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U.S. Government Accountability Office: 

Highlights Of An Expert Panel: The Benefits and Costs of Highway and 
Transit Investments: 

May 2005: 

GAO-05-423SP: 

GAO Highlights: 

Highlights of GAO-05-423SP: 

Why GAO Convened This Expert Panel: 

The nation's economy and its citizens' quality of life depend on our 
transportation system. While all government levels have made 
significant investments in transportation, projections of future 
passenger and freight travel indicate that considerable investment will 
be needed to maintain the system. However, this comes amid growing 
concern about the size of the federal budget deficit and increasing 
demands on state and local government revenue. As a result, careful 
decisions will need to be made to ensure that transportation 
investments maximize the benefits of each dollar invested. 

The House Appropriations Committee report accompanying the fiscal year 
2004 Departments of Transportation and Treasury and Independent 
Agencies Appropriations Bill, required GAO to review the benefits and 
costs of various transportation modes. (See GAO-05-172.) As part of 
this study, GAO convened an expert panel that included some of the 
leading transportation economists and practitioners from throughout the 
nation. The panel discussed the benefits and costs of highway and 
transit investments. 

What Participants Said: 

GAO asked expert panel participants to discuss how to conceptualize, 
measure, improve, and use information about the benefits and costs of 
highway and transit investments. The expert panel was not designed to 
reach a consensus on these issues, but several themes emerged from the 
panel's discussion, including the following: 

* Benefit-cost analysis can be a useful tool to inform transportation 
investment decisions. 

* Requiring benefit-cost analysis can be useful if it is fully 
integrated into the decision making process and not seen as a 
compliance checklist. 

* Transportation investments seldom are compared across modes. 

* Better analytic tools are needed to evaluate land use and 
distributional impacts of investments. 

* Quality of state and local transportation data needs to be improved 
so that travel models can accurately predict patterns, trends, and 
needs. 

www.gao.gov/cgi-bin/getrpt?GAO-05-423SP. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Katherine Siggerud at 
(202) 512-2834 or siggerudk@gao.gov. 

[End of section]

Contents: 

Abbreviations: 

Message from the Comptroller General of the United States: 

Introduction: Expert Panel on the Benefits and Costs of Transit and 
Highway Investments: 

Highlights of the Expert Panel Discussion: 

Appendix I: Scope and Methodology: 

Appendix II: Overview of Expert Panel and Opening Remarks: 

Appendix III: How Should We Think About Transportation Benefits and 
Costs?

Opening Comments by Dr. Lewis and Dr. Wachs: 

Panel Discussion: 

Summary of Panel Responses to Audience Questions: 

Appendix IV: How Are Benefits and Costs of Transit and Highway 
Investments Best Measured?

Opening Comments by Dr. Small and Dr. Pickrell: 

Panel Discussion: 

Summary of Panel Responses to Audience Questions: 

Appendix V: How Could Benefit-Cost Analysis Be Improved?

Opening Comments by Dr. Forkenbrock and Dr. Kirby: 

Panel Discussion: 

Summary of Panel Responses to Audience Questions: 

Appendix VI: How Can Benefit-Cost Analysis Be Most Useful In Investment 
Decisions?

Opening Comments by Dr. Meyer and Dr. Gomez-Ibanez: 

Panel Discussion: 

Summary of Panel Responses to Audience Questions: 

Appendix VII: Panelists' Closing Remarks: 

Appendix VIII: Selected Bibliography and Related GAO Products: 

Appendix IX: GAO Contacts and Acknowledgements: 

GAO Contacts: 

Acknowledgments: 

Endnotes: 

Abbreviations: 

AASHTO: American Association of State Highway and Transportation 
Officials: 

CAAA: Clean Air Act Amendments: 

CMAQ: Congestion Mitigation and Air Quality: 

DOT: Department of Transportation: 

EIS: Environmental Impact Statement: 

EPA: Environmental Protection Agency: 

FHWA: Federal Highway Administration: 

FTA: Federal Transit Administration: 

GDP: Gross Domestic Product: 

GPS: Global Positioning System: 

HOT: High Occupancy Toll: 

HOV: High Occupancy Vehicle: 

ISTEA: Intermodal Surface Transportation Efficiency Act: 

MPO: Metropolitan Planning Organization: 

NAS: National Academy of Sciences: 

NCHRP: National Cooperative Highway Research Program: 

NEPA: National Environmental Policy Act: 

OMB: Office of Management and Budget: 

ROI: Return on Investment: 

TANF: Temporary Assistance for Needy Families: 

TCRP: Transit Cooperative Research Program: 

TEA-21: Transportation Equity Act for the 21st Century: 

TRB: Transportation Research Board: 

Message from the Comptroller General of the United States: 

In speeches and presentations over the past several years, I have 
called attention to our large and growing long-term fiscal challenge 
and the risks it poses to our nation's future. Simply put, our nation's 
fiscal policy is on an unsustainable course. As long-term budget 
simulations by GAO and others show, we face a large and growing 
structural deficit over the long term due primarily to known 
demographic trends and rising health costs. These trends are compounded 
by the presence of near-term deficits arising from new discretionary 
and mandatory spending as well as lower revenues as a share of the 
economy. 

Continuing on this unsustainable fiscal path will gradually erode and 
may suddenly damage our economy, standard of living, and ultimately our 
national security. Given the size of our projected deficit, we will not 
be able to grow our way out of this problem--tough choices will be 
required. We need nothing less than a fundamental reexamination of all 
major existing spending and tax policies and priorities. While prompted 
by fiscal necessity, such a fundamental review of major program and 
policy areas also serves the vital function of updating the federal 
government's programs and priorities to meet current and future 
challenges. 

Many current federal programs and policies were designed decades ago to 
respond to trends and challenges that existed at the time of their 
creation. The transportation sector is one of many areas where emerging 
challenges necessitate difficult decisions about investments and 
priorities. 

I want to thank the distinguished experts who participated in our panel 
on the benefits and costs of highway and transit investments for their 
willingness to share their knowledge and time to examine issues with 
immediate importance and serious concern. Their insights about 
maximizing the benefits of federal dollars invested in transportation 
will be of value to Congress and the transportation community. I look 
forward to working with the panelists and others on this and other 
issues of mutual interest and concern in the future. 

Signed by: 

David M. Walker: 

Comptroller General of the United States: 

[End of section]

Introduction: Expert Panel on the Benefits and Costs of Transit and 
Highway Investments: 

The nation's economic vitality and its citizens' quality of life depend 
substantially on the soundness, security, and availability of its 
transportation system. The transportation system provides people with 
access to goods, services, recreation, and jobs; provides businesses 
with access to materials, markets, and people; and promotes the 
movement of personnel and material to meet national defense needs. 
Given the importance of the transportation system, all levels of 
government have made significant investments in the system. However, 
future decisions about investments in the transportation system are set 
to collide with new realities and emerging trends. In particular: 

* Securing funding for transportation investments is becoming 
increasingly difficult. Federal transportation grant programs--
including the nation's highways and transit programs--are funded by the 
Highway Trust Fund. Revenues to the Highway Trust Fund are drawn from 
fuel taxes and user fees. The purchasing power of these revenues is 
declining, and future fuel tax revenues could be further eroded by the 
increasing fuel efficiency of vehicles. Many experts question whether 
the current financing scheme for transportation is ultimately 
sustainable. As a result, decision makers are increasingly looking more 
to the general fund to finance transportation programs, and state and 
local governments are increasingly relying on property and sales taxes 
to fund transportation improvements. Attempts to secure funding for 
transportation from these other sources come amid growing concerns 
about the size of federal budget deficits and future Social Security 
and Medicare commitments that will consume a greater share of the 
nation's resources. Moreover, transportation faces increasing 
competition from education, Medicaid, and other public uses for state 
and local government revenues.[Footnote 1]

* The gap between travel needs and the transportation system's 
condition and capacity is growing. Increasing passenger and freight 
travel has generated substantial congestion throughout the national 
transportation system. Travel projections indicate that considerable 
investment will be needed to prevent congestion from overwhelming the 
system, while maintaining system safety and condition. The Department 
of Transportation (DOT) estimated that the nation's highway and transit 
systems will require $90.7 billion in annual capital investment through 
2020 to maintain their current level of conditions and performance, 
while up to $127.5 billion in annual investment would be required to 
improve conditions and performance.[Footnote 2]

* The transportation investment decision-making process is increasingly 
complex. Transportation investment decisions are inextricably linked 
with land use, economic, environmental, and energy policy concerns, 
among other things. Therefore, when making investment decisions, 
decision makers must consider a number of factors as well as the 
diverse, and sometimes conflicting, interests of numerous stakeholders. 
For example, the Intermodal Surface Transportation Efficiency Act of 
1991 (ISTEA)[Footnote 3] and the Transportation Equity Act for the 21st 
Century (TEA-21)[Footnote 4] require that a number of factors--
including safety, environmental impacts, system connectivity, and 
accessibility--be considered in investment decisions and that state and 
local transportation agencies involve numerous stakeholders in the 
decision-making process. ISTEA and TEA-21 also gave local and state 
transportation agencies greater discretion in planning for and 
selecting transportation investments that meet local needs and 
priorities. As a result, the transportation investment decision-making 
process has been broadened to a wider range of viewpoints and 
interests. Moreover, new security imperatives in a world after 
September 11, 2001, present additional challenges for the 
transportation system that must be considered in the decision-making 
process. 

These trends raise questions about how to make transportation 
investment decisions in an increasingly fiscally constrained and 
complex environment. GAO and other federal agencies--including the 
Office of Management and Budget (OMB) and DOT--have identified benefit-
cost analysis as a useful tool for integrating the social, 
environmental, economic, and other effects of investment alternatives 
and for helping decision makers identify projects with the greatest net 
benefits. In addition, the systematic process of benefit-cost analysis 
helps decision makers organize and evaluate information about, and 
determine trade-offs between, alternatives. 

The use of benefit-cost analysis in transportation investment decision 
making was the subject of an expert panel that GAO convened on June 28, 
2004, to discuss four key issues--how to conceptualize, measure, 
improve, and use information about benefits and costs of highway and 
transit investments. We convened the expert panel, in collaboration 
with the National Academy of Sciences, as part of a larger study of the 
benefits and costs of transit and highway investments. The panel 
included top transportation economists and practitioners from 
throughout the country, including David J. Forkenbrock, Jose A. Gomez-
Ibanez, Ronald F. Kirby, David L. Lewis, Michael D. Meyer, Donald 
Pickerell, Kenneth A. Small, Brian D. Taylor, and Martin Wachs. (See 
app. I for the methodology we used in convening the panel and a profile 
of each panelist.) We included the major themes that emerged from the 
panel in our January report to the House and Senate Appropriations 
Committees.[Footnote 5] However, the panel produced many additional 
important insights that were beyond the focus of our January 2005 
report. Given the importance of these issues to decision makers and the 
transportation community, we decided to publish a separate report 
devoted exclusively to the results of the panel. We conducted the work 
to prepare this report from February through April 2005 according to 
generally accepted government auditing standards. 

Following is a summary of the discussion among the panel participants. 
The summary reflects the major themes that surfaced at the panel, and 
we used boldface type in the report to highlight points that these 
experts emphasized. Appendixes II to VII contain an edited transcript 
of the panel's discussion as well as subsequent comments received from 
the panelists based on a draft of this report. The views expressed by 
the panelists do not necessarily represent the views of GAO or the 
National Academy of Sciences. Appendix VIII contains a select 
bibliography and a list of related GAO products. 

This report will be posted on our Web site at www.gao.gov. For 
additional information on our work related to transportation decision 
making, please contact Katherine Siggerud on (202) 512 2834 or at 
siggerudk@gao.gov. Key contributors to this report are listed in 
appendix IX. 

[End of section]

Highlights of the Expert Panel Discussion: 

Several themes emerged as the panelists responded to the four major 
issues that we presented for discussion--(1) conceptualizing, (2) 
measuring, (3) improving, and (4) using information about the benefits 
and costs of highway and transit investments. Although the expert panel 
was not designed to reach a consensus on these issues or specific 
questions that we presented, a number of themes emerged from the 
panel's discussion, as shown in table 1. 

Table 1: Major Themes from the Expert Panel Discussion: 

* Benefit-cost analysis can be a useful tool to inform transportation 
investment decisions. 

* Transportation investments are not often compared across modes. 

* Requiring benefit-cost analysis can be useful if it is fully 
integrated into the decision-making process and not seen as a 
compliance checklist. 

* Better analytic tools are needed to analyze land use and 
distributional impacts of transportation investments. 

* Quality of state and local transportation data needs to be improved 
so that travel models can accurately predict patterns, trends, and 
needs. 

Source: GAO analysis of expert panel discussion. 

[End of table]

* Benefit-cost analysis can be a useful tool to inform transportation 
investment decisions. Benefit-cost analysis can provide important 
information to transportation decision makers about transportation 
investments and a structure for discussing benefits and costs of 
alternative investments with public and private stakeholders. In 
particular, it provides an analytic framework that decision makers can 
use to consider a range of factors in a systematic manner and clarifies 
what is and is not known about the impacts of a transportation project. 
However, efforts to increase the use of benefit-cost analysis need to 
be tempered with the knowledge that the results of benefit-cost 
analysis represent only one factor of many that are considered in 
investment decision making. Factors such as federal funding, public 
comment, limitations imposed by existing infrastructure, and political 
considerations also influence investment decisions.[Footnote 6]

* Transportation investments are not often compared across modes. 
Alternatives in other modes are seldom systematically analyzed to 
determine how efficiently and effectively they could meet the 
transportation need. The highly compartmentalized structure and funding 
of federal highway and transit programs work against an advantage of 
benefit-cost analysis--the ability to evaluate how well alternative 
investments meet transportation problems. Separations between federal 
programs and funds give state, regional, and local agencies little 
incentive to systematically compare the trade-offs between investing in 
different transportation alternatives to meet passenger and freight 
travel needs because funding can be tied to certain programs or types 
of projects. In addition, the modal structure of federal programs gives 
rise to advocacy for specific modes or investments. 

* Requiring benefit-cost analysis can be useful if it is fully 
integrated into the decision-making process and not seen as a 
compliance checklist. Since systematic analyses of the benefits and 
costs of highway and transit investments are not often conducted 
voluntarily,[Footnote 7] requiring a benefit-cost analysis for new 
highway and transit investments could be useful. However, past 
experience with federal benefit-cost analysis requirements shows that 
they can either be treated in a pro forma way or "gamed" by the 
affected agencies. This experience indicates that mandates alone are 
not sufficient. Both incentives to conduct analysis and enforcement 
mechanisms would be needed to ensure that the analytic requirement is 
fully integrated into the decision-making process, thereby ensuring 
meaningful compliance. Experts noted that lessons can be learned from 
other federal analytic requirements. One expert also noted that the 
National Environmental Policy Act of 1969 (NEPA) [Footnote 8] 
requirements are not typically manipulated because such manipulation 
could result in a lawsuit. 

* Better analytic tools are needed to evaluate land use and 
distributional impacts of transportation investments. Land use impacts 
are often major drivers of investment choices. However, benefit-cost 
analysis and other types of economic analysis usually pay limited 
attention to land use issues, in part, because land-use issues--as well 
as other indirect benefits--are difficult to estimate. The panel also 
highlighted the importance of taking into account which groups benefit 
from a project and which bear the costs. Although the distribution of 
transportation investments' benefits and costs is an important local 
concern, it is frequently not considered adequately in the evaluation 
of a project's benefits and costs. 

* Quality of state and local transportation data needs to be improved 
so that travel models can accurately predict patterns, trends, and 
needs. Local and state transportation agencies require valid, reliable 
data in order to conduct analyses, including benefit-cost analysis. 
Yet, experts expressed concerns about the quality of local and state 
transportation data. Data quality is a pivotal concern in 
transportation modeling, as the available data provide critical input 
for travel models. For example, data about traffic flow throughout the 
day, rather than at a single time, are crucial to producing valid 
representations of travel needs and problems. However, reliable and 
complete data are not always available--which can result in forecasting 
errors. Collecting the data needed for modeling is growing more 
expensive and difficult. For instance, a home survey of travel habits, 
which identifies basic transportation needs and travel patterns of a 
region and is the foundation of transportation modeling, is now beyond 
most local transportation agencies' annual budgets, according to one 
expert. 

[End of section]

Appendix I: Scope and Methodology: 

We contracted with the National Academy of Sciences (NAS) to convene a 
balanced, diverse panel of experts to discuss the use of benefit-cost 
analysis in highway and transit project decision making and gather 
views about options to improve the information available to decision 
makers. The NAS Transportation Research Board (TRB) identified 
potential panelists who were knowledgeable about benefit-cost analysis, 
transportation policy and planning, highway and transit use, and 
transportation decision making. We worked closely with TRB to select 
panelists who could adequately respond to our general and specific 
questions about conceptualizing, measuring, improving, and using 
benefit and cost information in investment decisions. In keeping with 
NAS policy, the panelists were invited to provide their individual 
views, and the panel was not designed to reach a consensus on any of 
the issues that we asked them to discuss. We also asked the panelists 
to submit two published articles related to the subject, which were 
disseminated to the audience the day of the panel. (See app. VIII for 
the list of articles submitted by the panelists.) 

The panelists convened at the National Academy of Sciences' Keck Center 
in Washington, D.C., on June 28, 2004, after reviewing discussion 
questions that we provided in advance. To start the day, the panel 
moderator, Brian Taylor of the University of California, Los Angeles, 
provided an overview of the issues to be discussed; and during the 
remainder of the day, the panelists addressed the questions we had 
provided for their consideration. We did not verify the panelists' 
statements, although we did ask the panelists, in some instances, to 
clarify certain details. The views expressed by the panelists do not 
necessarily represent the views of GAO or NAS. 

After the expert panel was conducted, we used a content analysis to 
systematically analyze a transcript of the panel's discussion in order 
to identify each expert's views on key questions, and we used boldface 
type in the report to highlight points that they emphasized. We also 
used the content analysis to highlight principal themes that emerged 
from the panel's discussion. To ensure that we accurately represented 
the panelists' comments in our report, we provided each panelist the 
opportunity to review and comment on the edited transcript. We 
incorporated changes or clarifications provided by the panelists to the 
draft report. Finally, we added endnotes to the transcript to define 
terminology used by the panelists, where appropriate, and to reference 
cited publications, laws, and programs. 

The discussion summarized in this report should be interpreted in the 
context of two key limitations and qualifications. First, although we 
were able to secure the participation of a balanced, highly qualified 
group of experts, there are other experts in this field who could not 
be included because of the need to limit the size of the panel. 
Although many points of view were represented, the panel was not 
representative of all potential views. Second, even though GAO, in 
cooperation with NAS, conducted preliminary research and heard from 
national experts in their fields, a day's conversation cannot represent 
the current practice in this vast arena. More thought, discussion, and 
research must be done to develop greater agreement on what we really 
know, what needs to be done, and how to do it. These two key 
limitations and qualifications provide contextual boundaries. 
Nevertheless, the panel provided a rich dialogue on the benefits and 
costs of transit and highway investments, and the panelists provided 
insightful comments in responding to the questions posed to the panel. 

Participants in the expert panel included the following: 

David J. Forkenbrock is Director of the Public Policy Center, Director 
of the Transportation Research Program, Professor in Urban and Regional 
Planning, and Professor in Civil and Environmental Engineering at the 
University of Iowa. His research and teaching interests include 
analytic methods in planning and transportation policy and planning. 
From 1995 through 1998, Dr. Forkenbrock chaired a National Research 
Council-appointed committee to review the Federal Highway 
Administration's (FHWA) Cost Allocation Study process. He is a member 
of the College of Fellows, American Institute of Certified Planners, 
and a lifetime National Associate of the National Academies. He is 
chairman of the TRB Committee for Review of Travel Demand Modeling by 
the Metropolitan Washington Council of Governments and a member of the 
TRB Committee for the Study of the Long-Term Viability of Fuel Taxes 
for Transportation Finance. In 2004, he received the first-ever TRB 
William S. Vickrey Award for Best Paper in Transportation Economics and 
Finance for his work on mileage-based road user charges. He received 
the Michael J. Brody Award for Excellence in Faculty Service to the 
University and the State, from the University of Iowa in 1996. He 
earned a Ph.D., from the University of Michigan; a Master of Urban 
Planning, from Wayne State University; and a B.A., from the University 
of Minnesota. 

Jose A. Gomez-Ibanez is Derek C. Bok Professor of Urban Planning and 
Public Policy at Harvard University's John F. Kennedy School of 
Government and Graduate School of Design. His research interests are 
primarily in the areas of transportation policy and urban development 
and privatization and regulation of infrastructure. He has served as a 
consultant for a variety of public agencies. His recent books include 
Regulating Infrastructure: Monopoly, Contracts, and Discretion; 
Regulation for Revenue: The Political Economy of Land Use Exactions 
(with Alan Altshuler); Going Private: The International Experience with 
Transport Privatization (with John R. Meyer); and Essays on Transport 
Policy and Economics (ed.) 

Ronald F. Kirby is Director of Transportation Planning for the 
Metropolitan Washington Area Council of Governments. He began his 
career in the United States as a Senior Research Associate with 
Planning Research Corporation. He joined the Urban Institute as a 
Senior Research Associate and became a Principal Research Associate and 
Director of Transportation Studies. He has served on several TRB 
committees and is currently a member of the TRB Executive Committee. He 
has a B.S. and a Ph.D., in applied mathematics, from the University of 
Adelaide, South Australia. 

David L. Lewis is President and CEO of HLB Decision Economics. His 
credits include a range of widely adopted applications in cost-benefit 
analysis, productivity measurement, risk analysis, and approaches to 
establishing public-private investment partnerships. He has authored 
three books, including Policy and Planning as Public Choice: Mass 
Transit in the United States (Ashgate Press), 1999. His past positions 
include Partner-in-Charge, Division of Economics and U.S. Operations, 
Hickling Corporation; Chief Economist, Office of the Auditor General of 
Canada; Executive Interchange Program and Principal Analyst, U.S. 
Congressional Budget Office, Congress of the United States; and Senior 
Economist and Director of the Office of Domestic Forecasting, 
Electricity Council. He has a Ph.D. and an M.S., in economics, from the 
London School of Economics; and a B.A., in economics, from the 
University of Maryland. 

Michael D. Meyer is Professor of Civil and Environmental Engineering at 
the Georgia Institute of Technology. Prior to coming to Georgia Tech in 
1988, he was the Director of the Bureau of Transportation Planning and 
Development at the Massachusetts Department of Public Works for 5 
years. Prior to his employment at the Massachusetts Department of 
Public Works, he was a professor in the civil engineering department of 
the Massachusetts Institute of Technology. His research interests 
include transportation planning and policy analysis, environmental 
impact assessment, analysis of transportation control measures, and 
intermodal and transit planning. He is a Professional Engineer in the 
State of Georgia, and a member of the American Society of Civil 
Engineers and the Institute of Transportation Engineers. He has chaired 
TRB's Task Force on Transportation Demand Management, the Public Policy 
Committee, the Committee on Education and Training, and the Statewide 
Multimodal Transportation Planning Committee. He is a former member of 
the National Research Council policy study Panel on Statistical 
Programs and Practices of the Bureau of Transportation Statistics. 
Currently, he is a member of TRB's Executive Committee and Standing 
Committee on Statewide Multimodal Transportation Planning. 

