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A Guide to Computation and Use of System-Level Valuation of Transportation Assets (2022)

Chapter: Chapter 9 Examples and Case Studies

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Suggested Citation:"Chapter 9 Examples and Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. A Guide to Computation and Use of System-Level Valuation of Transportation Assets. Washington, DC: The National Academies Press. doi: 10.17226/26667.
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Suggested Citation:"Chapter 9 Examples and Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. A Guide to Computation and Use of System-Level Valuation of Transportation Assets. Washington, DC: The National Academies Press. doi: 10.17226/26667.
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Suggested Citation:"Chapter 9 Examples and Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. A Guide to Computation and Use of System-Level Valuation of Transportation Assets. Washington, DC: The National Academies Press. doi: 10.17226/26667.
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Suggested Citation:"Chapter 9 Examples and Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. A Guide to Computation and Use of System-Level Valuation of Transportation Assets. Washington, DC: The National Academies Press. doi: 10.17226/26667.
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Suggested Citation:"Chapter 9 Examples and Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. A Guide to Computation and Use of System-Level Valuation of Transportation Assets. Washington, DC: The National Academies Press. doi: 10.17226/26667.
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Suggested Citation:"Chapter 9 Examples and Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. A Guide to Computation and Use of System-Level Valuation of Transportation Assets. Washington, DC: The National Academies Press. doi: 10.17226/26667.
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Suggested Citation:"Chapter 9 Examples and Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. A Guide to Computation and Use of System-Level Valuation of Transportation Assets. Washington, DC: The National Academies Press. doi: 10.17226/26667.
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Suggested Citation:"Chapter 9 Examples and Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. A Guide to Computation and Use of System-Level Valuation of Transportation Assets. Washington, DC: The National Academies Press. doi: 10.17226/26667.
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Section 9.1 Worked Examples presents the three worked examples which include a highway agency using the cost and market perspectives, a transit agency using the cost perspective, and a highway agency using the economic per- spective. Section 9.2 International Case Studies describes two case studies from highway agen- cies in Australia and the UK. The cases highlight how each agency calculated and applies asset value. 9-1 A Guide to Computation and Use of System-Level Valuation of Transportation Assets A set of examples and cases studies has been developed to illus- trate the uses of the asset valuation guidance. The worked exam- ples are adapted from a set of validation tests performed during the development of the guidance. They illustrate the application and demonstrate the calculations one may obtain using the guid- ance. The case studies describe asset valuation approaches used by two international agencies based on similar concepts to those presented in the guidance. Chapter 9 Examples and Case Studies

This section details a set of worked examples illustrating application of the asset valuation guidance presented in Chapters 3 to 8. The examples include calculation of asset value for: 1.) a highway agency based on cost and market perspectives; 2.) a transit agency based on a cost perspective; and 3.) a highway agency based on an economic perspective. The examples are drawn from a set of four validation tests performed using a draft version of the guidance. Togeth- Note that the data from the agencies participating in the testing has been adapt- - value calculation process. Valuing Highway Assets Based on Cost and Market Perspectives In this example, a highway agency in the Northern U.S., labeled “The Northern Agency,” is interested in calculating asset value and related measures to report for highway-related assets in its TAMP. Note, this example is adapted from tests actual agency. its goal is to establish overall value and related measures for three asset class- es: pavement; structures (including bridges and bridge-length culverts); and buildings. The agency has data at the asset-level for each asset class. For pave- ment and structures, the agency has detailed condition data. For buildings, the agency has only summary inventory data, but its facility division has separately established insurance values representing the amount each building is insured for in the event of a catastrophic event, independent of the value of land or the equipment in each building. For their structures, the agency decides that asset value should be computed useful lives and condition data are available to support the calculation. Bridges are represented using three components: the bridge deck, superstructure and substructure. Bridge-length culverts are represented as a single component. Section 9.1 Worked Examples Chapter 9. Examples and Case Studies 9-2 A Guide to Computation and Use of System-Level Valuation of Transportation Assets

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples Figure 9-1 summarizes the different types of assets included in the asset value calculation. The following subsections describe the approach used for Steps 2 to 4 of the asset value calculation by asset class, followed by a summary of the results. Pavement Using the flow chart in Chap- ter 4 the agency decides that initial value for pavement should be based on replace- ment cost, given there is no need to maintain consistency with the approach used for financial reporting (based on historic costs), no specific need to calculate value of the asset class to society (which would suggest a need for cal- culating economic value), nor is there a market value that may be readily determined as an alternative. Next, the agency reviews its treatment strategy for pavements. Initial construc- tion of pavement is estimated to cost $1.4 million per lane mile. When a pave- ment section reaches the end of its useful life it is reconstructed at a cost of ap- proximately $1 million per lane mile, restoring it to “like new” condition. Various treatments are performed over a pavement’s life, and their effects are reflected in the Pavement Condition Index (PCI) at any given time. PCI is an agency-specif- ic measure of pavement condition. It combines different pavement distresses into a scale from 0% (worst condition) to 100% (best condition). Given their use of the replacement cost approach to calculate initial value and PCI to capture condition, the agency determines it is not necessary to incorpo- rate other treatments in the calculation of asset value besides pavement con- struction and reconstruction. Based on the agency’s life cycle strategy, the pave- ment is deemed to reach the end of its useful life when its PCI is reaches a value of 25%, which typically occurs at an age of approximately 25 years, as depicted in the deterioration curve shown in Figure 9-2. The pavement assets’ residual value is estimated to be $0.4 million per lane mile, equal to the difference in cost 9-3 A Guide to Computation and Use of System-Level Valuation of Transportation Assets Figure 9-1. Asset Summary – Northern Agency Example 800 Buildings PAVEMENT 10,000 Road Miles 22,000 Lane Miles BRIDGES 2,500 Bridges 48M Square Feet Deck Area CULVERTS 1,500 Bridges 2M Square Feet Deck Area BUILDINGSSTRUCTURES

