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A Provisional Typology of Highway Economic Development Projects

Martin H. Weiss, Federal Highway Administration (FHWA); 1200 New Jersey Avenue, S.E., Washington, D.C. 20590; 202-366-5010 (office); 202-366-3713 (fax);

Roger Figura, AECOM Consult, Inc. (AECOM) ; 2751 Prosperity Avenue, Suite 300, Fairfax, VA, 22031; 702 645 6828 (office); 703 641 9194 (fax): roger.figura@aecomconsult.com

Notes: This paper was presented at the Transportation Research Board Annual Meeting, Washington, D.C., January 2003. None of this material will be used imply endorsement of a particular product, method or practice by the Transportation Research Board. Furthermore, this paper is unedited and may not include revisions in accordance with the TRB peer review process. Edited versions of selected papers will be published in the 2003 Transportation Research Record (TRR): Journal of the Transportation Research Board. In particular, this paper, if published in the TRR will be published without color enhancement and captioning of Figures 1 and 2. Also, the location of the abstract relative to the paper itself will be different than in this version.

Abstract: Past efforts to analyze/select promising highway economic development projects for implementation and evaluate implemented projects for effectiveness have not progressed as far as they could partly because not all projects are the same type. Projects that improve local access to employment sites are inherently different from improvements to connectivity between two cities (sometimes called corridor improvements) and will properly merit different analysis and evaluation This paper focuses on categorizing the different types of projects and discusses the different methods that will be required in analysis, evaluation, and selection.


INTRODUCTION

Highway economic development has recently been the subject of more analysis, more discussion and more interest (including the explicitly stated interest of the U.S. Congress (1) than at any time in the past several decades. This analysis, discussion and interest, however, is handicapped by, among other things, the fact that the types of needs and types of projects can cover so many situations that it hinders understanding of the subject itself.

The purpose of this paper is to begin to bring some kind of order to the concept of highway economic development projects.

A major distinction that must be made is between programs and projects. Highway economic development that is national or otherwise covers a multi State area must be programmatic (2). Individual highway projects are, unless they are of extraordinary scale, simply unable to influence a national or multi State regional econo (3)my .

Another distinction that must be made is between projects that produce economic benefits as a byproduct or in conjunction with traffic improvements and those for which economic development is the primary purpose. Highway improvements may be evaluated in terms of the AASHTO "Red Book" or similar criteria, whereby shadow prices are applied to: travel time and travel cost savings (economic), incident reduction (safety), and pollution mitigation (environment). The resulting values are extended over an evaluation time horizon, discounted to a net present value and compared to the highway improvement cost. A result of benefits exceeding costs (a B/C ratio greater than 1.0) is indicative of a project worth undertaking. This AASHTO methodology was developed in 1977. Although very few projects are derived from formal B/C studies, many derive from informal B/C or cost effectiveness type information (e.g., ranking of most congested or highest accident rate locations).

A current thrust among highway improvement advocates is to promote highway improvements to enhance economic development. This is not the economic justification of travel time and/or travel cost savings. This is economic development in terms of jobs, incomes and tax base effects. Moreover, from the perspective of these highway improvement advocates the issue of whether the economic development is a "net gain" or merely a "transfer" (or more likely some combination) is not a relevant point of inquiry. The concerns are local (and in broader corridor opportunities) represent a regional view.

WHAT WE KNOW

Attempts to evaluate the economic development effects of highway improvements have largely been through applications of impact models. Use of input-output models (RIMS II, Implan) is strictly expenditure driven. Spending $2 million on highway improvements is preferred to spending $1 million recognizing that the major source of funding is non-local. In this instance a good project for the local, area, and/or regional economy is an expensive project, a better project is a more expensive project.

A noticeable trend has seen a shift to applications of the REMI model, which, while driven somewhat by expenditure input data, translates results into regional economic performance. REMI treats impacts in terms of productivity or amenity gains. The model generates the most robust results in terms of enhanced economic performance by travel time/cost savings for commercial vehicles (trucks). This is intuitively appealing since trucking is a component for most (if not all industry) sectors. REMI treats non-local investments as a shock (positive) to the local economy, since the expenditures for the public project (highway) do not require local taxes, which directly offset household expenditures. Again, we are left with results partially based on expenditures, rather than economic development outcomes. The major value of REMI is that it places values in terms of employment gains, income, tax impacts and population around the "business case" for highway improvements. Without the "business case," however, the inputs for REMI to operate are lacking.