Donald Pickrell is DOT's Volpe Center's Chief Economist. Prior to 
joining DOT, he taught economics, transportation planning, and 
government regulation at Harvard University. While at the Volpe Center, 
he also was a lecturer in the Department of Civil Engineering at the 
Massachusetts Institute of Technology. He has authored over 100 
published papers and research reports on various topics in 
transportation policy and planning, including transportation pricing; 
transit planning and finance; airline marketing and competition; travel 
demand forecasting; infrastructure investment and finance; and the 
relationships of travel behavior to land use, urban air quality, and 
potential climate change. He received his undergraduate degree in 
economics and mathematics from the University of California at San 
Diego; and Master's and Ph.D. degrees, in urban planning, from the 
University of California at Los Angeles. 

Kenneth A. Small is Professor of Economics at the University of 
California at Irvine, where he served 3 years as chair of the 
Department of Economics and 6 years as Associate Dean of Social 
Sciences. He previously taught at Princeton University and was a 
Research Associate at The Brookings Institution. He has written 
numerous books and articles on urban economics, transportation, public 
finance, and environmental economics. He serves on the editorial boards 
of several professional journals in the fields of urban and 
transportation studies and has served as coeditor or guest editor for 
four of those boards. In 1999, he received the Distinguished Member 
award of the Transport and Public Utilities Group of the American 
Economic Association. During 1999 to 2000, he held a Gilbert White 
Fellowship at Resources for the Future. He has served on two TRB policy 
study committees--the Committee for a Review of the Highway Cost 
Allocation Study and the Committee for a Study on Urban Transportation 
Congestion Pricing. 

Brian D. Taylor (Moderator) is Associate Professor of Urban Planning 
and Director of the Institute of Transportation Studies at the 
University of California at Los Angeles as well as Vice-Chair of the 
Urban Planning Department. His research centers on transportation 
finance and travel demographics. He has examined the politics of 
transportation finance, including the influence of finance on the 
development of metropolitan freeway systems and the effect of public 
transit subsidy programs on system performance and social equity. His 
research on the demographics of travel behavior has emphasized access-
deprived populations, including women, racial-ethnic minorities, the 
disabled, and the poor. He also has explored relationships between 
transportation and urban form, with a focus on commuting and employment 
access for low-wage workers. Prior to coming to the University of 
California at Los Angeles in 1994, he was Assistant Professor in the 
Department of City and Regional Planning at the University of North 
Carolina at Chapel Hill. Prior to that, he was a Transportation Analyst 
with the Metropolitan Transportation Commission in Oakland, California. 

Martin Wachs is Professor of Civil and Environmental Engineering and 
City and Regional Planning, and Director of the Institute of 
Transportation Studies at the University of California at Berkeley. He 
was formerly Professor of Urban Planning and Director of the Institute 
of Transportation Studies at the University of California at Los 
Angeles where he served three terms as Head of the Urban Planning 
Program. Dr. Wachs' research interests include methods for evaluating 
alternative transportation projects; relationships among land use, 
transportation, and air quality; and fare and subsidy policies in urban 
transportation. Most recently, he chaired the TRB policy study 
Committee for the Study on Urban Transportation Congestion Pricing. He 
is past Chairman of the TRB Executive Committee. Dr. Wachs holds a 
Ph.D., in transportation planning, from Northwestern University. 

[End of section]

Appendix II: Overview of Expert Panel and Opening Remarks: 

Brian D. Taylor is an Associate Professor of Urban Planning and 
Director of the Institute of Transportation Studies at the University 
of California at Los Angeles as well as Vice-Chair of the Urban 
Planning Department. 

Dr. TAYLOR (Moderator): 

To examine the use of benefit-cost analysis in transportation decision 
making, the panel will examine four issues-conceptualizing the benefits 
and costs of transit and highway investments; measuring benefits and 
costs; improving benefit-cost analysis as an evaluation tool; and using 
benefit-cost analysis to inform public decisions. Two panelists will 
offer comments to begin the discussion of each issue. 

A key question is implied in these four major issues that GAO asked the 
panel to discuss: Why does benefit-cost analysis play a relatively 
limited role in transportation decision making? I see three possible 
answers: 

* it's the wrong analytical tool-we have other, better tools for this 
purpose;

* it's the right tool, but often improperly applied; or: 

* it's the right tool, but hard to apply-in other words, we need 
better data, a more sophisticated application of this tool, or a more 
formal incorporation of this tool into decision making. 

Regardless of what may explain the relatively limited role of benefit-
cost analysis in transportation decision making, there are at least 
four unstated premises to this issue that warrant reflection: 

* first, that transportation investments sometimes are misguided;

* second, that improper evaluations or failure to conduct evaluations 
have played a role in misguided investments;

* third, that improved analyses can better inform transportation 
decision making (or, put another way, if decision makers have better 
information, it will be harder for them to make bad decisions);

* and fourth, that better informed decision making can reduce the 
number of misguided transportation investments. 

Collectively, these premises suggest links between information, 
evaluation, and decision making that are far from settled in my view. 
The panel faces an important question: 

Will public officials actually find better, more transparent 
evaluations of the transportation merits of proposed projects 
"threatening" to the current, well-established processes of 
transportation decision making?

I would contend that benefit and cost comparisons do, in fact, guide 
all public investments in transportation, but not in the way that 
students of benefit-cost analysis might expect. In practice, such 
comparisons center on geopolitical benefits and costs--that is, they 
concern bargaining by elected officials over the distribution of 
limited public resources. 

In such a world, transportation benefits and costs are secondary. Thus, 
geopolitical benefits and costs trump consideration of transportation 
benefits and costs, so that programs and projects become the ends of 
public investments, rather than means to transportation ends. 

Further, the rise of legislative earmarking,[Footnote 9] which bypasses 
many evaluation processes, increases the extent to which concerns over 
geopolitical distribution of benefits and costs trump transportation 
project analyses. 

* ISTEA in 1991 included earmarks for 40 rail transit projects. 

* TEA-21 in 1998 increased the number of earmarked rail transit 
projects to 191, many of which were in places not normally viewed as 
ideal environments for rail investments. 

* All three versions of legislation pending in Congress in June 2004 to 
reauthorize surface transportation programs contain significant 
increases in earmarking over TEA-21. 

Why the earmarking? First, earmarking bypasses evaluation processes 
that vest bureaucrats with significant authority over transportation 
investments. Second, most (though not all) earmarks are capital 
projects that provide good "ribbon-cutting" opportunities, and 
attendant media attention, for elected officials. Further, projects 
like new rail transit lines, highway bypasses, and maintenance 
facilities generate local economic benefits that are clear and 
unambiguous to both public officials and the people who elect them. But 
while earmarked projects may be the products of a careful geopolitical 
calculus, they may provide few transportation benefits in relation to 
their costs. Our goal is to recognize, and separate, our consideration 
of these two effects--political and transportation--in analyzing the 
benefits and costs of public investments in transportation. 

Sidebar: 

"Will public officials actually find better, more transparent 
evaluations of the transportation merits of proposed projects 
threatening to the current, well-established processes of 
transportation decision making?" 

-Dr. Taylor: 

[End of sidebar]

Elected officials and transportation analysts think about 
transportation investments in different ways, and this is the source of 
conflict about analytical techniques. Transportation analysts and 
economists have long advised us to focus on the transportation effects 
of public investments, and not on the expenditure effects of such 
investments. The former concern whether and how public investments 
lower transportation costs--such as by reducing congestion, increasing 
safety, reducing emissions, etc.--and the latter concern the direct 
effects of spending public dollars to hire construction workers, pay 
truck drivers, and so forth. Indeed, most analysts would argue that 
transportation investments should be judged, first and foremost, on how 
they reduce transportation costs, rather than on their local 
expenditure effects. Such transportation benefits make it cheaper to 
produce current goods and services, make new forms of goods and 
services possible, and benefit the economy by lowering transportation 
costs for system users and society at large, as described in table 2. 

Table 2: Differing Views of Transportation Investments: 

Elected Officials-Expenditure Effects: 

Focus on how resources are collected from and distributed to 
jurisdictions, and, in the process, how these resources redistribute 
economic activity among jurisdictions. 

Analysts/Economists-Transportation Effects: 

Focus on how transportation improvements stimulate economic activity by 
lowering transportation costs, which allows current activities to be 
accomplished less expensively and makes new activities economically 
feasible. 

Source: Dr. Taylor's presentation at GAO's June 28, 2004 expert panel. 

[End of table]

For transportation analysts, the redistributive effects of expenditures 
are largely a zero sum game. Although transportation expenditures can 
generate significant local economic activity, much of it is simply 
redistributed from other taxpayers and places that lost out in the 
geographic competition for subsidy dollars. From this point of view, 
policy makers are simply missing the point when they focus almost 
exclusively on the local expenditure effects of transportation 
investment decisions. 

Despite such admonitions from analysts, however, many elected officials 
and other policy makers view the transportation effects of public 
investments as abstract, arcane, and arbitrary. While a new freeway 
ramp metering project might smooth traffic flows, which in turn lower 
production costs for a particular set of firms, which in turn increase 
sales, which in turn add to total employment, such effects are 
difficult to unambiguously link to the highway investment. In contrast, 
the consequences of the public expenditures on transportation projects 
in a given congressional district are clear and unambiguous--dollars 
get spent, projects get built, people get hired. New highways and 
transit investments are dramatic and highly visible and generate 
economic activity, especially during construction. That much of this 
activity is simply shifted from taxpayers in other jurisdictions is 
almost beside the point to most elected officials. 

For most elected officials responsible for transportation taxation and 
spending, the overriding concern is with the equity of transportation 
funding among states, districts, and jurisdictions. Concerns over who 
pays and who receives are paramount. This concern ensures a political 
focus on the expenditure effects of transportation investments and 
makes it all but impossible for elected officials to consider the 
transportation effects of investments. From the perspective of most 
public officials, it's the transportation analysts and economists who 
miss the point by focusing on transportation effects and tools like 
benefit-cost analysis in making investment decisions. A Member of 
Congress from a western state, for example, may find a study showing 
that rail transit investments in a densely developed, older east coast 
city are likely to yield far greater transportation benefits than those 
in his/her city all but irrelevant to debates over the equitable 
geographic distribution of federal transportation funds. 

These divergent views pose several related questions: 

* How do public officials view the benefits and costs of transportation 
benefit-cost analyses? Are transparent evaluations of transportation 
benefits seen as conflicting with and a direct threat to the 
geopolitical logic of political bargaining? If so, does this conflict 
explain why many benefit-cost analyses are conducted after the fact to 
gather evidence to support decisions, and why many analyses are of an 
already preferred alternative and some straw men? In my experience as a 
metropolitan planner during the 1980s, it was evident that alternatives 
were selected very carefully to ensure that they would not be too 
effective in competing with the clearly preferred alternative. 

* If public officials perceive benefit-cost analyses as shifting 
decisionmaking power and authority to analysts, does this help to 
explain some of the criticisms leveled against the technique? For 
example, unpopular benefit-cost analyses frequently are dismissed for 
excluding factors that are difficult to measure. While such criticism 
may be well founded, the results often are not very sensitive to the 
excluded factors. But, this frequently is lost in "attack and defend" 
debates over unpopular analysis results. 

* How can we cope with deep conflicts over what constitutes good 
transportation systems and good cities? While most transportation 
analysts see lowering transportation costs (both for travelers and 
shippers, and for society at large) as a principal objective, many 
transportation activists and environmental advocates view declining 
transportation costs as a problem. This is a vexing, often unspoken 
issue that underlies many debates over benefit-cost analyses. 

* Can evaluations focus more on clearly defined problems and less on 
solutions to poorly defined problems? Analysts rarely are asked to 
generate and evaluate alternative approaches to address a 
transportation problem in the current project-focused political 
climate. Instead, they usually are asked to evaluate/compare poorly 
defined solutions--rail transit, increased highway capacity, high 
occupancy vehicle (HOV) lanes, or bus rapid transit--to poorly defined 
problems.[Footnote 10]

[End of section]

Appendix III: How Should We Think About Transportation Benefits and 
Costs?

GAO Questions: 

* What types of benefits and costs are associated with public 
investments in transit and highways and how should they be reflected?

* What types of externalities are associated with these investments?

* What is known about cross-modal comparisons at the national, state, 
and/or local levels?

Opening Comments by Dr. Lewis and Dr. Wachs: 

David L. Lewis is President and CEO of HLB Decision Economics: 

[See PDF for image]

[End of figure]

Dr. LEWIS: 

There are two key points about conceptualizing benefits and costs. 

* Analysts and economists need to help decision makers look at their 
choices, including highway versus transit choices, on a level playing 
field--something we palpably lack today. 

* We should reinvent benefit-cost analysis so that it facilitates 
decision by discussion. Benefit-cost analysis needs to shift from a 
study presented in a report and delivered by remote experts who stand 
aloof from the decision-making process to a facilitated analysis 
framework in which stakeholders can participate in formulating values. 

Decision makers have many single choices or combinations of choices, 
yet we rarely help them to look at their choices on a level playing 
field. As Dr. Taylor pointed out, decision makers very rarely and 
certainly never systematically ask for--nor do analysts provide--a 
comparative analysis of the payoffs associated with investment 
alternatives. These may be alternatives in design, scope, or mode 
pricing and various other alternatives. These also may be investments 
in education, health, or even tax reductions. Nor are alternatives 
analyzed in relation to timing--a consideration because there are many 
good projects whose time has not come. When Dulles Airport opened in 
1963 it was empty. Today, it is unbelievably crowded. (See Fig. 1 for 
passenger traffic trends at Washington Dulles International Airport.) 

Sidebar: 

"Benefit-cost analysis needs to shift from a study presented in a 
report and delivered by remote experts who stand aloof from the 
decision-making process to a facilitated analysis framework in which 
stakeholders can participate in formulating values."-Dr. Lewis. 

[End of sidebar]

Figure 1: Passenger Traffic at Washington Dulles International Airport, 
1962 to 2004: 

[See PDF for image]

Source: GAO presentation of data from the Metropolitan Washington 
Airports Authority. 

[End of figure]

Dulles Airport was empty for the first 25 or 30 years of its life. Does 
that mean we were visionary in anticipating the huge crowds that would 
ultimately use it? No. We could have used those billions of dollars (in 
current prices) in much better ways in the meantime and still have 
beaten inflation by a lot in building the facility 20 or 30 years 
later. There are alternatives in scope, design, and time and ways to 
compare alternatives. 

Everybody understands and is generally comfortable with Return on 
Investment (ROI) calculations.[Footnote 11] Any and all options and 
combinations can be boiled down to their ROI's. Decision makers could 
be treated to a clear, honest portrayal of a "risk-adjusted" 
comparative ROI of widening a highway versus building a light rail line 
down the corridor, versus doing a bit of both, versus doing nothing, 
versus delaying bits and pieces of it, etc. Maximizing ROI is a good, 
very accessible way for most decision makers and stakeholders to 
appreciate how alternatives differ. 

Second, benefit-cost analysis needs to shift from studies delivered by 
remote experts who stand aloof from decision making to reinventing 
benefit-cost analysis as a means of facilitating decision by 
discussion. 

We analysts take fundamental values--the value of human life, the value 
of reducing environmental emissions and greenhouse gases, the value of 
a job--as data. We have sophisticated techniques for measuring how 
people feel about things and expressing those feelings in the form of 
people's willingness to pay monetary equivalent values by empirically 
measuring transactions in the marketplace and through survey data. But 
these values are not data. Some modern economists and philosophers, 
like Amartya Sen,[Footnote 12] argue convincingly that discussion is 
the melting pot in which values tend to form. Analysts and economists 
can help the public, decision makers, and stakeholders discuss values 
by using benefit-cost analysis as a powerful framework and facilitation 
tool. Welfare economics[Footnote 13] has provided an incredibly 
powerful way of thinking that people drink up when it's presented to 
them in a digestible format. 

The conceptual benefits and costs of transportation solutions to 
congestion, development, and mobility and the macroeconomic effects of 
these solutions on jobs, income, and the tax base--including the 
redistributional or expenditure impacts that Dr. Taylor discussed--can 
be laid out to enable people to discuss things in a logical, reasonable 
way. This process can help isolate the minority who wish to game the 
system or bend the discussion to suit a particular outcome. Economic 
analysis, benefit-cost analysis, welfare economics--whatever you want 
to call it--brings reason to a debate if it is transformed into a 
facilitation tool. 

Martin Wachs is Professor of Civil and Environmental Engineering and 
City and Regional Planning, and Director of the Institute of 
Transportation Studies at the University of California at Berkeley. 

[See PDF for image]

[End of figure]

Dr. WACHS: 

Two examples from California show the different poles at which benefit-
cost analysis is being discussed and used. 

First, the California Department of Transportation (CALTRANS) provides 
a benefit-cost analysis template on its Web site. It assists local 
planners and decision makers with problems at the project level--an 
intersection, a small corridor, something in a metropolitan area, or a 
grade crossing. Project alternatives can be evaluated using CALTRANS's 
list of benefits and assumptions about the value of time, of a life, of 
property damage, of accidents, etc. It is possible to get an answer 
about the benefits of highway widening versus traffic signal timing 
improvement options. It is very useful to compare alternatives when you 
have limited resources and can approach decision making with an 
analytical framework that is readily available on line. 

However, enumerating benefits (such as time savings, which often is the 
largest benefit category) raises enormous questions and important 
assumptions that require answers. Do we believe that non-work and work 
travel should have the same value of time? We may not believe that they 
should, but we make assumptions and operationalize these assumptions on 
the Web site. Do we see the value of time as linear or nonlinear with 
respect to the amount of time saved? I do not--I cannot usefully use 
one minute saved in the same way that I can use 20 minutes saved. Do 
rich and poor people have the same value of time? I think not. Do we 
believe that the value of an old person injured or killed in an 
accident is the same as the value of a young person? Yet, these 
important, implied questions are addressed by assumptions and set aside 
for the purpose of analysis. At the narrow scale of an intersection or 
a mile, this does not do much harm. 

The second example from California is that benefit-cost analysis is 
being advanced as the appropriate way to debate a major state public 
policy issue. The question is whether California should build a high-
speed rail system among San Diego, Los Angeles, the San Francisco Bay 
Area, and Sacramento at a cost of about $35 billion and 30 years to 
build. Voters will be asked to tax themselves by voting on a statewide 
proposition. The high-speed rail debate, couched in benefit-cost 
analysis terms, is highly politicized. Proponents state that the 
project will provide enormous time and travel time savings for high-
speed rail users and car and air travelers, based upon assumptions 
about the growth of car and air travel over the next 20-30 years. Some 
say it will achieve smart growth by concentrating new community 
development for a population growth of 30 million people in these 
corridors, preserving open space, and reducing development and 
preserving agricultural land outside of these corridors. What does this 
really mean? Are there really large transfers involved? If one saves 
time using one mode, is this somehow a net saving for the state or a 
transfer of benefits from one system to another, one set of users to 
another, and/or one geographic area to another? We're told that one 
enormous benefit will be reduced air pollution and energy consumption. 
But Dr. Forkenbrock's article asks whether this is actually a secondary 
effect of travel time savings.[Footnote 14]

How can we conceptualize the difference between costs that will accrue 
to those who use highways, air transportation, and rail 30 years from 
now aside from making rather heroic assumptions? Are we not saying it 
is the secondary effect that is very important in policy terms--the 
secondary effect of the principal effect? Isn't that all an artifact of 
the assumptions that we make? I have no difficulty making assumptions 
when I am comparing one intersection configuration to another because 
assumptions are necessary to get useful outcomes. Here, assumptions are 
being made about matters of such enormous ethical, moral, and political 
consequence that I am much more uncomfortable saying that benefits 
exceed costs by a substantial margin, as proponents say. Their argument 
is based upon assumptions that are reasonable if you are a proponent, 
but not reasonable if you are an opponent. This argument is entirely 
about redistribution, but the benefit-cost analysis is entirely about 
the benefits to whomsoever they accrue, while the total cost is borne 
by every state citizen. 

Dr. Lewis said in the paper he shared with us that the benefit-cost 
framework enables us to have a debate because it facilitates 
dialogue.[Footnote 15] But at what level? It does so at the 
intersection or corridor level where you might have bus rapid transit 
versus standard bus transit. But does the benefit-cost framework 
confound or clarify the dialogue about an enormously important 
statewide project? Can we focus on making benefit-cost analysis more 
transparent and useful so that it plays a positive role in such 
debates? Currently, benefit-cost analysis appears to be limiting rather 
than enhancing this debate. 

Panel Discussion: 

Dr. SMALL: Dr. Wachs's last remark raises the question of why highspeed 
rail proponents have couched their arguments in benefit-cost analysis 
terms, particularly if the analysis is overshadowed by politics or 
other considerations. If we can decide why other people are using 
benefit-cost analysis, perhaps we can figure out how we might structure 
it to make better decisions. 

Dr. MEYER: Conceptualizing benefits and costs depends on scale. At the 
intersection or perhaps corridor levels, benefit-cost analysis is a 
very important force in decisions. The benefits and costs are quite 
clear, but the congressional earmarking level is off this scale. My 
state and metropolitan government experience has indicated that 
geographic distribution and political considerations increase as the 
scale increases. We need to be careful in presenting benefit-cost 
analysis as the primary tool for determining trade-offs, because it is 
only one piece of information in decision making at a higher scale. In 
fact, cost effectiveness may be preferable to benefit-cost analysis. 

Dr. LEWIS: I disagree. The question of scale is a red herring because 
you can find benefit-cost analysis--not necessarily great applications 
of it--conducted at huge scales. The Three Gorges Dam, which changed 
the lives of millions of people along China's Yangtze River, became the 
framework for a great deal of political and divisive discussion. It was 
not a paragon of benefit-cost analysis and should have been done much 
better, according to many critics. But it did not cause controversy 
because of anything inherent in benefit-cost analysis theory or 
practice. 

Benefit-cost analysis is something we offer to help people to think 
through problems at any scale. If we lose political reality in doing 
that, it is because we are not looking at the options, alternatives, 
and complex policy arrangements that people want to include in benefit-
cost analysis. Nothing about benefit-cost analysis limits the scope or 
range of choices that we look at--including comparing a rail system 
from Los Angeles to San Francisco to options that would reconcile the 
losses or redistributional problems that people far from the Los 
Angeles/San Francisco corridor might perceive. 

Dr. TAYLOR: Does the definition of potential benefits change or evolve 
at higher scales?

Dr. LEWIS: What changes are functions of the scope, policy dimensions, 
and range of choice. The problem with California's high-speed rail 
analysis is that it is not compared to a baseline of not having that 
investment. Since many other things could happen to those 
transportation dollars, this should be explicit. 

Dr. KIRBY: Dr. Lewis's notion of benefit-cost analysis as an instrument 
of discursive democracy in the paper he shared with us is a truly 
valuable concept and a very constructive way for us to bring these 
techniques into decision making. Benefit-cost analysis is about more 
than just informing discussion--it also is about facilitating a 
decision. I also liked the statement that the objective of discursive 
democracy is to reach consensus without minority dissent, but I feel 
less optimism about that. In many major and even smaller projects, we 
have minority dissent that does not preclude a decision to move 
forward. Lawsuits also may affect decisions, but that is the nature of 
the process. Good analysis and communication with the public could 
resolve a lot of issues through facilitation and discussion. 

