hiawatha light rail transit: a cost-benefit analysis ellie delancey albert d’hoste meredith fisher...
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Hiawatha Light Rail Transit:A Cost-Benefit Analysis
Ellie Delancey
Albert d’Hoste
Meredith Fisher
Mason Joshua
Public Expenditure Analysis
April 30, 2005
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Presentation Structure
I. Project Background
II. Benefits
III. Costs
IV. Synthesis
V. Conclusion
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WHAT IS A LIGHT RAIL TRANSIT?
• Lightweight passenger rail cars operating on a two-rail track similar to railroad tracks• Driven electronically with power drawn from anoverhead electric line• Usually runs on the street with the right of way
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GOALS FOR THE HIAWATHA LIGHT RAIL
Expand travel options throughout the City of Minnesota with the light rail transit service and the alteration of select bus routes
Attract new business opportunities in the areas linked by the light rail as well as provide a more efficient means of transport for adjacent businesses
Maintain nearby areas by incorporating the advice of residents and businesses with standing into the plans for land use and station area development
http://www.ce.umn.edu/~levinson/ce5212/Case8/CS8.html
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ALTERNATIVES TO A LIGHT RAIL TRANSIT LINE
• Do nothing
• Increase the frequency of buses and diversify the routes
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STATISTICS• The light rail system is 12 miles long, connecting downtown Minneapolis, Minneapolis/St. Paul International Airport, and Mall of America in Bloomington
• 17 stations, 24 cars each 94 ft. long
• Top speed at 55mph with general service speed of 40mph and slower speed downtown
•Current ridership expected is approx. 19,300 per weekday in 2005
•Timed transfers with buses
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LRT ROUTE SELECTION
Routes chosen based upon:• highly trafficked areas• cost of construction• ridership potential• areas formerly serviced by
railroad lines
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PROJECT TIMELINE
Ground broken for Hiawatha LRT project
First segment of Hiawatha LRT opened
Began service to airport and Mall of America
2001
2002
2003
20042000
19971995
Citizen transit supporters met to discuss the need for rail transit service in Minnesota
*(not to scale)
1998
1999
1996
State funding for light rail obtained
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FINANCING FOR HIAWATHA LRT
The Hiawatha LRT was financed through federal and local grants.
Source: http://www.metrocouncil.org/transportation/lrt/lrt-overview.htm
Source Amount (in millions)
FTA Section 5309 New Starts $334.30
State of Minnesota 100
Metropolitan Airports Commission 87
Hennepin County Regional Rail Authority 84.2
Federal Congestion Mitigation & Air Quality 49.8
Transit Capital Grant 39.9
Minnesota Department of Transportation 20.1
Total $715.30
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FINANCING FOR HIAWATHA LRT (cont.)
…a different perspective on the LRT financing…
Level of State & Local Involvement
46%
14%
12%
12%
7%
6% 3%
FTA Section 5309 New Starts
State of Minnesota
Metropolitan Airports Commission
Hennepin County Regional RailAuthority
Federal Congestion Mitigation & AirQuality
Transit Capital Grant
Minnesota Department ofTransportation
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Benefits
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Benefits
I. Quantitative
II. Supplementary
III. Qualitative
IV. Methodology
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BenefitsI. Quantitative
Travel time savings $123.0
Remaining capital value $77.1
Avoided auto operating costs $66.3
Crash costs reduction $26.3
Pollution reduction $25.5
Total Quantitative Benefits $318.1
source: Final Hiawatha Corridor LRT Benefit-Cost Analysis, Minnesota Dept. of
Transportation, Office of Investment Management 1999
In millions of $’s
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BenefitsII. Supplementary
Avoided public infrastructure $32.3
Avoided auto ownership $18.0
Parking ramps not built $11.1
Total Potential Benefits $61.4
• Depends entirely on altered behavior, which is difficult to predict
source: Final Hiawatha Corridor LRT Benefit-Cost Analysis, Minnesota Dept. of
Transportation, Office of Investment Management 1999
In millions of $’s
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BenefitsIII. Qualitative
• Stimulate urban redevelopment• Provide transportation for low income
travelers• Serve as the catalyst towards a more
comprehensive transit network• Promote transit-oriented development
– centralized business and residential zones encourage transit use, lessening dependence on autos
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BenefitsIV. Methodology – Travel Time Savings
• Largest benefit by far• Less congestion• Time savings for both drivers and LRT riders
222,664 hours x $9.12
7.9 minutes saved per ride
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BenefitsMethodology – Remaining Capital Value
LRT capital $40.85
Utility relocation $26.30
Highways $8.92
Supplementary Parking
$1.03
Total Discounted
PV in ’99 $
$77.1
