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Economic Development Highways Initiative:

Lessons Learned, and a Framework in the Sky*

Martin H. Weiss, Team Leader, National Systems and Economic Development Team, Office of Interstate and Border Planning, Federal Highway Administration (FHWA)

FHWA

1200 New Jersey Avenue, S.E.
Washington, D.C. 20590
202-366-5010 (voice)
202-366-3713 (fax)

And

Roger Figura, Vice President

AECOM Consult, Inc.

Suite 300, 2751 Prosperity Ave.
Fairfax, Virginia 22031-4397
703 645 6828 (voice)
703 641 9194 (fax)
roger.figura@aecomconsult.com

*As in previous papers on this subject, Mr. Weiss has found it useful, for mnemonic purposes, to have a musical theme. Since this paper was presented in Colorado Springs, CO, the paper uses a western theme, "Ghostriders in the Sky". The day after the paper was presented, the conference sponsored a supper at which musical entertainment was provided. The musical group sang "Ghostriders in the Sky", although with the original lyrics rather than those at the end of this paper.

Abstract

In FY 2000, Congress directed the FHWA to conduct the Economic Development Highways Initiative (known hereinafter as the Initiative). FHWA has substantially completed this assignment. Over 200 state, local, and regional officials, including many elected officials, provided advice to FHWA and the prime contractor (AECOM Consult) during studies conducted under the Initiative. A number of subcontractors--including universities--also participated. The Initiative was also informed by contemporaneous research sponsored by FHWA and others working outside of the formal structure of the Initiative itself. Lessons learned were many:

The overall results support the general linkage between highway improvements and economic development. The result also supports the contention that the highway improvements are frequently a necessary but not sufficient condition for capturing economic growth potential. Based on these lessons, a framework for an evaluative procedure is presented.

Introduction

The interstate system was a great achievement that revolutionized America's mobility and invigorated the national economy. Various proposals have been made in the past few decades to build on this success[1] , particularly from an economic standpoint. Since the 1998 enactment of the Transportation Equity Act for the 21st Century (TEA-21), Congress has shown increasing interest in the subject of economic development. TEA-21 contained a provision requiring consideration of economic growth in every large, discretionary program[2] . Subsequent conference reports accompanying appropriations acts designated funding for innumerable economic development projects. In the DOT appropriations bill for FY 2000, Congress directed the FHWA to administer an Economic Development Highways Initiative (hereinafter referred to simply as the Initiative) [3] .

Based on the statutory context and previous Congressional direction, the FHWA essentially defined "economic development" to mean mitigating economic distress (this is to distinguish it from economic analysis, which solely assesses costs and benefits). Also, based on the Congressional direction, the key indicator of development was to be job growth (although other factors were used as well). The early results from the Initiative included several important lessons:

  1. State and local processes must be respected when helping improvement advocates develop realistic expectations for feasible highway improvements.
  2. That same respect must be applied to help develop more realistic expectations concerning the nature of economic development that is likely to follow the highway improvements.
  3. There are clearly different types of projects; many ought not be compared with projects of a different type.
  4. There are some reasonably objective methods of quantifying the economic development consequences of different types of projects in a manner that addresses reasonable economic development goals.
  5. The time period needed for project implementation is so long that pure before/after (a.k.a., ex/post) studies are difficult; instead, before/during or during/after studies will have be considered to supplement the literature on highway economic development.
  6. The overall results support the general linkage between highway improvement and economic development, and validate the contention that the highway improvements are a necessary but not sufficient condition for capturing economic growth potential.

The first two and last two lessons were addressed in a TRB paper presented in January 2003 [4] and will not be substantively addressed here. The typology that was addressed in that paper will be briefly reviewed, however, and the remainder of this paper will address the quantifying methodologies and present a framework within which to evaluate economic development highway projects.

The Typology

As determined in the earlier paper (January 2003), there are six types of projects. Each type is associated with a set of primary objectives and a set of ex-ante analysis considerations that are to some extent objectively addressable. The typology matrix in the earlier paper is reproduced below.

Table 1 - Typology of Projects, Objectives, and Ex-ante Analysis Considerations

Project Type

Primary Objectives

Ex-ante Analysis Considerations

1 Better access to employment or production or distribution centers within a generally rural area

Serve specific existing employers or centers and encourage new compatible employers or centers

Jobs maintained/generated, plant investment, tax base effects

2. Connectivity and/or circulation improvements to service roads, access roads, and relief roads that supplement a major highway through a generally rural area

Promote and accommodate commercial development along major highway

Revitalization potential, jobs potentially generated, tax base effects, new businesses created

3. Connectivity improvements between cities or between a city and a production area through a generally rural area

Promote and accommodate commercial development within a major corridor and at both ends of the corridor

