Kevin Keller, PG, CGWP HDR Engineering, Inc. American Railway Development Association.

Kevin Keller, PG, CGWP HDR Engineering, Inc. American Railway Development Association

American Railway Development Association (ARDA) Since 1906, ARDA has provided a forum for the North American railroad community to meet and effect positive change: The objectives of the Association are to foster the industrial, real estate, natural resources, market development activities and environmental concerns of the North American railroads; and through the advancement of ideas and education of its members further promote the effectiveness of railway development and related work.

ARDA Membership ARDA encourages membership from all classes of railroads throughout North America. Members also include professionals from other associations, agencies, and railroad service partners that have a direct effect on rail business today. ARDAs membership variety provides a wide perspective on issues facing the railroad industry in the 21st Century. www.amraildev.com

Why Require a BCA? Presidents commitment to data-driven decision- making Requirement from TIGER I and II No funding for projects for which C > B Value of BCA in project selection BCA quality matters more than size of the B/C ratio Focus your analysis on how it demonstrates need for your project

USDOT Definition A benefit-cost analysis attempts to measure the dollar value of the benefits and the costs of a specific project to all the members of society on a net present value basis.

USDOT Requirement DOT expects to identify and report on the benefits of the projects that it funds with TIGER Discretionary Grants. To this end, DOT will request that recipients of TIGER Discretionary Grants cooperate in Departmental efforts to collect and report on information related to the benefits produced by the projects that receive TIGER Discretionary Grants.

Benefits The benefits that DOT reports on may include the following: (1) Improved condition of existing transportation facilities and systems; (2) improved economic competitiveness in the form of reduced travel time, less traffic congestion, improved trip reliability, fewer vehicle miles traveled, or lower vehicle operating costs; (3) long- term growth in employment, production or other high-value economic activity; (4) improved livability of communities across the United States through expansion of transportation options, efficiency, and reliability; (5) improved energy efficiency, reduced dependence on oil and reduced greenhouse gas emissions; (6) reduced adverse impacts of transportation on the natural environment; (7) reduced number, rate and consequences of surface transportation-related crashes, injuries and fatalities; (8) greater use of technology and innovative approaches to transportation funding and project delivery; (9) greater collaboration with state and local governments, other public entities, private entities, nonprofit entities, or other nontraditional partners; (10) greater integration of transportation decision making with decision making by other public agencies with similar public service objectives; or (11) any other benefits claimed in the projects benefit-cost analysis.

So What is a Benefit-Cost Analysis? BCA is distinct from: Financial analysis Economic impact analysis Costs and benefits refer to changes in welfare Are people made better off by the proposal ...an analysis which quantifies in monetary terms as many of the costs and benefits of a proposal as feasible, including items for which the market does not provide a satisfactory measure of economic value. UK Treasury (2003), Appraisal and Evaluation in Central Government

Benefit-Cost Analysis Basics What is the purpose of the BCA? Benefit Cost Analysis measures the creation or erosion of real economic value Value denotes welfare or quality of life TIGER III project selection & BCA BCA quality matters more than size of the B/C ratio Focus your analysis on how it demonstrates need for your project

Basic Requirements Project Summary Base case (no-build) Project description Justification and impact on long-term outcomes Affected population(s) Expected economic benefits Alternatives Monetized estimates of benefits & costs Year-by-year stream of benefits and costs Discounted to present value (3% & 7%) Replicable methodology Demonstrate Independent Utility

CORE BCA Principles i. Costs & benefits estimated on incremental basis against realistic baseline (generally not status quo) ii. Reasonable alternatives considered and evaluated e.g., smaller scale and more focused projects iii. Costs & benefits expressed in monetary terms (constant dollars) and estimated over projects useful life iv. Discounting i.e., OMB Guidance for TIGER v. Summation of benefits & costs, and estimation of NPV

