Return on Transportation Return on Transportation InvestmentsInvestments

September 20, 2007September 20, 2007

DenverDenver

““Investment Decisions are made on Return Investment Decisions are made on Return on Investment analyses or …on Investment analyses or …

Instinct or Vision”Instinct or Vision”

A Strong Case for A Strong Case for The Great Plains CorridorThe Great Plains Corridor

“…freight transportation enhancements that reduce the costs of moving goods (and services) to and from markets are critical to economic expansion”

“Freight Transportation Improvements and the Economy” USDOT/FHWA 2004

14% of US GDP14% of US GDP

38.5 million citizens38.5 million citizens

$166.7 billion trading region with $166.7 billion trading region with Canada and MexicoCanada and Mexico

22.1% of U.S. Agricultural 22.1% of U.S. Agricultural Goods Goods

25% of U.S. ethanol refining 25% of U.S. ethanol refining capacitycapacity

NAFTA’s #2 NAFTA’s #2 busiest portbusiest port

Great Plains International Conference 2007

A Strong Case for Investment inA Strong Case for Investment inThe Great Plains CorridorThe Great Plains Corridor

Great Plains “Great” GDPGreat Plains “Great” GDP

Bureau of Economic Analysis 2007

70% increase in freight movement by 2030

International trade is forecast to grow faster than domestic trade

28% of production in the United States is based on just-in-time delivery (AASHTO 2002).

Needs & InvestmentNeeds & Investment

US logistics costs exceeded $1 trillion in 2000, comprising US logistics costs exceeded $1 trillion in 2000, comprising 10 percent of GDP (Delaney).10 percent of GDP (Delaney).

Transportation

Infrastructure Investment

Increased Transportation Capacity, Efficiency, Reliability, and Level of Service

Transportation Cost Savings

Transit Time Savings (Reliability

Improvement)

Business Expansion (Relocation and Restructuring)

Increased Productivity

Increased Competitiveness

Increased Economic Growth

Transportation Investments & Transportation Investments & the Economythe Economy

Effects of Improved Freight TransportationEffects of Improved Freight Transportation

First Order BenefitsFirst Order Benefits Immediate cost reductionsImmediate cost reductions

(reduced transit times/increased (reduced transit times/increased reliability)reliability)

Second-Order BenefitsSecond-Order Benefits Reorganization effect gainsReorganization effect gains

(increases in output/input)(increases in output/input)

Third-order BenefitsThird-order Benefits Additional Reorganization effects Additional Reorganization effects (improved/new products)(improved/new products)

Other EffectsOther Effects Increase in Regional Employment Increase in Regional Employment & Income& Income

Estimating ROTIEstimating ROTI

Construction ofConstruction ofTransportationTransportation ImprovementsImprovements

Improved Improved Transportation Transportation

OperationsOperations

DirectDirectExpendituresExpenditures

ImprovedImprovedAccess/Access/

MobilityMobility

EnhancedEnhancedRegionalRegional GrowthGrowth

Multiplier EffectsMultiplier Effects(REMI Model)(REMI Model)

Economic ImpactsEconomic Impacts•Employment Employment •Personal IncomePersonal Income•Business BenefitsBusiness Benefits

9

ROTI for the Ports to Plains ROTI for the Ports to Plains CorridorCorridor

$’s in millions$’s in millions

(2004 dollars)(2004 dollars)

Development Development CostsCosts $2,868$2,868

Committed Committed FundsFunds ($331)($331)

Funds Needed Funds Needed to Develop to Develop

CorridorCorridor$2,537$2,537

Ports to Plains CDMP 2004

Summary of Economic Benefits by Summary of Economic Benefits by CategoryCategory

CategoryCategory JobsJobsTotal Income Total Income

2006-20302006-2030

(Millions 2004$ @ 7%)(Millions 2004$ @ 7%)

Construction (person Construction (person years)years) 2,5002,500 $41$41

Distribution with some Distribution with some Manufacturing (2030)Manufacturing (2030) 39,63639,636 $4,258$4,258

Roadside Services (2030)Roadside Services (2030) 2,0312,031 $216$216

Tourism (2030)Tourism (2030) 280280 $27.0$27.0

11

Ports to Plains CDMP 2004

State/Local Fiscal BenefitsState/Local Fiscal BenefitsMillions $2004 @ 7% Discount RateMillions $2004 @ 7% Discount Rate

Jobs and incomes (personal Jobs and incomes (personal and business) are produced as and business) are produced as part of the benefit dollars part of the benefit dollars

(local, state and federal)(local, state and federal)

