Highway And Transit Investments: Options for Improving Information on Projects' Benefits and Costs and Increasing Accountability for Results
Published: 2005-01-24T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Mobility is critical to the nation's economy. Projections of future passenger and freight travel suggest that increased levels of investment may be needed to maintain the current levels of mobility provided by the nation's highway and transit systems. However, calls for greater investment in transportation come amid growing concerns about fiscal imbalances at all levels of the government. As a result, careful decisions will need to be made to ensure that transportation investments maximize the benefits of each federal dollar invested. In this report GAO identifies (1) the categories of benefits and costs that can be attributed to new highway and transit investments and the challenges in measuring them; (2) how state, local, and regional decision makers consider the benefits and costs of new highway and transit investments when comparing alternatives; (3) the extent to which investments meet their projected outcomes; and (4) options to improve the information available to decision makers. To address these objectives, we convened an expert panel, surveyed state departments of transportation and transit agencies, and conducted site visits to five metropolitan areas that had both a capacity-adding highway project and transit project completed within the last 10 years. DOT generally agreed with the report's findings and offered technical comments, which were incorporated as appropriate.
section_title: What GAO Found
paragraphs: A range of direct and indirect benefits, such as savings in travel time and positive land-use changes, and costs can result from new highway and transit investments. The extent to which any particular highway or transit investment will result in certain benefits and costs, however, depends on the nature of the project and the local economic and transportation conditions where the investment is being made. In addition, measuring project benefits and costs can be challenging and is subject to several sources of error. For example, some benefit-cost analyses may omit some benefits or double-count benefits as they filter through the economy. Officials we surveyed and visited said they considered a project's potential benefits and costs when considering project alternatives but often did not use formal economic analyses to systematically examine the potential benefits and costs. Even when economic analyses are performed, the results are not necessarily the most important factor considered in investment decision making. Rather, our survey responses indicate that a number of factors, such as public support or the availability of funding, shape transportation investment decisions. Officials we interviewed indicated that they often based their decision to select a particular alternative on indirect benefits that were often not quantified in any systematic manner, such as desirable changes in land use or increasing economic development. Available evidence indicates that highway and transit projects do not achieve all projected outcomes; in addition, our case studies and survey show that evaluations of the outcomes of completed projects are not frequently conducted. A number of outcomes and benefits are often projected for highway and transit investments, including positive changes to land use and increased economic development. These projected outcomes were often cited as reasons why the projects were pursued. However, because evaluations of the outcomes of completed highway and transit projects are not typically conducted, officials have only limited or anecdotal evidence as to whether the projects produced the intended results. Several options exist to improve the information available to decision makers about new highway and transit investments and to make analytic information more integral to decision making. These options, such as improving modeling techniques and evaluating the outcomes of completed projects, focus on improving the value this information can have to decision makers and holding agencies accountable for results. Even if steps are taken to improve the analytic information available to decision makers, however, overarching issues, such as the structure of the federal highway and transit programs, will affect the extent to which this information is used. Nevertheless, the increased use of economic analysis, such as benefit-cost analysis, could improve the information available, and ultimately, lead to better-informed transportation investment decision making.

section_title: Letter
paragraphs: Mobility—that is, the movement of passengers and goods through the  transportation system—is critical to the nation’s economic vitality and the  quality of life of its citizens. Mobility provides people with access to goods,  services, recreation, and jobs; provides businesses with access to  materials, markets, and people; and promotes the movement of personnel  and material to meet national defense needs. However, increasing  passenger and freight travel has led to growing congestion in the nation’s  transportation system; and projections of future passenger and freight  travel suggest that this trend is likely to continue. Several strategies exist  for addressing this congestion, including improving operations and system  management, or managing system use through pricing or other techniques.  One of the key strategies is to invest in new capacity in the transportation  system. In 2002, capital outlay from all levels of government for highways  was about $68.2 billion, with $26.5 billion specifically for new or expanded  capacity. For transit, 2002 capital outlay was about $12.3 billion from all  levels of government, with $8.7 billion specifically for new capacity. The  Department of Transportation (DOT) estimated that about $90 billion in  capital spending on average will be required each year to maintain the  condition and performance of the nation’s highway and transit systems  through 2020 and approximately $127 billion in capital spending to improve  the conditions of these systems.
Calls for increased transportation investments come amid growing  concerns about the size of federal and state budget deficits, the long-term  viability of financing the nation’s highway and transit systems through  motor-fuel taxes, and the future mandatory commitments to Social Security  and Medicare that will consume a greater share of the nation’s resources.  Given these fiscal challenges, careful decisions will need to be made to  ensure that transportation investments maximize the benefits of each  federal dollar invested and achieve projected outcomes. As we have noted  previously, there are no mechanisms in the federal-aid highway program  that link federal funding to project performance.
The House Appropriations Committee report, accompanying the fiscal year  2004 Departments of Transportation and Treasury and Independent  Agencies Appropriations Bill, requires that we review the costs and  benefits of the different modes of transportation. We limited our review to  the costs and benefits of new highway and transit investments.  Accordingly, this report (1) describes the categories of benefits and costs  that can be attributed to new highway and transit investments and the  challenges in measuring these benefits and costs; (2) identifies how state,  local, and regional decision makers consider the benefits and costs of new  highway and transit investments when comparing alternatives; (3)  examines the extent to which select capacity-adding highway and transit  investments meet their projected outcomes; and (4) describes options to  improve the information available to decision makers about new highway  and transit investments.
To address these objectives, we convened, in collaboration with the  National Academy of Sciences, an expert panel of transportation  economists and practitioners, conducted an extensive literature review,  and interviewed officials from the Federal Transit Administration (FTA)  and Federal Highway Administration (FHWA) as well as representatives  from various industry associations, think tanks, and academic institutions.  We also surveyed all 50 state DOTs and the 30 largest transit agencies about  the type of economic analysis they use when considering transportation  alternatives and how such analysis is used in decision making, and we  received responses from 43 state DOTs and 20 transit agencies. In  addition, we developed case studies by conducting site visits to five  metropolitan areas across the nation that had both a capacity-adding  highway project and transit project completed within the last 10 years.During these site visits, we reviewed project documents and interviewed  officials from the respective transit agency, metropolitan planning  organization, and state DOT. We conducted our work from February 2004  through January 2005 according to generally accepted government auditing  standards.
subsections: section_title: Background
paragraphs: The scope of the nation’s transportation system is vast and increasingly  congested. Two key components of the transportation network are the  nation’s highways and transit system. There are approximately 4 million  miles of highway in the United States, which serve to provide mobility to  millions of passengers and millions of tons of freight each day. In addition,  over 600 transit agencies provide a range of transit services to the public,  including rail and bus service. Each workday, about 14 million Americans  use some form of transit.
Over the last 20 years, all levels of government, including the federal  government, have spent hundreds of billions of dollars on the nations’  highways and transit systems to enhance mobility as well as meet other  needs. Despite these expenditures, increasing passenger and freight travel  has led to growing congestion. For instance, annual delays per traveler  during rush hour have almost tripled, increasing from 16 hours in 1982 to 46  hours in 2002. According to DOT forecasts, passenger and freight travel  will continue to increase in the future.There are a number of strategies,  such as preventive maintenance, improving operations and system  management, and managing system use through pricing or other  techniques, which can be taken to help address the nation’s mobility  challenges. One of the key strategies is to invest in new physical capacity in  the transportation system. While such investment is the subject of this  report, as we have noted in the past, a targeted mix of these strategies is  needed to help control congestion and improve access. (See app. IV for  additional information about the level of usage of and investment in the  nation’s highway and transit systems.)
The funding for new transit and highway projects comes from a variety of  sources, including federal, state, and local governments; special taxing  authorities and assessment districts; and user fees and tolls. The  Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) and  TEA-21 continued the use of the federal Highway Trust Fund as the  mechanism to account for federal highway user-tax receipts that fund  various highway and transit programs. Once Congress authorizes funding,  FHWA makes federal-aid highway funds available to the states annually, at  the start of each fiscal year, through apportionments based on formulas  specified in law for each of the several formula grant programs. Ninety-two  percent of the federal-aid highway funds apportioned to the states in fiscal  year 2003 were apportioned by formula.According to DOT officials, the  majority of federal-aid highway funds are used for maintenance purposes,  not new investments. FTA also uses formulas to distribute federal  urbanized and nonurbanized funds for capital and operating assistance to  transit agencies and/or states. FTA also has discretionary transit programs,  including the New Starts program. The New Starts program provides funds  to transit providers for constructing or extending certain types of transit  systems and is the primary source of funding for new transit capacity.
FTA generally funds New Starts projects through full-funding grant  agreements, which establish the terms and conditions for federal  participation in a project, including the maximum amount of federal funds  available for the project. To compete for a full-funding grant agreement, a  transit project must emerge from a regional planning process. The first two  phases of the New Starts process—systems planning and alternatives  analysis—address this requirement. The systems planning phase identifies  the transportation needs of a region, while the alternatives analysis phase  provides information on the benefits, costs, and impacts of different  corridor-level options, such as rail lines or bus routes. The alternatives  analysis phase results in the selection of a locally preferred alternative—  which is intended to be the New Starts project that FTA evaluates for  funding. After a locally preferred alternative is selected, the project is  eligible for entry into the New Starts process. FTA oversees the  management of projects from the preliminary engineering phase through  construction and evaluates the projects for advancement into each phase  of the process, as well as annually for the New Starts report to Congress.  FTA’s New Starts evaluation process assigns ratings on the basis of a variety  of statutorily defined criteria, such as mobility improvements, and  determines an overall rating. FTA uses the evaluation and ratings process,  along with its consideration of the state of development of the New Starts  projects, to decide which projects to recommend to Congress for a full- funding grant agreement.
ISTEA and TEA-21 also established an overall approach for transportation  planning and decision making that state, regional, and local transportation  agencies must follow to receive federal funds. This approach includes  involving numerous stakeholders, identifying state and regional goals,  developing long- and short-range state and regional planning documents,  and ensuring that a wide range of factors are considered in the planning  and decision-making process. For example, transportation officials must  consider safety, environmental impacts, system connectivity, and  accessibility, among other things. While the federal requirements specify a  wide range of factors that must be considered when selecting a project  from alternatives, they generally do not specify what analytical tools, such  as benefit-cost analysis, transportation officials should use to evaluate  these factors. Instead, local, regional, and state agencies are largely  responsible for selecting the methods used to analyze these factors.  Federal requirements also do not mandate that local, regional, and state  agencies choose the most cost-beneficial project. Rather, transportation  officials at these agencies have the flexibility to select projects on the basis  of their communities’ priorities and needs. Even in the more structured  New Starts program, state, regional, and local agencies have discretion in  selecting the preferred alternative, although, according to FTA, these  agencies are likely to consider New Starts requirements in the decision  making process.
Various analytical approaches, including benefit-cost, cost-effectiveness,  and economic impact analyses, have been refined over time to better  calculate the benefits and costs of transportation investments and provide  decision makers with tools to make better-informed decisions. (Table 1  describes the purposes of the different economic analyses.) The Office of  Management and Budget (OMB), DOT, and GAO have identified benefit- cost analysis as a useful tool for integrating the social, environmental,  economic, and other effects of investment alternatives and for helping  decision makers identify projects with the greatest net benefits. In addition,  the systematic process of benefit-cost analysis helps decision makers  organize and evaluate information about, and determine trade-offs  between, alternatives.
