Economic Review of 1996 RTA proposals casts major doubts

October 15, 1996
Dear Reader:
This study of the benefits and costs of the Regional Transit Authority's November 1996
ballot proposition began in August of this year. We relied upon the data that was
available at that time from RTA regarding the project's costs and their estimate of its
benefits. The dollar value of the RTA's benefits were presented in a report entitled
"Appendix C: Benefits, System Use and Transportation Impacts of Sound Move". Most
of our analysis relied upon that appendix and its supporting documentation.

When the RTA learned that we were conducting a benefit-cost analysis of the proposed system plan, they commissioned a similar analysis by Porter and Associates. Porter had developed the RTA's financial model and was familiar with the plan and its projected capital and operating costs. The RTA released the Porter report yesterday.

While we have not had opportunity to review it carefully, the Porter study and ours
appear agree on some important points. Both stress that results of benefit-cost analysis
should serve as an aid to decision-making that voters should consider with other factors. Both reports use a similar analytic approach of discounting future benefits and costs to
determine their value today and both calculate an internal rate of return on the public's
investment in the system. However, the two studies reach very different conclusions
about the cost effectiveness of the proposal. Porter concludes that the RTA plan will
generate a positive return on investment of 7.4% and generate net benefits of $4 billion. Our analysis, on the other hand, shows a negative return on investment of 4.2% and a
negative net present value of $2.5 billion.
Several key assumptions explain most of the difference in the two results:

* The Porter analysis has increased the RTA's estimates of the travel benefits in
Appendix C by 58%. In Appendix C , the mid-point estimate of benefits in 2010
excluding construction is $209 million. Porter estimates those benefits at $331 million. Most of this increase is due to Porter's belief that the earlier study used the wrong "base case scenario" from which to measure the benefits of the RTA plan.

* The Porter analysis assumes that the operating costs of the system will remain constant in real terms while the ridership and benefits grow over time.

Sincerely,

Daniel Malarkey




Benefit -cost Analysis of RTA Plan
Table of Contents
EXECUTIVE SUMMARY . . . . iii
1 . INTRODUCTION . . . . . . 1
2 . EVALUATION FRAMEWORK . . . . 3
2.1. MEASURE CHANGES IN PERFORMANCE AND SYSTEM COSTS. . . . . 4
2.2. EVALUATE ALL SIGNIFICANT BENEFITS AND COSTS . . . . .. 4
2.3. DISCOUNT TO PRESENT VALUE . . . . . 6
2.4. FOCUS ON DIFFERENCES BETWEEN ALTERNATIVES . . . . .. 7
2.5. PERSPECTIVE: BENEFITS AND COSTS FROM WHOSE POINT OF VIEW ?... ...7
2.6. ALTERNATIVE SELECTION AND PROJECT EVALUATION . . . . . 7
3 . C O S T S . . . . . . 8
3.1. CAPITAL COSTS . . . . 1 0
3.2. OPERATING COSTS . . . . .. 1 0
3.3. DELAY COSTS DURING CONSTRUCTION . . . . .. 1 3
3.4. CAPITAL DEPRECIATION . . . . . 1 3
4 . TRANSPORTATION BENEFITS . . . . 1 3
4.1. TRAVEL TIME SAVINGS FOR TRANSIT USERS. . . . .. 1 5
4.2. OTHER COST SAVINGS FOR TRANSIT USERS . . . . 1 6
4.2.1. Parking... ...19
4.2.2. Auto Operating/Ownership Costs... .19
4.3. TRAVEL TIME SAVINGS FOR ROAD USERS . . . . .. 1 9
4.4. REDUCED COSTS FOR EMPLOYER PROVIDED PARKING . . . . 2 0
4.5. COMMERCIAL VEHICLES. . . . . 2 1
4.6. TRANSIT RELIABILITY . . . . 2 1
4.7. RAIL FREIGHT MOBILITY . . . . .. 2 1
4.8. CAPACITY FOR SPECIAL EVENTS . . . . .. 2 2
4.9. IMPROVED SAFETY . . . . .. 2 2
4.10. IMPROVED ROAD RELIABILITY . . . . .. 2 2
4.11. OTHER TRANSPORTATION BENEFITS . . . . .. 2 3
5 . EVALUATION OF TRANSPORTATION BENEFITS AND COSTS OVER TIME . . . 2 4
5.1. ASSUMPTIONS USED IN ANALYSIS. . . . . 2 4
5.2. RESULTS OF ANALYSIS . . . . 2 7
5.3. NET BENEFITS OF HOV LANES & BUSES . . . . . 3 1
6 . OTHER BENEFITS . . . . . 3 3
6.1. INCREASED PROPERTY VALUES NEAR TRANSIT TERMINALS . . . . 3 4
6.2. CONSTRUCTION EMPLOYMENT . . . . . 3 4
6.3. INCREASED COMMERCIAL ACTIVITY . . . . 3 5
6.4. AIR QUALITY BENEFITS. . . . .. 3 6
6.5. URBAN FORM . . . . 3 6
7 . CONCLUSION . . . . . 3 7
8 . BIBLIOGRAPHY . . . . . 3 9
9 . APPENDIX A : BENEFIT -COST WORKSHEETS . . . . 4 3
9.1. BENEFITS AND COSTS OVER TIME OF RTA PLAN : ECONORTHWEST ESTIMATES OF BENEFITS . . . . .. 4 4
9.2. BENEFITS AND COSTS OVER TIME OF RTA PLAN : RTA ESTIMATES OF BENEFITS IN APPENDIX C . . .. . . 4 5


ECONorthwest i




Benefit -cost Analysis of RTA Plan
Executive Summary
Background
This study evaluates the benefits and costs of the proposed $3.9 billion transit
system that residents in the Puget Sound region will vote on in November
1996. The study was sponsored by the Washington Research Council—a non-
profit, non-partisan, research institute. The analysis was conducted by
ECONorthwest, an economic consulting firm that specializes in the application
of benefit-cost analysis to multi-modal transportation investment decisions.
Results of Analysis
The RTA system plan is not a cost-effective investment based on this report’s evaluation of the likely changes in transportation performance. Our analysis indicates that the costs of the RTA plan exceed its transportation benefits by $2.5 billion. The annualized cost per new transit rider is $13,028 and the
return on the public’s investment is minus 4.2% per year. Using the RTA’s assumptions of the benefits, the plan’s costs still exceed its benefits by nearly $1 billion. In all of our analysis, we use the RTA’s assumptions about the cost of building and operating the proposed transit system.
Evaluation of Transportation Benefits and Costs of the RTA over Thirty Years
ECONorthwest RTA Assumptions
Assumptions
Benefits Minus ($2.5) ($1.0)
Costs (billions)
Rate of Return (4.2%) 1.1%
Annualized Cost $13,028 $9,314
per New Transit
Rider
Assumptions 2010 benefits as estimated by RTA and
ECONorthwest. Discount rate: 4%;
Benefit growth rate: 0%; Maintenance cost growth rate: 1%; RTA’s stated estimates of capital and operating costs;


The analysis tested the degree to which changing key assumptions varies the
result. The value of time and a benefit multiplier used to account for potential changes in the RTA’s performance relative to the base case had the largest
effect. Within a reasonable range of these values no one parameter changed
the net benefits of the RTA plan by more than 16% of our point estimate of
minus $2.5 billion.



ECONorthwest iii




Benefit -cost Analysis of RTA Plan

As a transportation improvement the RTA plan doesn’t meet basic investment
criteria of having benefits which exceed its costs. Our report considered other
potential effects of the plan such as improvements in land-use and air quality
and found the RTAis not likely to generate measureable benefits in these
areas. There are some non-transportation benefits which may lead voters to
support the measure anyway. Investments in rail are popular in other cities
even when they provide limited transportation benefits. It appears that other
areas like the image rail projects about a region’s willingness to provide
alternatives to the automobile even though relatively few people actually use
it. Rail systems also convey an image about being a “big league” city that may
help in the marketing of a region. The voters must decide whether these non-
transportation benefits are worth the cost of the RTA.
Review
This analysis was conducted by ECONorthwest, an economic consulting firm
that has done numerous projects for the state and federal government on the
application of benefit-cost analyis to transportation investments and policies.
The report was written by Daniel Malarkey; Terry Moore, David Reinke and
Randy Pozdena reviewed early drafts and suggested many useful revisions.
Early versions of the report were given to the RTA staff for their comments
and any corrections. While the RTA staff do not endorse this paper’s
conclusions, they have had an opportunity to raise issues and pose questions to
better reflect the work they did putting together the current plan. This study
was also reviewed by a panel of outside transportation experts. They include:
Paul Courant, Chair, Economics Department, University of Michigan
Jose Gomez-Ibanez, Derek Bok Professor of Urban Policy and Planning, Graduate School of Design and John F. Kennedy School of Government, Harvard University
John Kain, Visiting Professor, University of Texas at Dallas and Henry Lee Professor of Economics and Professor of Afro-American Studies, Harvard
University
Steve Fitzroy , Consultant and Former Director of Research and Forecasting for the Puget Sound Regional Council
Anthony Rufolo, Professor of Urban Studies and Planning, Portland State University
These reviewers have signed on to the following statement:
“We have reviewed the analysis conducted by ECONorthwest of the Regional
Transit Authority’s proposed system plan. The methods and assumptions used
in this analysis are consistent with those that professional transportation
economists would use in analyzing projects of this type. The estimates of the
range of net transportation benefits of the plan are reasonable and provide
useful information for voters to consider when deciding whether to support
the measure.”





iv ECONorthwest




Benefit -cost Analysis of RTA Plan

1 . INTRODUCTION

The Puget Sound Region is considering a major investment of public funds into transportation
Voters in the urbanized areas of Puget Sound must decide this November
whether the region should buy an enhanced regional transit system. The
Regional Transit Authority is proposing new bus lines, improved access to
HOV lanes, commuter rail, and light rail to connect different parts of the
region. Puget Sound residents will pay for these improvements with an
increase in the sales tax (four tenths of one percent) and an increase in the
motor vehicle excise tax (three tenths of one percent). The plan will cost the
average household $121 per year for the next ten years.1 The total cost is
$3.9 billion over the next ten years and will require further ongoing
operating subsidies, debt service payments, and capital replacement after
then.
How should the region evaluate that transportation investment?
Is the RTA plan a good transportation investment? This report provides
information to help voters make that evaluation. Our approach attempts to answer the questions often posed by households when they make a
substantial transportation purchase decision such as deciding to buy a
particular car:
• What will it cost to purchase?
• What will it cost to operate?
• How much will we actually use it?
• Can we afford it on our current budget?
• Are there other alternatives that provide the same level of service but
cost less?
Transit investments, like automobiles, do more than just provide
transportation. They also convey an image and make a statement about
style and priorities. These features sometimes dominate the decisions about
the type and cost of a car someone buys. The decision to buy a car also
affects the economic well-being of businesses such as the local service
station. While these effects rarely weigh into an individual’s purchase
decision, they represent real consequences of the decision to buy a car. Our
analysis of the RTA proposal considers both the transportation and non-
transportation benefits of the proposed plan, including its potential economic
effects.




