© Revised Measures

for Assessing

Major Investments

U.S. Department

of Transportation

Federal Transit

Administration

A Discussion Draft

September 1994

An FTA Policy Paper

Table of Contents

CHAPTER 1. INTRODUCTION AND EXECUTIVE SUMMARY 1

Purpose and Overview 1 The Legal Mandate 1 The Executive Order 2

Objectives for Appraisal Measures 2

Overall Appraisal Strategy 2

Recommended Appraisal Measures 3

Future Improvements 6

Specific Comments Requested 6

CHAPTER 2. THE CONTEXT FOR THIS DOCUMENT 9

Overview 9

The Legal Mandate 9

ISTEA Planning Requirements 10

Executive Order 12893 11 A Synopsis of Relevant Previous Practice 12

Recent FTA Work on the Appraisal of New Starts 14

CHAPTER 3. CONSIDERATIONS IN DEVELOPING NEW FTA PROJECT APPRAISAL

PROCEDURES 17

Objectives for Appraisal Measures 17

Comprehensiveness 17

Effectiveness 17

Efficiency 18

Objectivity 18

Comprehensibility 19

Balancing "Comprehensiveness" and "Simplicity" 19

Social Cost/Benefit Analysis (SCBA) 20

Scoring Methods 22

Multiple Measure Methods 23

CHAPTER 4. PROPOSED CHANGES TO FTA'S APPRAISAL METHODS 25

General Strategy 25

Assessment of Options 25

Recommended General Strategy 25

An Examination of Potential Appraisal Measures 26

Recommended Appraisal Statistics 28

Other Considerations 31

Future Improvements 31
APPENDIX. AN APPRAISAL OF CANDIDATE PROJECT EVALUATION MEASURES ... A-1

Measures of "Cost-Effectiveness" A-1

Effectiveness of Transit Investments A-1

Cost of Transit Investments A-4

Accounting for the Timing of Costs and Effectiveness A-4

Using the Existing "Cost Per New Ride" Concept to Measure

Cost-Effectiveness A-6

Recommended Cost-Effectiveness Measure A-6

Measures of "Mobility" Impacts A-7

Defining Improved Mobility and Associated Cost Savings A-7

Measuring Improved Mobility A-10

"Complete Measures" of Mobility Impacts A-10

Proxy Measures for General Mobility Impacts A-1

1

Proxy Measures for Transit Dependent People A-1

2

Recommended Measures of Mobility Impacts A-1

2

Measures of "Operating Efficiencies" A-1

5

What are Operating Efficiencies? A-1

5

How Should Operating Efficiencies Be Measured? A-1

7

How Should Operating Efficiencies Be Used to Compare "

Alternative Projects? A-1

9

Recommended Operating Efficiency Measures A-1

9

Measures of "Environmental Benefits" A-21

Identifying Environmental Benefits A-21

Measuring and Valuing Environmental Benefits A-22

Air Quality A-22

Noise Levels A-24

Energy Consumption and Energy Security A-24

Recommended Measures of Environmental Benefits A-25

Measures of "Transit Supportive Existing Land Use Policies and

Future Patterns" A-27

Identifying Land Use Benefits A-27

Identifying Supportive Land Use Policies and Patterns A-27

Land Use Criteria A-29

Criteria at Initiation of A Major Investment Study A-29

Criteria at Initiation of Preliminary Engineering A-30

Criteria at Initiation of Final Design A-31

Conclusion on Land Use Policies A-33

REFERENCES

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1

Introduction and Executive Summary

PURPOSE AND OVERVIEW

The Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) made substantial changes

to the criteria, included in the Federal Transit (FT) Act, which the Federal Government is to use

to make discretionary grants to support major transit capital investment projects ("new starts"). In addition, on January 26, 1994, President Clinton issued Executive Order 12893 describing

Principles for Federal Infrastructure Investments which applies to all programs. These actions

require revision to FTA's Major Investments Policy.

This paper presents the Federal Transit Administration's (FTA) proposal to address the expanded

criteria and Executive Order in the Major Investments Policy. While the new policy will have an impact on the local planning procedures required for federally assisted metropolitan area

transportation investments, its primary purpose is to address FTA's appraisal of candidate projects

for Section 3 New Starts funds. This is because the new Policy will be used to determine FTA's

rating of projects in the Section 3(j) Report to Congress on recommendations for use of Section 3

New Starts funds. The paper is being circulated among interested parties for comments and

suggestions.

THE LEGAL MANDATE

Section 3(i) of the FT Act provides the criteria for Federal support for new starts under Section 3. This section, which was originally added to the FT Act by the Surface Transportation and

Uniform Relocation Assistance Act of 1987 (STURAA), was substantially amended by ISTEA.

Specifically, the original requirement in Section 3(i)(l) that a project be "cost-effective" was

expanded by the requirement that the project be "justified, based on a comprehensive review of its mobility improvements, environmental benefits, cost-effectiveness, and operating efficiencies." In

addition, the FT Act now also includes certain "considerations" in Section 3(i)(2) and "guidelines"

in Section 3(i)(3) to be taken into account in determining how well the project meets the criteria set forth in Section 3(i)(l).

In addition, ISTEA modified the requirements for metropolitan and statewide transportation

planning. These changes were then reflected in the modifications to the joint Federal Highway

Administration (FFIWA)/FTA planning regulations made on October 28, 1993. The most

significant change in the context of this paper is the requirement that all major transit and

highway capacity expansions be subjected to a Major Investment Study before a specific major

investment project is included in local transportation plans or Transportation Improvement

Programs. This change integrates the requirement for an alternatives analysis of major transit

investments contained in Section 3(i) into the ongoing transportation planning process In addition, it requires that many Major Investment Studies will be conducted on a multimodal basis.

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THE EXECUTIVE ORDER

Executive Order 12893, signed by President Clinton on January 26, 1994, describes the principles

which Federal agencies are to apply in determining how to invest in all forms of infrastructure,

including transportation. The Order requires a systematic analysis of the costs and benefits of

proposed investments, and sets out the parameters for such analysis. The Order calls for efficient

management of infrastructure, including a focus on the operation and maintenance of facilities, as well as the use of pricing to manage demand. Private sector participation in investment and

management of infrastructure is encouraged. Federal agencies are also to encourage State and

local governments to implement planning and management approaches which support these

principles. The Executive Order calls for comparison of a comprehensive set of options and

consideration of quantifiable and qualitative measures of benefits for all programs.

OBJECTIVES FOR APPRAISAL MEASURES

As FTA develops new criteria and procedures for appraising candidate new start projects,

responsive to the ISTEA mandate, several objectives must be considered. These various

objectives are to some extent incompatible or contradictory, implying that tradeoffs and

compromises will be necessary. In sum, FTA believes that its appraisal procedures should seek to be comprehensive, effective, efficient, objective, and comprehensible.

The key issue in deciding on an appraisal approach is balancing "comprehensiveness" and

"simplicity." Approaches range from full Social Cost Benefit Analysis (SCBA) through scoring

methods in which projects are rated against a set of criteria, scores for each are assigned, weights

for each are established, and composite scores calculated. A third approach is a multiple measure method in which projects are evaluated against several criteria, results are displayed, but no effort

is made to develop a single composite score. Each of these approaches has its advantages and

disadvantages, explored fully in Chapter 2. OVERALL APPRAISAL STRATEGY

FTA intends to use a strategy based on the concepts of SCBA, but which uses a multiple measure method to evaluate the costs and benefits identified. In this way, the merits of each candidate

project can be weighed explicitly against the full range of criteria called out in ISTEA. In

addition, both market and nonmarket benefits will be weighed equally. All of the four major

elements mentioned in ISTEA—mobility improvements, cost-effectiveness, operating efficiencies,

and environmental benefits—will be fully considered. In addition, the approach takes into account

the "considerations" included in Section 3(i)(2), particularly land use policies and patterns.

2
RECOMMENDED APPRAISAL MEASURES

Based on a detailed review of a wide range of candidate measures, described in the Appendix,

FTA plans to use the following measures as a means of assessing how well candidate New Starts projects are "justified":

* For "cost-effectiveness"

the total incremental cost per incremental transit 1 passenger-trip (or possibly, per

incremental passenger-mile in certain cases), where the projected streams of capital

and net operating costs and passenger-trips have been (in the case of the costs)

expressed in constant dollar terms, and (in all cases) both cost and ridership have been

discounted at the social discount rate, compared to the Transportation System

Management (TSM) alternative

3

.

* For "mobility improvements"

the projected aggregate value of travel time savings per year (forecast year)

anticipated from the new investment compared to the TSM alternative. This

aggregate includes the travel time impacts on people using competitive modes, along

with those on the trips made by transit (both new and former transit riders). It is a net

figure in the sense that travel time increases should be explicitly considered and used

to offset the time savings of those people who experience savings. It will be expressed

in absolute and regional percentage change terms. It will be valued using a set percentage of the average wage rate in the urbanized area.

the absolute number of zero-car households (or alternatively, the people resident in those households) located within Vi mile of boarding points for the proposed system

increment, compared to the TSM alternative.

* For "operating efficiencies"

the forecast change2 in operating cost per vehicle service-hour (or service-mile), for

that part of the system that will be directly affected by the proposed new investment,

expressed in absolute and regional percentage change terms, compared to the TSM

alternative.

the forecast change2 in passengers per vehicle service-hour (or service-mile),

calculated on the same basis, also expressed in absolute and regional percentage

change terms, compared to the TSM alternative.

1 If the project goals include the promotion of ridesharing in private vehicles, the trips to be forecast would

be the change in all HOV trips (both auto and transit). That is, the difference between the forecasts for the selected alternative and for the baseline condition

The Transportation System Management (TSM) alternative is defined as a low-capital investment

alternative which seeks to maximize the efficiency of the existing transportation system through operational

improvements and other changes in service which can be accomplished without large expenditures of capital.

3
_ the forecast change2 in passenger miles per vehicle service-hour (or service-mile),

calculated on the same basis, also expressed in absolute and regional percentage

change terms, compared to the TSM alternative.

* For "environmental benefits"

the value of the forecast change2 in criteria pollutant emissions and in greenhouse

gas emissions, ascribable to the proposed new investment, discounted and levelized,

expressed in absolute and regional percentage change terms, compared to the TSM

alternative. The value of the emissions will be calculated based on standardized

assumptions about the unit value of each emission.

_ the forecast change2 in the consumption offuels ofdifferent types, ascribable to the

proposed new investment, discounted and levelized, expressed in absolute and regional

percentage change terms, compared to the TSM alternative.

* For "transit supportive existing land use policies and future patterns"

the degree to which local land use policies are likely to foster transit supportive land

use, measured in terms of the kinds of policies in place, and the commitment to these

policies.

This set of indicators addresses the most significant issues related to project justification identified

in the revised language of Section 3(i). FTA intends to continue using the present approach to assess local financial commitment issues (as required by Section 3(i)(l)(c)). In addition, the

proposed set of indicators provides for an assessment which fully considers major benefits,

including those which cannot easily be quantified or monetized. Moreover, while there are some

obvious interrelationships among the indices, "double-counting" is minimized by keeping them

relatively independent.

In particular, it should be noted that a different approach to measuring "cost-effectiveness"

considerations is being proposed than that previously used by FTA. The former incremental cost per new transit ride measure attempted to internalize mobility effects by using monetized time

savings as an offset to costs. The threshold values specified for the statistic implicitly made

generous allowance for the inclusion of environmental and safety issues on a comparable basis.

For the new measure, it is intended that "costs" be construed more narrowly, to comprise only

the monetary value of construction, operations, and maintenance. This is because the mobility

and environmental considerations are now addressed explicitly by other recommended measures.

Another major difference in the proposed new cost-effectiveness measure is that it includes

annualized, levelized costs and ridership differences calculated over the analysis period, rather

than costs and ridership differences calculated based on a single forecast year. While past practice

has included estimates of costs on a year-by-year basis over the analysis period, accurate

assessment of the ridership impacts could involve multiple ridership forecast (say for the year of

4 "Criteria pollutants" are those air pollutants for which specific standards have been set under the Clean

Air Act Amendments, such as Carbon Monoxide, etc. It is suggested that a separate measure be computed for each

major rvpe of emission for which the subject city is in nonattainment status. 4
opening, the forecast year, and the year at the end of the analysis period). On the other hand, it may be possible to synthesize forecasts of the year of opening and year at the end of the forecast

period using forecast year results and well known factors relating typical trends in ridership for

new transit investments. FTA is interested in obtaining views on how much additional effort

would be required to calculate estimated ridership impacts for multiple forecast years. FTA is also interested in views on how much accuracy would be gained by such multiple forecasts,

compared with reliance on synthesized forecasts based on typical trends in ridership growth.

It should also be noted that the approach for valuing travel time savings will be changed from past

practice. In the past, FTA specified use of $4.80 per hour of travel time savings and $2.40 per

hour of travel time savings for non-work trip, for use in calculating the offset to costs. This value

was based on the a factor of 40 percent of the national average wage rate for work travel, and

one-half this amount for non-work travel. Recent analysis of the valuation of time in other

programs of the Department of Transportation and elsewhere in government suggests that this

value is inconsistent with these other practices. For example, analysis of models used by the

Federal Highway Administration indicates use of a much higher factor of wage rates for travel

time savings. Accordingly, FTA is participating with other elements of the Department to develop consistent approaches for valuing travel time savings. In the interim, FTA expects to use

a factor of 80 percent of the local wage rate for calculating the value of travel time savings.

Similarly, in the past FTA did not attempt to value the environmental benefits of transit

investments. The benefits of emission reductions can take a variety of forms, such as improved

visibility, crop yields, and public health. The Environmental Protection Agency (EPA) is currently

developing, pursuant to Section 812 of the Clean Air Act, standard monetary values of such

benefits. The results of this analysis are expected to be available in 1995, and may be useful in evaluating the environmental benefits of transit.

Absent standard values of the benefits from emission reductions, avoided cost is an inferior, but

potentially useful approach. The avoided cost approach, which generally is only applicable to nonattainment and maintenance areas, uses standard unit costs of pursuing alternative means of

achieving emission reductions as a proxy for the benefits of such emission reductions. Some EPA

analyses have, in the past, used the avoided cost approach.

Pending further analysis by EPA and additional work by FTA with other agencies within and

outside the Department of Transportation, FTA intends to use values based on avoided cost as an

interim proxy for the benefits of emission reductions in the relevant nonattainment/maintenance

areas.

The standard unit values proposed in this document are based on nationwide averages and,

therefore, do not reflect the fact that the cost of achieving emission reductions by alternative

means varies depending on project location. If the environmental impacts of a proposed transit

project are significant, additional analysis to develop an avoided cost relevant to that specific

nonattainment/maintenance area would be appropriate.

The set of measures recommended has been selected to be mindful of the need for multimodal

project appraisal measures. While the measures included in FTA's new Major Investment Policy

will be used primarily to inform FTA decisions about project ratings in the Section 3(j) Report, an

5
effort has been made to make some of the measures applicable at the local level when multimodal

studies are conducted.

Examination of nine prototypical Alternatives Analysis/Draft Environmental Impact Study

(AA/DEIS), described in the Appendix (listed on pages 17 and 18) suggests that these new

indices should be calculable in the major investment study phase of planning without significant

extra work on the part of local project sponsors.

FTA intends these measures to apply to projects which have not yet completed the Alternatives

Analysis process. Projects which are now in Preliminary Engineering would not be required to do

the additional analysis. These projects would be evaluated based on existing data.

FUTURE IMPROVEMENTS

As noted earlier, SCBA forms a useful tool for analyzing the worthiness of public investments.

However, the key to successful SCBA is the proper accounting for and monetizing of the full range of the benefits of a proposed investment. It is FTA's belief that while it is possible to quantify and monetize many of the benefits of transit investments, as evidenced by the approach

being proposed here, ascribing a monetary value to many of the benefits is particularly difficult. This is particularly true in the absence of Government-wide standard values for some of the

benefits which may be ascribed to transit projects. In addition, there is an absence of general

agreement on even the valuation of certain other benefits, such as those related to the land use

effects of transit investments.

This lack of Government-wide standard values or generally agreed valuation is the key reason why FTA is unable to use SCBA as the sole recommended approach at this time. FTA intends to conduct research into the valuation and monetization of the benefits of transit investments in order

to develop an accepted approach. As this research proceeds, FTA intends to apply it to the

quantified benefits of the investments being considered, in order to move closer to a complete

SCBA approach. This research should permit FTA to begin to construct partial indices of costs

and benefits as part of its evaluation of project worthiness. With time, more complete indices can be constructed, ultimately resulting in a full-fledged SCBA approach.

SPECIFIC COMMENTS REQUESTED

In providing comments on this document, FTA asks that the following questions be specifically

addressed in replies:

1 . Are there other ways FTA could manage the "New Starts" program and still comply with

statute (e.g., industry standards and measurements which FTA accepts and utilizes for the

Section 3(j) Report)?

2. What are the key issues in monetizing transit's benefits? What information is now

available? What are the most fruitful areas for research?

6
3. What approaches are available for valuing travel time savings? How should the value of

travel time savings be set? Is a value based on average wage rates appropriate9 Is 80 percent appropriate? Is it appropriate to use different values by trip purpose9 By

mode? By type of time saved (e.g. wait time versus in-vehicle time?