Because the federal-aid highway program is funded under a formula  program and projects are therefore not subject to an evaluation process at  the federal level, there are no federal requirements for economic evaluation  of highway investment costs and benefits—except that FHWA does ensure  that federal highway funding is being spent on an eligible roadway for  eligible purposes. In contrast, FTA’s New Starts program is discretionary,  and FTA is authorized to establish various requirements that sponsors of  transit capital investments need to meet in estimating a project’s benefits  and costs, including calculating the cost-effectiveness of a proposed  project and providing information on expected land-use effects, to obtain  federal funding. However, transit agencies are not required to conduct a  formal benefit-cost analysis, and FTA is prohibited by TEA-21 from  considering the dollar value of mobility improvements in evaluating  projects, developing regulations, or carrying out any other duties. FTA  officials noted that the New Starts evaluation process results in greater  federal oversight and scrutiny for New Starts projects, compared with the  level of federal oversight for federally funded highway projects.
section_title: Benefits and Costs of Highway and Transit Investments Depend on Local Circumstances, Though Measuring and Properly Counting Some Benefits and Costs Can Prove Difficult
paragraphs: The types of direct benefits that transit and highway projects may produce  include user benefits, such as travel-time savings, and benefits that accrue  to users and nonusers alike, such as reductions in the adverse  environmental impacts of transportation. These direct benefits can in turn  produce indirect benefits, such as economic development and employment  that affect the regional or local economy; however, these indirect benefits  may constitute transfers of economic activity from one area to another or  are a result of the direct benefits filtering through the economy. Although  these indirect benefits represent real benefits for the jurisdiction making  the transportation improvement, they represent transfers and not real  economic benefits, from a national perspective. Transportation  investments also produce costs, including the direct costs to construct,  operate, and maintain the project as well as other potential social costs  resulting from the construction and use of the facility, such as unmitigated  environmental effects. The potential benefits and costs of any specific  highway or transit investments will depend on the specifics of the project  being considered and the local economic and transportation conditions.  However, measuring all the potential benefits and costs of proposed  highway and transit investments can be challenging and subject to several  limitations and sources of error. For example, in current practice, benefit- cost analysis and economic impact analysis may not include all potential  benefits. In addition, there are many limitations in being able to accurately  predict changes in traveler behavior, land use, or the use of nearby  roadways or alternative travel options resulting from a new investment.  Sources of error can also include double counting of benefits and not  comparing a project to a viable alternative or improperly defining the “do- nothing” case for comparison.
subsections: section_title: Highway and Transit Investments Can Result in a Range of Benefits and Costs
paragraphs: The key categories of potential direct user benefits from highway  investments include travel-time savings, reductions in accidents, and  reductions in vehicle operating costs. These user benefits are historically  included in benefit-cost analysis of such investments. The User Benefit  Analysis for Highways Manual developed by the American Association of  State Highway and Transportation Officials (the AASHTO Manual)  provides guidance on how these benefits should be estimated. In addition  to benefits that accrue solely to users, social benefits such as reductions in  environmental costs—including reduced emissions, noise, or other  impacts—are also potential sources of direct benefits of highway projects.  However, these benefits are more difficult to quantify and value; and as a  result, they are less often included in benefit-cost analyses of  transportation investments. Guidance from FHWA’s Office of Asset  Management, the Economic Analysis Primer, discusses these benefits  along with user benefits.Experts we consulted also cited improvements  in travel-time reliability as a major source of potential direct-user benefits,  particularly for freight transportation, although officials at FHWA stated  that this benefit is complex and the best means to incorporate it into  benefit-cost evaluations has not been resolved.
For transit investments, direct benefits include improving travel times for  existing transit users, improving travel times for autos and trucks on  alternative roadways, lowering user and environmental costs of auto use by  attracting riders out of their vehicles, and providing a back-up or future  option for nonusers of transit. These types of benefits are described in  guidance on conducting benefit-cost analysis for transit projects published  by the Transit Cooperative Research Program (TCRP) (this report is known  as the Transit Manual). Another TCRP report on transit benefits  describes other types of potential benefits, which may result from the  project but may be more difficult to include in a benefit-cost analysis, such  as improved job accessibility for individuals who are dependent on transit  and those who do not or cannot drive a car. See Table 2 for the categories  of direct benefits described in the AASHTO Manual, the Economic  Analysis Primer, and the TCRP reports.
In addition to direct benefits, a number of indirect benefits are also  attributed to highway and transit investments. Lowering transportation  costs for users and improving access to goods and services enables new  and increased economic and social activity. Over time, individuals,  households, and firms adjust to take advantage of those benefits, leading to  several indirect impacts. These indirect impacts include changes in land  use and development, changes in decisions to locate homes and businesses  in areas where housing and land are less expensive or more desirable, and  changes in warehousing and delivery procedures for businesses in order to  take advantage of improved speed and reliability in the transportation  system. These impacts then lead to increased property values, increased  productivity, employment, and economic growth. Economic impact  analysis is generally used to estimate the extent to which direct benefits  translate into indirect economic impacts. Table 3 shows the types of  indirect benefits that are included in economic impact analysis.
The extent to which these indirect benefits are relevant depends to some  degree on whether the project is viewed from a local or a broader  perspective. These economic impacts may represent transfers of economic  activity from one area to another; and, while such a transfer may represent  real benefits for the jurisdiction making the transportation improvement, it  is not a real economic benefit from a national perspective because the  economic activity is simply occurring in a different location. For example, a  highway improvement in one county may induce businesses to relocate  from a neighboring county, bringing increased tax revenue and providing  jobs; but the neighboring county then loses that tax revenue and  employment.
Indirect benefits may also represent capitalization of the direct user and  social benefits, and therefore should not be added to the direct benefits.  For example, a project’s transportation benefits, in terms of improved  travel times, can lead to increased demand for more remote properties, and  thus lead to increases in those property values. In this instance, the users  are transferring their travel benefits to property owners through a higher  purchase price. Including the increased property value and the travel-time  benefit in an overall project evaluation would constitute counting the same  benefit twice. However, some experts we consulted and literature we  reviewed indicated that there could be some residual benefit from these  indirect effects that is not accounted for in travel-time benefits or other  direct impacts and argue that this portion should be incorporated into a  comprehensive estimation of project benefits and costs.
Transportation investments also produce costs—such as the costs to  construct, operate, and maintain the project; traffic delay costs during  construction of the project; and other potential social costs, resulting from  the construction and use of the facility—such as unmitigated  environmental effects or community disruption. For example, while a  project may have an indirect benefit of increasing some land values, it may  also reduce land values elsewhere due to negative impacts from noise and  emissions that may result from the improved roadway or transit line. In  addition, a transportation improvement can entail costs for some regions if  it diverts economic activity away from a particular area.
section_title: Benefits and Costs Depend on the Local Conditions and the Type of Improvement
paragraphs: The size and type of benefits and costs that will manifest from highway and  transit investments depend critically on local conditions, such as existing  travel conditions and the extent of congestion, economic conditions and  development patterns, and the extent of the existing road and transit  networks. In addition, the type of project, its design, and other specifics  will also affect the types of benefits and costs the project may produce.  Each particular project must be evaluated on its own merits, in comparison  with any other viable alternatives to address the transportation and other  goals of the region.
For example, research indicates that transit projects can result in peak  period, travel-time savings for users of alternative roadways when those  roadways are heavily congested, the transit project has a separate ROW  and a fixed schedule, and door-to-door travel times on the transit line are  competitive or lower than door-to-door travel times on the roadway in peak  periods for some road users. Building a rail line alongside a road that is  not frequently traveled will clearly not result in similar benefits. Similarly,  the extent to which a highway investment will result in reductions in travel  times and the extent to which new travelers will return the highway to  previous levels of congestion and delay, depend on the level of congestion  on alternative routes, the extent of the local transit system, and local  economic conditions.
Research further indicates that to realize desired land-use changes and  higher density development, transit investments need to be coordinated  with supportive local land-use policies and that impacts need to occur  more readily in rapidly growing regions with demand for high-density  development.In a similar fashion, the extent to which highway  investments will result in improvements in freight productivity will depend  on economic conditions; the amount of freight traffic on the local network;  the presence of alternative freight modes, such as rail or waterways; and  various other locally specific factors. In addition, specific projects will also  affect different areas and groups differently. A transportation project that is  projected to produce large benefits may cut through one neighborhood and  provide excellent access to another, thereby imposing costs on one area  and creating benefits for another or providing service to wealthy areas at  the expense of lower income areas.
The costs of highway investments and various transit alternatives can vary  significantly, based on the location and specifics of the project. For  example, according to a 2002 report from the Washington State DOT,  average construction costs for a lane mile of highway range from $1 million  to over $8 million across 25 states the department surveyed, with some  projects costing far more than these averages suggest. In a recent study  on different transit modes, we found that light rail construction costs vary  from $12.4 million per mile to $118 million per mile. As with construction  costs, the costs to operate and maintain highway and transit systems also  vary significantly, based on the specific project and area. For example,  according to the National Transit Database, operating costs per-vehicle  revenue mile for heavy rail systems ranges from about $5 to about $15,  whereas for light rail, these costs range from a little over $5 to over $20 in  some locations.
section_title: Measuring and Forecasting Benefits and Costs Subject to Several Difficulties and Sources of Error
paragraphs: Experts we consulted and literature we reviewed cited several limitations  in current practice, and some major sources of error in evaluating  transportation projects that can lead to over or underestimation of a  project’s benefits and costs. The following sections discuss some of these  limitations and sources of error.
subsections: section_title: Challenges in Predicting Changes in Travel Behavior and Land Use with Current Models and Data
paragraphs: One of the key challenges in measuring and forecasting benefits and costs  is the inability to accurately predict changes in traveler behavior, land use,  or the usage of nearby roadways or alternative travel options resulting from  a highway or transit project using current travel models. For example,  according to FHWA guidance, travel models do not generally anticipate the  impact of a transportation improvement on travelers who change their time  of travel or make entirely new trips in response to the relatively lower trip  cost resulting from the improvements. Current transportation demand  models are also unable to predict the effect of a transportation investment  on land-use patterns and development, since these models take land-use  forecasts as inputs into the model. Nonetheless, expected land use and  development impacts are often the major drivers of transportation  investment choices. In addition, the effect of a highway or transit  investment on alternative roadways or on other modes is rarely taken into  account and is difficult to forecast. In fact, according to the DOT Inspector  General, transit’s effect on alternative roadways is not reliably estimated by  local travel models, although this effect can be a major source of benefits  in some cases. These same models are also used in making highway  investment decisions.
Compounding these shortcomings is the considerable variation in models  used by local transportation planning agencies. The federal government  gives local transportation planning agencies the flexibility to choose their  own transportation models without being subject to minimum standards or  guidelines. This flexibility reflected varying local conditions and expertise  in applying these models. However, one expert pointed out that this  strategy has had the unintended consequence of making local planning  agencies very dependent on outside expertise because they usually  contract with independent consultants who have their own software  packages. This strategy also has produced significant variation in forecast  quality and limited the ability to assess quality against the general state of  practice.
