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Slide 1
Kevin Keller, PG, CGWP HDR Engineering, Inc. American Railway
Development Association
Slide 2
American Railway Development Association (ARDA) Since 1906,
ARDA has provided a forum for the North American railroad community
to meet and effect positive change: The objectives of the
Association are to foster the industrial, real estate, natural
resources, market development activities and environmental concerns
of the North American railroads; and through the advancement of
ideas and education of its members further promote the
effectiveness of railway development and related work.
Slide 3
ARDA Membership ARDA encourages membership from all classes of
railroads throughout North America. Members also include
professionals from other associations, agencies, and railroad
service partners that have a direct effect on rail business today.
ARDAs membership variety provides a wide perspective on issues
facing the railroad industry in the 21st Century.
www.amraildev.com
Slide 4
Why Require a BCA? Presidents commitment to data-driven
decision- making Requirement from TIGER I and II No funding for
projects for which C > B Value of BCA in project selection BCA
quality matters more than size of the B/C ratio Focus your analysis
on how it demonstrates need for your project
Slide 5
USDOT Definition A benefit-cost analysis attempts to measure
the dollar value of the benefits and the costs of a specific
project to all the members of society on a net present value
basis.
Slide 6
USDOT Requirement DOT expects to identify and report on the
benefits of the projects that it funds with TIGER Discretionary
Grants. To this end, DOT will request that recipients of TIGER
Discretionary Grants cooperate in Departmental efforts to collect
and report on information related to the benefits produced by the
projects that receive TIGER Discretionary Grants.
Slide 7
Benefits The benefits that DOT reports on may include the
following: (1) Improved condition of existing transportation
facilities and systems; (2) improved economic competitiveness in
the form of reduced travel time, less traffic congestion, improved
trip reliability, fewer vehicle miles traveled, or lower vehicle
operating costs; (3) long- term growth in employment, production or
other high-value economic activity; (4) improved livability of
communities across the United States through expansion of
transportation options, efficiency, and reliability; (5) improved
energy efficiency, reduced dependence on oil and reduced greenhouse
gas emissions; (6) reduced adverse impacts of transportation on the
natural environment; (7) reduced number, rate and consequences of
surface transportation-related crashes, injuries and fatalities;
(8) greater use of technology and innovative approaches to
transportation funding and project delivery; (9) greater
collaboration with state and local governments, other public
entities, private entities, nonprofit entities, or other
nontraditional partners; (10) greater integration of transportation
decision making with decision making by other public agencies with
similar public service objectives; or (11) any other benefits
claimed in the projects benefit-cost analysis.
Slide 8
So What is a Benefit-Cost Analysis? BCA is distinct from:
Financial analysis Economic impact analysis Costs and benefits
refer to changes in welfare Are people made better off by the
proposal ...an analysis which quantifies in monetary terms as many
of the costs and benefits of a proposal as feasible, including
items for which the market does not provide a satisfactory measure
of economic value. UK Treasury (2003), Appraisal and Evaluation in
Central Government
Slide 9
Benefit-Cost Analysis Basics What is the purpose of the BCA?
Benefit Cost Analysis measures the creation or erosion of real
economic value Value denotes welfare or quality of life TIGER III
project selection & BCA BCA quality matters more than size of
the B/C ratio Focus your analysis on how it demonstrates need for
your project
Slide 10
Basic Requirements Project Summary Base case (no-build) Project
description Justification and impact on long-term outcomes Affected
population(s) Expected economic benefits Alternatives Monetized
estimates of benefits & costs Year-by-year stream of benefits
and costs Discounted to present value (3% & 7%) Replicable
methodology Demonstrate Independent Utility
Slide 11
CORE BCA Principles i. Costs & benefits estimated on
incremental basis against realistic baseline (generally not status
quo) ii. Reasonable alternatives considered and evaluated e.g.,
smaller scale and more focused projects iii. Costs & benefits
expressed in monetary terms (constant dollars) and estimated over
projects useful life iv. Discounting i.e., OMB Guidance for TIGER
v. Summation of benefits & costs, and estimation of NPV
Slide 12
BCA vs EIA Economic Impact Analysis (EIA) focuses on local
benefits JOBS CREATED Ignores costs to other localities Includes
transfer payments as impacts Payrolls, tax revenues, real estate
investments BCA focuses on national benefits (including local) Nets
out costs to other areas Includes only productivity increases
resulting from job creation, increases in property values
Slide 13
Defining Projects for Appraisal: Concept of Independent Utility
Parts or phases with independent utility: i) are Eligible Projects,
and ii) satisfy selection criteria Implications for BCA: does
part/phase funded by TIGER has independent utility? YES: benefits
& costs of part/phase only NO: benefits & costs of entire
project (or entire portion with independent utility) In all cases:
benefits & costs must be related to same no leverage
Slide 14
Time Horizon Both benefits and costs must be estimated for each
year after work on the project is begun and for a period of time at
least 20 years in the future (or the projects useful life,
whichever is shorter), and these streams of annual benefits and
costs must be discounted to the present using an appropriate
discount rate, so that a present value of the stream of benefits
and a present value of the stream of costs is calculated.