4. What approaches are available for valuing emission reductions? How should the values of

unit emission reductions be set? Are the values suggested by EPA based on

cost-avoidance appropriate?

5. Is the overall appraisal strategy (i.e., use of the multiple measure method) appropriate?

Can the use of this strategy be made workable without explicitly specifying how FTA will

tradeoff between the criteria? Should FTA, instead, specify that it will explicitly weight one or more of the criteria more heavily? If so, which one(s), why and how?

6. Are the particular measures proposed for each of the ISTEA justification criteria

appropriate?

• Do the proposed measures adequately represent the criteria called out in Section 3(i)?

• Are the proposed measures workable? Can data be developed for the measures as

part of the normal process of evaluating major investments?

• Are the measures likely to be able to distinguish between projects of varying merit9

7. How can FTA assure the quality of the data submitted in support of proposed projects in

terms of the measures proposed when Major Investment Analyses are to be conducted as

part of the Metropolitan Planning Process, as called for in the Final Rule on planning,

issued October 28, 1993? How can FTA assure consistency among cities in terms of

modeling input assumptions (e.g., gasoline prices, inflation rates, or modeling methods)9 Must it?

8. Is this approach sufficiently quantifiable to allow for the Secretarial findings and

determinations for funding required by the Federal Transit Act, and for FTA ranking

among candidate projects?

9. How much additional effort is involved in calculating the proposed annualized, levelized

cost-effectiveness index using multiple forecasts of ridership impacts9 How many

different year forecasts are needed to accurately portray the stream of ridership impact

benefits? Which years are most appropriate to forecast (year of opening, forecast year,

last year of analysis period, other years)? How much additional accuracy is gained

compared to synthesizing the stream of ridership impacts using a single forecast year and

known trends in ridership growth for new investments?

7
8 i
2

The Context for This Document

OVERVIEW

Revisions made by the ISTEA to the FT Act changed the criteria by which the Federal

Government is to make discretionary grants, under Section 3 of the Act, to support major transit

capital investment projects ("new starts"). In addition, they also changed the requirements for

transportation planning. On January 26, 1994, President Clinton signed Executive Order 12893

setting forth Principles for Federal Infrastructure Investments. This Chapter describes these

actions, summarizes the existing Major Investments Policy and how it evolved, and describes

recent work by FTA on alternative approaches to how major investments could be assessed. It is intended to provide background information discussions about modifications to FTA's Major

Investment Policy to address the changes made by ISTEA and the Executive Order.

THE LEGAL MANDATE

Section 3(i) of the Federal Transit Act provides the criteria for Federal support through

discretionary grants under Section 3 of the Act for new starts. Section 3(i), which was originally

added to the FT Act by the Surface Transportation and Uniform Relocation Assistance Act of

1987 (STURAA), was substantially amended by the ISTEA. The law now includes the following

relevant provisions:

5

Section 3(i)(1)

A grant or loan for construction of a new fixed guideway system or extension of any fixed guideway

system may not be made under this section unless the Secretary determines that the proposed

project is

* based on the results of an alternatives analysis and preliminary engineering;

* justified based on a comprehensive review of its mobility improvements, environmental

benefits, cost-effectiveness, and operating efficiencies; and

* supported by an acceptable degree of local financial commitment, including evidence of stable and dependable funding sources to construct, maintain, and operate the system or extension.

Section 3(i)(2)

In making determinations under this subsection, the Secretary shall

* consider the direct and indirect costs of relevant alternatives;

Substantive changes introduced by ISTEA related to project justification are shown in italics. 9
* account for costs related to such factors as congestion relief, improved mobility, air pollution,

noise pollution, congestion, energy consumption, and all associated ancillary and mitigation costs necessary to implement each alternative analyzed; and

* shall identify and consider transit supportive existing land use policies and future patterns,

and consider other factors including the degree to which the project increases the mobility of

the transit dependent population or promotes economic development, and other factors that the Secretary deems appropriate to carry out the purposes of this Act.

Section 3(i)(3)

The Secretary shall issue guidelines that set forth the means by which the Secretary shall evaluate

results of alternatives analysis, project justification, and the degree of local financial commitment for the purposes of paragraph (1).

Project justification criteria shall be adjusted to reflect differences in local land costs, construction

costs, and operating costs.

Section 3(i)(5)

A new fixed guideway system or extension shall not be subject to the requirements of this subsection

and the simultaneous evaluation of such projects in more than one corridor in a metropolitan area

shall not be limited if

* the project is located within an extreme or severe nonattainment area and is a transportation

control measure, as defined by the Clean Air Act, that is required to carry out an approved

State Implementation Plan; or

* assistance provided under this section accounts for less than $25 million, or less than one

third of the total cost of the project or an appropriate program of projects as determined by

the Secretary.

ISTEA PLANNING REQUIREMENTS

On October 28, 1993, FTA and the Federal Highway Administration (FFTVVA) jointly issued new

regulations (23 CFR Part 450 and 49 CFR Part 613) implementing the changes made to the

Federal Transit Act and Title 23, USC, by ISTEA with regard to the requirements for

metropolitan and statewide transportation planning. The most important change, for the purposes

of this paper, is the addition of a requirement for studies of major metropolitan transportation

investments, both highways and transit, as a part of the metropolitan transportation planning

process. In part, this requirement was added to respond to Section 3012 of ISTEA which

required FTA to conform its environmental review requirements with those of FFIWA. More

importantly, it was designed to integrate the long-standing requirement in Section 3(i) for an

analysis of alternatives into the metropolitan transportation planning process to allow for the

appropriate consideration of how flexible funds would best be spent to promote multimodal

planning. Specifically, 23 CFR Section 450.318 states the following:

"(a) Where the need for a major metropolitan transportation investment is identified, and Federal

funds are potentially involved, major investment (corridor and subarea) studies shall be

undertaken to develop or refine the plan and lead to decisions by the MPO, in cooperation with

participating agencies, on the design concept and scope of the investment. . .

10
"(c) . . . major investment studies shall evaluate the effectiveness and cost-effectiveness of

alternative investments or strategies in attaining local, State, and national goals and objectives.

The analysis shall consider the direct and indirect costs of reasonable alternatives and such

factors as mobility improvements; social, economic, and environmental effects; safety; operating

efficiencies; land use and economic development; financing; and energy consumption.

"(d) These major investment studies will serve as the "alternatives analyses" required by

Section 3(i)(1)(A) of the Federal Transit Act for certain projects for which discretionary Section 3

'New Start' funding is being sought. The studies will also be used as the primary source of information for other Section 3(i)(1)(A) Secretarial findings on cost-effectiveness, local financial

commitment and capacity, mobility improvements, environmental benefits, operating efficiency,

etc."

These studies must be completed before a local policy decision is made to include a major

investment project in local long range transportation plans and Transportation Improvement

Programs. In addition, these studies will also form the basis for assessment of project worthiness,

required by Section 3(i)(l) and Executive Order 12893. The studies required by these regulations

will develop the information to be used by FTA to make these determinations.

EXECUTIVE ORDER 12893

Executive Order 12893, issued January 26, 1994, sets forth principles for Federal Infrastructure

Investments. The order requires all Federal agencies with infrastructure responsibilities to implement the following principles in management of their programs:

(a) Systematic Analysis of Expected Benefits and Costs. Infrastructure investments shall be based

on systematic analysis of expected benefits and costs, including both quantitative and qualitative

measures, in accordance with the following:

(1) Benefits and costs should be quantified and monetized to the maximum extent

practicable. All types of benefits and costs, both market and nonmarket, should be

considered. To the extent that environmental and other nonmarket benefits and costs can be quantified, they shall be given the same weight as quantifiable market benefits

and costs.

(2) Benefits and costs should be measured and appropriately discounted over the full life cycle of each project. Such analysis will enable informed tradeoffs among capital

outlays, operating and maintenance costs, and nonmonetary costs borne by the public.

(3) When the amount and timing of important benefits and costs are uncertain, analyses

shall recognize the uncertainty and address it through appropriate quantitative and

qualitative assessments.

(4) Analyses shall compare a comprehensive set of options that include, among other things,

managing demand, repairing facilities, and expanding facilities.

(5) Analyses should consider not only quantifiable measures of benefits and costs, but also

qualitative measures reflecting values that are not readily quantified.

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(b) Efficient Management. Infrastructure shall be managed efficiently in accordance with the

following:

(1) The efficient use of infrastructure depends not only on physical design features, but also on operational practices. To improve these practices, agencies should conduct periodic

reviews of the operation and maintenance of these facilities.

(2) Agencies should use these reviews to consider a variety of management practices that can improve the return from infrastructure investments. Examples include contracting

practices that reward quality and innovation, and design standards that incorporate new

technologies and construction techniques.

(3) Agencies also should use these reviews to identify the demand for different levels of infrastructure services. Since efficient levels of service can often be best achieved

through properly pricing infrastructure, the Federal Government -- through its direct investments, grants, and regulations -- should promote consideration of market-based

mechanisms for managing infrastructure.

(c) Phvate Sector Participation. Agencies shall seek private sector participation in infrastructure

investment and management. Innovative public-private initiatives can bring about greater

private sector participation in the ownership, financing, construction, and operation of infrastructure programs referred to in Section 1 of this Order. Consistent with the public interest,

agencies should work with State and local entities to minimize legal and regulatory barriers to private participation in the provision of infrastructure facilities and services.

(d) Encouragement of More Effective State and Local Programs. To promote the efficient use of

Federal infrastructure funds, agencies should encourage the State and local recipients of Federal

grants to implement planning and information management systems that support the principles set forth in Section 2(a) through (c) of this Order. In turn, the Federal Government should use

the information form the State and local recipients' management systems to conduct the

system-level reviews of the Federal Government's infrastructure programs that are required by

this Order.

A SYNOPSIS OF RELEVANT PREVIOUS PRACTICE

In the version of Section 3(i) originally introduced into the FT Act in 1987, the criteria for

Section 3 new start funding were much less extensive than under ISTEA, but in some ways more

stringent. The second criterion of what is now subsection 3(i)(l) required that the proposed

project be "cost-effective" under guidelines to be issued by the Secretary. The language also

empowered the Secretary to consider "such other factors as the Secretary deems appropriate."

Prior to the introduction of Section 3(i), FTA

6 issued a Statement ofPolicy on Major Urban

Mass Transportation Investments 1 This document identified the "incremental cost per new

transit trip" as FTA's primary index of the cost-effectiveness of a proposed major capital

6

7 Then the Urban Mass Transportation Administration (UMTA).

Federal Register (49 FR 21284), May 18. 1984.12
investment project. This index was computed by dividing a measure of the net incremental costs

of the project by the forecast incremental transit ridership from the project, compared to the

Transportation System Management (TSM) alternative. The numerator comprised the annualized

capital and operating costs projected for the project, offset by an estimate of the monetary value

of aggregate travel time savings for existing riders.

Also in 1984, FTA established threshold values of the cost-per-new-trip index that would need to

be met for a proposed project to continue to receive Federal financial support through the various

stages of the Federally-mandated planning process. To progress from the "system planning"

phase to the "alternatives analysis" phase, the preliminary estimate of the cost per new trip should

not exceed $10; to move from alternatives analysis to "preliminary engineering," the estimated

cost per new trip should not exceed $6.

The latter threshold was based on the following logic. An FTA study in 1984 estimated that the

national average "new" transit trip would produce about $2.80 in direct benefits to new users of

the system, based on liberal estimates of the potential savings in parking costs, travel time, and

private vehicle operating costs in a prototypical setting. Indirect benefits to nonusers — from such

impacts as air quality and urban form effects — were more difficult to quantify, but were argued to be broadly proportional to the magnitude of the mode share effects. An investment that produces

minimal ridership impacts cannot be expected to have other than minimal indirect benefits. Even

the most liberal attempts to quantify indirect benefits would not set them as greater than the

direct benefits to users, in total. Hence, it was argued, a $6 per new trip threshold value — double

the $2.80 figure, rounded to the next highest dollar ~ would serve to eliminate those projects that

appeared to have minimal possibility of being cost-effective, while including projects that may, on

further planning and analysis, prove to be of questionable merit.

Following the 1987 addition of Section 3(i) to FT Act, which for the first time specified

cost-effectiveness as a major statutory criterion for Federal new start funding, FTA issued a notice

of proposed rulemaking8 to implement Section 3(i). This proposed that the threshold test for the

incremental cost per new transit trip should remain the primary criterion for assessing project

cost-effectiveness. In addition, the NPRM proposed that a second, alternative threshold could be

applied to project proposals, a "user benefit index."

The user benefit index was developed by FTA to address various public comments regarding the

1984 policy statement and to overcome some computational problems encountered in using the

cost-per-new-trip measure. It is computed by dividing the annualized incremental capital and

operating costs of the project by an estimate of the annual incremental user benefits, expressed in equivalent hours of travel time savings. 9 The NPRM set a threshold maximum cost of $8 per hour

of user benefit as the criterion for progression from alternatives analysis to preliminary

engineering, based on a national average value of travel time using 40 percent of the wage rate as the basis for setting this value. It was intended that future projects would be required to pass

either the new trip index or the user benefit index thresholds before the Federal Government

would fund the preliminary engineering phase.

8 Federal Register (54 FR 17878), April 25, 1989. This document includes an expanded history of the evolution of Federal decisionmaking in the allocation of Section 3 funding.

The estimate of the user benefits, based on the economist's concept of "consumers' surplus," accounts both

for the change in the number of the trips and the travel time savings. I 13
RECENT FTA WORK ON THE APPRAISAL OF NEW STARTS

Final rulemaking on these matters was delayed in response to specific congressional guidance,

pending the development of what subsequently became the ISTEA legislation. In the meantime,

FTA has continued to refine the computation and interpretation of the cost-effectiveness measures

set out in the 1989 NPRM. This work has included:

* updated quantifications of such effects as traffic congestion reduction, noise reduction,

improved air quality, fewer accidents, and reduced subsidization of commutation;

* exploration of the impact of proper discounting (to take account of the different time

profiles for the expenditure of costs and the accrual of benefits) on the computation and

use of the cost-effectiveness indices; and

* exploration of the implications of using project-specific (rather than nationally uniform)

threshold values, to reflect the heterogeneity of CBD-bound and non-CBD-bound travel,

and the variation of conditions across US cities.

This work concluded that, because there is significant variation in congestion levels, parking

charges, wage rates, and new system performance in US cities, using project specific threshold

standards, rather than national average standards, for the "cost per new transit trip" measure would be likely to improve decisionmaking. It was recommended that more comprehensive and

precise attempts be made to value the diverse benefits of new transit infrastructure. Literature

review and the collection of new data suggested that if a national standard was continued in use, the uniform threshold of $6, established in 1984 as the criterion necessary to enter federally

supported "preliminary engineering," remained substantially valid. Despite 25 percent general

inflation between 1984 and 1990, the best estimate of an appropriate revised national threshold

was a maximum of $6. 16 per new transit ride, assuming use of 40 percent of the wage rate for the

value of time.

Each year FTA submits to Congress a report on the level and allocation of funding to be made

available under the Section 3 new start program, as required by Section 3(j) of the Act. In an attempt to broaden the information provided in a manner that was consistent with the revised

allocation criteria of ISTEA, the FY 1994 and 1995 reports included several indices for each

proposed project, where they were available. Thus, rather than relying only on a single measure,

with a specific threshold, FTA now relies on a combination of a variety of factors to determine

project merit:

* for cost-effectiveness, the "cost per new transit trip" measure;

* a rating of the level of mobility improvement afforded by the project, based on the

projected total number of hours of travel time saved per day by the project, when

compared with the baseline alternative [10,000 or more hours saved was rated "high,"

fewer than 10,000 hours saved was rated "medium," and projects anticipated to increase

total travel time were rated "low"];

14
* for environmental benefits, the U.S. Environmental Protection Agency classification of

the city for ozone ["extreme," "severe," "serious," "moderate," "marginal,"

"sub-marginal," "transitional," and "attainment"] and for carbon monoxide ["serious,"

"moderate," "not classified," and "attainment"], as an indication of the severity of the

region's air quality problem; 10 and

* for operating efficiencies, the estimated reduction in systemwide operating cost per

passenger, [a 5 percent or higher reduction was rated "high," a smaller reduction was

rated "medium," while an increase in per passenger costs was rated "low"].

In addition, FTA has given significant weight in these reports to the readiness of projects to progress and the local financial commitment to the projects in determining which projects be

recommended for funding.

10 These classifications do not indicate the extent to which the proposed project might impact local air quality but they are relevant to whether or not the project might be exempt (under Section 3(i)(5)) from

justifications that would otherwise be required.

15
16
Considerations in Developing New FTA

Project Appraisal Procedures

OBJECTIVES FOR APPRAISAL MEASURES

As FTA develops new criteria and procedures for appraising candidate new start projects,

responsive to the ISTEA mandate, several objectives must be considered. These various

objectives are to some extent incompatible or contradictory, implying that tradeoffs and

compromises will be necessary. FTA believes that its appraisal procedures should seek to be

"comprehensive," "effective" "efficient" "objective" and "comprehensible." The discussion will

next expand upon and explain each of these terms, and the objectives that they summarize, in turn.