Data quality is a pivotal concern to the challenges in modeling, as the  available data provide critical input for travel models. For example, data  about traffic flow throughout the day, rather than at a single time, are  crucial to produce valid representations of travel needs and problems.  However, reliable and complete data are not always available—which can  result in forecasting errors. Collecting the data needed for modeling is  growing more expensive and difficult. For instance, a home survey of travel  habits, which identified basic transportation needs and travel patterns of a  region and is the foundation of transportation modeling, is now beyond  most local transportation agencies’ annual budgets, according to experts.  Moreover, obtaining data through telephone surveys is difficult and  willingness to participate is declining.
section_title: Omitting Certain Benefits and Ignoring Impacts on Different Groups
paragraphs: Experts we consulted and literature we reviewed also indicated that  benefit-cost analysis and economic impact analysis often do not include all  potential benefits, some of which are very difficult to quantify. For  example, according to one expert we consulted, transit projects are often  put at a disadvantage in terms of estimating benefits and costs relative to  highway projects because several types of benefits specific to transit are  not typically evaluated and are difficult to quantify. A review of economic  analyses conducted for over 30 transit projects found that these analyses  routinely omitted benefits to noncar owners, often did not include  environmental benefits, and often did not evaluate the economic  development benefits related to the project. Experts we consulted also  highlighted the importance of taking account of which groups benefit from  a project and which bear the costs, although these distributional impacts  are commonly ignored in evaluation of a project’s benefits and costs. In  theory, a benefit-cost analysis could take such considerations into account,  but the outcome of a benefit-cost analysis is a net value, which under  standard assumptions eliminates any distinction between groups who  benefit and groups who do not.
section_title: Double Counting and Counting Costs as Benefits
paragraphs: Project appraisals often double count benefits and count certain project  expenditures as benefits. As previously discussed, for the most part,  indirect benefits are more correctly considered capitalization of direct user  benefits or transfers of economic activity from one area to another.Therefore, estimating and adding such benefits to direct benefits would  constitute double counting and lead to an overestimation of a project’s  benefits. Some evaluations of particular transportation projects also cite  jobs created, or the economic activity resulting from the construction of  the project, as benefits of the project. Experts we spoke with indicated that  job creation from transportation spending would only be a true benefit if  the person getting the job would otherwise be unemployed, and thus the  reduction in unemployment benefits could be considered a benefit of the  project. Nonetheless, local decision makers generally view such  expenditures as producing benefits for their jurisdiction. In some  evaluations decision makers also count the avoided cost of some other  alternative project as a benefit of the project under consideration. For  example, in some evaluations, decision makers have considered the  foregone expense of improving the highway as a benefit of a transit project,  or the foregone expense of adding general-purpose lanes as a benefit of  adding high-occupancy vehicle lanes. Instead, those costs should be  included in the benefit-cost analysis of the alternative and then compared  with the benefits and costs of all other alternatives. In some appraisals,  such cost savings have been the largest source of project benefits.
Not Discounting Future Benefits  Another expert we interviewed stated that state departments of  and Costs Properly	 transportation often do not discount future benefits into present values.  Benefits and costs incurred in the future have lower values than those  incurred in the present because, in the case of benefits, the benefits cannot  be enjoyed now; and in the case of costs, the resources do not need to be  expended now. Benefits and costs are worth more if they are experienced  sooner because of the time value of money. Failure to discount future  benefits or using an inappropriate discount rate can severely affect the  results of a benefit-cost analysis. Not discounting at all will greatly  overestimate a project’s benefits. An unreasonably high discount rate will  underestimate a project’s benefits. OMB provides guidance on choosing  appropriate discount rates for different types of investments.
section_title: Unreasonably Bad Conditions Expected Without the Project
paragraphs: Another source of error when calculating transportation projects’ potential  benefits and costs occurs because current travel demand models tend to  predict unreasonably bad conditions in the absence of a proposed highway  or transit investment. Travel forecasting, as previously discussed, does  not contend well with land-use changes or effects on nearby roads or other  transportation alternatives that result from transportation improvements  or growing congestion. Before conditions get as bad as they are forecasted,  people make other changes, such as residence or employment changes to  avoid the excessive travel costs. In one area we visited, local officials told  us that the “do-nothing” scenario for a particular project evaluation  predicted that travel delays would grow to almost 80 minutes for a typical  commute after 20 years, and impacts on travel-time reductions were then  calculated for the proposed investment. However, officials noted that  traffic did not degrade as they had predicted in the years leading up to  construction—with delays of 13 minutes by 1999, although they had  predicted delays of 40 minutes or more by that time. The officials noted  that generally, commuters only stand for a certain amount of delay before  they shift their own behavior to avoid the delay.
section_title: Lack of Comparison to Viable or Modal Alternatives
paragraphs: In addition, experts indicated that projects are often not compared to  viable alternatives, or to projects in other modes, to enable adequate  comparisons of investment alternatives. We found in our case studies of  five New Starts projects and five highway projects that the transit projects  we reviewed were compared with other transit modes, such as increased  bus service, but not to new highway investment alternatives; and none of  the highway projects we reviewed were compared with a transit  alternative. However, in some cases, differently designed alternatives can  prove to be a superior option. For example, one study of transportation  decision making in Houston found that, if the bus alternatives to the  preferred light rail system were designed to cost as much as the light rail  option, the resulting bus system would carry more passengers and be more  cost-effective than the rail option; however, local planners and decision  makers did not consider such an alternative. Another recent evaluation  compared a transit and a highway project with common economic  yardsticks—such as a benefit-cost ratio and a rate of return—and found  that under certain circumstances, transit can perform favorably compared  with a highway alternative.
section_title: Analysis of Benefits and Costs Not Usually Systematic, and Results of Analysis Are Only One Factor Among Many Considered in Investment Decision Making
paragraphs: According to our survey results and case studies, although the costs and  benefits of projects were almost always considered in some way, formal  analyses such as benefit-cost analysis were not usually conducted when  considering project alternatives, and they were completed less frequently  for proposed highway projects than transit projects. Additionally, officials  reported that the results of formal economic analyses were just one factor  among many considered in project selection, and it was not necessarily the  most important factor. Other important factors included qualitative  assessments of the potential land use or economic development benefits of  the project, public opinion and political support, and funding availability.
subsections: section_title: Costs and Benefits of Highway and Transit Investments Are Considered but Not Always Systematically
paragraphs: Most state DOT and transit agency officials that responded to our survey  said that when alternatives are considered for a proposed project, they  complete some analysis of either costs or benefits of the various  alternatives, but they complete a formal benefit-cost analysis, economic impact analysis, or cost-effectiveness analysis less frequently (see fig. 1).  These results indicate that many state and local transportation agencies are  not consistently using formal economic analysis as part of their investment  decision-making process to evaluate project alternatives. In addition, in the  locations that we visited, we did not find any examples of completed  benefit-cost analysis for the 10 projects that we examined.
According to our survey results, when comparing alternatives for proposed  projects, economic analyses were more likely to be conducted for transit  projects than highway projects (see fig. 2). We saw a similar pattern in our  case studies. For instance, a cost-effectiveness analysis was completed for  all five transit projects that we examined in our case studies. We also  found additional studies for the transit projects that included qualitative  examination of such potential project impacts as regional economic  development opportunities, distribution across social groups, increased  transit reliability, and increased transit ridership. For the highway projects  we studied, we found that project documents contained little, if any,  economic analyses on the various alternatives. We did find that for some  highway projects, safety and environmental impacts were quantified, but  not put into dollar terms.
Local and state officials noted that these economic analyses are done more  often for transit projects because of the New Starts requirements. For  example, FTA requires project sponsors to calculate a project’s cost- effectiveness in order to be eligible to receive New Starts project funding—  and the results of this analysis are used in FTA’s evaluation of the project.In contrast, there are no similar federal requirements for economic analysis  of highway projects because highway projects are funded under a formula  program, and there is no federal analysis of project economic worthiness.  In addition, because New Starts projects may require a higher local funding  share compared with federally funded highway projects, officials  suggested that more economic analysis is generally completed for transit  projects, especially if a special taxing authority is required or the project  becomes controversial and subject to public scrutiny.
section_title: Many Factors Are Considered in Selecting Transportation Projects
paragraphs: In our past work, we found that numerous factors shape transportation  investment choices and that factors other than those considered in  analyses of projects’ benefits and costs can play a greater role in shaping  investment choices. Some of the factors considered reflect local or  regional priorities and needs; others are required to be considered in the  decision-making process by federal legislation. For example, as a result of  the National Environmental Policy Act (NEPA) of 1969, transportation  officials must make project decisions that balance engineering and  transportation demands with the consideration of social, economic, and  environmental factors, such as air quality and impacts on communities.  Some of these factors may not be easily considered in traditional benefit- cost analysis. Similarly, TEA-21 requires local, regional, and state  transportation agencies to consider a range of factors in their planning,  including environmental compliance, safety, land use, and public input.
Our case studies also demonstrated that officials often place value on a  variety of indirect impacts that may be difficult to estimate and are often  not quantified in project analyses. For example, we found that many of the  projects we examined were expected to result in desirable changes in land  use and economic development in the region, although these types of  impacts were not quantified or systematically analyzed in the planning  documents we reviewed for both highway and transit investments. For  example, one proposal discussed the light rail transit project’s potential for  attracting new businesses and developers to the surrounding low-income  community, but it did not present projections of the potential impact or  estimates of the types of benefits these impacts might produce.  Transportation officials indicated that these factors were just as important,  if not more important than the results of their cost-effectiveness analysis in  the decision to pursue the project.
Similarly, our survey of transit agencies and state DOTs also showed that  the results of economic analysis of a project are not necessarily the most  important factor considered in highway and transit investment decision  making. For highways, political support and public opinion, the availability  of state funds, and the availability of federal matching funds were ranked  most often as important factors in highway project decision making within  state DOTs (see fig. 3). Thirty-four state DOTs said that political support  and public opinion are factors of great or very great importance in the  decision to recommend a highway project, whereas only eight said that the  ratio of benefits to costs was a factor of great or very great importance.
For transit, results from our survey showed that the factors ranked with  “great or very great importance” most often included political  support/public opinion, the availability of local funds, and the availability of  federal matching funds. Specifically, of the 19 transit agencies that  responded to these survey questions, 17 said that political support/public  opinion and the availability of local funds were factors of great or very  great importance in project decision making (see fig. 4).
Survey respondents also provided a number of examples of other factors  that figure into the decision-making process. For example, one state DOT  highway survey respondent mentioned that in the respondent’s state,  projects are often built as a basic public good, regardless of the relative  benefits and costs. Another state DOT highway survey respondent said that  the geographic distribution of funds plays a large role in determining the  priority of highway projects. One transit agency survey respondent  commented that comprehensive, long-range planning is a major component  in evaluating and selecting projects, and the criteria are not solely based on  economic factors; other typical considerations include population growth,  land-use projections, environmental factors, and housing.
To further analyze the relationship between the results of economic  analyses of transportation projects and decisions made in selecting the  project, we conducted a regression analysis of the relationship between the  results of benefit-cost analyses completed for state transportation projects  in California and the subsequent decisions to program construction funds  for projects in the Statewide Transportation Improvement Plan. The  benefit-cost analyses used by California considered travel-time savings,  vehicle operating cost reductions, and safety benefits. In our analysis, we  found that projects with higher benefit-cost ratios had a higher probability  of receiving funding for construction. However, the analysis explained little  of the overall variation—for example, some projects with high benefit-cost  ratios received funding while others with relatively lower ratios also  received funding, indicating that other factors were likely considered in the  decision.
section_title: Costs and Usage Outcomes of Highway and Transit Investments Are Often Different from Projected; and Other Expected Outcomes Are Not Usually Evaluated
paragraphs: Results from our literature review and case studies indicate that both  completed highway and transit investments result in higher than expected  costs and in usage that is different from what was projected.  Transportation officials we interviewed generally contend that completed  projects have achieved other outcomes that were projected to flow from  the highway and transit investments, such as positive changes in land use  and economic development. In most cases, however, these outcomes of  highway and transit projects are not regularly quantified or evaluated after  the projects are completed. Rather, transportation officials relied on  limited and anecdotal evidence to support their statements about the  impacts of the projects. Officials we met with cited several reasons that  evaluations of completed projects are not regularly conducted, including  lack of funding and technical challenges.
subsections: section_title: Highway and Transit Projects Are Subject to Inaccurate Forecasts of Costs and Usage
paragraphs: A number of studies have shown that both completed highway and transit  investments often result in outcomes that are different from what was  projected. The following examples highlight such problems for both  highway and transit projects.
A study of over 250 transportation projects in Europe, North America,  and elsewhere found that costs for all projects were 28 percent higher  than projected costs at the alternatives analysis stage, on average. Rail  projects showed the highest cost escalation, averaging at least 44.7  percent, while road projects averaged escalations of 20.4 percent. This  study further found that cost underestimation has not improved over  time, indicating systematic downward bias on costs.
