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Perspectives

Quantifying the Returns on Transportation Investments

Professor's Research Helps Develop Tools that Predict the Economic Impacts of Infrastructure Spending

By David Behrend

About Perspectives

  • Perspectives features interviews with professionals making news in the transportation world.

Rutgers University Professor Joseph Seneca

speaks at a North Jersey Transportation

Planning Authority symposium in December.

Joseph J. Seneca is University Professor at the Edward J. Bloustein School of Planning and Public Policy at Rutgers University. He has taught at all levels of instruction throughout his career at Rutgers and has received numerous awards for exemplary teaching and public service. Seneca recently oversaw a study for the state of New Jersey that looked at the economic benefits of transportation investment in an effort to not only quantify direct benefits—jobs created by construction of a bridge, for instance—but also the indirect benefits, such as time gained by relieving traffic congestion. Following his participation in a recent North Jersey Transportation Planning Authority symposium on the economics of transportation infrastructure, Seneca spoke with InTransition about the study, the overall economic benefits of transportation investment, the effects of the American Recovery and Reinvestment Act and related issues.

Q: You led a 2009 study for the state of New Jersey that attempted to gauge the economic benefits of transportation investments, specifically road and bridge projects. Can you give a brief overview of the study?

That project’s goal was to provide the New Jersey Department of Transportation with the capacity to estimate the full range of the economic benefits of investments in current and future highway infrastructure projects. First, it looked at the short-term economic impacts of simply spending the money in the state: hiring the labor, purchasing the materials, doing the necessary engineering, design and planning work. Those expenditures to get the project done—be it a bridge replacement or an additional lane put on a highway, or a reconfigured intersection—create income for people and they create sales for vendors that are sourcing the inputs to these projects. These are short-term benefits. They accrue while the expenditures are being made, and then they disappear when the expenditures stop. So, they occur over the course of the lifetime of the construction project.

The study also looked at longer-term benefits, estimating the recurring annual benefits in terms of congestion time savings, air quality improvements, reduced road maintenance, reduced accidents and noise reductions. The model estimates each of those benefits in terms of a physical measure—what’s the reduction in accident rates, what’s the reduction in travel time that is saved in terms of hours, what is the reduction in emissions of hydrocarbons and sulfur oxide and nitric oxide—and then values those changes in dollars so that we’re then able to compare those annual dollar benefits, discounted to the present, with the dollar cost of the capital investment. [In one example cited by Seneca, the replacement of a bridge had a 35.8 benefit-cost ratio.]

Q: The study used travel demand data and a host of other information to look at these factors, leading to the creation of two new software tools for making these benefit-cost estimates—the short-term Transportation Infrastructure Impact Estimator (TIIE) and the longer-term NJCost tool. How do you see these being used to assist future decision-making about transportation investments?

The ability to estimate a benefit-cost ratio provides New Jersey with a powerful tool not heretofore available to both ask and answer a key—perhaps, in my opinion, the key—policy question. Namely, does any given project promise to return more in value to New Jersey over its lifetime than it costs?

The NJCost tool enables us to answer the central question of the economic efficiency of a public investment. We see this work and the two software applications that have resulted having several possible applications. These include the ability to assist in the priority ranking of projects that must compete against each other for scarce public investment dollars. We can’t fund everything. The TIIE tool can provide useful information on the relative short-term economic stimulus effect per dollar expenditure across project types.

Q: What’s the overall lesson that this study teaches about the importance of transportation investment to New Jersey’s economy and presumably any given economy?

It enables us to measure the catalytic role—catalytic is the key word—that transportation infrastructure plays to ensure the quality of life and the economic well being of our state. That causal relationship has a concomitant requirement to sustain investment in that infrastructure on a consistent and threshold basis. New Jersey’s aspirations to have a world class economy with all the accompanying benefits is directly driven by having a world class transportation infrastructure in all its modes.

Q: Let’s turn to the national economic picture. It seems that the United States is beginning to slowly edge out of a long and painful recession. How important is transportation investment for economic recovery and growth?

The competition for job growth among the states is certain to intensify, since the recovery will likely be both tepid and lengthy. Thus, those states which pay laser-like attention to improving their business climate and to investing in the key drivers of economic growth—such as efficient, reliable, multimodal, well-chosen transportation investments—will emerge as winners in what will surely be an extremely competitive contest for economic investment.