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples between initial construction and reconstruction. Then, the agency considers how to calculate depreciation. to use a condition-based ap- proach for calculating depre- - ment section estimates the condition data are available. Where data are unavailable, the asset’s actual age is used. Figure 9-3 summarizes the distribution of pavement con- dition, depicting the percent- age of pavement lane miles zero to over 24. Most of the The agency uses the above information to calculate the value of its pavement. Initial value is approximately $30.8 billion (22,000 lane miles x $1.4 million per lane mile). For each section, depreciation is calculated based on the - ciation formula for the condi- tion-based approach, provid- that current pavement value with annual depreciation - al depreciation is calculated by aging each pavement section by an additional year and noting the resulting change in value. 9-4 A Guide to Computation and Use of System-Level Valuation of Transportation Assets Figure 9-2. Northern Agency Pavement Deterioration Curve 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0 5 10 15 20 25 PC I Effective Age (years) Figure 9-3. Northern Agency Distribution of Pavement Conditions 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 >24 % o f L an e M ile s Effective Age (years) 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples Structures After completing the pavement valuation, the agency walks through the same process outlined above for structures, considering each of the bridge compo- should be based on replacement cost. The agency next reviews its treatment strategy for bridges and bridge length culverts. The construction of a bridge or culvert costs approximately $280 per square foot of deck area. Replacing a structure has a similar cost. The approx- imate costs for replacing bridge decks, superstructures and substructures are established based on a pro-rated share of the total bridge replacement cost, considering the relative costs of replacing the component parts. Based on these historic costs, the bridge deck replacement is estimated to be 25% of the val- ue of the bridge, the superstructure is estimated to be 40% of the value, and the substructure is estimated to be 35% of the value. Various treatments are for the NBI. When a component has reached the end of its useful life either the component is replaced or the entire structure may be replaced. Given the incorporation of the component condition rat- ings into the NBI, the agency determines it is not necessary to include any treatments in the calculation of asset value besides initial construction and component or bridge replacement. Based on the agency’s life cycle strategy, a bridge deck is deemed to be at the end of its useful life when it has a rating of 4 or less on the NBI scale. For the superstructure, substructure and culverts, the component is deemed to be at the end of its useful life when it has a rating of 3 or less. Figure 9-4 illustrates the agency’s deterioration curves The agency developed these curves for use in their management systems based on an analysis of historic bridge inspection data. Three curves are shown in the and a third curve for culverts. The agency further establishes that a portion of its bridges are built to outdat- 9-5 A Guide to Computation and Use of System-Level Valuation of Transportation Assets Figure 9-4. Northern Agency Structure Component Deterioration Curves 3 4 5 6 7 8 9 0 10 20 30 40 50 60 70 80 90 100 R at in g Effective Age (years) Deck Super/Subt Culvert

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples ed functional standards for load capacity and clearances. These bridges are deemed to be at the end of their useful life regardless of their phys- ical condition. Thus, these bridges are treated as fully depreciated when calculating their asset value. The agency then considers how to calculate depreciation. As in the case of pavement assets, the agency decides to use a condition-based ap- proach. The NBI component rating is used to establish Figure 9-5 summarizes the distribution of conditions, depicting the percentage of each component in each condition rating (exempting functionally obsolete structures). Lastly, the agency uses the approach described above to calculate value. Initial value is approximately $14.0 billion (50 million square feet x $280 per square foot). The calculations of current value are made by component, grouping all of the components of a given rating together (and exempting the obsolete bridg- - ration curves, and then depreciation is calculated based using the depreciation current structure value of $8.8 billion. With annual depreciation equal to $193 million; this can be calculated by aging each group by an additional year and noting the resulting change in value. Buildings For its buildings, the agency has more limited condition data than it has for pavement and structures. However, as noted above, in addition to its data on the building inventory, the agency has data on the insured value of each of its buildings. The agency decides to use this insured value as a proxy for market value. The agency thereby establishes that the insured values of its buildings totals $0.9 billion. The agency establishes the cost to replace all of its buildings would be approx- years. The agency determines that an age-based approach should be used for depreciation if it is necessary to further depreciate the market value. Annual de- 9-6 A Guide to Computation and Use of System-Level Valuation of Transportation Assets Figure 9-5. Northern Agency Distribution of Bridge Conditions 0% 10% 20% 30% 40% 50% 9 8 7 6 5 4 3 2 1 0 % o f A re a Deck Super Sub Culvert

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples preciation is estimated at approximately $20 million (equal to the replacement Results Summary Table 9-1 summarizes the results of the asset value calculation. For each asset - tion. The total replacement cost for all of the Northern Agency’s highway assets time. Absent investment to increase asset value, the inventory is expected to de- preciate approximately $1.1 billion per year. This estimate of annual depreciation - ment systems. Valuing Transit Assets Using a Cost Perspective This example presents a transit agency, located in the Western U.S., termed buses; paratransit vehicles (also called “cutaways”); and a Light Rail Transit (LRT) system. The agency’s asset hierarchy is summarized in Figure 9-6. Major asset classes include revenue vehicles, equipment (service vehicles), facilities and infrastructure. Each of these asset classes consists multiple subclasses. The infrastructure asset class includes the largest number of subclasses. In addition to LRT track, which may be either tangent (straight) or curved, this class includes bridges, special trackwork (grade crossings and switches), and power assets (catenary wire segments, relay cases, and substations). Previously the Western Agency reported asset value in its TAMP based on the historic cost of asset acquisition or construction. This approach was used to 9-7 A Guide to Computation and Use of System-Level Valuation of Transportation Assets Table 9-1. Summary Results for the Northern Agency Asset Class Subclass Replacement Cost ($ billion) Current Value ($ billion) ACR Annual Depreciation ($ million) Pavement 30.8 26.0 0.84 876 Structures Bridges 13.4 8.5 0.63 187 Culverts 0.6 0.3 0.61 6 Subtotal 14.0 8.8 0.63 193 Buildings 1.2 0.9 0.75 20 Total 46.0 35.7 0.78 1,089