1 Washington Research Council, Policy Brief, September 1996.



ECONorthwest 1




Benefit -cost Analysis of RTA Plan

Since we are trying to describe and evaluate the benefits and costs of
alternative transportation investments, our evaluation is based on the
principles of benefit-cost analysis. Most economists advocate this approach,
but non-economists sometimes criticize it, mainly for the following reasons:
1. The analysis can miss some important categories of benefits or costs such
as environmental costs.
2. Analysts don’t know enough to predict the effects of some policies or the
potential effects are so uncertain as to make benefit-cost analysis a
pointless exercise.
3. The whole framework is invalid because there are some things to which
one cannot assign dollar values.
In this study we have been careful to avoid the first criticism by developing
an exhaustive list of the potential benefits and costs. We have been aided in this by the RTA staff, who have developed a comprehensive list of the plan’s benefits. While we have not succeeded in calculating dollar values for all
these benefits, we have a complete list to work from. Regarding the second
point, we have tried to acknowledge uncertainty where it exists and to test a range of reasonable assumptions. If the likely effects of the RTA plan are
uncertain, then that is something voters should consider. In the private
sector, when the potential returns of an investment are uncertain or risky,
then investors usually require a higher rate of return to account for this
risk. In our analysis we acknowledge the uncertainties that exist and try to
consider a range of reasonable values.
Regarding the last point, we agree that it is not possible to assign dollar value to everything and some important aspects of life fall outside the calculus of
dollars and cents. Nonetheless, given the magnitude of the proposed
investment, we think voters deserve the best estimate possible of the dollar
value of costs and benefits we can calculate given the information and
analytic tools that are available. Voters can then compare the range of
estimates for the measurable benefits and costs to the intangible benefits
and costs (the ones that can be described, but perhaps not monetized or even quantified) to make a decision about whether, in their judgment, the
investment is worth making.
Background on this Report
This study is a companion study to a July 8, 1996 Special Report released by the Washington Research Council entitled, Regional Transit Again: A Look at the New Plan . Readers interested in an overview of the current plan and its history should consult that document as well as the RTA’s Ten-Year
Regional Transit System Plan.
The analysis was conducted by ECONorthwest, an economic consulting firm.
ECONorthwest has 20 years of experience advising public and private clients
on all aspects of the development, operation, and financing of public facilities
and services including: siting, least-cost planning, benefit-cost analysis,
financing, forecasting and modeling, cost-of-service analysis, rate-setting,




2 ECONorthwest




Benefit -cost Analysis of RTA Plan

and policy analysis. ECO has offices in Seattle, Portland and Eugene and has
a staff of twenty-five professional economists, planners, and policy analysts.
In recent years ECO has conducted a number of studies for the Federal
Highway Administration, the Washington State Department of
Transportation, and the Puget Sound Regional Council on the application of least-cost planning to transportation system planning. ECO’s work has shown how to apply benefit-cost analysis to compare a wide range of
alternative transportation policies and investments.
How this report is organized
This paper follows the basic steps in benefit-costs analysis.
Chapter 2, Evaluation Framework, describes the principles one should use in any rigorous evaluation of public policy and investment decisions. It provides an overview of the principles of benefit-cost analysis and highlights some of the potential pitfalls.
Chapter 3, Costs, estimates the costs of building and operating the system. It reviews the capital and operating cost estimates used by the RTA plan and compares them to similar costs in other regions. It also discusses likely
future trends in operating costs.
Chapter 4, Transportation Benefits, reviews the RTA’s estimates of the
annual benefits of the investment and describes the categories of benefits we have re-estimated to reflect standard practice in this type of analysis.
Chapter 5, Transportation Benefits and Costs Over Time, evaluates the value today of the likely stream of benefits and costs from the RTA plan using our revised estimate of the benefits and the RTA’s estimate of the annual benefits. This chapter also identifies some of the cost-effective elements of the plan.
Chapter 6, Other Benefits, discusses some of the other non-transportation benefits that the RTA plan could provide the region.
The final chapter offers some thoughts for voters to consider on the uses of benefit-cost analysis.

2 . EVALUATION FRAMEWORK


This chapter describes the principles we used in our analysis of the benefits and costs of the RTA proposal. Without an understanding of the
fundamental concepts and methodological issues associated with benefit-cost analysis, readers may have difficulty following our analysis. The following principles guide our review and revision of the benefits claimed by the RTA and our evaluation of the project’s net benefits.





ECONorthwest 3




Benefit -cost Analysis of RTA Plan

At one level the task is quite simple. We need simply put dollar values on all
the costs and benefits of the system, such as those listed in Table 1 and any
others that are relevant. Once we know the total costs and benefits and
account for how they occur over time we can see whether the benefits
exceed the costs. But there are a number of issues to that analysts must
consider.
Table 1. Categories of Costs and Benefits of the RTA Proposal

Costs
Capital
Operating
Increased delay due to construction

Benefits
Travel time savings for system users Parking cost savings
Auto ownership and operating cost savings
Travel time savings for drivers on roadways Improvements in transit system reliability Transportation benefits for special events Increased commercial activity:
Air quality and health benefits
Improved urban form, reduction of sprawl Integrating fare systems


2.1. MEASURE CHANGES IN PERFORMANCE AND SYSTEM COSTS
The main reason for making some investment in a transportation system
should be to improve the performance of the system over what it would be in
the absence of that investment. Typical measures of transportation
performance are travel time (a measure of the amount of congestion),
operating cost, and safety. Analysts need to know how the transportation
system will perform with the investment compared to how it will perform
without the investment. This first step also includes measuring the direct
costs of those improvements: planning, design, construction, operation, and
maintenance (which includes costs to both users and institutions).

2.2. EVALUATE ALL SIGNIFICANT BENEFITS AND COSTS
Many of the costs of transportation projects can be measured by adding up
the market costs of the resources those projects use. Freeways take labor
(planning, design, construction), concrete, steel, machinery, and so on. The
costs can be added and expressed in dollars. Many of the benefits and costs
of public projects, however, are ones not typically registered through market
transactions. Some of these benefits and costs are not internalized in the
prices paid for the goods and services needed to build and operate the
project—for example, the costs of air pollution on people and property near



4 ECONorthwest




Benefit -cost Analysis of RTA Plan

highways where automobiles generate that pollution. Economists call such costs spillovers or externalities, and argue that society should consider them in its evaluation of a project since they result in real gains or losses.
An example makes the point clear. Suppose a city is evaluating two options
for adding travel capacity across a river: one that adds new highway lanes to
the existing bridge, and one that adds lanes for non-auto modes only (bus,
bike, and pedestrian). Assume the costs and benefits are identical in both
cases except that (1) the average travel time improvements are only slightly
greater for the auto-oriented improvement, and (2) air quality is
substantially worse with the auto-oriented improvement. If the decision is
based only on user benefits and costs, one chooses the auto-oriented
alternative. When the air-quality benefits of the second alternative are
considered, however, the decision could be for the non-auto alternative.
An extensive literature exists in policy analysis in general, and in
transportation in particular, on issues relating to identifying and valuing benefits and costs. The following is a summary of the main issues:
• Costs are real economic resources used by a policy or project. Money
facilitates the exchange of useful resources, but is not a resource itself.
Steel, concrete, labor, driver time, and gasoline are real resources that
get used up in the process of trip-making. Concrete laid in a freeway is
concrete not available for a sidewalk, and vice versa. Economists express
this point by referring to opportunity cost: the value of a resource in its
next best use (if it hadn’t been used for what it was, in fact, used for).
Most goods in a market economy sell at their opportunity cost—thus
market costs can be used to measure the value of many benefits and
costs. The cost of goods purchased from subsidized markets (e.g., goods
purchased from the public sector) may need to be corrected to account for
the true economic cost. Costs should be counted only when resources
are used.
This point has some important implications. It is not uncommon, for
example, for evaluations of transportation projects to count costs as
benefits, and sometimes more than once. To build a transportation
project, one must use labor. It is a cost. But evaluations often count it as a benefit (income to the economy), then double or triple it (the multiplier effect), and then count it as a benefit yet again under the heading of jobs. A related point is that what are often listed and added as either benefits and costs are really transfers. Taxes and grants are usually transfers
(see the note following on perspective): money may move from one place to another, but no resources are used.
• Benefits are negative costs; costs are negative benefits. Many of the
benefits of transportation improvements are best expressed as reductions
in the costs that would have been incurred in the absence of the
improvement; for example, decreased travel time, accidents, and
operating cost. The convention in the transportation literature, and the
one followed in this project, is to talk about these decreases as user
benefits, even though it is certainly true that for some users some of
these factors may increase (e.g., an increase in travel time is a negative


ECONorthwest 5




Benefit -cost Analysis of RTA Plan

benefit). The convention derives from the reasonable assumption that
for any transportation improvement to merit consideration, it should
reduce these costs; the reductions in costs are benefits for the users.
• Benefits and costs should be defined, to the extent possible, in a way that
is both comprehensive and mutually exclusive. Accounting for all
benefits and costs requires identifying a comprehensive list of all (or at
least the significant) benefits and costs. But, the categories should not
overlap, or else some will be counted twice. For example, transportation
evaluation typically counts reductions in travel time as a benefit. But
many evaluations go on to count as benefits increases in property values
and tax revenues due to such reductions in travel time, thereby double-
and triple-counting the benefit.
• Measuring all benefits and costs means considering some that do not
have obvious market prices. The most obvious example is loss of
environmental quality from pollution. Less obvious is the loss of time
because of congestion. Though air quality and travel time are not traded
in any established market, they still are real costs that must be
considered in any full evaluation of the costs of transportation
investments. The professional literature of transportation and
environmental economics provides a range of accepted values for the
value (in dollars) of these types of costts.

2.3. DISCOUNT TO PRESENT VALUE
Assume that all costs and benefits have been identified, categorized properly to reduce double-counts and transfers, quantified, and monetized. It is not
enough to simply add them up. Benefits and costs that occur at some time in the future are worth less to most people than are the same benefits and
costs occurring today. Benefit-cost analysis accounts for this preference for
present consumption.
Given the choice of $100 today or a note redeemable for $100 one year from
now, most people would choose the $100 today. But if that note were worth
$1000 in one year, most people would choose the note over the immediate
$100: they would accept the postponement of gratification, the erosion of
inflation, and the risk that, for whatever reasons, that payment in a year will
end up being less than $1000. At some point in between they would be
indifferent. In other words, individuals discount future dollars: a dollar next
year is worth less than a dollar today, even if there were no inflation.
Likewise, society as a whole is indifferent to receiving a dollar's worth of
benefits in the future or some lesser amount today. This lesser, discounted
amount is called the present value of the future benefit.
The discount rate should reflect the opportunity cost of alternative uses of
the money. Most often the opportunity cost of capital is viewed as the real
rate of return on investments in the private sector. While the basic notion of
opportunity cost is straightforward, the theory for selecting the appropriate
discount rate gets complicated. Most economists who do research on



6 ECONorthwest




Benefit -cost Analysis of RTA Plan

discount rates recommend real—i.e. ignoring inflation—discount rates between 2% and 7%.

2.4. FOCUS ON DIFFERENCES BETWEEN ALTERNATIVES
Project evaluation can be simplified by comparing each project to a
“reference”, or “do-nothing” alternative. To choose among alternative
actions, it is sufficient to know how their effects differ. In all cases the
concern should be with reasonable estimates of the additional (marginal) costs and benefits resulting from a proposed action, compared to doing
nothing.

2.5. PERSPECTIVE: BENEFITS AND COSTS FROM WHOSE POINT OF VIEW?
Not only must all effects be considered, but they should also be considered
from all important perspectives. For example, a grant from the federal
government to regional agency is an expenditure for the U.S., a revenue for
the region the agency serves, and a transfer from the perspective of net
social (national) cost. The issues of transfers cannot be ignored if
governments are to make efficient investments in transportation. Local
governments often consider earmarked federal funds as benefits, or at least
ignore them as costs. Projects with 80% federal funding will usually look
good to local governments: they are, after all, receiving real resources that
they can use to their benefit. But the federal government is also right to
hold local governments to a more restrictive standard when it hands out
discretionary funds. From the national perspective, giving funds to one local
government has real opportunity costs because those funds are not available
for another project elsewhere. The concern should be primarily for the
efficiency of projects based on total resource costs.

2.6. ALTERNATIVE SELECTION AND PROJECT EVALUATION
Benefit-cost analysis is often used to compare alternative investments:
Should we invest in a regional plan that emphasizes buses or one that relies
on rail transit? In our papers on integrated transportation planning
(ECONorthwest, 1995a, 1995b, and 1995c), we have described the ways that
planners can use benefit-cost analysis to develop and evaluate alternative
transportation plans. Our task in this report is somewhat different: to
answer the question of whether the RTA is a good transportation
investment. In the course of analyzing the RTA plan, we have identified
those elements that are more or less cost-effective; but we are not
comparing the RTA to any other system alternative. The question we
attempt to answer is similar to the one faced by the voters: Given the data
available will we be better off with the RTA plan than without it?
To answer this question, we first consider the costs of the proposed system before turning to its benefits.




