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Status of the Nation's Highways, Bridges, and Transit:
2004 Conditions and Performance
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Part II Executive Summary

Investment/Performance Analysis

Chapters 7 through 10 present and analyze estimates of future capital investment requirements for highways, bridges, and transit.

The 20-year investment requirement projections identified in this report are the product of complex technical analyses that attempt to predict the impact that alternative levels of future capital investment may have on the future conditions and performance of the transportation system.

Separate estimates of investment requirements for highways, bridges, and transit are generated independently by separate models and techniques. Cost to Maintain and Cost to Improve scenarios are presented for each, but these represent only two points on a continuum of alternative investment levels. The Department does not endorse either of these scenarios as a target level of investment; and, where practical, supplemental information has been included to describe the impacts of other possible investment levels. The highway, bridge, and transit scenarios are defined differently, based on the data available for analysis and the analytical model used.

The Highway Economic Requirements System (HERS), introduced in the 1995 C&P report, was used to generate estimates of investment requirements for highway preservation and highway/bridge capacity expansion. Recent changes to HERS are documented in Appendix A.

The National Bridge Investment Analysis System (NBIAS) was introduced in the 2002 C&P report, adding economic analysis into the bridge preservation modeling for the first time. The NBIAS is described in more detail in Appendix B.

The Transit Economic Requirements Model (TERM) has been used since the 1997 C&P report to generate estimates of investment requirements for transit. The TERM is discussed in Appendix C.

The HERS, NBIAS, and TERM models all have a broader focus than traditional engineering-based models, looking beyond transportation agency costs to consider the benefits that transportation provides to its users and some of the impacts that transportation investment has on nonusers. From an economic perspective, the cost of an investment in transportation infrastructure is simply the straightforward cost of implementing an improvement project. The benefits of transportation capital investments are generally characterized as the attendant reductions in costs faced by (1) transportation agencies (such as for maintenance), (2) users of the transportation system (such as savings in travel time and vehicle operating costs), and (3) others who are affected by the operation of the transportation system (such as reductions in health or property damage costs).

While the Cost to Maintain and Cost to Improve scenarios both assume that transportation improvements are selected for implementation based solely on their benefit-cost ratios, this is unlikely to be the case in reality. Other factors influence Federal, State, and local decisionmaking that may result in a different outcome. Consequently, increasing spending to the Cost to Maintain level would not guarantee that conditions and performance of the system would actually be maintained; additional funding could be required to the extent that some transportation improvements with lower benefit-cost ratios were implemented instead of ones with higher benefit-cost ratios. Similarly, while the HERS, NBIAS, and TERM models all screen out potential improvements that are not cost-beneficial, simply increasing spending to the Cost to Improve level would not guarantee that the full estimated benefits of that scenario would be attained. That result could be achieved only by modifying Federal program requirements and State and local government practices to ensure that no project would be implemented unless its estimated benefits exceeded its estimated costs.

These 20-year investment requirement estimates also reflect the total capital investment required from all sources—Federal, State, local, and private—to achieve certain levels of performance. The analyses do not directly address which revenue sources might be used to finance the investment required by each scenario, nor do they identify how much might be contributed by each level of government. This report makes no recommendations concerning future levels of Federal investment.

It is important to recognize that the use of different revenue mechanisms to support transportation investments can have an impact on future investment requirements. For example, if investment in urban freeways were to be increased dramatically, more drivers would tend to use the newly improved routes. However, if fuel taxes were simultaneously increased to pay for the improvements, this would raise the cost of driving generally, causing some marginal trips to be deterred. If tolls were simultaneously imposed on urban freeways to pay for the improvements, this would likely discourage additional trips and encourage some drivers to switch to non-tolled routes.

Congestion Pricing—Some of the congestion problems facing the Nation's road network can be traced to imbalances between highway travel demand and supply, due to the "underpricing" of highway use. Under normal conditions, each individual driver's use of a road will not have an appreciable effect on the implicit costs (such as travel time and safety risks) faced by other users. As traffic volumes rise and a facility becomes congested, travel times for all users begin to rise, with each additional vehicle making the situation progressively worse. However, since individual travelers do not bear any of these costs that they impose on other drivers, their individual economically rational decisions can collectively result in an inefficiently high level of use of congested facilities.

In an ideal world, users of congested facilities would be levied charges precisely corresponding to the economic cost of the delay they impose on one another. This would reduce peak traffic volumes (but not necessarily eliminate all congestion delay) and increase total net benefits to highway users. While perfectly efficient pricing (which requires comprehensive knowledge of user demand and the ability to continuously adjust the fees that motorists are charged) may not be practical, it would be possible to make the current system more efficient through some form of variable road pricing on selected highways. Significant advances in tolling technology have reduced both the operating costs of toll collection and the delays experienced by users as a result of having to stop or slow down at collection points. Technology also has made it possible to charge different toll rates during different time periods, in some cases even varying the price dynamically with real-time traffic conditions.

The implications of inefficient pricing for the highway investment requirements estimated in this report are difficult to quantify precisely. The Maximum Economic Investment (Cost to Improve) scenario reflects all economically efficient improvements given the current real-world highway financing structure, reflecting the costs that are currently borne by highway users. However, if efficient road pricing were widespread, the required level of investment would be reduced, with a stronger impact on capacity investment than on preservation improvements. Part V of this report includes a discussion of ongoing research relating to alternative financing mechanisms that should be available for use in the 2006 edition of this report.

Uncertainty—As in any modeling process, simplifying assumptions have been made to make analysis practical and to meet the limitations of available data. Chapter 10 examines the sensitivity of the estimates to changes in some of the key parameters underlying the analytical models.

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