A major project to widen Washington's Wilson Bridge is an example of 
how information and facilitation can help get people on the same page 
about a problem. (See Fig. 2 for photographs of the Woodrow Wilson 
Bridge Project.) In this instance, opposing views of the problem were 
resolved by simply looking at the data. A citizen group was determined 
that the solution to congestion was building another bridge to handle 
all Miami to Boston truck traffic. This posed the empirical question--
what is the composition of traffic on the Wilson Bridge? Data from our 
consultants, models, surveys, and counts indicated that trucks were 
only 15 percent of bridge traffic. Only 4 percent of trucks were coming 
into the region and exiting at the other end of the region. The other 
11 percent were trucks doing business here, with one origin or 
destination in the region--often at a local grocery store. The citizen 
group reacted with disbelief and decided to do its own traffic count. 
At the next meeting, they agreed with our data and our conclusion that 
this was primarily local traffic and very much a local issue. 

Figure 2: The Woodrow Wilson Bridge Project: 

[See PDF for image]

Source: Woodrow Wilson Bridge project. 

The Woodrow Wilson Bridge Project is a 7-1/2 mile corridor that begins 
in Maryland and connects to Virginia by a bridge over the Potomac 
River. The project consists of the replacement of the existing Woodrow 
Wilson Bridge, among other things. Pictured on the left: Traffic 
crosses the existing structure as the new bridge rises in October 2004. 
Pictured on the right: One of two V-shaped piers that will support the 
draw span of the new bridge is constructed in December 2004. 

[End of figure]

Dr. WACHS: This relates to the scale debate because it occurred at the 
scale of an individual bridge and there was something to count. It was 
very relevant to the success of the technique in this deliberative, 
democratic setting. If the debate were about the benefits of high-speed 
rail versus airport expansion over 40 years, could the citizens have 
done the same thing?

Dr. KIRBY: It definitely would be more difficult--especially in the 
longer term. Regarding scale, it is very often the project's nature 
rather than scale that determines the degree to which different groups 
are engaged. A left turn lane to improve safety can be as contentious 
as a major highway if it moves traffic onto a local street. It will 
bring the neighbors out. A huge highway interchange project--hundreds 
of millions of dollars--in our metropolitan area generated virtually no 
public comment. This was because the project had virtually no local 
impact. Vast amounts of land around the interchange already were owned, 
and there were only a few houses that owners did not mind leaving that 
needed to be demolished. It is really a question of the impacts and 
whom the impacts affect. It just depends on the situation, as Dr. Meyer 
said. 

However, the idea of discursive democracy is relevant. Objectively 
presenting data analysis can help people focus on real issues, as 
opposed to arguing about unrealistic issues, even in longer term 
decisions. 

Dr. GOMEZ-IBANEZ: I echo Dr. Kirby's comments and make two points. 
First, Dr. Small raised one of the most interesting questions--why do 
proponents of California's rail transit system justify it by benefit-
cost analysis when it is so hard to do a benefit-cost analysis of 
something so large and long-term? It may reflect the appeal of 
systematic thinking and rationality in modern Western culture, i.e., if 
you propose to spend $35 billion, you should have good reasons that you 
can explain. This is a very important, powerful leverage. It means that 
people are open to the challenge of making explicit their assumptions 
in thinking that this $35 billion investment is viable or in the public 
interest. They must appeal to something beyond parochial self-interest. 
Their appeal essentially must be similar to benefit-cost analysis--
benefits to society will be larger than costs. 

Sidebar: 

"One thing that discredits benefit-cost analysis is that it does not 
pay much attention to the land use effects of major transportation 
capital investments...transportation planners do not join that debate 
because they have such poor tools for forecasting the land use effects 
and they find it hard to adapt benefit-cost analysis to that context." 
-Dr. Gomez-Ibanez. 

[End of sidebar]

Second, I agree with Dr. Kirby that scale does not mean less 
controversy, but also with Dr. Wachs that the broader the scale, the 
more difficult it is to apply benefit-cost analysis and reach a single 
number with confidence. This does not mean that benefit-cost analysis 
or something like it is not extremely helpful at a large scale. The 
California rail transit program requires listing and thinking 
systematically about a set of assumptions. 

* Is it true that you would concentrate all the growth in this corridor?

* What does our experience suggest--is rail transit enough or is 
highspeed rail better?

* What are the benefits of Smart Growth?[Footnote 16]

* Since one benefit usually is reducing air pollution, would the 
project result in less driving?

* Would it lead to less local infrastructure?

* What does the literature say?

* Are we going to save $35 billion on cheaper sewers, sidewalks, and 
narrower roads or not?

Although you might not be able to reduce the discussion to a single 
benefit-cost ratio or internal rate of return, you would force both 
sides to be systematic about the assumptions that they are making and 
focus the discussion in an extremely helpful way. 

One thing that discredits benefit-cost analysis is that it does not pay 
much attention to the land use effects of major transportation capital 
investments. There may be enormous benefits from density or sprawl, 
depending on your side of the argument. But transportation planners do 
not join that debate because they have such poor tools for forecasting 
the land use effects and they find it hard to adapt benefit-cost 
analysis to that context. They understand the travel time savings, but 
how should we think about the land use impacts? Are land use impacts 
just a reflection of the travel time savings? If infrastructure is 
under-priced, should it be? Doing more land use evaluation of 
transportation investments rather than straight transportation 
evaluation would help because it would force an open discussion about 
the assumptions on both sides. 

Dr. FORKENBROCK: I agree and would build on these points with three 
words--visioning, scale, and assumptions. Visioning is the key. 

* What do we want our community to become?

* What do we want our region to aspire to?

* What sorts of economic progress are we pursuing through the project 
being considered?

In Lewis Carroll's "Through The Looking Glass," one character asked 
another, how do I get there? The other character said, where do you 
want to go? Well, I don't know. Then how do you expect me to tell you 
how to get there? This is a difficult problem with benefit-cost 
analysis, i.e., what do we want our city to become? What urban form do 
we aspire to? If we spend all our time on the "big three measures"--the 
value/reliability of travel time, safety, and vehicle operating costs-
-we can miss the whole point. We can get a nice benefit-cost ratio for 
the wrong project. It is something we have to worry a great deal about. 

Getting things right is a function of scale. It is much easier to 
vision what will happen with a left turn lane than with Boston's 
Central Artery or some other very large project that will have a big 
impact on urban form, travel patterns, activity patterns, and quality 
of life. (See Fig. 3 for photographs of Boston's Central Artery 
Project.) Questions about the valuation of external costs or the 
effects on air quality in an area, or about putting a value on air 
quality changes versus travel time saved, all bring us back to scale. 

We should spend more time identifying the problem and less time 
analyzing the wrong problem, especially as we get into big projects. 
Once we have done that, we need to worry about assumptions and 
attaching values to key parameters. This follows the major point on 
visioning. What are we trying to accomplish? What will be the long-term 
effects?

Dr. LEWIS: I sense at least two broad questions on the table: what is 
the nature of benefit-cost analysis and what is the nature of 
transportation benefits and costs? They are two different questions--
both are very operational, practical, and important questions. 

Figure 3: Boston's Central Artery/Tunnel Project: 

[See PDF for image]

Source: Central Artery/Tunnel Project. 

The Central Artery/Tunnel Project replaced the six-lane elevated 
highway (Central Artery Highway) that ran through downtown Boston, MA, 
with an eight-to-ten lane underground expressway directly beneath the 
existing road. The project spans almost 8 miles of highway, about half 
in tunnels. 

[End of figure]

Sidebar: 

"Benefit-cost analysis gives us a frame within which to logically 
addresseffects to which we attach value and their costs and 
benefits."-Dr. Lewis. 

[End of sidebar]

There is no reason why the answer to the first question cannot be that 
benefit-cost analysis is technically broad enough to frame a discussion 
about the kind of community we want, rather than, given the kind of 
community we want to be, which option is the most efficient and cost 
effective to get us there. Benefit-cost analysis is a framework to 
think about big questions. When it is all done, the accuracy of numbers 
becomes less relevant than the framework or the fact that a community 
has been able to systematically work through enough options to take a 
course of action that commands some broader support. 

But what is the nature of benefits and costs? We are hearing that in 
addition to traditional time, reliability, and safety effects, other 
effects have value and benefit-cost analysis is remiss in not dealing 
with them. If it is hard to predict the effect of a transportation 
program or project on achieving a land use outcome that the community 
values, then benefit-cost analysis is a good framework for admitting 
that the decision you take or delay has the following risks and rewards 
and that there are things we do and do not know. Benefit-cost analysis 
gives us a frame within which to logically address any and all of the 
effects to which we attach value, both positive and negative, and their 
costs and benefits. 

Dr. TAYLOR: What would happen if there is such profound disagreement 
about the visioning that Dr. Forkenbrock discussed that there is 
essentially a tacit agreement to disagree, and individual projects that 
collectively may be at odds with one another are pursued to satisfy 
different groups? For example, some may want a compact, transit-
oriented city and projects that make sense on those merits. Others may 
want single-family detached dwellings outside of town and to drive 
cars and projects to pursue that. 

Dr. GOMEZ-IBANEZ: Where I disagree and think Dr. Small's earlier 
comment has power is that proponents of different viewpoints usually 
see the need to explain their position--it may be why a compact city is 
desirable or why sprawl is desirable--in terms that you can test. This 
may be whether a more compact city generates less pollution, has less 
infrastructure expenditures per capita, etc. Sprawl proponents say 
sprawl will result in lower housing prices and more housing choices. 
Those are testable propositions. People feel they should have reasons 
for their positions, and benefit-cost analysis offers a way to 
structure the debate that Dr. Lewis wants. 

Dr. KIRBY: Land use impacts are absolutely critical. One reason for 
conflict between local transit project proponents and the Federal 
Transit Administration (FTA) is that proponents (e.g., the transit 
agency, local politicians, and land developers) have land use 
development goals. But when they go to FTA, these groups are supposed 
to explain how they are saving travel time and cost, which can be 
expressed in terms of "generalized time savings." A lot of creative 
work is done to turn a land development project into a travel time 
savings project. This is where a lot of technical conflict arises. FTA 
now requires a procedure that tacks a travel time savings component on 
the end of a four step modeling process. However, it has a problem 
dealing with land development impacts, as the following examples 
illustrate. 

A new rail station in the Washington region is going into an old, 
dilapidated warehouse area where the current land use forecast predicts 
no activity. This station will stimulate much new development 
(evidenced by the fact the developers are paying one-third of the 
station's cost). But we are told that the same land use forecast is 
needed to evaluate both alternatives--building the station and not 
building the station. This is somewhat problematic. 

Building commuter rail lines is another example. A transit user moves 
to a distant suburb and takes commuter rail, thereby substantially 
increasing the user's transit costs and trip time. It seems 
unreasonable, but actually this is a true benefit of the commuter rail 
project. From the regional perspective, focusing development along 
these transit corridors offers choices and is what we are trying to do. 
Yet, this does not match up with FTA's evaluation criteria, which are 
overly focused on travel time benefits and used to compare projects 
around the country. That is a real glitch in this process and one of 
many conflicts. 

Dr. TAYLOR: Panelists seem to be saying that analytical tools do a poor 
job of addressing a range of benefits that are central to local 
concerns and local decision makers. Is there a fundamental problem 
emerging in applying these tools?

Dr. KIRBY: Absolutely. Tools that are being mandated from the top are 
not always appropriately applied. For example, DOT lists 13 
environmental streamlining projects around the country to be moved 
expeditiously through the environmental process to demonstrate that you 
should not get bogged down with paperwork. One that got through the 
process recently was blocked in court because the Environmental Impact 
Statement (EIS)[Footnote 17] process did not address the land use 
impacts of a circumferential roadway proposed in the project. Despite 
the project having gone through the entire federal review and approval 
process, some local groups felt that the land development impacts of 
this project were adverse. They readily identified an EIS provision on 
secondary and cumulative impacts and went to court. The judge basically 
said he would defer to the Federal Highway Administration (FHWA), 
unless a legal requirement was not addressed. He concluded that 
secondary and cumulative impacts were not addressed and stopped the 
project. It is a technical process failure when a special streamlined 
project goes through formal review and is blocked in court for what 
appears to be a very valid reason. 

Dr. SMALL: I endorse the idea that land use is a major category that is 
omitted in benefit-cost analysis. The difficulty is that analysts worry 
about not double-counting benefits and distinguishing between transfers 
of benefits and real net benefits. Land use involves considerable 
transfers. It goes to Dr. Taylor's point that you are in the middle of 
everybody's self-interest and their effort to get their piece of the 
pie when you talk about land use. So, land use arguments that are 
couched in terms of benefits are difficult to distinguish from the 
transfers of benefits. That is where analysts could help. While we do 
not have great tools for doing this, we understand some things about 
agglomeration[Footnote 18] and its value as well as positive and 
negative externalities from one parcel of land to a neighboring 
one.[Footnote 19] Improving benefit-cost analysis to distinguish 
between the net benefits and transfers deserves attention. 

[End of section]

Summary of Panel Responses to Audience Questions: 

What is the effect of transit--particularly rail transit--on reducing 
congestion and on land use?

* Dr. Lewis said that unlike highway travel times, which slow as more 
people use the system, transit travel times remain similar regardless 
of the number of people using the system due to transit's fixed 
schedules; this creates congestion stability rather than reducing 
congestion. He added that the level of benefits created through this 
stability varies. 

* Dr. Small noted that transit can (a) encourage consolidation of 
employment in a downtown area and (b) enable people to live further out 
and travel downtown along the transit corridor. In contrast, he said 
highways encourage residents and employment to spread out to the 
countryside. He added that a model might show that transit would be 
good for downtown employment and suburban residences, whereas highways 
would tend to encourage suburban employment and residences. [Footnote 
20]

* Dr. Pickrell added that all rapid transit capacity investments 
therefore promote decentralization--at least of residences. He said 
that the conventional thinking that transit will create more urban area 
density or that highways will promote decentralization is incorrect. 

When comparing highway versus rail benefits for both freight and 
passengers, what additional user benefits--beyond travel time savings-
-and additional costs do we need to consider?

* Dr. Forkenbrock mentioned a number of issues related to freight 
transportation investment,[Footnote 21] including (1) whether in some 
circumstances it can make sense to invest in truck-only lanes on 
interstates and major highways, (2) whether states can invest in rail 
to reduce the need for investment in facilities that serve trucks, (3) 
the concern of the business community that a rail system for freight 
would need to have a comparable arrival time reliability as trucking, 
when the trucking industry is one of the most competitive industries in 
the country while rail is exactly the opposite; and (4) the lack of 
data to create a good investment analysis comparing the two modes. 

* Dr. Pickrell said that there is a whole separate category of freight 
benefits from the construction and use of highway infrastructure. 
[Footnote 22]

* Dr. Lewis conjectured that highway network improvements could 
encourage freight shippers to reorganize their production and logistics 
technology, resulting in a gain in productivity and a net gain in Gross 
Domestic Product (GDP).[Footnote 23]

* Dr. Forkenbrock stressed that trucks do not pay their full cost 
responsibility for operating on the road and that if billions of 
dollars are to be spent on truck-only lanes, it would be better to have 
a proper pricing mechanism upon which to base those decisions. 

[End of section]

Appendix IV: How Are Benefits and Costs of Transit and Highway 
Investments Best Measured?

GAO Questions: 

* What are the most common problems in measuring the benefits and costs 
of transit and highway investments?

* Which problems pose the greatest obstacles to accurate measurement?

* What are the best approaches to examining benefits and costs?

* To what extent can benefits and costs of transit and highway 
investments be measured at the national level?

Kenneth A. Small is Professor of Economics at the University of 
California at Irvine. 

[See PDF for image]

[End of figure]

Opening Comments by Dr. Small and Dr. Pickrell: 

Dr. SMALL: I would like to raise some problems that are likely to 
generate a discussion of techniques for measuring costs and benefits: 

* Measuring the value of life. 

* Measuring how benefits and time vary with income. 

* Identifying the real decision being analyzed. 

The first problem is measuring the value of life. 

Dr. Pickrell gave us a reading on DOT's guidance on the value of life 
and time, showing that DOT backs away from a literal application of 
benefit-cost methodology regarding these measurements. [Footnote 24] 
Although the guidance recognizes and articulates the value of life 
concept quite well in the summary memo that guides DOT staff on its 
use, the guidance is very, very cautious about using it. It basically 
says--don't let anyone know you are valuing life. Instead, it suggests 
using what is chiefly a cost-effectiveness analysis--you analyze all 
other parts of benefit-cost analysis but leave out the value of life. 
Then you rank projects by safety and the cost of each life saved. 
Following this guidance poses a difficulty for benefit-cost analysts 
because it asks us to treat differently one area that is considered too 
hot to handle--or at least too hot to handle explicitly. 

The second problem is that DOT's guidance backs away from a literal 
application of benefit-cost methodology with respect to how benefits 
vary with income. It is well recognized that the value of time varies 
with income. In fact, the guidance directs us to value time as a 
percentage of wage rates. Yet the guidance declares that we do not want 
the value of time to vary with income in project analyses. This is 
understandable--we do not want any variations on the value of life--and 
this is not unique to the United States. A little more surprising is 
that value of time recommendations do not vary by mode. The rationale 
for this in the guidance is that the information is not good enough. 
This may be true, but the real rationale may have been the 
distributional issue again--that is, not wanting to get into the issue 
that more poor people take the bus and their value of time is lower, so 
we do not have to pay as much attention to them in terms of valuing 
time saved via bus travel. While all these positions have political 
explanations, they create difficulties in performing benefit-cost 
analysis. 

The third problem is that understanding the real decision being 
analyzed is a critical, continuing problem for benefit-cost analysis. 
Figuring out how to use a value of life calculation is a good example. 
You can say someone's life is worth $2.5 million if you make that 
explicit and recognize that you are not analyzing a decision that will 
take someone's life away--you are analyzing a decision that will change 
the safety level that people perceive. Usually, you are considering 
very small changes in the safety level, for example, going from a 0.001 
to a 0.0012 probability of some adverse event. This is well articulated 
in DOT's basic guidance. 

While this process may suggest a way of successfully incorporating the 
value of life into an analysis, it brings up another problem related to 
the issue that Dr. Wachs raised when he questioned whether, when 
analyzing the amount of time saved, you can use 1 minute versus 20 
minutes. The question is what decision is being analyzed. If you are 
considering an infrastructure improvement that will last 20, 30, or 40 
years, are you really giving some identifiable person a minute and 
asking them how much do you care about this minute over 40 years? No. 
You are changing the environment. Many people will buy and sell houses 
and change jobs and alter their daily lives over many years. All those 
people are going to face a 1-minute difference in some parameter that 
affects them, and analysts will try to identify what effects will 
occur. This changes the way of looking at it from whether somebody can 
use 1 minute versus 20 minutes to the broader context of how decisions 
will affect the environment over time. 

I generally advocate that benefit-cost analysis should not 
overconcretize the benefits. We all tend to use ourselves as examples. 
While this can keep us connected with the real world, it is a little 
dangerous. We tend to make decisions more concrete to a particular 
situation--yours, your daughter's, etc. In fact, these decisions are 
likely to be altered and to affect circumstances in many ways that 
might not be immediately obvious. 

Donald Pickrell is DOT's Volpe Center's Chief Economist: 

[See PDF for image]

[End of figure]

Dr. PICKRELL: An invaluable first step in identifying and measuring 
benefits and costs is to develop explicit descriptions of the cause and 
effect paths by which alternative decisions or investments may lead to 
their anticipated effects. This step has hidden value for several 
reasons: 

* It requires decision/investment advocates to articulate not only the 
impacts that they expect and alternatives they prefer, but also the 
pathways through which they expect those impacts to occur, as Dr. Gomez-
Ibanez said. 

* It forces us to think clearly about how and how extensively each 
alternative is expected to produce speed, safety, quality, or other 
desirable transportation service characteristics. 

* It helps clarify the magnitude and timing of specific resource 
commitments that would be necessary to produce these service 
characteristics. 

In this process, it is important to develop quantitative estimates of 
as many of each alternative's expected impacts as practical. This is 
not to say that whatever cannot be quantified and denominated in 
dollars should be ignored, as many critics of the practice occasionally 
argue. The fact that we do not know how to monetize or quantify 
important impacts should not be a reason to avoid quantifying impacts 
that we know how to quantify and whose monetary value we can estimate. 

It generally is useful to measure impacts as close to their source as 
possible. This ensures the correct attribution of the impact to the 
characteristics of the alternative that we expect to cause it. For 
example, it is better to measure travel time savings produced by an 
investment that extends some transportation service into a relatively 
undeveloped area than to measure property value increases that 
theoretically will result. We have discussed the importance of 
clarifying land use impacts of transportation investments. But, as Dr. 
Small reminded us, doing so involves wading into the morass of 
transfers and multiple counting of benefits that are best, most 
reliably measured at their primal source. Land use impacts represent 
the consequences of these primal benefits working their way through the 
complex urban economy in which we make most investments. 

Measuring impacts at their source will greatly improve prospects for 
heeding another deceptively simple sounding, but often violated 
guideline--count each impact only once. Measuring impacts as close to 
their causal sources as possible and stopping there helps to avoid the 
most obvious multiple counting that tends to occur primarily on the 
benefit side of the ledger. Similarly, one needs to be extremely 
circumspect about including indirect impacts[Footnote 25] of 
infrastructure investments because most of these represent multiple 
counting. While we want to think about how primal project benefits are 
transformed into other forms through the urban economy, we should not 
count them in a variety of places where it may be convenient to 
identify them. 

One also needs to be especially careful of including employment and so-
called multiplier induced benefits in benefit-cost analyses.[Footnote 
26] Here is an example of what not to do: 

Seven Midwestern states that were purchasing rail branch lines being 
abandoned by their operators were surveyed. The survey showed that 
employees' wages from shippers that would remain in business along 
these lines (as a result of state acquisition and operation of these 
lines) was the major benefit category for continued operation of these 
branch lines. So the states moved costs of the employees' wages to the 
benefit side of the ledger. To make matters worse, regional impact 
multipliers were applied to these payments. Not only were costs that 
were completely irrelevant to the decision included as benefits, they 
often were counted twice or more in evaluating the advantages of doing 
so. 

One needs to be very careful about indirect impacts--they often count 
something that we already have counted and included. A related issue is 
that measuring impacts in their naturally occurring or generic terms 
enormously facilitates comparisons among alternatives with different 
designs or technologies--such as highways and rail systems. Generic 
measures are those denominated in units--a person's hours of travel or 
expected injuries--customarily used to measure consequences of most 
transportation projects. 

There is considerable hand-wringing in public debate and literature 
about the difficulty of evaluating intermodal investments. However, 
transportation is quite well equipped to do intermodal comparisons 
because of the benefit measures that we customarily collect. There 
still are pressing questions about how to value service quality 
differences in different modes, but we are making progress in 
identifying specific, measurable dimensions of quality such as travel 
time reliability and its more esoteric aspects like privacy and 
security. 