ECONorthwest 7




Benefit -cost Analysis of RTA Plan
3 . COSTS

The capital and operating costs of the RTA are approximately $4 billion2 over
the next ten years. This is a significant commitment of public resources to
the regional transportation system. The following table shows how much all
public agencies (federal, state, and local) spent on transportation in the Puget
Sound region in 1992. The RTA plan represents approximately the
equivalent of three years of the total public spending on transportation by all
levels government. Assuming the RTA’s annual spending is $400 million per
year ($4 billion divided by ten years), the plan represents a 27% increase over
the amount of public money spent on transportation in the region in 1992
using constant 1995 dollars.
Table 2. Uses of Transportation Funds in the Puget Sound Region
Uses Total 1992 Percent
Expenditures
(millions)
Public Transit $395 29%
Highways $328 24%
City Streets $264 20%
County Roads $256 19%
Ferries $111 8%
Total $1,354 100%
Source: Financial Element of Metropolitan Transportation Plan, 1995, Puget Sound Regional Council, Exhibit 2-2
Just because $4 billion is a significant increase in the public resources
devoted to transportation does not mean the region should not spend it on the RTA plan. The point is that the plan represents a significant
commitment of regional resources and should be carefully evaluated for the benefits it will provide.
Table 3 shows how the money will be spent over the next ten years.
Approximately half will go to electric light rail, a sixth to commuter rail, a
sixth to improved bus service and transit access to the HOV system, and the
final sixth to community connections (stations, transit centers, and park-and-
ride lots), administration, future planning, and contingencies. The ten-year
period covered in Table 3 encompasses the full construction periods for the
proposed rail elements and other capital investments. The operating costs
are just for those elements that are completed and operating during the ten-
year period.


2 The RTA’s figure is $3.9 billion in 1995 dollars. Converting 1995 dollars into 1996 dollars
puts the total over $4 billion.


8 ECONorthwest




Benefit -cost Analysis of RTA Plan

Table 3 includes $171 million in debt service. The RTA intends to finance $1
billion of the capital costs with thirty-year bonds. The debt service on that
borrowing is $171 million through the year 2007. The total borrowing costs
on the $1 billion is approximately $2.7 billion over thirty years, so the vast
majority of the debt service will be paid after the period reflected in Table 3.
By approving the plan, the region is committing itself to principal and
interest payments on bonds through 2030 as well as the ongoing maintenance and operating expenses of the system.


Table 3. Total Ten Year Costs (1997 to 2007) of the RTA Plan
(in millions of 1995 dollars)
Expenditures Capital Operating Total % of Total
Electric Light Rail $1,746 55 $1,801 46%
Commuter Rail 539 130 669 17%
HOV Access 377 0 377 10%
Regional Express Bus 92 269 361 9%
Community 255 0 255 7%
Connections
Fare Integration 0 45 45 1%
Research & Technology 30 0 30 1%
Phase II Planning 30 0 30 1%
Contingency & 120 120 3%
Reserves
Debt Service 171 171 4%
Administration 55 55 1%
Total $3,069 $ 845 $3,914 100%
Source: RTA, Appendix A, p. A-2.
The capital and operating costs for the RTA have undergone extensive
review by the RTA’s Expert Review Panel. This panel has stated that these
estimates are “a sound basis for decision making” and they are the best
estimates we currently have about the project’s total costs. In the analysis
that follows we have relied upon the RTA’s cost information. The RTA staff
contend that the cost estimates are conservative and overstate the probable
costs of their proposal. Our brief evaluation of some of these costs indicate
that, while the capital cost estimates appear to be conservative, the operating
costs are on the low end of the range experienced by other transit operators.
Nonetheless, we use the costs recommended by the Expert Review Panel in
our analysis.





ECONorthwest 9




Benefit -cost Analysis of RTA Plan

3.1. CAPITAL COSTS
To double-check the capital costs we did a quick comparison of the per-mile
costs of the light rail element of the RTA plan with the current estimate of
the costs of the MAX Westside light rail line in Portland. The per-mile costs
for the RTA are $83 million while MAX’s are $52 million. The RTA line must
be built through a much more urbanized area with higher land values and
involves twice the amount of tunneling as for the MAX Westside line. Thus,
one would expect Seattle’s construction costs to be significantly higher than
MAX’s. Although we did not conduct a detailed evaluation of the capital costs in the RTA proposal, we did not find any evidence that the cost estimates are too low, as has been the case with rail projects in other U.S. cities.
Table 4. Comparison of RTA and Portland MAX Capital Costs
RTA Portland Westside
MAX line
Capital Cost Estimate $1.7 billion $0.9 billion
Total Miles 21 18
Total Capital Costs Per Mile $83 million $52 million
Miles of New Tunnel 7 3
Source: RTA, Appendix A; Conversation with Sandy Bradley at TriMet, Westside Light Rail Project

3.2. OPERATING COSTS
Table 5 shows the per-rider operating costs for light rail, bus, and commuter
rail systems around the United States. The final row shows the RTA’s
estimates of these costs. The RTA’s per-rider operating costs for light rail are
significantly less than the average of agencies serving metropolitan areas of
comparable size to the Puget Sound region. The RTA staff justify these
lower operating costs because they assume that the RTA lines would be
serving corridors with heavy transit ridership and that they will be able to
operate at very efficient levels.3 The RTA’s per-rider bus and commuter rail
operating costs are very close to national averages. However, the RTA’s
figures are below the existing per-rider operations and maintenance costs for
the King County Metro bus system. The RTA justifies its operating cost
estimates for bus transit with the explanation that the RTA will serve
express routes with more demand and therefore more fare revenue than
some of the routes that Metro currently services. However, the RTA plan
also contemplates regular bus service during non-peak periods which will
presumably be more expensive per boarding than Metro’s current peak-
period service. Also the regional service that RTA will provide is more typical
of the kind of service provided by Community Transit which has the highest


3 Personal communication with Bob Harvey, RTA staff.


10 ECONorthwest




Benefit -cost Analysis of RTA Plan

cost per boarding because of the long trip length from Snohomish County into employment centers in King County.
As with the capital costs, we accept the judgment of the Expert Review Panel that the RTA’s estimates are reasonable. However, in contrast to the capital costs, we have identified some reasons to believe that some of the operating costs (particularly for light rail) may be low.
The RTA’s operating costs are estimated as if the system were running
today. One of the important issues in analyzing the overall benefits and
costs of the RTA proposal is the likely trend in these operating costs over the life of the system. Just as a car buyer wants to know the mileage and likely repair costs of a car when making a purchase, the trend in future operating cost is a major concern for transit systems.
According to data collected by the Federal Transit Administration, between
1990 and 1994 the national average operating costs per passenger mile
increased by 4.0% per year for bus and 7.2% for light rail after inflation. A
number of factors contribute to the increased operating costs per passenger
mile: chief among them is the cost of labor. The wages of transit operators
have significantly outpaced inflation and these costs have tended to drive up
operating costs. Other factors such as increased congestion and moving
service into less productive routes may have also driven up operating costs
per passenger mile for buses. For light rail the recent addition of some more
costly systems could also be contributing to increases in the national average.
These trends toward higher operating costs have been underway for at least
the last fifteen years. The National Transit Database shows that bus
operating expenses per passenger mile (expressed in constant dollars) have
been increasing at an annual rate of at least 4% for the last fifteen years.
William Baumol (1985) at Princeton first advanced the theory that the cost of providing public sector services will tend to increase more rapidly than other
sectors of the economy. He theorized that the high percent of labor involved
in delivering public services and the lack of opportunities for technical
innovation to improve labor productivity in these sectors would create cost
increases in government that exceed the rest of the economy. The
experience of national transit operators confirms the tendency for the costs
of particular public service like transit operations to increase at a rate faster
than the overall price level.















ECONorthwest 11




Benefit -cost Analysis of RTA Plan

Table 5. 1994 Operating Cost per Boarding for U.S. Transit in
Regions Over 250,000 in Population
Transit Operator Light Bus Commuter
Rail Rail
Boston- MBTA $0.88 $2.15 $4.30
Buffalo- NFTA $1.65 $2.24
Community Transit (Snoh.) $5.55
Denver- RTD $3.81 $2.11
Everett Transit $3.16
King County- Metro $3.15
Los Angeles- LACMTA $3.71 $1.67
Maryland MTA $2.80 $1.54 $6.42
Memphis- MATA $2.61 $1.78
New Jersey- NJ Transit $1.58 $3.02 $7.10
Pierce Transit $2.63
Portland- Tri-Met $1.70 $1.84
Sacramento RTD $2.22 $2.34
San Diego- The Trolley $1.30
San Francisco- Muni $1.67 $1.24
Santa Clara- SCCTD $3.45 $3.27
St. Louis- Bi-State $1.44 $2.23
Washington, DC- WMATA $2.00
Median $1.70 $2.23 $6.42
Average $2.22 $2.47 $5.94
RTA Projection $1.17 $2.56 $4.93 to
$6.78
Source: 1994 National Transit Database; RTA, Table 17 of Appendix C

Our analysis later considers a range of probable growth rates in the
operations and maintenance costs for the proposed transit system. While we test the assumption of 0% growth in operating costs, given the experience of transit operators over the last twenty years, we think the most likely case is that operating costs will increase at rate somewhat greater than inflation
over the next thirty years.






12 ECONorthwest




Benefit -cost Analysis of RTA Plan

3.3. DELAY COSTS DURING CONSTRUCTION
It requires concrete, steel, and construction workers to build a new transit
system; it also requires people to sit in their vehicles as they wait for the
construction workers to move the concrete and steel into place. The costs of
delay during construction are real costs that should be considered in the
analysis of any major transportation investment. If the purpose of the RTA
is to save people time who are now stuck in traffic and if those future time
savings are to be counted as benefits (as they should be), then the more
immediate time losses must similarly be counted as costs.
The Environmental Impact Statement for the RTA plan does not provide any detail on the amount of delay other than to acknowledge that such delay will occur. We have not estimated this delay cost for our analysis either. But
residents of the region should recognize that construction delay is a real cost. If it is not included in the analysis, the true cost of building the system will be understated. And because it occurs early on it outweighs benefits of similar magnitude that occur later on.

3.4. CAPITAL DEPRECIATION
Eventually, light rail cars, commuter trains and the tracks they run on wear out and need to be replaced. For the system to keep delivering its
transportation benefits, it must be kept in shape. These capital replacement costs will occur after the ten-year period of the current tax proposal but
nonetheless represent real costs to the system. From 2007 to 2030, the RTA staff estimate the RTA will need to spend $511 million on capital replacement to keep its systems operating properly. This money is in addition to the
annual operating and maintenance expenses.
At the end of thirty years the RTA will still retain the assets of the system
which fall on the benefits side of the ledger. By the year 2030, the remaining value of the capital assets of the system will be approximately $1.4 billion
dollars after considering depreciation and the money invested in capital
replacement.

4 . TRANSPORTATION BENEFITS

The RTA has produced a summary of the benefits of their proposed transit
system entitled Appendix C: Benefits, system use and transportation impacts
of Sound Move. This report lists the major benefits of the RTA proposal and
estimates the dollar value of the key transportation benefits. In this section
we review the RTA’s estimates and present our own analysis of the dollar
value of these benefits for the year 2010. In our study we have reorganized
the RTA’s categories to address all the transportation benefits first. Table 6
lists the categories of benefits developed by the RTA, the RTA mid-point
estimate of the benefits, and our revised estimate of the benefits.



ECONorthwest 13




Benefit -cost Analysis of RTA Plan


Table 6. Estimates of RTA Plan’s Transportation Benefits in 2010
Developed by the RTA and ECONorthwest
RTA ECO
Mid-range Northwest
Estimates Estimates
Types of Benefits ($M/yr) ($M/yr)
Travel time savings for system users 98 65.6
Parking cost savings for system users 13 14.2
Reduction in vehicle miles traveled 19 24.2
(auto operating/ownership cost
savings)
Travel time savings for drivers of 86 7.8
private vehicles
Reduction in required employer- 14 11.1
provided parking
Increased mobility for commercial 13 0
vehicles
Improvements in transit system 7 6
reliability
Increased rail freight mobility n.q. n.q.
Transportation benefits for special n.q. 2.3
events at Kingdome and baseball
stadium
Safety benefits of direct access to n.q. n.q.
center HOV lanes
Improve road system reliability n.q. Unlikely
New People Moving Capacity n.q. Double
Count
Preservation of Transit Travel Times n.q. Double
Through Dedicated Right-of-way Count
Improving Transit Mobility for “Choice” n.q. Double
and “Dependent” Riders Count
Total Quantified Benefits 250 132
n.q.: not quantified
Source: RTA, Appendix C, Table 8; ECONorthwest calculations. The RTA staff have
changed their estimate of the project’s net benefits since the publication of Appendix
C. Earlier this summer the staff recalculated their estimate of the travel time
savings to private vehicles and increased it from $20 million to $86 million. In
response to an early draft of this report they no longer count a $25 million benefit
associated with the reinvestment of local bus service that they previously claimed.


