Practices for Evaluating the Economic Impacts and Benefits of Transit (2017)

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10 chapter two Overall FramewOrk: a review OF NatiONal research Overview This chapter develops an overall framework for defining the purposes and uses of transportation impact and benefit analysis, and for defining the appropriate analysis methods to be applied. The framework is developed by reviewing recent research and guidance documents pertaining to the application of economic analysis for public transportation facilities, services, and infrastructure investments. Clearly, there is a large number of articles and reports on this general topic, including statistical stud- ies, case study compendiums, and transit advocacy documents. Although the value of these reports is acknowledged, they are not reviewed here. Instead, 13 widely disseminated reports were selected that discuss and assess various aspects of economic impacts or benefits at a national scale, or provide guidance as to how those effects are defined, measured, and communicated. This chapter provides a quick summary of these national reports and guides, and summarizes com- mon features among them. Overall, it is evident that there is strong agreement on the theory concerning what constitutes the elements of economic impacts and societal benefits associated with transit. There is also general agreement on how these various elements can be measured. However, the various reports varied in their scope—including both their spatial focus and their economic measurement perspective. In terms of spatial focus, some reports addressed local neighborhood or community effects, whereas others addressed broader regional and national effects. In terms of economic perspective, some reports addressed impacts on the economy, others focused on the value of societal benefits, and yet other reports focused on specific modes or types of projects and then addressed both their economic impacts and societal benefits. The remainder of this chapter presents the overall structure for economic impact and societal benefit measurement. It explains the range of effects that can be considered and shows how differ- ent analysis approaches may apply depending on the perspective being taken, as demonstrated by the national reports and guides. It then addresses the challenge of communicating results and the need to span the gap between academic jargon and popular public interpretations of terms. It ends with observations regarding the future use of various economic analysis methods and opportunities for improvement. It should be noted that a further description of each of the national reports—including its scope, effects considered, and quantification methods used—is contained in Appendix A. There is also a larger body of local economic analysis studies that build on these guidance documents, which are covered in chapter three. impact aNd BeNeFit terms The field of economic analysis encompasses a range of analysis methods, including EIA, BCA, and financial analysis. The relationship among these forms of analysis is discussed in a variety of publica- tions (e.g., see Watson et al. 2007 or Weisbrod and Duncan 2016). A glossary of economic terms is also provided. In the context of this synthesis, the key distinction is between economic impact and the economic valuation of societal benefits where: • Economic impact = the study of the net change in economic activity (jobs, income, investment, or value added) resulting from a project, event, or policy.

11 • Economic valuation of societal benefits = the social welfare value of priced ($) and non-priced (non-$) benefits associated with a project, event, or policy. The non-priced benefits are assigned a value based on revealed or stated preference methods. The national reports and guides discussed in this chapter span EIA and various forms of societal benefit valuation, including BCA (Definitions of those terms follow the basic relationships illustrated in Figure 1). The chart in Figure 1 shows several key relationships: • Both economic impact measures and societal (social welfare) benefit measures are fundamen- tally driven by the same set of transportation system changes (Box A). • Although transportation system cost and access changes directly affect users (Box A), they can also drive a variety of non-user impacts—including effects on the environment (Box B), on pro- ductivity in the economy (Box D), and on social welfare benefits for residents that do not directly affect the economy (Box C). • Transportation changes may benefit some elements of the economy or some areas more than others. Shifts in productivity and competitiveness can lead to “economic geography effects”— that is, spatial shifts in economic growth patterns (Box E), which may be deemed beneficial or non-beneficial. • BCA and EIA capture different elements of these various impacts; BCA captures societal ben- efits (Boxes C and D) and EIA captures economic impacts (Boxes D and E). • Any of the various facets of societal benefits and/or economic impacts can lead to localized effects on land development and land values (Box F). Changes in land value represent the “capi- talized value” of current and expected future societal benefits and economic income effects on a specific area. Altogether, this flowchart indicates that there are many facets of economic impact and benefit, and they share common drivers. That does not in any way reduce the importance of observing the many facets of impact because each one relates in a different way to the different roles of transit in society, FIGURE 1 Factors distinguishing economic impact and benefit–cost analysis. Source: Derived from Weisbrod and Duncan (2016) with additional features.