Slide 15
Focus on Project Selection Criteria Primary Selection Criteria
Long-Term Outcomes State of good repair Economic competitiveness
Livability Environmental sustainability Safety Job Creation and
Near-Term Economic Activity Secondary Selection Criteria Innovation
Partnership
Slide 16
Benefits Livability Livability benefits are often associated
with: Accessibility for Improved access to jobs, amenities
Accessibility for disadvantaged communities Land use changes linked
to transportation Transit and bicycle-pedestrian improvements
Affordability (transportation, housing) At least show
ridership/usership Try to estimate value per user Increases in
property values may indicate value
Slide 17
Benefits Economic Competitiveness Benefits in this category
typically include: Lower operating costs Travel time savings
Savings to passengers, carriers, and shippers Improvements in
reliability Take care in estimating: Job creation benefits (focus
on productivity increases) Omit multiplier effects Can include
increases in labor and land productivity - But avoid
double-counting
Slide 18
Benefits Safety Safety benefits are typically associated with
reducing fatalities, injuries, crash costs, and hazmat releases
Benefits should be based on good crash data and valid analysis of
cause Recommended input values for injuries, property damage, and
other data are available in USDOT TIGER NOFA
Slide 19
Benefits State of Good Repair State of Good Repair benefits can
include: Reducing long-term maintenance and repair costs
(life-cycle costs) Travel time savings (from preventing closures of
facilities, lack of speed and weight restrictions) Other user
benefits from better pavement, improved safety Need to consider
benefits and costs of alternatives Replacement vs. rehabilitation
Risk analysis
Slide 20
Benefits Sustainability Environmental sustainability benefits
are typically from reduced emissions Greenhouse gases (e.g., CO2)
SOx NOx Particulate matter (PM) Volatile organic compounds (VOC)
Recommended values are available in NOFA
Slide 21
Mapping Benefit Metrics into Long-Term Outcome Criteria
BENEFIT-COST ANALYSIS CATEGORIES OF BENEFIT LONG-TERM OUTCOME
CRITERIA State of Good Repair Economic Competitiveness
LivabilitySustainabilitySafety Savings in Facility and Equipment
O&M Savings in Users Vehicle Operating Cost Savings in Travel
Time Improvements in Travel Time Reliability Economies of
Agglomeration and Increased Land Value Budgetary Savings to
Low-Income Users Reductions in Environmental Emissions Accident
Cost Savings
Slide 22
Selecting Input Values Wherever possible use recommendations
provided in NOFA, including: VariableRecommended Source Discount
rateOMB Circular A-94 Value of timeUS DOT Guidance Value of life
and injuriesUS DOT Guidance Crash costsNHTSA CAFE 2011 RIA Criteria
pollutant emissions NHTSA CAFE 2011 RIA Social cost of
carbonInteragency Working Group Guidance
Slide 23
Transparency at every level
Slide 24
Distribution of Benefits & Costs Applicants must clearly
identify which population will be affected by any particular
benefit. (p. 38735) OptionsHow is it Measured?Data SourcesComments
Distribution of benefits and costs by population group Estimation
of benefits and costs accruing to specific groups based on
information collected through user surveys or location data (e.g.,
place of residency, work, etc.). Assessment may also be
qualitative, using a severity scale. User Surveys; U.S. Census
Bureau, American Community Survey; Local Housing Authorities
Detailed data available for assessing distribution based on current
demographic and socio-economic characteristics. Forecast likely to
be sketchy for some groups. Distribution of benefits and costs by
geography Estimation of benefits and costs based on where they
occur; or where trips originate; or where trips terminate.