THE RECENT PAST

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 a large discretionary program. Subsequent conference reports accompanying appropriations acts designated funding for innumerable economic development projects. In addition, legislation required the Federal Highway Administration (FHWA) to undertake an economic development highways initiative (Initiative). During the implementation of this initiative, a substantial number of corridors were studied with proposed highway improvement projects as the focus of the corridor study. The proposed highway projects generally included interstate or nearly interstate type facilities or significant access to such facilities, highway widening and local access/service roads.

TWO ASPECTS of the INITIATIVE

Two aspects of the Initiative were critical to understanding economic development issues in the corridors.

The first aspect could be called the technical aspect. It included analysis of the existing traffic, proposed improvements, existing economy, official transportation and other plans and programs, need for NEPA documentation, etc. This is not particularly different from other projects of this kind, however the analysis itself included far more economic analysis than is typical for such projects. .

The second aspect could be called the consultative aspect. It included an iterative process. First, State and local corridor improvement advisory committees provided review/comment of the plans for analysis. Subsequently, committees provided review/comment as portions of the analysis and then the final analysis were developed.

Membership on committees varied but in general they consisted of:

  1. Elected Officials, including: Mayors; County/Parish Commissioners; State Legislators and Tribal Leaders.
  2. Transportation & Economic Development Professionals, including: State DOT (headquarters and district); FHWA (division office); Bureau of Indian Affairs; Regional and Local Economic Development Organizations; Chambers of Commerce; Regional and County Planning Commissions; State Departments of Community and Economic Development and University Centers
  3. Government Agencies, including: City Managers, Councils of Government, Metropolitan Planning Organizations, Toll Road Authorities and School Districts
  4. Business Community Officials, including Finance, Insurance, Engineering and Trade Associations

STAKEHOLDERS' VIEWS ON HIGHWAY IMPROVEMENTS AND ECONOMIC DEVELOPMENT

As articulated by members of the Advisory Groups, there is general belief that highway improvements provide economic development opportunities in the following ways:

These observations offered by highway improvement proponents are not generally some naïve or fanciful field of dreams "build it and economic development with follow" projects. Rather, the lack of highway improvements is seen as a major factor in retarding economic development, frequently based on conversations with potential developers. Moreover, highway improvements are viewed as a necessary condition with regard to capturing economic development opportunities. The operating theory behind these beliefs is best understood not by looking at economic models, nor by considerations of direct transportation cost but by looking at a business model applied iteratively over a long period. The first significant business that would be established would examine the usual logistical, work force, consumer base considerations. Assuming that level of service on the highway network was acceptable, the first business would consider the location as acceptable assuming other factors (e.g., labor force, utility costs, housing costs, etc.) were also acceptable. However, the second significant business that evaluated a location along the highway would be faced with the fact that the first business had already added to the traffic. If substantial 'room to grow' highway capacity were not in place, this would weigh against a second business being established. These constraints on business growth along a highway corridor caused by inadequate capacity and attendant safety concerns may severely limit location decisions by other businesses, which may be attracted to the area based on other criteria. In this instance the location decision is based on eliminating potential choices, and the locations with limited highway capacity also possess limited attractiveness from a business case.

These observations provide a perspective that leads to confirmation of a provisional typology. In this provisional typology, both the type of highway improvement and the need for the improvement will be noted. Based on previously funded research and ongoing studies, the types of highway improvements are categorized as:

  1. Better access to employment or production or distribution centers within a generally rural area. Examples include reconstruction of an freeway interchange serving an office park or retail/commercial development and widening of a bridge that connects a manufacturing site to a U.S. highway;
  2. Connectivity/circulation improvements to service roads, access roads and relief roads that supplement a major highway through a generally rural area. Examples include connecting elements of service roads that parallel a freeway and establishing access design policy for a new expressway.
  3. Connectivity improvements between cities or between a city and a production area through a generally rural area. Examples include bypasses around small cities, corridor improvements between cities in the same county and improvements between cities in different counties.
  4. Better access between a workforce and a production center within a generally urban area. An example would be a new bridge between a population center and a retail/commercial center where a river currently separates the two.
  5. Better connectivity between one production/distribution center and another production/distribution center within a generally urban area. An example would be an improved highway between two 'edge cities' or between two suburban centers.
  6. Access/circulation changes to support changing land use in either a rural or urban area. An example would be reconfigured intersections and service roads in conjunction with redevelopment of a 60s era shopping mall.