12 as enumerated earlier in Figure 1. For instance, land value impacts of improved transit service to an economically depressed neighborhood may be an important leading indicator of reinvest- ment coming into the area—an effect that may have further consequences for crime, blight, and poverty reduction. reviews OF GuidaNce: NatiONal research aNd aNalysis methOds The structure in Figure 1 was designed to cover the full range of impact and benefit elements addressed by national research and guidance documents. This body of literature can be characterized in terms of its scope, including differentiation by the type of transportation system evaluated, the adopted temporal perspective (e.g., describing the current economic contribution of transit versus predic- tive analysis of expected future effects versus retrospective assessments of completed investments), geographic focus (e.g., urban/rural), and relative emphasis on the benefits and impacts on the economy. The reports can also be characterized by the types of effects that they cover—from the traditional user benefits considered in the transportation practice in general (e.g., travel time and costs savings), to stimulus effects from construction and operations of services, to effects related to the unique role of transit (e.g., accessibility for those with no alternate means of transportation). To enable readers to appreciate the wide variation in scope and types of effects that are covered, each of the 13 reports is summarized here and then followed by a summary table that addresses their major impact and benefit elements (Table 2). A more complete review of each report is con- tained in Appendix A. • American Public Transportation Association, Economic Impact of Public Transportation Investment—2014 Update (Weisbrod et al. 2014). This report provides a classification of ways that transit investment affects jobs, wage income, and Gross Domestic Product (GDP) in the national economy. It distinguishes between short-term multiplier effects of transit spending and long-term income growth benefits associated with transportation cost savings and productivity gains. It also discusses the effects of a sustained increased investment to change mode split and car ownership in the future. Overall impacts are then calculated for each of these classes of economic impacts at a national scale. • TCRP Report 34: Assessment of the Economic Impacts of Rural Public Transportation (Burkhardt et al. 1998). This report examines the ongoing economic impact of rural transit across the United States, compared with a situation in which transit services are unavailable. The study determines impacts on the economy and measures of avoided costs (i.e., benefits) associated with the existence of rural transit. It describes the ways in which rural transit supports the economy, outlines methods to value rural transit systems, and discusses ways to design rural transit services to maximize their economic value. • TCRP Web Document 56: Methodology for Determining the Economic Development Impacts of Transit Projects (Chatman et al. 2012). This report presents empirical research on the productiv- ity benefits resulting from urban agglomeration effects of transit access improvements. It pre- sents methods for assessing new transit systems or major new capital investments. The research intent was to focus on economic benefits that are “in addition to land development stimulated by travel time savings.” The purpose of the research was to develop estimates of wider economic benefits that would not be affected by double-counting concerns within a BCA framework. • NCHRP Synthesis Report 290: Procedures for Assessing Economic Development Impacts from Transportation Investments (Weisbrod 2000). The report focuses on economic development impacts, defined as effects on the flows of dollars or number of jobs within the economy of a defined region. It examines effects across all modes and discusses the relationship between trans- portation system performance and business operating costs, market access, and productivity. It classifies studies by motivation, distinguishing studies of proposed new investments, studies to inform the public about the ongoing economic role of existing facilities, and studies for post- project evaluation. • National Institute for Transportation and Communities: National Study of BRT Development Outcomes (Ganning and Nelson 2015). This report focuses on the local economic development outcomes associated with BRT systems in the United States. The research was structured to investigate development outcomes associated with BRT and the influence of BRT design on