A final caution: do not confuse the effects of seemingly related but 
ultimately separate decisions in evaluating benefits. The most common 
violation is including the costs of proceeding with an alternative 
investment as a benefit of making a completely separate decision--
although the first may bear on the subsequent desirability of the 
second, as shown in the following example: 

Proponents of constructing high-speed rail lines in inter-city travel 
corridors through a state argue that the benefits include savings from 
avoiding new highway and airport investments that otherwise would be 
needed to accommodate growing travel volumes. This contorted logic 
suggests that investing heavily to move people in the corridor is the 
only alternative. This is incorrect, given the degree to which public 
infrastructure investments commonly are mispriced. It suggests that 
competing investments have only costs but no benefits. If this logic is 
pursued to its extreme and we avoid spending on airport capacity by 
building a high-speed rail line, we forego any benefits that expanding 
airport capacity might have had without having considered those 
benefits. 

The importance of separating decisions that can and will be made 
separately and have logically separable impacts relates to what Dr. 
Forkenbrock wanted us to think about--the collective impact of our 
infrastructure investment decisions on evolving urban forms. In high-
speed rail corridors, the impacts may extend even to the forms of 
development in corridors connecting major urban areas. While it is 
important to consider the cumulative impact of separate investments on 
metropolitan area forms and their desirability, it is very important to 
logically separate decisions to avoid confusing their benefits and 
costs. 

Panel Discussion: 

Dr. TAYLOR: You just cautioned us against focusing too much on 
secondary effects, double-counting effects that are too often double-
counted, and using the cost of avoided expenditures in some other mode 
but not the associated benefits in an analysis. Are these mistakes the 
result of incompetence, error, or a desire to count as many benefits as 
possible for a project? Does this speak to motivations of the people 
doing the analysis?

Dr. PICKRELL: I don't know. The modal structure of most state agencies 
and the federal DOT gives rise to more advocacy in evaluating 
alternative infrastructure investments than one would wish to see. As 
Dr. Gomez-Ibanez said, many participants in debates about major public 
infrastructure investments focus on what benefit-cost analysts regard 
as secondary impacts. These impacts are primary concerns for 
noneconomists who, after all, represent the majority of the world. 
Including these impacts is often motivated by a desire to refocus on 
decision consequences that noneconomists view as the most important, 
contentious, or debatable impacts. Often simple advocacy is at work. 

Finally, financing for many locally planned/selected infrastructure 
projects in which the federal government has a significant share tends 
to transform costs into benefits before the eyes of local political 
officials. Some focus on indirect benefits, such as job creation, is an 
expected consequence of this financing structure. 

Sidebar: 

"by compressing everything into a single metric, you lose the ability 
to discuss impacts that cannot be quantified."-Dr. Forkenbrock. 

[End of sidebar]

Dr. FORKENBROCK: Regional economic models are one of the main sources 
of double-counting--the problem is outsourcing. This often happens when 
an operating agency such as a Council of Governments or state 
transportation agency subscribes to a very good model like 
REMI.[Footnote 27] First, the traditional travel time savings analysis 
for freight carriers like trucks is added to the model. The model then 
generates employment changes, tax revenue, etc., that result from 
economic activity moving into the region by virtue of lower 
transportation costs. Lower transportation costs experienced by 
trucking are then added to the economic tax revenue and employment. 
This is blatant double-counting that probably reflects poor 
understanding of how the model actually works, rather than 
incompetence. 

Four more words--behavior, dread, philosophy, and rhetoric--are 
relevant to this discussion. Dr. Small's comments about valuing time, 
etc., have several important elements that relate to behavior. There is 
very good research about how people value their own time. However, when 
we simplify behavior, we miss a lot. For example, people have a five 
times greater disutility of time when they are waiting for the bus than 
when they are riding it and know they are en route to their 
destination.[Footnote 28] The highest disutility of time occurs when 
people get off a bus in a strange neighborhood and wait for another bus 
to come. People hate that. It really is a question of different kinds 
of disutility. 

Ian Savage at Northwestern University wrote an excellent piece that 
illustrates dread.[Footnote 29] Dread is willingness to pay to avoid 
the risk of losing your life--it is essentially the way we value saving 
lives. However, his survey respondents were much more willing to pay to 
avoid dying from stomach cancer than from the similar risk of dying in 
a car crash. People regard themselves as better drivers than someone 
who would be involved in an accident. 

Discount rates illustrate the philosophy issue. If your philosophy 
favors small government, you will want a high discount rate because 
benefits accrue over a long period of time. When Richard Nixon raised 
the discount rate to 10 percent, he declared that there was too darned 
much money going into the public sector and that we were building too 
many things. This is a really good way to reduce public sector 
investment because many studies show how sensitive a project using 
benefit-cost analysis is to the discount rate. It really matters. 

Finally, rhetoric. We cannot measure some things, as Dr. Pickrell said, 
such as the impact that a pound of carbon dioxide has on global climate 
change. There has been much debate about the right value to give to 
such intangibles. Should we exclude them? The answer is no. 

If we want a single measure at the end of the day--net present value, 
benefit-cost ratio, or internal rate of return--how can we do this? I 
would choose benefit-cost analysis because, as Dr. Lewis said, the 
purpose of benefit-cost analysis is to help improve decision making and 
allow us to discuss impacts that cannot be quantified but need to be 
part of the dialogue. An important problem is that by compressing 
everything into a single metric, you lose the ability to discuss 
impacts that cannot be quantified. 

Dr. GOMEZ-IBANEZ: All of us probably would agree that there are 
indirect impacts, such as employment or land use impacts, from 
transportation projects. If you create a job for someone who is 
unemployed, most of us also would agree that that person's wages are 
not a real social cost because there is no opportunity cost of putting 
that person to work.[Footnote 30] The opportunity cost is not the 
wages, as it normally is with someone who is otherwise employed. And 
there are legitimate land use benefits. The problem of valuing these 
indirect impacts centers on mispriced complements to transportation, 
especially the possibility that other complementary infrastructure such 
as water and sewer needed to develop a project is under-priced. But 
zoning made historic land use choices. It is difficult to argue that 
markets for transportation complements and substitutes are perfectly 
competitive and function smoothly since project developers, users, and 
residents often do not pay the full cost of infrastructure that their 
projects use. 

While each viewpoint about land use ought to be included in the debate 
because it has some legitimate role, there are several reasons that we 
fight so hard against including them. 

* First, land use effects are often taken much farther than the limited 
circumstances in which we believe they should be included. 

* Second, it is hard to forecast the path between policy and predicted 
outcome. Land use transportation models are by far the weakest part of 
urban and inter-city transportation demand forecasting. 

* Third, most of us believe that if you systematically measured these 
indirect benefits, they would be small. 

This presents a strategic decision--how to handle areas that are so 
confusing and difficult to forecast that they become the refuge for 
scoundrels who want to exaggerate a project's benefits. Discussing 
indirect land use benefits is their opportunity to do so with the least 
chance of being embarrassed by demonstrably true facts. Yet it is a 
real problem for us because the public has enough sense to see some 
legitimacy to these arguments. We run the risk of discrediting the 
entire process by denying them. How can you let these views in and 
still force the conversation about them to be reasonably clear sighted 
and hard nosed?

Dr. LEWIS: That goes to my point that we need to consider subjective 
probabilistic analysis as a method or framework of analysis.[Footnote 
32] One reason that we analysts get cold shoulders from stakeholders 
and decision makers is that they perceive us as pretending to know that 
which we do not and cannot know. Weather forecasters caught onto this a 
long time ago when they started talking about the probability of rain. 
People are much happier working with precipitation or hurricane 
probabilities than trying to suspend their disbelief in the 
forecaster's ability to know what will occur. 

We could take our lead from the biomedical statistical world. The U.S. 
Food and Drug Administration and National Academy of Sciences do good 
work with panels that bring solid statistical data to the table. Then 
experts, stakeholders, and people who work in the field develop another 
estimation layer called subjective or Bayesian--what you believe to be 
true, based upon your experience.[Footnote 33] For example, the Journal 
of the American Medical Association recently published the study of two 
heart attack suppressive drugs based on 10 years of double-blind trial 
data brought to the table by the National Institutes of Health. One 
drug costs $1 per vial; one costs $10 per vial. Which drug is more 
effective? A substantial amount of empirical, hard-nosed data indicated 
that one drug was 1 percent more effective than the other. However, a 
facilitated subjective probabilistic study with paramedics, nurses, 
cardiologists, and other experts concluded that the efficacy of the two 
drugs was indistinguishable. This study remains the foundation for the 
American Medical Association's recommendation on the efficacy of these 
two drugs. 

We can allow benefit-cost analysis to be a more powerful, useful 
technique for thinking through a topic based on values and defuse the 
"expert versus expert" mistrust in numbers. We can do this by bringing 
probability distributions of what we think is the value of a 
statistical life, a small time saving, or the likelihood that someone 
unemployed will have a new job along with the basis for these 
statements to the table. In doing so, we present everything we know in 
the context of how wrong we might be. People deal with this very 
comfortably, even if they do not have any statistical background. 

While Dr. Pickrell's point about going to the root source of benefits 
to avoid double-counting is very well put, there is a source of danger 
in the land use issue. Empirical evidence suggests that the value of 
time saved does not entirely account for property value increases that 
seem to be the capitalization of time savings. In suburbs where 
commercial and residential developments spring up around transit 
stations, when you account for measured increases in property value 
based on proximity or time-related benefits, there seems to be a 
residual that is left over. People appear willing to pay a premium to 
live or work in a transit-served area and the density, diversity, 
walking distances, etc., that come with that. Even if they do not use 
the transit system, they are willing to pay a premium for office space 
or to live in these areas. One might call it an existence benefit or 
option value as distinct from a user value. There are land use and 
property values that are not entirely accounted for by using the system 
for time savings. 

Dr. TAYLOR: If you saw a similar cluster of disparate elements in 
places without transit investment, how do you know that the residual is 
caused by transit investment time savings and not the agglomeration 
itself?

Dr. LEWIS: You can never know. You could hypothesize that some people 
are willing to bid up commercial or residential land prices because of 
the direct or indirect effect of the rail station. Then you can study 
neighborhoods that are similar except for the transit and measure the 
change in land values. You can determine to what extent that increment 
may be accounted for by time savings, but you will never know if it was 
actually something else. This is why risk and probability are so 
important. 

People may accept a 20 percent chance that this is the explanation as a 
basis for accepting that value in a benefit-cost analysis. We do not 
know unless we ask them, and this is a fundamental part of 
facilitation. Are you willing to take an 80 percent risk that this 
value might be a cause and effect link that will produce a certain 
transit rate of return and some effects that you like, or an 80 percent 
chance it might be wrong? My premise is that people do this in their 
minds anyway. Benefit-cost analysis makes it formal and makes the size 
of the risk understandable. 

If the question is how to distinguish the need for values of time that 
vary with income--the answer is that you must allow for it because 
values of time do vary. Demand studies and forecast accuracy would be 
wrong if we blur over that. The answer is to distinguish between 
positive economics--the predictive end of benefit-cost analysis--46 and 
normative economics--the valuation end.[Footnote 34] When you assume 
that everyone has the same value of time because we believe it is 
fairer, you need to be very explicit about what you are doing and ask 
whether others agree. If not, let the market reveal values in the 
benefit-cost process. Then you will get a different result for transit 
that helps poorer people, and people will deal with that information. 

Dr. MEYER: Two of GAO's questions--what are the most common problems in 
measuring the benefits and costs of transit and highway investments and 
which problems pose the greatest obstacles to accurate measurement--may 
take us in different directions. Much of our discussion has related to 
valuing benefits--that is, the value of time, reliability, and life. My 
field experience suggests that although people may raise their eyebrows 
at valuing human life, they more or less accept it. The problem is 
change--especially over a 25-or 30-year period. How do you predict 
reductions in fatal crashes? How do you predict air quality changes 
such as tons of X emitted? We mentioned developments in intermodal 
comparisons, but that presupposes that our models can look at person 
hours of travel by different modes with some confidence over a 25-or 30-
year horizon. 

While value issues are very important, existing technical tools and 
models at the regional, state, and even more at the national level are 
unable to predict change. In my transportation safety course, we spend 
a considerable amount of time on safety, value of life, etc. When asked 
what will be the reduction in fatalities for a city bus in 2025, 
students accept the value of a life but say there is no way to answer 
the question. In my area, we are examining how to put value and 
reliability into a time perspective so that we can measure this when we 
evaluate the context of our updated regional transportation plan. 
However, without the full microsimulation model[Footnote 35] that can 
look at freeway system performance it is very difficult to predict 
transportation system reliability in 2030. 

Dr. LEWIS: I think our difficulty in forecasting lies more on the 
engineering and science side than the value side of the equation. 

An analysis conducted for the National Cooperative Highway Research 
Program sought to deconstruct uncertainty in estimates of the economic 
benefits of reduced highway congestion. Analysts found that about 80 
percent of the uncertainty is associated with potential error in the 
shape of the speed-flow relationship (an engineering problem), while 
the balance of error lies in uncertainty about the value of time (an 
economic problem). 

We are presenting the public with our best guess, but I do not think 
they want our best guess. I think they want to know the likelihood that 
the sun will shine. If we are honest and peer into our models for 
standard hours and extract probability information, we can let them 
know that the time savings of a proposal has about a 10 percent chance 
of being greater than 3 minutes per person. If you want 8 minutes per 
person, it may have a 5 percent probability of happening. I think we 
know how wrong we are. 

Dr. MEYER: I agree and view this as a way to improve benefit-cost 
analysis. On the other hand, it often is very difficult to explain to 
nontechnical, elected officials that it is within plus or minus 5 
percent of the most likely result. 

Dr. TAYLOR: Are you getting around uncertainty by presenting 
probability? Certainty and probability are different things. 

Dr. LEWIS: No. I think including probability makes information more 
useful to decision makers, given the state of the information at any 
given time. The bond insurance industry has been using traditional 
"four step" transportation demand studies[Footnote 36] for revenue 
forecasts as the basis for determining whether and at what price the 
project bonds are insurable. It was something of a surprise to the bond 
industry to learn that such forecasts have fully a 50 percent chance of 
being too high or low. To obtain forecasts with a 99.5 percent 
certainty of being met or exceeded, the four-step model must be quite 
considerably modified. 

The probabilistic presentation is not a way of eradicating uncertainty, 
but of making the information more appealing, truthful, and useful. 
This is especially the case when it is used to compare a transit 
project with widening a highway, major corridor, or other alternatives. 
You may get similar results, but my experience is that one option has a 
much higher risk of going underwater than the other, even though the 
risk profile of the projects is very different. If we get this 
information to people, it can be more useful. 

Dr. WACHS: Dr. Lewis has made the point that benefit-cost analysis is 
extremely important to us because it gives us a language for our 
discourse and enables deliberative democracy to take place. I return to 
that question and ask whether what we have just discussed gives us any 
confidence that it helps creates a deliberate discourse and helps us 
govern ourselves as a democracy? Or, does it actually distract us? Does 
discussing whether or not we are double-counting really help elected 
officials and citizens who represent us come to better decisions? This 
group is experienced and committed to benefit-cost analysis and would 
like to believe that the answer is yes. However, there are critics. 

Sidebar: 

"Does discussing whether or not we are double-counting really help 
elected officials and citizens who represent us come to better 
decisions?  we have todemonstrate that these important questions 
actually help make better decisions."-Dr. Wachs. 

[End of sidebar]

I have been reading a book called Priceless: On Knowing the Price of 
Everything and the Value of Nothing.[Footnote 37] It argues that if you 
want to invest enough public resources to prevent humanity from 
becoming extinct, then the benefit-cost calculus is irrelevant and not 
helpful. If a public decision was made to preserve a species or build a 
rail line, surely you can retrospectively conclude that benefits must 
have exceeded costs. In Joseph Berechman's benefit-cost analysis of 
investing in the Appian Way,[Footnote 38] he concluded that if you 
valued intangibles at a certain level, then it was worth doing; if you 
valued them at less, it was not worth doing. Clearly, their society 
made a deliberative decision to invest in the Appian Way without 
quantitative analysis. The relevant question is whether the measurement 
questions that we have been discussing are so difficult to address that 
they hinder our ability to have a deliberative, democratic discussion. 
If GAO is asking whether we can encourage Congress to be more attentive 
to this, we have to carry this discussion one level farther and 
demonstrate that these important questions actually help make better 
decisions. 

Dr. GOMEZ-IBANEZ: All evaluation is relative. I agree with your concern 
about things becoming a distraction and the duel of the analysts being 
irrelevant to most things. What is an alternative? What would you 
propose?

Dr. WACHS: I am not sure. I certainly would not give up analysis, 
modeling, prediction, using probabilities, etc. However, I might weaken 
the requirement that everything be done in monetary terms. This 
requirement may force us to make assumptions that govern what we are 
doing and obscure the dialogue. Ordered, analytical approaches are very 
helpful, but it is healthy to keep asking whether our society benefits 
so much from a dollar framework for benefits and costs that we should 
devote all this effort to trying to get the numbers right. 

Dr. SMALL: The problem with looking solely at the primary benefits, 
rather than the benefits where they finally accrue, is that doing so, 
although absolutely correct in analytic terms, conflicts directly with 
the mandate we've been discussing--making benefit-cost relevant to 
decision makers who are not experts in benefit-cost analysis. Land use 
is one of the first things that people consider as a transportation 
project impact, but one of the last things on the chain of causation. 
We cannot afford to ignore it by just presenting final benefit numbers, 
saying that benefits were measured correctly at the source of the 
primary benefit and therefore we can ignore land use effects. Benefit-
cost analysis could be used in deliberative discussions so that people 
actually understand that the impact they passionately care about is a 
little further down the chain. When you actually do the numbers, you 
can see if there are some real indirect benefits. I hope that 
terminology can be developed to convey this whole difficulty. 

Regarding employment as another indirect effect, I disagree a bit with 
Dr. Gomez-Ibanez. We agree if somebody who is unemployed becomes 
employed, that is an extra benefit. However, we may be ignoring other 
related things by being too concrete. If a transportation project 
throws someone out of work, we count it in a certain way. But, other 
things may be happening. The Federal Reserve may be tightening monetary 
and employment policy because it is afraid that the economy will grow 
too quickly. Even something that looks like an obvious benefit, such as 
putting an unemployed person to work, may not be in a broader context 
where there are other policy objectives that cause that person to be 
out of work in the first place. 

Sidebar: 

"We are very focused on quantifying dollar benefits and do not want to 
talk about transfers, distributional issues, or externalities.But 
this is what people out there really care about."-Dr. Kirby. 

[End of sidebar]

Dr. KIRBY: Regarding Dr. Wachs's concern about whether monetary terms 
are just getting in the way, I think that if we see benefit-cost 
analysis as distilling everything to a dollar number, then monetary 
terms are getting in the way. There is much work that can illuminate 
impacts in an extraordinarily useful way, but we cannot push it too 
far. We are very focused on quantifying dollar benefits and do not want 
to talk about transfers, distributional issues,[Footnote 39] or 
externalities--sort of second class in terms of benefit-cost analysis. 
But the reality is that this is what people out there really care 
about. We can illuminate those issues enormously as long as we do not 
overstep what we can really do. 

Distributional issues regarding affected populations are what decision 
makers discuss. Land development is very important to local 
jurisdictions that are watching their tax base and plays through the 
decision-making process to the governor. If a transportation investment 
will take an attractive new technology into the neighboring 
jurisdiction, rather than mine, I care a whole lot. Dr. Lewis' example 
of people paying a premium to live near a transit station raises such 
an issue. Lower income people for whom we are trying to provide transit 
are being bid out of those areas and must move to areas without 
transit. This issue, which is a distributional issue, comes to the 
table in the political discussion. We may not be comfortable with 
including it in our benefit-cost analyses, but it is a very important 
issue. 

The value of time in the context of who uses a toll or high-occupancy 
toll (HOT) lane[Footnote 40] is a tremendously important issue that Dr. 
Small's paper addresses. [Footnote 41] Most highway expansions proposed 
in our region now are toll financed roads because we lack the ability 
to do them any other way. Private firms proposing to build these 
facilities want investment grade analysis from those who will issue and 
service the bonds. They want to know who and how many people will use 
the road, usage at various toll levels, and how much will be paid to 
investors. This moves travel demand forecasting to a whole new 
dimension and puts new demands on modelers. When we could keep drawing 
down on the federal highway trust fund to finance transportation 
projects, it was a different decision. Now, the project will not go 
forward unless there is real comfort with forecasts. 

The distributional aspect of HOT lanes is fascinating. At first, these 
were seen as Lexus Lanes for rich people who had high values of time--
the assumption was that poor people would not use them and therefore 
they were bad. This was a showstopper for quite a while. However, 
monitoring these lanes' usage showed that it is not just the rich--
people that value reliability at all income levels use them. Women are 
disproportionately represented because they have child care and other 
responsibilities. Dr. Small demonstrates that complex values cause 
people to use these facilities, but that these values can be analyzed. 
This analysis will play into policy and decisions about moving forward 
with some toll facilities because who will use them is a critical 
issue. 

There is a tremendous amount that we can contribute by focusing on 
these issues that appear to be somewhat less tractable. Who else is 
going to do it? The discourse will occur anyway, but in a much less 
informed atmosphere if we do not wade in on these issues. 

Dr. PICKRELL: To be clear, I did not advocate ignoring downstream 
effects of transportation infrastructure investments. I advocated 
clearly articulating the paths through which primary and secondary 
benefits that become the main focus of public debate are generated so 
that they can be reliably measured. Keeping these paths conceptually 
separate allows us to respond to people who claim that land use 
consequences of their preferred investment have been ignored. 

To some extent, we get in these binds because we do not do our 
homework. Research on taxi cab use that we read as graduate students 
clearly demonstrated that they were not used exclusively by the rich. 
Taxis were used by elderly people going to medical appointments and a 
variety of people making trips that were highly valued. We are our own 
worst enemies because we react to criticisms about so-called Lexus 
Lanes in a way that does a disservice to what we otherwise, in other 
circumstances, would claim that we already knew. 

Dr. LEWIS: I agree with Dr. Wachs's concern that seeking to monetize 
everything could be distracting. As I tried to say in my paper, benefit-
cost analysis has diverged from what might be perceived as useful 
because it is not consistent with some realities of the last 50 years. 
One such reality is that most people are not satisfied with some of the 
restrictive assumptions of conventional benefit-cost analysis. 

One convention is the idea that a project can be declared a welfare 
improvement if benefits are sufficiently large to enable beneficiaries 
potentially to compensate losers and still remain better off. Today, it 
matters to people whether such compensation actually is paid. 
Furthermore, it matters whether the project and compensation, as a 
package, garner community consensus. 

The debate about making all transit systems accessible to people in 
wheelchairs versus creating a separate transit service for people in 
wheelchairs is an excellent example. When the benefits of creating a 
separate transit service for those in wheelchairs were found to be 
greater than making all transit systems wheelchair accessible, 
something had gone wrong with the analysis. Benefit-cost analysis had 
not stepped into the situation's reality and facilitated a discussion 
about the value we put on accessibility above and beyond monetary 
considerations. 

John Rawls' book, A Theory of Justice, [Footnote 42] emphasizes that 
there are certain rights, duties, or obligations that are not 
necessarily enshrined in the Constitution, but which we believe we have 
acquired. These include environmental rights, disability rights, 
obligations regarding greenhouse gas production, etc. They ought to be 
treated as givens, and benefit-cost analysis should then ask how we can 
optimize our world in that context. Economists need to be flexible to 
facilitate this discussion, and benefit-cost analysis needs to morph 
into a framework in which that discussion actually occurs. The 
Americans with Disabilities Act [Footnote 43] would have been passed 10 
years sooner if full accessibility had been discussed in that way. 
There is no reason why a benefit-cost process could not have led to 
that result had we not been confined by our view of the analytic 
process. Converting benefits and costs into money is important, but not 
the Holy Grail. 