Local Fiscal Local Fiscal BenefitsBenefits CorridorCorridor

SalesSales $41$41

HotelHotel $1$1

Total LocalTotal Local $42$42

State Fiscal State Fiscal BenefitsBenefits CorridorCorridor

Sales TaxSales Tax $76$76

Personal Personal IncomeIncome $53$53

Corporate Corporate IncomeIncome $4$4

Hotel TaxHotel Tax $2$2

Unemp. Unemp. InsuranceInsurance $24$24

Franchise TaxFranchise Tax $6$6

Fuel TaxFuel Tax $17$17

Total StateTotal State $183$183

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Ports to Plains CDMP 2004

ROTI for the Ports to Plains ROTI for the Ports to Plains CorridorCorridor

Economic Benefits = $4.5 billion (using 7% Economic Benefits = $4.5 billion (using 7% discount rate)discount rate)

Cost of Corridor (2004) = $2.87 billionCost of Corridor (2004) = $2.87 billion

But thru 2030 (using 7% discount rate)But thru 2030 (using 7% discount rate)

= $1.5 billion (period comparable to = $1.5 billion (period comparable to benefits)benefits)

Producing ROTI = 3.0 : 1Producing ROTI = 3.0 : 1

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Ports to Plains CDMP 2004

Effects of Improved Freight TransportationEffects of Improved Freight Transportation

First Order BenefitsFirst Order Benefits Immediate cost reductionsImmediate cost reductions

(reduced transit times/increased (reduced transit times/increased reliability)reliability)

Second-Order BenefitsSecond-Order Benefits Reorganization effect gainsReorganization effect gains

(increases in output/input)(increases in output/input)

Third-order BenefitsThird-order Benefits Additional Reorganization effects Additional Reorganization effects (improved/new products)(improved/new products)

Other EffectsOther Effects Increase in Regional Employment Increase in Regional Employment & Income& Income

Alabama Auto Suppliers LocationsAlabama Auto Suppliers Locations

Auto Assemblers cluster at locations featuring one or more Auto Assemblers cluster at locations featuring one or more four-lane highwaysfour-lane highways

Majority of suppliers are located within 400 miles (one-day Majority of suppliers are located within 400 miles (one-day drive) of an assembly plantdrive) of an assembly plant

JIT shipments require connectivity to expanded interstate JIT shipments require connectivity to expanded interstate systemssystems

Majority of auto manufacturers locate within 5 miles of a Majority of auto manufacturers locate within 5 miles of a four-lane US or interstate highway four-lane US or interstate highway

Alabama Auto Suppliers Alabama Auto Suppliers LocationsLocations

47%

32%

15%2%4%

< 5 miles6-10 miles11-15 miles

16-20 miles> 20 miles

Auto Assemblers cluster at Auto Assemblers cluster at locations featuring one or more locations featuring one or more four-lane highwaysfour-lane highways

JIT shipments JIT shipments require require connectivityconnectivity

Proximity to 4-lane highwaysProximity to 4-lane highways

“on-line” orderto shipping the assembled

computer with software loaded and tested

reduce parts inventory from an industry

norm of 75 to 100 days to 6.6 days

36 hours

Third Order BenefitsThird Order Benefits

What Other States Have FoundWhat Other States Have Found

StateState Level of Level of InvestmentInvestment

Economic Economic BenefitBenefit

Job Job CreationCreation

South South Carolina (1)Carolina (1)

$950 million$950 million

annuallyannually$2.1 Billion$2.1 Billion 24,00024,000

Wisconsin (2)Wisconsin (2) Additional Additional $275 million$275 million

annuallyannually

$156 million $156 million increase in increase in personal personal incomeincome

4,3004,300

(1) Moore School of Business, 2003 “ The South Carolina Department of Transportation and its Economic Impact on the State of Carolina”

(2) Cambridge Systematics, Inc. 2003 “Transportation Improvements Grow Wisconsin’s Economy: The Economic Benefits of Transportation Benefits”

Creating a Economic Strategy for Creating a Economic Strategy for the Great Plains Corridorthe Great Plains Corridor

Improve access Improve access within urbanized within urbanized areaarea

Improve Improve connectivity connectivity between between production/distribproduction/distribution centersution centers

Access/circulation Access/circulation changes in rural changes in rural or urban areasor urban areas

Serve Existing Serve Existing EmployersEmployersEncourage new Encourage new compatible compatible EmployersEmployersQuality of LifeQuality of LifeFacilitate Facilitate Changing Changing Character of Character of EmployersEmployers

Jobs MaintainedJobs MaintainedPossible new Possible new industries & industries & wage growthwage growthBusiness Business Investment Investment likelylikely

Primary Economic Primary Economic Development Development ObjectivesObjectives

Ex-Ante Ex-Ante ConsiderationsConsiderations

Project TypologyProject Typology

““Go the Distance……Go the Distance……

They will come… they will most They will come… they will most definitely come”definitely come”