13 those outcomes. It provides ex-post statistical analyses of outcomes relative to control locations and background regional development trends. The researchers also relate the findings to the relationship between transit, spatial clustering, and economic development gains. • Victoria Transport Policy Institute, Evaluating Public Transit Benefits and Costs: Best Practices Guidebook (Littman 2015). This report identifies the range of possible BCA factors applicable for transit and provides a framework for analyzing them in the BCA context. For each benefit and cost factor, the document summarizes research on its incidence, forms of measurement, and assigned range of monetary values. It catalogs a wide set of benefit and cost elements that affect different parties and occur at different spatial levels. It classifies these elements in terms of ben- efit types (e.g., transit, automobile, environment, and development effects) and form of mobility benefit (e.g., user benefit, public service benefit, equity benefit, productivity benefit, and option value benefit). • National Center for Transit Research, Cost-Benefit Analysis of Rural and Small Urban Transit (Godavarthy et al. 2014). This report examines the ongoing role of rural and small urban tran- sit systems at a national level and calculates their benefits compared with what would other- wise occur in the absence of transit services. Rural systems are defined as those receiving FTA Section 5311 formula grants and small urban systems are defined as those serving areas with populations below 200,000. The study includes estimates of benefits, as well as economic impacts associated with transit expenditures. • TCRP Report 78: Estimating the Benefits and Costs of Public Transit Projects: A Guidebook for Practitioners (ECONorthwest and Parsons Brinckerhoff Quade & Douglas, Inc. 2002). This document is a guidebook targeted at helping practitioners complete BCAs for prospective tran- sit projects. It covers transportation system user benefits, secondary effects on safety and the environment, and factors affecting government costs and revenues. It also discusses the wider effects of agglomeration and economic productivity benefits as well as land value impacts, but it cautions against counting any of them in BCA as they may represent double counting. • Mineta Transportation Institute, The Benefits of Transit in the United States: A Review and Analysis of Benefit-Cost Studies (Ferrell 2015). This study is a meta-analysis of transit benefit– cost studies completed in the United States. The study classifies findings according to geographic focus (rural, small urban, urban) and focuses on the existing role of entire transit systems, rather than on individual transit projects or lines. The study focuses on monetized cost savings (benefits), but also discusses effects on jobs and the economy. • TCRP Report 35: Economic Impact Analysis of Transit Investments: Guidebook for Practitioners (Cambridge Systematics et al. 1998). This report presents general guidance on assessing the societal benefits and economic impacts of transit, from both a predictive (ex-ante) and evaluative (ex-post) perspective. The guide addresses a large range of both economic impact and societal benefit measures, recognizing that different types of stakeholders will have different preferences for how to describe and enumerate the effects of transit services or investments. The report dis- cusses the potential for “double counting,” but also recognizes the value of multiple approaches to quantifying the effects of transit. • Canadian Urban Transportation Association, The Economic Impact of Transit Investment: A National Survey (MKI 2015). Although the title refers to economic impact, this report focuses mostly on quantifying the economic value of transit benefits. It refers to the economic role of tran- sit in terms of its ability to reduce the negative externality effects of automobiles, and to generate benefits that include reduced travel expenses, reduced number of accidents, savings in health care, and support for transit jobs. Despite non-conventional use of economic jargon, the report covers a wide range of transit impacts and benefits including effects on employment, productivity, taxes, property values, and quality of life. The findings are presented in terms of multiple account evalu- ation (MAE)—a way of describing various forms of costs, benefits, and spending impacts without combining them in any formal analytic framework. The report also summarizes local Canadian studies concerning the societal benefits and payback from transit investments. • NCHRP Research Results Digest 393: Selected Indirect Benefits of State Investment in Public Transportation (Cambridge Systematics 2015). This report summarizes the literature of avail- able research regarding measurement and valuation of the indirect benefits of transit invest- ment. These are factors that are normally viewed as distributional rather than efficiency effects, including effects of transit service on needs for unemployment compensation, health, educa- tion, and other social services. They are generally excluded from formal benefit–cost studies because they are seen as transfers between transit funding and social service funding. They are