It should be obvious that some projects will be blends of more than one of these categories or will be, in some other way different. The authors have had considerable experience with the first three categories through implementation of the Initiative (4). However, this Initiative in particular and FHWA's research more generally has been confined to projects in rural areas. This is because projects in urban areas are, in general, more difficult to analyze and evaluate because of the complexity of their economies. Transit improvements could serve the same purpose as highway improvements in these areas.

THE NEED FOR HIGHWAY IMPROVEMENTS IN AN ECONOMIC DEVELOPMENT CONTEXT

The need for a highway improvement can be justified on the basis of either of two sets of economic development facts.

The first of these is distress. This can be illustrated either by historic high levels (5) of unemployment or by population loss over several decades or possibly other indicators. Many people fail to realize how much of the country is in this condition. Figures 1and 2 show the geographic extent of historically high unemployment and population loss in the United States . A substantive argument can be made that if the need for economic development is based on distress, improvements can be justified even if traffic levels and traffic growth would not usually warrant such improvements. The national interest in such projects come from the fact that the projects could serve to minimize the deleterious effects of poverty and, at the peak of the business cycle, could make more of the nation's work force accessible and thus reduce the labor shortages during this time. Some people would, in fact, interpret the executive order on environmental justice (6) in exactly that way. Similarly, if highway economic development projects of this kind were to prove to be successful in alleviating distress, an argument could be made, that such projects should be funded by the general fund rather than the highway trust fund. However, neither the FHWA nor any State has made the environmental justice argument or the general fund argument explicit. Essentially all the studies done under the Initiative include areas in economic distress.

The second set of facts relates to opportunity. This can be based on either analysis, instinct or something in between that indicates that highway improvement is likely to lead to job growth or to income growth or similar favorable outcome. In general however, there is little justification for simply moving jobs between geographic areas if the area getting the jobs is not in distress. Thus these improvements need to be justified by traffic levels or expected traffic growth or other means.

During the course of the Initiative, the authors have had access to over 3-dozen elected officials and eight dozen appointed officials. Along the way to completing these studies a number of general ancillary preliminary findings have been made. One such finding is that, in some cases, crystallizing the goals of a highway economic development study through appropriate advisory mechanisms had the positive effect of crystallizing both the scope of desired highway improvement and the locally expected economic development consequences of that improvement. Another such finding is that crystallizing the scope of the desired highway improvement and the expected consequences seemed to increase the realism of the stakeholders and local advisors. A final ancillary finding is that the categories used for before/after project evaluation i.e., ex-post studies, in previous research (7) are appropriate categories for project anticipation studies i.e., ex-ante studies.

Other ancillary findings are more specific to individual States or projects. To evaluate projects in the ex-ante stage requires making and analyzing the "business case" for the project. An example is the possible impact of building service roads. The "business case" for the possible economic development that might accompany the service roads is first based on determining if the area is under-retailed (i.e., does a potential underserved market exist). The case proceeds with an examination of development patterns in relation to traffic. Specific candidates for location are examined e.g., theme restaurants. Estimates of development potential are prepared. The development potential is valued in terms of jobs, incomes, investment created, tax base effects, etc. for both the initial investment in physical plant and recurring impacts from operations.

The FHWA did not, at the beginning of the initiative, have the capability to distinguish between very promising, promising and other projects. Experience indicated that categorizing the type of project was crucial to meeting that objective. The means of distinguishing projects in one category of projects is not the same as that of another category of projects.

The provisional typology of highway projects noted above, is expanded in Table 1 that provides the economic development objectives of typical projects and ex-ante economic considerations for analyzing the degree of promise the project holds for economic development. These ex-ante economic considerations (drawn largely from comments of the stakeholders) provide some guidance as to how projects may be evaluated. Again, since we are dealing with ex-ante evaluations, much of analysis will need to be based on the "business case" drawn for the project. The provisional typology commands that the "business case' be more than a wish-list and instead portray a plausible economic outcome that is enhanced or facilitated by the highway improvement.