Initial results from an ongoing study of New Starts projects by FTA show  that nearly half of the 19 projects, for which ridership was reviewed, will  achieve less than two-thirds of forecast ridership by the forecast year. In  addition, costs escalated on 16 of the 21 projects reviewed from the  alternatives analysis stage, where decisions are made to go forward with  a preferred alternative, to the completion of the project—with 4 of those  projects experiencing increases of between 10 and 20 percent and 9  projects with increases over 20 percent.
In a 1997 report, we collected and analyzed data for 30 highway projects  costing $100 million or more. We found that cost growth occurred on 23  of 30 projects when comparing actual costs to costs estimated at the  alternatives analysis stage, with about half of the projects experiencing  increases of more than 25 percent.
A 1996 study that compared actual toll-road revenues to forecasted  revenue streams, found that 10 out of the 14 projects studied fell short of  projections by 20 to 75 percent, while a majority of the projects missed  or are likely to miss revenue forecasts in the second year by 40 percent  or more.
We found similar patterns for our case studies of 10 transit and highway  projects in 5 metropolitan areas. Table 4 provides descriptions of the  projects we reviewed in each metropolitan area.
In summary, we found the following:
Comprehensive data on the projected and actual costs and usage of all  the highway projects we examined were not readily available. In  particular, we were not able to obtain estimates of the projects’ costs at  a consistent point in the project development cycle (e.g., alternatives  analysis). As a result, it is difficult to draw overall conclusions on how  the projected costs compared with the actual costs for the five projects.  However, the limited cost data we were able to obtain suggest that at  least two of the five highway projects experienced cost escalation. In  one case, the capital costs were originally budgeted in the state’s capital  funding program at approximately $62.7 million (in inflation-adjusted  1999 dollars); but the actual expenditures for the project, in 1999,  approached about $94.4 million, 50 percent higher than the estimate. In  another case, construction costs for the preferred alternative, at the  alternatives analysis phase, were estimated at $16.6 million (in inflation- adjusted 2001 dollars), while actual construction costs in 2001,  according to officials, approached $25.4 million, a 53 percent increase.  In addition, in at least two locations, traffic after the improvement was  greater than had been expected after project completion, leading to less  congestion relief than had been expected. FHWA is working to improve  the cost estimates of federal-aid highway projects. For example, in June  2004, FHWA issued guidance for developing cost estimates, including  steps for producing more realistic early estimates. FHWA also  established help teams that travel to states that ask for assistance in  developing better estimates.
The five New Starts transit projects we reviewed had more extensive  information on the projected costs of the projects and had estimates  from several different points in the project development process. When  comparing as-built costs to cost estimates at the alternatives analysis  stage—where decisions are made on the preferred alternative but the  project is likely not at final design—three out of five New Starts transit  projects we reviewed had actual costs in excess of projected costs by  more than 10 percent. When comparing costs from the Full-Funding  Grant Agreement stage—where the preferred alternative has been  selected and the project is at its final design—only two projects had  costs escalate, one by 6 percent and one by over 40 percent. At the  time ridership figures were reviewed, the forecast years—that is, the  years for which the ridership projections were made in the project’s  planning documents—for four of the five New Starts projects remained  in the future; therefore, final conclusions about whether the projects  exceeded or fell short of ridership projections are premature. Currently,  only one of the projects achieved the ridership levels projected;  however, four of these five projects have surpassed 50 percent of the  projected level of ridership for the forecast year. According to FTA, the  agency has introduced a number of measures since these projects were  planned and developed to improve ridership and cost estimates. For  example, FTA is more rigorously examining ridership forecasts of  projects, requiring before and after studies for all new projects, and  conducting risk assessments of select projects to identify all significant  risks related to the project’s schedule and budget and to ensure that  mitigation measures or contingencies are in place, among other things.  In addition, FTA is currently examining the projected and actual  ridership of New Starts projects that opened in the last 10 years to  assess whether these projects achieved their estimated ridership levels  and to improve the reliability of forecasting procedures. FTA also  instituted a pilot program in 2003 to hold FTA senior executives  accountable for project outcomes. Specifically, FTA’s senior executive  service team bonuses are tied, in part, to project cost control—that is,  New Starts projects with full funding grant agreements must not exceed  their current baseline cost estimate by more than 5 percent.
Transportation officials offered several reasons that the actual costs and  levels of usage differ from those projected. For example, transportation  officials from one metropolitan area we visited attributed lower than  expected transit ridership to a severe economic downturn and slower than  anticipated development around transit stations. The economic downturn  also affected the highway project in this area, resulting in less traffic than  expected. This had the effect of reducing congestion, although the transit  project was credited with contributing to congestion reduction as well. In  addition, inflation, changes in the project’s scope, and changes in costs of  building materials could also explain differences between the projected  and actual costs of the project. For example, officials commented that  estimated costs of a project always change as the project moves through  the planning, design, and construction processes—becoming more  accurate as more specifics about the project are known. When the cost of  the project is initially estimated, sponsors do not know exactly how the  scope/design of the project may change or what environmental problems  may arise. However, by the time the New Starts project has reached the  Full Funding Grant Agreement stage, or the highway project has had  construction funds programmed, much more about these costs are known.  Comparing costs from this stage to actual costs will reveal less variance  than comparing costs with estimates from earlier stages in the process,  such as the alternatives analysis stage. However, it is important to note that  estimates from these earlier stages are generally used by project sponsors  to select the preferred alternative.
section_title: Evaluations of Highway and Transit Projects Are Not Usually Conducted
paragraphs: Outcome evaluations of completed projects are not usually conducted to  determine whether proposed outcomes were achieved. For most of the  highway and transit projects we reviewed, several of the proposed  outcomes were not defined in any measurable terms in the project planning  documents we reviewed. Moreover, officials stated that many of the  projected outcomes were not usually quantified, tracked, or evaluated after  the projects were complete. Of the 10 projects we reviewed, 6 did not have  any type of outcome evaluation completed. Before and after studies for  four projects had been completed or were being conducted—three for  transit projects, and one for a highway project. Although these studies  provide a description of corridor conditions before and after the project,  they do not compare or evaluate actual outcomes with projected goals.  Results from our survey also indicate that outcomes are not typically  evaluated, although evaluations for transit projects tend to be conducted  more so than for highway projects. In particular, 16 of 43 state DOTs  reported that they have analyzed completed highway projects to determine  whether proposed outcomes were achieved, while 13 out of the 20 transit  agencies reported that they have conducted such evaluations.
Although evaluations were not often conducted, officials we interviewed  provided some limited evidence as to the outcomes resulting from the  projects we reviewed. Table 5 shows the types of outcomes that project  officials and planning documents cited for each project and the extent to  which these outcomes were measured. As table 5 indicates, the projects  were often expected to result in indirect impacts that are difficult to  forecast and measure, such as positive changes to land use, and economic  development, among other things. According to project officials, these  outcomes, while not forecasted in measurable terms, were important  reasons that the projects were pursued.
For some outcomes, as table 5 indicates, transportation officials only had  anecdotal or qualitative pieces of evidence about whether the projects  achieved their proposed outcomes. For example, in one area,  transportation officials cited personal experiences and public comments  about reduced congestion on nearby roadways. In other areas, officials  showed us developments that had been constructed around stations, or  areas near the improvements where development was expected to occur as  evidence of the projects’ impacts.
section_title: Transportation Officials Cite Several Reasons for Not Conducting Outcome Evaluations
paragraphs: Transportation officials we spoke with offered several reasons why they do  not typically conduct evaluations of the outcomes of highway and transit  projects. In particular, transportation officials and experts agreed that  there is little incentive to direct available funding toward doing outcome  evaluations. Because state and local funding is limited and these studies  can be costly and difficult, local officials indicated that studies of  completed projects were not as high a priority as pursuing and conducting  studies on future projects. Several transportation officials stated that once  a project is completed, it is considered successful; and planners then turn  their attention to other projects. Some officials also noted that these  projects inherently improve safety, mobility, and economic development  and that evaluation of these outcomes is not needed. Thus, project  evaluations for completed projects do not fare well in competition for  limited planning funds. The Senate-proposed bill (S. 1072) to reauthorize  federal surface transportation programs, which was considered by the 108th  Congress in 2004, would increase funds available to support local  transportation planning. The funds provided under such a provision could  potentially be used to fund outcome evaluations.
Experts and transportation officials we spoke with also stated there were  many technical challenges to designing and completing outcome  evaluations. For example, experts stated that it is very difficult to  determine the economic impacts that can be attributed to a transportation  project, given the multitude of other factors that can influence  development. According to experts and transportation officials, once  transportation investments are completed, they become a part of an entire  transportation system; and, therefore, the effects of the individual project  become difficult to isolate, evaluate, and attribute to the individual project.
Finally, experts and transportation officials contend that a major  disincentive to doing outcome evaluations is that the benefits of doing the  analysis may be smaller than the potential risks. Transportation projects  are concrete and cannot be easily redesigned or adjusted once completed,  so some officials believe there is little incentive to find out that a project is  not providing the intended benefits. Therefore, agencies tend to declare  success once the project begins operating.
section_title: Options for Increasing Use of Information on Project Benefits and Costs to Better Inform Decisions and Instill Accountability
paragraphs: There are options for providing state, regional, and local decision makers  with more and better analytic information for making investment choices.  These options focus on improving the value of this information for decision  makers to make more fully informed choices and in helping ensure that  projects can be evaluated on the results they produce. At the federal level,  these options could be implemented either through incentives or mandates.  However, each of these implementation approaches has a degree of  difficulty in such matters as the time required and the impacts on federal  programs and resources. In addition, any attempts to increase the use of  such information should be tempered with the knowledge that other  factors, such as the structure of federal programs and the requirements of  legislative earmarks, will affect the extent to which such information can  be used. These other factors often have a strong effect on decisions about  which projects are funded.
subsections: section_title: Options Exist to Improve Analytic Information and Its Use in Transportation Investments
paragraphs: The experts who served on our panel provided a variety of options for  improving information available to decision makers and potentially giving  such information a greater role in highway and transit investment  decisions. The options are of three main types: (1) improving the quality of  data and transportation modeling, (2) improving the quality and utility of  benefit-cost analysis methods and tools, and (3) evaluating the results of  completed transportation projects. These options focus on making the  analytic information more useful and relevant to investment decisions,  according to experts. Experts noted two important caveats in considering  these options, however. First, no single analytic tool can answer all  questions about the impacts of transportation investment choices. Second,  even when benefit and cost information is available, it may play a relatively  limited role in investment decisions. As a result, the best information and  analysis may not result in the most beneficial highway and transit  investments.
subsections: section_title: Improve the Quality of Data and Transportation Modeling
paragraphs: Local and state transportation agencies require valid, reliable data and  transportation models in order to conduct analyses, including benefit-cost  analysis. Yet, experts have expressed concerns about the quality of local  data and transportation models and have proposed improvements in both  areas.
Several options have been proposed to improve data and modeling quality.  For example, TRB, with DOT sponsorship, is undertaking a study to gather  information and prepare a synthesis of local planning agencies’ current  modeling state of practice so that this baseline can be used to identify data  that these models require. In addition, an expert proposed adopting an  approach used outside the transportation sector—that is, accept existing  data but specify the degree of uncertainty associated with the data. This  approach is based on the idea that consistent data and measures are more  important than perfect data and measures.
To improve the accuracy of local travel models used to support New Starts  projects, FTA introduced new reporting and analysis software—  “Summit”—in the fiscal year 2004 rating process. Summit is intended to  produce a computation of user benefits from locally developed forecasts,  as well as standardized analytical summaries of both the forecasts and user  benefits. According to FTA, these reports and summaries have provided  both FTA and transit agencies a means to (1) identify and diagnose travel  forecasting problems related to assumptions regarding fare and service  policies, regional transportation networks, land use, and economic  conditions as well as (2) help ensure that the local forecast is utilizing  comprehensive and up-to-date data on travel behavior and local  transportation systems. As evidence of the impact of Summit, FTA officials  noted that they required 22 of 29 projects rated in the fiscal years 2004 and  2005 rating cycles to correct flaws in their underlying local forecasting  models. Despite these improvements, however, forecasting of transit user  benefits currently has a critical shortcoming. FTA has discovered that  current models used to estimate future travel demand for New Starts are  incapable of estimating reliable travel time savings as a result of a New  Start project. According to DOT’s Inspector General, this limitation is due  to unreliable local data on highway speeds. FTA is studying ways to remedy  this problem.