BCA vs EIA Economic Impact Analysis (EIA) focuses on local benefits JOBS CREATED Ignores costs to other localities Includes transfer payments as impacts Payrolls, tax revenues, real estate investments BCA focuses on national benefits (including local) Nets out costs to other areas Includes only productivity increases resulting from job creation, increases in property values

Defining Projects for Appraisal: Concept of Independent Utility Parts or phases with independent utility: i) are Eligible Projects, and ii) satisfy selection criteria Implications for BCA: does part/phase funded by TIGER has independent utility? YES: benefits & costs of part/phase only NO: benefits & costs of entire project (or entire portion with independent utility) In all cases: benefits & costs must be related to same no leverage

Time Horizon Both benefits and costs must be estimated for each year after work on the project is begun and for a period of time at least 20 years in the future (or the projects useful life, whichever is shorter), and these streams of annual benefits and costs must be discounted to the present using an appropriate discount rate, so that a present value of the stream of benefits and a present value of the stream of costs is calculated.

Focus on Project Selection Criteria Primary Selection Criteria Long-Term Outcomes State of good repair Economic competitiveness Livability Environmental sustainability Safety Job Creation and Near-Term Economic Activity Secondary Selection Criteria Innovation Partnership

Benefits Livability Livability benefits are often associated with: Accessibility for Improved access to jobs, amenities Accessibility for disadvantaged communities Land use changes linked to transportation Transit and bicycle-pedestrian improvements Affordability (transportation, housing) At least show ridership/usership Try to estimate value per user Increases in property values may indicate value

Benefits Economic Competitiveness Benefits in this category typically include: Lower operating costs Travel time savings Savings to passengers, carriers, and shippers Improvements in reliability Take care in estimating: Job creation benefits (focus on productivity increases) Omit multiplier effects Can include increases in labor and land productivity - But avoid double-counting

Benefits Safety Safety benefits are typically associated with reducing fatalities, injuries, crash costs, and hazmat releases Benefits should be based on good crash data and valid analysis of cause Recommended input values for injuries, property damage, and other data are available in USDOT TIGER NOFA

Benefits State of Good Repair State of Good Repair benefits can include: Reducing long-term maintenance and repair costs (life-cycle costs) Travel time savings (from preventing closures of facilities, lack of speed and weight restrictions) Other user benefits from better pavement, improved safety Need to consider benefits and costs of alternatives Replacement vs. rehabilitation Risk analysis

Benefits Sustainability Environmental sustainability benefits are typically from reduced emissions Greenhouse gases (e.g., CO2) SOx NOx Particulate matter (PM) Volatile organic compounds (VOC) Recommended values are available in NOFA

Mapping Benefit Metrics into Long-Term Outcome Criteria BENEFIT-COST ANALYSIS CATEGORIES OF BENEFIT LONG-TERM OUTCOME CRITERIA State of Good Repair Economic Competitiveness LivabilitySustainabilitySafety Savings in Facility and Equipment O&M Savings in Users Vehicle Operating Cost Savings in Travel Time Improvements in Travel Time Reliability Economies of Agglomeration and Increased Land Value Budgetary Savings to Low-Income Users Reductions in Environmental Emissions Accident Cost Savings

Selecting Input Values Wherever possible use recommendations provided in NOFA, including: VariableRecommended Source Discount rateOMB Circular A-94 Value of timeUS DOT Guidance Value of life and injuriesUS DOT Guidance Crash costsNHTSA CAFE 2011 RIA Criteria pollutant emissions NHTSA CAFE 2011 RIA Social cost of carbonInteragency Working Group Guidance

Transparency at every level

Distribution of Benefits & Costs Applicants must clearly identify which population will be affected by any particular benefit. (p. 38735) OptionsHow is it Measured?Data SourcesComments Distribution of benefits and costs by population group Estimation of benefits and costs accruing to specific groups based on information collected through user surveys or location data (e.g., place of residency, work, etc.). Assessment may also be qualitative, using a severity scale. User Surveys; U.S. Census Bureau, American Community Survey; Local Housing Authorities Detailed data available for assessing distribution based on current demographic and socio-economic characteristics. Forecast likely to be sketchy for some groups. Distribution of benefits and costs by geography Estimation of benefits and costs based on where they occur; or where trips originate; or where trips terminate. Assessment may also be qualitative, using a severity scale. Transportation Models; U.S. Census Bureau, American Community Survey; Local Housing Authorities Detailed data on O/D and trip making available from travel demand models. Exact location of effects may be difficult to assess and/or forecast for some metrics.