14 covered here because there is public policy interest in strategies that can reduce dependence on social services and enhance the well-being of residents. • Embarq. Social, Environmental and Economic Impacts of BRT Systems (Carrigan et al. 2013). This report is an ex-post evaluation of the triple-bottom-line (social, environmental, and economic) benefits of BRT systems, based on a review of published literature and particular experiences at locations throughout the world. It discusses monetized benefits within a tradi- tional benefit–cost framework, as well as other types of impacts that are considered separately. Taken together, these 13 reports essentially cover the full range of transit roles and impacts that were previously identified in Table 1 (chapter one). These studies also share a common feature— they use economic analysis to calculate dollar-denominated measures of impact or benefit. There are, however, some important differences among the reports. Two of them focus primarily on bus service in rural areas (#2 and #7). Two others focus on BRT in urban areas (#5 and #13). One focuses primarily on urban rail transit (#3). The remaining eight have no special modal focus. There are also important differences in the types of impacts or benefits that they cover. This is shown in Table 2, and discussed in the text that follows. The 13 reports shown in Table 2 can be classified in terms of their primary scope and the types of effects that they address: • Reports #1–2 are classified as full economic impact reports because they include both short- term spending effects (column A) and longer-term effects on economic growth that result from travel cost savings (column B) and business productivity gains (column C). TABLE 2 SUMMARy OF NATIONAL REPORTS AND GUIDES: SCOPE OF STUDy AND EFFECTS COVERED (A) Includes short-term economic effects of added spending on transit capital, operations, and maintenance. (B) Includes long-term effects of traveler time and expense savings, and collision reduction cost savings. (C) Includes long-term economic productivity gains related to enhanced access and agglomeration. (D) Includes pollution and carbon emissions reduction and health benefit gains. (E) Refers to avoided public costs of building additional infrastructure and public revenue gains. (F) Refers to residential and/or commercial property investment and increased property value. (G) Refers to savings in government costs for services to unemployed, the elderly, or disability populations. x* Refers to an effect that is calculated separately and not added to total societal benefit. Source: review of national reports and guidance documents. ST Econ LT Econ Societal Benefits Localized Effects Study (A) Spending effects (B) Traveler effects (C) Econ. prod. & growth (D) Environ. & health (E) Public exp. & rev. (F) Land dev. & value (G) Pop. groups Full Economic Impacts: Short-term and Long-term 1. APTA Guide 2014 X X X 2. TCRP 34 (1998) X X X X Economic Development Impacts: Long-term only 3. TCRP 56 (2012) X X X 4. NCHRP 290 (2000) X X 5. NITC (2015) X X X Societal Benefit–Cost Analysis 6. VTPI (2015) X X X X X X 7. NCTR (2014) X X X X X 8. TCRP 78 (2012) X x* X X x* 9. Mineta (2015) X x* X Economic Impact & Societal Benefit Cost Analysis 10. TCRP 35 (1998) X X X X X Societal Benefits: Multiple Accounts 11. CUTA (2015) X X X 12. NCHRP RRD 393 (2015) X X X X X 13. Embarq (2013) X X x* X

15 • Reports #3–5 focus on the lasting, long-term economic growth effects and hence are classified as economic development impact reports. Accordingly, they all cover long-term effects of travel cost savings (column B) and business productivity gains (column C), and ignored short-term spending effects. Some but not all of these reports also recognize localized economic develop- ment effects that come in the form of land-use and development changes (column F). • Reports #6–9 focus on the economic value of societal benefits, in the context of BCA. All of these reports cover benefits for travelers (column B), wider urban agglomeration effects on productivity (column C), and environmental benefits (column D). Most of them also cover mobility benefits that save public costs associated with providing access to health care, educa- tion, and social services (column E). Half of these reports also recognize localized effects on communities and vulnerable population groups (columns F and G). • Report #10 is a hybrid, covering both long-term economic development impacts and the economic value of societal benefits. Accordingly, it covers the same elements as reports #3–5 and #6–9. • Reports #11–13 do not formally calculate total economic impacts or total societal benefits, but instead report on a variety of impact and benefit elements. This approach is sometimes referred to as MAE, and is useful as a way to include distributional effects that would not otherwise be recognized in the calculation of total economic impacts or societal benefits. Consequently, these reports vary widely in their coverage, but tend to cover the full range of effects shown in Table 2, including land development and value effects on a specific neighborhood (column F) and effects on specific vulnerable population groups (column G). Taken altogether, these national reports vary widely in terms of their perspective and position regarding “who has standing” to measure benefits and costs. Some view