Comprehensiveness

The ISTEA language itself directs that FTA appraisal should involve a "comprehensive review."

The aspects required specifically in the legislation for consideration in this review are:

* congestion relief (and other mobility improvements);

* mobility impacts for the transit-dependent population;

* air pollution impacts, noise pollution impacts, and other environmental effects;

* energy consumption effects;

* the ability of existing and future land use patterns to support the potential transit

investment; and

* the economic development of the area served.

In addition, the Executive Order requires a systematic analysis of costs and benefits and calls for

inclusion of all types of benefits and costs, both market and nonmarket. Finally, the requirement

for major investment studies of both highways and transit projects suggests that measures should

be applicable to multimodal studies, to the extent possible.

Effectiveness

For project appraisal criteria and procedures to be effective, they must be capable of

differentiating between proposed projects in several different dimensions. First, it is important to recognize that while all costs and benefits of a project should be considered, the evaluation of

them will vary with the goals and objectives of the evaluator;

11 different factors are more relevant

to the Federal Government, for instance, than to the local governments involved. While the

primary focus of the . Federal government's project appraisal practices needs to be on Federal

funding decisions, there is a good deal of overlap with local government needs; thus those

practices should aim to be of value for local decisionmaking as well.

11 This point is expanded on by (for example) Wohl and Hendrickson (1984) (Section 14-1) and Beimbom

and Horowitz (1993) (page 9). 17
Appraisal methods should allow FTA to make valid comparisons of candidate projects across

cities. Work already undertaken by FTA has addressed the question whether the existing indices

of cost-effectiveness should be judged against threshold values that vary by city type, and the

ISTEA revision of Section 3(i) requires that project justification criteria be "adjusted to reflect differences in local land costs, construction costs, and operating costs." It is reasonable to assume, for example, that a proposal that costs $15 per new rider in a city with high density, costs

and levels of traffic congestion would generate a greater proportional return of net benefits than a "$5 per new ride" project in a smaller, less densely populated city because attracting a new rider in a city with higher density, costs and levels of congestion is likely to generate much more in the

way of benefits..

With recent increased emphasis in Federal transportation policy on intermodal planning and

decisionmaking, it would also be appropriate if the adopted evaluation measures and procedures

allowed for various comparisons across investments in different modal technologies. In the urban

transportation context, this primarily means appraising proposed major investments in the

highway infrastructure alongside transit proposals, using comparable measures for both.

Government-wide guidance on how to implement the Executive Order on infrastructure will help

achieve this goal.

Efficiency

"Efficient" project appraisal has several implications. The data to be used should ideally be

assembled as a normal part of the current project planning activities, and not require a significant

incremental cost in gathering new data or analyzing data in costly new ways.

Equally important, the procedures and measures should focus attention quickly on those marginal

projects that are close to the "yes" or "no" decision boundary for Federal funding. Local or Federal staff should not expend a lot of appraisal effort on projects that are the most obvious

"winners" or "losers." Rather, the intent should be to filter down quickly, so that most attention can be directed to those projects that are in the "questionable" category, so defined at the lower

end to give all potentially valuable projects the benefit of the doubt (as does the $6 per new trip

cost-effectiveness threshold). Of course, the greater the number ofjustification criteria, the

harder it may become to settle quickly on clear "winners" or "losers," and the greater the

proportion of proposals that are in the "questionable" category.

Objectivity

While it is clear that the basis for any project justification needs to be objective — at least to the

level of broad categories — this connotes something more. Ideally, the procedures for deriving

the measures should be sufficiently well-defined, unambiguous, and objective so that there is limited scope for misrepresentation. Unfortunately, forecasting the demand for major new public

transportation investments must rest on a large number of assumptions. Project appraisal measures can only be as good as the cost estimates and demand forecasts that underlie them, and

while FTA may engage independent expertise to appraise the credibility of these estimates at the

preliminary engineering phase, at existing staffing and funding levels it is more difficult for FTA to ensure the credibility of the estimates used in earlier planning stages. Also, although a number of

18
transit goals do not lend themselves to quantitative analysis (e.g., land use effects), there is still the need to ensure that evaluation criteria can consistently distinguish among alternatives

competing for funds.

Comprehensibility

To be "comprehensible" by the various constituencies interested in them, FTA project appraisal

methods should be simple and intuitively interpretable. Unfortunately, simplicity and

comprehensiveness are likely to be mutually opposed. Comprehensiveness dictates that many

factors be taken into account, while simplicity requires that these be reduced to a relatively small

number of measures. Possible ways of reconciling the two objectives are addressed in the next

section.

It is certainly helpful in gaining acceptance for project appraisal criteria if the indicators used can be readily interpreted in the experience of the audience. A formal economic definition of

"benefits" in terms of "consumer surplus" is frequently problematic in this regard. A dollar

benefit figure is always difficult to explain to a lay audience. This is in part why FTA in 1984

chose to use a "cost per new trip" measure as the index of cost-effectiveness. People have some

experience of the costs of urban trips, and can interpret the resulting figure in the light of that

experience. If a new trip by the proposed system is projected to cost $12 when the average

(unsubsidized) taxicab fare in the city is only $5 and the operating cost per ride on the existing bus

system is $1.75, it immediately raises questions about whether appropriate alternatives have been

properly appraised. It also raises questions about whether the "external" benefits (in terms of air quality and other environmental effects, or urban form considerations) could credibly be

sufficiently large to justify the magnitude of the difference in cost. BALANCING "COMPREHENSIVENESS" AND "SIMPLICITY"

There is a range of different approaches to making informed, objective business or societal

decisions from among mutually-exclusive alternative actions, involving the weighing of a diverse

set of considerations. Cases from the ends of the spectrum and an intermediate approach can be

taken as prototypical of the options available:

* The anticipated implications for each major type of impact can all be expressed in terms of

a common unit of measure — most often, dollar value — and manipulated in various

prescribed ways to develop a single index that is used to judge the relative merits of the

alternative courses of action. For public sector decisions, social cost benefit analysis

(SCBA) follows this general approach.

* The anticipated implications for each major type of impact are forecast in a variety of

different units of measure. Based on an assessment of the relative importance of the

different types of impact to the decisionmaking organization, weights are assigned to the

different appraisal criteria. These weights are then used to condense the various measures

to a single value of "rating points." This approach can be characterized as the "scoring

method"

19
* The anticipated implications for each major type of impact are forecast in a variety of

different units of measure. This information is conveyed to the decisionmaker(s) in a format designed to highlight the differences among the alternative actions and the key

tradeoffs involved in choosing between them. The choice is then made, consistent with

the power structure, political processes, and values of those people or organizations in a position to influence the outcome. This approach can be characterized as the "multiple measure method "

Social Cost/Benefit Analysis (SCBA)

In the private sector, rational investment planning typically involves identifying which of several

candidate investment opportunities will maximize the lifetime return on the investment, after

making corrections for the possibility that the streams of expenditures and income may be

occurring at different points in time. In the public sector, objectives are much more diverse (and

often more nebulous). Further, the benefits are often difficult to value and monetize, while in the

private sector, the key issue is almost always monetary, in the form of increased profit.

Correspondingly, criteria for evaluating potential investments are more varied, and depend in part on the viewpoint from which the evaluation is being made.

For example, investment in a major new transit facility may return not only the revenues from its users. It could also create other benefits to society insofar as it reduces the time of some users'

travel, or creates travel time savings on congested highways by diverting automobile users, or

leads to improved public health through cleaner air. From the viewpoint of society at large, all of

these outcomes — "social benefits" — are returns on the investment.

The economist's tool for appraising public works projects, from the societal viewpoint, is social

cost/benefit analysis.

12 In brief, it seeks to gauge the return on public sector investments by

identifying all of the social benefits likely to result, estimates their size, reduces them all to dollar

value terms, and compares the total benefit to the cost, over the expected useful life of the

investment. As with the private sector analogy, care has to be taken to correct for differing time

profiles of the cost and benefit streams, and to remove the effects of inflation. Considerable care

is also necessary to ensure that none of the benefits is counted more than once. SCBA provides a comprehensive, rigorous approach to appraising major public sector

investments. Knowing with some accuracy the total social benefits and costs of each candidate

project, all in constant dollars and in present value terms, is useful in two ways. First, one can probably reject as unjustifiable any project for which the total benefits are less than the costs. An

exception to this might be a case in which equity concerns constrain the application of SCBA

results. Second, one can rank the projects in order of decreasing benefit/cost ratio, and program

them by moving down from the top of the list (the project with the highest ratio) until the capital

budget is exhausted. In that way, we would be maximizing the return of social benefits for a given total expenditure.

Nonetheless, SCBA presents several major challenges. First, it is not easy to do properly. It requires a strong causal understanding of the outcomes of the project and, particularly, of the

behavior of consumers. Second, the concept that economists use to derive a measure of user

Mishan (1976) provides a comprehensive textbook. 20
benefits — consumer surplus, or the aggregate difference between what consumers are willing to pay and what they do pay for the service — is sometimes difficult to understand and communicate.

Third, translating all the diverse impacts of a transit project into dollar value terms is a challenging

task. Depending on the nature of the project, such impacts might be initially forecast in such

heterogeneous units as years of life saved or prolonged, tons of pollutants reduced, or hours of

time saved. By examining markets in which people are making relevant decisions that involve

trading, for monetary differences, such aspects as varying risks of death, or the purity of air and

water resources, or time savings, economists have devised ingenious econometric methods to

infer the implicit monetary value of these other units.

13 However, there is often little homogeneity

in the values estimated by these methods, for a variety of reasons. For example, the literature

contains estimates for the value of a statistical life that vary between zero and $15 million, based on studies of how wage rates vary with the level of occupational risk.

14 In particular, there are no Government-wide standards for monetizing such values at this time. While this is not as much of

a problem if SCBA is used only to rate projects within a single program, such as Transit New

Starts, this lack of standardization will be problematic if an effort is made to review the results of

SCBA across programs.

The discipline of thought and logic necessary in SCBA to articulate a clear accounting of the

various types of benefits and costs, to measure benefits and costs relative to a clearly defined

baseline situation, to focus on the true opportunity costs of the resources consumed, and to avoid

double counting ~ all these factors make the technique a theoretically satisfying standard for

public sector project appraisal. Indeed, there is an abundant body of literature on the technique.

Economists have argued that FTA's project appraisal methods would be improved if they were to focus on net social benefits, broadly construed, in preference to "cost-effectiveness." 15 To the

extent that environmental, land use, and mobility impacts of major transit investments could be

credibly translated into dollar values, SCBA would offer the hope of appraising most of the

Section 3(i) concerns in a single measure. Thus, the technique provides the theoretical model by

which other methods of appraising transit projects can be judged. As FTA has worked to improve the basis and application of the threshold "cost per new trip" test, for example, the SCBA

model has provided the basis for structuring the thinking. In addition, FTA has worked to develop better tools to compare across modes.

The practical problems summarized earlier mean that the theoretical elegance and integrity of

SCBA will not guarantee uncritical acclaim for, nor even the validity of, its findings. The

experience in the United Kingdom is instructive in this regard. One of the early applications of

the technique was in the appraisal of a major transit investment — London's Victoria Line16 -- and

the method has been extensively adopted in transport investment appraisals of all types in the

United Kingdom. However, the difficulties in implementing the technique became widely

13 Such techniques, when they rely on an analysis of marketplace behavior, are called "revealed preference"

methods. Sometimes (less often), the values are inferred from opinion survey responses ("stated preference"

evidence).

14 See Miller (1990). Miller argues that by eliminating studies judged unreliable and adjusting other studies

to reflect common assumptions, the variance in results is greatly reduced. Other specialists in the value-of-life

literature disagree. See Havrilesky (1990) and Frankel and Linke (1992).

15 See, for example, Johnston and DeLuchi (1989) and Lee (1989a).

16 Foster and Beesley (1963).

21
appreciated after its extensive use in the Roskill Commission's Third London Airport Study.

17 Button (1982) reports that:

"...despite the widespread adoption of cost-benefit analysis by the transport sector, there has been a gradual disillusionment with the all-embracing stereotype appraisal ... This has manifested itself most strongly since the rejection of the Roskill Committee's recommendation regarding the siting of a

third London airport, and became particularly noticeable at public inquiries into new road proposals in the late 1970s. While the criticisms of cost-benefit analysis as a method of socially evaluating

transport investments have been extensive, they are perhaps most adequately summed up by

Wildavsky (1966), 'Although cost-benefit analysis presumably results in efficiency by adding the

most to national income, it is shot through with political and social value choices and surrounded by

uncertainties and difficulties of computation.' The Chairman of British Rail summarized the attitude evolving in the UK when he argued that there is a need for an approach that 'can be understood by

ordinary intelligent people ... incorporates the methods of analysis developed by welfare economists

over the last decade or so ... gets away from the naive position adopted by the early cost-benefit

[analysts] which seemed to imply that every consideration could be perfectly weighted and that,

therefore, there was a single best solution'" (Parker, 1978).

These considerations suggest that how SCBA is used should be considered carefully. However,

value choices will be inherent in any evaluation method used by a decisionmaker to choose among

various transit new starts, whether it is SCBA, scoring methods, or multiple measures. These

value choices should be fully disclosed and made explicit. By making explicit assumptions about

values, SCBA offers a framework for discussing the value choices that, under different evaluation

methods, might otherwise remain hidden in the minds of decisionmakers. This document attempts

to begin such a discussion by proposing a monetary value for time and emission reductions.

Scoring Methods

Scoring methods represent an attempt to condense a multiple-objective choice decision to a single

index basis without SCBAs concern to use marketplace-based values to convert nonmonetary

impacts into dollar terms. The theory underlying this approach is that, if the decisionmakers'

implicit valuation and tradeoffs of the various impacts are sufficiently homogeneous and can be

established through survey research, these values can be used as weights to derive a composite

score for each alternative.

18

The main stumbling blocks lie in ascertaining the weights and in manipulating the data to compute

the composite score. The surveys used to determine weights — at least at the time when this approach was most in vogue ~ rarely involve respondents in making actual or hypothetical

tradeoffs of the different objectives; rather, they ask people to assign point scores, one at a time, as measures of importance, to the abstract different types of impacts. Decisionmakers have

sometimes resented being subsequently presented with a single choice or a ranking of choices that

they are told has been derived objectively from their own expressed values.

The computational methods often used to manipulate the data — normalizing each impact index

before weighting and adding it into the composite score ~ have been called into question by Lee

17 See Flowerdew (1972).

18 See, for example. Jessiman et al. (1967), Hill (1973), Cohen et al. (1978).

22
(1989a). Using data from a proposed Boston highway project, he shows that poorly conceived

scoring methods can result in very anomalous findings, when compared with the SCBA standard.

He concludes:

The difficulties of valuing impacts, of sorting them into mutually exclusive and exhaustive categories,

and of quantifying elusive effects and intangible values, are not so easily escaped as casting aside one framework for another that is less demanding on its users. The primary application of

scoring-and-weighting methods is in fostering the delusion that it is possible to carry out technical

evaluation without having to understand benefit-cost principles.

Multiple Measure Methods

The third prototypical approach does not attempt to derive an "objectively determined" single

solution or all-embracing ranking of project worthiness. Rather, the aim is to present the key

technical facts to the decisionmakers as accurately, as clearly, and as concisely as possible, in a way that highlights the tradeoffs that must be made among the multiple objectives. In a way, the

presentation of product test findings in Consumer Reports magazine provides one model for how

this approach can be implemented.

This approach implicitly recognizes that it is rare that societal decisions are made on clear

technical merit alone, particularly in circumstances where there is significant uncertainty in assessing technical merit.

19 The analysts do not try to second-guess the judgment, intuition, and

political acumen of the decisionmakers. However, the value and integrity of the approach hinge on several factors that all involve judgments: the unbiased choice of the various measures to be

presented, the complexity and clarity of the presentation, and the level of consensus among

decisionmakers.

The British experience is again instructive here. Arraying the pros and cons of alternative

investment options, in a manner that emphasizes the distributional implications (who benefits and

who pays?), was first developed by Lichfield, who called the method a "planning balance sheet.

" :o

In light of the public objections to SCBA in the appraisal of new highway proposals (mentioned in the earlier Button quotation), the British government established an Advisory Committee, chaired

by Sir George Leitch, on "trunk road assessment." The Leitch Committee recommended the

adoption of a single appraisal framework comprehending all types of impacts thought important,

irrespective of measurability, in a format similar to Lichfield's planning balance sheet.

21 The

intention was to augment (rather than replace) the existing SCBA methods, to take better account

of the environmental and land use "externalities" that are difficult to value, and to focus greater

19 In a survey of capital budgeting methods in use by public transportation authorities in several major cities, Charles River Associates (1987) observed that the highest level allocation decisions were not based solely (or even

largely) on objective criteria in any city studied, and that improving the capital budgeting process is at least as much a matter of institutional dynamics as it is of economics or finance.

c Lichfield and Chapman (1968); Lichfield et al. (1975). In some applications, point scores have been

assigned to each "line item" of the balance sheet to derive a compendium measure, but we believe that the arraying

of the data and the emphasis on distributional impacts are the major hallmarks of this approach.