Improving the Quality and Utility  Experts said local, regional, and state transportation officials could have  of Benefit-Cost Analysis Methods  more reason to use benefit-cost analysis if it produced information more  and Tools 	 relevant to the investment choices that they face. In this regard, they cited  various steps that could be taken to make benefit-cost analysis more  accessible to these officials without making it more complex. Table 6  describes the improvements they identified.
A third set of options suggested by the experts dealt with conducting more  analyses of completed projects. Information about the outcomes of  completed highway and transit projects can be used not only to better  determine what a particular project accomplished, but also to improve  decisions on other projects. For example, a study of how federal agencies  use outcome information indicates that this information can help decision  makers maximize project effectiveness by identifying “best practices” and  better allocate limited resources. However, as noted previously, the  outcomes of completed projects are not typically evaluated. Experts noted  that such studies are more regularly conducted in other sectors, such as  health and education programs. Such evaluations provide an opportunity to  increase accountability in the planning process by documenting and  measuring the results of projects. Outcome evaluations also offer the  opportunity for officials to learn from successes as well as the  shortcomings of past projects.
FTA has recently adopted a requirement for project sponsors to complete  before and after studies for New Starts projects. In particular, sponsors  seeking federal funding for their New Starts project must submit to FTA a  plan for the collection and analysis of information that addresses how the  project’s estimated costs, scope, ridership and operating plans prepared  during planning and project development compared with what actually  occurred. According to FTA officials, this requirement is intended to hold  transit agencies accountable for results and identify lessons learned for  future projects. The Senate-proposed bill to reauthorize federal surface  transportation programs, which was considered by the 108th Congress in  2004, would codify this requirement. Neither the House nor Senate  reauthorization bills that were considered in 2004, or FHWA regulations,  would require similar studies for most highway projects, although the  Senate bill provides for evaluating projects funded by the Congestion  Mitigation and Air-Quality program.
section_title: Incentives or Mandates Could Be Used to Increase Use of Analytic Information
paragraphs: Incentives, mandates, or a combination of both, could be used to increase  decision makers’ use of analytic information and improve accountability  for investment choices. Each strategy has factors that affect its  feasibility—the difficulty of implementation, time required, and impacts on  federal programs and resources. Each strategy also has its unique  advantages and disadvantages, according to experts. Several experts also  emphasized that the question of strategy is important because, although  many ingredients for benefit-cost analysis already are in place as a result of  local agencies’ compliance with extensive environmental and clean air  analytic requirements, they have not taken the extra step toward this  analysis.
Incentives could be used to increase state, regional, and local agencies’  utilization of analytical information and tools. For example, funding could  support additional analysis; training for state, regional, and local agency  personnel in using the analytical tools; and performance incentives. Using  incentives would also be consistent with what one expert described as the  appropriate federal role—supplying funds to improve data and modeling  practices, providing guidance regarding best practices, and evaluating  completed transportation projects. State, regional, and local transportation  agencies also may view the use of incentives—as opposed to a new federal  mandate—as giving them more flexibility to respond to their stakeholders’  interest in how modal and distributional trade-offs are made. However,  using incentives to increase the use of economic analytical tools, such as  benefit-cost analysis, would be reasonably labor intensive for the  respective federal agencies and require strong program management; clear  strategies for setting goals and practices; and a workable method to ensure  that state, regional, and local transportation agencies have good analytical  tools, according to experts. FTA and FHWA are working to provide  incentives that encourage greater use of analytical tools. For example, FTA  and FHWA have collaborated to establish the Transportation Planning  Capacity Building program, which provides training and technical  assistance to state, regional, and local transportation officials on using  analytical tools in the decision-making process.
Federal mandates could also be used to increase state, regional, and local  transportation agencies’ use of analytical tools, such as benefit-cost  analysis. However, in some cases, mandates would require legislative  change. For example, benefit-cost analysis cannot currently be required as  a condition of receiving highway funds because the federal government  does not have exclusive approval power over the worthiness of these  projects, and states maintain the sovereign rights to determine which  projects shall be federally funded. In addition, it would also be necessary  to change TEA-21’s prohibition on placing dollar values on transit mobility  improvements in order to require a benefit-cost analysis as part of the New  Starts process. As a strategy based on compliance with rules, mandates  are comparatively simple to implement. However, detecting mistakes and  enforcing mandates as well as creating mechanisms for sanctioning  noncompliance would require considerable attention for effective  oversight.
section_title: Factors that Work Against Greater Use of Analysis in Investment Decisions
paragraphs: As our survey responses showed, decisions about transportation  investments are based on many things besides the results of economic  analyses of a project’s benefits and costs, such as the availability of funding  or public perception about a project. Improving the quality of information  about projects does not make these other matters disappear. Experts, other  transportation researchers, and our past work have identified several  overarching factors that can affect the extent to which additional analytical  information may be used in making decisions about projects. Four such  factors, each discussed below, would likely continue to affect the extent to  which analytic information, even significantly improved, would be used as  the dominant factor in making investment decisions.
Structure and Funding of Federal Programs: According to several  experts, the highly compartmentalized structure and funding of federal  highway and transit programs work against an advantage of benefit-cost  analysis—the ability to evaluate how well alternative investments meet  transportation problems. Separations between federal programs and  funds give state, regional, and local agencies little incentive to  systematically compare the trade-offs between investing in different  transportation alternatives to meet passenger and freight travel needs  because funding can be tied to certain programs or types of projects,  according to several experts. For example, only fixed guideway transit  projects, such as rail projects, are currently eligible for New Starts  funds.As a result, certain bus rapid transit projects, which have  compared favorably with the per-mile costs of light rail projects, are not  eligible for New Starts funds. Both the Senate- and House-proposed  bills (S. 1072 and H.R. 3550) to reauthorize federal surface  transportation programs, which were considered by the 108th Congress  in 2004, would allow certain nonfixed guideway transit projects (e.g.,  bus rapid transit operating in nonexclusive lanes) to be eligible for New  Starts funding. The Transportation Research Board reported that most  local agency staff continues to be in a single transportation sector  “silo.”
Federal funding of highway and transit projects is also not linked to  performance or the accomplishment of goals or outcomes. As a result,  the federal government misses an opportunity to use financial  incentives to improve performance and to hold agencies accountable  for results. In a previous report, we identified possible options for how  the federal highway program could be restructured to increase  flexibility and accountability, including linking funding with  performance and outcomes.
Legislative earmarks: Legislative earmarks target transportation funds  to specific local uses. As a result, these designated projects do not  compete for funding against other alternatives, which removes the  reason and incentive for transportation agencies to conduct benefit-cost  analyses.
Multiple federal requirements: Federal legislation and regulations place  many demands on state, regional, and local transportation agencies’  analytic resources and—in some cases—give them compelling reasons  to dedicate their analytic resources to areas other than benefit-cost  analysis or to choose an alternative that is not the most cost beneficial.  For example, one expert emphasized that local transportation agencies  have especially strong incentives to focus their modeling and analytic  resources on achieving air-quality goals, as mandated by federal statute.  Demonstrating that these goals are met is a high priority because failing  to do so creates the very tangible risk that transportation project  funding could be blocked. In addition, TEA-21 requires local, regional,  and state transportation agencies to consider a number of factors in  their planning that are not easily quantified. As a result, these  statutorily defined factors, which are considered in a more qualitative  manner, can be more important than the results of a benefit-cost  analysis in selecting a transportation project for funding.
Expense of analysis: Experts told us that analysis can be quite  expensive. For example, a formal benefit-cost analysis can typically cost  over $100,000 for a multimodal urban corridor that is several miles long.  The high cost of such analyses puts pressure on local agency budgets  that are already stretched to meet other competing demands and poses  a significant disincentive to using benefit-cost analysis or conducting  outcome evaluation. As noted earlier, the Senate proposed bill (S. 1072)  to reauthorize federal surface transportation programs that was  considered by the 108th Congress in 2004 would increase funds to  support local transportation planning, and those additional funds could  presumably be used to support economic analyses.
section_title: Concluding Observations
paragraphs: With growing concerns about the size of federal and state budget deficits,  combined with the future mandatory commitments to Social Security and Medicare set to consume a greater share of the nation’s resources, the  prospects of future fiscal imbalances are a certainty. Given the current and  long-term fiscal challenges, careful decisions need to be made to ensure  that transportation investments systematically consider the benefits of  each federal dollar invested.
Through federal regulations, laws, and guidance, a framework has been  established for transportation planning that state, local, and other decision  makers must follow to receive federal transportation dollars. Although the  framework identifies factors for consideration during transportation  investment decision making, it does not specify analytical tools to be  applied for evaluating project merits—nor does it require that the most  cost-beneficial project be chosen. Furthermore, many of the factors that  are required to be considered are not easily incorporated in economic  analysis, and methods for estimating dollar values associated with those  factors may not be readily accepted. This results in some factors being  considered more qualitatively and thus weighted differently than those  factors that can be more easily incorporated in an economic analysis.  Academic institutions, research organizations, and experts in the field  continue to seek new methods and tools for estimating transportation  project benefits and costs. Such advancements could help federal funding  recipients improve their project analyses and thus improve the information  available to decision makers, although these methods should be  appropriately tested and vetted within the transportation community.
Throughout this report, we have acknowledged the very tangible difficulty  of comprehensively and accurately estimating the benefits and costs of  transportation projects, which, in part, leads to the relatively infrequent use  of benefit-cost analysis in determining which projects to pursue. Further,  we have recognized that transportation investment decision making does  not occur in a vacuum. State, regional, and local officials consider a variety  of factors in making transportation investment decisions, including the  community’s needs and priorities as well as federal requirements—and  these factors can play a greater role in shaping investment choices than the  analysis of a project’s benefits and costs. In addition, overarching factors,  such as the funding compartmentalization of federal transportation  programs and legislative earmarks that target transportation funds to  specific uses, inhibit more widespread use of benefit-cost analysis.  Nevertheless, the increased use of systematic analytical tools such as  benefit-cost analysis, and the continued improvement of such tools through  dissemination of new methods and advancement of existing techniques,  can provide important additional information that can be used to inform  discussions about community needs and values, which could then lead to  better-informed transportation investment decision making.
section_title: Agency Comments
paragraphs: We obtained comments from DOT, including FTA and FHWA. Overall, DOT  said that the report presented a clear and useful assessment of the status of  economic analysis in its application to evaluating transportation projects.  While recognizing the utility of economic analysis for maximizing benefits  associated with public investment in transportation capacity, DOT agreed  with the limitations associated with the use of these techniques that we  described in our report. DOT indicated that a combination of factors,  including difficulties in measuring and forecasting benefits, along with  local political, land use, and public support factors can limit the practical  utility of formal economic analysis in making local transportation  decisions. Nonetheless, at the federal level, representatives from FTA said  that it had made significant strides incorporating state-of-the-art analytical  tools into its New Starts Program. For example, as described in our report,  FTA developed software capable of calculating transportation user  benefits, based on locally originated data, and grantees are required to use  it in making statutorily required New Starts submissions. Representatives  from FTA also said that FTA is more rigorously reviewing ridership  forecasts, requiring before and after studies for all new projects, and is  conducting risk assessments to identify significant risks to project budgets  and schedules, as described in our report. Finally, both FTA and FHWA  offered a number of technical comments, which have been incorporated in  this report, as appropriate.