14 ECONorthwest




Benefit -cost Analysis of RTA Plan

The RTA has not done the level of analysis on the current plan that was
conducted on their earlier proposals. Due to reductions in funding the RTA
has had to use the earlier modeling efforts to estimate the performance of
the proposed system even though the current configuration is somewhat
different. In the process of reviewing these extrapolations we identified
some that seem reasonable while others were not. For each category of
benefits we describe how the RTA estimated the value and our reasons for
revising it.

4.1. TRAVEL TIME SAVINGS FOR TRANSIT USERS
The main benefit of a transit investment is that it takes people who use the
new transit capacity less time to travel than if the investment were not
made. The RTA reports the following travel time savings for the proposed
plan:
Table 7. Claimed time savings from RTA plan
Carpools Bus Rail Total
and Riders Riders
Vanpools
Daily Time Savings 380,000 350,000 1,050,000 1,780,000
(minutes)

Annual Time Savings 1.6 1.5 5.1 8.2
(millions of hours)
Annual Value of Savings $19.2 $18.0 $61.2 $98.4
(millions of 1995 $)
Implied Time Savings per n.a. 5.7 min 8.5 min n.a.
Transit Boarding
Source: RTA Appendix C, Tables 3 and 4


The RTA indicated two sources for these estimates: one produced by
WSDOT (1996) and the other by RTA (1993). We doubled-checked the
reported time savings in these studies for the elements include in the RTA
plan and found them to be roughly consistent. The RTA study entitled
Central Corridor Justification Project was a study done for the federal
government that analyzed a system similar to the current proposal minus
the extension from the Boeing Access Road to SeaTac. It also did not
consider any of the potential effects of the increased bus service in the
transit in the current RTA plan on rail performance. The corridor study
shows annual time savings of 4.1 million hours while the table above shows
5.1 million hours. The RTA staff indicated that the difference is due to the
estimated increased ridership that will come with the addition of the 5.7 mile
segment out to SeaTac. The RTA scaled up the results of the Central
Corridor study by about 24% based on some limited additional modeling of


ECONorthwest 15




Benefit -cost Analysis of RTA Plan

the effect of adding the SeaTac link. The RTA’s current forecasts of weekday ridership on the light rail line is 107,000, which is also about 24% more than forecast in the Central Corridor study.
The method for estimating travel time savings in the earlier study was
carefully reviewed by the Expert Panel. The 24% increase in ridership and
time savings to account for the SeaTac extension is an approximation, but it
does not seem unreasonable given the earlier modeling. However, further
analysis yields some results that are more troubling. Using the figures
provided by the RTA in Appendix C, we calculated the implied time saving
per passenger boarding on the rail elements of the plan at 8.5 minutes per
boarding. This result is significantly higher than the Central Corridor study
which showed travel time savings of only 2.1 minutes per boarding. While
this level of travel time saving is plausible for commuter rail with an average
trip length of twenty five miles, it stretches credulity as an average of
commuter rail and light rail. The RTA estimates the average trip length of
light rail users at 5 miles and its ridership is 91% of the total rail ridership. If
the average total trip speed on transit (including waiting and walking time)
were 10 miles per hour without the RTA, it would take 30 minutes to make a
5 mile trip. An average trip savings of 8.5 minutes per boarding implies that
the average total trip speed will increase by 40% for all people using the RTA.
Given the increased level of transfers from bus to rail transit and the length
of walks within and to and from rail stations, it is difficult to imagine total
travel time savings of that magnitude.
While we are skeptical about the RTA’s claimed level of travel time saving
given the high level of travel time savings per boarding, we have nonetheless
relied upon the RTA’s estimates in our analysis. However, we depart from
the RTA’s work in our estimate of the value of travel time, a value which
they set at $12 per hour. Most studies of how people value their travel time
indicate that people value their in-vehicle travel time at about half their
wage rate. Indeed, most travel models (including PSRC’s) use an even lower
estimate, about 20% to 25% of the wage rate for the journey to work. The
average regional wage rate is approximately $16.00 per hour. We therefore
think $8 per hour is a more reasonable estimate of the value of time savings.
In the study done for the federal government, the RTA was required to use a
time value of $5.50 per hour. We tested the cost effectiveness of the RTA
using a range of time values from $12 per hour to $6 per hour.

4.2. OTHER COST SAVINGS FOR TRANSIT USERS
In addition to saving time, people who would have driven cars and are
induced to ride transit because of the improved service will also save the
costs of operating and parking their vehicles. Estimates of these benefits
rely on the RTA estimates of the number of new transit riders the system
will attract and how many fewer miles they will drive their cars. In a report
prepared for RTA member Rob McKenna, the RTA developed the data in the
first two lines of Table 8 which shows their estimates of the new transit
riders by mode. The last line shows the RTA’s estimate of the annual



16 ECONorthwest




Benefit -cost Analysis of RTA Plan

reduction in vehicle miles traveled (VMT) using estimates of average trip length and vehicle occupancy.
Table 8. Estimates of New Riders Due to RTA System



Express
Bus

RTA Estimates
Daily New Riders 14,000
Annual New 4
Riders (millions)
Annual VMT na
Reduction
(millions)
ECONorthwest
Estimates
Daily New Riders 14,000
Reduction in Daily 5,800
Auto Trips
Annual New 3.5
Riders (millions)
Average Trip 8
Length (miles)
Annual VMT 23
Reduction
(millions)



Commuter Light Background
Rail Rail Transit
Network


5,000 32,000 15,000
1 10 4

na na na





1000 24,000 15,000
400 10,000 6,300

0.3 6.0 3.8

25 5 8

5 25 25




Total

66,000
19


127


54,000
22,500

13.6

NA

78

* This is attributed to the combined effect of greater transit system connectivity and reinvestment of bus hours.
Source: RTA Appendix A: New Riders and ECONorthwest calculations
The new riders for buses were estimated by RTA staff at 15 new riders for each hour of new bus service. The plan would add a total of 640,000 new hours of bus service per year. About half that would go to replacing existing bus routes and half would go into new express bus service.
The new rider figures for light rail relied on the same Central Corridor study
used to estimate the time savings from rail investments. However, the
earlier report shows only 19,200 net new daily riders from the new rail
services while the table above shows 32,000 net new riders per day. This
estimated increase is much higher than the earlier estimates of increases in
travel time savings and ridership due to the SeaTac extension. In those
cases, travel time and ridership were 24% higher; in this case new riders are
67% higher. After discussing this inconsistency with RTA staff, they


ECONorthwest 17




Benefit -cost Analysis of RTA Plan

conceded that 24,000 new riders per day for light rail was a more reasonable estimate given the analysis done in the earlier study. 4
We are also skeptical of the new rider estimates for commuter rail. The RTA
estimates weekday boardings on the commuter train at 12,600. With 5000
new riders the RTA is claiming that 40% of the riders on the commuter rail
would not have been using transit before. Given that the commuter rail
service is so similar in type and performance to existing express bus service,
it seems unlikely that commuter rail will attract such a high percentage of
new riders.
The studies of the southern commuter rail line indicated that commuter rail
could provide service from Auburn to King St. station in 30 to 35 minutes.
Current bus service, such as Route 150, takes 1:07 hours to get from Auburn
to University Street station in the bus tunnel. Saving nearly half an hour
could certainly attract new riders to commuter rail. However, the relevant
comparison is between commuter rail and the future travel times on bus
with a completed HOV system. For example, Route 175 now serves Federal
Way with express bus service that takes 41 minutes to get from the
University Street station to the Federal Way park-and-ride. Federal Way
and Auburn are approximately equidistant from downtown Seattle. After
accounting for the travel time from King St. station to other parts of
downtown on the commuter rail line, there is virtually no time savings with
commuter rail compared to express bus service; and rail provides much less
frequent service. While buses serving Auburn do not currently have access
to HOV lanes to the extent of those serving Federal Way, the currently
funded portion of the HOV system will eventually reach to Auburn. With a
completed HOV system, buses serving Auburn will have competitive travel
times with commuter and offer trips every ten or fifteen minutes during the
peak period compared to much less frequent service provided by commuter
rail.
In the Central Corridor study new riders were only 7.4% of the total
ridership on the light rail line. We think this is probably an upper bound on the percentage of new transit riders for commuter rail. If so, the commuter rail line will generate at most 1000 new transit riders per day.
Table 8 shows our revised estimates of new riders and VMT. The VMT
reductions are calculated by multiplying the new riders times their average
trip length by mode as reported in the RTA’s travel model, then adjusting for
an average vehicle occupancy of 1.2 persons per automobile. With these
revisions the total annual new riders is reduced from 19 million to 13.6
million and the VMT savings is reduced from 127 million to 78 million.
This reduction in our estimate of the new riders and the VMT savings will, in turn, reduce the benefit estimates for parking cost savings, auto operating cost savings, and travel time savings for road users.




4 Personal communication with Bob Harvey, RTA staff.


18 ECONorthwest




Benefit -cost Analysis of RTA Plan

4 . 2 . 1 . PARKING
The RTA staff estimated savings from parking by multiplying the number of
new round trips made on transit times the percent of commuters who pay
for parking times the average cost of parking. They then deduct the costs of
the transit fare for these riders. The RTA estimates that 50% of the trips no
longer made in autos would have had to pay parking at an average cost of
$5.00 per parking place. After adjusting this savings by the increased cost of
the transit fare, the RTA estimates parking savings of $13 million per year.
We used the RTA’s assumptions about the percentage of trips that pay
parking and the average costs of parking but applied it to our lower estimate of new two-way transit trips. We estimate the parking savings to new
transit riders at $14.2 million per year. Our estimate of parking savings is
slightly higher than the RTA’s because we do not deduct the additional fares paid by the new transit riders. We account for the increased payments in
transit fares later in our analysis.

4 . 2 . 2 . AUTO OPERATING /OWNERSHIP COSTS
New transit riders will also save the costs of operating their cars including
gas, oil, tire wear, and regular maintenance. The RTA analysis used an
assumption of $0.15 per mile. This rate does not include the full costs of auto
ownership. The implicit assumption is that people will continue to own the
same number of vehicles and at the margin will only save the costs of
operating their vehicles when they choose to use transit. In our estimate,
we combine the vehicle ownership and operating savings by using the value
allowed by the Internal Revenue Service when deducting auto expenses,
currently $0.31 per mile. We prefer to use this higher number because we
believe that if people use their cars less, they will tend to replace them less
frequently, and so over the long-run save more than just the vehicle
operating costs. The rate we use is less than some other estimates of the full
cost of ownership, which can exceed $0.40 per mile (Litman, 1994). Our
estimate includes ownership as well as operating costs savings but makes
some allowance for certain auto-ownership costs such as insurance and
licensing that may not decrease when autos are driven less. Our estimate of
these savings are $24.2 million, higher than the RTA’s estimate of $19
million.

4.3. TRAVEL TIME SAVINGS FOR ROAD USERS
The RTA estimates that the travel time savings to private vehicles that
remain on the road is $86 million. Our estimate of the benefit of freeing
road capacity is considerably less, approximately one-tenth of the RTA’s
estimate. Part of the reason is our lower estimate of the VMT saved due to new transit riders; the much more significant reason is the measure of the benefit per reduction in VMT.
When the cars of new transit riders leave the highways they free up road
capacity for those vehicles that remain on the roadways. Most of the road



ECONorthwest 19




Benefit -cost Analysis of RTA Plan

capacity freed up by transit riders is filled up with new drivers who will want
to take advantage of the improved road conditions. Litman (1994) reports
that for every 100 spaces freed up on a congested road, between 50 and 80
are filled up with additional vehicles. A more recent study by Hansen (1995)
indicated that a 10% increase in highway capacity results in a 9% increase in
travel demand within five years. This phenomenon of “latent demand” is
why most new road capacity quickly fills up with new drivers and is also the reason the RTA has been candid about acknowledging that the plan will not improve traffic conditions on the region’s highways. The main benefit of getting some people off the roads is that some new people will get to drive in nearly the same road conditions.
The value of this benefit has been estimated by a number of analysts.
ECONorthwest (1994) conducted an analysis for the Puget Sound Regional
Council which indicated that the cost of congestion averages about $0.07 per
VMT in 1994 and will increase up to $0.12 per VMT by 2020. Litman (1994)
surveyed the literature on this topic and recommended a congestion cost
range in urban areas of $0.17 per VMT during peak periods. However, since
not all of the RTA’s new riders are coming out of the peak we would expect
the average benefit per VMT reduced to be below $0.17. The RTA’s
calculation uses an implied benefit per reduced VMT that is four times this
level. The RTA’s analysis that results in a $86 million per year figure
assumes that VMT reductions generate an average benefit of $0.68 per mile
reduced. We know of no credible studies that support this high an estimate
of benefits from VMT reductions. Our estimate is based on modeling work
by the Puget Sound Regional Council. Our estimate of $0.10 per VMT for
2010 splits the difference between $0.07 in 1994 and $0.12 in 2020. Using a
fairly optimistic5 estimate of $0.10 per VMT reduced, the benefits of the RTA
to road users are $7.8 million per year.