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples - toric cost and year of purchase or construction for each of the asset classes and subclasses in the TAMP. For revenue vehicles, equipment and facilities costs are tracked at the asset level. For infrastructure assets, costs are tracked by asset subclass, grouping all assets of a given subclass built at a similar time. For its next TAMP, the agency seeks to report value based on current replacement cost rath- er than historic cost, as current replacement cost is more closely tied to the cost of rehabilitating and replacing assets. However, for now the agency in- tends to include both the historic cost of its assets and the current depre- ciated replacement cost to facilitate comparison with the values in its prior TAMP. The following subsections describe the approach the agency used for the asset value calculation, followed by a summary of the results. The asset classes are combined into two groups in the discussion: vehi- facilities and infrastructure. Revenue Vehicles and Equipment (Service Vehicles) As described above, the agency seeks to establish initial value based on current replacement cost. The agency estimates this initial value by adjusting the histor- - tion rate for revenue and service vehicles has historically been approximately The agency next reviews its treatment strategy for vehicles. The agency has 9-8 A Guide to Computation and Use of System-Level Valuation of Transportation Assets Figure 9-6. Asset Summary – Western Agency Example REVENUE VEHICLES 1,052 Buses 191 Light Rail Vehicles 406 Paratransit Vehicles 44 Automobiles 4 Steel Wheeled Vehicles 5 Administrative 8 Maintenance 100.5 Miles LRT Track Tangent 28.7 Miles LRT Track Curved 207 Trucks Other Rubber - Tired Vehicles FACILITIESSERVICEVEHICLES INFRA- STRUCTURE 104 Public Facilities 70 LRT Bridges 247 Switches 75 Catenary Wire Segments 40 Grade Crossings 247 Relay Cases 64 Substations

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples established the useful life for its vehicles by vehicle type assum- ing that planned maintenance and rehabilitation activities are performed on a vehicle over its useful life. The useful life shown in Table 9-2 is estimated based on historical asset performance. At the end of a vehicle’s useful life the vehicle is replaced with a new vehicle. Since vehicle treatments are included within the useful life estimates, the agency establishes that the only treatment explicit- ly modeled in the asset value calculation should be the initial purchase of the vehicle. While the agency auctions used assets at the end of their useful life, the value received is negligible, so for the sake of this analysis, they assume a re- sidual value of $0. To depreciate vehicle asset value the agency elects to use an age-based approach. The depreciation calculation is made separately for each vehicle. Facilities and Infrastructure As in the case of vehicles, the agency seeks to establish initial value based on current replace- ment cost. The agency estimates this initial value by adjusting the historic construction costs of - rate for construction has been approximately 3.0 percent over the facilities’ lifespan. Next, the agency reviews its assets. For these assets, the agency periodically measures point condition scale established by FTA. Using this scale, condition ranges from 1 (worst condition) to 5 (best condition). If an asset has a condition of 2 or less it is deemed to be not in good repair and beyond its useful life. Useful lives are established by asset class, as shown in Table 9-3. When an asset has reached the end of its useful life 9-9 A Guide to Computation and Use of System-Level Valuation of Transportation Assets Table 9-2. Useful Life for Vehicles Asset Class Subclass Useful Life (years) Revenue Vehicles Buses 14 Light Rail Vehicles 40 Paratransit Vehicles 10 Equipment (Service Vehicles) Automobiles 8 Steel Wheeled Vehicles 25 Trucks and Other Rubber-Tired Vehicles 14 Table 9-3. Useful Life for Fixed Assets Asset Class Subclass Useful Life (years) Facilities Administrative 60 Maintenance Public Facilities Infrastructure LRT Track – Tangent 35 LRT Track - Curved 30 LRT Bridges 70 Grade Crossings 15 Switches 25 Catenary Wire Seg- ments 25 Relay Cases 50 Substations 25

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples condition data, the agency establishes that the only treatment explicitly mod- eled in the asset value calculation is the asset construction. The agency further assumes that the residual value of an asset at the end of its life is $0. To depreciate asset value the agency elects to use condition-based approach of an asset as a function of condition is modeled as follows: where E(c) is the useful life for a given condition c and UL is the useful life. The denominator is represented by the condition rating at the end of the asset’s useful life subtracted from the highest possible condition rating. With this equal to its total useful life if the rating is 2 and it is fully depreciated. Results Summary Table 9-4 summarizes the results of the asset value calculation. For each asset class and subclass, it displays the historic cost, replacement cost, current value, - replacement cost of the asset inventory is estimated to be approximately $4.5 billion. The current value, which incorporates depreciation, is approximately $2.7 - ue divided by the replacement cost. Absent investment in the assets, the inven- 9-10 A Guide to Computation and Use of System-Level Valuation of Transportation Assets