In practice, highway projects frequently have more than one set of objectives (e.g., projects that improve 2-lane undivided highways into 4-lane divided highways typically result in substantial safety improvement). As noted, most of the work has been in rural areas to date and thus the entries for project types 4-6 are more 'provisional' than those for project types 1-3. A similar table for ex-post evaluation considerations could be created. However most of the Initiative is about ex-ante studies. Furthermore, ex-post considerations are covered to a great extent by the previous work noted earlier. Thus no similar table is provided.

If the final data from the Initiative support this provisional typology, the typology will be made final. If not, change will be made as appropriate. In either way, the Initiative will likely have significantly and usefully increased FHWA understanding of the potential of highway economic development. At the conclusion of the initiative, FHWA hopes to have developed a workable typology based methodology for evaluating potential economic development.

Acknowledgements

The Economic Development Highway Initiative is being carried out by the FHWA. The principle program official for the Initiative is Martin Weiss. The prime contractor to the FHWA for the Initiative is AECOM. The AECOM program manager for the Initiative is Roger Figura. There are 15 studies that make up the Initiative. The principle and subcontractors for these 15 studies include:

Wilbur Smith Associates
ICF Consulting
HLB Decision Economics
Louis Berger International, Inc.
Jack Faucett Associates
DRI-WEFA
Tuskegee University
Alabama State University
Stillman College

The maps showing unemployment and population loss were due to the efforts of Todd Blair of EG&G Technical Services and Deborah Walker-Jackson of Arrowhead Global Solutions both under contract to the FHWA. A number of problems understanding 1980 borough restructuring in the State of Alaska were resolved through assistance from Ingrid Zaruba with the Alaska Department of Labor and Workforce Development. The maps were created using information from the Bureau of Labor Statistics.

The employers of the individuals noted above were valid as of March 31, 2003.

References with Notes

(1) Senate Report 106-55 which accompanied the Senate's version of FY 2000 Appropriations language for the Department of Transportation

(2) The distinction between national, regional and local transportation economic development is more fully discussed in a paper prepared at the 2002 TRB Economic Development Conference and entitled, "A Brief History of Economic Development and Highways" by Martin Weiss, FHWA. This paper is available at: http://www.fhwa.dot.gov/planning/economic_development/technical_and_analytical/edhist.cfm

(3) For example, the multi-state corridor known as future I-69 has been identified through about a half dozen Congressional Acts between 1991 and 2002 and been funded by about a dozen different discretionary and statutory designations during that time. However, by 1995, the corridor had been divided into about four-dozen different segments of independent utility for individual environmental documentation consistent with the National Environmental Policy Act of 1969.

(4) A public briefing on this initiative is available at the FHWA website: http://www.fhwa.dot.gov/planning/economic_development/econdevini.cfm

(5) Congressional language emphasized the unemployment indicator of distress only but FHWA later realized that population loss was also an indicators of distress. The levels chosen in the figures are set for analytical and illustrative purposes. States could, of course choose other levels as a matter of policy.

(6) Executive Order 12898; FEDERAL ACTIONS TO ADDRESS ENVIRONMENTAL JUSTICE IN MINORITY POPULATIONS AND LOW-INCOME POPULATIONS, February 14, 1994

(7) The report entitled, "Using Empirical Information to Measure the Economic Impact of Highway Investments was done under contract to FHWA and completed in April, 2001. It is available on the website of EDRG at: http://www.edrgroup.com/hwy-impact.html

List of Tables and Figures

Figure 1 - Counties in the United States with Historically High Unemployment

cluster map of the US showing unemployment areas 1992 to 2001

The map shows that high unemployment counties are somewhat clustered in the Appalachian region, south central Alabama, the lower Mississippi valley, along the border with Mexico, much of Alaska, in the valleys just east of the West Coastal range and in some counties with extensive Indian nation lands.

Figure 2 - Counties in the United States with Historic Population Loss

cluster map of the US showing population loss 1970 to 2000

The map shows that population loss counties are somewhat clustered in the Appalachian region, parts of northern New York and New England, south Alabama, the lower Mississippi valley and much of the Great Plains from North Dakota to Texas.

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/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/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 production/distribution center 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 Quality of Life retention or improvement. Facilitate changing character of employers. Business investment likely, Tax base effects. Higher wage employment. Diversification of employers
Updated: 05/04/2012
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