4.4. REDUCED COSTS FOR EMPLOYER PROVIDED PARKING
If the RTA plan causes some drivers to take transit instead of driving, then
the parking spaces they use can be converted to other uses or made available to other drivers. The RTA estimated this benefit by multiplying the number of round trips to work times the percent of travelers who do not pay for
parking times the value of each parking space. The RTA cited a study by
Metro which indicated that the average annual cost per parking space to the owner is $1000 in the Metro service area. We have not had an opportunity
to review that study but have used the same method with our revised
estimate of new trips made on transit. The RTA estimated this benefit at $14 million per year; we estimate it at $11 million.




5 The estimate is “optimistic” because the cost per VMT figures reflect the average value of
the congestion externality imposed on drivers when the highway system is operating at
optimal efficiency under a congestion pricing approach. Since the highways won’t be priced,
the value of the induced trips will be less on average than reflected in these figures.


20 ECONorthwest




Benefit -cost Analysis of RTA Plan

4.5. COMMERCIAL VEHICLES
The average value of travel time for commercial vehicles is significantly
higher than those of commuters. The cost of running a commercial vehicle
for an hour includes wages, benefits, vehicle operations, and the time value
of the cargo. These costs in the Puget Sound have been estimated as high as
$60 per hour (ECONorthwest, 1996). Even though commercial traffic is a
small percentage of the total vehicle miles traveled in the region (less than
10%), the high value of time for these trips can yield significant benefits if
highway speeds improve because of the transit investment.
For the RTA project, it is not clear that commercial vehicles driving on
highways will enjoy any significant time savings. With private vehicles our
estimate of the benefit per VMT reduced is mostly a proxy for the value of
induced trips (and a high one at that). Commercial vehicles will make up a
negligible percentage of these new trips, and those who do make new trips
value the trips at the same rate as those made by private vehicles. Since
neither we nor the RTA staff expect the current plan to yield any
measurable improvements in travel time on the region’s highway system, the vast majority of commercial vehicles will experience little benefit from the plan beyond that captured in the earlier estimate of the benefits to
private drivers. The RTA estimated the benefit to commercial drivers at $13 million per year; we believe that there is no measurable benefit.

4.6. TRANSIT RELIABILITY
One of the advantages of rail transit is that service can be more reliable than
bus transit. With exclusive right-of-way and few opportunities for roadway
incidents to alter train schedules, rail transit is less likely to get off schedule
and delay travelers. On the other hand, if one train stalls on the tracks, it
slows down every train behind it until it is moved out of the way. The
potential for enhanced transit reliability with rail is not accounted for in the
typical travel models and its benefits are therefore not included in the
estimates of travel savings and transit ridership. There are no well-accepted
techniques for measuring this benefit of rail transit. The RTA has estimated
the value of this benefit at 10% of the travel time savings. We are willing to
accept the 10% of travel time savings estimate as a best guess with the
caveat that the value of the benefit is quite uncertain.

4.7. RAIL FREIGHT MOBILITY
The improvements to the freight tracks that will run the commuter rail will
also benefit the freight trains that use it. This is a real benefit, but we have
not reviewed any data yet which allow us to calculate its value.
Furthermore, we question the appropriateness of including this benefit in
the evaluation of a plan focused on improving the mobility of people. The rail
corridor in question is likely to experience significant increases in freight
traffic over the next twenty years to serve the growth in container traffic
through Port of Seattle’s facilities at Harbor Island and elsewhere. Whether
the RTA passes or not, this rail corridor will likely need investments to


ECONorthwest 21




Benefit -cost Analysis of RTA Plan

improve its performance in moving rail freight. If these improvements are indeed needed, then having the RTA pay for the improvements represents a shift in responsibility for financing additional rail capacity onto the general taxpayers and away from the Port of Seattle and freight movers.
The RTA has reported to us that rail freight movements add $100 million per
year to the local economy. Even if this is true, the number doesn’t help us
estimate the benefits of improving rail freight performance along the
commuter rail line. As with all the other benefits we have considered, were
we to calculate this benefit we would need to estimate how much rail freight
performance will improve with the RTA investments to begin to calculate its
value.

4.8. CAPACITY FOR SPECIAL EVENTS
One advantage of the proposed rail system is the ability to serve the area
around the Kingdome and new baseball stadium. Congestion around special
events can be severe; the RTA would provide some additional capacity to
move people in and out of a very congested area. This is a real benefit of the
investment that is not captured in the existing travel models which focus on
the journey between home and work. We have estimated the magnitude of
these benefits and included them in the range of benefits considered in the
evaluation.
According to the Central Corridor Study, the light rail system will have a
peak one-way capacity of 4,300 passengers per hour. Assume there are 100 events per year, and that for one hour before and after the event the light rail system operates at peak capacity in both directions carrying only event patrons. Further assume that each rider saves ten minutes in time
compared to their alternatives without the light rail line and that the value of their time is $8 per hour. These assumptions yield an annual benefit of $2.3 million per year. This estimate is a reasonable approximation of the potential benefit of the added capacity to serve special events.

4.9. IMPROVED SAFETY
The proposed improvements to the HOV system will allow buses and carpool
drivers direct access to the HOV lanes instead of having to weave through
general purpose traffic. This will generate real benefits in terms of the
reduced stress involved in getting into the HOV lanes and fewer accidents
from people weaving in. This benefit is difficult to estimate but is a likely
benefit of the plan that voters should consider even if we cannot estimate its
value.

4.10. IMPROVED ROAD RELIABILITY
The RTA claims that the plan may improve road reliability for non-transit
users. We think this benefit is likely to be very small. As discussed earlier,
much of the traffic that shifts on to transit will be replaced by new drivers on
the freeways. The congested conditions that lead to highway incidents and


22 ECONorthwest




Benefit -cost Analysis of RTA Plan

unreliable travel times are likely to persist. Travel times on transit will be more reliable with the RTA system but it is unlikely that roadways will be more reliable with the proposed plan.

4.11. OTHER TRANSPORTATION BENEFITS
The RTA lists several other transportation benefits that are slightly different from those already discussed:
• New people moving capacity
• Preservation of transit travel times through dedicated right-of-way • Improving transit mobility for “choice” and “dependent” riders
The benefits of new people moving capacity are already included in the
estimates of ridership and travel time savings. The only benefits of new
capacity are those associated with using it. There is some argument to be
made, however, for redundancy. In the 1989 earthquake in San Francisco,
several key roadways were disabled. BART’s ridership increased
substantially and offered much needed capacity at the time. The ridership on
the RTA’s rail line could also go up significantly if an earthquake disabled a
major portion of I-5 and rail transit was the only way to cross the ship canal
or get to downtown Seattle from the airport. Redundancy is a real benefit
but very difficult to quantify. Its utility requires a cataclysmic event that
disables other transportation links but leaves the RTA intact.
Preserving transit travel time through dedicated right-of-way is mostly
reflected in the travel time analysis. The RTA staff have expressed the
opinion that the benefits of preserving travel times on exclusive right-of-way
will increase over time as the conditions on the regional highways
deteriorate. This is a plausible position and one we evaluate in the next
section.
The third point is a bit vague but seems to be addressing the potential
benefits of the plan for low-income people or “dependent riders”. The
mobility benefits of the plan are already estimated in the other categories of
benefits, so this point seems to suggest that the RTA system will provide
better transportation services for people with low incomes. The light rail line
goes through the Rainier Valley in Seattle and may indeed provide better
transit service for some low-income households. It is difficult to evaluate the
plan’s overall effect on equity because significant resources are serving
higher income areas as well. We think it is possible that some people with
low incomes who live close to improved transit service will be better off with
the RTA plan than without it. However, voters concerned about equity
should also consider the effects of the sales tax increase on those with low
incomes. The sales tax is a regressive tax, which means that those with low
incomes will pay a higher proportion of their income to support improved
transit service than those with high incomes. Many low-income people in
the region who will pay the tax increase are unlikely to enjoy transit benefits
that exceed the amount of their tax increase.




ECONorthwest 23




Benefit -cost Analysis of RTA Plan
5 . EVALUATION OF TRANSPORTATION BENEFITS AND COSTS OVER TIME

The preceding section compared the RTA’s estimates of the benefits of their
proposal with our revision of those estimates for one point in time, the year
2010. The RTA estimates the annual benefits at $250 million in that year; we estimate them at $132 million. In this section we project the benefits and
costs of the proposal over the next thirty-three years and then compare the
value today of the stream of benefits and costs. There is always uncertainty when forecasting the future; we therefore test a range of values for some of the key assumptions in the analysis.
5.1. ASSUMPTIONS USED IN ANALYSIS Inflation
All of the costs and benefits are expressed in constant 1995 dollars. Thus the growth rates used are “real” growth rates after removing the effects of
inflation.
Benefit Growth Rate
Our estimates of the RTA plan’s benefits are for the year 2010. To estimate
the benefits from 1997 to 2010 we have made a straight line projection from
zero to our estimate of the 2010 benefits. This approach reflects the fact that
the system will be under construction during that period and will not start
generating full benefits until 2010. From 2010 to 2030 we test a range of
assumptions. In an earlier version of Appendix C, the RTA forecast the
benefits after 2010 assuming a 1.6% growth rate, which is the projected rate
of population increase in the region. In the final version of the study, the
RTA choose not to forecast the growth rate in benefits because they felt
there was not enough data to support a definite conclusion.
In most regions with rail and bus transit, the percentage of trips on transit
has declined over time in spite of investments in increased transit capacity.
Figure 1 shows the number of trips to work made on transit and the percent
of trips made on transit in three areas that have made significant
investments in transit: Atlanta, San Francisco, and Portland, Oregon.
Atlanta has the MARTA rail system, the Bay Area has BART and Portland
has MAX. Seattle information is also included in the figure. One can see
that transit ridership in areas with significant transit investment has
increased slightly since 1970 and has been flat or dropped since 1980. In the
period between 1970 and 1980 labor force participation by women increased
significantly, and the oil shortage of 1979 tended to boost transit ridership in
1980. Since 1980, oil prices and female labor force participation have not
changed much, and transit mode share has steadily dropped. Our review of
these data indicate that areas experiencing population growth that invest in
rail transit will tend to maintain existing transit ridership and decreasing
transit mode share.