Costs Provide costs from all sources (local, State, other Federal grants, private) Direct capital costs: construction, design, land acquisition Beyond capital costs: O&M, rehabilitation, life-cycle costs External costs: noise, congestion, pollutants Cost to users during project construction: increased delay, vehicle operating costs Costs of whole project should be compared with benefits of whole project (no leveraging) Or, if TIGER funds only a part of a project, you can compare costs and benefits for TIGER-funded portion only But only if that portion has independent utility

Dealing with Uncertainty Sensitivity or elasticity analysis: change value of assumptions and model parameters one at a time and report impact on BCA metrics identify critical variables discuss robustness of BCA Ideally applied through transportation model as well Applicants should () discuss any uncertainties associated with the estimates. (p. 38738). A very useful economic analysis provides sensitivity analysis to show how changes in key assumptions affect the outcome of the analysis. (p. 38733) ParametersChange in Parameter Value New NPV Change in NPV New B/C Ratio Economic Development Benefits 25% of Full Appreciation Value -$51.0-174%0.72 50% of Full Appreciation Value $1.8-97%1.03 75% of Full Appreciation Value $54.6-20%1.34 Value of Time 30% Reduction in Recommended Value $64.2-6%1.38 20% Increase in Recommended Value $71.3+4%1.44 Low Income Ridership 50% Reduction in the Number of Low Income Riders $65.4-4%1.39 100% Increase in the Number of Low Income Riders $74.5+9%1.46 Fuel Costs EIA Low Case Scenario (-38%) $67.2-2%1.40 EIA High Case Scenario (+45%) $70.0+2%1.43 Shadow Pricing of Labor About 10% Reduction in Labor Cost $77.1+13%1.49 Capital Cost Estimate25% Reduction$98.4+44%1.73 Annual O&M Cost Estimate 25% Reduction$80.7+18%1.54

Presenting BCA Outcomes Benefits should be presented, whenever possible, in a tabular form showing benefits and costs in each year for the useful life of the project. (p. 38725) () applicants should include qualitative discussion of the categories of benefits and costs that they were not able to quantify () (page 38725) We are typically providing a 2 to 5 page summary for inclusion in the application and a technical appendix with supporting information.

Job Creation & Near-Term Economic Activity Two approaches to estimating job creation: CEA May 2009 memorandum $92,000 of government spending creates 1 job-year 64% direct and indirect; 36% induced Input / Output model IMPLAN, calibrated for study area Quarter-by-quarter projections of job-hours Job creation should not be included as benefits in BCA Shadow pricing of labor costs may be considered

CBA Project Rating CBAs are reviewed and rated by US DOT Review team Very Useful Useful Marginally Useful Not Useful

BCA - Lessons Learned ALWAYS document and provide reliable sources for data and calculations Be realistic in assumptions and estimates Qualitative discussion helps supplement understanding for difficult-to-measure benefits & costs Consider the viewpoint of objective reviewers Are estimates plausible and reasonable? Focus on overall evaluative process, not just the B/C ratio

Parting Words BCA is an opportunity to objectively demonstrate the need for your project Highlight benefits that are well-documented and align well with programs selection criteria Dont forget about true costs of the project Document, document, document Be realistic in your assumptions and estimates

Kevin Keller, PG, CGWP HDR Engineering, Inc. American Railway Development Association.

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