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples Valuing Highway Assets Based on an Economic Perspective In this example, a state department of transportation in the Midwest, labeled realized by users of the state’s primary roadway network. For this example, primary arterials, minor arterials, and major collectors. This example follows primary roadway system. The example provides a better understanding of the value generated by the roadways for direct users and society as a whole. This example shows how state DOTs can estimate the value assets provide to users 9-11 A Guide to Computation and Use of System-Level Valuation of Transportation Assets Table 9-4. Summary Results for the Western Agency Asset Class Asset Subclass Cost in $M ACR Historic Cost Replacement Cost Current Value Annual Depreciation Revenue Vehicles Bus 456 498 298 34 0.64 Light Rail Vehicle 506 603 433 15 0.72 Paratransit 25 26 17 3 0.65 Subtotal 987 1,127 748 51 0.66 Equipment Automobiles 3 3 1 0 0.27 Steel Wheeled Vehicles 2 2 2 0 0.88 Trucks and Other Rubber - Tire Vehicles 35 39 23 3 0.60 Subtotal 40 44 26 3 0.59 Facilities Administrative 19 39 23 1 0.58 Maintenance 170 400 195 7 0.49 Public facilities 925 1,485 789 25 0.53 Subtotal 1,114 1,924 1,007 32 0.52 Infra- structure LRT track – Tangent 503 710 473 20 0.67 LRT Track – Curved 144 203 135 7 0.67 LRT Bridges 190 268 161 3 0.60 Grate Crossings 4 6 3 0 0.57 Switches 4 5 3 0 0.50 Catenary Wire Segments 35 50 26 2 0.53 Relay Cases 65 87 70 2 0.60 Substations 34 46 28 2 0.60 Subtotal 980 1,374 899 37 0.65 Total 3,121 4,469 2,680 123 0.60

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples as compared to the replacement value method, which focuses on what those assets cost. Application of Economic Value Approach This case study includes the following basic steps: network. This included all Interstates, principal arterials, minor arterials, and major collectors. Second, fatality and serious injury crash rates were collected. These data are maintained by the Midwest DOT and available at the state level. Third, emissions rates for the state were collected from the Environmental Protection Agency (EPA) MOVES model. A representative county was selected time, vehicle operating costs, safety, and emissions. Fifth, the research team examined the model to interpret the results and found that users of the roadway network experience a much higher mon- replacement costs of the system. These steps are detailed in the following subsections. A theoretical discussion of the approach is presented at the end of the case study. Data Collection - istration (FHWA) as part of its Highway Performance Monitoring System (HPMS) data that can be collected for any state DOT. While 2020 HPMS data was avail- able, this example referenced 2019 HPMS data to avoid any distortions due to - tent with 2021 USDOT guidance for federal discretionary grants, which noted (54). The analysis utilized the following HPMS variables that were provided by the Midwest DOT: Route_ID – This variable is assigned to each individual roadway segment. roadway direction, type, and location. Section_Length – This variable refers to the length, in miles, of each iden- - cle-miles traveled (VMT) and vehicle-hours traveled (VHT). These two vari- analysis. F_System – 9-12 A Guide to Computation and Use of System-Level Valuation of Transportation Assets

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples isolated as those correspond with Interstates, principal arterials (other), - - cant number of observations in the dataset. Facility_Type – This variable refers to the operational characteristic of the roadway. This variable is important to account for the correct mileage and - ciple arterial segments are separated directionally. The codes used for this variable are as follow: 1. One-way roadway 2. Two-way roadway 3. 4. Ramp 5. Non-mainline Non-inventory direction 7. Planned/unbuilt In the HPMS database, many separated Interstates and principal arterials are reported as bidirectional AADT for each separated direction of roadway, so the same bidirectional AADT is reported as Facility_Type 1 in the eastbound - sis. Ownership – This variable indicates the entity that has legal ownership of a roadway and is typically used for apportionment, administrative, legislative, analytical, and national highway database purposes and in cost allocation studies. This example only considers segments with Ownership code 1, which refers to roadways owned by the State DOT. Urban_Codes – state’s urbanized areas and generically by small urban or rural areas. For this example, the values of urban and rural travel are separated. All segments coded as 99998 or 99999 were considered rural and all others were consid- ered urban. AADT – This variable provides the bi-directional annual average daily traf- was used, in part, to calculate VMT and VHT. As discussed above, the “Facil- ity_Type” variable was used in combination with AADT to ensure that bi-di- rectional AADT is not “double counted” in the case of divided or separated roadways. AADT_Combination – This variable provides the bi-directional annual aver- - ating costs, emission rates, and values of time, so these vehicles are treated 9-13 A Guide to Computation and Use of System-Level Valuation of Transportation Assets

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples separately from passenger vehicles in the analysis. This variable was used, in part, to calculate VMT and VHT as discussed further below. AADT_Single_Unit – This variable provides the bi-directional annual average these vehicles are treated separately from passenger vehicles in this analysis. This variable was used, in part, to calculate VMT and VHT. Speed Limit – This variable reports the posted speed limit for every roadway segment. The Midwest DOT advised that due to negligible congestion state- wide, the research team should use this as the measure for speed of travel. This variable was used, in part, to calculate the VHT of vehicles. To summarize, roadway segments were sorted to include only those that are minor arterial, or major collector. This calculation did not include minor collectors the Facility_Type variable were excluded to prevent any double counting of AADT. For each F_System type, VMT was calculated separately for urban and rural passenger vehicles and trucks and aggregated along the criteria stated. The ba- sic calculations for VMT are found below. Note that these calculations represent the VMT calculation for each individual segment. Total VMT is the sum of VMT for all roadway segments, calculated for Interstates, principal arterials, minor arterials, and major collectors and separately for urban and rural areas. - nation + AADT_Single_Unit)] * Section Length Length VMT and speed limits were used to calculate VHT for the same roadway seg- ment criteria. Total passenger vehicle and truck VHT were calculated by sum- ming the VHT from each roadway segment. To calculate VHT, passenger vehicle and truck VMT for each segment was divided by the posted speed limit (in miles-per-hour), which was used as a proxy for average travel speed for this ex- ercise. Typically, observed average travel speeds or VHT collected by the state or nonexistent congestion levels, so speed limit was used as an acceptable mea- sure. The general calculation for passenger vehicle and truck VHT can be found below. Note that this is the VHT calculation for each individual segment. Total VHT would be the summed total of all the roadway segments. Passenger Vehicle VHT = Segment Passenger Vehicle VMT / Segment Speed Limit Truck VHT = Segment Truck VMT / Segment Speed Limit 9-14 A Guide to Computation and Use of System-Level Valuation of Transportation Assets