impacts and benefits from the position of travelers, others take the viewpoint of local resident households, and yet others the view- point of government agencies. Some take multiple viewpoints within the same report—something that can be insightful if the perspective is clearly established; however, it can be a potential source of bias and double counting if the perspective drifts and varies within the same report. (These latter issues are further discussed in the next chapter on methods.) An interesting finding is the extent to which national reports now recognize accessibility or agglomeration effects of transit improvements (column C in Table 2). These are primarily seen as productivity gains, although they can also affect livability benefits. This is a relatively new addi- tion to economic analysis that has developed in the last decade. Whereas user (travel) benefits pertain to current trip-making patterns, accessibility improvements enable additional types of trip-making that are not now occurring. Some reports discuss how workforce and customer accessibility gains enhance business productivity, others discuss accessibility effects in terms of added land density and value, and yet others portray accessibility gains in terms of health and education access benefits for specific populations. alterNative iNterpretatiONs OF impact aNd BeNeFit terms Another important finding that emerges from a reading of the national reports and guides is that the use of economic jargon can sometimes be confusing or inconsistent. That same observation is reinforced in the review of local analysis studies in chapter three. The fundamental issue is that tech- nical economics and public discourse can diverge in what they define as an economic impact and an economic benefit. This issue could be seen as a minor distraction or nuisance that can be easily cor- rected or it can be seen as a fundamental source of confusion that explains why relatively few transit agencies have taken on showing the economic impacts or benefits of their projects and services. However, it has become clear from the synthesis of research and practice in this report that the issue is worthy of reader attention, for it fundamentally relates to the issue of varying scales and perspectives underlying the framework shown earlier in Figure 1. This is a matter that can be solved by being clear at the outset about project goals and issues, providing the most appropriate outcome metrics, and clearly conveying them in logical terms to the intended audience. In other words, the narrative matters as much as reporting the numbers.

16 The matter of confusion regarding economic impact versus benefit is derived from the concept that technical economists have chosen to assign some commonly used words to narrower jargon meanings within their academic discipline. That is common practice and it serves a useful purpose for teaching theory and practice. However, if transit agencies are to successfully communicate the findings of economic analysis studies to the public, they must use language that conforms to common public use. Therefore, the following discussion seeks to simplify the presentation of results by showing how technical jargon can be turned into simpler concepts for public information. These differences are noted here. impact analysis Most economists consider economic impact to technically refer to the effect on the economy of taking a specific action (such as building a new facility or opening a new service) compared with the alternative of not taking that action. This can include changes in jobs, income, investment, and wealth creation—all of which are consequences of the action being taken. This is different from merely describing how an existing industry or company (such as a transit service) supports a wider range of jobs and income in the economy that are associated with spend- ing flows associated with its continued operation. Because the latter type of study has no specific counterfactual or alternative scenario, economists consider it to be technically showing a contribu- tion to economic activity rather than impact. (Various studies also refer to this as the economic role, significance, or contribution.) However, this technical distinction is not necessarily applicable in public discussion, because both types of studies may be of public interest and the public does not necessarily care about whether a particular policy question does or does not involve a counterfactual alternative. Thus, reference to the economic impact of airports, seaports, and other facilities is also common, although they techni- cally focus only on the economic role of money flows attributable to the agency or facility capital investment and operations. That broad use of the term is now accepted in public discussion, although some studies stay with the more technical terminology for these effects. Benefit analysis There is similarly a divergence between technical jargon and public discussion in the interpretation of what constitutes a “benefit.” For instance, rail or busway construction employment is certainly a