We are sending copies of this report to the Secretary of Transportation,  Administrators of the Federal Highway Administration and Federal Transit  Administration, and interested congressional committees. We will also  make copies available to others upon request. In addition, the report will be  available at no charge on the GAO Web site at http://www.gao.gov.
If you have any questions about this report, please contact me at  siggerudk@gao.gov, or (202) 512-2834. Key contributors to this report are  listed in appendix VI.
section_title: Scope and Methodology
paragraphs: To identify the categories of benefits and costs that can be attributed to  highway and transit investments and the challenges in measuring these  benefits and costs as well as options to improve the information available  to decision makers, we reviewed the economics literature, academic  research, and transportation planning studies containing evaluations of  various economic analytical tools, with an emphasis on benefit-cost  analysis. A GAO economist reviewed these studies, which were identified  by searching economics literature databases and consulting with  researchers in the field, and found their methodology and economic  reasoning to be sound and sufficiently reliable for our purposes. We also  reviewed federal laws, regulations, and guidance on the transportation  planning process in order to determine the extent to which considerations  of project benefits and costs are required or encouraged. In addition, we  interviewed federal transportation officials in the Department of  Transportation’s (DOT) Office of the Inspector General, Federal Highway  Administration (FHWA), Federal Transit Administration (FTA) and the  Volpe Transportation Center, as well as representatives from think tanks,  consulting firms, academic institutions, and the Transportation Research  Board’s Transit Cooperative Research Program and National Cooperative  Highway Research Program.
We also contracted with the National Academy of Sciences (NAS) to  convene a balanced, diverse panel of experts to discuss the use of benefit- cost analysis in highway and transit project decision making and gather  views about options to improve the information available to decision  makers. The NAS Transportation Research Board (TRB) identified  potential panelists who were knowledgeable about benefit-cost analysis,  transportation policy and planning, highway and transit use, and  transportation decision making. We worked closely with TRB to select  panelists who could adequately respond to our general and specific  questions about conceptualizing, measuring, improving, and using benefit  and cost information in investment decisions (see app. III for more  information about the panelists). In keeping with NAS policy, the panelists  were invited to provide their individual views, and the panel was not  designed to build consensus on any of the issues discussed. After the  expert panel was conducted on June 28, 2004, in Washington, D.C., we used  a content analysis to systematically analyze a transcript of the panel’s  discussion in order to identify each expert’s views on key questions.
To determine how state, local, and regional decision makers consider the  benefits and costs of new highway and transit investments and the extent  to which select capacity-adding highway and transit investments met their  projected outcomes, we conducted a survey and a series of case studies.  Specifically, we conducted a self-administered e-mail survey of all state  DOTs (excluding the District of Columbia and Puerto Rico) and the 30  largest transit agencies in the United States. We sent the survey to state  DOT planning officials and transit agency general managers and asked  them to coordinate responses with agency officials most knowledgeable  about particular issues raised in the survey.
Although we did not independently verify the accuracy of the self-reported  information provided by these agencies, we took a series of steps, from  survey design through data analysis and interpretation, to minimize  potential errors and problems. To identify potential questions, we spoke  with numerous transportation experts, agency officials, and officials at  organizations relevant to transportation planning and decision making,  including, the American Association of State Highway and Transportation  Officials (AASHTO), the American Public Transportation Association, and  the Association of Metropolitan Planning Organizations (AMPO). To verify  the clarity, length of time of administration, and understandability of the  questions, we pretested the questionnaire with 12 transit agencies, state  DOTs, and metropolitan planning organizations (MPO). We also had the  questionnaire reviewed by a survey expert and AMPO staff. In addition, we  examined survey responses for missing data and irregularities. We analyzed  the survey data by calculating descriptive statistics of state DOT and transit  agency responses. A copy of the Survey of State Department’s of  Transportation and Transit Agencies—The Costs and Benefits of  Transportation Projects can be found in appendix II.
We used AASHTO’s standing committee on planning to identify state  highway officials in each state. We also used the National Transit Database  to identify the top 30 transit agencies nationwide as well as obtain contact  information for the general managers of the agencies. We also interviewed  officials from several MPOs on the types of analysis they used in planning,  but we did not include them in the survey population because MPO officials  told us that state DOTs and transit agencies are typically project sponsors  and are responsible for identifying and evaluating specific project  alternatives. While MPOs are involved in the project planning process, we  decided to limit our survey to those agencies that most likely had  completed project specific analyses.
We conducted the survey from August through October 2004. We initially  contacted state DOT and transit agency officials via telephone, and we then  sent the survey via e-mail to each official. To maximize response rates, we  sent periodic e-mail reminders with copies of the survey to nonrespondents  in September 2004. Each of these messages contained instructions for  completing the survey and contact information to submit questions. We  extended the initial deadline from September 15, 2004 to October 8, 2004,  to allow additional agencies to submit completed questionnaires. Finally,  we telephoned officials that had not yet responded between September 22,  2004, and September 28, 2004, to remind them to complete the  questionnaire. Overall, 43 of the 50 state DOTs responded to our survey and  20 of the 28 transit agencies.
We supplemented our survey data with in-depth information from state and  local transportation officials about 10 highway and transit projects in five  major metropolitan areas: Baltimore, MD; Dallas, TX; Denver, CO; Miami,  FL; and San Jose, CA. We chose these five metropolitan areas because they  each had both a New Starts project and a capacity-adding highway project  completed within the last 10 years and were identified by the Texas  Transportation Institute as among the top 25 most congested areas in the  United States. (Table 7 provides a description of each project.) In these  locations, we interviewed officials from transit agencies, MPOs, and state  DOTs in order to understand the type of analysis that was completed for  the highway and transit projects, the factors that drove project decision  making, and the types of project outcomes that were achieved and  tracked. We also analyzed available planning and project documents, such  as Environmental Impact Statements and Project Study Reports. We also  collected available cost and usage information from the planning and  project documents or from project officials.
To examine the relationship between benefit-cost ratios computed for state  transportation projects in California and the subsequent decisions to  program construction funds for those projects in the Statewide  Transportation Improvement Plan, we used a logit model. This model is one  of the most commonly used statistical techniques for estimating problems  involving outcome variables that take discrete values---in this case, the  outcome variable is that the projects either received funding or they did  not. The data for this analysis were provided to us by the California DOT. In  the statistical analysis, we also included population density and total  employment to both account for plausible effects from these demographic  factors and to check for the sensitivity of the estimated relationship. These  county-level demographic variables, obtained from Census Bureau’s 2000  census, were matched to counties in which the projects were to be  constructed.
Finally, to determine trends in public expenditure, capacity, and usage for  highway and transit systems over a 20-year period (1982 to 2002), we  analyzed information from FHWA’s Highway Statistics, FTA’s National  Transit Database, and DOT’s Conditions and Performance Report. We  adjusted expenditures to 2002 dollars using the price index for state and  local government gross fixed investment in highways and streets estimated  by the Bureau of Economic Analysis (BEA) of the Department of  Commerce. The adjusted expenditures using the BEA index will be slightly  different from expenditures calculated by FHWA using its bid-price index  because BEA adjusts the FHWA bid-price index. We used BEA's index  because it uses a 12-quarter phasing pattern that more consistently  captures expenditure patterns for capital highway projects. To determine  the reliability of the data, we (1) reviewed available documentation about  these databases and the systems that produced them and (2) interviewed  knowledgeable agency officials. We determined that the data were  sufficiently reliable for the purposes of this report.
section_title: Survey Results
paragraphs: The U.S. Government Accountability Office, an agency of Congress, is conducting a study of the  costs and benefits of federal investments in transportation projects.  As part of this study, we are  surveying officials at State DOTs about analyses of costs and benefits conducted when  comparing alternatives in planning and developing highway projects. Please help us to inform  Congress about this important issue by responding to this brief questionnaire.
Your responses to this survey are critical in helping Congress to understand the costs and  benefits of transportation investments.  Without your responses, we cannot provide meaningful  information to Congress about this important issue.
Please complete this questionnaire and return it to GAO before September 15, 2004.  This questionnaire should take approximately 20 minutes to complete.  If you have any questions  regarding this survey, please contact either Andrew Von Ah (by phone at 213-830-1011 or by  email at vonaha@gao.gov) or contact Heather MacLeod (by phone at 206-654-5574 or by email at  macleodh@gao.gov).
Thank you for participating in this survey.
For transit agency surveys this statement read as follows, “As part of this study, we are surveying officials  at the 30 largest transit agencies about analyses of costs and benefits conducted when comparing  alternatives in planning and developing transit projects.”
For highway: In this section of the survey, please consider only highway projects that used  federal funds and that were designed to expand the physical capacity of the highway  system, such as adding HOV lanes, reconfiguring interchanges, and constructing new roads.  Do not consider operations, maintenance, or rehabilitation projects such as signal timing or  road repaving.
For transit: In this section of the survey, please consider only transit projects that used federal  funds and that were designed to expand the physical capacity of public transit systems.  Please consider public transit systems to include buses, subways, light rail, commuter rail,  monorail, passenger ferryboats, trolleys, and inclined rails.  Do not consider operations,  maintenance, or rehabilitation projects.  1.	 When alternatives are considered for a proposed highway/transit capacity-adding  project, does your agency complete any analysis of either the benefits or the costs  of the various alternatives?  Please check your response. (Skip to question 6) (Skip to question 6)
2.	 How often does your agency complete a Cost-Effectiveness Analysis when  evaluating alternatives for proposed highway/transit capacity-adding projects?  Please consider a cost-effectiveness analysis to be the determination of the annualized  capital and operating costs divided by some unit of output for each project, such as cost  per passenger mile of travel or cost per hour of travel time savings.  Please check your  response.
6.  Typically, how much importance would you say that cost-effectiveness has in your  decision to recommend a project from among its various alternatives?Please check  your response.  7.  Typically, how much importance would you say that the ratio of benefits to costs has  in your decision to recommend a project from among its various alternatives?Please check your response.  8.  Typically, how much importance would you say that economic impacts have in your  decision to recommend a project from among its various alternatives?Please check  your response.
For the transit agency survey this question was worded as follows, “forecasted cost-effectiveness.”  For the transit agency survey this question was worded as follows, “the result of a cost-benefit analysis.”  For the transit agency survey this question was worded as follows, “projected economic impacts.”  9.	 Typically, how much importance would you say that political support and public  opinion have in your decision to recommend a project from among its various  alternatives?  Please check your response.  10.  Typically, how much importance would you say that the distribution of impacts  across social groups has in your decision to recommend a project from among its  various alternatives?  Please check your response.  11.  Typically, how much importance would you say that the availability of federal  matching funds has in your decision to recommend a project from among its various  alternatives? Please check your response.
15.  During the past 10 years, did your agency typically analyze individual  highway/transit capacity-adding projects to determine in retrospect whether  specific proposed outcomes were achieved?  Please consider all sources of analyses in  your answer, including those completed by other state or local agencies or consultants.  Please check your response.
Thank you for participating in our survey!
section_title: Panelists
paragraphs: The names and backgrounds of the panelists are as follows. Brian Taylor of  the University of California, Los Angeles, served as moderator for the  sessions.
David J. Forkenbrock is Director of the Public Policy Center, Director  of the Transportation Research Program, Professor in Urban and  Regional Planning, and Professor in Civil and Environmental  Engineering at the University of Iowa. His research and teaching  interests include analytic methods in planning, and transportation policy  and planning. From 1995 through 1998, Dr. Forkenbrock chaired a  National Research Council-appointed committee to review the FHWA’s  Cost Allocation Study process. He is a member of the College of  Fellows, American Institute of Certified Planners and a lifetime National  Associate of the National Academies. He is chairman of the TRB  Committee for Review of Travel Demand Modeling by the Metropolitan  Washington Council of Governments and a member of the TRB  Committee for the Study of the Long-Term Viability of Fuel Taxes for  Transportation Finance. In 2004, he received the first ever TRB William  S. Vickrey Award for Best Paper in Transportation Economics and  Finance for his work on mileage-based road user charges. He received  the Michael J. Brody Award for Excellence in Faculty Service to the  University and the State, from the University of Iowa in 1996. He earned  a Ph.D., from the University of Michigan; a Master of Urban Planning  from Wayne State University; and a B.A., from the University of  Minnesota.