However, as a warning to accompany this expected intensifying competition, in any state where transportation gridlock is routine, such a condition will powerfully and viscerally convey to individuals and businesses that this is a place with large time and money costs of living and conducting business. It’s daily, it’s in your face, it’s all the time. Such a prospect—routine and costly gridlock—is a death knell for business and household investment and location decisions.

Q: The American Recovery and Reinvestment Act sought to use transportation investment—among other programs—to create jobs and spur the flagging economy. How effective was this use of infrastructure investment in creating more immediate economic benefits?


Bill Wittkop

Seneca believes the federal stimulus was successful

in curbing the number of jobs lost.

The goal of the federal stimulus program was to try to use transportation projects as a countercyclical policy instrument, particularly in a time of deep recession, to get money out and spent quickly in order to reap the immediate, short-term direct benefits. But that’s not really the key purpose of transportation infrastructure investments.

It does have those effects and if you can time the investment expenditures closely enough, you can indeed get the countercyclical benefits. Although this requires that you have a portfolio of projects ready to go—all the planning done, the engineering done, the rights of way done, so that you can sort of turn the money spigot on in a prompt way. That’s unusual to be able to do that. But ideally, it could be done. In this most recent, long-lasting recession, we could get such countercyclical benefits.

Q: Was the stimulus program successful in meeting the goal of creating quick economic boosts such as job creation?

What would’ve happened without it? The estimates that I’ve seen—these are independent estimates done by the Congressional Budget Office, not partisan estimates—indicate that as a whole, the package in all its components—the transportation investments, the tax changes, the water infrastructure investments, the energy investments, and it’s still not completely spent—has contributed significantly to reducing the loss of jobs. The loss of jobs would’ve been significantly higher in the absence of it.

Q: You’ve said that these short-term, countercyclical effects may be achievable, but that they aren’t the primary benefits of transportation infrastructure projects. What are?

The real purpose of transportation infrastructure is to deal with congestion, to deal with bottlenecks, to improve the efficiency, reliability an safety of moving people and goods from Point A to Point B. This keeps the state’s economy competitive with respect to being able to have relatively low transportation costs for businesses and to get people to work and back efficiently. That is a key element in keeping the state’s business climate competitive.

Q: Stimulus-funded projects generally had to be “ready to go,” which led to a large number of resurfacings and other maintenance investments that could be done quickly, though they might not have had the sort of major impacts you’ve mentioned. Can these sorts of smaller, simpler projects have longer-term economic benefits, at least to some extent?

Yes. The routine, daily conditions of the transportation system can ultimately affect the competitive position of the state for residential and business location decisions. Nothing is more visible and visceral than a bad transportation experience. If that is recurring—be it airport, be it rail or be it highway—that is a pretty damning message to send to either businesses or households making such decisions. It brings home like nothing else can the time and money costs of a poor transportation service location.

Q: We hear a lot about what countries around the world are doing in terms of transportation investment. China is making massive investments in its transportation system. Spain is held up as an example for its national rail system. Do you think that in an increasingly globalized economy, it’s even more important for the United States to make these sorts of major transportation investments? 

Absolutely, particularly for our export industries and particularly for industries and businesses that are not anchored locally (i.e. serving only local demand). For all other businesses, and that is the real wealth-generating businesses for a state, the transportation component of the input process is very, very important.

Q: Given that, let’s look to the next surface transportation authorization, now being discussed in Congress. What should it emphasize, given the economic importance of transportation?


Bill Wittkop

The ranking of transportation projects

should be based on their long-term value

to the national economy, according to

Seneca.

A greater emphasis should be given to improve the competitive position of American business, however broadly defined, across all transportation modes, and less of an emphasis on short-term, countercyclical investment for local economic development. In fact, I would argue no emphasis should be given for these. The rankings of projects and the subsequent decision-making should be done on the basis of the long-term net economic returns to the national economy. We’ve already done the short-term stimulus activity with ARRA. It would be a much more effective use of public dollars to make sure that the transportation investments meet objective, consistent benefit-cost tests of maximizing the long-term economic benefits per public dollar spent.

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