21 UK Department of Transport (1977). Beesley and Kettle (1979) argue that the proposed framework would

be impractical or unsatisfactory in various ways, and of itself is unlikely to dispel the public's dissatisfactions with

the process. 23
attention on distributional impacts. It was hoped that this change would engender greater public

acceptance of the official appraisal process.

\

24
Proposed Changes to FTA's Appraisal Methods

GENERAL STRATEGY

Assessment of Options

As described in Chapter 2, recent FTA work on alternatives analysis requirements and the

evolution of FTA planning guidelines have gradually moved the AA/DEIS phase of planning

closer to an SCBA framework.22 Appraisal methods that require a comprehensive delineation and

estimation of the net social benefits for various alternative investment proposals, 23 as called for in the Executive Order, will improve local decisionmaking and greatly aid the Federal need to select

among candidate projects. The benefit/cost ratio, if computed using tightly standardized methods,

could provide a single decision variable that takes account of almost all the considerations listed in the post-ISTEA Section 3(i).

However, the earlier discussion of different appraisal approaches suggests that, in practice, a

single benefit/cost ratio is unlikely to immediately resolve all concerns and gain universal

acceptance among the various constituencies interested in the process. The current lack of

Government- wide standard or even widely accepted monetary values, or in some cases even

valuation approaches, for many of the benefits of transit investments, makes use of SCBA alone

particularly problematic. Nor do scoring methods ~ using opinion survey-based weights rather

than shadow prices24 to condense the disparate impact measures into a single index ~ necessarily

add any credibility or intellectual integrity to the process.

Recommended General Strategy

Based on the assessment made in this paper, FTA plans to modify its Major Investment Policy to

utilize a multiple measure method, based on the tenets of SCBA. Findings of project justification

would be based on a small range of different measures to summarize the main impacts of

candidate projects along the dimensions spelled out in Section 3(i). The measures will be chosen

to satisfy, as far as proves practical, the five objectives delineated earlier, and to highlight the key

anticipated impacts of each project. The information will be presented in terms of a quantitative

and monetized measure where that is feasible, classed into quantitative ranges where the likely

precision of the estimate wouldn't justify presenting the estimate itself, or classed into qualitative

categories. Some measures will rely on independent expert judgment, as do the current financial

The official FTA manual for transit project planning [Ryan, Emerson et al. (1986, updated through

1993)] includes a section on the theory and computation of consumers' surplus as a preferred method of measuring

benefits.

23 It is assumed here that the procedures already in place to define a baseline option (the "no-build, TSM

alternative"), and to measure benefits and costs relative to this option, should remain unchanged.

24 A "shadow price" is the empirically-determined or assumed rate at which a measure of a nonmonetary

effect is converted into dollars. 25
commitment ratings for major capital investments in transit. The information on the benefits will

be arrayed in tabular form.

FTA will use the information to make funding decisions among the candidate projects by

weighing how well each project does on the array of criteria overall, essentially grouping projects

into those with similar merit. Within groups, projects may rise or fall depending on the particular

investment policy emphasis at the time investment decisions are being made. For example, the

land use criteria could be emphasized, leading to higher ratings of projects which are particularly

well supported by complementary land use policies.

In deciding between two candidate projects that clearly involve a tradeoff between, for example,

direct transportation costs and benefits on the one hand and environmental impact on the other,

FTA officials will weigh how well each project fares on the criteria, which were laid out in

ISTEA, in a manner which reflects current Federal Government priorities. The publishing of the

criteria themselves will serve both as evidence that the range of impacts specified in the legislation

has been considered, and as a deterrent to "arbitrary" decisionmaking. Moreover, likely

intercorrelation among the impact measures will mean that rarely will clear tradeoffs among

impacts need to be made explicitly. A transit investment with low ridership, and hence

transportation benefits, can hardly be expected to have staggeringly high environmental or land use benefits, except in exceptional circumstances.

AN EXAMINATION OF POTENTIAL APPRAISAL MEASURES

The Appendix provides a detailed discussion of various possible measures to indicate a potential

investment's worthiness. For each of the four categories of potential impacts identified in Section 3(i)(l) of the Act — "mobility improvements," "environmental benefits,"

"cost-effectiveness," and "operating efficiencies" — the Appendix defines the concept, the types of

data to be used to measure it (both ideally and practically), the pros and cons of alternative

choices, and consequently recommended measures. Two elements of the appraisal in the Appendix merit specific mention. First, in order to test various pragmatic aspects of potential measures, information presented in the reports of nine quite

varied AA/DEIS studies that were completed within the last ten years was examined. These

studies were:

* St. Louis, MO. The central/airport corridor study (published in May 1984);

* Denver, CO. The North 1-25 corridor bus/HOV project study (June 1989),

* Salt Lake City, UT. The I-15/State Street corridor study (February 1990);

* Atlanta, GA. The North Atlanta corridor study (May 1990);

* New York, NY. The Queens subway options study (May 1990);

* Santa Clara County, CA. The Tasman corridor study (May 1991);

26
* Chicago, IL. The Central Area circulator project (August 1991);

* San Francisco, CA. The BART— San Francisco Airport extension study (March 1992);

and

* Boston, MA. The South Boston piers/Fort Point channel project (November 1992).

These prototypical studies were used to anchor the assessment of potential evaluation measures in

at least two ways. First, they were examined to see evidence of either

* the explicit presentation of data that could be used to calculate (albeit possibly

approximately) some of the measures under consideration; or

* the calculation of relevant measures in the course of the study, even if the data were not

explicitly provided in the report of the study.

25

Second, insofar as it did prove possible to compute estimates of performance measures from the

data provided in the report, their approximate values, range, and variance were examined as a clue

to how uniformly they may have been derived, how rationalizable were major differences, and

hence how meaningful a measure they might be for inter-project comparisons.

The second major point to note about the discussion in the Appendix is that it is directed entirely

to the Federal Government's role in deciding which projects should receive Federal assistance

under the discretionary Section 3 new starts funding. It is not suggested that the local project

evaluation « the work necessary to determine the locally preferred alternative for a particular

corridor — should be based entirely on the types of measures examined or recommended in the

Appendix. Nor is it suggested that the recommended performance measures be the only

considerations that the Federal Government takes into account in executing its role. However,

the approach being described here can provide local decisionmakers with much useful

information, arrayed in understandable form. In addition, as a comprehensive analysis of many, if not all, of the most important likely benefits of transit investments is included, it is believed that

most local decisionmakers would find the goals and objectives they typically see for transit

investments covered.

The SCBA model — which involves identifying, quantifying, and valuing the full range of privately

and societally experienced impacts expected for each considered alternative, using internally

consistent assumptions and procedures — arguably provides the best pattern for undertaking local

alternatives analyses. If this were done, most (if not all) of the measures recommended that the

Federal government require for the preferred alternative would be simple byproducts of the

exercise. But for the Federal Government to use the benefit/cost ratios emerging from such

studies as the primary or sole means of choosing between them has at least two difficulties:

* There are problems of ensuring that uniform or comparable assumptions and procedures

have been used across projects, without being overly prescriptive in a way that may

transgress the direction (in Section 3(i)(3)) to take account of local conditions.

The data developed in this exercise have been compiled into a separate document.

27
* There are public credibility and acceptance issues involved in using a single index, no

matter how wide the scope of the analysis has been (as can be seen both from the British

experience and from the types of complaints leveled against FTA's cost per new ride

measure). This is particularly true in the absence of Government-wide standards for the

monetary values of certain benefits of transit investments, and the absence of widely

accepted methods for assessing the value of other benefits, particularly land use effects. RECOMMENDED APPRAISAL STATISTICS

FTA intends to use the following measures for determining the degree to which a project is "justified" as required by Section 3(i) and to meet the requirements of the Executive Order to assess the benefits and costs of candidate Federal infrastructure investments:

* For "cost-effectiveness"

the total incremental costs per incremental transit

16 passenger-trip (or possibly, per

passenger-mile in certain cases), where the projected streams of capital costs,

operating costs, and passenger-trips have been (in the case of the costs) expressed in constant dollar terms, and (in all cases) the ridership and costs have been discounted at the social discount rate. The figures would also be "levelized" so as to produce a

statistic that characterizes the average year while avoiding the problems inherent in examining the situation for certain "design years" only.

* For "mobility improvements"

the projected aggregate monetary value of travel time savings per year anticipated

from the new investment, compared with the TSM alternative. This aggregate

includes the travel time impacts on people using competitive modes, along with those on the trips made by transit (both new and existing transit riders). It is a net figure in that travel time increases should be explicitly considered and used to offset the time

savings of those people who experience savings. Each year's projected time savings

would be discounted and levelized in a manner identical to that used for the

incremental cost per passenger-trip measure. FTA plans to work towards improved

forecasting methods that will allow induced trips to be appraised also. The value

would be expressed in absolute terms, as well as in percentage change terms for the

region. The value of the time savings will be calculated using a value of time based a standardized percentage of the local average wage rate.

the number of zero-car households (or alternatively, the people resident in those

households) located within V2 mile of boarding points for the proposed system

increment.

26 If the project goals include the promotion of ridesharing in private vehicles, the trips to be forecast would

be the change in all HOV trips (both auto and transit). 28
* For "operating efficiencies"

_ the forecast change21 in operating cost per vehicle service-hour (or service-mile), for

that part of the system that will be directly affected by the proposed new investment,

compared to the TSM alternative. If in the rare event it can be credibly argued that

there are significant economies of scale or of scope, the full system could be

considered. The value would be expressed in absolute and percentage change terms,

for the region.

_ the forecast change27 in passengers per vehicle service-hour (or service-mile),

calculated on the same basis, again in absolute and regional percentage change terms,

compared to the TSM alternative.

the forecast change27 in passenger miles per vehicle service-hour (or service-mile),

calculated on the same basis, again in absolute and regional percentage change terms,

compared to the TSM alternative.

* For "environmental benefits"

the monetary value of the forecast change27 in criteria pollutant11 emissions and in

greenhouse gas emissions, ascribable to the proposed new investment, compared to the TSM alternative. The measure should be expressed in tons per year (or per day),

and calculated in present value terms by discounting and levelizing in a manner

identical to that used for the cost-effectiveness measure. The value would be

expressed in absolute and percentage change terms. The monetary value will be

calculated using standardized unit values for emission reductions, based on EPA-based

analyses of the costs of alternative means of achieving emission reductions.

the forecast change27 in the consumption offuels ofdifferent types, ascribable to the

proposed new investment, again discounted and possibly levelized. Again, the value

would be expressed in absolute and percentage change terms, compared to the TSM

alternative.

* For "transit supportive existing land use policies and future patterns"

the degree to which local land use policies and the development market are likely to

foster transit supportive land use, measured in terms of the degree to which local land use policies are supportive of the proposed transit investment, and commitment to the

these policies.

This set of indicators addresses the major issues identified in the revised language of Section 3(i), as well as the goals of the Executive Order. Moreover, while there are some obvious

interrelationships among the indices, "double-counting" is minimized by keeping them as

27 That is, the difference between the forecasts for the selected alternative and for the baseline condition.

28 "Criteria pollutants" are those air pollutants for which specific standards have been set under the Clean

Air Act Amendments, such as Carbon Monoxide. It is suggested that a separate measure be computed for each

major type of emission for which the subject city is in nonattainment status. 29
independent as possible. While the measures focus on both transportation and non-transportation

benefits, they are transit-specific, and are thus focused on the Federal determination of the merit

of a project for discretionary Section 3 funding. Nevertheless, the approach being followed can form a basis for multimodal comparisons.

In particular, it should be noted that a different approach to measuring "cost-effectiveness"

considerations is being proposed than that used by FTA in the past. The incremental cost per

new transit ride measure attempted to internalize mobility effects by using monetized time savings

as an offset to costs. The threshold values specified for the statistic implicitly made liberal allowance for the inclusion of environmental and safety issues on a comparable basis. For the

new recommended measure, it is intended that "costs" be construed more narrowly, to comprise

only the monetary value of construction and any change in operating costs. This is because the

mobility and environmental considerations are now addressed explicitly by other recommended ' measures.

Another major difference in the proposed new cost-effectiveness measure is that it includes

annualized, levelized costs and ridership differences calculated over the analysis period, rather

than costs and ridership differences calculated based on a single forecast year. While past practice

has included estimates of costs on a year-by-year basis over the analysis period, accurate

assessment of the ridership impacts could involve multiple ridership forecast (say for the year of

opening, the forecast year, and the year at the end of the analysis period). On the other hand, it may be possible to synthesize forecasts of the year of opening and year at the end of the forecast

period using forecast year results and well known factors relating typical trends in ridership for

new transit investments. FTA is interested in obtaining views on how much additional effort would be required to calculate estimated ridership impacts for multiple forecast years. FTA is also interested in views on how much accuracy would be gained by such multiple forecasts,

compared with reliance on synthesized forecasts based on typical trends in ridership growth.

It should also be noted that the approach for valuing travel time savings will be changed from past

practice. In the past, FTA specified use of $4.80 per hour of travel time savings and $2.40 per

hour of travel time savings for non-work trip, for use in calculating the offset to costs. This value

was based on the a factor of 40 percent of the national average wage rate for work travel, and

one-half this amount for non-work travel. Recent analysis of the valuation of time in other

programs of the Department of Transportation and elsewhere in government suggests that this

value is inconsistent with these other practices. For example, analysis of models used by the

Federal Highway Administration indicates use of a much higher factor of wage rates for travel

time savings. Accordingly, FTA is participating with other elements of the Department to develop consistent approaches for valuing travel time savings. In the interim, FTA expects to use

a factor of 80 percent of the local wage rate for calculating the value of travel time savings.

Similarly, in the past FTA did not attempt to value the environmental benefits of transit

investments. The benefits of emission reductions can take a variety of forms, such as improved

visibility, crop yields, and public health. The Environmental Protection Agency (EPA) is currently

developing, pursuant to Section 812 of the Clean Air Act, standard monetary values of such

benefits. The results of this analysis are expected to be available in 1995, and may be useful in evaluating the environmental benefits of transit.

30
Absent standard values of the benefits from emission reductions, avoided cost is an inferior, but

potentially useful approach. The avoided cost approach, which generally is only applicable to nonattainment and maintenance areas, uses standard unit costs of pursuing alternative means of

achieving emission reductions as a proxy for the benefits of such emission reductions. Some EPA

analyses have, in the past, used the avoided cost approach.

Pending further analysis by EPA and additional work by FTA with other agencies within and

outside the Department of Transportation, FTA intends to use values based on avoided cost as an

interim proxy for the benefits of emission reductions in the relevant nonattainment/maintenance

areas.

The standard unit values proposed in this document are based on nationwide averages and,

therefore, do not reflect the fact that the cost of achieving emission reductions by alternative

means varies depending on project location. If the environmental impacts of a proposed transit

project are significant, additional analysis to develop an avoided cost relevant to that specific

nonattainment/maintenance area would be appropriate.

Examination of the nine prototypical AA/DEIS studies suggests that these new indices should be

calculable in the alternatives analysis phase of planning without significant extra work for local

sponsors.

FTA intends these measures to apply to projects which have not yet completed the Alternatives

Analysis process. Projects which are now in Preliminary Engineering would not be required to do

the additional analysis. They would be evaluated based on data already available.

OTHER CONSIDERATIONS

The recommended measures listed above do not include explicit consideration of noise emissions

or energy security considerations. The Appendix includes some discussion of (and suggestions

for) measures that address these topics. However, the evidence from examination of past studies

suggests that the noise and energy security effects are likely to be quite small, and very unlikely to

tip the balance for or against any specific projects. Transit projects are usually analyzed to have

negligible effects on noise emissions, or else deleterious effects meriting mitigation. Energy

security considerations have been valued at a few cents per new transit trip at best; this is hardly

large enough to offset the levels of differences observed between transit projects.

FUTURE IMPROVEMENTS

As noted earlier, SCBA forms a useful tool for analyzing the worthiness of public investments.

However, the key to successful SCBA is the proper accounting for and monetizing of the full range of the benefits of a proposed investment. It is FTA's belief that while it is possible to quantify and monetize many of the benefits of transit investments, as evidenced by the approach

being proposed here, ascribing a monetary benefit to some of the benefits is particularly difficult. This is particularly true in the absence of Government-wide standard values for some of the

benefits which may be ascribed to transit projects. In addition, there is an absence of general

31
agreement on even the valuation of certain other benefits, such as those related to the land use

effects of transit investments.

This lack of current Government-wide standard values or generally agreed valuation is the key

reason why FTA did not choose to use only SCBA in the approach described here. FTA intends

to conduct research into the valuation and monetization of the benefits of transit investments in order to develop an accepted approach. As this research proceeds, FTA intends to apply it to the

quantified benefits of the investments being considered, in order to move closer to a complete

SCBA approach. This research should permit FTA to begin to construct partial indices of costs

and benefits as part of its evaluation of project worthiness. With time, more complete indices can be constructed, ultimately resulting in a full-fledged SCBA approach.