Potential developable sites, interest in existing employers to expand capacity, investment leveraging considerations, tax base effects

4. Better access between a workforce and a production center within a generally urban area

Serve existing employers or centers, and encourage new, compatible employers in existing centers

Workforce availability to employers, jobs maintained and/or generated, business investment likely, tax base effects, diversification of employers

5. Better connectivity between one production/distribution center and another within a generally urban area

Serve existing employers or centers, encourage new compatible employers in existing centers, and create potential for more high-prestige businesses

Workforce availability to employers, Jobs maintained and/or generated, business investment likely, tax base effects, possible new industries (including high wage or "high potential growth: employers), diversification of employers

6. Access/circulation changes to support changing land use in either a rural or urban area

Protect or enhance quality of life; facilitate changing character of employers

Business investment likely, tax base effects, higher wage employment, diversification of employers

Initial Analysis Context

The next step in analysis of the economic development potential of a project requires assessment of the statutory context. A number of states have economic development programs; however, few of these states have programs with a scope containing more than one or two types of projects. Typically, a state program will simply require selection between projects of the same type.

After classifying projects into the six types noted above, the next step is disaggregating them to differentiate between those that are in areas that are economically distressed from projects not in such areas. There are a number of ways to do this. One way is to use any pertinent state specific statutory language. Another way is the use of specific criteria. In the TRB 2003 paper, two criteria in particular (population loss and high unemployment) were developed for illustrative use. The FHWA is not, at this time, recommending that states use these specific criteria, but the FHWA does consider it desirable that some criteria be used. An elected member of the Alabama state legislature pointed out how important it is to consider the issue of economic distress. [5]

The second distinction is disaggregating projects where improvement advocates have both a realistic cost estimate for the improvements and specific ideas about what kind of employers might be established (or expanded) if such improvements were made. One lesson learned in the Initiative was that both a realistic cost estimate and some thoughts on potential employers were required to produce a realistic economic development study. If this information is not available in applications or in the initial project information, it must be acquired as part of the economic development study. Obtaining a cost estimate will typically require discussions with a state or local infrastructure agency. Obtaining the potential employer information is sometimes the byproduct of obtaining a baseline of the area's economic structure.

After the initial analysis, there are, in effect, four subtypes of projects within each major project type: The table below shows this subtypology within the type 2 projects.

Table 2 - Subtypology of Projects, Economic Distress Classification, and Information of Project Cost and Potential New Employers

Project Type (illustrative)

In an Economic Distress Area

Initial Analysis Information Availability

Presumptive Rating from Initial Analysis Information

2.

Yes

Yes

Best

2.

Yes

No

OK, improvable

2.

No

Yes

OK

2.

No

No

Weak

It can certainly be argued that (a) projects in economically distressed areas, and (b) projects that already have initial analysis information available should be given priority over projects without these characteristics. The former consideration is based on the principle that economic development in areas that are not economically distressed is inherently less of a public good than economic development in areas that are economically distressed. The latter consideration is based on specific experience with the Initiative, which determined that the cost of creating the initial analysis information ranges from about $5,000 (for a small-scale project) to about $50,000 (for something like a 100- mile-long corridor).

A possible additional distinction is between projects that represent a "new" or "newly recognized" need and those that represent a recognized need but where highway improvement advocates wish to accelerate the implementation of the improvement. For now, the FHWA is not making a judgment about which is better.

Methodologies of Detailed Analysis

The jobs generated due to construction of a highway improvement may or may not be a consideration in choosing between two or more highway economic development investments. If the jobs would be created in an area of economic distress there would be more justification than otherwise, but clearly the number of highway jobs is generally proportional to the cost of the highway. If an estimate of the number of jobs is to be generated, there are a number of methods of doing it. In the initiative, the RIMS II model (an input-output program created by the U.S. Department of Commerce, Bureau of Economic Analysis) was used a number of times, but there are other models. A member of the U.S. Congress, while attending an initiative function, emphasized how important even temporary construction jobs are in economically distressed areas [6] .

The more difficult analysis task is in developing an estimate of how many permanent jobs are likely to be created from a given highway improvement. In all cases in the Initiative, this required some knowledge of non-highway economic development efforts. Within the context of the Initiative itself, this analysis was done using a variety of methods; those methods are enumerated below.

A: Using estimates from other studies. In several of the corridors studied in the initiative, previously completed economic development studies had estimated the employment created for specific activities (e.g., wind energy farms, biotech production plant). The sizing of employment and investment in plant and equipment is drawn from firms in the industry. Analysis of corporate governance reports of employers [7] provides information on the typical size of facilities, the investment cost, and the number of full-time employees. In this case, all that needs to be done is to determine what percentage of the jobs can be considered directly dependent on the transportation improvement being implemented [8] .