source of income benefit for unemployed workers in an economically depressed community or region. Similarly, attracting building investment and business to a depressed neighborhood is clearly a benefit for residents and property owners in that area. This view does not apply for BCA, particularly as it is most often applied at a broad societal (national) level. In that application of BCA, neither effect would be counted as a benefit. The transit- related spending effects on jobs and income would be seen as negated by their “opportunity cost,” which is foregone spending that could otherwise create other jobs and income elsewhere. The effect of attracting business to a depressed neighborhood would also be seen as a spatial transfer, as the investment and business activity would otherwise have occurred elsewhere. In essence, BCA at a broad scale recognizes net aggregate efficiency and does not recognize distributional effects occur- ring at a smaller scale. However, this narrow interpretation of benefit (which focuses on aggregate efficiency and does not recognize a value in distributional or equity effects) is not shared by the general public. There is a substantial base of public policy devoted to achieving socially desired allocations of benefits among areas, among elements of society, and over time periods. Therefore, references in the literature to the “benefit” of helping at-risk and dependent populations, target growth industries, and future periods are frequently encountered, even though those effects may represent redistribu- tions among areas, groups, or time periods. That broad interpretation of benefit is also now widely

17 accepted in public discussion and has led to interest in studies that avoid BCA and instead use MAE to enumerate the various facets of benefits for various parties without adding them up (since they affect different parties). state OF measuremeNt—key OBservatiONs The range of national literature, discussed on the preceding pages, point to a number of cross-cutting observations: • The literature addresses a wide variety of benefits and sources of impacts associated with tran- sit. Some of the effects considered are in common with the state of economic evaluation prac- tice for other modes of transportation; for example, travel time and cost savings, safety and environmental benefits, construction impacts, productivity gains, and agglomeration effects. Other effects are particular to transit; for example, parking cost savings and benefits associated with enabling access for those without other any mobility options. • Studies are generally undertaken to accomplish one of three objectives: (1) characterizing the current and ongoing role of transit in general to inform the public and decision makers of the importance of transit investments; (2) assessing the likely benefits and impacts of a future invest- ment scenario (at the project or system level), either as a means of providing justification for a project or of differentiating available alternatives; or (3) assessing the effects of past investments to gather information that can be used to support future decision making. • Some effects of transit are less relevant in small urban and rural areas compared with large urban areas. These effects include congestion relief, enabled reductions in parking requirements, and changes in land development patterns. As the level of development density in an urban area and the mode share of transit increases, the relevance of these effects also increases. • Those who approach analyses using the lens of a traditional BCA focus on differentiating addi- tive effects and avoiding double counting. Certain effects within the broader economy can be added to more traditional measures of user and societal benefits. These include productivity increases associated with agglomeration economies and improved market access. • Language poses an ongoing challenge to the clear, consistent, and comparable presentation of results. In particular, there is a difference between the vernacular use of the terms “benefit” and “impact,” which generally mean an effect of some sort on society as a whole, and the more academic and narrow use of these terms to refer to either (1) monetized effects that represent gains in social welfare that can be compared with costs within a formal benefit-cost frame- work, or (2) changes in economic activity within a given region, expressed in terms of com- mon metrics such as jobs or income. • Many evaluation approaches are predicated on particular scenario definitions (such as “build versus no build”) or specific comparisons (such as “treatment versus control” groups). These include studies that compare transit availability with a counterfactual situation in which transit services do not exist, studies of the proposed impacts of investments relative to some baseline, and statistical assessments of development trends in areas with and without transit. Providing a clear definition of these scenarios or comparative frameworks is imperative to the correct interpretation of results and their transferability to other situations.