Part 1. Background

1.1 Study Overview

Background. It has been long recognized that highways can enable economic development by providing access between regions and within regions - thus making it possible for new kinds of economic activities to occur which would not otherwise be occurring. In the last two decades, a economic research studies have also shown that access to broader labor markets, supply markets and customer markets can lead to business productivity advantages associated with economies of scale, just-in-time production, logistical efficiencies and product or service specialization.

FHWA Perspective. Recognizing the role of local and regional access in economic development, a growing number of states have initiated what are most commonly known as "economic development highway programs" - programs that provide funding to improve local or regional access as deemed necessary to attract and grow businesses. However, the scope and scale of these state-initiated activities had not been well documented. Accordingly, the Federal Highway Administration (FHWA) funded a research study of the national scope and potential for improvement of state economic development highway programs.

Series Structure. This report is the second of a two-part series.

• The first report was called Overview of State Economic Development Highway Programs, Task A-B Report. Prepared by the Economic Development Research Group for the Federal Highway Administration, US Department of Transportation, 2004, the report is on line at: http://www.fhwa.dot.gov/planning/econdev/taskabjan30.htm. That report provided a definition and classification of the different types of state-funded economic development highway programs, documented highway-related economic development funding and it provided a profile description of each state's highway-related economic development program.

• This second report, Case Studies and National Summary of State Economic Development Highway Programs (Task C, D, E Report), follows up with in-depth case studies of four state programs to show how they have evolved over time in response to both external factors (shifting public policy needs) and internal factors (efforts to reorganize or optimize operation of the program). It also discusses needs for further improvement in these programs, and whether there is a potential federal role to help support or improve these types of transportation investment programs.

1.2 Definition and Classification of Programs

This section is drawn from the first report to provide summary definitions and classifications of state initiatives and programs that justify road investments on the basis of economic development.

General State Support for Economic Development. The consultant team completed interviews with representatives of state transportation agencies in all 50 States, and found that 39 states had some form of formal administrative recognition or support for investing in roads to further economic development goals. Based on these findings, we identified four categories of state involvement in highways and economic development. (Note that some states fall into more than one of these categories.)

1. Funding Programs for Local Access Roads - These are formal programs with dedicated state funding for investment in local connector routes that provide access from intercity highways to local business districts or industrial parks. These programs generally involve formal application processes with eligibility requirements covering: (a) private sector investment, (b) local government co-funding, and (c) cooperation with state economic development departments. At the time of the study, 19 states had formal state programs of this type. The Appalachian Regional Commission's Local Roads program also provided a mechanism for 13 states to co-fund local road access projects. In addition, three states had set-aside funding sources for local road or highway projects that were intended to support economic development goals, though without formal programs in place.

2. Funding Programs for Inter-City Connector Routes - These are formal programs with dedicated state funding for investment in highway routes that improve access from isolated rural and economically depressed parts of the state to the major highway routes and larger economic market centers. This can include (a) single state highway system enhancements and (b) multi-state highway systems. At the time of the study, four states had single state programs. In addition, 13 states effectively offer this type of program through the multi-state Appalachian Development Highway Program, of which five were not counted in previous categories.

3. Policies Recognizing Economic Development as a Factor in Funding Decisions - Some states lack dedicated funding of roads for economic development purposes, but do formally recognize economic development as a criteria in highway decision-making. This can include the statewide TIP selection process and benefit-cost assessment criteria. At the time of the study, 13 states had formal policies of this type, including 11 states that were not counted in previous categories. Another three states were in the process of setting up such policies.

4. No Formal Economic Development Highway Policies or Programs - At the time of the study, 11 states had no formal programs or policies for funding road investment for economic development. Among them, three were in the process of setting up formal economic development highway investment policies, and another three had set-aside funding for economic development road or highway projects although without formal programs in place.

Formal Highway Economic Development Programs. This part of the study focuses on formal Economic Development Highway programs, i.e., state programs that provide direct funding for road and/or highway investments based on economic development considerations through operation of formal application and disbursement processes. This corresponds to categories #1 and #2 of the four categories previously presented. All of these state-funded economic development highway programs also meet three fundamental criteria:

• They had formal application processes, eligibility criteria and project selection criteria.
• They relied on funds directly allocated by the states that provide direct financial support for capital investment in new, expanded or upgraded highways or connector roads; and
• The road projects that supported were justified primarily by economic development considerations (providing access to facilitate job and income growth), rather than based on need to expand capacity to meet projected demand.

Further classifications and details on the different types of formal programs are provided in Part 6 of this report.

1.3 Report Overview

The core of this report (Parts 2-5) is a series of four in-depth case studies of economic development road programs in four states, which were conducted by members of consultant team together with a representative of Federal Highway Administration. The primary objective of the interviews was to discuss perceptions of program evolution and expected future changes in program design and priority.

Members of the research team consulted with FHWA's Technical Representative to select case studies and schedule interviews. The four case studies - Massachusetts, Oklahoma, Tennessee and Wisconsin -- were selected to represent a wide range of geographic, economic and political settings. The interviews with program staff covered the following questions:

Program Design Process

• What was the motivation for this program?
• Who were the stakeholders involved in the program development process?
• What problems/challenges are/were faced in designing the program?

Eligibility and Application Review

• What criteria apply for eligibility and for application review?
• Who is involved in making these eligibility and project award decisions?
• What problems/challenges are/were faced in the application selection process?

Operation

• What agencies participate in the application selection process?
• What problems/challenges are/were faced in the program operation?

Results Measurement

• Are there criteria for verifying results or measuring success? What are they?
• What problems/challenges are/were faced in measuring or interpreting results?

Assistance

• Have you involved outside parties in the program design, operation or evaluation?
• Would you benefit from FHWA assistance in supporting program design or practices?

The remainder of this report (Parts 6-7) covers two additional issues.

• Part 6 provides an estimate of the total magnitude of economic development related funding by state DOTs in the US, and an assessment of the extent to which there may be a role for FHWA to play in helping guide such programs.

Part 7 discusses the extent of need and potential for benefit if FHWA was to develop guidelines on highway economic development as seen by those interviewed.