Guidance for Calculating the Return on Investment in Transit State of Good Repair (2019)

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2 C H A P T E R 1 Background Transit state of good repair (SGR) is a critical area within the U.S. transit industry. All transit agencies, large or small, regardless of region of the country or modes operated, face challenges in maintaining their physical assets in good repair, and many are in a situation where the funds available for rehabilitating and replacing existing capital assets are insufficient for achieving SGR. The area of transportation asset management offers a set of tools and approaches for helping define what constitutes SGR and identifying specific investments that are needed to support this objective. However, transit agencies face several basic challenges in finding the funds needed for achieving SGR: • Transit is a capital-intensive industry, requiring large capital investments to acquire long- lived physical assets. Once those assets are acquired—be they vehicles, guideway, facilities, or systems—they can be operated and maintained for a relatively long period at a much lower average annual cost than was required for the initial capital investment. However, additional capital funds are periodically needed once assets require rehabilitation or replacement. • Many governments lack the political will to fund needed investments in maintaining infrastructure. Obtaining funding for transportation is a challenge, as government funding is tightly constrained and transportation competes with other pressing needs for scarce funds, such as health care, education, and housing. Furthermore, to the extent that funds are available, it can be particularly difficult to target them for rehabilitating and replacing existing assets; it is more compelling to see new systems and services unveiled than to acknowledge the need to keep existing systems in good repair. • In the United States, many transit systems are now reaching the age at which they will begin requiring significant reinvestment, which translates into increasing needs for maintaining SGR. This issue is most apparent for rail systems with extensive fixed assets, but all transit modes face this issue to some extent. Several U.S. legacy rail systems, such as those in New York, Chicago, Philadelphia, and Boston, have been in a mode of needing significant SGR investments for some time. Others, such as Washington, D.C.; San Francisco; and Atlanta, among others, are in the midst of their first major cycle of renewals. Still more systems were built in the last two decades, and their needs for major SGR investments lie on the hori- zon. Consequently, the amount of funds required to achieve and maintain SGR is increasing, and given the pace of funding, needs are unlikely to shrink in the foreseeable future. SGR Impacts Given the significant challenges in obtaining funding to achieve SGR, it is not surprising that many transit agencies have deferred needed investments. However, failing to address SGR needs Introduction

Introduction 3 can have consequences. Figure 1-1 is the SGR framework detailed in TCRP Report 157: State of Good Repair: Prioritizing the Rehabilitation and Replacement of Existing Capital Assets and Evaluating the Implications for Transit (1). The figure illustrates the impacts and implica- tions of asset rehabilitation/replacement actions. Specifically, the state of repair of a set of physical assets impacts both asset-specific measures—such as age and condition—and asset- level performance. Changes in asset performance ultimately may have system impacts. For instance, failing to replace buses or rail vehicles at the end of their useful life may lead to increased maintenance costs, reduced level of service as vehicle breakdowns cause delays, and impacts to customer perceptions of the system. This may reduce demand for transit service as passengers turn to other modes in response to deteriorated service and further aggravate funding issues. On the other hand, improving the state of repair of a transit system may create a “virtuous cycle” in which improved asset conditions lead to improved perfor- mance, attracting more passengers to the system and further strengthening a transit agency’s financial position. To further illustrate the impacts of SGR, the following case study example on New York City Transit (NYCT) shows that the relationships depicted in Figure 1-1 are more than just abstract concepts. SGR-related impacts, particularly those impacts on service demand, are keenly experienced by passengers on transit systems. Prior TCRP Research There have been recent developments to educate the transportation industry and the public at large on the importance of maintaining existing infrastructure. Transportation asset manage- ment is now defined in law, and state DOTs and transit agencies are required to develop asset management plans describing what assets they own, their existing conditions, predicted future Figure 1-1. SGR framework. (Source: TCRP Report 157)

4 Guidance for Calculating the Return on Investment in Transit State of Good Repair conditions, and planned investments. The Federal Transit Administration (FTA) and the transit industry have supported various research projects to improve the tools and approaches for transit asset management as well. These efforts include • TCRP Projects E-09 and 09A, to develop an SGR framework and tools, resulting in TCRP Reports 157 and 172 (1, 4); and • TCRP Project E-11, to relate transit asset condition to quality of service, resulting in TCRP Research Report 198 (5). TCRP Research Report 198 describes a generalized journey cost model that predicts and assigns a value to all of the components of a passenger’s journey (e.g., buffer time, wait time, Case Study: NYCT The history of the decline and impressive resurgence of New York City’s subway system is frequently “Exhibit A” in discussions of the importance of improving the state of repair of U.S. transit systems and the potential benefits of doing so. The details of this case have been documented in other reports, most notably TCRP Report 157 and a 1985 technical report (2). The basic facts are as follows: • Consequences of neglect. In the 1970s and 1980s, NYCT faced a crisis. The system, along with much of the infrastructure of New York City, was in steep decline. From 1971 to 1980, mean distance between failures (MDBF) for the rail fleet dropped from 23,000 miles to 7,000 miles. In addition, by 1980, NYCT was replacing approximately 7,685 tons of rail per year, far below the 11,400 tons NYCT estimated it needed to replace on average to maintain steady state conditions. Consequently, by the end of this period over half of the rail on the system was projected to require replacement within seven years. • Service reliability and ridership impacts. The issues with the system were readily apparent to system users. The reduced MDBF and poor rail conditions led to increased delays, and ridership dropped by approximately 17 percent during this period. • Investments to restore service. Beginning in the early 1980s, NYCT worked to restore its system to SGR, spending more than $74 billion on SGR investments from early 1980s to late 2000s. The investments included fleet replacements, station rehabilitation, improvements to the guideway and guideway-related elements, and improvements to nearly every supporting system. • Benefits of improving the state of repair. By the late 2000s, the benefits of NYCT’s investments were readily apparent. MDBF had risen to over 150,000 miles, and the state of repair of the system had greatly improved by any measure. Likewise, ridership grew by an impressive 58 percent from 1982 to 2007, more than offsetting the prior declines. More recently, NYCT has struggled to maintain its subway system. As documented in recent publications (3), ridership on this system peaked in 2015 and has since declined. In recent years, service has worsened, in part due to high ridership levels as well as due to deteriorating vehicles, stations, and track infrastructure. This case illustrates that maintaining a transit system in SGR can result in significant benefits, but it is a continuing struggle, requiring sustained financial and management commitment.