Assessment may also be qualitative, using a severity scale.
Transportation Models; U.S. Census Bureau, American Community
Survey; Local Housing Authorities Detailed data on O/D and trip
making available from travel demand models. Exact location of
effects may be difficult to assess and/or forecast for some
metrics.
Slide 25
Costs Provide costs from all sources (local, State, other
Federal grants, private) Direct capital costs: construction,
design, land acquisition Beyond capital costs: O&M,
rehabilitation, life-cycle costs External costs: noise, congestion,
pollutants Cost to users during project construction: increased
delay, vehicle operating costs Costs of whole project should be
compared with benefits of whole project (no leveraging) Or, if
TIGER funds only a part of a project, you can compare costs and
benefits for TIGER-funded portion only But only if that portion has
independent utility
Slide 26
Dealing with Uncertainty Sensitivity or elasticity analysis:
change value of assumptions and model parameters one at a time and
report impact on BCA metrics identify critical variables discuss
robustness of BCA Ideally applied through transportation model as
well Applicants should () discuss any uncertainties associated with
the estimates. (p. 38738). A very useful economic analysis provides
sensitivity analysis to show how changes in key assumptions affect
the outcome of the analysis. (p. 38733) ParametersChange in
Parameter Value New NPV Change in NPV New B/C Ratio Economic
Development Benefits 25% of Full Appreciation Value -$51.0-174%0.72
50% of Full Appreciation Value $1.8-97%1.03 75% of Full
Appreciation Value $54.6-20%1.34 Value of Time 30% Reduction in
Recommended Value $64.2-6%1.38 20% Increase in Recommended Value
$71.3+4%1.44 Low Income Ridership 50% Reduction in the Number of
Low Income Riders $65.4-4%1.39 100% Increase in the Number of Low
Income Riders $74.5+9%1.46 Fuel Costs EIA Low Case Scenario (-38%)
$67.2-2%1.40 EIA High Case Scenario (+45%) $70.0+2%1.43 Shadow
Pricing of Labor About 10% Reduction in Labor Cost $77.1+13%1.49
Capital Cost Estimate25% Reduction$98.4+44%1.73 Annual O&M Cost
Estimate 25% Reduction$80.7+18%1.54
Slide 27
Presenting BCA Outcomes Benefits should be presented, whenever
possible, in a tabular form showing benefits and costs in each year
for the useful life of the project. (p. 38725) () applicants should
include qualitative discussion of the categories of benefits and
costs that they were not able to quantify () (page 38725) We are
typically providing a 2 to 5 page summary for inclusion in the
application and a technical appendix with supporting
information.
Slide 28
Job Creation & Near-Term Economic Activity Two approaches
to estimating job creation: CEA May 2009 memorandum $92,000 of
government spending creates 1 job-year 64% direct and indirect; 36%
induced Input / Output model IMPLAN, calibrated for study area
Quarter-by-quarter projections of job-hours Job creation should not
be included as benefits in BCA Shadow pricing of labor costs may be
considered
Slide 29
CBA Project Rating CBAs are reviewed and rated by US DOT Review
team Very Useful Useful Marginally Useful Not Useful
Slide 30
BCA - Lessons Learned ALWAYS document and provide reliable
sources for data and calculations Be realistic in assumptions and
estimates Qualitative discussion helps supplement understanding for
difficult-to-measure benefits & costs Consider the viewpoint of
objective reviewers Are estimates plausible and reasonable? Focus
on overall evaluative process, not just the B/C ratio
Slide 31
Parting Words BCA is an opportunity to objectively demonstrate
the need for your project Highlight benefits that are
well-documented and align well with programs selection criteria
Dont forget about true costs of the project Document, document,
document Be realistic in your assumptions and estimates