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Conditions and Performance Report
Appendix I—Transit Investment Condition and
Investment Requirements Methodology

Conditions and Performance Chapter Listing

Conditions and Performance Home Page


Transit Economics Requirements Model

TERM's Structure

Asset Rehabilitation and Replacement Module

Asset Expansion Module

Performance Enhancement Module

Benefit-Cost Tests

Rural and Specialized Transit Service Investments

 

Benefit-Cost Tests

All investments identified in TERM are subject to a benefit-cost test. To analyze the output of the investment modules, TERM utilizes two separate benefit-cost filters. The first is used to analyze investment proposed by the Rehabilitation and Replacement and Asset Expansion modules, and the second filter is used for investment proposed by the Performance Enhancement module.

Benefits and costs in the Rehabilitation and Replacement and Asset Expansion modules are modeled at the transit agency level and on a mode-by-mode basis. For each agency and mode in the TERM database, the model first estimates the mode's discounted stream of capital investment and operating and maintenance expenditures over the 20 years of the model run (including Asset Expansion Module-generated investments). This stream is then compared to the discounted stream of benefits anticipated from continued operation of that agency/mode. If the level of projected benefits is in excess of the estimated capital and operating and maintenance expenditures (i.e., if the benefit-cost ratio is greater than 1), the model's estimate of agency and mode capital investment needs is included in the overall national investment needs estimate. If the benefit-cost ratio is less than 1, the agency and mode are not considered to be cost effective and are discontinued. The benefits accounted for in the model are discussed below.

For Performance Enhancement projects, investments are evaluated on an urbanized area basis. Each investment in a new start project is analyzed based on the known characteristics of the urbanized area the investment is expected to serve, the expected total cost and time period for project development, expected operating and maintenance costs, and the level and type of benefits associated with a typical new start investment of the proposed type (on a per-mile basis). These benefits and costs are compared using a discounted net present value analysis. Projects with a BC ratio greater than 1 are included in TERM's national summary of Performance Enhancement investments, while those failing the test are omitted.

The Benefit-Cost modules screen for benefits from three categories:

  • Transportation System User Benefits
      — Travel time savings, reduced highway congestion and delay, reduced auto costs, and improved mobility
  • Transit Agency Benefits
      — Fare revenue increases and reductions in operating and maintenance costs
  • Social Benefits
      — Reductions in air and noise emissions, reduced roadway wear, and transportation system administration.

Whenever possible, the total level of benefits associated with each investment type is modeled on a per-transit PMT or per-auto VMT basis. Most of the benefits from reinvestment in current transit assets and new transit investments identified by TERM accrue to new and existing users of the transit system and are captured in the class of transportation system user benefits. Some of the benefits are used to evaluate Rehabilitation and Replacement and Asset Expansion investments (e.g., operating and maintenance costs), while others are used to evaluate Performance Enhancement investments (e.g., reduced new rider costs and reduced emissions).

The most important omission from TERM is its absence of supply or demand elasticities. On the demand side, while transit service improvements might be expected to induce more transit ridership in and of themselves, TERM does not take account of this. There is also no linkage between TERM and HERS, and thus no cross-elasticity of demand, meaning that TERM does not take into account the effect that investments leading to a decrease in the cost of substitute form of travel (i.e., high-ways) have on the demand for transit. Instead, transit PMT growth is taken as an exogenous input from the MPO forecasts. These forecasts themselves do take some of these demand elasticities into account, however, given their role in environmental and fiscal planning for metropolitan transportation. The forecasts also take into account desired and planned transit investments (or the lack thereof) in estimating future transit travel growth. On the supply elasticity side, TERM does not take account of the potential impact that large-scale investments could have on the cost of building new transit infrastructure. For example, expansions of existing rail systems may occur in areas that are more expensive to build in (indeed, this may be the very reason that rail investments did not occur first in these areas).

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