José A. Gómez-Ibáñez is Derek C. Bok Professor of Urban Planning  and Public Policy at Harvard University’s John F. Kennedy School of  Government and Graduate School of Design. His research interests are  primarily in the area of transportation policy and urban development  and in privatization and regulation of infrastructure. He has served as a  consultant for a variety of public agencies. His recent books include  Regulating Infrastructure: Monopoly, Contracts, and Discretion;  Regulation for Revenue: The Political Economy of Land Use Exactions  (with Alan Altshuler); Going Private: The International Experience  with Transport Privatization (with John R. Meyer); and Essays on  Transport Policy and Economics (ed.).
Ronald F. Kirby is Director of Transportation Planning for the  Metropolitan Washington Area Council of Governments. He began his  career in the United States as a Senior Research Associate with Planning  Research Corporation. He joined the Urban Institute as a Senior  Research Associate and became a Principal Research Associate and  Director of Transportation Studies. He has served on several TRB  committees and is currently a member of the TRB Executive  Committee. He has a B.S. and a Ph.D., in applied mathematics, from the  University of Adelaide, South Australia.
David L. Lewis is President and CEO of HLB Decision Economics. His  credits include a range of widely adopted applications in cost-benefit  analysis, productivity measurement, risk analysis, and approaches to  establishing public-private investment partnerships. He has authored  three books, including Policy and Planning as Public Choice: Mass  Transit in the United States (Ashgate Press), 1999. His past positions  include Partner-in-Charge, Division of Economics and U.S. Operations,  Hickling Corporation; Chief Economist, Office of the Auditor General of  Canada; Executive Interchange Program and Principal Analyst, U.S.  Congressional Budget Office, Congress of the United States; and Senior  Economist and Director of the Office of Domestic Forecasting,  Electricity Council. He has a Ph.D., and an M.S., in economics from the  London School of Economics and a B.A., in economics from the  University of Maryland.
Michael D. Meyer is Professor of Civil and Environmental Engineering  at the Georgia Institute of Technology. Prior to coming to Georgia Tech  in 1988, he was the Director of the Bureau of Transportation Planning  and Development at the Massachusetts Department of Public Works for  5 years. Prior to his employment at the Massachusetts Department of  Public Works, he was a professor in the civil engineering department of  the Massachusetts Institute of Technology. His research interests  include transportation planning and policy analysis, environmental  impact assessment, analysis of transportation control measures, and  intermodal and transit planning. He is a Professional Engineer in the  State of Georgia, and a member of the American Society of Civil  Engineers and the Institute of Transportation Engineers. He has chaired  TRB’s Task Force on Transportation Demand Management, the Public  Policy Committee, the Committee on Education and Training, and the  Statewide Multimodal Transportation Planning Committee. He is a  former member of the National Research Council policy study Panel on  Statistical Programs and Practices of the Bureau of Transportation  Statistics. Currently, he is a member of TRB’s Executive Committee and  Standing Committee on Statewide Multimodal Transportation Planning.
Donald Pickrell is DOT’s Volpe Center's Chief Economist. Prior to  joining DOT, he taught economics, transportation planning, and  government regulation at Harvard University. While at the Volpe Center,  he also was a lecturer in the Department of Civil Engineering at  Massachusetts Institute of Technology. He has authored over 100  published papers and research reports on various topics in  transportation policy and planning, including transportation pricing,  transit planning and finance, airline marketing and competition, travel  demand forecasting, infrastructure investment and finance, and the  relationships of travel behavior to land use, urban air quality, and  potential climate change. He received his undergraduate degree in  economics and mathematics from the University of California at San  Diego, and Master's and Ph.D. degrees in urban planning from the  University of California at Los Angeles.
Kenneth A. Small is Professor of Economics at the University of  California at Irvine, where he served 3 years as chair of the Department  of Economics and 6 years as Associate Dean of Social Sciences. He  previously taught at Princeton University and was a Research Associate  at The Brookings Institution. He has written numerous books and  articles on urban economics, transportation, public finance, and  environmental economics. He serves on the editorial boards of several  professional journals in the fields of urban and transportation studies  and has served as coeditor or guest editor for four of those boards. In  1999, he received the Distinguished Member award of the Transport and  Public Utilities Group of the American Economic Association. During  1999 to 2000, he held a Gilbert White Fellowship at Resources for the  Future. He has served on two TRB policy study committees—the  Committee for a Review of the Highway Cost Allocation Study and the  Committee for a Study on Urban Transportation Congestion Pricing.
Brian D. Taylor (Moderator) is Associate Professor of Urban  Planning and Director of the Institute of Transportation Studies at  University of California at Los Angeles as well as Vice-Chair of the  Urban Planning Department. His research centers on transportation  finance and travel demographics. He has examined the politics of  transportation finance, including the influence of finance on the  development of metropolitan freeway systems and the effect of public  transit subsidy programs on system performance and social equity. His  research on the demographics of travel behavior has emphasized  access-deprived populations including women, racial-ethnic minorities,  the disabled, and the poor. He also has explored relationships between  transportation and urban form, with a focus on commuting and  employment access for low-wage workers. Prior to coming to University  of California at Los Angeles in 1994, he was Assistant Professor in the  Department of City and Regional Planning at the University of North  Carolina at Chapel Hill. Prior to that, he was a Transportation Analyst  with the Metropolitan Transportation Commission in Oakland,  California.
Martin Wachs is Professor of Civil and Environmental Engineering and  City and Regional Planning, and Director of the Institute of  Transportation Studies at the University of California at Berkeley. He  was formerly Professor of Urban Planning and Director of the Institute  of Transportation Studies at the University of California at Los Angeles  where he served three terms as Head of the Urban Planning Program.  His research interests include methods for evaluating alternative  transportation projects; relationships among land use, transportation,  and air quality; and fare and subsidy policies in urban transportation.  Most recently, he chaired the Transportation Research Board policy  study Committee for the Study on Urban Transportation Congestion  Pricing. He is the former Chairman of the TRB Executive Committee. He  holds a Ph.D., in transportation planning from Northwestern University.
section_title: Trends in Highway and Transit Expenditures, Usage, and Capacity
subsections: section_title: Public Expenditures
paragraphs: Expenditures by all levels of government for both highways and transit  have grown substantially from fiscal year 1982 through 2002, at an average  annual rate of about 3.4 percent for both highway and transit spending.  Figures 5 and 6 show trends in federal, and state and local spending for  highways and transit in inflation-adjusted 2002 dollars. In 2002, total  highway expenditures reached almost $136 billion while over $26 billion  was spent on transit, with the bulk of funding coming from state and local  governments for both highways and transit systems. For highways, total  federal expenditures have risen at a faster rate since the enactment of TEA- 21 in 1998 than have state and local expenditures, with federal  expenditures rising at about 8.4 percent per year, on average, from 1998  through 2002, and state and local expenditures rising at about 0.5 percent  per year, on average, over the same period. For transit, the converse is true,  as state and local expenditures have increased at a faster rate than federal  spending since 1998, with state and local expenditures rising at an average  annual rate of about 7.5 percent per year, as opposed to 5.8 percent per  year for federal expenditures.
Investment in highway and transit capital, which represents investment in  new capacity as well as rehabilitation of existing assets, has also  increased. Figure 7 shows trends in federal, and state and local capital  spending from 1982 through 2002 in inflation-adjusted 2002 dollars. The  bulk of federal funding for highways goes toward capital outlays, with  about 96 percent of all federal funding going to capital outlays in 2002, as  compared with 36 percent of state and local funds. In addition, since the  passage of TEA-21, federal capital spending has increased at a faster rate  than state and local capital spending for highways. From 1998 through  2002, federal capital spending on highways increased an average of about  8.8 percent per year in inflation-adjusted dollars, while state and local  capital spending decreased at about 0.8 percent per year, on average, in  inflation-adjusted dollars.
Figure 8 shows trends in federal, and state and local capital spending for  transit from 1995 through 2002 in inflation-adjusted 2002 dollars. Data  prior to 1995 are not reported because comparable data with those  available in the National Transit Database are not available. In contrast to  highway capital spending, since the passage of TEA-21, state and local  capital spending has increased at a faster rate than federal capital spending  for transit. From 1998 through 2002, federal capital spending on transit  increased an average of about 4.9 percent per year in inflation-adjusted  dollars, while state and local capital spending increased almost 15 percent  per year on average in inflation-adjusted dollars.
According to DOT’s 2002 Conditions and Performance report, capital  investment by all levels of government remains well below DOT’s estimate  of the amount needed to maintain the condition of the highway and transit  systems. As a result, according to DOT, the overall performance of the  system declined, thus increasing the number of highway and transit  investments needed to address existing performance problems. Figure 9  shows DOT’s estimates of capital investment needed from all levels of  government to maintain and to improve the highway and transit systems,  compared with actual capital spending in 2002.
section_title: Usage of Public Highways and Transit
paragraphs: Travel on highways and transit has increased steadily from 1982 through  2002. For highways, the level of usage has increased at an average annual  rate of about 3 percent per year. By 2002, Americans traveled on highways  more than 2.8 trillion vehicle miles annually. Figure 10 shows trends in  usage of public highways from 1982 through 2002. Although most highway  lane miles are rural, the majority of highway travel occurs in urban areas.  For example, in 2002, 61 percent of highway travel occurred in urban areas.  Passenger vehicles account for the bulk of vehicle miles traveled on public  highways, although usage by trucks has increased more over the period.  Highway usage by trucks increased by 92.5 percent, as opposed to 78.3  percent by passenger vehicles. Conversely, the level of usage of public  highways by buses only increased 17.6 percent from 1982 through 2002.
The level of usage of public transit, measured in passenger miles traveled,  has increased an average of 1.5 percent annually from 1982 through 2002,  although usage has increased more rapidly since passage of TEA-21.Figure 11 shows trends in rail and nonrail transit usage over this period.  Since 1998, rail transit has seen an 11.2 percent increase in usage, while  nonrail forms of transit, including demand response, ferry-boat, jitney,  motor bus, monorail, publico, trolley bus, and van pools, experienced a  smaller increase, approximately 9.5 percent, over the same time period. In  2002, passenger miles traveled on rail were 24.6 billion and accounted for  about 54 percent of total usage; however, according to the 2002 C&P report,  rail accounts for only 5 percent of urban transit route miles.
Disaggregating rail usage by commuter rail, heavy rail, and light rail, shows  that usage of heavy rail and commuter rail greatly exceeds that of light  rail. Figure 12 shows trends in usage by rail mode from 1984 through 2001,  the years for which the data are available. In 2001, light rail accounted for  only 6 percent of the total passenger miles traveled on rail, whereas  commuter rail and heavy rail were 38 percent and 56 percent, respectively,  of the total passenger miles traveled on rail transit in 2001.
section_title: Capacity of Highways and Transit
paragraphs: The capacity of the public highway system and the nation’s transit system  has increased at a slower rate than usage of these systems. For highways,  total estimated lane miles have increased an average of 0.17 percent  annually from 1982 through 2002, compared with an annual increase of 3  percent for vehicle miles traveled.In 2002, there were approximately 8.3  million lane miles in the United States, with 76 percent of the total capacity  existing in rural areas.