32
APPENDIX

An Appraisal of Candidate Project Evaluation

Measures

MEASURES OF "COST-EFFECTIVENESS"

Developing specific statistics to characterize the relative cost-effectiveness of transit capital

investments requires resolution of several issues. Both "cost" and "effectiveness" need to be

defined. Then, given that new starts involve investments that perform over many years, the

appropriate way to handle the timing of both costs and effectiveness needs to be established.

Finally, the "cost per new transit trip" measure that has been in use since 1984 is a form of

cost-effectiveness measure, and it needs to be evaluated to see how it compares with other

possible cost-effectiveness measures.

Review of the relevant literature and practice suggest that effectiveness is best defined as either

additional trips or passenger miles on transit. Cost is best defined as the total cost of the

proposed investment, capital and operating, compared with the base case. Timing is best handled

by "levelizing" costs and effectiveness to a discounted annual equivalent. Thus, the recommended

measures of cost-effectiveness are incremental cost per new transit rider and incremental cost

per new transit passenger mile.

Effectiveness of Transit Investments

In recent years, much has been written about the monitoring and evaluation of transit

performance, more commonly in connection with operating performance rather than with capital

investment. 1 "Effectiveness" is usually taken to connote a measurement of the amount of end

product delivered to and consumed by the public: it includes a measure of demand and not just of

supply. While "efficiency" can be characterized in terms of supply-side measures alone (such as vehicle-miles, seat-miles, vehicle-hours, and so on), "effectiveness" is better characterized by such

demand-side measures as passengers, passenger-miles, fare revenues, or user benefits.

Since prospective transit projects are designed to move people, one clear measure of the

effectiveness of such investments is the number of trips that are forecast to be carried on the new

system. Measuring effectiveness in terms of ridership has the advantage that most new passenger

transportation investments are evaluated in this way, so that the measure can be used in some

intermodal comparisons.

The disadvantage of using total ridership as a measure of effectiveness is that different types of

rides can vary in the cost of providing them, and also that different types of rides can vary in terms

of the benefits associated with them. For example, rides on transit new starts that are made by

1 Fielding (1992) provides a succinct overview of this literature. Fielding, Glauthier, and Lave (1978)

developed a range of different indicators appropriate to performance assessment, and Fielding, Babitsky. and

Brenner (1985) explored the properties of such indicators for bus systems, using FTA "Section 15" data. A-1
former single occupant vehicle (SOV) commuters may have a more positive environmental impact

than rides that are made by individuals diverted from existing transit services. Alternatively, rides

made in the peak period may have more impact than trips made in off-peak periods, since new

peak period rides are more likely to alleviate highway traffic congestion.

The concern about differential benefits associated with different types of trips can be dealt with by

tracking the ridership benefits explicitly, as is called for in Section 3(i) of the Federal Transit Act

(FT Act), as amended by the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA).

The mobility or environmental benefits associated with different types of trips can be measured

separately, or included in the calculation of the net cost in a manner similar to the calculation of

the current cost per new transit ride index.

However, it is true that different types of trips can cost different amounts to provide. All trips are not the same, which complicates the comparison of cost-effectiveness indices across cities. For

example, trips on San Francisco's BART system generally are longer than trips on Boston's Red

Line extension, so that comparing rides per day on the two systems ignores the fact that the

BART system does more work in moving people. Thus, the costs per ride on the two systems are not strictly comparable since the trip lengths are so different.

Because of such potential differences in trip lengths, effectiveness in transportation systems is sometimes measured in terms of person-miles rather than in person-trips. A system that has trips

averaging twice the length of those on another system might reasonably be expected to exhibit

higher costs per ride. Such a higher cost per ride may not necessarily imply a less cost-effective

system, but rather one that has rides producing social impacts or generating savings that are

larger.

So while both person-trips and person-miles are reasonable alternative measures of effectiveness,

deciding which one is a more meaningful characterization of the benefits of alternative investment

options for a particular corridor should be influenced by whether the production of a transit trip or the length of the trip will better represent the goals of the enterprise. For example, if the

primary objective of a new transit proposal is to provide mobility options for those who do not

currently have access to private vehicles, then short trips may have almost the same impact as longer trips in improving mobility, and person-trips may be an appropriate output measure. If reducing dependence on petroleum use is a primary objective of the proposed investment, then

longer trips may be expected to have more of an impact than shorter trips. In this situation,

person-miles traveled may be the more appropriate output measure.

With today's cleaner cars, a significant portion of the air pollutant emissions comes from the

beginning of an automobile trip, before the catalyst in the exhaust system has heated up to maximum efficiency. Consequently, emissions are not proportional to VMT, and diverting short

auto trips may have almost as much air quality benefit as diverting longer auto trips.

If a primary objective of the new transit proposal is to reduce traffic congestion, either

person-miles traveled or person-trips may prove to be the more appropriate measure of

effectiveness. Although in some dense road networks congestion may be broadly proportional to VMT, more typically it is concentrated in just a few parts of the metropolitan area (such as the

downtown), and both short and long transit trips may make equivalent contributions to congestion

A-2
reduction. Thus, as with the emissions objective, both the person-trips and the person-miles

traveled may be useful effectiveness measures.

Cost-effectiveness measures based either on the forecast person-miles traveled or on the forecast

person-trips both have direct intuitive meaning. Using person-miles traveled facilitates

comparisons with taxi fares or auto costs per mile. For example, many tripmakers are familiar

with cost estimates of about 28 cents per mile for cars (based on the current IRS allowance level

for business deductions) and about $2.00 per mile for taxis. The use of person-trips as an

effectiveness measure leads to cost comparisons based on the total out-of-pocket costs of taxi or

driving.

The choice of the more appropriate effectiveness measure for deciding between alternatives in a

specific corridor should be influenced, at least in theory, by the primary objectives of the project

and the extent to which either person-trips or person-miles might better correlate with those

objectives. From the Federal viewpoint (weighing the relative merits of projects across cities), it would certainly be more informative to have both measures of effectiveness available. If, in the

interest of simplicity, one or the other has to be chosen for presentation, the correlation between

them may be expected to be so high that in many cases it wouldn't really matter which were used.

In a choice between the two, passenger-trips is marginally preferred, primarily because of

considerations of continuity, familiarity, and ease of calculation.

Review of the nine alternatives analysis reports found that all produced forecasts of

passenger-trips. However, few included either explicit estimates of passenger-miles or data from

which approximate passenger-miles figures could be constructed. If the more usual "synthetic"

method is being used to generate the demand forecasts, it should be feasible (and probably easy)

to produce passenger-miles estimates. It may be more difficult and burdensome to do so if the

"incremental" forecasting method is being used. The historical transit passenger-miles data are

likely to be somewhat less accurate and precise than the figures for unlinked or linked transit trips.

Interest in using person-miles traveled as an alternative to person-trips for measuring effectiveness

may increase if and when more systems adopt distance-based fare systems, made possible by

improvements in fare collection technology. If distance-based fares are in place or are being

seriously considered, evaluating alternatives in terms of passenger-miles may have some

advantages.

Another key issue in determining the effectiveness measure relates to use of a base case for

analysis. In the present approach, the base case is the TSM alternative, sometimes known as the

"best bus" alternative where there is not currently a rail facility in the corridor in question. This

alternative includes those low-capital and operational improvements which can be made to improve the efficiency and effectiveness of the existing transit system. This base case is used to focus the analysis on the capital investment in question, by normalizing the analysis for these sorts of improvements.

Many have argued use of the TSM alternative as the base case undercounts the benefits of the

proposed new investment. Others have questioned the feasibility of the TSM alternative, arguing

that it is often not possible politically to generate the level of interest needed to make changes of

this nature, which often are quite costly, and can be controversial.
Nevertheless, use of an alternative which controls for the effects of improving the existing

infrastructure before making major new investments is good planning practice. It focuses the

analysis on the capital investment. Further, it assures that city-to-city comparison of projects are

fair because no city can claim that the benefits of basic improvements in transit are the result of

the capital investment.

For these reasons, it is proposed that the TSM alternative remain the base case for calculating

cost-effectiveness, as well as the other project justification measures. In this way, fair comparisons can result, and only the impacts of the capital investment being proposed will be

evaluated. Thus, the effectiveness measures being discussed here will be incremental passengers or passenger-miles, compared with the TSM alternative.

Cost of Transit Investments

The costs of transit investments are a measure of the resources foregone to build and operate the

system. Narrowly defined, costs comprise the system capital and operating expenses. More

broadly defined, costs can be construed to include environmental and mobility factors such as congestion reduction.

The narrow definition of costs provides insights into the direct resources consumed to use the

system, while the broader definition includes spillover considerations that are relevant for a public

investment. Narrow costs would be those viewed by the prospective builders, operators or

financers of a privatized system.

Deciding how broadly to define costs depends in part on the choice of the other transit

performance measures developed to assess new starts. For example, if the forecast impacts on

traffic congestion are being tracked with specific measures of mobility effects, then it would not

be wise to include its impacts in the cost-effectiveness index also. As much as possible, the set of measures chosen to provide descriptions of new-start proposals should not overlap.

Consequently, the wording of the revised Section 3(i) appears to be more closer to a narrow

definition of costs for the cost-effectiveness measure than to a broader one to allow for more

discrete analysis of each benefit, rather than attempting to develop compendium measures which

attempt to cover all costs and benefits at one time.

Accounting for the Timing of Costs and Effectiveness

Capital costs mostly occur in the early years of the project, prior to opening for service, while

operating costs and ridership occur in later years. Costs and ridership accruing in different years

have different levels of importance, with near-term impacts being more important than impacts

projected to occur in later years.

To account properly for the distinctions caused by the timing of investments, both the costs and

the ridership need to be discounted by the "social cost of capital." Discounting both the annual

costs and the annual ridership projected for new starts results in single measures of each,

expressed in terms of today's dollars and values. These discounted values could be divided

directly to provide a cost-effectiveness measure, or converted to more intuitive measures.

A-4
"Levelizing" the costs and the effectiveness, after discounting them, is one way to make the

statistic more intuitively understandable. Levelized costs are derived by calculating a uniform

annual cost over the life of the new start that, properly discounted, results in a net present annual

cost which is equivalent to the discounted cost of the actual expected cost streams, producing an "average year" cost. Levelized ridership is simply the uniform annual ridership level that, properly

discounted, results in a present value of ridership equivalent to the discounted value of the actual

expected ridership, again in an "average year."

Using levelized cost and effectiveness measures will not change the results from using net discounted values, but will provide annual cost and effectiveness measures that can be related

more easily to actual projections in new-start applications. The result is thus the

cost-effectiveness in an "average year."

At first impression, it may seem unreasonable to discount a physical effectiveness measure in the same way that a financial cost measure would be discounted. However, the effectiveness measure

is correlated with — and a proxy for ~ the benefits produced by the investment. If the value of

those impacts were monetized (as they would be in a social cost/benefit analysis), then it would

not seem unusual to apply discounting procedures.

Calculating discounted (or levelized) costs and effectiveness is preferable to analyzing a selected

"typical year," projected 10 to 15 years after the system opens. Although estimating the

effectiveness and costs in a selected year does not involve discounting, it is misleading to ignore

the true costs and effectiveness associated with the startup years of the proposed project.

On the other hand, calculating discounted (or levelized) effectiveness is likely to increase the

complexity of the analysis needed. For the most accurate estimate, effectiveness (ridership) in each year of the forecast period would have to be calculated. However, since year to year

changes in ridership are likely to be small, it is possible to achieve an equally accurate estimate by

calculating ridership impacts for a smaller number of forecast years. For example, ridership could

be calculated for the year of opening, the last year of the forecast period, and some year in between. The present approach uses a "typical year," usually 15 years from the current year (e.g.,

for analyses conducted in 1994, the forecast year is 2009). Adding the year of opening and final year of the analysis period (current practice is 30 years), would increase the level of effort

significantly, although it would not be a tripling of level of effort since the methods used would be

the same. However, separate forecasts of exogenous factors (such as population and employment

levels and patterns) would be required.

An alternative approach would be to rely on a single forecast year, applying standard transit

ridership growth patterns to calculate year-by-year ridership levels. Research has shown that

transit projects typically generate about 80 percent of "stable" ridership in the first year of

operation, 90 percent in the second year, and 100 percent in the third year. After that, ridership

tends to grow on a secular basis with regional growth in population and employment (typically 1 or 2 percent per year). Using this pattern, together with a "typical year" forecast, would produce

a consistent year-by-year ridership pattern for calculation of discounted, levelized ridership, which

is unlikely to be significantly different from the results of developing detailed forecasts for more

than a single year. FTA is interested in comment on how much more accurate multiple forecast

years would be and how much additional effort is required to develop such multiple forecasts.

A-5
Using the Existing "Cost Per New Ride" Concept to Measure Cost-Effectiveness

The current cost per new transit ride index provides a now-familiar measure of cost-effectiveness.

It focuses on new rides (passengers assumed to have been diverted from private vehicles), rather

than total rides or person-miles traveled, as the effectiveness measure. However, the current

index also includes the net time savings for existing riders. In effect, the effectiveness measure

can be viewed as encompassing total rides, but the benefits to existing transit riders are valued in money terms, and converted to a cost offset. Thus they are considered, but are accounted for

separately from the "new" rides.

Besides the monetized value of travel time savings for existing riders, the concept of cost and

benefits in the current cost-effectiveness index is a broad one, recognizing not only the capital and

operating costs, but also congestion reduction, environmental improvement, and net savings to

riders diverted from automobiles. As such it includes several concepts that, in response to the

reworded Section 3(i), are probably better tracked by other independent measures of mobility and

environmental impacts.

The cost per new transit trip index measures effectiveness in terms of passenger-trips, not

passenger-miles. Switching to a passenger-miles basis for the index, while retaining the cost

offsets for travel time savings, implies more than merely a substitution of "new passenger-miles"

for "new trips" in the denominator of the index. Projects that will cater to longer transit trips

might conceivably generate bigger savings for existing and new passengers. In other words, an

index based on passenger-miles would require adjustment to the interpretation of the current index which would go beyond simply adjusting the index value for the average trip length.

Recommended Cost-Effectiveness Measure

Alternatives analyses should calculate dual measures of cost-effectiveness of transit system new

starts, based both on incremental transit person-trips and person-miles traveled. The incremental

effort involved in calculating and reporting both of these effectiveness measures will be small.

Since it is proposed that multiple evaluation measures be used to represent the range of

considerations now spelled out in the FT Act, the existing measure of cost-effectiveness — the cost per new ride calculated in a standardized way intended to internalize a broad range of

benefits and costs, as a proxy for a social cost/benefit ratio — should be modified by deleting the

travel time savings credit in the numerator. In the world of the new Section 3(i), mobility benefits

would appear to be better addressed by separate measures. This change to the existing measure would narrow the definitions of both costs and effectiveness, reducing it to a much simpler

incremental cost per incremental passenger or incremental cost per incremental passenger-mile

index, compared with the TSM alternative.

A-6
MEASURES OF "MOBILITY" IMPACTS

The new language of Section 3(i) charges the Secretary of Transportation to take account of the

mobility impacts of proposed new starts in two ways:

* by accounting for the cost implications "related to . . . improved mobility . . . (and)

congestion . . .", and

* by identifying and considering the degree to which the project "increases the mobility of

the transit dependent population or promotes economic development."

It is first necessary to define improved mobility, and the cost savings or benefit increases that

result from it. Possible statistical measures of these effects will then be examined and

recommendations made. Based on the review, it is recommended that the value of travel time

savings and number ofzero-car households within 1/2 mile of the newfacility be used as measures of mobility.

Defining Improved Mobility and Associated Cost Savings

Mobility is improved if individuals can complete the trips they currently make at lower net costs, or if they can and do make more trips in response to a lowered net cost of tripmaking. "Costs," in this context, are meant to include not only the out-of-pocket monetary payments made for their

travel, but also the monetized value of service quality differences, most importantly in travel time.

Thus the usage of the word "costs" is equivalent to what are sometimes referred to as the

"generalized costs" of travel.

In other words, the most significant hallmark of improved mobility is that the generalized costs of

travel have decreased, thereby increasing the "consumer surplus"

2 of the people traveling in the

affected region. The most meaningful measure of this change in mobility is the change in consumer surplus.

The savings in generalized costs for those individuals currently making trips is simply the

difference in the generalized costs of their trips before and after the new investment is placed in service (or between the base case forecast and the forecast for the proposed new start).

The cost savings from making more trips are less straightforward, since the payments of money

and time for transportation actually increase, relative to the baseline situation, where the trips were not made at all. But while it is true that transportation costs increase, it is also true that the

new transportation system creates an opportunity for tripmakers that did not exist before. By

taking advantage of this opportunity, the tripmakers benefit. The satisfaction they get from

expenditures on new trips obviously exceeds the satisfaction they formerly received on spending

their money and time in other ways, otherwise they would not now be making the new trips. The

extent to which they are better off ~ their change in consumer surplus - is a measure of increased

mobility for them.

Defined as the difference between what consumers actually "pay" versus what they would be willing to "pay," taking into account all of the benefits to the consumer. A-7
The tripmakers who benefit most directly from the improved mobility and the associated cost

savings are the users of the new transit system. But insofar as the new system relieves congestion on the highways or on other parts of the transit system, there may be gains to existing and new

tripmakers who are not themselves using the new investment. Gains to these users may be

significant changes to regional mobility.