Dr. GOMEZ-IBANEZ: The benefit-cost analysis of universal transit access 
compared to separate transit systems fits into Dr. Lewis's deliberative 
model. People realized its limitations through discussion and decided 
to do something else--that is, make all transit systems accessible to 
the disabled. Although a narrow benefit-cost analysis said that the 
benefit of making all transit systems accessible to the disabled is not 
worth the cost, people responded that this is not strictly a benefit-
cost question. 

Dr. PICKRELL: It provoked a discussion about whether making all transit 
systems accessible is a right and the value of enforcing that right. 

Dr. TAYLOR: Dr. Kirby said that distributional issues are absolutely 
central. We heard that benefit-cost analysis sometimes does not deal 
with them effectively or effectively enough. Why is this so important? 
There is one issue where we can make normative judgments about 
redistribution--we are going to redistribute wealth from the haves to 
the have-nots. Dr. Kirby also described redistribution as a competition 
where there are winners and losers. Such a redistribution may not been 
seen as a loss to anyone at the regional, state, or national level, but 
stakes are enormous at the local level. Can consideration of these 
stakes--that is, winners and losers--be incorporated into the 
analytical process?

Dr. FORKENBROCK: Sometimes the opposite may be true, as with regional 
economic models. We discuss how jobs will come into the region if we 
make a transportation investment, but not where the jobs came from. The 
rule of thumb is that if job redistribution occurs in the same 
jurisdiction that is funding the project, there is no net gain. But 
when you use federal funds, redistribution occurs in the same 
jurisdiction. A state that funds redistribution of jobs from one 
community to another has made a mistake. The difficulty is what I call 
the moral imperative--that is, decision makers know that they have 
nothing to lose by arguing strongly for their project--the federal gas 
tax will not go up or down as a result of a single project. And if the 
model does not indicate where the jobs came from, no other politician 
is going to tell me that these are jobs off my plate. There is an 
advantage to obscuring this, and models do that so well. 

Sidebar: 

"distributional issuesare at the heart of benefit-cost analysis and 
are the central reason why we need it."-Dr. Small: 

[End of sidebar]

Dr. SMALL: I have strong views about distributional issues--they are at 
the heart of benefit-cost analysis and are the central reason why we 
need it. Some decisions are made with unanimity--perhaps everyone's 
incentives are aligned. Benefit-cost analysis is needed when real 
differences in the outcomes to people must be adjudicated. This usually 
occurs through the hurly-burly of politics. But we are agreeing that 
benefit-cost analysis can help this adjudication process lead to better 
results. Technically, the adjudication process is a way to get 
potential Pareto improvements[Footnote 44] transformed into real Pareto 
improvements. This is because, when a project has positive net 
benefits, there are still some people who are winners and some who are 
losers--although there are more on the winning side. If you apply this 
methodology consistently to many different projects and ensure that it 
is not always the same group of people that loses, then there is an 
increased chance that you will have real improvements for everybody. 
These distributional issues are so fundamental for benefit-cost 
analysis that in practice we often have to carry them out and make them 
explicit in order to move forward with a project. 

Dr. PICKRELL: I agree that distributional issues are of paramount 
importance. Any analytic process is embedded in an inherently political 
decision-making process that turns on considerations of who pays and 
who benefits. I personally believe that is for the better. 

I was adamant about systematically tracing the mechanisms by which 
public infrastructure investments are expected to produce direct and 
indirect benefits because this naturally leads us to tally the benefits 
and costs borne by different participants in the political decision 
calculus. At the very least, it helps provide systematically forecasted 
rather than speculative or woefully misrepresented information about 
the impacts' nature and magnitude. It also produces the advantage that 
Dr. Small is describing--we can examine whether the succession of 
decisions from this political and analytical process tends to work to 
the advantage of some groups or others over time. 

Dr. KIRBY: I do not disagree, but I am concerned that we tend not to 
focus on things that we are less comfortable with analytically or less 
able to quantify. As a result, we may be vulnerable to a challenge that 
we failed to comprehensively assess a project and a judge is going to 
stop it. If it was a good project that does not get built because the 
process failed to address a legitimate issue, it is a real criticism of 
us as practitioners and something to be very concerned about. You 
cannot make every project a winner for everybody--and do not need to. 
If projects are in a large enough context to show overall net benefits 
and that no group is systematically without benefits, then I think you 
can proceed. 

However, in our very elaborate public involvement process, you may be 
unable to take action if anyone loses. The electorate is very well 
informed. People articulate the disbenefits[Footnote 45] to them and 
this can be enough to overwhelm the more diffuse beneficiaries. This 
may be where we are in transportation. Project after project goes on 
the shelf--it really is a big concern. A county transportation director 
recently said that numerous studies--but not one single project--were 
proceeding in his county. High benefit transportation improvements were 
not going forward--paralysis by analysis. If we do not recognize that 
there are some disadvantaged groups early in the process, we will not 
be able to deal with the issues they raise in an effective manner. 

Dr. TAYLOR: Perhaps we are not doing a good job of compensating the 
losers if we have situations where a concentrated set of opponents can 
kill projects for which the benefits overwhelmingly outweigh the costs. 
Are there legal or procedural limitations to the ability to compensate 
losers?

Dr. KIRBY: No. But we often fail to recognize that there are those who 
do not benefit, never mind thinking about how we can compensate them. 
These groups do not feel that their issues have been fully addressed 
and sometimes use legal challenges to stop a project. Our failure to 
address this is rather critical, as is shown in the following example: 

These issues came up in a large project that involved land use 
questions. People were concerned about the induced demand[Footnote 46] 
caused by a major highway expansion project completed 20 years ago. We 
went back 20 years and looked at the forecast. Traffic did exceed the 
original projections, largely because the development shifted to that 
corridor away from other areas relative to the forecast. There was no 
question--it was not from the outside, it was a shift. Another 
jurisdiction used the study to argue that a proposed new highway 
facility would take development away from that jurisdiction. Based on 
that earlier study we are now saying that each jurisdiction must 
revisit its land use and activity forecast under the assumption that 
this proposed new highway facility will be built. Employment forecasts 
relative to the project may be reduced for some areas and come out on 
the table as part of the political discussion. There is no way of 
avoiding that. But, we must put that topic on the table and recognize 
that there will be some marginal effect. We cannot expect everyone to 
win on everything--otherwise, nobody will get anything. If we discuss 
this type of issue explicitly, we will be much better off. 

Dr. FORKENBROCK: The issue of compensating losers is fascinating, but 
extremely elusive. A new highway is going to raise noise levels and 
people are upset. But, what if the access value has raised property 
values? Looking at many different dimensions, deciding on winners and 
losers, and summing it all up could show that overall, the people who 
are upset lose little or not at all, but the analysis would be 
extremely difficult. 

Dr. LEWIS: I agree with Dr. Kirby--there is evidence to suggest that 
making the redistributional effects and the winners/losers more 
explicit and transparent is likely to speed decisions more than slow 
them down. 

We did a large discursive benefit-cost exercise[Footnote 47] for 
building a new airport runway in a large Canadian city. The proposal 
had been on the table for nearly 20 years and modifications had been 
knocked down by noise advocates. Although the airport authority was 
reluctant, we engaged the community in a very scientific discussion of 
measuring noise and the empirical evidence on depreciation. We even 
used loss of household as surplus in addition to financial losses of 
value. Through an analytical process, we got quite wide assent that 
there would be $100 million of property value losses over 30 years due 
to the additional noise over a specific area. But that was put in the 
context of about $4.5 billion in economic benefits. The benefits lost 
without the runway were mainly in time savings and resources, not jobs. 

This precipitated some compensation proposals that were integrated into 
the solution--noise insulation, etc.--nothing terribly dramatic. There 
is a runway there now, for better or worse. I think that the numbers 
created political will that did not exist before in the environmental 
review office, the litigation domain, and runway supporters. The 
numbers simply made the case. I think you can make things real and the 
truth sort of bubbles up to the surface. 

Dr. FORKENBROCK: The problem is that the objector is the same as the 
loser. 

Dr. LEWIS: In airport cases, they often are. When you get to valuable 
development around transit stations, perhaps you are gentrifying the 
community and what was an affordable housing community is no longer. 
What do you do with that? In this case, objectors are rarely the people 
who would be displaced. If there is awareness that this could happen, 
then simply acknowledge and analyze it. This was not done in the Model 
Cities program, otherwise the removal of ghetto residents to even 
worse, poorer ghettos might have been anticipated and Model Cities 
would not have been the disaster that it was. On the other hand, if 
people living near a station now have to walk a little bit further, we 
might acknowledge that this is a reality of the market system. Being 
explicit about it makes all the difference. 

Dr. GOMEZ-IBANEZ: I will throw a little cold water on this love fest 
for distributional analysis. I do not disagree that keeping track of 
projects' distributional consequences is ethically important--the whole 
Pareto Principle depends on compensation--as well as politically 
prudent. If you ignore them, you're going to fail. 

However, I worry that we are not being honest about the technical 
difficulty of some of what we are proposing. We are discussing several 
kinds of redistributions. One is between different income groups; the 
other is between different jurisdictions or locations. Both of them are 
really difficult. What you need is some general equilibrium model that 
traces out how these direct effects get transferred to other parties. 
The classic example has been mentioned--that is, a lot of 
transportation improvements' value does not end up with a traveler, but 
is capitalized into the land values of an owner's property when the 
improvement is made. But that is just one example. 

In addition, economists are not very good at tracing the subtle ways in 
which things get passed along. If the chain gets too complicated, as 
when you make downtown more accessible and try to assess how much goes 
into downtown property values or higher wages and profits for downtown 
workers and businesses, it is very tough for us to give you an answer 
with much confidence. Focusing on jurisdictions is at least as bad and 
is compounded by confusion about whether growth necessarily benefits a 
jurisdiction. Often it is not clear--at least to existing residents--
that job or residential growth is such a benefit. So a probable benefit 
to landowners may not be a benefit to all the citizens. 

In addition, we are not very sophisticated about the implications of 
some of the distributional effects, particularly geographically. On one 
level, I agree that the arguments for tracing distribution are pretty 
strong. On another level it is garbage in, garbage out. You may end up 
with some quite naive and misleading estimates of distributional 
consequences. The example of noise from airport runways probably is one 
of the places where it is easiest and clearest. Many other things we 
deal with are more complicated. 

Sidebar: 

"the geographic and the population distribution issuesare very, very 
difficult, and benefit-cost analysis is only part of the total 
evaluation framework."-Dr. Meyer. 

[End of sidebar]

Dr. MEYER: I agree with what Dr. Gomez-Ibanez just said because I face 
both the geographic and the population distribution issues. They are 
very, very difficult, and benefit-cost analysis is only part of the 
total evaluation framework. For example, to get the message about real 
distribution issues in regional investment, we did not look so much at 
benefit-cost analysis as we indicated on a map where the investment was 
going. We also indicated how this investment related to the poor and 
minority population. This distributional impact got people's attention. 
This visual relationship initiated a discussion about equitable 
distribution of investment vis--vis population location and where the 
revenues are coming from. We really should be talking about evaluation 
and the role for benefit-cost analysis in this much broader framework. 

[End of section]

Summary of Panel Responses to Audience Questions: 

Could benefits and costs be measured at the national level so that 
Congress had a framework for deciding, for example, whether to spend $1 
billion on transit or highway projects? If it is possible, is it a good 
idea?

* Dr. Forkenbrock stated that the only way to do such an analysis would 
be to use major projects undertaken in the past decade as sample data-
-and this would be precarious. 

* Dr. Pickrell said that the Highway Economics Requirements System 
(HERS)[Footnote 48] model attempts to do this for highways by 
simulating the most beneficial improvement projects on a large sample 
of U.S. highway segments, adding the benefits of these projects, 
determining the spending level required to generate those benefits, and 
expanding to a national estimate of how much you would have to spend on 
highways to achieve various criteria such as maximum benefits. He said 
that there is no corresponding model for transit investments or one 
that incorporates both potential highway and transit investments. 

* Dr. Meyer said that we do not have the analytical tools needed to 
provide Congress such a framework. 

* Dr. Taylor noted that evaluating transit investments at the national 
level is particularly problematic because the consumption of transit 
services is so spatially asymmetric: since most transit riders are in 
the centers of the largest and oldest U.S. cities, most of the benefits 
of transit projects will be in these locations. 

[End of section]

Appendix V: How Could Benefit-Cost Analysis Be Improved?

GAO Questions: 

* How can data availability/quality be improved and uncertainty reduced 
in estimating the benefits and costs of transit and highway investments?

* Is there a basis for standardizing benefit--cost methods and is this 
desirable?

* What is the best way to help ensure the objectivity of benefit--cost 
analyses for transit and highway investments?

Opening Comments by Dr. Forkenbrock and Dr. Kirby: 

David J. Forkenbrock is Director of the Public Policy Center, Director 
of the Transportation Research Program, Professor in Urban and Regional 
Planning, and Professor in Civil and Environmental Engineering at the 
University of Iowa. 

[See PDF for image]

[End of figure]

Dr. FORKENBROCK: To stimulate discussion, each of you has my handout, 
"Improving Benefit-Cost Analysis."[Footnote 49] Several concerns have 
developed from my practical work with state agencies to refine benefit-
cost analysis for major investments and with a team that conducted 
feasibility analyses of three of the national interest 
corridors[Footnote 50] identified by ISTEA. These problems occur 
particularly at the metropolitan and state agency level, rather than 
the national level. 

* One problem is excessive dumbing down of benefit-cost analyses. When 
a colleague surveyed state agencies about their current benefit-cost 
analysis practices, he found that a series of them do not even discount 
their benefit and cost streams[Footnote 51]--they just add them up. 
Many state agencies and metropolitan planning organizations (MPOs) 
[Footnote 52] use computer software that contains a range of 
assumptions that are not explicitly chosen and that the user does not 
understand. A good example is using national averages for the value of 
time. Similarly, some analyses ignored network effects--that is, a 
project's effects on the larger area if, for example, traffic is 
diverted. Safety and modal shift effects also were ignored. 

* A second problem concerns questions of who benefits, who loses. We 
have talked today about the Kaldor-Hicks criterion--that is extremely 
important. [Footnote 53] We have just finished a National Cooperative 
Highway Research Program guidebook on taking into account 
distributional effects and incidence that are very important, but very 
commonly ignored, in benefit-cost analysis. [Footnote 54]

* A third problem is that parameter values are very poorly 
chosen.[Footnote 55] In state agency project evaluations, the basis for 
fatality or injury values rarely is explicitly considered. Many states 
use very low values. 

One corridor of national significance runs between two states. One 
state uses a million dollars per life; the other uses $500,000 per 
life. My colleague asked the states surveyed why they used whatever 
discount rate they used and found that the basis was not well 
understood. As a result, the impacts of different discount rates were 
very rarely considered. Yet, the choice of discount rate and value of 
time can make a bad project into a very good project or a very good 
project look infeasible. These parameter values are incredibly 
important when evaluating specific projects. Moreover, time values 
rarely are tied to local wage rates, and there is no consideration of 
how the value of time might be varied. 

The "second best" issue[Footnote 56] is almost never considered. This 
means that if you are estimating demand on the basis of heavily 
subsidized prices, you are not going to get an efficient evaluation. 
This fact is almost never taken into account by benefit-cost analysis 
users at the state and MPO levels. When I chaired the National Research 
Council oversight committee on the National Highway Cost Allocation 
Study in 1997, we found that certain vehicles--particularly heavy 
trucks with fewer axles--have a cost responsibility that is perhaps 20, 
30, 40 times the amount that they pay in user fees. There will be very 
different results if you build a road to serve current traffic levels 
and forecasted traffic increases than if you price the road at full 
cost and see what the demand level is, using that as the basis for your 
investment. The "second best" issue is a major and difficult problem. 

It occurs to me that one solution to these problems is the American 
Association of State Highway and Transportation Officials' (AASHTO) new 
manual on benefit-cost analysis--the Redbook.[Footnote 57] It contains 
good, useful information on doing benefit-cost analyses in 
transportation. Other solutions may be practical courses on benefit-
cost analysis sponsored by FHWA, AASHTO, or some other group. Courses 
could pay special attention to using sensitivity analyses[Footnote 58] 
to test the impacts of different parameter values and increasing the 
use of state or regional travel demand analyses to estimate network 
effects. Many times, travel modeling that is the basis for determining 
whether investments are called for is done on a partial basis--the 
models do not actually look at the entire travel corridor. State cost 
allocation studies[Footnote 59] have been improving over recent years, 
but they still have many conceptual and data-driven limitations. And, 
without knowing cost allocation levels, you have no idea of exactly how 
close different vehicles are to paying their full cost. This 
information can drive investment analyses and become a critical element 
in doing confident benefit-cost analyses. 

Ronald F. Kirby is Director of Transportation Planning for the 
Metropolitan Washington Area Council of Governments. 

[See PDF for image]

[End of figure]

Dr. KIRBY: From the perspective of an MPO that does a lot of number 
crunching, modeling and analytical work, what we do does not map very 
well onto an ideal benefit-cost framework. Like other MPOs, we have 
spent the last few years very focused on air quality and computing 
regional emissions to meet Clean Air Act Amendments (CAAA) conformity 
requirements. [Footnote 60] These requirements are very stringent--they 
can block and limit project development. MPOs are required to meet 
fixed "emission budget" levels that are part of a much larger regional 
air quality analysis that looks at all kinds of different sources. We 
must meet a fixed air quality standard. If we are below it, we pass; if 
we are above it, we fail. That is a benefit-cost framework for you. The 
U.S. Environmental Protection Agency (EPA) currently mandates that we 
use the MOBILE6 model. [Footnote 61] This model requires us to model 28 
different vehicle classes (the previous model had eight different 
vehicle classes). It puts vehicles into different weight categories, 
engine types, etc., and requires information that goes way beyond the 
data that we have for our region. 

Air quality modeling has been one of our major preoccupations because 
it could be a fatal flaw. If we do emissions calculations incorrectly, 
we could be challenged by those who might not like a particular project 
and see air quality requirements as a way of slowing things down. 

Air quality and transportation investment studies are insulated from 
each other--this is a big problem, as Dr. Forkenbrock noted. The 
requirement applies to individual projects and involves intensive work 
at the corridor level. While it draws on regional travel modeling, the 
EIS is a separate undertaking--often employing consultants who take the 
regional models and use them at the corridor level. The focus is on a 
project and corridor--and the process does not look as comprehensively 
as it should at regional implications. 

In a case in which citizens requested a study of alternative sites for 
a bridge crossing, the project study team initially responded that this 
was outside the project study scope. Yet, alternative sites were within 
10 miles of the existing bridge. A month later, the study team thought 
better of its answer and agreed to test where traffic would come from 
and go to at other crossings. This is the philosophy that surrounds 
some corridor studies. However, as scrutiny of these studies increases, 
we are being driven to look at things much more comprehensively. Travel 
modeling is a big part of MPO work and much is being asked of modeling 
work. 

Sidebar: 

"We have a tendency to focus too much on improving travel models and 
not enough on improving the data that drive the models."-Dr. Kirby: 

[End of sidebar]

We now are being asked to look at pricing issues in addition to air 
quality issues. Pricing is a whole different approach to project 
planning that puts a different angle on issues and poses very tough 
questions in forecasting the impacts of different pricing strategies. 
For example, we are doing a major corridor study in which the project 
is a new managed roadway--18 miles, 6 lanes, with 50 miles per hour 
peak period speeds in 2030. Our job is to find out what the toll is 
supposed to be, see what the revenues will be, and match this up with 
additional revenue sources. This will press our modeling capabilities 
more than in the past. In addition, groups who have various views about 
the outcomes they do and do not want will scrutinize our modeling 
procedures. This will be one line of challenge to the modeling outcome, 
and we are going into this project knowing that the technical work will 
be challenged. 

Elected officials and citizens now have a very substantial interest in 
knowing everything that is behind modeling. Many things that formerly 
were in-house technical issues are now scrutinized by citizens and 
elected officials. For example, values of time and how well the model 
replicates existing travel patterns, root mean square errors in terms 
of matching model results to traffic counts are going to be very 
important. This is good, but it requires us to explain many more things 
than before. 

Data availability and quality need to be improved to improve benefit-
cost analysis. In my view, we have a tendency to focus too much on 
improving travel models and not enough on improving the data that drive 
the models. For example, there is growing interest in time of day 
modeling--how peak travel periods are spreading at congested locations 
on the freeway systems and how people react to congestion by changing 
their travel behavior. If people react to congestion by traveling later 
or earlier and you increase capacity, those same people will revert to 
the time they traveled before, and congestion will return. Has your 
project failed to eliminate congestion? Modeling travel at different 
times of day is important, but travel models are not terribly good at 
dealing with it or other traffic operational effects. 

An obvious question is whether we have good time of day counts. The 
answer is that we do not. We have found instances where the published 
counts are clearly inconsistent. Although this is an important issue, 
we have very few permanent count stations in our region and some are 
not operating. It is difficult to get data from state agencies because 
it is not a priority for them to collect counts at the level of detail 
that we need. 

Much more attention has to be focused on data if MPO modeling and 
analysis is going to get to this new level of scrutiny. There are 
obstacles--home interview surveys are increasingly harder to do, 
telephone surveys are difficult, all survey response rates are going 
down. Those people who have only cell phones are not included in a 
random selection of households. Should we put global positioning system 
(GPS)[Footnote 63] devices on the vehicles and track them around to get 
data in the future? Refreshing our data poses really tough issues. 

We really are in a new ball game--dealing with issues that we have 
never been asked to handle before. For example, we need analytical 
methods to help us predict how people will respond to various prices on 
a new lane or--even more complicated--on one or two tolled lanes on an 
existing freeway with lots of entry and exit points along the way. When 
the private sector wants to know travel volumes to decide whether or 
not to finance a project, we are facing an information challenge that 
we have not faced before, namely to get "investment grade" forecasted 
volumes. Before you can ascribe benefits and costs, you really need to 
know what travelers' responses are going to be to the project. Until 
you can get a rough handle on that, all the other issues--discount 
rates and everything else--are rather academic. 

There are plenty of consumers--the public and elected officials--for 
the things that we are talking about today. But, we will need to do a 
much more comprehensive job than we have done in the past if we are 
going to respond to their interests and meet our planning requirements. 

Panel Discussion: 

Dr. TAYLOR: We have heard that there is less and less willingness to 
put the significant resources required toward refreshing, updating, and 
revising data that are collected in household activity surveys. At the 
same time, there is much more detailed interest in your analyses. That 
seems somewhat contradictory. 

Dr. KIRBY: The dilemma is that there is a long lead time in getting and 
applying these data. If you want the data now, you should have 
collected it 10 years ago and been improving the models over that 
period of time. The increased funding from ISTEA and TEA-21 was a big 
help in improving our data collection and model development. But a 
whole new home interview survey is beyond our annual budget. If 
reauthorization of TEA-21 helps or the state agency funds such a 
survey, it still will be 3 years before we have results that are 
cleaned up, calibrated, and in the models. Currently, we are dependent 
on what we were able to do over the past 10 years. 