Introduction 5 in-vehicle time, etc.), considering the effects of asset condition. For instance, the model considers the change in travel time and decreased reliability resulting from aging vehicles and guideways, as well as customer perceptions of deteriorated asset conditions. Figure 1-2 illustrates the relation- ship between asset condition and service quality that is modeled as part of this project. Note that TCRP Research Report 198 provides tools for predicting level of service as illustrated at the bottom of the figure but does not address subsequent impacts on ridership or financial sustainability. Although prior research helps establish an economic rationale for why transit agencies should maintain their assets in good repair, there are few examples in which these concepts have been put into practice to quantify SGR benefits. A notable example is described by Paterson and Vautin (6), detailing the calculation of the benefit–cost ratio for investments in SGR for transit systems in the San Francisco Bay Area. In this work, the authors show a positive return for investments in SGR through applying the SGR models in TCRP Report 157 and calculating user impacts of increased delay utilizing a regional travel demand model. Research Scope The objective of this research was to develop guidance for calculating return on investment (ROI) for rehabilitating or replacing existing transit assets to help achieve SGR. The guidance helps transit agencies identify the full impacts of SGR investments versus other investment options and is useful to transit agencies of different sizes and modes. The research effort described in this report was undertaken with the following objectives: • Define ROI as it applies to SGR decision making and investments for public transit, specifying ROI analyses that, at a minimum, address transit system performance, positive and negative customer impacts, and the local and regional social and economic impacts. Figure 1-2. Relationship between asset condition and service quality. (Source: TCRP Research Report 198)

6 Guidance for Calculating the Return on Investment in Transit State of Good Repair • Identify the critical data and information and address common issues in data quality and completeness relevant to ROI and SGR decision making for all major categories of transit assets as specified by the FTA Transit Asset Management Guide. • Present measures and standards that are currently used within and outside of the transit industry that pertain to SGR and ROI in the United States and internationally. • Present methods to assist transit agencies in assessing levels of investment, comparing invest- ment strategies, and prioritizing investments to help achieve SGR. The methods should be scalable to large, medium, and small transit agencies. • Test and demonstrate the methods for calculating ROI for public transit SGR investments based on pilots or proofs of concept. • Refine the methods for calculating ROI for transit agency SGR investments based on the pilots. • Develop guidance for calculating an ROI for rehabilitating or replacing existing transit assets to help achieve SGR. Report Organization This remainder of this document is organized into the following chapters: • Chapter 2—Analysis Methodology describes the recommended methodology for calcu- lating the ROI of transit agency projects and programs to maintain or achieve SGR for their physical assets. • Chapter 3—ROI Calculation Guidance presents a series of seven steps to calculate the ROI for transit SGR. • Chapter 4—Tool Documentation provides documentation for the spreadsheet tool used to aid transit agencies in calculating the ROI in transit SGR. • Chapter 5—Pilot Summaries provides the summaries and results of three pilot studies performed with transit agencies to test the ROI calculation guidance. • Chapter 6—Conclusions presents a brief summary of the research and suggests areas of future research. • Appendix A—Literature Review Summary discusses the results of a review of available literature related to calculating the ROI in transit SGR. • Appendix B—Annotated Bibliography provides a summary of the resources used through- out this research. • Appendix C—Model Details for Calculating Agency Costs provides detailed information on the models used for calculating agency cost. References 1. Spy Pond Partners, LLC; KKO & Associates, LLC; H. Cohen; and J. Barr. TCRP Report 157: State of Good Repair: Prioritizing the Rehabilitation and Replacement of Existing Capital Assets and Evaluating the Implica- tions for Transit. Transportation Research Board of the National Academies, Washington, D.C., 2013. 2. Kuiper, W. Three Case Studies: The Impact of Deferred Maintenance in Rail Transit. Technical Report UMTA- IT-06-0242-85-1 prepared for the Urban Mass Transit Administration (UMTA, now FTA). 1985. 3. Mahler, J. The Case for the Subway. New York Times Magazine, Jan. 3, 2018. 4. Robert, W., V. Reeder, K. Lawrence, H. Cohen, and K. O’Neil. TCRP Report 172: Guidance for Developing a Transit Asset Management Plan. Transportation Research Board of the National Academies, Washington, D.C., 2014. 5. Spy Pond Partners, LLC; AECOM; McCollom Management Consulting, Inc.; H. Cohen; and S. Silkunas. TCRP Research Report 198: The Relationship Between Transit Asset Condition and Service Quality. Trans- portation Research Board, Washington, D.C., 2018. 6. Paterson, L., and D. Vautin. Evaluating the Regional Benefit/Cost Ratio for Transit State of Good Repair Investments. Journal of Public Transportation, 18(3). 2015.