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Use of Inflation Rates to Develop Cost Estimates for Plans, TIPs, and STIPs

From: Shepard, Gloria
Sent: Friday, August 18, 2006 10:39 AM
Cc: Burbank, Cindy; Gee, King; ##ALLDFS; HEPODs; Horne, Dwight; Geiger, David R.; Binder, Susan J.; HEPP; HEPRCTeams; Solury, Tony; FieldPlanners; Hynes-Cherin, Brigid <FTA>; Goodman, Charles <FTA>
Subject: INFORMATION: Use of Inflation Rates for Developing Future Cost Estimates as Part of Fiscal Constraint

TO THE ATTENTION OF: Division Offices Planning Staffs

The purpose of this message is to provide information on how to treat a situation recently raised by the Wyoming Division regarding the use of inflation rates to develop future cost estimates as part of fiscal constraint for metropolitan long-range transportation plans, Transportation Improvement Programs (TIPs), and Statewide Transportation Improvement Programs (STIPs). The following response was developed in cooperation with FTA's Office of Planning and Environment.

For metropolitan long-range transportation plans, TIPs, and STIPs, FHWA and FTA generally would be comfortable if States used a four (4) percent annual inflation rate for construction costs for 2007 and beyond, for both highways and transit. While this is current practice for FTA's major programs, FHWA has not established a comparable rate. Recognizing that circumstances may vary from State-to-State, as well as between highway and transit projects, a State may assume a lower or higher rate based on their circumstances. As part of the financial analysis that accompanies metropolitan long-range transportation plans, TIPs, and STIPs, a brief explanation of the inflation rate that is assumed should be provided. This explanation need not be elaborate, merely reasonable.

We recognize that cost escalation and inflation rates is not an "exact science." In fact, several proprietary sources are available for States to utilize in forecasting highway and street construction costs in relation to the Consumer Price Index. If you have any questions or need additional assistance on this issue, please contact Harlan Miller, Office of Planning, at (202) 366-0847.

Updated: 12/3/2012
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