B: Using extrapolations based on local interviews. In several of the corridors, local officials were queried. They often had reasonable estimates on what type of development would likely be created if a specific highway improvement were to be completed. This approach requires an optimistic outlook; to some extent, it implies a belief that highway improvements are the "last" or nearly the "last" obstacle to capturing economic development opportunities. In the Initiative, the FHWA found that, once the highway improvement was defined realistically (not always a trivial task), the local officials gave reasonable estimates on development. Similarly, a number of state DOTs have found that when local officials take responsibility for an estimate of project jobs, they provide realistic estimates. In this case it was necessary to determine employment at existing businesses in the general region similar to those that would be created upon completion of the highway improvement [9] .

C: Using the assumption of "induced regression to the mean." In several corridors the initial analysis showed that the area was deficient in retail or other specific types of business activities. Based on interviews with local officials it was determined that the provision of the highway improvement would provide access and in some cases make land available for development. The highway improvement was then deemed to be the critical element to induce additional development so that the area would reach approximately the same business density observed in peer areas. In this case it was necessary to determine employment levels of the types of businesses that would need to be added to reach the peer business density level [10] .

D. Using the assumption that targeted businesses would develop to serve a defined customer base. In one case a defined level of tourism was predicted based on a non-transportation model. In that case it was necessary to determine the employment needed to serve that level of tourism. It was also necessary to state that both highway improvements and other improvements were required to meet the requirements for this level of tourism [11] . The linkage of highway investment to economic development was made by specifying what access was needed to expand the tourism market, then what internal circulation was needed to fully serve tourist venues.

E. Using the assumption that business density would increase in specific industry groups. This assumption was based on previous studies, but with some modifications made to reflect the implementation timetable for the highway improvement and other developments. In this case it was necessary to essentially reexamine a previously completed study. This earlier study made overly optimistic assumptions about the completion of a highway improvement. Also, changes in the character of the work force and business mix had occurred since that time, but the basic vector of the early study was still valid [12] . This type of analysis is typically called "cluster analysis."

F. Using the assumption that business density in a specific industry group (for a new industry-specific corridor) would resemble business density for the same industry in a peer corridor. In application, the industry in question should both (a) be growing, and (b) have an existing presence in reasonable proximity to the development speculated for the highway investment. In this case it was necessary to disaggregate highway-specific determinants in the peer case to be applied to the new corridor [13] . The industry growth is then reallocated, with some portion attributed to the corridor where the highway investment is presumed to occur.

G. Hybrids. Various combinations of the above six methods were used in other corridor studies.

H. Other methodologies. These methodologies apply to the project types noted in the table below. If more urban projects had been part of the Initiative, it is likely that other methodologies might well have been used.

At this time, the FHWA is unable to provide guidance on when a particular methodology should be used or when it shouldn't (this would be an appropriate subject for a future research effort). However, there is reason to believe that projects analyzed using more than one methodology may be more reliable simply because of the internal check.

Table 3 - Typology of Projects, Methodology to Estimate the Number of Permanent Jobs

Project Type

Methodologies

1.

A, B

2.

A, B, C, G

3.

A, B, C, D, E, F, G

4.

No studies of this type were done in the initiative.

5.

No studies of this type were done in the initiative.

6.

No studies of this type were done in the initiative.

Framework for Evaluation

A reasonable way to assess projects against each other is to put them all in an evaluation table. It should be readily apparent that comparing different types of projects requires additional considerations that are not easily quantifiable. It should also be readily inferable that comparing projects that were analyzed using different methodologies requires similar considerations. Notwithstanding these caveats, one could align projects in a table as shown below. The columns marked "Other Economic Factors" and "Other Non-Economic Factors" could be used to give such information as the work scope of the project, the implementation time required, the tax base consequences of the project, etc. Since there is no purely quantifiable way to rank projects against each other, use of an evaluation panel (where the person who puts together the matrix is not one of the panel) seems a reasonable way to proceed. If the project types under consideration are limited to one or two, it is reasonable to expect this framework will lead to defensible selections.

Table 4 - Illustrative Evaluation Matrix for Projects (all values illustrative)

Project Type

Rating (from table 2 factor)

Project Cost

(in thousands)

Analysis Method

Estimated Permanent Jobs Created

Other Economic Factors (e.g., tax base)

Other Non-economic Factors (e.g.,

complexity of project)

2.

Best

$10,000

A, B

1,000

.....

....

2.

OK

$ 5,000

A

300

.....

....

3.

OK

$35,000

A, C, D

2,000

.....

....

3.

Weak

$55,000

A, C, D, G

2,500

.....

....