The idea of a standard national travel demand model disappeared 20 
years ago. There has not been a strong federal presence in this area--
travel modeling has devolved into independent vendors with different 
software packages. As an MPO, we can choose among four or five vendors 
who tailor models to meet our needs. But, there is no standard, as Dr. 
Forkenbrock's committee concluded. [Footnote 64] If you ask how are we 
doing or are we doing as well as anyone else--nobody can answer these 
questions because nobody knows the big picture. We hope that DOT will 
fund TRB to prepare a synthesis of modeling best practices to see how 
we can address this problem. We have had 10 or 15 years of everybody 
doing their own modeling, and now it is very difficult to know the 
current state of the practice. 

Dr. LEWIS: There are analogous data quality problems in other areas. 
One type of solution is suggested by the practice of benefit-cost 
analysis in relation to information technology investments. Here, large 
organizations want to know if the benefit--a productivity gain--is 
going to outweigh the costs. However, the productivity data often are 
as awful as the counts that Dr. Kirby describes. So, what do you do 
about it? Increasingly, we are saying that the quality of the data is 
what it is. The important point is that continuously or periodically 
measuring productivity becomes a necessary project cost. We have a 
baseline and even if we are unable to measure productivity perfectly, 
we can measure it the same way each and every time, starting before the 
project is implemented. For example, the U.S. Department of Homeland 
Security has determined that queue lengths for visitor 
programs[Footnote 65] will not only remain stable but decline by using 
tools such as biometrics at various points of entry in and out of 
Canada and Mexico. We are measuring the extent to which queue lengths 
are improved by these interventions. The simple point is to measure it 
in the same way for a year before the changes are introduced and 
thereafter. Track performance on the basis of data for which one can be 
reasonably sure there is a standard of measurement. 

We do not have the habit of measuring the after-effects and benefits of 
transportation projects. However, doing so has become second nature in 
the information technology world because there were so many large-scale 
failures that companies are being forced to take risks based on whether 
or not benefits are likely to be realized. In a private or public toll 
road situation, one could imagine something similar. For example, the 
private or public toll authority would promise a certain degree of 
congestion relief, and be willing to assume the risks, in exchange for 
rewards should the results materialize at a level greater than 
forecast--that is, the authority would get to keep the revenues that 
were above and beyond what was expected. The point is, if we start 
measuring outcomes, we will insist on consistent--not perfect--
measurement. We will see whether the benefits and costs realized match 
our projections and more importantly, are worthwhile. 

While we do not see much retrospective evaluation of how well we are 
doing, we must be able to do it--not so much in relation to ridership 
and revenue, but regarding economic benefit. If a project's evaluation 
could be extended into the domain of economic outcomes, we might see 
some better data and more frequent counts. If benefit realization must 
be measured, money will be budgeted to do that over a project's life 
cycle. 

Dr. TAYLOR: Do we see less retrospective evaluation in transportation 
than other areas? A huge amount of program evaluation goes on in health 
care and welfare--very detailed evaluations that anticipate changes, 
look back, and make adjustments. Why would there be more evaluation in 
other government endeavors than in transportation? We also have talked 
mostly about projects today. But huge federal and state transportation 
programs also can be evaluated using some of the tools we are 
discussing. Why a focus more on projects than programs?

Dr. PICKRELL: Perhaps there is the same answer to those questions. My 
sense is that there have been relatively infrequent attempts to assess 
whether individual projects realized their forecasted costs, 
utilization, or revenue--and almost no assessment of their benefits' 
similarity to forecasts. However, there has been something of a cottage 
evaluation industry at the program level. I am not sure why, except 
that we did not do benefit-cost analyses of major programs until 
relatively recently. Transit projects in the 1970s and 1980s were 
planned and constructed under NEPA's environmental impact assessment 
process. This process provided most of the information needed to 
estimate what should have been a project's benefits, but it was almost 
never used to estimate benefits in the format that we are discussing 
today. 

FHWA has a tall stack of research that attempts to estimate the highway 
program's benefits using a wide variety of analytic and econometric 
methods. For example, David Aschauer[Footnote 66] and others did work 
on the program's macroeconomic benefits. Although somewhat uneven, 
there is a wealth of research on the subject--people have not shied 
away from it. 

Dr. GOMEZ-IBANEZ: One of my best Ph.D. students wrote a dissertation on 
transportation and poverty. The study compared 20 families who had cars 
and 20 families who did not--both poor and living in suburbs--and how 
they managed. Despite my hope that this student would have a 
transportation career, the student went into poverty research because 
that is where all the money is. Unlike transportation, where we do not 
evaluate projects--people just want to declare success when the 
streetcar starts rolling and be done with it--this student is 
evaluating demonstration projects. Perhaps there is less of a sense in 
the antipoverty, education, or health communities that they know what 
works. However, there is much more willingness to evaluate these 
projects. In transportation, there is an ideological battle between 
environmentalists and smart growth supporters--each with confidence 
that truth is on their side and demonstration is not needed. 

Sidebar: 

"we do not evaluate projects--people just want to declare success when 
the streetcar starts rolling and be done with it"-Dr. Gomez-Ibanez. 

[End of sidebar]

Dr. TAYLOR: Perhaps controlled experiments are done much more easily 
and less expensively with individuals than with metropolitan areas. 
Individuals are routinely selected from different groups and the 
eligible pool at random and assigned to different treatments. In the 
metropolitan areas, we would need to treat one city with a light rail 
system and an identical city with an expressway system. It is harder to 
fashion the experimental or research paradigm in our context than in 
theirs. Dr. Gomez-Ibanez described the analysis as being entirely 
different--individuals, households, and smaller neighborhoods rather 
than metropolitan areas. Does that reflect institutional bias in the 
way these things are administered? Why not analyze the travel behavior 
of individuals, households, and firms? It could be like analyzing 
changes in poverty in one city versus another. 

Dr. GOMEZ-IBANEZ: But the policies we are discussing are applied at a 
metropolitan level. You treat the entire metropolitan area when you 
build or do not build the transit line. 

Dr. PICKRELL: We were in the waning stages of a very ambitious program 
to design and test various innovations in providing transit services--
the Services and Methods Demonstration Program--when I first worked for 
the U.S. DOT. Reports produced by that program were absolute models of 
how to generate all the information necessary to comprehensively 
analyze the value of the investment, innovation, and service that had 
been performed. However, the analysis invariably was left undone--it 
was not synthesized in the format that we have been advocating. 

Dr. SMALL: I served on a TRB committee, chaired by Dr. Wachs, that 
assessed the Congestion Management and Air Quality Improvement (CMAQ) 
program.[Footnote 67] One of our recommendations was to systematically 
do post-evaluations of projects, including cost-benefit analyses, 
because evaluations being done were very haphazard and infrequent. In 
addition, because CMAQ projects are experimental and innovative 
projects, it is important to find out about their benefits and what 
works--especially at the federal level. 

Dr. TAYLOR: There may be another significant difference between an 
antipoverty program like the Temporary Assistance for Needy Families 
(TANF)[Footnote 68] that moves people to paid employment and a building 
or facility where a public official can stand and cut a ribbon. The 
facility serves important political purposes--people have been hired to 
work and build it. It is less abstract than an employment project. On 
some level, it has accomplished things that its promoters argued that 
it would. A more sophisticated evaluation of whether it returns 
benefits to the degree that some other investment might have seems more 
academic than the fact that there is concrete in the ground. What 
benefit is there in going back and saying that--while this may be 
popular locally--it is a dog project? There is much risk and 
potentially little reward in those analyses. 

Dr. FORKENBROCK: Alan Altshuler's excellent book on megaprojects 
[Footnote 69] exhumes a lot of old projects and points out what might 
have been wrong with the forecasting and the process. 

Dr. LEWIS: In the information technology sector, companies that are 
proponents of large-scale projects are forced to measure outcomes and 
take risks in terms of their fee in relation to those outcomes. Might 
we not visualize a similar incentive structure in transportation? Large 
engineering and architectural companies often are proponents of large 
transit and highway projects. If they were on the hook financially for 
certain economic outcomes, the information and reason that goes into 
project evaluation and the information about whether transit or highway 
capacity represents the more effective solution--at least at the 
corridor level--might improve. I do not know how realistic that might 
be in the transportation world. However, it certainly did not seem very 
realistic in the information technology world 10 years ago--now it is 
the state of the art. 

Sidebar: 

"It is not coincidental that project evaluations do not occur--they 
would harm the purposes of many of those who put forward the 
programsthe issue is the geopolitics of resource allocation, not 
whether benefits exceed costs for a particular project."-Dr. Wachs. 

[End of sidebar]

Dr. WACHS: It is not coincidental that project evaluations do not 
occur--they would harm the purposes of many of those who put forward 
the programs. It comes back to the opening point that Dr. Taylor made 
this morning--the issue is the geopolitics of resource allocation, not 
whether benefits exceed costs for a particular project. I have been 
attending symposia, discussions, and conferences for over 40 years 
where this point has been made. We have not just discovered it--it has 
a life of its own. Our elected officials have not responded to 
admonitions that more transportation funds should be spent on 
evaluation. Their answer clearly is that the benefits of doing so are 
smaller than the potential risks. 

Dr. MEYER: I am not so sure that the reason evaluations are so rarely 
done is that benefits are perceived as smaller than potential risks as 
much as it is limited money. If I were an MPO or state agency director 
and someone gave us money to do before and after evaluations, I 
probably would do them. The problem is that there is no money to do 
evaluations. I do not agree that evaluations are not done because 
proponents are afraid to risk discovering that they did something 
wrong. 

Dr. TAYLOR: Then you have to ask yourself, why is it different in 
health and education?

Dr. MEYER: There is a very clear answer--evaluation is very common to 
the social sciences' function and service orientation. Transportation 
is infrastructure. Although we now talk about transportation customers 
and services, infrastructure programs do not have a tradition of doing 
before and after evaluations. It just has not happened. 

Dr. FORKENBROCK: In some ways, health and transportation have similar 
problems. My academic center has both health and transportation policy 
programs. In health, epidemiology is sort of a dark science. It is 
difficult to decide whether an intervention led to changed health 
status in people because some smoke and some do not, some are obese and 
some are not. 

Our legislature created a transportation program to invest in highways 
to promote economic development. Our center tracked each project that 
was funded by the program in order to determine whether it had the 
intended effect--did it create the number of jobs and produce the value 
added that was expected within 3 or 4 years. We ran into the difficulty 
of economic cycles. 

Someone promised to generate 400 new jobs, but needed better access to 
an interstate. So, we invested a couple of million dollars and poured a 
road for you. However, you have only increased employment by 75 people. 
Did the economy go bad or the industry go through a cyclical 
perturbation so that things are not the same as when we made the 
forecast? Was the forecast done with very sanguine assumptions or did 
the economic cycle change? The truth probably lies somewhere in 
between. It is very difficult to do economic impact forecasts and 
determine X years later whether that promised economic impact really 
occurred. Changes in people's taste, economic cycles, and a hundred 
other things can make that very difficult. 

Dr. PICKRELL: Something else may be at work here. My contact with 
public officials who oversee construction of major transportation 
infrastructure projects suggests that their view is that when the 
ribbon is cut, the important work is done. In an extremely cynical 
sense, that is what makes the local political machine work. If so, the 
important political part of the project is finished at exactly the time 
that its transportation function begins. I'm not sure I believe this, 
but offer it as a hypothesis. 

People are not consciously trying to cover up presumed failures--Dr. 
Meyer is right. This fear does not underlie the unwillingness to look 
back. It is admittedly inconvenient to know that a project failed to 
meet criteria on which it was justified, but there always is an 
explanation that has a superficial plausibility about it. 

Dr. GOMEZ-IBANEZ: A less cynical view would be that TANF can be 
redesigned every year so it is worth finding out how the program works 
and adjusting. But then you have to ask why communities that are 
building a transit system are immediately proposing the next extension. 
Why are these communities not interested in what happened?

Dr. LEWIS: They could be interested if congressional appropriations 
committees that put a lot of federal money into New Starts,[Footnote 
70] light rail, heavy rail, and highway projects insisted on 
performance reports and measurements of returns. This would be a means 
of getting a handle on return on the federal dollar, but not limiting 
it to the federal share. One reason this does not happen is no one with 
a big hammer says that you have to do it. If we could agree that doing 
so would be a good thing, this could be an incentive for these 
committees to write language insisting on it and put money into it or 
insisting that certain funds be designated for it. 

Dr. PICKRELL: What Dr. Lewis is describing is essentially how the 
cooperative research programs[Footnote 71] work--they are funded by a 
set-aside from the program. Moreover, their perspectives tend to be 
broader than an individual project. Perhaps we need a companion 
provision that a small fraction of project level funding be dedicated 
to post hoc evaluation, as the CMAQ report recommended. 

Dr. MEYER: I would like to ask Dr. Lewis about his discussion of the 
importance of applying risk analysis or its principles to improve 
benefit-cost analysis. What does this mean in practical terms? How 
would it benefit the methodology?

Dr. TAYLOR: I would like to ask Dr. Lewis about his comments concerning 
looking at values and risks so that stakeholders define what is 
important. Is this a slippery slope to a completely value-laden process 
where people's perceptions of outcomes become divorced from empirical 
measures?

Dr. LEWIS: I do not suggest that benefit-cost analysis be a broad, free-
for-all conversation. I am advocating that the benefit-cost analysis 
discipline be applied both on the quantitative and value sides. The 
discipline--the logic and everything we have learned about cause and 
effect and measured values from revealed and stated preference 
studies[Footnote 72]--should be rendered accessible and brought to the 
public deliberative process to increase its quality. I am not 
suggesting that we ask people to come up with their own subjective 
values of time without being constrained by that discipline. I am not 
suggesting this in lieu of carefully measured value of time based on a 
good stated preference analysis or econometric analysis. Risk analysis 
is being done in biomedical research, other scientific research, and to 
some extent in transportation. 

I was involved in presenting value of time issues to a group that is 
discussing a light rail system for their city. I told them that their 
city's value of time estimate, based on a stated preference analysis, 
was $14.50 an hour during commuting time and 40 percent of that at 
other times. We tried to explain the statistical meaning of an expected 
value and used other associated statistics to present the rest of the 
curve--which inevitably will be a symmetric, bell-shaped distribution 
because of assumptions that have gone into the analysis. People saw 
that other values were possible. Then we layered in another level of 
uncertainty from studies that came from outside the community. We 
produced estimates from the Journal of Economic Statistics that present 
values of time as low as $3 or $4 an hour during commuting hours, based 
on the same kinds of stated preference methods. 

Bottom line: these other studies seem to provide evidence that there 
are extremes and other possible outcomes that differ from the expected 
value of time--the data also appears skewed toward the low end of time 
values. We redrew the probability distribution with a skew to the left, 
showing the probability that the truth lies more on the downside of the 
expected value than the upside. Then, we facilitated a discussion with 
local MPO planners where the subjective element would enter. We asked 
about the reality of value of time choices among communities on this 
corridor and how they would modify what we had. We used elicitation 
protocols[Footnote 73] that have been honed rather nicely in the 
biomedical world of statistical research. These protocols elicited 
beliefs from local experts and those with experience in observing 
traffic flows and household choices to add to the shape of this 
distribution. Remember, a Bayesian probability[Footnote 74] has to 
start from the frequency with which something happens--just a counting 
exercise. Bayesian is probability. It reflects the degree of belief 
that an expert or someone whose beliefs are convincing is right that 
something will happen with a certain probability. We tried to allow for 
a degree of subjective probability. During this discussion, people 
learned about the data--a bit about the central tendency,[Footnote 75] 
the down sides, probabilities associated with the down side. We went 
through the same exercise for statistical lives, injuries, and the 
environmental value of a ton of carbon dioxide. 

In my earlier airport runway noise example, we had property 
distributions based on econometric studies of the property value 
effects of a unit increase in overhead noise. We also brought in real 
estate agents and taught them how to think probabilistically so they 
could contribute to the shape of the distribution for that community. 
We ended up with what we believe is a scientific, locally informed 
representation of the probability range for values of time and life. We 
can do the same thing on the quantity side. 

The four-step congestion relief model is how uncertain are we about the 
cross elasticity of transit demand[Footnote 76] with respect to its 
generalized cost. We try to get at the distribution and how evidence 
from other studies informs the shape and breadth of this distribution. 
We then get local people's beliefs. The value of the elicitation 
process is its discipline. For example, if something is 30 percent 
likely to happen, then it is 70 percent likely not to happen. Simple 
disciplines like that smoke out some of the strategic behavior rather 
effectively. If you break the problem into its logical parts and attack 
one variable at a time, you can bring the discipline to bear on how 
people behave. Then you put it all into a Monte Carlo type 
simulation[Footnote 77] and see what the results seem to suggest. 

The valuation question is not asking people to invent a value of time 
number based on their anecdotal instincts. It is looking at scientific 
evidence and working their beliefs into the context of that evidence. 
In doing so, people are learning a great deal about the science that we 
bring to the table. 

Sidebar: 

"one way to improve benefit-cost analysis as a tool in transit is to 
actually do it. It is not being done today"-Dr. Lewis. 

[End of sidebar]

Finally, one way to improve benefit-cost analysis as a tool in transit 
is to actually do it. It is not being done today, so I would hate to 
see us move on without that getting into the record. FTA's New Starts 
is many things, but it is not benefit-cost analysis. This means that 
neither we nor the Appropriations Committee will ever be able to 
compare the rate of return or the net benefit of building a light rail 
system along Highway I-71 to widening it instead. It seems to me that 
we must be able to compare different ways of using transportation 
money. How to improve it? Let's do it. 

[End of section]

Summary of Panel Responses to Audience Questions: 

How can the quality and value of transportation data be improved to 
provide better information for decision makers and benefit-cost 
analyses?

* Dr. Kirby emphasized that the first step is to thoroughly review the 
existing travel modeling process to document the need for better data 
and to focus on which data is most important to collect. He said that 
analysts are likely to need different kinds of information collected in 
different ways, such as GPS and smart cards,[Footnote 78] particularly 
as old methods of data collection such as household surveys are 
becoming more difficult to perform. He added that some transportation 
programs focus all their resources on developing very sophisticated 
modeling techniques rather than on collecting the better data that they 
really need. 

* Dr. Forkenbrock said that there is a need for a better behavioral 
understanding of urban trip making. He noted that researchers like 
Sandra Rosenbloom[Footnote 79] have shown that women's travel behavior 
in cities is more complex than men's travel and involves stops along 
the way, while traditional four-step travel modeling generates 
information on trips only from one traffic analysis zone to another. He 
said that an understanding of the complexity of trips is needed to 
assess the benefits of different transportation interventions. 

[End of section]

Appendix VI: How Can Benefit-Cost Analysis Be Most Useful In Investment 
Decisions?

GAO Questions: 

* What does benefit-cost analysis contribute to transit and highway 
investment decisions, what are the most appropriate roles it can play, 
and when should it be conducted?

* Should benefit-cost analysis be required in planning transit and 
highway investments?

* What is the federal role in improving the quality and use of benefit-
benefit-cost analysis?

* Do retrospective analyses of the performance of transit and highway 
cost investments have value?

Michael D. Meyer is Professor of Civil and Environmental Engineering at 
the Georgia Institute of Technology. 

[See PDF for image]

[End of figure]

Opening Comments by Dr. Meyer and Dr. Gomez-Ibanez: 

Dr. MEYER: I thought it would be interesting to share information about 
how some other countries use benefit-cost analysis in decision making. 
I recently was in Australia, New Zealand, Japan, and Canada with a team 
to examine transportation performance measures and their use at the 
national, state, and provincial levels. In Australia, we found benefit-
cost analysis being a very important part of the support structure for 
infrastructure decisions. As my paper describes, the State of Victoria 
portrays benefit-cost analysis as an important part of its decision-
making process and describes it as a risk-based approach. [Footnote 80] 
The State of Victoria defines benefit-cost analysis in a very 
traditional way--much the same as we do here. 

We found that Australian state officials monitor some performance 
indicators on a yearly basis. These indicators relate directly to what 
they call a "return on construction expenditure" (RCE) and an 
"achievement index." The RCE is essentially a benefit-cost ratio. In 
Victoria, benefit-cost ratios are prepared for all road projects. 
Interestingly, road officials explain projects with benefit-cost ratios 
of less than one as being "political projects." Australian road 
officials also conduct before and after studies of the benefit-cost 
ratios themselves. A sample of implemented projects is targeted for the 
collection of after data to determine what the actual benefit-cost 
ratio is after approximately 2 years. The ratio of the "after" benefit-
cost ratio to the "analysis" benefit-cost ratio is defined as the 
achievement index. One of our first questions was how much time they 
allow for achieving a steady state in benefits. Two years seemed to be 
the common time frame to develop the post-implementation benefit-cost 
ratio, although this varied because of the different scopes of the 
projects (everything from a left turn lane to major highway 
construction). 

The Victoria state government has an auditing agency that audits the 
analysis and the management activities of all state agencies. This 
independent, semiautonomous group actually provides another review of 
the quality of the decision support function in the transportation 
agencies. Australia also has identified performance indicators for the 
different states that are used to compare one state to another. 

Victoria officials emphasized that their approach is important to 
convince Australian parliamentary decision makers that VICRoads (the 
state road agency) has a good technical analysis process in place to 
justify its investments. AUSTRoads--a national organization like our 
AASHTO--recommends that all Australian states take this approach. 
VICRoads also is headed in the direction of putting risk analysis into 
their cost estimates--an issue that Dr. Lewis raised earlier. The risk 
analysis essentially says that the longer you wait to implement a 
project, the greater the uncertainty associated with benefit and cost 
streams. By doing this, VICRoads is trying to incorporate some sense of 
uncertainty into the project implementation time frame. This is 
interesting because it is really a different model than we would 
usually find in the United States. 

Turning to GAO's questions, the first one concerns the most appropriate 
roles benefit-cost analysis can play in contributing to transit and 
highway investment decisions. Dr. Lewis talked about bringing benefit-
cost to the discussion of projects and I completely agree. It is a very 
important piece of information for investment planning and decision-
making processes. It is not the only criterion that one would look at 
in decision making--no one here has said that--but it gives decision 
makers a sense of what it is they can get for the investment they are 
considering. I view benefit-cost analysis as one very important part of 
an evaluation process and decisionmaking framework. 

As we said earlier, benefit-cost analysis can be very important for 
looking at distributional calculations, if appropriately done. It can 
give a sense of what distribution may mean in either geographic and/or 
population group terms. In some cases, this can become an incredibly 
important factor in decision making. Benefit-cost ratios can become a 
very important element of how decisions are made about projects that 
are on a smaller scale. 

When should benefit-cost analysis be conducted? Clearly, the answer to 
this is before you make the decision! This is a bit facetious, but 
really an important point from the perspective of local, regional, and 
state government. The evaluation process for these agencies occurs 
during the planning process, when the relative values of projects and 
strategies are considered and when benefits and costs are defined. 

Similar to the Australian experience, we need to do some assessment of 
what happens after projects are put in place. VICRoads assesses a 10 
percent sample of all projects implemented each year--about 40 projects 
out of approximately 400 projects. This provides feedback to the 
project analysis process and critically examines the effectiveness of 
the information produced that supports the decisions. 

Should benefit-cost analysis be required in planning transit and 
highway investments? Clearly, the answer is yes. Some analysis 
framework that looks at benefits and costs certainly should be 
required. If correctly done, benefit-cost analysis is one approach that 
could satisfy that requirement. 

