Traditionally, measuring return on investment for transportation initiatives has focused on direct user benefits and the economic impacts that arise from those cost savings. Estimating minutes of travel time saved by passengers or freight is acceptable, but some projects require more exploration and depth.
The reality is that transportation plays a broad role in shaping economies. Transportation:
- supports clusters and agglomerations;
- increases productivity;
- enhances jobs and labor market accessibility;
- opens new markets for businesses; and
- enhances supply chain efficiency.
Though not all transportation projects generate such benefits, some investments are considered strategic drivers of development. The economic impact of transportation projects can be measured in the benefits they bring to economic growth, job creation, trade facilitation, and the economies of scale created. Recognizing this reality is crucial because today’s transportation needs far exceed available funding. Accordingly, transportation agencies at all levels of government seek to maximize their investments.
This is true despite the fact that, in 2015, the Fixing America’s Surface Transportation (FAST) Act was signed into law. Included in the $305 billion authorized by the FAST Act is funding for critical public transportation, highway, and freight projects. There is an increased level of accountability in how transportation dollars are spent, so even with this money available, state, metropolitan, regional, and local agencies must justify the need, economic impact, and return on investment of their transportation investments. As such, it is important to assess transportation projects for their wider impact and use a sound economic analysis to make informed transportation decisions.
Transportation investment impacts economic development in the following five ways:
Supports clusters and agglomerations — Investment in transportation, especially transit, supports clusters and agglomerations in several ways. First, in large metropolitan areas, growth can be slowed when it is based only on automobile trips due to the limited downtown space. Effectively planned transportation can overcome this constraint and reinforce agglomerations by allowing more people to come closer together in higher density developments.
Second, the right transportation investments sustain clusters of industries and businesses by supporting their closer proximity to each other, improving productivity and creating clusters of activities. Finally, efficient transportation reduces the time distance between the suburbs, where some of the labor force lives, to the downtown areas.
Increases productivity — When transportation improvements increase the accessibility of people and businesses to reach jobs, services, goods, and activities, productivity also increases. This uptick may be due to reduced travel time and infrastructure enhancements. Because the labor market temporally is brought closer to their places of work due to improved travel time, businesses experience gains in worker productivity.
Business productivity is seen in other areas as well. For example, transportation improvements may improve freight delivery times. If truck drivers can reach their destinations more quickly, they can make more runs in their daily shifts, increasing their efficiency. Increasing worker and business productivity can in turn increase the productivity of the metropolitan area affected by the enhanced transportation system.
Enhances job and labor force accessibility — Another economic benefit of transportation improvements is the resulting larger pool of employees available for the job market. This may come from a new transit or commuter rail line that makes it possible for employees to reach previously inaccessible jobs. Or, road improvements may decrease employees’ travel time by car or bus. Overall, employers can better match employees with appropriate jobs based on the job requirements and employees’ skills.
At the same time, new or improved transportation options increase the population’s direct access to more job options, making an area more attractive. Given the importance that Millennials place on mobility and desire to forego car ownership, access to employment and recreation in walkable, bikeable, and transit-accessible areas is becoming a key factor for recruiting this critical workforce group.
Opens new markets for businesses — New and improved transportation options do more than decrease the travel time or distance for commuters; they can be a factor in shifting the business sectors attracted to the metropolitan area. Building a multi-modal facility opens new markets for companies searching for locations with the appropriate transportation infrastructure for their corporate needs and manufacturing plants.
New rail, subway, and Metro lines attract new development — residential and commercial — providing businesses and passengers with more options to earn and spend their money. By improving access, enhanced transportation projects positively affect the economic impact of metropolitan areas.
Enhances supply chain efficiency — When businesses are clustered together, it is easier and quicker for them to reach their suppliers and customers. This phenomenon has a positive impact on freight logistics and delivery scheduling. Easier access to needed supplies and materials and faster delivery times to customers can help lower transportation and inventory carrying costs while increasing both productivity and profitability.
At the same time, improvements in the transportation infrastructure allow companies to expand their market reach and access to a larger customer base, which can increase their competitiveness.
By improving access to markets, goods and services, employment, housing, health care, and education while reducing the cost of moving people and goods, transportation projects can increase economic productivity and development.
Assessing economic impact
While the benefits of travel time savings are substantial, the traditional method of measuring seconds saved per trip is outdated and insufficient. The investment in transportation contributes much more to the economy than the travel time savings alone. It is critical to quantify all of the productivity gains realized with enhanced transit, particularly in the current environment that seeks to maximize investment under the scrutiny of increased accountability. This is accomplished by assessing specific variables showing how the link among the economy, businesses, and commuters depends on the transportation system and how improvements affect productivity, income, and revenue.
Ideally, before and after studies would be conducted to measure the impact of new or improved transportation. However, these studies present inherent challenges due to the time lapse from project feasibility to the project opening. In addition, it is difficult to isolate the impact of the transportation infrastructure.
A better approach begins by ensuring that the stakeholders lead the project evaluation. This process involves conducting interviews with the transportation users, economic developers, and real estate personnel to learn and understand their perspectives and feedback on how an investment might change their behavior and impact development decisions. The information is used to determine travel demand and develop user costs and economic impact models.
The research yields the development of tools designed specifically to help understand the extent of the transportation project’s impact on site selection, business attraction, and retention and economic development. The combination of expert knowledge, stakeholder input, and research also leads to better benefit-cost, economic impact, and return-on-investment analyses. This method of assessing transportation’s economic impact leads to a more transparent, defensible, and intuitive analysis of the project.
Return on investment
Transportation, as one of the key costs of producing goods and services, is a major contributor to productivity levels. There are some who claim that ecommerce is the driving force of economic success, making transportation a less critical component. Yet, America’s transportation and logistics systems facilitate the growth of the ecommerce industry.
Most people still use transportation to either spend money or make money, both of which drive the economy. For this reason, transportation is a necessary input to economic activity. Therefore, it is important to understand which transportation investments will increase competitive business and are economically feasible.
However, transportation by itself will not solve all economic problems. It is not enough to believe that one road or one new rail or subway line will grow an area’s economy. While transportation is a necessary contributor, it’s not sufficient to help attract and retain jobs. Other critical factors — including a skilled labor force, developable land, and other supporting utilities — must be available to ensure a transportation project’s success.
Strategically, transportation investments succeed in areas where transportation — or its lack — is an identified impediment to development. This is where investment can change behavior and where the measurement of economic development impact can help ensure a transportation project’s higher probability of return in terms of productivity and competitiveness.
Paula Dowell, Ph.D., is director of economics and a principal of Cambridge Systematics (www.camsys.com), Cambridge, Mass.