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples User Cost Calculation In the next step, monetary values were applied to the VMT and VHT aggrega- willingness-to-pay for travel time, vehicle operating costs, safety, and emissions. This analysis utilized monetization parameters recommended per the United States Department of Transportation (USDOT) as of February 2021 . Travel Time USDOT guidance recommends a value of time for passengers and truck drivers of $17.90 and $30.80 per hour, respectively. Passenger vehicles are assumed to calculations for the value of travel time for passenger vehicles and trucks used in this analysis can be found below: Total Passenger Vehicle VHT Total Value of Travel Time for Trucks = $30.80 * 1 occupant * Total Truck VHT Vehicle Operating Cost USDOT guidance recommends a per-mile vehicle operating cost of $0.43 for pas- senger vehicles and $0.93 for trucks. These values were applied directly to the VMT calculated for passenger vehicles and trucks. The basic calculations for the value of vehicle operating costs used in this analysis can be found below: VMT * $0.43 Safety USDOT guidance recommends a monetized value of an averted fatality of $10,900,000 and a monetized value of an averted injury (of unknown severity) of rural and urban areas in its Highway Safety Improvement Program (HSIP). These rates are reported as incident rates per hundred-million vehicle miles traveled (HMVMT). The basic calculations for the value of safety incidents used in this analysis can be found below: Fatality Crashes / 10^ ] * $10,900,000 * Fatal crash rate per HMVMT ] * $10,900,000 * Fatal crash rate per HMVMT Injury Crashes VMT / 10^ Injury crash rate per HMVMT 9-15 A Guide to Computation and Use of System-Level Valuation of Transportation Assets

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples Emissions USDOT recommends emissions valuations per metric ton of pollutant emitted by pollutant type and year. These monetized values are applied to pollutant quantities calculated using the EPA MOVES model for a representative county in the state. The MOVES model reports grams of pollutant emitted per mile driven. It has separate emissions rates for passenger vehicles and trucks, urban and ru- 9-16 A Guide to Computation and Use of System-Level Valuation of Transportation Assets Table 9-5. Cost per Metric Ton of Pollutant from the MOVES Model Emission Type NOx SO2 PM2.5 CO2 2020 $15,700 $40,400 $729,300 $50 2021 $15,900 $41,300 $742,300 $52 2022 $16,100 $42,100 $755,500 $53 2023 $16,400 $43,000 $769,000 $54 2024 $16,600 $43,900 $782,700 $55 2025 $16,800 $44,900 $796,600 $56 2026 $17,000 $45,500 $807,500 $57 2027 $17,300 $46,200 $818,600 $58 2028 $17,500 $46,900 $829,800 $59 2029 $17,700 $47,600 $841,200 $60 2030 $18,000 $48,200 $852,700 $61 2031 $18,000 $48,200 $852,700 $62 2032 $18,000 $48,200 $852,700 $63 2033 $18,000 $48,200 $852,700 $64 2034 $18,000 $48,200 $852,700 $66 2035 $18,000 $48,200 $852,700 $67 2036 $18,000 $48,200 $852,700 $68 2037 $18,000 $48,200 $852,700 $69 2038 $18,000 $48,200 $852,700 $70 2039 $18,000 $48,200 $852,700 $71 2040 $18,000 $48,200 $852,700 $72 2041 $18,000 $48,200 $852,700 $73 2042 $18,000 $48,200 $852,700 $75 2043 $18,000 $48,200 $852,700 $76 2044 $18,000 $48,200 $852,700 $77 2045 $18,000 $48,200 $852,700 $78 2046 $18,000 $48,200 $852,700 $79 2047 $18,000 $48,200 $852,700 $80 2048 $18,000 $48,200 $852,700 $81 2049 $18,000 $48,200 $852,700 $83 2050 $18,000 $48,200 $852,700 $84