What is the federal role in improving the quality and use of benefit-
cost analysis? We have talked about providing dollars to improve data 
quality, supplying technical guidance and information relating to 
modeling and the dissemination of information, and distributing 
information about best practices. This is most likely the best federal 
role. 

Do retrospective analyses of the performance of transit and highway 
investments have value? Absolutely. Positively yes. No question about 
it. 

Dr. Jose A. Gomez-Ibanez is Derek C. Bok Professor of Urban Planning 
and Public Policy at Harvard University's John F. Kennedy School of 
Government and Graduate School of Design. 

[See PDF for image]

[End of figure]

Dr. GOMEZ-IBANEZ: I am only going to talk about the question of whether 
benefit-cost analysis should be required. The implicit question that I 
imagined was whether Congress should require benefit-cost analysis or 
something like it. One thing that struck me in this session is that Dr. 
Pickrell and Dr. Kirby both essentially said that all the ingredients 
for benefit-cost analysis are there. Local agencies are required, 
mainly by NEPA and the CAAA, to do elaborate analyses and generate much 
of the information you would need. We just do not take that extra step 
of doing the benefit-cost analysis. 

One of the interesting questions is whether benefit-cost analysis 
should be required--since it might not be so much of a burden--and what 
the consequences might be. There are many places we could gather 
information about how such a requirement would work. We have made 
analytic requirements, either benefit-cost analysis or something 
similar to it, for projects and local planning in many contexts and 
many ways. The 1934 Water Act mandated that the Army Corps of Engineers 
(COE) execute only projects whose benefits exceeded their costs. COE 
now has been doing benefit-cost analysis for 70 years. The FTA's 
predecessor, the Urban Mass Transit Administration (UMTA) was mandated 
to use cost effectiveness, which was somewhat like benefit-cost 
analysis. 

Analytic requirements have also occurred in other contexts. Planning-
Programming-Budgeting (PPB)[Footnote 81] was required for systematic 
analysis of all federal government budgets in 1960. The State of 
Victoria's experience with analysis is not surprising. The British have 
required their department of transport to do formal benefit-cost 
analyses of all projects for decades. They take economics much more 
seriously than Americans. Each Canadian province has the Crown 
Corporation Commission do benefit-cost analysis of Crown Corporation 
major investments. 

Sidebar: 

"I recall several lessons from requiring and applying analysisAt its 
worst, the analysis requirements ended up being like an arms race where 
no one was much safer than they were before--they were just spending a 
lot more on weapons."-Dr. Gomez-Ibanez. 

[End of sidebar]

I recall several lessons from requiring and applying analysis. One 
lesson is that two can play this game. When you require analysis, you 
put something at stake--such as when PPB was required or UMTA was first 
required to perform cost effectiveness analysis. With these 
requirements, agencies initially needed help doing the analysis. For 
example, there was considerable confusion in federal departments about 
how to do PPB. That put the Bureau of the Budget (BOB)--later the 
Office of Management and Budget (OMB)--at an advantage in dealing with 
departments. After training these departments, OMB had to be an 
analytic cop as the departments got good at PPB. Federal departments 
learned how to cook the analysis to favor their preferred alternative, 
and they got more and more sophisticated about it. At its worst, the 
analysis requirements ended up being like an arms race where no one was 
much safer than they were before--they were just spending a lot more on 
weapons. 

An even worse outcome at the national level is that analyses become so 
technical that the public drops out. Dr. Lewis' goal of informing local 
decisions gets lost. You hire two experts to dispute each other, 
newspapers play it up as a dispute, and the public generally reacts by 
thinking that if two economists cannot agree on whether the benefit-
cost ratio is four or one-fourth, it must just be all garbage and we 
will ignore it. 

A second corollary is that benefit-cost analysis never ends up being 
the determinant of decisions. Benefit-cost analysis was never the 
determinant of what the COE did. Despite PPB, federal departments ended 
up doing what they always did--the analysis did not seem to change the 
outcome. And UMTA's New Start analysis--its cost effectiveness index--
did not stop earmarking, which I think was its goal. 

Dr. TAYLOR: They might argue that it has increased earmarking. 

Dr. GOMEZ-IBANEZ: It may have. But actually, I am going to 
counterargue. If you are thinking seriously about requiring benefit-
cost analysis or revising the FTA cost effectiveness analysis measure 
as a tool, it really would be worth your while to read about COE's 
benefit-cost analysis, PPB, and UMTA's cost effectiveness analysis. 
This history would show some success in all these cases. Success is not 
measured by getting a portfolio of projects that is as profitable as 
what VICRoads is claiming. The Tennessee-Tombigbee[Footnote 82] 
Waterway and other examples of projects that had post-analysis 
requirements certainly belie that. 

An analysis requirement made it harder to advance really outrageous 
projects. Were it not for that requirement, you would have had more 
Tennessee-Tombigbees. In the case of FTA's cost-effectiveness analysis, 
projects that have actually moved toward substantial construction 
funding are the ones that are not laughable on the cost-effectiveness 
test. In that sense, it has done a service. 

I would argue for making the benefit-cost analysis simple and 
understandable rather than too complex. This is where Dr. Lewis and I 
might part company a bit. I was involved in the discussions about 
requiring cost-effectiveness analysis in the federal transit program. 
Transit capital program earmarking really started later--after 
President Reagan was elected and then OMB Director David Stockman was 
zeroing out transit rail New Starts. Congress responded by 
appropriating the money. DOT reacted, in part, by trying not to spend 
the money. Congress then responded by earmarking. Congress was saying 
that if you are not going to spend what we have approved, we are going 
to tell you exactly what to spend. 

At this point, DOT realized it had lost control and that the end result 
would not be good for the program's health. In changing the debate to 
get projects of higher public value implemented, DOT faced the dilemma 
that we face as benefit-cost practitioners--being either precisely 
wrong or approximately right. It decided to calculate cost-
effectiveness using dollars per new rider attracted--not a full benefit-
cost analysis. Instead, DOT said if the purpose of New Starts is to get 
new rail riders, then you must calculate cost effectiveness in doing 
so. This approach required analytic police because everybody now was 
cooking the forecasts. Still, my impression was that FTA recognized 
that this was not the only test--it was just one of several tests. If 
you had an embarrassingly low or high dollar cost per new rider, it put 
a greater burden on you to argue that your project ought to be 
earmarked in Congress. In that sense, I think it worked. 

In this case, DOT did not pretend that this crude cost-effectiveness 
index or benefit-cost analysis should be the sole determinant of which 
projects the federal government funded. It was recognized as only part 
of the debate. However, it did end up shaping the argument in a way 
that was useful to help stop or control the most wasteful projects. 
Over the years, the value of that requirement eroded. It may have been 
changed to time measures--dollars per hour or minutes saved, in 
response to big cities that did not want New Starts, but wanted to 
improve or renovate existing service. Slowly, its power got lost. 
Still, it was a useful requirement. 

My guess is that requiring a benefit-cost analysis or something like 
FTA's New Starts cost-effectiveness measure would help shape the debate 
in ways that Dr. Lewis wants and not be a complete waste of time. 
However, insisting that benefit-cost analysis determine local or 
federal decisions is asking for a lot of trouble. 

Panel Discussion: 

Dr. WACHS: I think we can learn something relevant to Dr. Gomez-
Ibanez's statement by looking at the history of NEPA. When NEPA was 
debated, one proposal was to require the environmental impact review to 
be done by an independent agency, rather than the agency preparing the 
project. The genius of the decision to give the agency that prepared 
the project this responsibility was that it infused these agencies with 
an environmental capacity that they would not have had if this review 
had been done by an independent agency. In addition, the decision 
embedded the environmental impact requirement in a process that forced 
democratic debate. The draft environmental analysis is subject to 
review, and must be presented at a hearing for public comments--and in 
turn, the comments must be responded to by the agency. I would take Dr. 
Gomez-Ibanez's recommendation and add that if transportation agencies 
had to prepare benefit-cost analyses, they would become more expert. 
Such a requirement probably should be embedded in a public process that 
subjects benefit-cost calculations to public comment and review. 

Dr. GOMEZ-IBANEZ: Makes sense. 

Dr. SMALL: One question that we did not get to in the last session was 
ensuring the objectivity of benefit-cost analysis. I believe that Dr. 
Pickrell's article about transit systems and their forecasts[Footnote 
83] suggested peer review--just as a simple requirement that is not 
very onerous and shines a light on what is done. That seems to fit 
right into keeping a requirement from becoming a total game-playing 
exercise. 

Sidebar: 

"these large infrastructure investment decisions are inherently 
political decisions. They should remain so, although I would advocate a 
stronger role for some systematic analysis to inform and organize the 
discussion that accompanies that political decision process."-Dr. 
Pickrell. 

[End of sidebar]

Dr. PICKRELL: I now have a different perspective on the peer review 
requirement and would not make the recommendation again. It may have 
been naive, given the success that project sponsors have had in gaming 
the process by loading peer review boards with people selected from a 
cadre of supporters. There is a bit of log rolling or back scratching. 
However, peer review probably has made things marginally better--not 
worse. 

Regarding a potential requirement for benefit-cost analysis in public 
decisions, I would observe that these large infrastructure investment 
decisions are inherently political decisions. They should remain so, 
although I would advocate a stronger role for some systematic analysis 
to inform and organize the discussion that accompanies that political 
decision process. In the current funding environment, I believe that 
local officials who make these decisions simply are incapable of seeing 
the benefits and costs accompanying their decision alternatives from 
the broad perspective that is required to accomplish all the objectives 
we have been talking about today--avoiding multiple counts of impacts, 
considering distribution and downstream impacts, and thinking carefully 
about which impacts genuinely add to a project's benefits versus simply 
shifting benefits around. 

The current federal structure and funding for transportation 
infrastructure investment provides no incentive for local political 
officials to engage in the systematic, forthright analysis that we are 
recommending. Recent integrated funding legislation for transit and 
highway programs has helped the situation a bit by moving slightly 
toward a unified funding process for transportation. Superficially, it 
looks as if we have a unified transportation funding structure at the 
federal level. But there is still pretty extreme compartmentalization 
of the individual funding programs under the umbrella authorization 
legislation. Firewalls among the funding programs remain relatively 
strong and tend to be flexible--where they are at all--in only one 
direction.[Footnote 84] In this funding environment, there is simply 
not much incentive for local officials to engage in the kind of 
analysis that most of us seem to be advocating. 

My guess is until an infrastructure investment decision imposes an 
opportunity cost on the officials making it by drawing down on their 
ability to make competing investments, any requirement to conduct 
systematic analysis will be a pro forma activity in somewhat the same 
way that the EIS has become--checking off boxes and listing mitigation 
measures. Responding to public comments on an EIS can become a pro 
forma process as well. Inevitably, it is a process of going down the 
list and making sure that you have said something in response to each 
of the 43,000 letters that have been elicited from property owners 
along the northeast corridor rail line or something like that. 

Until the federal funding environment changes, any requirement to 
perform analysis will either be treated in a pro forma way, or worse, 
gamed in the way that Dr. Gomez-Ibanez was describing. A requirement 
will create the need for a policing agency. OMB seems to serve quite 
enthusiastically and capably in that capacity. And this does improve 
the analysis--there is no question. But I do not think you want the 
threat of having to negotiate the completeness and forthrightness of 
your analysis with OMB being the enforcement mechanism. I think you 
want to provide some incentive for project sponsors to willingly engage 
in the kind of process that we are describing. 

Sidebar: 

"The whole federal transportation program is currently structured 
precisely to avoid tradeoffs between modes and different sorts of 
investments."-Dr. Taylor. 

[End of sidebar]

Dr. TAYLOR: I want to go outside the moderator's role to say that I 
completely agree with your point. Internalizing these opportunity costs 
is really key. The whole federal transportation program is currently 
structured precisely to avoid trade-offs between modes and different 
sorts of investments. There is a lot of uncertainty in that process and 
this creates considerable transaction costs for the people 
involved.[Footnote 85] As a result, the policy makers involved in 
federal transportation funding decisions negotiate politically on how 
to divide the pie. Then the federal funding for different 
transportation programs is established. Regions and states that compete 
for federal money or projects are simply engaging in a gaming process. 
There are zero opportunity costs involved in doing so. Trade-offs can 
never be internalized, despite enforcement or regulatory mechanisms, as 
long as there are those strict divisions of transportation funding 
programs. The goal is always to maximize funds that can be accessed 
from each funding source. 

A real key is involving those who are trying to divide up the pie in 
project level decisions--this is where the honesty is going to come in. 
It is a pretty fair process when different interests compete for 
dollars and it puts a lot more rigor in the analyses. For example, 
California's Transportation Development Act essentially ensures that 
funds in smaller counties go first to transit. If all reasonable 
transit needs have been met, the money can be used for streets and 
roads. Transit agencies argue that they need to spend this money, and 
county road departments challenge their analyses. This is much 
different from situations in which entities in the same categorical 
area are competing. However, federal funding programs are designed 
specifically to avoid just those kinds of choices--I think because of a 
lack of trust. 

Dr. GOMEZ-IBANEZ: I have heard for ages that we would be better off 
with consolidated transportation programs to allow trade-offs, etc. 
Richard Nixon tried it with categorical grants and he did not get far. 
I do agree that it would make the incentives very different. But it is 
a counsel of despair to say that, absent consolidation, there is not 
much we can do. This does not recognize that there are other allies for 
different points of view--particularly at the local level. In almost 
any local project, you will find people who are worried that the 
transit line is not going to the right section of the metropolitan area 
or taxpayers are going to have a white elephant on their hands. My 
guess is there are natural local allies on the other side to fuel 
debate. Even in the transportation agency that is advocating a project, 
there may be people who will tell a city council member that benefits 
will not exceed the costs of light rail for the city. There probably 
were COE people who knew that water systems were scarce resources and 
were glad to have the benefit-cost test to protect them from the worst 
projects being pressed on the Army. 

Dr. KIRBY: I agree that discipline has to come from competing interests 
at the local level. Absent a complete restructuring of the federal 
transportation program--which is unlikely--we must do better with the 
process we have. MPO and EIS requirements really bind us, particularly 
conformity requirements with regard to model structure and latest data. 
We struggle to meet conformity requirements because no one wants to be 
responsible for the whole regional plan being disapproved when it goes 
to DOT and federal money held up--which is the prospect if we do not do 
everything right. Similarly, you do not ignore EIS environmental 
requirements or you will be in court and your project will stop. So to 
some degree, those things work. 

Although the conformity rule is very well specified--we know what we 
have to do and we had better do it--other requirements are not. In 
particular, MPOs need much clearer, better specified descriptions of 
what FTA is requiring them to do. It is difficult to find a piece of 
paper that describes FTA's requirements for technical procedures and 
the requirements seem to change from time to time. This is a process 
that has not been fully specified and is difficult to follow in 
practice. There could be the need for a more prescriptive requirement 
from Congress through DOT. 

There is great potential to really improve our processes and the value 
of what we are doing. Knowing clearly what you must do from the start 
would provide discipline and head off a lot of problems. And local 
level competition plays a role. You are only going to get so much 
funding, and you do not want to put all your effort into a project 81 
that is not going to make it through the approval process. Local 
interests recognize this and will propose working on projects that have 
the best chances of getting through the process. 

Dr. LEWIS: There are two ways to interpret congressional interest in 
requesting this study.[Footnote 86] Congress can be asking what can or 
should be done to improve the role of benefit-cost analysis in 
improving decision making. If that is the question, I buy into what Dr. 
Gomez-Ibanez and Dr. Kirby have just said. However, the question may be 
what can Congress do to help improve things--what Dr. Gomez-Ibanez and 
Dr. Kirby are saying suggests actions to introduce more local level 
resource trade-off analysis. 

One thing that Congress--particularly the appropriators--can do is to 
encourage both FHWA and FTA to look at more than how to spend fixed 
allocations. I think that appropriators want to know if a $1.1 billion 
New Starts budget is well spent compared to alternatives, such as 
highway expenditures, no further expenditures, or noncapital projects. 

One thing that we have not dealt with today, although Dr. Forkenbrock 
touched on it, is the role of benefit-cost analysis in looking at 
noncapital solutions. If appropriators want to encourage more 
comprehensive appraisal of how New Start projects and highway proposals 
line up against transit alternatives, I would hope that that could be a 
requirement--notwithstanding the fact that an enforcement modality is 
never the best incentive. Then I would agree that the apparatus and 
ingredients for doing that are in place--it is the incentive for doing 
it that is lacking. 

Summary of Panel Responses to Audience Questions: 

Do the current federal transportation financing and funds distribution 
structures suboptimize the federal dollar, since the rate of return for 
the federal transportation dollar keeps going down?

* Dr. Lewis said that while he would not counsel using benefit-cost 
analysis as a wedge to restructure the entire financial and budget 
framework, some small steps would help, including (1) Congress 
legislatively declaring its interest in an economically rational 
allocation and information to address this allocation and (2) Congress 
insisting that modal agencies conduct benefit-cost analysis from a 
multimodal perspective. He added that motivation for efficiency can 
also come from outside the federal financing framework. As an example, 
he said that in one location, there was interest in building a light 
rail system because federal dollars were available, but that industrial 
and commercial executives lobbied to use a benefit-cost framework first 
to determine whether a light rail system or widening highways made more 
sense. 

* Dr. Meyer said that what is optimal to one person may not be to 
another. As an example, he said that building an interstate highway 
network benefited some states more than others, but that all states 
agreed to build that national network. When the interstate system was 
complete, many state governments wanted to deal with their own problems 
rather than sacrificing so that others could get the national network 
in place. While this may be suboptimal to some from a national 
perspective, others would say that states have provided their 
contribution and now need to spend money on their states' problems. 

* Dr. Forkenbrock added that the argument for states to get their money 
back for use on local priorities is gaining strength and that many 
people are arguing against having a federal program at all, bringing 
into question FHWA's future. 

* Dr. Taylor added that a recent dissertation showed that the federal 
highway program generally was redistributing funds from those with less 
financial capacity to those with more financial capacity. 

What practical advice would you give on structuring an ex post 
analysis[Footnote 87] of a transportation project when the analysis at 
the beginning of the project was not necessarily done for comparison 
purposes? The Senate reauthorization bill[Footnote 88] requires some 
type of New Starts ex post analysis that focuses on ridership, and FTA 
is trying something similar. Are there other benefits that are more 
appropriate to analyze?

* Dr. Forkenbrock recommended looking at where ridership comes from, as 
rail ridership often is gained at the expense of bus ridership. 

* Dr. Pickrell said that he thought either substantial travel time 
savings or ridership increases were the primary benefits to measure. He 
added that ex post evaluation is better than anticipatory evaluation 
because in anticipatory evaluation you have to simulate the results of 
two possible decisions; whereas in ex post evaluation at least you know 
the results of one decision--that of building the project--and have to 
simulate only what would have happened if the project had not been 
built. 

* Dr. Small said that one need not be deterred if no benefit-cost study 
was done before the project was implemented, as changes during a 
project's construction often make it difficult to compare studies done 
before and after a project in any case.[Footnote 89]

Would clearly specified standards for conducting benefit-cost analyses 
help increase the impacts of these analyses on policy decisions?

* Dr. Kirby said that adding requirements to the process would improve 
decisions. He also said that Dr. Lewis' previous comment about a 
business community's interest in a benefit-cost analysis of transit 
lines showed that involving more people can create a constituency for 
good analysis, making it more likely that tough questions will be asked 
and that the focus will be on projects that are good for the community. 
He cautioned that bad decisions can result when the agency building a 
project works closely with the agency funding the project. A larger 
constituency asks tough questions and focuses on projects that are good 
for the community. 

* Dr. Meyer agreed that a constituency for analysis was important and 
said that adding requirements would increase the constituency for good 
analysis. 

[End of section]

Appendix VII: Panelists' Closing Remarks: 

Dr. TAYLOR: What remains on our schedule is for me to offer a 5-minute 
summary of what has been 6-1/2 hours of discussion. I have 17 pages of 
notes and 444 points that were made. Instead, I will ask each panelist 
to repeat what he thought was the most important thing for people to 
carry away from all of this. 

Dr. PICKRELL: I have been encouraging you to think about how to revamp 
the funding structure for transportation infrastructure programs to 
encourage investors--public agencies--to get benefits and costs on the 
correct side of the ledger. If you could do that one thing, you will 
have accomplished more than I will have in my entire career. 

Dr. SMALL: One of the strengths of benefit-cost analysis is that it 
offers a unifying principle or consistent measure that can cut across 
many of the questions that we have discussed today--secondary benefits 
and so on. If you consistently keep in mind the key principle that the 
benefits we are trying to measure are people's willingness to pay for 
things and the costs are what people would be willing to pay to avoid, 
you can answer many conundrums about double counting and externalities. 

Dr. KIRBY: A major feature of the federal transportation program is the 
process you go through to use federal funds, for example, the 
environmental impact statement and planning process. Many people value 
that process very highly, and I would consider that to be one reason 
for the federal government to be funding transportation. If you can 
strengthen the benefit-cost requirement in that process through 
something analogous to the present conformity rule and environmental 
impact statement process and get more people involved in looking at 
these projects, you will get better projects and have a stronger 
rationale for federal involvement in transportation. 

Dr. GOMEZ-IBANEZ: The reading that most struck me was Dr. Lewis's piece 
about requiring benefit-cost analysis--not in the false hope that it 
might be the answer and determine everything, but with the idea that it 
would stimulate a better debate and wiser decisions. Since Dr. Kirby 
says that we require everything short of a benefit-cost analysis 
already, it seems a small step to require that of federally-funded 
projects. 

Dr. LEWIS: The main point I want to leave with you is the importance of 
comparing major capital projects across modes. I think we have the 
tools, the apparatus, and--even with huge imperfections--the models and 
the data. What we lack is a demand from Congress and from the broader 
constituency for good analysis for information about returns on 
investment among transit versus highway alternatives. Benefit-cost 
analysis makes this possible. 

Dr. FORKENBROCK: I agree. I would extend it to my great concern from 
watching MPOs, state transportation agencies, and other transportation 
agencies that many people who do benefit-cost analyses are not doing 
them very well. Perhaps one reason is that they have never really been 
given the opportunity to learn the rudiments about costs. There is this 
tremendous gap between the state of the art in benefit-cost analysis 
and the state of the practice. Anything that GAO can do to help MPOs, 
state DOTs, and other agencies to do better benefit-cost analyses would 
be a huge step forward. If benefit-cost analyses are not being done 
correctly, you run the risk of creating misinformation or--even worse-
-disinformation for decision makers. That leads to bad investment 
decisions. 

Dr. MEYER: Much of our discussion has revolved around the question of 
how to enhance the role of benefit-cost analysis in decision making--
and we all agree that decision making is inherently a political 
process. I think you do this through a requirement that makes benefit-
cost analysis part of the process for looking at federally supported 
transportation investments. This is not to say that decision makers 
will necessarily do what benefit-cost analysis indicates, but it brings 
more information to the table that will become much more useful for 
that decision-making process over time. 

Dr. WACHS: I have three points in closing. 

