstrated the benefits of a more flexible program. Oregon has also gained more flexibility in allocation of improve- ment dollars across modes and project types, and even more discretion to set program levels in their main asset preservation programs. The DOT and Oregon Transportation Commission allocate resources to these programs before any improvement programs are considered. Although the governor- appointed transportation commission plays a significant and active role in setting program levels and the project selection process for improvements, Oregon DOT reports the agency has developed a strong relationship and culture that allows them to work with policy makers to implement programs preferred by the department. Florida legislation codifies many aspects of Florida’s resource alloca- tion choices. Officials indicate a sense that because of the DOT’s input into the statute-making pro- cess, decisions are still largely at the discretion of the agency. The Massachusetts DOT is a fairly new entity, created largely to allow the state to address investments across programs in a strategic way. Massachusetts provides an example of a state that is focusing on applying programwide performance measures to prioritize programs based on strategic priorities before considering the specific projects within each category. In general, state DOTs reported they have experienced only small changes in discretion. Although they have received some additional funding flexibility from the federal government under MAP-21 and the FAST Act, the increased need to document performance benefits and returns on investment to state governments and other stakeholders and uncertainty over the availability of limited resources have affected state DOTs’ perceptions of discretion over their programs.

4 In all four state case examples, the state DOTs have developed or procured specific tools and tech- nologies to demonstrate expected performance returns on investment at the project level and used these results in the aggregate to explain and describe programmatic and performance allocations. Massachu- setts has developed a simple tool that is used within a framework for resource allocation. The tool uses available data on performance measures and allows future improvements to be easily integrated. Overall programmatic allocation in 2016 entails balancing more information and more dimen- sions of decision making than ever before. Determining a programmatic investment mix requires balancing among: • Preservation and expansion needs, • Modes, and • Area types. However, as the process has become more involved and information intensive, a balanced alloca- tion process must address other types of balance, such as the balance among: • Transparency and computational rigor substantiating allocation choices, • Top-down (program to project) allocation techniques and bottom-up techniques (project selec- tions aimed to achieve resulting programmatic values), • Consistency over time and flexibility to accommodate unexpected developments, and • Subjective and objective bases for decision making. Most states indicated strong needs for better data, models, and tools—especially in areas such as predicting asset condition, changing system demands, and economic outcomes. Areas for future research include: • Establishing consensus on some useful mode-neutral performance measures for the transporta- tion system. • Improving the accuracy of and confidence in assessments of the future impacts of investment to help agencies better prioritize projects and value program investments. • Developing new data systems and tools that focus on providing transparency and interpretabil- ity for the public and decision makers. This may require simplifying the inputs and outputs of tools and determining the appropriate level of complexity. It is clear that future research into how to integrate the use of various types of resource allocation and prioritization resources will serve transportation agencies well. Research could further explore resource allocation topics such as: • Decision support frameworks that can reconcile project-level prioritization weights across pro- grams or directly compare programs. • Innovative decision techniques, including – Decision trees, – Collaborative frameworks for establishing weights (such as the Delphi method), – Existing weighting structures (such as the analytic hierarchy process), or – Nominal decision processes (valuing alternatives without making comparisons to a baseline). • Approaches for communicating the rationale and outcomes of decisions. Overall, the state of the practice for state DOT resource allocation is evolving from baseline engi- neering into the area of strategic decision making. Changes in federal and state policy often concur- rently provide more flexibility while making agencies’ allocation processes more complex. Technology is creating the need and opportunity for agencies to devote an increasing share of decision-making resources to assessing the true value and likelihood of long-term outcomes.