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples of pollutant emitted by type and year. The basic calculation for the value of emissions used in this analysis can be found below: Total Value of Passenger Vehicle Emissions = Total Passenger Vehicle VMT * [Grams of Pollutant Emitted by Type / 1000^2] * Monetary Value of Pollutant by Type Total Value of Truck Emissions = Total Truck VMT * [Grams of Pollutant Emit- ted by Type / 1000^2] * Monetary Value of Pollutant by Type The value of emissions is dependent on the year in the analysis so annual monetary value. Analysis Period and Discounting This exercise used a 20-year analysis period, which is consistent with USDOT 2039 to cover a 20-year period. In accordance with USDOT guidance, all mone- tized values were discounted at 7 percent with the exception of values related to carbon dioxide emissions, which were discounted at 3 percent. The general formula for calculating the discount rate can be found below: Discount Rate = 1 / [(1 + Discount Rate) ^ (Year of Analysis – Base Year of Analysis)] granularity as needed. Results of Economic Value Approach Annual travel recorded in 2019 was projected with no assumed growth rate for each year of the analysis period. The value experienced by roadway users in Year 1 of the analysis was calculated at $13.2 billion. Over a 20-year time period this equates to $258.7 billion in undiscounted terms or $148.0 billion when dis- counted at 7 percent (3 percent for carbon dioxide emissions). The most signif- icant drivers of value were travel time and vehicle operating costs, which were The single year value experienced by the roadway is roughly half of the net- work’s total replacement value as reported in the Midwest DOT’s Transporta- tion Asset Management Plan. This implies that after approximately two years of use the roadway network has already provided value to the public equal to experienced by users. 9-17 A Guide to Computation and Use of System-Level Valuation of Transportation Assets

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples Overall, the value realized in urban areas ($7.1 billion annually) is slightly greater At the state level, Interstates account for $9.9 billion in annual value, principal arterials account for $3.2 billion, minor arterials account for $0.04 billion, and major collectors account for $0.02 billion. For the Interstate system alone, the - proximately 99 percent of the total value of Midwest DOT rural roadways is on the Interstates, with only $45 million of rural annual value coming from principal arterials, minor arterials, and major collectors. Principal arterials represent a much larger share of value in urban areas. Overall, Interstates account for 75.0 percent of value, principal arterials account for 24.5 percent, and combined minor arterials and major collectors account for the remaining 0.5 percent. It is clear that the Midwest DOT’s primary roadway network generates signif- icant user value in the state. The value generated in a single year equates to 9-18 A Guide to Computation and Use of System-Level Valuation of Transportation Assets Table 9-6. Summary of the Midwest Agency’s Roadway Network Value User Cost Category Single-Year Value (Billions $) 20-Year Value Undis- counted (Billions $) 20-Year Value Discounted at 7% (3% for CO2) (Billions $) Travel Time $5.74 $114.79 $65.06 Vehicle Operating Costs $6.05 $121.02 $68.59 $0.71 $14.10 $7.99 Emissions $0.66 $8.75 $6.31 Total $13.16 $258.66 $147.95 Table 9-7. Single Year Value for Urban and Rural Roads at the Midwest Agency User Cost Category Single-Year Value (Billions $) Urban Rural Total Travel Time $3.39 $2.35 $5.74 Vehicle Operating Costs $3.00 $3.05 $6.05 $0.41 $0.30 $0.71 Emissions $0.25 $0.41 $0.66 Total $7.06 $6.10 $13.16

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples roughly half the total replacement cost as reported in the Midwest DOT’s TAMP annually. This highlights the high value the Midwest DOT creates by simply maintaining the existing infrastructure. The service life of roadways extends well beyond the payback period and generates value many times over the replace- ment cost in both discounted and undiscounted terms. The primary roadway network is an important societal and economic asset in the state worth far more to its users than is captured by the replacement cost approach. Theoretical Framework of Economic Approach Example This example applied the economic value approach to assess the value of the Midwest DOT’s primary roadway network. The implementation of such a sys- tem-wide assessment is challenging to conduct using the economic value steps “next best alternative road class” would be relative to the state-owned roadway network. On a smaller scale, such as that of an individual roadway improvement project, economic value can be assessed by comparing projected user costs with and without the infrastructure (e.g., bridge or roadway segment) being considered. However, in a system-wide assessment (e.g., for the entire state highway net- work), the with and without project contexts cannot be evaluated because travel to run a travel demand model without the state highway system would produce the state highway system. Given these limitations, this example assesses economic value as the sum of all observed user costs incurred for travel along the Midwest DOT’s primary road- way network. The theoretical basis of this valuation exercise can be explained by considering the value of an individual trip. If an individual chooses to travel from point A to point B and incur all the associated costs of doing so, then the overall value of that trip to the individual must at least be equal to the total costs 9-19 A Guide to Computation and Use of System-Level Valuation of Transportation Assets Table 9-8. Single Year Value for Each Road Category at the Midwest Agency User Cost Category Single-Year Value (Billions $) Interstate Principal Arterial Minor Arterial Major Collector Total Travel Time $4.05 $1.67 $0.02 $0.01 $5.74 Vehicle Operating Costs $4.79 $1.24 $0.02 $0.01 $6.05 $0.47 $0.23 $0.01 $0.00 $0.71 Emissions $0.57 $0.09 $0.00 $0.00 $0.66 Total $9.87 $3.23 $0.04 $0.02 $13.16

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples incurred by the individual over the course of the trip. If the trip costs more to the individual than it is worth, that persons will not make the trip. Put another way, an individual will choose to travel along infrastructure only when the value realized is greater than (or potentially equal to) the cost of travelling. Accordingly, one can calculate the minimum value of a trip by monetizing the cost of the trip. This theoretical approach can be expanded beyond an individual trip and ap- plied to all trips across a roadway network. The aggregate value to society of all travel on a roadway network must at least be equal to the sum of all user costs incurred for travel on that roadway network. These total user costs include ve- hicle operating costs, value of travel time, monetized emissions costs, and injury and fatality crash costs. Observed User Costs versus Willingness-to-Pay The theoretical framework that underlies this example is related to the eco- nomic concept of “willingness-to-pay.” If a user is willing to pay a maximum of x dollars for a good, then that good must be worth x dollars to the individual. If the individual has the opportunity to purchase the good for any amount up to x dollars then a rational person will make that purchase, but if the cost of the good is above x then a rational person will choose not to purchase the good. practice. Willingness-to-pay for any given good varies greatly across individuals, but the prices of goods are much more standardized. Accordingly, most market transactions end up being made at a price below maximum willingness-to-pay for any given purchaser. An individual may be willing to pay up to x dollars for dollars for the goods that purchase. This is the case in using the user costs to estimate the value of travel in the Midwest DOT example. While the amount paid (or costs incurred) for travel can be measured using the data available in this example, total willingness-to-pay cannot be assessed. The available data can be used to calculate what users do pay for travel, but it cannot be used to show what users willing to pay if travel were more no greater than, and is often less than, willingness-to-pay, it follows that total amount paid is an underestimate of total value. Thus, the observed cost of all - realized across the roadway network must exceed this cost on the societal level. The exact extent to which actual value exceeds aggregate user costs depends on the economic concept of “elasticity of demand” for travel, which cannot be assessed in this example. 9-20 A Guide to Computation and Use of System-Level Valuation of Transportation Assets