Section 3(i) highlights in particular the mobility gains of the transit dependent population,

suggesting that they should be considered separately from the gains to the entire population.

Consequently, separate accounting needs to be made for these individuals. By "transit

dependent," we take the congressional intent to include not only those people who, because of

financial or other reasons, have few alternatives before the new investment but to use transit, but

also other low-income or low or zero-car-ownership individuals newly served by the investment.

In other words, the concern is assumed to be less with the people who are currently "captive to"

transit services than with the people living in low-car-ownership households, regardless of they

are currently traveling.

Figure Al provides a simple characterization of modal diversions brought about by the

introduction of a major new transit service. Consider the current pattern of tripmaking in the

relevant area, and distinguish between those trips now made on the existing transit services and

those made by other modes.3 After the proposed major transit investment has been put into place

and ridership has reached a steady state, these "same trips" will have been redistributed in the

fashion summarized by the figure. The new investment has changed the generalized costs of

travel in the corridor by each of the two options, and the trips have been redistributed as a result

of these changes. The net mobility impact for an "existing trip" is best measured by the change in

Figure Al. A Simple Model of Transportation Benefits from a Transit Investment

"Before"

"After the Investment'

Current Transit Trips

Category' 1

Transit Transit

Trips Trips

Category 2

Current Trips By

Other Modes

Trips by

Other Modes

Category 3

Trips by

Other Modes

Category 4

3 There are good reasons for wanting to distinguish these "other modes" individually, but the traditional model used in these circumstances focuses solely on trips made by private vehicles, at the existing average occupancy rate. People are assumed to choose solely between "auto" and transit travel. In well-defined commuting

corridors this may be a reasonable representation of the real world, at least in the peak periods; for off-peak, or A-8
the generalized costs of that trip. The aggregate mobility impact is that change summed over all the trips.

But any significant increase in the transportation infrastructure is likely to induce some additional

trips as well. The new transit capacity can be expected to induce both some new trips by transit

and also new trips by highway if there's been any significant favorable impact on traffic congestion. In any complete accounting, these induced trips need to be forecast and valued.

For several reasons, the forecasting methods used in most AA/DEIS studies are not very good at estimating induced trip effects, and project appraisal measures have typically ignored them. The

mobility impacts that are typically looked at are those arising primarily from modal shifts,

assuming fixed total numbers of trips made between specified origins and destinations.

The savings in generalized costs that accrue to the tripmakers in all of categories 1 through 4 have

three major and different dimensions:

* Out-of-pocket monetary savings. New transit investments can attract riders by offering a less-expensive mode of transportation. For example, a new start might include

park-and-ride facilities that enable some commuters to avoid driving and parking

downtown, with a resulting net direct cost saving to them.4

* Net time savings. New transit investments will typically provide faster trips for many

commuters that formerly used buses operating on congested surface streets, and slower

trips for other users now forced to transfer or take more circuitous routes. Commuters

switching from private vehicles to transit can also achieve travel time savings. In addition,

insofar as traffic congestion is reduced, the surface bus system and people traveling in private vehicles may realize some net time savings as well.

* Reliability, convenience, and comfort improvements. A new transit investment will

typically provide a level of service quality that is higher than that provided by the systems

it expands or replaces. Such improvements -- which may reflect greater reliability, fewer

transfers, or lower in-vehicle crowding ~ are likely to have some value to the customers.

When a trip that was previously made by another mode is projected to be diverted to transit as a

direct result of the proposed new investment, the magnitude of the benefits (on all three of these

dimensions) should be measured relative to the transit service offered previous to (or without) the

new investment, and not relative to the price, travel time, and other significant service

characteristics of the mode currently used.

The increased travel on transit raises one important definitional problem, which is how to value

the new trips made by transit dependent populations. Typical economic calculations value new

trips by measuring the consumer surplus that is created for each new tripmaker. Using consumer

reverse flow, or intersuburban trips, it may be too great an oversimplification or mischaracterization of the

situation.

4 There may be long-run as well as short-run cost impacts, to the extent that the new investment influences

automobile ownership levels and land-use patterns. Generally speaking, however, there are good reasons to be

hesitant about incorporating long-run effects; they are discussed further in Chapter 3. A-9
surplus to measure increased mobility focuses on the private gains to the individual. Through its various programs to assist transit dependent populations, the Federal government has

demonstrated a "social willingness to pay" to achieve increased mobility for these people, over and above the private gains that accrue directly to them. That is, increased mobility for the transit

dependents is especially highly valued, and gains in mobility for them are particularly important.

The question arises as to how the societal, as distinct from private, willingness to pay should be

considered and measured.

Measuring Improved Mobility

The next part of this section will discuss first an approach to measuring mobility impacts that

takes account of all of the factors discussed thus far. This is followed by a discussion of some

compromise measures that come closer to the information and analysis typically undertaken in past alternatives analysis studies.

"Complete Measures" of Mobility Impacts

To assess how best to measure completely the improved mobility that results from a proposed

transit investment, it is useful to examine what is known quantitatively about the factors

influencing the demand for the proposed investment. Forecasts of the patronage for the new

investment will be based, explicitly or implicitly, on a demand model (or a modal choice model),

the coefficients of which are likely to characterize traveler valuations of (for example) line-haul or door-to-door travel time savings and service frequency. Moreover, the model is likely to include

"mode-specific (or modal) constant" terms, that characterize the net effects of particular features

of each mode beyond the travel time and cost considerations that are treated explicitly in the

model. Consequently, the modal constants are serving proxy for such aspects as the reliability,

convenience, and comfort of the different available choices.

For the existing transit users, the valuations that are implicit in the demand model coefficients and

mode-specific constants can be employed to translate projected net time savings (and possibly

other service quality improvements) into monetary terms. It is important to stratify the market

into segments believed to have relatively homogeneous values of travel time, which implies that it would be preferable to do these calculations separately for commuters, off-peak or occasional

users, and transit dependent populations, if the available data permit. Moreover, since the people

who are currently riding transit are likely to have different average values of time savings than

those using private vehicles, this analysis should be stratified by the mode currently used.

5 For

new users, the same transportation demand models could be used to compute the equivalent net savings in generalized costs, by comparison with the TSM alternative.

With a good knowledge of the mode choice utility functions for the varied market segments, and

some analysis of the historical growth of total travel in the corridor, it is possible to forecast the

induced travel based on the change in the overall level of service offered by the improved

transportation system.

6 The consumer surplus associated with this induced traffic can also be

estimated.

Brand et al. (1992) argue the importance of segmenting the market by existing choice in developing

demand or mode choice models.

6 Brands al. (1992).

A-10
Proxy Measures for General Mobility Impacts

However, this discussion of "complete measures" implies a level of data collection expenditure

and analysis effort that is significantly greater than has been expended in most AA/DEIS studies.

It's likely that simpler proxy measures will be necessary to give an approximate indication of the

likely mobility impacts of different projects. Considering first the market as a whole, three proxy

approaches commend themselves:

* Track time savings only. One approach would be to forecast the net travel time savings

of existing tripmakers. This approach ignores money and convenience savings, and all mobility gains from induced trips.

* Track travel time and cost savings only. This approach would be similar to the first one, except that out-of-pocket monetary savings as well as time savings would be

forecast. Out-of-pocket money savings may be somewhat suspect as a benefit measure

because they will depend in part on the fare policy assumed by the transit authority.

* Track travel time savings and estimate induced trips. This approach would be similar

to the first one, but would add a forecast of induced trips, without making an effort to assign a value to the increased mobility of those induced trips.

The examination of the nine prototypical alternatives analysis reports shows that it is rare for the

published documents to present information about net travel time and monetary impacts on

travelers.

7 However, these data are usually calculated at some point in the analysis for use in the

mode split model. It is conceivable that the estimates of time and cost savings implicit in the

equilibrated design network could be obtained without much extra effort.

The concept of induced trips is foreign to the "synthetic" process usually used to forecast the

impacts of a transit investment. In the typical Alternatives Analysis — Draft Environmental

Impact Statement (AA/DEIS) study, the land use patterns and the trips generated by them are usually exogenous inputs to the forecasts, developed by the local Metropolitan Planning

Organization (MPO) and insensitive to the performance of the transportation system. It is unlikely that any substantiated forecasts of induced trips could be calculated without significant

additional work in these studies.

This suggests that, at the present time, the best measure would focus only on travel time savings.

However, once travel time savings are calculated, the next step in calculating a proxy measure can be to ascribe a monetary value to these savings. As noted above, there may be differences in the

value of time for different users and trip purposes. However, for the purposes of developing a proxy measure, certain simplifying assumptions can be made, particularly to ensure consistency

between the analyses conducted on transit projects and those conducted for projects in other

modes and under different infrastructure programs.

Often, the report will cite an average trip time on the new transit network compared with the old. But

applying this trip time to the number of new rides doesn't allow one to evaluate the benefit of the new service without some knowledge of their previous trip times. A-11
In the past, FTA has used a factor of $4.80 per hour of work-trip travel time savings and $2.40

per hour of non-work trip travel time savings. This was based on earlier work for FTA which

suggested that 40 percent of the National average wage rate was an appropriate value to use in valuing the current transit user travel time savings for calculation of the former cost-effectiveness

index. However, recent analysis has shown that this value is substantially less than the value used

in analyses of projects in competing modes. For example, a current model used by the Federal

Highway Administration (FHWA) suggests use of 80 percent of the average wage rate for both

work and non-work travel. The Federal Aviation Administration (FAA) uses an average value of

time of $42.00 per hour, based on 100 percent of the wage rate for business travel, and a factor

equal to 150 percent of the wage rate for leisure travel. These factors were developed by

assessing the behavior of travelers in trading off time and cost savings.

In order to assure consistency, FTA intends to work within the Department of Transportation to

develop a uniform approach to valuing travel time savings. The result will be a single uniform

basis for analyzing the value of travel time savings, and will be consistent with the approach used

by all competing modes. In the interim, FTA proposes to value time at 80 percent of local wage

rates, in order to be consistent with current FHWA practice.

Proxy Measures for Transit Dependent People

Currently, demand forecasts are not developed separately by income level or automobile

ownership levels. On the other hand, in setting out land use considerations associated with the

proposals, AA/DEIS studies will often describe the projected demographic and socioeconomic

composition of the corridor in question. This suggests that a suitable proxy measure might be the

count of existing households (or of the people in those households) who

* live within, for example, one half mile of the proposed alignment of the new service, and

* indicate some appropriate measure of transportation disadvantage or transit dependency

(for example, zero-car households, or households with income beneath the

officially-designated poverty level).

There is a possibly perverse impact from this measure. It creates an additional incentive to plan

rights of way through low income neighborhoods. Some urban transportation investment

proposals, highway and transit, have been criticized in the past for "building rich people's facilities through poor people's bedrooms."

Recommended Measures of Mobility Impacts

As a long-run proposition, FTA is considering sponsoring or fostering some new analysis on

improved demand forecasting for major transit investments, incorporating the following elements.

* Data collection and analysis by market segments based on (at least) the existing mode

choice, the type of trip, and (possibly) the financial status of tripmakers;

* The forecasting of induced trip effects, based on detailed knowledge of the utility

functions of the market segments; and

A-12
* Using the demand functions to compute the net consumer surplus impacts, as a measure of the mobility effects of the proposed investment.

* Improved methods for ascribing a monetary value to travel time savings.

Guidance for doing this in alternatives analyses would then be incorporated into the FTA's

planning procedures manual.

In the near term, two proxy measures will be used to characterize the mobility impacts:

* The value of net travel time savings, given the projected trip table, ascribable to the

proposed new start, compared with the TSM alternative, with the value of travel time

savings, calculated using a standard percentage of the local average wage rate; and

* The number of zero-car households (or people in those households) located within V2 mile of boarding points for the proposed new facility, compared with the TSM

Alternative

A-13
I

A-14
MEASURES OF "OPERATING EFFICIENCIES"

Under the new wording in Section 3(i), improved operating efficiencies are now an explicit

new-start criterion. However, defining usable measures of operating efficiencies associated with

transit capital investments requires answers to several critical questions, such as:

* What are operating efficiencies?

* How should operating efficiencies be measured?

* How should operating efficiencies be viewed when comparing alternative projects?

Review of these issues suggests that operating efficiencies should be measured in terms of the

change in operating costs per vehicle service hour (or mile), change in passengers per vehicle

service hour (or mile), and change in passenger miles per vehicle service hour (or mile).

What are Operating Efficiencies?

In general terms, "operating efficiencies" represent the extent to which the proposed transit

investment would produce future resource savings for transit operators, relative to a well-defined

reference case. But a more specific definition of operating efficiencies is necessary to develop

quantitative measures that can be used to compare one project with another. One dimension on

which greater specificity is needed concerns the types of resources considered in estimating

efficiency gains.

The most comprehensive measure is to focus on total resources, irrespective of the type of

resource or the use of that resource. In 1991, for example, the total operating costs of the transit

industry were about $15.4 billion. If levels of service stayed constant, operating efficiencies

would be achieved if the level of operating expenditures, expressed in real terms (corrected for

inflation), declined.

Narrower definitions of operating efficiencies can be defined to focus on particular types of

resources or particular kinds of transit activities. For example:

* Operating efficiencies could be defined for each of the major types of resource used to provide transit services. For example, Section 1 5 data breaks down the transit operating

costs into seven categories of resource inputs and shows that labor accounts for about

two-thirds of all operating costs.

* Alternatively, operating efficiencies could be measured by reviewing separately the costs

of the different types ofactivity that transit operators undertake. Section 1 5 data breaks

down transit industry operating costs into five categories of activity. Vehicle operations is the largest category, accounting for about 41 percent of all operating costs. General

administration is the second largest category, about 10 percent of total operating costs.

Defining subcategories of operating efficiencies (either by type of resource or by type of activity) can be useful for several reasons. Aggregating all of the resources and activities together in one measure of operating efficiency can obscure particular efficiency achievements or problems. For

example, a proposed project could generate overall operating efficiencies but involve inefficiencies

A-15
in the use of one particular resource or one particular activity needed to provide transit service. If the inefficiently-used resource or inefficiently-completed activity involved areas where there was a

particular Federal interest in promoting efficiency, then knowledge of the detail could affect

project rankings. In addition, reviewing subcategories of particular operating efficiencies could

provide incentives for the applicants to focus more closely on operating efficiency in all levels of

their project planning.

Breaking out the subcomponents of operating costs can also allow a city-specific correction for

cost-of-living differences across different cities. For example, labor costs may vary significantly

by city, but the cost of fuels and lubricants may differ less across cities. By tracking

subcomponents of operating costs, projects could be compared across cities more easily. One

project might be more expensive than another, but after correcting for labor efficiency, it might be

determined that each project requires the same amount of physical input. In that case, the

projects would be similar on a physical production basis, but different on an operating efficiency

basis measured in dollars.

There are two arguments against the development of a range of detailed measures of operating

efficiency:

* First, operating efficiencies associated with new transit investments will typically accrue over a period of time in the future. Applications for new-start funding may have great

difficulty in developing projections of operating efficiencies for particular types of

resources or particular types of activity. Consequently, the applicants may be able to produce estimates, but the estimates may not be particularly credible.

* Second, providing the detail on particular kinds of operating efficiencies should only be

considered if it will materially affect the new-start project evaluation process. Different

systems may achieve operating efficiencies in different ways, but ultimately the overall

efficiency savings will be the key consideration for the evaluation process. If it is unlikely

that a project with lower overall efficiency would be ranked less highly than one with more

overall efficiency but less efficiency in particular areas, then seeking operating efficiency

detail would create requirements that would never effectively be used.

In summary, defining operating efficiency involves a choice from among the following

alternatives:

* Focus on total operating efficiencies;

* Focus on operating efficiencies broken down by type of resource, including _ operating expenses for labor _ operating expenses for materials and supplies _ operating expenses for fuel and lubricants and other operating expenses;

* Focus on operating efficiencies broken down by type of activity, including _ operating expenses for vehicles _ operating expenses for maintenance _ operating expenses for general administration

A-16
operating expenses for purchased transportation; or

* Focus on operating efficiencies broken down both by type of resource and by type of

activity.

How Should Operating Efficiencies Be Measured?

There are several issues involved in measuring operating efficiencies, whatever definition is chosen:

* The scope of measurement. First the physical, institutional, or geographic scope of the

measurement should be determined. To be sure, measuring systemwide operating

efficiencies brought about by a proposed investment represents one possible approach.

However, it is possible that only parts of all the services provided by an existing transit

system should be considered. For example, an extension or single new line added to an

existing system would primarily affect operating costs on only part of that system, and

operating efficiencies for the affected segment before and after the new start should be the

primary focus of concern.

Narrowing the geographic scope becomes increasingly important as the size of the transit

system increases. In a system as large as that in New York, for example, any particular

project, no matter how many efficiencies that it might induce, will appear to have a small

efficiency impact on a systemwide basis. As such it might be incorrectly considered less worthy than a system which presents an application with lower overall savings but larger

efficiency impacts on a percentage basis.