24 ECONorthwest




Benefit -cost Analysis of RTA Plan

Figure 1. Journey-to-Work Transit Users and Transit Mode Share
in Metropolitan Areas Investing In Transit: 1970 to 1900

1,000,000
Seattle metro
San Francisco metro
Portland metro
Atlanta metro



100,000








10,000

1970 1980




18.0

16.0

14.0

12.0

10.0

8.0

6.0

4.0

2.0

-
1970 1980

Source: U.S. Census

1990











Seattle metro
Portland metro
San Francisco metro
Atlanta metro












1990

If the region invests in the current RTA plan and does not vote for further
expansion of the system, we think the benefits associated with the “starter
rail” link will decline over time. Other regions have had to keep investing in
rail transit to maintain constant ridership; without ongoing investment,
ridership declines. For this analysis we have made the more generous




ECONorthwest 25




Benefit -cost Analysis of RTA Plan

assumption that the trend in travel benefits from the RTA will not decline but remain constant or have a growth rate of zero.
There is a plausible argument that is made by the RTA staff that as the
performance of the highway system declines over time, the relative time
savings of transit may increase, and more and more people will use transit. We test this idea by evaluating a benefit growth rate of 1.5% per year. This is the rate of increase in transit mode share that would have to occur to
reach the Puget Sound Regional Council’s target in the Metropolitan
Transportation Plan for 2020. That plan assumes completion of the full
regional rapid transit system.
Operations and Maintenance Cost Growth Rate
As discussed in Section 4, average operating and maintenance costs per rider
have increased at an average rate of 4% above inflation for the last fifteen
years for transit agencies nationally. We do not know if this trend will
continue indefinitely but given labor’s high percentage of transit costs, it
seems likely that operating and maintenance costs will increase more rapidly
than inflation. We estimate a growth rate in operating and maintenance
costs of 1% over the inflation rate; we test a range of assumptions from 0%
to 2%.
Discount Rate
The discount rate is the rate used to estimate the value today of future costs
and benefits. It is closely related to the rate of return on investments in the
private economy. The logic of using a discount rate is that if the public sector
is going to take money out of the private sector and spend it on a public good,
the return on that investment over time should be at least as high as it
would be if the money had remained in the private sector. We use a fixed
rate of 4%, which is approximately the rate for long-term borrowing by blue
chip companies after removing inflationary expectations. This estimate is
generally consistent with the approach recommended by the General
Accounting Office (1991), but considerably lower than other recommended
rates. The federal Office of Management and Budget has recommended real
discount rates as high as a 10%. Using a lower rate like 4% tends to favor
investments like the RTA, which have most of their costs up front and most
of their benefits in the future.
TSM Factor
Most of the travel performance data developed for the RTA compared the
RTA plan with a Transportation System Management (TSM) plan. The TSM alternative was included as a subset of the RTA plan. The RTA describes
TSM as follows:
“The Transportation System Management (TSM) forecast reflects transit ridership growth due to population and employment increases,
completion of the state Department of Transportation Department’s core HOV system and those transit service increases that can be paid for
within existing transit agency tax sources.”
(RTA, Appendix C, C-3)


26 ECONorthwest




Benefit -cost Analysis of RTA Plan

The TSM scenario is the baseline against which the costs and benefits of the
RTA plan is measured. In our conversations with the RTA staff, they have
contended that their analysis underestimates new riders and travel time
savings because the TSM plan as modeled will not actually happen. They
argue that if the RTA plan was compared to a true base case the travel time
savings and new transit ridership would be significantly higher. This position disagrees with how they describe TSM in their most recent report but we
have nonetheless considered it.
Given our analysis of the estimated travel time savings per boarding, which
seemed quite high, we think it unlikely that the actual travel time savings
from the RTA are greater than those that they report. Our estimate of the
travel time savings is the same as that used by the RTA, but with a lower
value of time. To test the RTA’s contention about the effects of using TSM as
the base case, we have included a “TSM Factor” which takes the total benefit
estimate and increases it by 20%. This factor is simply a way of answering
the question, “Suppose the plan’s annual benefits are 20% higher than the
travel modeling indicates?’ At the other end, we test the assumption that
benefits are 20% lower than claimed to account for the RTA’s high estimate
of time savings per boarding.
Value of Time
The value of travel time is a key assumption in this analysis. The RTA uses $12 per hour which is considerably higher than typically used in these types of evaluations. We estimate $8 per hour, half the regional wage. This is the level recommended by Small (1992) in his book on transportation economics. We test a range from $12 to $4 per hour. The most conservative assumption here is the implied value of time in the regional travel models.
Benefits to Road Users Per VMT Reduction
Our estimate of the benefits to road users per reduction in vehicle miles
traveled is $0.10. As discussed in Section 4, this estimate comes from a study done in the Puget Sound region of the average value per mile of the
marginal trips made in the region (ECONorthwest, 1994). We test a range of benefits to road users caused by removing vehicles from the road from $0.17 to $0.03 per mile. The top of this range is Litman’s (1994) estimate of the
value of removing traffic from a congested urban freeway during peak
periods. Since not all of the reduced VMT are from the peak, this is a high
estimate. The $0.03 is near Litman’s minimum estimate of the benefits of
reducing congestion in an urban area.

5.2. RESULTS OF ANALYSIS
Using the above estimates, we can forecast the pattern of benefits and costs
over time using our estimate of the annual benefits of the plan in 2010 and
the RTA’s estimate. Figure 2 shows our estimate of the stream of benefits
and costs; Figure 3 shows the same cost forecast with the RTA’s estimates of
benefits for the year 2010 projected over thirty-three years. What is




ECONorthwest 27




Benefit -cost Analysis of RTA Plan

significant in both figures is how much the costs of the project are skewed
towards the first ten years while the benefits occur mostly in the future.6
The large benefit in the year 2030 reflects the residual value of the system at that time. The increased costs in 2017, 2022, and 2027 reflect capital
reinvestment necessary to replace capital stock as it wears out.
Figure 2. Benefits and Costs Over Time Using ECONorthwest
Assumptions of Annual Benefits



800


600


400


200


0


-200


-400


-600


Residual Value
of $1.4 billion








Benefits
New Fares
O&M subsidy
Capital





Table 9 shows the net benefits of the RTA plan using both our assumptions
about the benefits and the assumptions of the RTA. Our analysis indicates
that the present value of costs of the RTA plan exceed its benefits by $2.5
billion. Using the RTA’s assumptions of the benefits, which puts high values
on travel time savings and removing traffic from the highways, the plan’s
costs still exceed its benefits by $1 billion. The implied internal rate of return
on the investment in the RTA is minus 4.1% using our assumptions and 1.1%
using the RTA assumptions. The annualized cost per new transit rider over
the thirty years is about $13,000 with our revisions and over $9,000 with the

6 The graph does not show debt service but rather the actual capital and operations and
maintenance expenditures in the year they occur. An alternative way of presenting the
costs would show the debt service on the borrowed capital. In terms of calculating the net present value, these two methods of allocating costs over time have the same effect if the real discount rate and the real borrowing rate on the bonds are the same. The 4% real discount rate we use here is approximately equal to the RTA’s estimate of tax-exempt
borrowing after removing the effects of inflation.


28 ECONorthwest




Benefit -cost Analysis of RTA Plan

RTA assumptions. This last figure represents an annualized estimate of the
capital and operating cost of the system divided by number of new transit
riders.7
Figure 3. Benefits and Costs Over Time Using RTA’s Assumptions of
Annual Benefits



800


600


400


200


0


-200


-400


-600



Residual Value
of $1.4 billion








Benefits
New Fares
O&M subsidy
Capital






















7 This number is calculated by dividing the present value of all the costs of the project by
the present value of the number of new transit riders per year. Annual new riders per year
is calculated by dividing the number of new transit trips per year by 250 (the number of
commuting days per year) and dividing again by 2 (to reflect that each rider makes 2 trips
per day).


ECONorthwest 29




Benefit -cost Analysis of RTA Plan

Table 9. Evaluation of Transportation Benefits and Costs of the
RTA over Thirty Years
ECONorthwest RTA Assumptions
Assumptions
Benefits Minus ($2,464) ($985)
Costs (millions)
Rate of Return (4.21%) 1.07%
Annualized Cost $13,028 $9,314
per New Transit
Rider
Assumptions 2010 benefits as listed for RTA and
ECONorthwest in Table 6. Discount rate: 4%, Benefit growth rate: 0%,
Maintenance cost growth rate: 1%,
RTA’s stated estimates of capital and operating costs.


We have tested the degree to which changing key assumptions in the
analysis varies the result. Using our estimate of net benefits as a base we
analyzed how the results changed as we varied each assumption. Table 10
shows the results of varying the assumptions on the benefit growth rate, the growth in maintenance costs, the value of time, the benefits of reduced VMT, and a TSM factor to increase the estimated benefits. The parameters that
have the most significant effect are the value of time and the TSM factor.
Within a reasonable range of these values no one parameter changes the net benefits of the RTA plan by more than 16% of our base value of costs
exceeding benefits by $2.5 billion.
The RTA has asked us to consider the net benefits of the plan not counting
the costs that will be paid by the federal government. We think this is not
the proper analytic approach since the federal money represents real
resources that should not be dissipated. However, adopting the view the
federal share of the RTA does not count as a cost to the region, the plan’s
costs still exceed its benefits. Assuming that the federal government paid its $727 million share immediately, the present value of the plan would still be a minus $1.8 billion for the region.













30 ECONorthwest




Benefit -cost Analysis of RTA Plan

Table 10. Sensitivity Analysis on Key Assumptions

Most
Favorable
to RTA


Assumptions 1

Benefit Growth Rate 1.50%
% Change in Net Benefit* 5.5%
O & M Growth Rate 0.0%
% Change in Net Benefit 8.4%
Value of Time $12.00
% Change in Net Benefit 15.9%
Driver Benefits per $0.17
VMT Reduction
% Change in Net Benefit 2.3%
TSM Factor 1.2
% Change in Net Benefit 10.7%
*Changes relative to base estimate



---> --------->


2 ECO’s 3
values
0.75% 0% -0.75%
2.6% 0% -2.4%
0.5% 1% 1.5%
4.4% 0% -4.9%
$10.00 $8.00 $6.00
8.0% 0% -8.0%
$ 0.14 $0.10 $ 0.07

1.3% 0% -1.0%
1.1 1.0 0.9
5.3% 0% -5.3%

Least
Favorable to
RTA

4

-1.50%
-4.6%
2.0%
-10.4%
$4.00
-15.9%
$0.03

-2.3%
0.8
-10.7%

The analysis in Table 9 indicates that the RTA is not a cost-effective
transportation investment if its only benefits are the changes in
transportation performance we have estimated above. Nearly all of the
relevant transportation costs and benefits have been included in this
analysis. On the cost side we have left out the costs of construction delay, on
the benefit side we have left out the value of safety improvements and the
improved performance of rail freight on the commuter line corridor. We do
not think that including these categories would substantially improve the
results for the RTA. Since delay costs can be quite large and occur early,
they are likely to outweigh any safety and rail freight benefits.

5.3. NET BENEFITS OF HOV LANES & BUSES
Taken in its entirety the RTA plan does not meet the basic investment
criterion of having transportation benefits that exceed its cost. However,
some elements of the RTA Plan are quite cost effective. Most economists
who analyze transit policy have argued that buses offer a more cost-effective alternative to rail transit (Kain, 1995; Keeler and Small, 1975). Buses
perform best when they are granted clear right-of-way on high occupancy
vehicle (HOV) lanes.
Our analysis of the data used to support the investments in bus access to the
HOV system indicate that many of the bus access projects included in the


ECONorthwest 31




Benefit -cost Analysis of RTA Plan

RTA plan are cost-effective transportation investments. The state
Department of Transportation conducted a study of the travel time savings of enhancements to the HOV system that was independent of the RTA’s
modeling. Their estimates of travel time savings were based on existing
carpools and bus routes and did not account for some of the system-wide
benefits of a fully integrated HOV system. The HOV investments that were
included in the RTA plan were those that allow buses and carpools direct
access to the HOV lanes without having to cross over general purpose lanes
that are moving slower than the HOV lanes. The following table shows
several of these direct access projects, their estimated cost, and the net
benefits and rate of return on the investment. The benefit estimates for
these investments are based on existing bus routes. If additional routes
were added, the net benefits would be greater.
Table 11. Cost-effective Elements of the RTA Plan: Direct Access to HOV Lanes
Location Cost Benefits Rate of Return
($ Minus Costs
millions) ($ millions)*
164th Street SW & $1.98 $36.26 106%
SR 525
I-5 Ex/NE 50th $ 6.04 $12.50 18%
Street HOV Ramp
I-5/NE 145th St $ 8.83 $9.88 13%
I-5/S 320th St. $23.71 $19.41 11%
I-5/E-3 Busway $46.09 $26.81 9%
I-5/S 272nd St $ 26.98 $3.86 6%
164th/ Ash Way $10.85 $0.49 5%
P&R /I-5
Bellevue CBD $65.95 $0.67 5%
*Present value (benefits minus costs) estimated using a 5% real discount rate. Source:
Travel Time Savings Summary Report, Puget Sound HOV Pre-Design Studies Phase II, 1996; benefits estimated by ECONorthwest.

The greater cost-effectiveness of buses and HOV lanes is also reflected in the
data on new riders. Table 7 showed that new riders from buses make up
over half of the new riders from the RTA plan. However, bus service, HOV
access, and community connections receive only one quarter of the
investment from Sound Move. With only 25% of the investment, bus service
generates over half of the new riders. Cost-effective investments in
improved bus service and HOV lanes can provide more transportation
benefits for less money than the existing plan with its emphasis on rail
transit.