A Word about Multipliers

Corridor improvement advocates have on a number of occasions expressed a considerable interest in the concept of multipliers. Conceptually, by attracting businesses with high multipliers, a project could maximize the number of jobs created [14] . However, in practice, the types of businesses that are attracted to an improved corridor are somewhat limited; they generally are businesses that are similar to or logistically related to existing businesses, or to embryonic industries [15] .

Final Thoughts in Song*

This song summarizes FHWA's economic development efforts preceding and including the Initiative. Penned by FHWA's Martin Weiss, it is sung to the tune of Ghostriders in the Sky (with apologies to Stan Jones who wrote that song in 1949 and the many people, e.g. Johnny Cash, Lorne Green, Burl Ives, etc. who've sung it on records).

Econdev Initiative - born one dark and windy day.
Corridors established to be built upon the way.
Meetings to advise on just what jobs they saw.
And quantifications of jobs upon which to draw.

Yippee yi ay, yippee yi oh, ECONOMIC DEVELOPMENT

The analyses were difficult, the models not good as steel
And several different methods were needed to feel.
Highway improvements underneath the sky
Costs have risen so, we mostly hear the cry

Yippee yi ay, yippee yi oh, ECONOMIC DEVELOPMENT

They calculated jobs and costs til shirts were soaked with sweat
They quantified job increases but people doubt them yet.
Big-buck projects don't all bring job growth up in the sky.
But no standard model is really done, now too late to hear them cry

Yippee yi ay, yippee yi oh, ECONOMIC DEVELOPMENT

One method shows SICs of businesses by name
Another makes us calculate whether industry is on our range
Another targets businesses types to reach when they do rides
Another uses business densities across the endless skies

Yippee yi ay, yippee yi oh, ECONOMIC DEVELOPMENT

The methods should be what uses the best info we get
But the projects should be compared to only programs they met
And there's no way to take away the subjective that is set
But if it's framed in an ordered way, better projects we'll get

Yippee yi ay, yippee yi oh, ECONOMIC DEVELOPMENT

* see notes at the beginning of the paper, just before the abstract


[1] See the paper called, "A Brief History of Economic Development and Highways" at http://www.fhwa.dot.gov/planning/economic_development/technical_and_analytical/edhist.cfm.

[2] Section 1118 of TEA-21

[3] A general description of the Initiative, including the legislative history, is available at http://www.fhwa.dot.gov/planning/economic_development/econdevini.cfm.

[4] Available at http://www.fhwa.dot.gov/planning/economic_development/technical_and_analytical/typology.cfm

[5] See remarks of Representative Thad McClammy at the workshop concluding the stakeholders' portion of the Initiative, available at http://www.fhwa.dot.gov/planning/economic_development/technical_and_analytical/alaug2003.cfm.

[6] See Congressman Artur Davis's comments at: http://www.fhwa.dot.gov/planning/economic_development/technical_and_analytical/alaug2003.cfm.

[7] Either reports to stockholders or 10k reports (depending on whether the firm is publicly traded)

[8] These types of analyses were done in the Roosevelt County, Montana, and Edgecombe County, North Carolina, corridor studies, respectively available at http://www.fhwa.dot.gov/planning/economic_development/technical_and_analytical/mt10.cfm and at http://www.fhwa.dot.gov/planning/economic_development/technical_and_analytical/us64nc.cfm.

[9] These types of analyses were done in the Fresno County, California, and Imperial County, California, corridor studies, respectively available at http://www.fhwa.dot.gov/planning/economic_development/technical_and_analytical/manning.cfm and at http://www.fhwa.dot.gov/planning/economic_development/technical_and_analytical/caimpcor.cfm.

[10] These types of analysis were done in the Lincoln Parish, Louisiana, and Morehouse Parish corridor studies, respectively available at http://www.fhwa.dot.gov/planning/economic_development/technical_and_analytical/ruston.cfm and at http://www.fhwa.dot.gov/planning/economic_development/technical_and_analytical/bastrop.cfm.

[11] This type of analysis was done in the Pine Ridge Indian Land corridor study, which is available at http://www.fhwa.dot.gov/planning/economic_development/technical_and_analytical/pineridge.cfm.

[12] This type of analysis was done in the Pennsylvania I-99 corridor study, which is available at http://www.fhwa.dot.gov/planning/economic_development/technical_and_analytical/i99pa.cfm.

[13] This type of analysis was done in the US 43 & 80 Automobile Manufacturing corridor study, available at http://www.fhwa.dot.gov/planning/economic_development/technical_and_analytical/alcor.cfm.

[14] The West Virginia corridors study had considerable content on this topic; it is available at http://www.fhwa.dot.gov/planning/economic_development/technical_and_analytical/westva.cfm.

[15] See Professor Keivan Devari's comments at the Initiative workshop, available at http://www.fhwa.dot.gov/planning/economic_development/technical_and_analytical/alaug2003.cfm.

Updated: 05/04/2012
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