* Measurement units. It is possible to measure some subcategories of operating

efficiencies with either dollars or physical units. For example, labor could be measured in person-hours instead of dollars. If the definition of operating efficiency involves more

than one kind of resource input, however, dollars become the only practical measure.

* Time horizon. New starts are capital investments that operate over a period of many

years. The difference in system operating costs needs to be specified for a particular time

period. It is possible to cumulate the differences in operating costs over many years, and

then discount the differences to get a net present value of differences over the time period.

Alternatively, some particular year or years could be chosen, presumably to represent

typical operating years in the life of the project.

* Method of expression. The total difference in operating costs could be considered, but

that would not allow easy comparison across different projects, since project size will

differ significantly from one area to another. To facilitate comparison of different-sized

projects, operating costs per unit of output could be used. In "efficiency" measurements,

it would be customary to express output in such supply-side units as revenue

vehicle-hours, vehicle-miles, or place (seats and standee) -miles, but it would also be

feasible to use the costs per passenger or per passenger-mile. Besides facilitating

comparisons, such measures appeal to common sense. The operating cost per passenger can be compared to alternative transportation costs, such as taxi fares, and costs per

A-17
passenger-mile can be compared to standard automobile operating costs. Focusing on

operating costs per passenger-mile makes it easier to compare projects that serve passengers making trips of different lengths.

Following a strict use of the terms efficiency and effectiveness would have us measure operating

efficiency in, for example, operating costs per revenue vehicle-mile, and then define operating

effectiveness as the ability of an agency to turn those vehicle-miles into passenger-miles. In this

way, a transit property might be seen to be (for example) relatively efficient but also relatively

ineffective.

8

Because the various measures often portray differing pictures of performance, both Lee (1989b)

and Fielding (1992) make a convincing case for using multiple indices to gauge transit

performance. Not only does use of several different statistics give a clearer insight into the

idiosyncrasies of specific situations, but it also permits (by using such techniques as factor analysis

and cluster analysis) the definition of peer groups of comparable operating environments. Big

agencies in large cities, perhaps with round-the-clock service and difficult operating environment,

face different costs than those in medium- and small-sized cities, for example. Using peer groups

of the sort identified by Fielding can be very useful in making comparisons among candidate

projects, and not only when considering their operating efficiency implications. Such stratification

of the new start proposals would be responsive to and fully consistent with the language of

Section 3(i)(3)(B).

Fielding (1992) endorses the examination of five different indicators of operating efficiency and

effectiveness, which are routinely used in "performance audits" carried out under California's

Transportation Development Act. The five measures are:

* operating cost per passenger;

* operating cost per vehicle service-hour;

* passengers per vehicle service-hour;

* passengers per vehicle service-mile; and

* vehicle service-hours per employee.

The examination of prototypical alternatives analyses showed that the majority of them report

data from which estimates of the change in operating and maintenance costs can be calculated.

The basic ingredients of worthwhile operating efficiency/effectiveness measures are already being

estimated in those studies, although there are variations in the extent to which the relevant data

are included in the published reports. Calculations based on published data are complicated by the

fact that financial statistics are usually presented on an annual basis, while ridership forecasts are often given only for the "average weekday." Such supply-side measures as vehicle-miles or vehicle-hours have obviously been calculated in many of these studies, but may not be reported

explicitly; when they are reported, they may be given in either annual or average weekday terms.

8 See Chu, Fielding, and Lamar (1992), who identify Pittsburgh's PAT as an agency that improved

efficiency significantly between 1980 and 1986, but for which regional demographic and economic trends meant

that the agency had a significantly lower effectiveness than its peers. By contrast, Washington's Metrobus

operations had the highest effectiveness score but the lowest efficiency score of their peer group. A-18
Some uncertainties about the issue of geographical scope made it difficult to compute appropriate

operating efficiency measures for some projects on the basis of the information presented in their

alternatives analysis reports. Ideally, one should select as narrow a geographic scope as is appropriate to the new proposal, and examine the incremental operating costs and incremental measure of output associated with the project. There should be no difficulty in defining the

alternatives analysis work scope to do that, but in the published reports it is sometimes difficult —

particularly for large transit systems — to be certain that the two types of data are for the same

geographical scope. In the worst case, working with the published data may only permit

comparison of the change in systemwide operating costs with the ridership projected for the new

project.

How Should Operating Efficiencies Be Used to Compare Alternative Projects?

Measures of operating efficiencies could be directly compared, to rank alternative projects on this

criterion. However, some stratification of projects into broadly-defined peer groups makes sense,

particularly because the projected impacts are often highly variable between projects. Also, the

implicit precision in a measure (for example, the change in dollars spent per passenger-mile,

measured to the penny) may be deceptive. There may be no real difference between efficiency

gains per passenger-mile reported as (for instance) 3 cents and 2 cents, since on further

investigation the full difference may be ascribable to variations in forecasting procedures.

Classifying projects by operating efficiency impact categories may help overcome the problem of

erroneous precision. On the basis of the examination of the nine prototypical studies, possible

categories appear to be:

* large net efficiency losses (20 percent or greater increase in the cost index);

* small net efficiency losses (less than 20 percent increase in the selected index); and

* net efficiency gains (an improvement — that is, cost reduction ~ in the index).

Alternatively, the dividing points in such a classification might be varied by peer group, reflecting

the observed values from a larger sample of past alternatives analysis studies. The disadvantage

of classification methods is that they will overstate the difference between two values that lie close

to but on opposite sides of a boundary value.

Recommended Measures of Operating Efficiencies

On the basis of this review and discussion of the possibilities, FTA intends to require AA/DEIS

studies to estimate at least two operating efficiency/effectiveness measures for each alternative.

These would be the "change"9 compared to the TSM alternative in

* operating cost per vehicle service-hour (or service-mile);

* passengers per vehicle service-hour (or service-mile); and

* passenger-miles per vehicle service-hour (or service-mile).

9 This change would be the differential between the alternative under consideration and the baseline

alternative. A-19
In the cast of large existing transit systems, these measures would consider only that part of the

system that will be directly affected by the new investment, to the extent possible. They would

estimate the incremental impacts on operating/maintenance costs and on the selected measure of

output for the affected part of the system. Systemwide changes in operating efficiency would be

used in all other cases, wherein the new start either

* represents a major component of the overall capacity, or

* is so integrated into the operations that isolating its own operating costs is not feasible or meaningful (because of significant economies or diseconomies of scale or scope).

A-20
MEASURES OF "ENVIRONMENTAL BENEFITS"

Identifying Environmental Benefits

The most commonly referenced environmental benefit in connection with major transit investment

proposals is an improvement in urban air quality ~ more specifically, reductions in mobile

emissions from automobiles, including carbon monoxide, nitrogen oxides, and non-reactive

hydrocarbons. Recently, increased interest in global warming has also focused attention on

automobile emissions of carbon dioxide.

As well as air pollution, the revised FT Act explicitly mentions noise pollution as a factor that

should be considered. Specifically, the Act instructs the Secretary of Transportation to "account

for costs related to" air and noise pollution. Ordinarily, capital investments in transit systems

should be expected to result in a reduction in air and noise pollution, and thus the "costs" mentioned in the Act must be understood as negative net costs, or positive benefits.

The Act also mentions energy consumption as an accountable cost, and tracking energy

consumption might also fall under environmental benefits. Consumption of the petroleum and

generation of electric power are directly related to concerns about air quality. In addition, there is an independent concern over energy consumption that focuses on energy security issues related to petroleum use. While not strictly an environmental issue, energy security does not fit neatly into

the three other broad categories of concern to Congress — mobility improvements,

cost-effectiveness, or operating efficiencies — so it might appropriately be considered under the

environmental category.

The Act also specifically mentions the identification of future patterns of land use as a significant

consideration. This is implicitly an environmental issue, and might be appropriately evaluated

under the environmental heading.

Dealing with environmental benefits is a challenging issue and is analytically one of the most

difficult dimensions of transit project evaluations. Clearly, one of the reasons more transit

services are not privatized (and, indeed, a contributory factor why many of them were moved out

of the private sector many years ago) is that public agencies can recognize, in a way that the

private sector cannot, the social benefits from transit systems that spill over from the private use of those systems. Consequently, considering environmental benefits is an important and

reasonable Federal responsibility.

The challenge arises because of the difficulty in developing non-controversial quantitative measures of environmental benefits that can be compared directly with the system's costs and

benefits to users. Without these quantitative measures, environmental gains (or losses) cannot be

traded off effectively with more direct system impacts. There are dangers of over- or underestimating value, and thus rating proposals as too high or too low in comparison with other

contenders for the Section 3 "new start" funding.

A-21
Measuring and Valuing Environmental Benefits

Translating the enormous concern about environmental benefits into actionable decisionmaking

means, first of all, forecasting the magnitude of the physical environmental impacts that are expected to occur. As discussed below, predicting these impacts can be quite difficult. Once the

impacts are forecast, however, they must be valued, either implicitly or explicitly. The valuation

process will primarily involve trading off environmental gains against construction costs,

operating costs, and direct time savings to users.

Air Quality

Approaches for measuring or predicting air quality effects generally focus on changes in the

emissions of specific pollutants. The US Environmental Protection Agency has developed

emission factors for most mobile sources. These include factors for small particulate matter

(PM-10), sulfur oxides (S02), various oxides of nitrogen (NOx), hydrocarbons (HC), and carbon

monoxide (CO). Hydrocarbons are further broken down into those that are reactive with ozone

(thereby excluding methane) and those that are not. For this reason, the hydrocarbons may be

more appropriately named nonmethane hydrocarbons (NMHC) and reactive organic compounds

(ROC). Other researchers have developed similar emission factors for carbon dioxide (CO: ) and

related greenhouse gas emissions.

These emission factors are quite useful, and make the task of forecasting air quality impacts a more manageable one. There are also officially-sanctioned models — the most up-to-date is "Mobile-5" — that can be used to predict the aggregate levels of emissions of various sorts, given

the characteristics of the vehicle fleet and the geography and link volumes on the transportation

network. The choice between such models in particular settings may still be a contentious issue,

however. The state of the art in moving from emissions to actual air quality impacts, given the

meteorological and other local conditions, is still fairly rudimentary. For this reason, attention

usually focuses on emissions levels rather than on air quality per se, and is largely restricted to those cities where, for one or another pollutant, the air quality has not attained the standards

contained in the Clean Air Act.

Generally, the task in evaluating transit investment proposals for nonattainment cities reduces to forecasting the levels of various emissions with and without the new start in place, and then

valuing the predicted differences. Difficulties can arise if simplistic emission factors per mile are used in place of factors that measure "cold start," "hot soak," and "running" emissions separately.

This is because different types of new transit projects may affect VMT reductions in different

ways. Some systems may achieve VMT reductions by eliminating door-to-door auto trips.

Others may achieve VMT reductions by encouraging park-and-ride behavior to divert only part of

a trip by private vehicle. Today's cars rely on catalytic converters to control emissions, and these

converters need some heat (provided by the engine exhaust) to reach peak efficiency.

Consequently, the most polluting part of a trip is usually the first few miles of driving: emissions

reduction is by no means proportional to VMT reduction.

Using average emission factors that do not recognize the significantly large emissions that result

from the beginning portions of trips is the most common mistake in forecasting air quality

impacts. Ignoring emissions that might result from the construction of the new transit project is

A-22
the next most common mistake. These emissions can result from increased congestion during

construction and from the operation of construction vehicles; they are especially significant

because they are produced first. Emission savings from operations far into the future might not

offset near-term emissions because they need to be discounted to reflect their remoteness in time.

Finally, any incremental effects on the emissions from the power plants that will provide electricity

to propel new transit systems need to be considered in a full accounting of the emissions

implications. While energy produced from nuclear power or natural gas is relatively low in

emissions, coal- or oil-fired capacity can generate some significant offsets in terms of emissions.

The examination of typical AA/DEIS reports shows that, given the environmental law

requirements, all of them computed estimates of the impact on emissions of criteria pollutants for

the operational phase of each alternative considered. On the other hand, there was little evidence

that the lifecycle emissions implications of the alternatives had been considered adequately:

system construction, fuel delivery, and power generation effects were frequently ignored or given

inadequate coverage. Greenhouse gas emissions effects were also largely ignored.

Once emission impacts are forecast, the next step would be to value them. To demonstrate

effectively the value of reduced emissions, one could point to:

* expenditures to mitigate the effects of air quality degradation that could be avoided if the

proposed transit investment effectively reduced emissions; or

* demonstrated willingness-to-pay for air quality improvements by the citizens of the

metropolitan area; or

* improvements in property value that might result from cleaner air.

One might expect the same improvements in air quality to be valued differently in different cities.

10 For example, the Los Angeles metropolitan area has some of the most serious air quality problems

in the country. Emissions reductions there will have more value than reductions in metropolitan

areas that are closer to attainment of the ambient air quality standards.

Absent standard values of the benefits from emission reductions, avoided cost is an inferior, but

potentially useful approach. The avoided cost approach which is generally only applicable to nonattainment and maintenance areas, uses standard unit costs of pursuing alternative means of

achieving emission reductions as a proxy for the benefits of such emission reductions.

In non-attainment areas, policies completely devoted to air quality improvements are being

designed and implemented, and most have cost-effectiveness numbers attached to the strategies.

These cost-effectiveness measures indicate the amounts that specific metropolitan areas are contemplating spending to improve air quality. These measures, combined with projected

reduction measures from the transit proposal, can be used to develop values for the incremental

air quality improvements related to the transit investment.

10 This argument is not true for greenhouse gas emissions, which are perceived, irrespective of location, to contribute to a worldwide problem.

A-23
Environmental Protection Agency (EPA) analyses of proposed changes in air quality regulations

have used the avoided cost approach. To determine appropriate values for given pollutants, EPA

looked at the avoided cost of pollution control that would be incurred if the pollution had to be

reduced by other means. In the EPA methodology, the value of a ton of pollution control equals

the avoided cost to society of controlling that pollution through existing means. The method is designed to allow EPA to compare proposed rules and other actions on a cost-effectiveness basis to existing rules and practices already in place. The approach ensures that high cost alternatives are not adopted until lower cost options are exhausted.

Examples of the values which result from the EPA methodology are recent analyses of Clean Air

Act rules. Based on earlier rulemakings, EPA developed values for major precursors of

tropospheric ozone (smog). The two major precursors are NOx and Volatile Organic

Compounds (VOC). EPA has observed the dollar cost per ton of mandated control strategies for

NOx and VOC. The cost of recent NOx is $3,000 to $5,000 per ton. Similarly, the cost of recent

VOC controls has been observed as $5,000 to $10,000 per ton. These are national averages,

based on the costs of nationwide rules, affecting pollution sources in many different regions.

Rules that focus on specific parts of the country (e.g., severe and extreme nonattainment areas, Southern California, etc.) show somewhat higher average dollar costs per ton.

Pending further analysis by EPA and the Department of Transportation, FTA intents to use the

EPA avoided costs per ton as an interim proxy for the benefits of emission reductions in the

relevant nonattainment/maintenance areas. These standard avoided costs per ton are nationwide

averages and, therefore, do not reflect the fact that the cost of achieving emission reductions by

alternative means varies depending on project location. If the environmental impacts of a proposed major transit investment are significant, additional analysis to develop an avoided cost estimate relevant to that specific nonattainment/maintenance area would be appropriate. FTA is interested in receiving comment on the appropriateness of the method used to calculate these

values as well as its application for this purpose.

Noise Levels

Conceptually, the issue of measuring and valuing noise pollution reductions is very similar to the

issue of measuring and valuing air pollution reductions. However, the empirical evidence

suggests that achieving significant noise reductions and capturing the value of those reductions

would result in only small gains." To satisfy the legislative intent, a measure of effectiveness

could be established and tracked. For example, the measure might be the projected change in

person-hours of exposure to one decibel of noise levels of a specified frequency.

Energy Consumption and Energy Security

Energy consumption is of concern to the extent that the prices of the various different forms of

energy might not fully reflect the long-run scarcity value of non-renewable forms. Since the

generation of greenhouse gases is also closely linked with the form of energy used, it would be

valuable from both viewpoints to project the year-by-year implications for the amounts of

11 This generalization is supported by the examination of nine prototypical AA/DEIS study reports. While

noise issues are addressed, the finding is typically that the transit investment will have either a minimal impact on

noise levels, or else increase the level to an extent that merits mitigation.

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different types of fuels, and with appropriate discounting to reduce these figures to net present

value (and perhaps levelized) terms.

Reducing petroleum use is thought to increase energy security by reducing exposure to the

expensive supply disruptions that might arise from conflicts or disputes in the Middle East. Here

the measure to use is straightforward — the barrels of petroleum saved as a result of the proposed

transit project. However, as with the case of noise pollution, the value of these reductions is likely to be small. For example, there are analyses in the economics literature that place the value

of energy security benefits at $4 to $5 per barrel of oil. Even in the most favorable case where

each new transit rider formerly drove alone and switched to a transit mode that uses no

petroleum, the benefits per new ride might still be small. For example, a 10-mile trip made in a 27.5 mpg car uses about one-third of a gallon of gasoline. Saving this gasoline results in a

security gain of about 4 cents per trip if the $5 per barrel estimate of the value of energy security

is correct. If the new start transit trip requires an auto access leg, which is often the case, the

savings will be even smaller.