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples Implications of Measuring Observed User Costs (versus Willingness-to-Pay) Since user costs represent a user value, the implication of the eco- nomic value approach is that a decrease in travel costs within the state could ap- pear to represent a decrease in value of the Midwest DOT’s infrastructure. For example, a hypothetical improvement to roadway conditions that leads to faster travel times, lower emissions, or safer roadway conditions would result in lower per-user travel costs being borne by users. Under an assumption of relatively inelastic demand, this decreased per-user travel cost would also result in low- er aggregate observed travel costs across the state. Using the economic value approach, this improvement in roadway conditions would apparently decrease apparent lower economic value of infrastructure. This seemingly contradictory - ysis to measuring only the observed travel costs borne by users (which were reduced in this example) rather than their true willingness-to-pay for travel. While a roadway condition improvement may decrease the cost of travel along a route, it does not decrease willingness-to-pay for that travel. Thus, the lower user costs resulting from the improvement project will widen the “gap” between willingness-to-pay and cost borne. Total value realized by users will not change for all those pre-existing users of the facility, and any additional users who choose to use the facility as a result of the improvement project will realize addi- - nomic value of infrastructure, it really represents a more conservative estimate of user value, which remains unchanged. Limitations There are at least four additional limitations to the analysis conducted in this case study: Internalization of emissions costs and crash risk – This example includ- ed vehicle operating costs, value of travel time, monetized emissions costs, and injury and fatality crash costs as observed user costs of travel. However, emissions costs and safety risk may not be fully “internalized” by users. That is, do individuals who make choices to travel on roads fully appreciate the crash risk associated with their travel and do they fully bear the societal costs of the emissions from their vehicles? If these costs are not fully “internalized” by the travelers, then it may be inappropriate to consider those costs as a component of “willingness-to-pay” for travel. Fixed travel costs – This example considers the marginal cost per-mile and - quired for travel. Annual vehicle ownership costs, for example, do not directly depend on distance traveled per year. Thus, monetizing the revealed mar- ginal cost of travel on a per-mile or per-hour basis understates the total cost 9-21 A Guide to Computation and Use of System-Level Valuation of Transportation Assets

Chapter 9. Examples and Case Studies / Section 9.1 Worked Examples of travel on an annual basis, and accordingly understates the total willing- ness-to-pay for travel. Roadway maintenance expenses – An additional cost of travel borne by society is the cost of construction, maintenance, and upkeep of public infra- structure. Some, but not all, of this cost is incorporated in user expenses, such as gasoline taxes and tolls. To capture the observed user costs of travel fully, it would be necessary to account for all roadway construction, main- tenance, and upkeep expenses. However, these expenses cannot fully be captured using available data and applied to per-mile or per-vehicle parame- ter estimates. Apportionment of the value of travel – A challenge in applying willing- ness-to-pay theory to the valuation of roadway infrastructure is apportioning For example, travel along an Interstate requires the Interstate infrastructure, but it also requires a vehicle and a source of fuel. Interstate travel cannot happen if any one of these multiple required inputs is unavailable. It would therefore be inappropriate to apportion the total value of Interstate travel to the Interstate infrastructure itself, as this would leave no value for the vehi- cle and fuel that are also required for travel. The willingness-to-pay theory behind this example does not provide insight as to what percentage of the overall value of travel should be apportioned to the roadway itself, versus what should be apportioned to other inputs required for travel. 9-22 A Guide to Computation and Use of System-Level Valuation of Transportation Assets

- proaches of two highway agencies from Great Britain and Australia. Each - case studies follow the asset valuation guidance established in their respective countries, and their work in this area predates the development of this docu- ment. Nonetheless, both agencies use approaches that are very consistent with the guidance presented here, illustrating the common philosophy between the guidance, international standards for calculating asset value, and the state of the practice worldwide. Highways England Highways England is a public company responsible for managing the Strategic Road Network (SRN) in England, which is a core set of 4,300 miles of major roads organization is wholly owned by the British government and receives all of its capital and revenue funding directly from the United Kingdom (UK) Department for Transport (DfT). Nonetheless, Highways England operates as a company, and - ship and value in terms of taxpayer equity. Asset value is computed and report- The following paragraphs describe the approach used by Highways England to value its portion of the total British SRN. Note that Highway England’s approach is also used by the other SRN operating organizations: Transport Scotland for the SRN in Scotland; the Welsh Government for the SRN in Wales; and the Northern Ireland Department for Infrastructure for the SRN and all local roads in Northern Ireland. Additionally, the Northern Ireland Department for Infra- structure uses the same methodology for river and coastal assets in Northern Ireland. Highways England’s approach to asset valuation is undertaken in accordance with Government Financial Reporting Manual (FReM) . For infrastructure - (50). The company determines - dance with the guidance provided by the FReM and the Red Book. This ap- proach is consistent with accounting standard IFRS 13 for calculating fair value (3). It results in the calculation of the value of the SRN from the perspective of a theoretical buyer based on how much it would cost to construct a network of equivalent service potential. Section 9.2 International Case Studies Chapter 9. Examples and Case Studies 9-23 A Guide to Computation and Use of System-Level Valuation of Transportation Assets