* First, benefit-cost analysis and the political nature of our decision 
making about large public works projects, including transportation 
projects, is a constant struggle to find the right balance between 
subjective judgments that our elected officials can make very 
effectively and being informed by the rational analysis that benefit-
cost analysis contributes to the process. We will probably not be very 
effective if one of those two strains completely dominates the other. 
What we are trying to find is a balance. We are trying to inform the 
political decision making with good information. To me, that requires 
attention to the process in which the benefit-cost analysis is embedded 
as well as to the tools, techniques, and data. I would be really 
careful to ask questions about public hearings, about process, about 
the order in which analysis and debate take place and about feedback 
from the analysis to the political process. It is possible to have a 
very good benefit-cost analysis that is completely politicized, and the 
goal would be to have an informed political process in which the 
analysis is reasonably objective. That is a process design problem more 
than it is dealing with the subtleties of benefit-cost analysis itself. 

* Second, I heard that the quality of data, data collection and 
analysis, and tools and techniques of benefit-cost analysis are very, 
very important. 

* Third, this is a very homogenous group. It might be useful to have 
other constituencies address the same questions that we did--
environmentalists, shippers, state highway officials who were not 
terribly well represented in this group. You might find some other 
answers that would complement our perspectives. 

Dr. TAYLOR: I am hearing some consensus that the decision making 
process can only be improved by incorporating a federal requirement for 
benefit-cost analysis. However, it is important to incorporate such a 
requirement into a deliberative process. The debate we had about the 
idea of a checklist and the danger of developing requirements that 
become like a bureaucratic checklist is really important. A 
bureaucratic checklist probably is the worst alternative we could 
envision. Any federal requirement needs to be crafted to ensure that 
benefit-cost analysis informs decision making as opposed to complying 
with requirements. 

[End of section]

Appendix VIII: Selected Bibliography and Related GAO Products: 

Related Articles Suggested by Panelists: 

Brian Taylor: 

Hill, M.C., B. Taylor, A. Weinstein, and M. Wachs, "Assessing the Need 
for Highways," Transportation Quarterly, Spring, 2000, pp. 93-100. 

Taylor, B. and K. Samples, "Jobs, Jobs, Jobs: Political Perceptions, 
Economic Reality, and Capital Bias in U.S. Transit Subsidy Policy," 
Public Works and Management, Vol. 6, April 2002, pp. 250-263. 

David Forkenbrock: 

Forkenbrock, D.J. "Some Technical Issues in Benefit-Cost Analysis of 
Potential Transportation Investments," July 2004. 

Forkenbrock, D.J. and Norman S.J. Foster, "Economic Benefits of a 
Corridor Highway Investment," Transportation Research-A, Vol. 24A, No. 
4, 1990, pp. 303-312. 

Michael Meyer: 

T. Partridge & Associates Ltd, "Translink Transportation Evaluation 
Guidelines," October 11, 1999. 

Kenneth Small: 

Small, K.A., "Project Evaluation" in Essays in Transportation Economics 
and Policy--A Handbook in Honor of John E. Meyer (Jose Gmez-lbnez, W. 
B. Tye, and C. Winston, eds.), Brookings Institution Press, Washington. 
D.C: 1999. 

Brownstone D. and K.A. Small, "Valuing Time and Reliability: Assessing 
the Evidence from Road Pricing Demonstrations." Abstract, October 9, 
2003. 

David Lewis: 

Lewis, D., "Making Cost-Benefit Analysis More Useful in Policy Making" 
in The Reform of Cost-Benefit Analysis by David Lewis, forthcoming from 
Ashgate Press. 

Lewis, D., "The Case for Increasing Transit Capacity to Mitigate 
Congestion," presented at Conference on Traffic Congestion: Issues and 
Opportunities, UCLA Extension Public Policy Program and Institute of 
Transportation Studies. Washington, D.C.: June 26-27, 2003. 

Don Pickrell: 

Mohring, H., "Maximizing, Measuring, and Not Double Counting 
Transportation Improvement Benefits: A Primer on Closed-and Open-
Economy Cost-Benefit Analysis," Transportation Research-B, Vol. 27B, 
No. 6, 1993, pp. 413-424. 

U.S. DOT, Office of the Secretary, "Treatment of Value of Life and 
Injuries in Preparing Economic Evaluations," January 8, 1993 and 
revised January 29, 2002. 

U.S. DOT, Office of the Secretary, "Departmental Guidance for the 
Valuation of Travel Time in Economic Analysis," April 9, 1997 and 
revised February 11, 2003. 

Cohen, J.P. and C.C. Coughlin, "Congestion at Airports: The Economics 
of Airport Expansions," The Federal Reserve Bank of St. Louis, May/
June 2003. 

Related GAO Products: 

Federal-Aid Highways: FHWA Needs a Comprehensive Approach to Improving 
Project Oversight, GAO-05-173 (Washington, D.C.: Jan. 31, 2005). 

Highway and Transit Investments: Options for Improving Information on 
Projects' Benefits and Costs and Increasing Accountability for Results, 
GAO-05-172 (Washington, D.C.: Jan. 24, 2005). 

Federal-Aid Highways: Trends, Effect on State Spending, and Options for 
Future Program Design, GAO-04-802 (Washington, D.C.: 

Aug. 31, 2004). 

Surface Transportation: Many Factors affect Investment Decisions, GAO-
04-744 (Washington, D.C.: June 30, 2004). 

Mass Transit: FTA Needs to Better Define and Assess Imp[act of Certain 
Policies on New Starts Program, GAO-04-748 (Washington, D.C.: June 25, 
2004). 

Freight Transportation: Strategies Needed to Address Planning and 
Financing Limitations, GAO-04-165 (Washington, D.C.: Dec. 19, 2003). 

[End of section]

Appendix IX: GAO Contacts and Acknowledgements: 

GAO Contacts: 

* Katherine Siggerud (202) 512-2834;

* Nikki Clowers (202) 512-4010. 

Acknowledgments In addition to those named above, Jay Cherlow, Libby 
Halperin, Sara Ann Moessbauer, Andrew Von Ah, and Alwynne Wilbur made 
key contributions to this report. 

[End of section]

Endnotes: 

[1] National Association of State Budget Officers. 2003 State 
Expenditure Report, 2004 (Washington, D.C.) 

[2] U.S. Department of Transportation, 2002 Status of the Nation's 
Highways, Bridges, and Transit: Conditions and Performance, Report to 
Congress (Washington, D.C.: 2002). Estimates are in 2000 dollars. 

[3] ISTEA (P.L. 102-240) authorized federal transportation programs for 
highways, highway safety, and transit for fiscal years 1992 to 1997. 

[4] TEA-21 (P.L. 105-178) authorized federal surface transportation 
programs for highways, highway safety, and transit for fiscal years 
1998 to 2003. The act has since been extended. 

[5] GAO, Highway and Transit Investments: Options for Improving 
Information on Projects' Benefits and Costs and Increasing 
Accountability for Results, GAO-05-172 (Washington, D.C.: Jan. 24, 
2005). 

[6] GAO, Surface Transportation: Many Factors Affect Investment 
Decisions, GAO-04-744 (Washington, D.C.: June 30, 2004). 

[7] For more information about the use of benefit-cost analysis in 
transportation investment decision making, see GAO-05-172. 

[8] NEPA (P.L. 91-190) declares that it is national policy to use all 
practicable means to create and maintain conditions in which man and 
nature can exist in productive harmony, among other purposes. It 
requires federal agencies to integrate environmental values into their 
decisions by considering the environmental impacts of their proposed 
actions and reasonable alternatives to those actions. 

[9] Earmarking refers to dedicating appropriations for a particular 
purpose. 

[10] HOV lanes promote ridesharing by providing dedicated lanes on a 
highway for buses, vanpools, and carpools. Bus Rapid Transit is 
designed to provide major improvements in the speed, reliability, and 
quality of bus service through barrier-separated busways, high-
occupancy vehicle lanes, or reserved buses or other enhancements on 
arterial streets. For more information about bus rapid transit, see 
GAO, Mass Transit: Bus Rapid Transit Shows Promise, GAO-01-984 
(Washington, D.C.: Sept. 17, 2001). 

[11] ROI is one of several approaches that decision makers use to 
evaluate the investment potential of projects or actions. ROI is a 
ratio that compares the net benefits of a project to its total costs. 

[12] Professor Sen was awarded the Nobel Prize in Economic Sciences in 
1998 for his contributions to welfare economics. See Amartya Sen, "The 
Possibility of Social Choice," Lecture Delivered in Stockholm, Sweden, 
on December 8, 1998. 

[13] Welfare economics studies how efficiently an economy distributes 
income and the consequences that are associated with it. It is 
concerned with the welfare of individuals--rather than groups or 
societies. 

[14] David J. Forkenbrock and Norman S. J. Foster, "Economic Benefits 
of A Corridor Highway Investment," Transportation Research-A. No. 4, 
(1990), 303-312. 

[15] David Lewis, "Making Cost-Benefit Analysis More Useful in Policy 
Making." Paper (June 22, 2004) drawn from the manuscript of Dr. Lewis's 
forthcoming book from Ashgate Press. 

[16] Smart Growth seeks to accommodate development by focusing on 
environmentally sensitive land development with the goals of minimizing 
dependence on auto transportation, reducing air pollution, and making 
infrastructure investments more efficient. 

[17] NEPA requires federal agencies to integrate environmental values 
into their decision making by considering the environmental impacts of 
their proposed actions and reasonable alternatives to those actions. To 
meet this requirement, agencies prepare a detailed statement known as 
an EIS for all major federal actions that could have significant 
effects on the environment. 

[18] Agglomeration refers to the tendency of firms to cluster close to 
each other, or to residences, presumably due to advantages this gives 
them in production. 

[19] Externalities are direct spillover effects on third parties that 
result from production and/or consumption of goods and services for 
which no appropriate compensation is paid. 

[20] Dr. Small noted that he owed this answer to a discussion with 
Anthony Downs and Katharine Bradbury. Downs is a Senior Fellow at the 
Brookings Institution in Washington, D.C. He is the author or co-author 
of numerous books, including "Still Stuck in Traffic: Coping with Peak-
Hours Traffic Congestion," Brookings Institution Press. Washington, D. 
C., 2004. Katharine Bradbury is a Vice President and Economist at the 
Federal Reserve Bank of Boston. Her research focuses on the regional 
economy and state and local public finance and income inequality. 

[21] Dr. Forkenbrock mentioned a study by a number of Midwestern 
states: Transportation Economics & Management Systems, Inc., in 
association with HNTB Corporation, Midwest Regional Rail System 
Executive Report, September 2004. Prepared for the Illinois, Indiana, 
Iowa, Michigan, Minnesota, Missouri, and Wisconsin Departments of 
Transportation, the Nebraska Department of Roads, and the Ohio Rail 
Development Commission. 

[22] Dr. Pickrell recommended the following paper: Herbert Mohring and 
Harold F. Williamson, Jr., "Scale and 'Industrial Reorganization' 
Economies of Transport Improvements," Journal of Transport Economics 
and Policy 3. September 1969, pp. 251-271. 

[23] GDP is the total value of all goods and services produced within a 
territory during a specified period. 

[24] Guidance from the U.S. Department of Transportation/Office of the 
Secretary, "Treatment of Value of Life and Injuries in Preparing 
Economic Evaluations," January 8, 1993; Revised on January 29, 2002. 

[25] Indirect impacts include changes in land use and development, 
changes in decisions to locate homes and businesses, etc., and changes 
in operations that businesses make to take advantage of improved 
transportation system speed and reliability. These impacts lead to 
increased property values, increased productivity, employment, and 
economic growth. There also can be indirect costs, such as reduced land 
values for regions that might lose economic activity that is diverted 
to an area where transportation is improved. 

[26] Multiplier refers to the cumulatively reinforcing interaction 
between consumption and production that amplifies changes in 
investment, government spending, or exports. Multipliers are called 
estimators of the "ripple effect" in an area. 

[27] REMI Policy Insight is the economic forecasting and policy 
analysis model of Regional Economic Models, Inc. 

[28] Disutility of time refers to the value that people place on 
reducing time spent in a particular activity. To the extent that travel 
time is less pleasant than time spent in other ways, people may be 
willing to pay to reduce their travel time. Therefore, travel time can 
be said to have disutility. See Jay R. Cherlow, "Measuring Values of 
Travel Time Savings," Journal of Consumer Research Vol. 7 (March 1981). 

[29] Ian Savage, "An Empirical Investigation into the Effect of 
Psychological Perceptions on the Willingness-to-Pay to Reduce Risk," 
Journal of Risk and Uncertainty 6(1): pages 75-90, 1993. 

[30] Opportunity cost is the value of the best alternative given up 
when making a choice. 

[32] Probabilistic analysis allows for the range of all possible 
outcomes rather than the single most likely outcome. 

[33] Bayesian logic applies to decision making and inferential 
statistics that deal with probability inference--using the knowledge of 
prior events to predict future events. The way to quantify a situation 
with an uncertain outcome is to determine its probability. 

[34] Positive economics deals with objective, relatively testable 
statements that focus on descriptions that do not reflect obvious value 
judgments and predictions about economic relationships. Normative 
economics deals with subjective statements based on opinion about "what 
ought to be." 

[35] A microsimulation model is a tool used to evaluate the impact of 
changes on a system. For example, such an approach to travel demand 
forecasting might integrate household activities, land use 
distributions, regional demographics, and the transportation network to 
estimate the impacts of converting a highway intersection into a 
cloverleaf. 

[36] The Four-Step Urban Transportation Planning Process integrates 
various aspects of travel behavior (trip or mode choices) with 
information on land use patterns and the transportation network. The 
four steps include: trip generation, trip distribution, mode choice, 
and assignment to specific parts of the transportation network. 

[37] Frank Ackerman and Lisa Heinzerling, Priceless: On Knowing the 
Price of Everything and the Value of Nothing. The New Press, 2004. 

[38] Joseph Berechman, "Transportation Economic Aspects of Roman 
Highway Development: The Case of Via Appia." Transportation Research 
Part A, Vol. 37 (2003), pp. 453-478. 

[39] Distributional issues refer to who gets what and how much they get 
of benefits or items, such as money, land, transportation facilities, 
services, etc. 

[40] HOT lanes are limited access, barrier-separated highway lanes that 
provide free or reduced cost access to qualifying high-occupancy 
vehicles and also provide access to other paying vehicles that do not 
meet passenger occupancy requirements. 

[41] D. Brownstone and K.A. Small, "Valuing Time and Reliability: 
Assessing the Evidence from Road Pricing Demonstrations," Working 
Paper. Oct. 2003. 

[42] John Rawls, A Theory of Justice, 1971, (Revised edition, 1999). 
Belknap Press. 

[43] The Americans with Disabilities Act of 1990 (P.L. 101-336) 
prohibits discrimination of various sorts against persons with physical 
or mental handicaps. It emphasizes employment and outlaws most physical 
barriers. 

[44] A Pareto improvement is based on the notion that an action 
improves efficiency if it is possible for one person to benefit without 
anyone else being harmed. A Pareto improvement is possible if the 
economy has idle resources or market failures that can be corrected 
without hurting others. 

[45] Disbenefits also can be described as disadvantages. 

[46] Induced demand is the phenomenon that more of a good/service is 
consumed after the supply increases. 

[47] A discursive benefit-cost exercise is the conduct of a benefit-
cost analysis within a formal public process that engages stakeholders 
in the analysis process. 

[48] The Federal Highway Administration uses the HERS model to estimate 
future investment requirements of the nation's highway system for 
Congress. The HERS-ST model is a version of the HERS model that allows 
states to simulate future highway conditions and performance levels and 
identifies deficiencies using engineering principles. It then simulates 
the selection of improvement projects, applying economic criteria to 
estimate the most cost-beneficial mix of improvements for system-wide 
implementation. 

[49] David Forkenbrock, "Improving Benefit-Cost Analysis" (Washington, 
D.C.: 2004. Photocopy). 

[50] Section 1105 of ISTEA contained corridor provisions and identified 
21 corridors of significance. This identification allowed states to 
give funding priority to these corridors, provided federal funding to 
specific projects on these corridors, and directed other benefits to 
these corridors. When TEA-21 was enacted, there were 29 corridors, 
which increased to 44 by 2002. 

[51] Discounting is the process of comparing current and future values 
that finds the present worth of a future amount of money. 

[52] MPOs are regional transportation policy bodies made up of 
representatives from various government and other organizations. The 
Federal-Aid Highway Act of 1970 required that such agencies be 
developed in areas with populations of more than 50,000 to carry out 
cooperative planning at the metropolitan level. MPOs are responsible 
for planning, programming, and coordinating federal highway and transit 
investments in urbanized areas. 

[53] The Kaldor-Hicks criterion holds that for a change in policy to be 
viewed as beneficial, the gainers should be able to compensate the 
losers and still be better off. The criterion does not require that 
compensation actually be paid. 

[54] Distributional effects also are described in OMB Circular No. A-
94, Office of Management and Budget--Guidelines and Discount Rates for 
Benefit-Cost Analysis of Federal Programs. (Washington D.C.; 1992). 

[55] Parameter values are assumed or estimated values of key components 
of an analysis (such as a statistical life saved). These values are 
used with observations on key explanatory variables (such as the number 
of lives saved) to estimate the value of the variable being studied 
(such as benefits). 

[56] In general, the economists' theory of the second best says that 
the application of policy rules that are designed to enhance net 
economic welfare--such as benefit-cost analysis for public investment 
decisions--might not enhance economic welfare if elsewhere in the 
economy there are distortions from economic efficiency. In this 
context, the second best issue is that the demand for travel on a new 
road would be much less if users had to pay the full cost that their 
additional travel causes than if, as is true under current road pricing 
policies, users pay only part of the cost. Hence, the benefit-cost 
ratio of an investment decision could be quite different if the 
distortions introduced by the fact that individuals and businesses do 
not take into account the full benefits and costs of making their 
decisions are removed. 

[57] American Association of State Highway and Transportation 
Officials, A Manual of User Benefit Analysis for Highways, 2003. 

[58] Sensitivity analyses assess how sensitive outcomes are to changes 
in assumptions. The assumptions that deserve the most attention should 
depend largely on the major benefits and costs and areas of greatest 
uncertainty in the program or process that is analyzed. 

[59] Highway cost allocation studies are used to evaluate the highway-
related costs attributable to different vehicle classes and the user 
fees they pay. Comparing user fees and cost responsibility indicates 
the relative equity of highway user fees. 

[60] The CAAA were passed in 1990 (P.L. 101-549). The CAAA's conformity 
requirements specify that MPOs and the U.S. DOT determine that 
transportation plans and programs in areas that do not meet federal air 
quality standards set by the National Ambient Air Quality Standards 
move toward reducing pollutant emissions to meet these standards. 

[61] MOBILE6 Vehicle Emission Modeling Software is a model for 
predicting gram per mile emission of hydrocarbons, carbon monoxide, 
nitrogen oxides, carbon dioxide, particulate matter, and other toxics. 

[63] GPS is a system of satellites, computers, and receivers that is 
able to determine the latitude and longitude of a receiver on earth. 

[64] TRB's Committee for Review of Travel Demand Modeling conducted by 
the Metropolitan Washington Council of Governments (Sept. 8, 2003/
first report). 

[65] The purpose of the United States Visitor and Immigrant Status 
Indicator Technology Program is to improve border management at ports 
of entry by capturing more complete arrive/departure data for those who 
require visas to enter the United States. 

[66] David A. Aschauer is the Elmer W. Campbell Professor at Bates 
College. His primary research field is macroeconomics. He is currently 
conducting research on the relationship between fiscal and monetary 
policy in the U.S. as well as the relationships between real interest 
rates and real exchange rates in an open economy setting. 

[67] TRB Special Report 264, The Congestion Mitigation and Air Quality 
Improvement Program: Assessing 10 Years of Experience, April 2002. 
Washington, D.C 68] TANF is a block grant program to help move 
recipients into work. The Office of Family Assistance in the U.S. 
Department of Health and Human Services administers this program. 

[69] Alan Altshuler and David Luberoff, Mega-Projects: The Changing 
Politics of Urban Public Investment, Lincoln Institute of Land Policy, 
2003. 

[70] FTA's New Starts program helps pay for designing and constructing 
certain rail, bus, and trolley projects. 

[71] The National Cooperative Highway Research Program (NCHRP) is 
administered by TRB and sponsored by the member departments (individual 
state departments of transportation) of AASHTO in cooperation with 
FHWA. Support is voluntary and funds are drawn from the states' Federal-
Aid Highway apportionment of State Planning and Research funds. The 
Transit Cooperative Research Program (TCRP) functions under the 
direction of the Federal Transit Administration, the National Academies 
(acting through the Transportation Research Board) and a nonprofit 
research/education organization established by the American Public 
Transportation Association. 

[72] Revealed preference studies use data from real consumer behavior 
to obtain information about demand, values, etc. Stated preference 
studies employ data from a particular kind of consumer survey. 

[73] Elicitation is the process of obtaining knowledge from experts or 
persons to be used in decision making or producing a design. 

[74] In the Bayesian approach, the probability of an event is a 
person's degree of belief that the event will occur, given all the 
relevant information currently known to that person. Thus, the 
probability is a function of both the event and the state of 
information. 

[75] Central tendency is the average outcome of any given phenomenon 
(travel time, etc.) as distinct from the range of other outcomes--both 
above and below the average--that occur. 

[76] Cross elasticity of demand is the percentage of change in quantity 
demanded in response to a 1 percent change in the price of another 
good. 

[77] A Monte Carlo simulation is a problem-solving and investigation 
technique used to approximate the probability of certain outcomes by 
running multiple trial runs (simulations) using random variables. 

[78] A smart card is a plastic card with a built-in microprocessor and 
memory that is used for identification or financial transactions. 

[79] Sandra Rosenbloom is Professor of Planning and Director of the Roy 
P. Drachman Institute for Land and Regional Development Studies at the 
University of Arizona. Her work has centered on transportation problems 
of poor people, working women with children, and the elderly. 

[80] Michael Meyer, "Paper Distributed to Expert Panel" (Washington, 
D.C., 2005. Photocopy). 

[81] PPB, which was grounded in systems analysis, was the process of 
defining objectives and designing alternative systems to achieve them. 

[82] The Tennessee-Tombigbee Waterway is a canal located in northeast 
Mississippi and west central Alabama. 

[83] Pickrell, Donald H., "A Desire Named Streetcar: Fantasy and Fact 
in Rail Transit Planning," Journal of the American Planning 
Association, 1992, pp. 158-76. 

[84] TEA-21 established firewalls, or new budget categories, that 
ensured that highway user fee revenues would be used for transportation 
programs. 

[85] Transaction costs are the full costs of making an exchange. 

[86] See GAO, Highway and Transit Investments: Options for Improving 
Information on Projects' Benefits and Costs and Increasing 
Accountability for Results, GAO-05-172 (Washington, D.C.: Jan. 24, 
2005) for information about the request. 

[87] Evaluations can be conducted ex ante (before the intervention is 
initiated or outcomes have been produced) or ex post (measures the 
outcomes produced by the interventions to date). 

[88] S. 1072, 108th Cong.(2004). This bill would have authorized funds 
for federal-aid highways, highway safety programs, and transit programs 
and for other purposes. 

[89] As an example, Dr. Small said that several authors pulled together 
three different studies of the Coquihalla Highway in British Columbia-
-one study was done before it opened, one was done part way through 
construction, and one was done when it was near completion. The numbers 
are phenomenally different, but there is not an obvious bias in this 
case. Many things changed along the way, including the scope of the 
project. 

[End of section]

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