Four cents per trip is a small savings, and even that amount is probably overstated. While

increasing energy security has value, some analysts are reluctant to link reduced petroleum use with increased security. They point out that cutting back on consumption, if significant, works to reduce the world price for petroleum. A reduced world price would mean that the marginal

producers of petroleum are eliminated from the market. Consequently, the low-cost producers of

oil in the Middle East would have a larger market share, and the world would be more reliant on

the Middle East crude after the conservation measures are put in place.

The examination of prototypical AA/DEIS studies showed that the energy use of a project is usually addressed through forecasting the net urban expenditures on transportation energy,

including project construction, operations and maintenance, and reduced automobile use. Developing year-by-year projections for the consumption of different types of fuels probably

would not place an undue burden on the alternatives analysis process.

Recommended Measures of Environmental Benefits

Forecasted measures of the impact of transit proposals on the environment are proposed to be

addressed as summarized in Table Al . For the most part, interpreting these measures is unambiguous, though petroleum conservation increases are not unanimously regarded as an

automatic signal of gains in social welfare. FTA intends to focus its assessment on the results of

estimates of these measures of effectiveness in terms of whether the new systems are likely to aggravate or ameliorate environmental conditions. This determination would be useful in distinguishing between systems that are otherwise equal in impact, but which differ in that one

system improves environmental conditions and the other degrades them.

As with previous discussions of the timing of costs and benefits, the measures summarized in Table Al would be projected over time, with the time period and the forecasts covering the

construction years of the new transit system as well as its subsequent operation up to and beyond

full build-out status. The net impacts projected for each year would be discounted, and the

resulting net present value for the index would be levelized to characterize an "average year."

A-25
Looking at certain design year figures alone is wrong; it masks all of the construction effects that

may have less favorable environmental implications for the proposed investment.

Table A1. Measures of Environmental Effectiveness

Environmental

U/HCvllUtJ wl CUcUllVtSncoa

Criteria pollutants Dollar value of net pounds or tons of particular pollutants

EPA valuation of unit reductions

Reduced emissions are better in areas that are not in attainment of

vical l nil ALL dial lUalUo.

Greenhouse gas

emissions

Dollar value of net pounds or tons of particular

greenhouse gas emissions

reduced per year, based on

standard unit values

Reduced emissions are better.

Energy security Barrels of petroleum saved

per year

Reduced consumption of petroleum

may or may not lead to increased

security.

Energy

consumption

Change in the consumption

of fuels of different types

Reduced consumption of nonrenewable sources may be

preferable.

A-26
MEASURES OF "TRANSIT SUPPORTIVE EXISTING LAND USE

POLICIES AND FUTURE PATTERNS"

Identifying Land Use Benefits

Many proponents of new major transit projects argue that the new systems will result in more

efficient land use patterns. They suggest that by encouraging more dense development patterns,

particularly in the neighborhood of stations, the possibility increases for reduced tripmaking and

more multipurpose trips, and for more efficient provision of public services such as sewer, water,

and other utilities. Concentrated land use patterns could lead to more interpersonal contacts,

increased networking, and more community interaction.

A quantitative effectiveness measure that would indicate the projected density increase (persons or jobs per square mile) as a result of the new start could be revealing. However, there are good

reasons to be suspicious of such a measure, and very cautious in interpreting it:

* First, the linkages between transit systems and development densities are very difficult to

identify in quantifiable terms. Some argue, for example, that while new transit facilities can increase commercial densities, they may actually reduce residential densities by

providing options for commuters to live farther away from their jobs. For example, an

extension to a radial system that serves the downtown core might result in some

individuals moving farther away from their downtown jobs to take advantage of the new

travel service. As a result, the local service jobs that follow population patterns may

migrate farther out as well.

* Second, there are usually numerous disadvantages of more dense land use patterns that

offset, either partially or totally, the advantages. For example, more dense development

patterns increase exposure to certain kinds of air pollutants and reduce the value that many

residents derive from suburban life styles and open space.

None of the AA/DEIS studies that were examined had projected employment or residential

densities. Rather, the documents typically assessed the potential for future development in the

corridor under study, and the ways in which the proposed transit investment could influence that

development, and vice versa.

Given the complexity of projecting and valuing land use impacts, FTA intends to focus its appraisal not on land use outcomes but on land use inputs -- that is to say, on the set of local

policies and processes in place (or proposed) to achieve the locally-specified land use goals, and on the extent to which the proposed transit investment might credibly be expected to reinforce or weaken those efforts. Such an appraisal will be made independently of the other performance measures and is described below. This approach will have the effect of rewarding local areas that

make commitments to establishing more transit friendly land use patterns.

Identifying Supportive Land Use Policies and Patterns

The most important aspect in assuring that transit projects are supportive of appropriate local land use patterns, and in assuring that transit projects are supported by appropriate local land use

A-27
policies, is the market. No matter how good a desired development pattern looks at the planning

stage, it must be translated into development in ways that make for places where people want to

live, work, shop, and play. Transit proposals frequently face the conflict between an "ideal" urban

form to support transit service and the continuation of low density, auto-dominant development

patterns. The opportunities to share future land use patterns will be greater in those areas that are growing more rapidly. Thus, one goal of the land use criteria is an assessment of the

receptiveness of the local land use market to transit-supportive land use patterns.

Also important is the type of land use which is proposed. Transit works best when it links higher

density residential communities to large (minimum of 65,000 jobs), relatively dense mixed use nodes (i.e., the Central Business District). This said, local factors can adjust upward or downward how dense these areas must be and how large they must be. Equally important is the

physical conditions at transit stations. Mixed land uses, which allow workers and residents to complete errands without automobiles, well-designed, pedestrian-oriented facilities, and other

transit sensitive site planning can be just as important as the amount and density of development in making transit work.

Most major transit investments have a direct impact on several political jurisdictions, and their success is depended on the land use and economic development decisions make by general

purpose local governments both inside and outside the transit corridor. Therefore, regional

cooperation and local support is necessary. Regional cooperation is often difficult, and it helps if there is a track record of such cooperation.

The integration of the transit investment into the local governmental decisionmaking process is critical if these issues are to be adequately addressed. For a transit initiative to succeed, it must

have strong support from local governments as an important public service they are willing to fund and as a function they are willing to support by reinforcing local planning, zoning, and

infrastructure policies. At the same time, transit providers have a responsibility to become

involved in regional and local land use planning decisions. Providing transit-sensitive land use

design guidance to elected officials, planning staff, and developers is a vital contribution.

Progress on establishing joint development programs is also important.

The criteria proposed here attempt to assess the degree to which the proposed transit project is likely to be supported by proper land use patterns and policies. To this end, the criteria address

the current land use conditions, the future goals of the region, and the strategies in place to achieve these goals. Assessment of current conditions provides a baseline to gauge how far the

community would have to go to meet its stated goals and to understand the amount of political

and market support necessary to achieve the desired changes. The future goals stated by the

community will be evaluated to assess how supportive they are likely to be for the proposed

transit investment A community should have in mind a land use pattern which is consistent with

the transit investment for the value of that investment to be maximized. Finally, and perhaps most

importantly, the review of the strategies which the local governments plan will be used to assess the likelihood that the transit-supportive land use patterns and design will actually be achieved. A

focus on specific programs, and their status as formally adopted policies is suggested.

In sum, the criteria address six areas of the land use planning process as it relates to the proposed

transit investment:

A-28
Patterns. What types of regional and local development patterns exist, at both the regional

and project scale, what types are planned, and are they supportive of the proposed transit

investment?

Policies. What policies are in effect and/or proposed to achieve the future patterns

described? Are the policies consistent with desirable future land use patterns?

Process. How will the region and local governments develop and implement the policies

described? Is the process likely to result in adoption of the necessary policies?

Participants. Who will be involved in crafting and implementing these policies? Are all important potential actors fully involved?

Practice. Have the policies been adopted and implemented? Or are they still in the

development process?

Performance. How effective have current policies been in achieving desirable land use

patterns. Are there changes already in place? If not, what will be done to achieve such

changes?

Land Use Criteria

It is intended that similar criteria be applied at each step of the project development process: the

start of a major investment study, the start of preliminary engineering, and the start of final design.

However, the criteria will be applied with greater intensity and with a greater expectation that

policies and procedures will have been formally adopted the further the project is through the

process. Projects will be rated "high," "medium," or "low" depending on the degree to which the

local land use patterns, policies, process, participants, practice, and performance meet the

standards laid out for each step in the process. This is similar to the approach FTA now takes for

assessing local financial commitment, in which plans are reviewed for reasonableness at the earlier

stages, but actual commitments are expected before a project proceeds to final design and

construction.

Criteria at Initiation of A Major Investment Study

At this phase of the project development process, initial efforts to link the transit project with

local land use planning must be begun. Land use and economic development must be integrated

into the transportation planning process. To attain a "high" rating at this stage of the process, the

following must be well underway.

Patterns. The transit service area (region and corridor under consideration) currently has

sufficient population and employment to support high capacity transit. There is a regionally

significant Central Business District (CBD) with a healthy mix of housing, office, and retail which

will be served by the proposed project. There are existing public facilities and other major trip

generating facilities which could be well served by a high capacity transit project. The region will

develop in a compact pattern which is well suited to travel by transit. Significant growth will occur in the CBD and high capacity transit corridors.

A-29
Policies. There has been serious consideration of other regional actions to support transit, such as

limits on parking, growth boundaries, zoning overlays, growth centers, plans to focus growth in

the corridor, priority to transit investments over road investments, pedestrian considerations, and

mixed use development. Transportation capital investment plans emphasize transit. The goal of

encouraging transit use is reflected in regional transportation and land use plans.

Process. There is an understanding of the need for interagency cooperation in transportation

issues, and evidence of past and current cooperation. There is a consensus on the desirable

growth pattern among the key local governments, and the transit investment is seen as reinforcing

that shared vision. Consideration of transit travel will be evident is all aspects of regional planning — from urban form to site design. Commitments to consider developing major new public

facilities in the transit corridor to maximize transit ridership have been made. Interlocal

agreements are in place to fund and participate in the development of a corridor plan.

Participants . The local governments in the region have made adjustments to their land use and

development plans to assure that the regional objectives will be realized. The region's

governments and transit agency have considered commitments to encourage development in the

corridor and to assure that corridor development it designed to encourage transit use. Interlocal

agreements are in place to include the transit operator in both regional and local land use

decisions. The region's economic development agency and the private sector/business community

is involved in planning the transit project. The transit agency is consulted on key issues of

regional growth management and development. The local governments and the transit provider

have begun work to incorporate transit planning in all levels of land use planning in the region.

The transit operator is working with local governments to include transit sensitive design features

in local planning and zoning documents and specific development opportunities.

Criteria at the Initiation of Preliminary Engineering

In order to get a "high" rating from FTA as the project is ready to proceed into preliminary

engineering, the corridor under consideration should have sufficient population and employment

to support high capacity transit. Infill, redevelopment, and new development sites along the

corridor should have been identified and planned with attention to their relationship to the transit

project. The emphasis should be on transit supportive land uses, densities, and design. There

should be adopted measures to direct growth to the corridor among the region's governments.

Regional and local capital investment plans should include capital investments in the corridor to improve accessibility to the transit project. Specifically, in addition to those requirements noted

above, the following should be in place for a project to receive a "high" rating.

Patterns. There is a regionally significant CBD with a healthy mix of housing, office and retail. There are existing or proposed public facilities and other high transit trip producers located along

the corridor, which would be well served by the proposed project.

Policies . Local road standards have been reviewed to assure that they do not unnecessarily

impede transit use. Policies are in place to local new major transit trip generating facilities in the

transit corridor.

A-30
Process. A concept level corridor plan is in place with local and regional endorsement of the

basic land use concepts involved. A commitment is in place to fund completion of a more detailed

plan. The corridor plan includes a land use and public facilities plan, which would eventually be

used to guide regional plan amendments and zoning revisions. The plan emphasizes encouraging

development in the transit corridor by making transit oriented development easier, including

expedited land use review and other incentives. Developers have been consulted to determine

their assessment of the barriers to development. Short-range development targets, measures of

effectiveness and reporting procedures, and supporting strategies to reach long term goals are in place. Concept level planning and zoning studies have been conducted in station areas. These

plans include the business community and local economic development officials. Local

governments have agreed to adopt the station area plans when they are completed.

Participants. Corridor and station area planning teams include representatives of the local land use agencies, as well as transit operator, business community and economic development officials.

Practice. Plans have been adopted at the regional and local level to direct growth to the corridor.

This includes jurisdictions both within and outside the corridor. Local agencies have begun to consider how to leverage Federal investments by making improvements in the station areas, in the

form of other locally provided infrastructure.

Performance. Local governments have received recent development proposals for high or medium density12 housing in the corridor or CBD employment growth situated so that it would be

served by the transit project. Agreements are in place to focus public infrastructure investment in the corridor. The transit agency is working with local governments to revised land use and zoning

to encourage transit use. Transit service is integrated into community plans, designs and

development. The transit agency is working with the appropriate economic development agencies

to assure that corridor plans optimize corridor desirability and that potential projects and

opportunities are considered in the transit planning process. Agreements are in place on the

transit agency's role in local development review.

Criteria at the Initiation of Final Design

At this final step before a commitment is made to proceed with final design and construction, FTA

will look for progress on implementing land use plans and on firm commitments to make the

changes needed to successfully tie the transit project to supportive land uses. Because location

will be nearly final at this stage, attention will be focused on the patterns and policies in station

areas, and the degree to which site planning and other details have been made to be supportive of

the transit investment.

To receive a "high rating", the station areas (1/2 mile radius around the stations) should contain

moderate to high density housing14 and employment densities. Special generators will be

accessible to stations. Local governments responsible for land use in the station areas will have

12 For the purposes of these reviews, medium density housing is viewed as net site densities of at least 40

units per acre. This is a level of density at which land development patterns become more transit-supportive

because of reduced parking ratios, or use of innovative site planning. Typical suburban garden apartments with 1.5 parking spaces per unit are equivalent to a site density of about 30 units per acre. The density' levels which would

be indicative of transit-supportive land use regulation and results would thus be in excess of this level. A-31
made a concerted effort to encourage transit supportive land uses. They will provide the

necessary infrastructure, enforce development guidelines which require the development patterns,

densities, and mix of uses, and which provide appropriate incentives, to ensure a desirable transit

environment. Establishment of Transportation Management Associations (TMA), improvement

districts, tax abatement programs, or downtown business management districts, is encouraged in station areas to promote the areas and administer station area programs. Local governments in

the corridor have formally adopted legally-binding transit zoning and other land use initiatives to encourage transit supportive land uses in the corridor. Local governments have adopted plan

amendments to reflect the transit project. Specifically, to rate a project "high," FTA will expect

the following.

Patterns. There is a regionally significant CBD with a healthy mix of housing, office, and retail. Stations are designed to serve special generators in the corridors. Station areas will be active

pedestrian/transit oriented areas. A mixture of land uses will be concentrated around stations.

Local government actions are in place to make station areas more "friendly" than the remainder of

the region. Existing and proposed high density14 residential development are/will be located

within walking distance of stations.

Policies. Local governments have in place procedures to "fast track" and encourage

developments in station areas.

Process. A detailed level corridor plan is in place with local and regional endorsement of the land use concepts involved. The corridor plan includes a land use and public facilities plan, which is being used to guide regional plan amendments and zoning revisions. The plan emphasizes

encouraging development in the transit corridor by making transit oriented development easier,

including expedited land use review and other incentives. Developers have been consulted to determine their assessment of the barriers to development. Short range development targets, measures of effectiveness and reporting procedures, and supporting strategies to reach long term

goals are in place. Detailed planning and zoning studies have been conducted in station areas. These plans should include the business community and local economic development officials. Local governments have adopted the station area plans.

Participants . Corridor and station area planning teams include representatives of the local land use agencies, as well as transit operator, business community and economic development officials.

Practice. Station area plans are complete and results have been incorporated into local

government planning and zoning documents. A corridor plan has been adopted. Local capital

budgets (for public infrastructure) include the necessary projects in station areas. Funds are targeted to pedestrian improvements. Parking programs are in effect.

Performance. Progress has been made on changing land use plans and zoning to be more

transit-supportive and to incorporate the adopted corridor plan. Progress has been made on

economic development plans. The economic development agency has incorporated the transit

project into its plans. Local governments have received recent development proposals for high

density housing in station areas or for CBD employment growth in station areas. Local

performance indicators of corridor market trends have been developed and regular progress

reports are issued to indicate how well the market is responding to plans. Current and proposed

A-32
developments in the corridor and station areas meet identified performance goals. Policies for

adjusting to market trends should be adopted.

Conclusion on Land Use Policies

FTA believes that this approach will best identify those proposed transit projects which have land use patterns and policies in place which are most supportive of the investment, by the time the

final decision is made to proceed. To do so, the criteria are designed to assess the degree to which local governments have taken the measures needed to assure that the transit project is surrounded by supportive land use patterns and densities.

A-33

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