Chapter 9. Examples and Case Studies / Section 9.2 International Case Studies Figure 9-7 summarizes the process used by Highways En- gland for calculating value. First, the organization calculates capital expenses. These costs are adjusted to obtain the ‘as new’ replacement cost based on a modern equivalent as- - Replacement costs are calculated for four asset classes: Pavements; Structures; Technology Assets; and Land. Note that the valuation for pavement is assumed to include the value of a number of other ancillary assets, such as ve- and safety assets. For each asset class Highways England the asset quantity to calculate replacement cost. Following the calculation of replacement cost, the organi- zation then calculates depreciation. Depreciation and other adjustments account for impaired or obsolete (derecog- nized) assets and are applied to the replacement cost to upon asset condition surveys. While renewals are per- formed that improve conditions, these are not treated for accounting purposes as having an impact upon the valua- tion of the network because any related improvement in depreciate 100% of renewals expenditures in the year that they are incurred. Depreciation is based on the observed condition of assets. For pavement, condi- obtained from structure inspections performed for each element of a structure. Land assets are not depreciated. To ensure a robust valuation, Highways England undertakes a full valuation of - ments and lands was undertaken in the period of 2019 to 2020. At the time of that valuation, the value of the SRN was estimated to be approximately £123.2 billion. Updated valuations of structures and technology are planned in 2023 and 2024, respectively. Highways England makes improvements to its valuation approach on a con- tinuing basis. For example, historically depreciation for pavement is calculated based on rutting. In the future, Highways England plans to improve this depre- 9-24 A Guide to Computation and Use of System-Level Valuation of Transportation Assets Figure 9-7. Highways England Valuation Approach Capitalization Adjustments & Revaluation Depreciation Derecognition & Impairment

Figure 9-9. Road and Bridge Components Chapter 9. Examples and Case Studies / Section 9.2 International Case Studies ciation calculation by including other pavement distresses, such as frettingand longitudnal cracking. Also, the organization plans to perform a separate calcu- lation for special structures, unique to the network, that are best valued on a case-by-case basis rather than using unit rates. Australian Road Authority This case study describes the asset valuation approach used by a major government road authority in Australia. The authority is responsi- ble for managing a large network of public roads, privately-funded toll roads, bridges, culverts, tunnels, and other assets. Valuations are conducted according to local government and na- tional (Australian) accounting policies and standards. These standards emphasize bas- ing estimates on fair value, consistent with international accounting standards. The agency uses what it calls “Optimized Depreciated to value its assets. This term highlights that the replace- ment cost used is the cost to replace an asset with its modern equivalent, rather than the cost of a replacing an asset in-kind. Figure 9-8 summarizes the process used by the author- ity to calculate fair value for its assets. As shown in the steps for calculating replace- ment cost, and then adjusting replacement cost based on deprecation. Note the authority’s process includes some additional steps not 9-25 A Guide to Computation and Use of System-Level Valuation of Transportation Assets Figure 9-8. Australian Road Authority Valuation Approach Obtain asset inventory Assess componenets Apply unit rates Estimate replacement cost Replacement Cost Accumulated Depreciation Estimate depreciation Adjust for obsolescence Roads Valuation Model Bridges Valulation Model Fair value (obtained from valuation models) • Pavement Wearing Surface • Pavement Base & Sub-Base • Earthworks • Culverts & Drainage • Safety Barriers & Fences • Structures - Noise Walls & Sight Screen - Retaining Walls • Other - Medians - Roadside Rest Areas - Other Assets • Deck • Bearings and Joints • Superstructure • Substructure • Foundation ROADS BRIDGES

Chapter 9. Examples and Case Studies / Section 9.2 International Case Studies The approach is applied to calculate value for four asset classes: roads; minor roads; bridges; and tunnels. Assets are available to support the calculation. Figure 9-9 shows how roads and bridges are subdivided into components. Depreciation is calculated based on condition data where data are available to support the calculation. For example, the authority calculates a measure of pavement condi- tion called Pavement Health Index (PHI) which is based on data for rutting, cracking, and other pavement distresses. Separately the authority performs an analysis to relate PHI to calculate depreciation for the pavement wearing sur- face. Figure 9-10 shows the relationship between PHI and Note that where detailed data are unavailable for a given asset component, the value of the component is estimated as a percentage of the value of the asset. Also, earthwork assets are not depreciated. The end result of the calculation is an asset value that is comprehensive, leverages detailed data on individual com- condition and remaining life. 9-26 A Guide to Computation and Use of System-Level Valuation of Transportation Assets Figure 9-10. Example Analysis of the Relationship Between PHI and Age for Flexible Pavement 0 20 40 60 80 100 120 140 Age (years) PH I 2.9 2.7 2.5 2.3 2.1 1.9

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Determining the value of a transportation organization's physical assets is important for both financial reporting and transportation asset management (TAM).

The TRB National Cooperative Highway Research Program's NCHRP Web-Only Document 335: A Guide to Computation and Use of System-Level Valuation of Transportation Assets details how to calculate asset value and use it to support application in TAM.

Supplemental to the document are summary of the research project activities and recommendations for implementation.

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