32 ECONorthwest




Benefit -cost Analysis of RTA Plan
6 . OTHER BENEFITS

The RTA’s Appendix C: Benefits, System Use and Transportation Impacts of Sound Move provides a list of the systems non-transportation benefits to which the RTA could not assign dollar values but which they nonetheless determined to be real benefits which voters should consider. In this section, we discuss these categories of benefits.

Table 12. Non-Transportation Benefits and Comments

Non-Transportation
Benefits
Claimed by RTA
Increased property value near
transit stations


Construction and related
employment


Increased commercial activity:
•New businesses
•Retain existing businesses
•Tourism

Air quality and health benefits



Urban Form
•Increased connection
between centers
•Reduction of sprawl
•Enhanced pedestrian
environment
Integrating fare systems












ECONorthwest

Summary Comments


May occur but represents the
capitalization of travel time savings. Including dollar value double counts travel time savings
Federal money assumed for these effects may be available for other
projects; Puget Sound region is already near full employment
If RTA represents cost-effective
transportation investment, then small effects possible. If not cost effective, then little or negative effect on overall economic activity
Very small; most of the auto travelers
moved on to transit will be replaced by
new auto drivers. Also, auto access
trips to transit will generate pollution
Investments in radial transportation systems, whether road or transit, tend to increase sprawl. Enhanced
pedestrian environment is a benefit,
but small percent of plan goes into this.

Integration may be a convenience for some but can also lead to inefficient pricing policies








33




Benefit -cost Analysis of RTA Plan

6.1. INCREASED PROPERTY VALUES NEAR TRANSIT TERMINALS
The RTA lists as one of the benefits of the plan the potential increase in
property values near transit terminals. While the RTA does not report a
dollar value for this effect, its inclusion with the list of other benefits
suggests that this benefit should be added to the other benefits of the RTA.
The economics literature is very clear that the changes in land values near
transit stations is primarily a capitalization of travel time savings. To count
both travel time savings of a transit investment and the increases in
property values therefore counts the transportation improvements twice.
The authority that the RTA cites for this benefit, a 1994 article by Landis,
Guhathakurta and Zhang, begins with a ready acknowledgment of this fact;
“The assumption that accessibility is capitalized into property values lies at
the heart of contemporary urban economics.” What is particularly worth
noting in their study is that of five rail transit systems they analyzed, only
two, BART and San Diego Trolley, showed evidence of higher property
values near transit terminals. The authors conclude, “Although the
existence of transit price premiums may be evident in retrospect (as in the
case here [with BART and San Diego]), they are certainly not guaranteed
before the fact.” That is to say that the other systems they studied—San
Francisco commuter rail, Sacramento and San Jose light rail—did not
generate enough accessibility benefits to cause significant effects on the
property near their transit terminals. The RTA’s own citation on this issue
not only refutes the RTA’s position of double counting accessibility benefits
and changes in property values, but also indicates that the transportation
benefits of rail are so low in three out of the five cases that the researchers
could detect no change in neighboring property values.

6.2. CONSTRUCTION EMPLOYMENT
Whether employment is an additional benefit is a matter of perspective. If
outside (federal) money came into the region that would not otherwise have
come in, then it could potentially creating new employment and employment
multipliers. If RTA were paid for only with local money, there would be no
effect on employment, since the taxpayers in the region have discretion to
spend the same amount of money on other employment-producing projects
like building low-income housing or adding teachers to schools.
The RTA contends that the plan will generate between $78 and $118 million
in construction and related employment per year during the ten years the
project is under construction. This amount is based on the $727 million in
federal subsidy that is part of the plan. If this federal money actually comes
through, then the RTA’s stated range is a reasonable estimate of the likely
employment effects of proceeding with the project. However, there are
several issues that voters should consider in evaluating this potential effect of the project:





34 ECONorthwest




Benefit -cost Analysis of RTA Plan

• Will the federal money really come through? The RTA feels confident of
its eligibility, but the fiscal climate in Washington has changed and the
federal match is not guaranteed.
• Will other federal spending in this region be displaced by the federal RTA
match? Will the political process in Washington D.C. determine that with
the RTA the Puget Sound has gotten its share of federal money and limit
other spending here so that no net increase in federal funding occurs?
• The recent federal transportation legislation (ISTEA) provides greater
flexibility in using transportation dollars. Other types of transit
investments other than the current RTA plan could also be available for
federal funding that would have similar employment effects.
Voters should also consider whether increasing employment is a proper
policy objective given that the region is currently near full employment. The
cover story in the August 21st, 1996 Journal American led with the following
title: “Area employers feel squeeze as jobless rate dips”. The current issue
for the local economy is not the lack of jobs but rather finding enough
qualified workers. The renewed strength of Boeing and the ongoing growth
in the high technology sector present a very positive economic outlook for
the rest of the decade. While the RTA’s claimed contribution to regional
employment is relatively small (less than 0.1%) it nonetheless comes at a
time when the regional economy is growing at a healthy rate.

6.3. INCREASED COMMERCIAL ACTIVITY
The RTA lists the attraction of new businesses, the retention of existing
businesses, and increases in tourism as benefits of the RTA. The contention
seems to be that the overall level of economic activity in the region will be
higher with the plan than without it. This argument is plausible if the RTA
represents a truly cost-effective investment. If by shifting resources out of
private consumption and investment and into transportation capacity the
region will generate transportation benefits that substantially exceed the
costs, then the region will have added productive capacity that could raise the
overall level of economic activity. However, if the RTA plan fails the benefit-
cost test, then it represents the diversion of resources into less productive
uses than would occur if these resources remained in the private economy.
Our previous analysis showed that the RTA plan fails the strict benefit-cost
test; thus the overall level of economic activity in the region is unlikely to
increase with the RTA plan.
That is not to say that particular businesses in some geographic areas would
not do better with this investment. The rail connection from the University
of Washington to downtown to the airport will indeed benefit the businesses
and institutions close to the rail stations. However, other businesses will be
made slightly worse off as consumers have less money to spend due to the
increase in the sales tax and motor vehicle excise tax. Overall, the regional
economy will not perform better with this investment and may indeed
perform slightly worse.



ECONorthwest 35




Benefit -cost Analysis of RTA Plan

RTA supporters assert that the new transit system will attract more tourists
to the region than would come without the new transit system, and that
these new tourists will boost the local economy. It is difficult to evaluate this
assertion, although it seems unlikely that tourists visit a particular location
because of its transit system. If it is very easy for tourists to get around,
then perhaps the region’s reputation as a tourist destination would increase
and we would have more visitors. The RTA plan may increase tourism but it
is impossible to say by how much; and an alternative system (e.g., one aimed
at linking tourist destinations) might also achieve the same objective.

6.4. AIR QUALITY BENEFITS
The automobile contributes a significant share of the airborne pollutants to the region. By getting some people to take transit instead of their cars, the RTA could lead to improved air quality. The current RTA plan is unlikely to have significant effects on regional air quality because of latent demand:
when some people choose to get out of their cars and take the bus or the
train to work, new auto drivers will take their place on the roadways. Any
capacity that is freed up on the highways will quickly be used by new drivers who will continue to emit air pollution.
The Puget Sound Regional Council’s Metropolitan Transportation Plan (MTP) shows that in 2010 the peak period carbon monoxide levels are the nearly
the same with or without the RTA plan. Peak period carbon monoxide
emissions are 347 metric tons daily with the baseline forecast and 344 metric tons daily with the action alternative that includes the RTA. In 2010, the
RTA plan and the other improvements in the MTP change all categories of
peak period emissions by less than 1%. Most of the improvements in future air quality will come from improvements in auto emissions technology rather than from people switching from cars to transit.

6.5. URBAN FORM
Much has been made of how the RTA’s plan will help the region achieve its growth management objectives. For many supporters this aspect of the plan is the most important. The RTA’s list of system benefits includes:
• Reduction of sprawl
• Increased connection between centers
• Enhanced pedestrian environment
One of the key issues for the public to consider is whether the RTA will
indeed reduce urban sprawl. Unfortunately, there is no compelling evidence
that investments of the type contemplated by the RTA will tend towards
supporting higher residential densities; in fact, the opposite could occur. In
general, investments in radial transportation capacity (from the center out to
the edges of the urban area) tend to increase sprawl. If it takes less time to
travel from the periphery to downtown because of either road or transit
improvements, then more people will be willing to live farther away from the
region’s center.


36 ECONorthwest




Benefit -cost Analysis of RTA Plan

To the extent that investments in HOV lanes and bus service reduce travel
times for people living in the suburbs, then these investment may tend to
encourage sprawl. This is especially the case with the addition of more park-
and-ride capacity along the regional freeways. Park-and-rides allow people
to live in traditional suburban densities and then drive their car to a transit
stop that offers quick, reliable service to their ultimate destination.
The region’s planners want to avoid this trend by developing regional centers
with higher densities that would provide origins and destinations for transit
trips. However, the real estate market is largely driven by people’s
preferences for housing and will usually not support the higher densities
envisioned in the region’s land-use plan. The study of land values near the
five California rail systems cited by the RTA summarizes its findings as
follows:
The first policy conclusion is that the capitalized housing price
premiums associated with BART access, as significant as they are, are not large enough to promote higher residential densities. Even in the best of cases, the market, left to its own devices, is unlikely to
generate significantly higher residential densities near transit
stations. Supportive land-use policies--and in many locations,
development subsidies or incentives--are necessary to support the development of higher-density housing at or near transit stations.
(Landis, Guhathakurta and Zhang, 1994)
As stated above in the Landis study, only two of the five rail systems had any effect on land-prices at all. Given the limited scope of the current RTA plan as a “starter rail line” it seems very unlikely that these transit investments will spur significant increases in density without other public policies to
motivate higher density.
What this result means is that the RTA’s investment will provide very weak economic incentives for the kinds of development patterns that the region has adopted in its land-use plan. In fact, the increase in highway capacity with HOV lanes and park-and-ride lots may tend to increase sprawl beyond what would occur without those investments.

7 . CONCLUSION

This study used the analytic tool of benefit-cost analysis to evaluate the costeffectiveness of the RTA proposal. As Richard Zerbe and Dwight Dively
write in their textbook on benefit-cost analysis, “Decisions are made by
decision makers, and benefit-cost analysis is properly regarded as an aid to decision-making and not the decision itself.” This report is intended to
provide additional information for voters to consider as they make their own individual decisions about the merits of the RTA proposal.





ECONorthwest 37




Benefit -cost Analysis of RTA Plan

8 . BIBLIOGRAPHY

Apogee Research, I. (1994). The Costs of Transportation: Final Report.
Conservation Law Foundation.
Baumol, William (1985). “Productivity Policy and the Service Sector,” in Robert
Inman (ed.), Managing the Service Sector. New York: Cambridge University Press.
Cameron, Michael (1991). Transportation Efficiency: Tackling Southern
California’s Air Pollution and Congestion. Oakland, California,
Environmental Defense Fund.
ECONorthwest (1995a). Integrated Transportation Planning: A Primer for
Policymakers . Seattle, Washington, Puget Sound Regional Council.
ECONorthwest (1995b). Least-Cost Planning: Principles, Applications, and Issues.
Washington, D.C., United States Department of Transportation, Federal
Highway Administration, Office of the Environment and Planning.
ECONorthwest (1994). Modeling Congestion Pricing Alternatives for the Puget
Sound Region. MTP-17C. Seattle, Washington, Puget Sound Regional
Council.
ECONorthwest (1995c). Technical Memorandum Regarding Procedural and
Analytical Issues Associated with Implementing Integrated Transportation Planning. Seattle, Washington, Puget Sound Regional Council.
Gomez-Ibanez, J.A. (1995). Pitfalls in Estimating Whether Transport Users Pay
Their Way. Conference Proceedings: Measuring the Full Social Costs and
Benefits of Transportation, Irvine, California, Bureau of Labor Statistics, US
Department of Labor.
Hanson, Mark (1995). “Do New Highways Generate Traffic?” Access. Fall, no. 7,
pp. 16-21, University of California, Berkeley.
Kain, John (1995. Cost-Effective Alternatives to Atlanta’s Costly Rail Rapid
Transit System . Boston, Harvard University.
Keeler, T.E., K.A. Small, et al. (1975). The Full Costs of Urban Transport: Part III,
Automobile Costs and Final Intermodal Cost Comparisons. Institute of
Urban and Regional Development, University of California, Berkeley.
Landis, Guhathakurta and Zhang (1994). Capitalization of Transit Investments
into Single Family Home Prices: A Comparative Analysis of Five California
Rail Transit Systems. Working Paper 619, University of California, Berkeley.