From 1993 through 2002, years for which data are available, total transit  system capacity increased 24 percent, while usage increased 27 percent  over the same period.The capacity of all rail modes increased 26 percent  from 1993 through 2002, while nonrail mode capacity increased 22 percent.  Light rail capacity experienced the greatest percentage change of the rail  modes over the period, increasing 122 percent. Vanpools experienced the  largest percentage change in nonrail capacity, 225 percent.
section_title: Information on Benefits Attributable to Highway and Transit Investments
paragraphs: Measuring benefits that can potentially result from highway and transit  investments can be quite contentious and spur vigorous debates among  experts in the field and in literature, although there tends to be more  agreement about the nature of the direct user benefits associated with  highway and transit investments, as opposed to the wider social benefits or  the indirect benefits.
subsections: section_title: Direct and Social Benefits
paragraphs: Generally, the largest direct benefit from transportation investments, both  highway and transit, is the reduction in travel time that results from the  investment. When travel time is reduced, additional time becomes available  to spend on some other activity and, therefore, people are willing to pay to  reduce their travel time. The value of travel-time savings is an estimate of  how much people would be willing to pay for reductions in travel time.  There is a substantial body of literature consisting of both conceptual  analyses of how best to estimate the value of travel-time savings and  empirical analyses that estimate values in specific circumstances. Travel- time savings are often divided between work-time savings and nonwork­ time savings. Work-time savings—for example, reductions in the time for a  repairperson to get from one work site to another during the workday—  would allow someone to accomplish more in a day’s work. Accordingly, the  work travel time that someone saves is generally valued at that person’s  hourly wage rate because the wage rate represents the value to the  employer of having an additional hour of that person’s time available for  work activities.
The values that travelers place on nonwork travel-time savings depend  upon both the benefit that they would receive by spending additional time  in some other way and the benefit they receive from reductions in  individuals’ perceived costs of travel. For example, it is generally accepted  that reductions in time spent waiting for a bus to arrive are more highly  valued than reductions in riding time because travelers dislike waiting  more than riding and, therefore, would receive a greater benefit from  waiting time reductions. As a result, the conceptual link between nonwork  travel-time savings and the wage rates of the travelers is less direct.  Different travelers along the same route with equal wage rates might value  a given reduction in travel time differently, and any one traveler might  value travel-time savings differently in different circumstances. In addition,  a large change in travel time may be valued differently per minute than a  relatively small change in travel time. Nonetheless, because some empirical  studies have identified a relationship between willingness to pay for travel- time reductions and wage rates, DOT guidance for valuing benefits  recommends estimating the value of travel-time savings for nonwork travel  for both highways and transit as certain fractions of travelers’ wage rates.For transit, the recommended value is different for different types of time  savings, such as waiting, transfer, and in-vehicle time. It may be possible to  obtain more accurate estimates of travel-time savings for a specific  investment. This additional precision could be obtained by considering the  degree to which the travelers who are affected by this investment are likely  to have different values in this circumstance, as compared with previously  estimated average values for all travel-time savings. However, obtaining  this additional precision entails a cost, which would have to be considered  in deciding whether to seek more precise estimates.
In addition to reductions in travel time for people, investment in  transportation can reduce the time for freight products to move from one  location to another, which is also a benefit from this investment. For  highway investment, this effect is more direct; adding a new lane, for  example, can increase the speed of highway travel, enabling trucks to reach  their destinations more quickly. Although most freight typically does not  travel by bus or subway, transit investment can indirectly allow freight to  move more quickly to the extent that such investment removes cars from  highways and allows trucks to travel at faster speeds.
Measurement and forecasting of travel-time impacts can be complicated by  changes in demand resulting from shifts in travel behavior brought about  by the highway or transit improvement. Reducing travel times leads to  what has been referred to as triple convergence, where traffic on an  improved road increases due to (1) travelers switching from less  convenient alternative routes to the improved road (although travelers  remaining on the alternative routes will benefit from reduced traffic), (2)  travelers switching from less convenient times to the peak period, and (3)  travelers switching from transit to driving because of the higher speeds and  lower travel times. Estimates of this effect vary. One study showed that,  over time, a 10 percent increase in road capacity led to a 9 percent increase  in travel, while other research finds that these changes in demand may  have a smaller effect. This change in demand does not mean travel-time  benefits are not realized—only that forecasting future travel-time  reductions should take account of increased traffic flows resulting from  such shifts in demand, or else travel-time benefits are likely to be  overestimated.
For transit investments, the impact of the investment on travel times for  highway users can be complicated by what is known as travel-time  convergence, whereby travel times on a roadway alternative to a transit  line tend to converge to the transit travel time. The convergence of travel  times occurs because some drivers are drawn off of the alternative roads to  the transit line in search of lower door-to-door travel times. As these  drivers leave the road, traffic conditions on the roadway improve, leading  to some additional demand on the road and resulting in additional traffic.  This process continues until door-to-door travel times on the two modes  converge. Several studies bear out the existence of this phenomenon in  highly congested urban corridors and suggest that improving the transit  travel time will lead to improvements in travel times on the alternative  roadways.
Another user benefit from transportation investment in both highways and  transit related to travel time, concerns reliability, which is generally defined  to mean the variability in travel time. Empirical studies suggest that  travelers often place a high value on increased certainty of arrival by a  specific time, such that they would be willing to pay to reduce their travel  time variability even if there was no change in mean travel time. Some  investments might accomplish both and would be valued accordingly. For  example, improving a bottleneck might not only reduce time on average,  but it also might reduce variability by reducing the likelihood of an  exceptionally long delay. One study estimates that the value of increased  travel time reliability may be as large as the value of travel-time savings on  a per minute basis. Not all projects that affect travel-time savings will  affect reliability and vice versa.
In addition to benefits related to making travel times shorter and less  variable, transportation investment can provide travelers other benefits,  such as lower vehicle operating costs and safer and more comfortable  travel. Lower vehicle costs can arise from highway investments that  improve road quality, thereby reducing wear and tear on vehicles, and from  investments that reduce congestion, which can reduce fuel consumption.  Estimates exist in the literature of the extent to which highway investment  reduces vehicle operating costs. Transit investment can also reduce vehicle  operating costs to the extent that such investment reduces congestion by  inducing some drivers to switch to transit. Improved safety has often been  found to be a major benefit from transportation investment. Improving  roadway designs generally contributes to fewer accidents, which implies  fewer deaths and injuries and less property damage. As for the value of  safety improvements, there is substantial literature—both conceptual and  empirical—on how to value lives saved, often referred to as the value of a  statistical life. Although different people might be willing to pay different  amounts to reduce their likelihood of death, and the same person might be  willing to pay different amounts in different circumstances, an average  value based on various research studies is generally recommended.Improved comfort is another benefit from some forms of transportation  investment. Transit investment that, for example, improves the comfort of  a seat or increases the likelihood that a rider will get a seat, creates benefits  for which some travelers would be willing to pay.
Transportation investment benefits also include benefits that accrue to the  general public, not just to the travelers directly taking advantage of the  investment. For example, transportation investment can lead to a reduction  in environmental damage, which can be a benefit to an entire metropolitan  area. Research has indicated that increased roadway congestion increases  air pollution. Thus, investments that reduce congestion—including  highway investments that directly speed up traffic and transit investments  that indirectly speed up traffic by inducing people to switch from driving to  using transit—can provide environmental benefits. However, to the extent  that transportation investment induces additional travel by reducing  expected travel time, the pollution resulting from these additional trips  might offset the initial pollution-reducing effects of the investment. As  another example, transportation investment that increases mobility for  those who currently have limited access to the transportation network for  access to jobs, schools, etc., might provide social benefits that go beyond  the benefits to the users themselves. Such investment could include both  additional transit service and highways that connect residents of lower  income areas with job sites to which service and roads do not currently  exist.
Another form of public benefit that may result from transportation  investment, particularly for transit, is sometimes called option value:  nontransit users, for example, might be willing to pay to provide transit  service to retain the option to use it in the future. That is, for some people,  having the option of transit service available in case circumstances—such  as the weather or the price of gasoline—change could have some value,  even if they do not currently plan to use it. The Transit Manual provides a  methodology for estimating the value of this benefit.
section_title: Indirect Benefits
paragraphs: The direct user benefits of highway and transit improvements result in  individuals, households, and firms acting to take advantage of those  benefits. These actions can then lead to several types of indirect benefits,  such as increased property values and new development, reduction in the  costs associated with other public infrastructure (e.g., water, electricity,  etc.) due to more compact development, reduction of production and  logistics costs from improved freight efficiency, and overall increases in  productivity and economic growth. As was discussed earlier in the report,  these benefits largely represent capitalization of direct user benefits or  transfers of economic activity from one area or group to another and,  therefore, should not entirely be added to direct benefits.
As transportation costs fall and access is improved, incentives are created  for households and firms to relocate to areas where housing and land is  less expensive or more desirable. This can result in new development and  increases in land values of the areas made more accessible, although  improvements can also result in land values falling in other locations, due  to changes in relative access, and negative impacts from noise and  emissions that may result from the improvement. Most studies show a  positive effect on land values from highway improvements, although the  effects of improvements to highways, as opposed to new roads, are more  localized and tend to be smaller. For transit, several studies have  documented that increases in land values and higher-density development  can occur around rail transit stations, although these impacts depend  highly on local conditions, such as the condition of the local economy, and  the extent to which complimentary land-use policies exist. Residents of  areas where new transit lines are constructed, or where transit is improved  may also value the type of urban development, i.e., high density or mixed  use, which typically occurs around transit stations. However, increasing  property values around transit stations can also displace low-income  households, who may rely on transit.
Transportation investments can also have an impact on how land is used in  an urban area. How such changes are valued can depend in large part on  individual preferences for more or less compact and dense development.  Highways are generally thought to encourage development on the outskirts  of urban areas, although transit investments that provide access to those  areas can also encourage such development. However, some research  indicates that transit-served sites require less public capital than sites on  the edges of urban areas. Nonetheless, while investments in  transportation infrastructure have had major effects on development and  land use in the past, research indicates that future effects are likely to be  much weaker due to the already extensive amount of connectivity that  exists and shifts in the nature of the U.S. economy from manufacturing to  service orientation.
Transportation investments can also reduce freight transportation costs  and increase freight reliability, which allows firms not only to move to  more desirable locations, but also to reorganize their warehousing and  production processes to take advantage of those benefits. This  reorganization can result in lower production and inventory costs for firms.  Research on this relationship has estimated the benefits on a national level  and found that, while the relationship is positive, the returns have been  diminishing over time. While diminishing returns are to be expected as the  highway and road network becomes more interconnected, the authors of  one study also postulate that returns may also be diminishing because  highways are inefficiently priced, and highway investment policies do not  target the most efficient investments. While investment in highways has a  more direct relationship to this benefit, transit investment can also result in  such benefits to the extent that it improves conditions on nearby roadways.
Transportation improvements also lead to increased productivity and  economic growth, through improving access to goods and services for  businesses and individuals and increasing the geographic size of potential  labor pools for employers and potential jobs for individuals. Recent  research into the relationship between productivity, economic growth, and  highway investment shows average annual returns on investment of 13.6  percent between 1990 and 2000, slightly greater than the return on private  capital investment. However, this research also supports the notion that  returns on highway investment have been declining over time. Transit can  also lead to economic growth through encouraging the concentration of  economic activity and the clustering of offices, shops, entertainment  centers, and other land uses around transit stops, particularly rail transit  stops. This concentration of activity leads to more efficient economic  interactions, which results in higher productivity and can stimulate  economic growth. One study has estimated that a 10 percent increase in  transit presence would raise economic growth by about 0.2 percent.Another study on the rate of return of several investments in new transit  capacity suggests that these returns can be substantial, depending on the  project, with projects ranging from 11.8 percent returns to 92 percent  returns.
section_title: GAO Contacts and Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: In addition to those named above, Mark Braza, Jay Cherlow, Steve Cohen,  Sharon Dyer, Sarah Eckenrod, Scott Farrow, Libby Halperin, Jessica  Kaczmarek, Terence Lam, Heather MacLeod, Sara Ann Moessbauer, Stan  Stenersen, Stacey Thompson, Andrew Von Ah, and Susan Zimmerman  made key contributions to this report.