ECONorthwest 39




Benefit -cost Analysis of RTA Plan

Lederer, B. A., T. F. Webber, D. K Dunn., A. R. Watkins. (1987). Compendium of
National Urban Mass Transportation Statistics: 1984 Report Year.
Washington, DC, US Department of Transportation.
Lederer, B. A., et. al. (1988). Compendium of National Urban Mass Transit
Statistics: 1985 Report Year. Washington, DC, US Department of
Transportation.
Lee, Douglass B. (1994). Full Cost of Pricing Highways. Cambridge,
Massachusetts, Research and Special Programs Administration, John A. Volpe National Transportation Systems Center, US Department of
Transportation.
Leitman, J. R. (1996). “Urban Planning in Curitiba.” Scientific American. 274(3): 46-
53.
Litman, T. (1994). Transportation Cost Analysis: Techniques, Estimates and
Implications. Victoria, British Columbia, Victoria Transport Policy Institute.
MacKenzie, J., R. Dower, et al. (1992). “The Going Rate: What It Really Costs to
Drive.” Bulletin of the Surface Transportation Policy Project. 2(No. 10,
December): 1-7.
Miller, P. and J. Moffet (1993). The Price of Mobility: Uncovering the Hidden Cost
of Transportation. New York, National Resources Defense Council.
Pachler, F. T., R.L. Jordan, J. Pai and B.A. Lederer, (1990). Compendium of
National Urban Mass Transportation Statistics: 1986 Report Year.
Washington, DC, Urban Mass Transportation Administration, US
Department of Transportation.
Pachler, F. T., R.L. Jordan, J. Pai and B.A. Lederer, (1990). Compendium of
National Urban Mass Transportation Statistics: 1987 Report Year.
Washington, DC, Urban Mass Transportation Administration, US
Department of Transportation.
Pachler, F. T., R.L. Jordan, J. Pai and B.A. Lederer, (1991). Compendium of
National Urban Mass Transportation Statistics: 1988 Report Year.
Washington, DC, Urban Mass Transportation Administration, US
Department of Transportation.
Parsons Brinckerhoff, Kaiser Engineers Team (1993). Central Corridor Project
Justification Report. Seattle, Washington, Regional Transit Project.
Parsons Brinckerhoff, Kaiser Engineers Team (1992). Regional Transit Project:
South Corridor Commuter Rail Service Alternatives. Seattle, Washington,
Seattle Metro.
Parsons Brinckerhoff Quade & Douglas, Inc. (1996). Travel Time Savings Summary
Report: Puget Sound HOV Pre-design Studies, Phase II. Seattle,


40 ECONorthwest




Benefit -cost Analysis of RTA Plan

Washington, Washington State Department of Transportation, Office of Urban Mobility.
Porter & Associates, Inc. (1995). Financial Element of the Metropolitan
Transportation Plan: Final Report , Technical Report: MTP-18, Puget Sound Regional Council.
Pozdena, R. J. (1975). A Methodology for Selecting Urban Transportation Projects.
Berkeley: University of California, Institute of Urban and Regional
Development.
Puget Sound Regional Council (1995a). 1995 Metropolitan Transportation Plan.
Seattle, Washington.
Puget Sound Regional Council (1995b). 1995 Population and Employment Forecasts
for the Central Puget Sound Region. Seattle, Washington.
Regional Transit Authority (1994a). Phase I Study Options Results Report. Seattle,
Washington.
Regional Transit Authority (1994b). The Regional Transit System Master Plan.
Seattle, Washington.
Regional Transit Authority (1996). "Decision '96" Resource Book. Seattle,
Washington.
Regional Transit Project (1993a). Final Environmental Impact Statement, Regional
Transit System Plan . Seattle, Washington.
Regional Transit Project (1993b). Final Environmental Impact Statement, Regional
Transit System Plan. Comments and Responses—Comment Sheets and
Hearing Transcripts. Seattle, Washington.
Regional Transit Project (1993c). Final Environmental Impact Statement,Regional
Transit System Plan—Technical Appendices. Seattle, Washington.
Rubin, Thomas A. and James E. Moore II (1996). Why Rail Will Fail: An Analysis of
The Los Angeles County Metropolitan Authority's Long Range Plans. Los
Angeles, Reason Foundation.
Small, K.A. (1992). Urban Transportation Economics. Chur, Switzerland, Harwood
Academic Publishers.
Small, K.A. and C. Kazimi (1995). “On the Costs of Air Pollution from Motor
Vehicles,” Journal of Transport Economics & Policy. v. 29, no. 1 (January), pp. 7-32.
United States General Accounting Office, Office of the Chief Economist (1991).
Discount Rate Policy. GAO OCE-17.1.1. Washington, DC.




ECONorthwest 41




Benefit -cost Analysis of RTA Plan

Washington State Department of Transportation. Puget Sound HOV Pre-Design
Studies Phase II. Olympia, Washington.
Washington State Department of Transportation (1996). “WSDOT Project Proposes
Major Enhancements to the Puget Sound HOV System.” Puget Sound HOV
Pre-design Studies Summary Project Digest. Olympia, Washington.



















































42 ECONorthwest




Benefit -cost Analysis of RTA Plan

9 . APPENDIX A: BENEFIT-COST
WORKSHEETS



















































ECONorthwest 43




Benefit -cost Analysis of RTA Plan


9.1. BENEFITS AND COSTS OVER TIME OF RTA PLAN:
ECONORTHWEST ESTIMATES OF BENEFITS


Analytic Assumptions Benefits Assumtions ECO Estimates
Ridership Growth Rate: 0.0% Time savings for system users 65.6
Benefit Growth Rate: 0.0% Parking cost savings for system users 14.2
O&M Growth Rate: 1.0% Reduced auto operating costs 24.2
Real Discount Rate 4.0% Travel benefits for private vehicles 7.8
TSM Factor: 1.00 Reduced employer-provided parking 11.1
Value of Time: $ 8.00 Mobility for commercial vehicles 0.0
Per mile auto operating costs: $ 0.31 Bus service replaced by RTA 0.0
Benefits to Drivers per VMT Reduced $ 0.10 Improve transit reliability 6.6
Base O&M Costs in 2010: 100 Special Events 2.3
Residual Value: 1,400 Total Benefits 131.7
Fare Per Trip: 0.85 New Trips 13.4
Net Benefits of Proposed RTA Plan
All costs in millions of 1995 dollars.
Travel
Capital + Benefits & New Trips
O&M O&M Residual Per Yr Annual Net
Year Capital subsidy Subsidy New Fares Total Costs Value (million ) Benefits
1997 274 60 334 1 335 9 1 - 3 2 5
1998 281 62 342 2 344 19 2 - 3 2 5
1999 288 63 351 2 353 28 3 - 3 2 5
2000 295 65 360 3 363 38 4 - 3 2 5
2001 302 66 369 4 373 47 5 - 3 2 6
2002 310 68 378 5 383 56 6 - 3 2 6
2003 317 70 387 6 393 66 7 - 3 2 7
2004 325 72 397 7 403 75 8 - 3 2 8
2005 333 73 407 7 414 85 9 - 3 2 9
2006 342 75 417 8 425 94 10 - 3 3 1
2007 77 77 9 86 104 11 18
2008 79 79 10 89 113 11 24
2009 5 81 86 11 97 122 12 26
2010 23 114 137 11 148 131.7 13.40 - 1 6
2011 24 115 139 11 150 132 13.40 - 1 9
2012 21 116 137 11 149 132 13.40 - 1 7
2013 5 117 122 11 134 132 13.40 - 2
2014 5 118 123 11 135 132 13.40 - 3
2015 5 120 125 11 136 132 13.40 - 4
2016 121 121 11 132 132 13.40 0
2017 63 122 185 11 197 132 13.40 - 6 5
2018 123 123 11 135 132 13.40 - 3
2019 124 124 11 136 132 13.40 - 4
2020 38 126 163 11 175 132 13.40 - 4 3
2021 5 127 132 11 143 132 13.40 - 1 2
2022 127 128 256 11 267 132 13.40 - 1 3 5
2023 24 130 154 11 165 132 13.40 - 3 3
2024 19 131 150 11 161 132 13.40 - 2 9
2025 5 132 137 11 149 132 13.40 - 1 7
2026 5 133 138 11 150 132 13.40 - 1 8
2027 131 135 266 11 278 132 13.40 - 1 4 6
2028 136 136 11 148 132 13.40 - 1 6
2029 5 137 142 11 154 132 13.40 - 2 2
2030 139 139 11 150 1532 13.40 1381
Total: 3,577 3,556 7,133 313 7,446 5,023 369 ( 2 , 4 2 3 )
1st 10 yrs 3,066 674 3,740 PV 4,549 2,085 175 ( 2 , 4 6 4 )
Capital
Replacement 511 Net Benefit ( 2 , 4 6 4 )
Rate of Return - 4 . 2 1 %
Cost Per New Transit Rider Per Year $ 13,028



44 ECONorthwest




Benefit -cost Analysis of RTA Plan

9.2. BENEFITS AND COSTS OVER TIME OF RTA PLAN: RTA
ESTIMATES OF BENEFITS IN APPENDIX C


Analytic Assumptions Benefits Assumtions RTA Mid-point
Ridership Growth Rate: 0.0% Time savings for system users 98
Benefit Growth Rate: 0.0% Parking cost savings for system users 13
O&M Growth Rate: 1.0% Reduced auto operating costs 19
Real Discount Rate 4.0% Travel benefits for private vehicles 86
TSM Factor: 1.00 Reduced employer-provided parking 14
Value of Time: $ 8.00 Mobility for commercial vehicles 13
Per mile auto operating costs: $ 0.31 Bus service replaced by RTA 0
Benefits to Drivers per VMT Reduced $ 0.10 Improve transit reliability 7
Base O&M Costs in 2010: 100 Special Events 0
Residual Value: 1,400 Total Benefits 250
Fare Per Trip: 0.85 New Trips 19
Net Benefits of Proposed RTA Plan
All costs in millions of 1995 dollars.
Travel
Capital + Benefits & New Trips
O&M O&M Residual Per Yr Annual Net
Year Capital subsidy Subsidy New Fares Total Costs Value (million ) Benefits
1997 274 60 334 1 335 18 1 - 3 1 7
1998 281 62 342 2 345 36 3 - 3 0 9
1999 288 63 351 3 354 54 4 - 3 0 1
2000 295 65 360 5 364 71 5 - 2 9 3
2001 302 66 369 6 374 89 7 - 2 8 5
2002 310 68 378 7 385 107 8 - 2 7 8
2003 317 70 387 8 395 125 10 - 2 7 0
2004 325 72 397 9 406 143 11 - 2 6 3
2005 333 73 407 10 417 161 12 - 2 5 6
2006 342 75 417 12 428 179 14 - 2 5 0
2007 77 77 13 90 196 15 107
2008 79 79 14 93 214 16 121
2009 5 81 86 15 101 232 18 131
2010 23 114 137 16 153 250.0 19.00 97
2011 24 115 139 16 155 250 19.00 95
2012 21 116 137 16 154 250 19.00 96
2013 5 117 122 16 138 250 19.00 112
2014 5 118 123 16 140 250 19.00 110
2015 5 120 125 16 141 250 19.00 109
2016 121 121 16 137 250 19.00 113
2017 63 122 185 16 201 250 19.00 49
2018 123 123 16 139 250 19.00 111
2019 124 124 16 141 250 19.00 109
2020 38 126 163 16 180 250 19.00 70
2021 5 127 132 16 148 250 19.00 102
2022 127 128 256 16 272 250 19.00 - 2 2
2023 24 130 154 16 170 250 19.00 80
2024 19 131 150 16 166 250 19.00 84
2025 5 132 137 16 153 250 19.00 97
2026 5 133 138 16 155 250 19.00 95
2027 131 135 266 16 282 250 19.00 - 3 2
2028 136 136 16 152 250 19.00 98
2029 5 137 142 16 159 250 19.00 91
2030 139 139 16 155 1650 19.00 1495
Total: 3,577 3,556 7,133 444 7,577 8,275 523 698
1st 10 yrs 3,066 674 3,740 PV 4,611 3,626 248 ( 9 8 5 )
Capital
Replacement 511 Net Benefit ( 9 8 5 )
Rate of Return 1.07%
Cost Per New Transit Rider Per Year $ 9,314




ECONorthwest 45