• Bulk of capital value derived from facilities
• Utility relocation benefits private and public utility companies
In millions of $’s
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BenefitsMethodology – Avoided Auto Op. Costs
• Parked cars don’t need gas and depreciate less
(4,173,765 VMT x $0.26) ÷ discount factor
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BenefitsMethodology – Bus Crash Avoidance
• Why assume a reduction in bus VMTs at all?• Bus ridership actually increased in five LRT
cities
- = ÷ =
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BenefitsMethodology – Car Crash Avoidance
• Parked cars can’t wreck
- = ÷ =
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BenefitsMethodology – Pollution Reduction
Decreased auto usage ► less emissions
Economic benefits ►reduced health care costs associated with pollution
x
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Unadjusted Total Benefits
in millions $
24%
39%
21%
8%
8%
Travel Time$123.0
Remaining Capital Value$77.1
Avoided Auto Operating Costs
$66.3
Reduced Accidents$26.3
Reduced Pollution$25.5
Unadjusted Total Benefits =
$318.1 million
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Costs
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Costs
I. Breakdown
II. Methodology
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CostsI. Breakdown
Capital costs $460.6
Operating costs $167.4
Utility relocation $90.7
Highway improvements $40.3
Supplementary parking $6.4
Total Costs $765.4
Source: Minnesota Dept of TransportationOffice of Investment Management
(in millions)
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CostsII. Methodology – Capital Costs
1999 $42.6
2000 $39.3
2001 $80.7
2002 $155.3
2003 $112.2
2004 $26.1
2005 $4.3
Total Capital Costs
$460.6
Source: Minnesota Dept of TransportationOffice of Investment Management
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CostsMethodology – Operating Costs
Source: Minnesota Dept of TransportationOffice of Investment Management
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Operating costs Methodology (contd)
• LRT Operating costs are in 1999 dollars per
year.
• The inflation rate assumed was 2%
• Also, the following real discount rate was used: 3.3% (inclusive of the inflation rate above)
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CostsMethodology – Other Costs
Utility relocation $90.7
Highway improvements $40.3
Supplementary parking $6.4
• The next table explains how these costs were calculated.
Source: Minnesota Dept of TransportationOffice of Investment Management
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Total Costs
NPV of Total Costs = $765. 4
1%22%
12%
60%5%
Utility Relocation
Capital
Highway Investments
Supplementary Parking
Operating
Source: Minnesota Dept of TransportationOffice of Investment Management
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Synthesis
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Synthesis: testing the core assumptions
Good News- Ridership projections
Bad News- Discount rate- Capital costs- Time savings- Reduced crash risk- Avoided auto costs- Operating costs
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First the good news…
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Actual ridership figures were higher than projected
• Since opening on June 26, 2004, customers have taken 2.9 million rides, which is double the estimated projection
• Ridership has been so high that 3 new light rail cars were purchased
• Nearly 40% are new to public transit
Source: Light Rail Now NewsLog. Minneapolis: Nearly 40% of light rail riders are new to transit. February 16, 2005. www.lightrailnow.org/news/n_newslog002.htm#MIN_20050216
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And now the bad news…
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The discount rate chosen inflates benefits and deflates costs
Source: Minnesota Department of Transportation. Final Hiawatha Corridor LRT Benefit-Cost Analysis. November 4, 1999
Base Case Conservative Optimistic
Discount rate 3.30% 7% 2%
Benefit-cost ratio 0.42 0.27 0.48
Sensitivity analysis, LRT benefit-cost study
The conservative estimate is closer to the real opportunity cost of capital, which reflects the market rate of investment
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Capital costs were likely higher than projected
• Project approved at $400 million in 1997 – since then it has grown to $715 million
• Officials say the expansion was a result of changes and added features, not overspending
• But, “overspending” is in the eye of the beholder…
“If you keep changing the number, then of what significance is that…we will never know how much it costs.” – Rep. Phil Krinkie, R-Shoreville
Source: Duluth News Tribune, Project officials say light-rail line to arrive on budget. July 13, 2004
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Time savings either zero or negative
• Almost immediately after the rail opened, motorists noticed a significant increase in congestion
• Planners programmed traffic lights to give priority to trains – previously lights were synchronized to speed traffic flow with minimal stops
• The effect: an additional 10-20 minute commute for those commuting on Highway 55
Source: Duluth News Tribune. Light rail could mean worse traffic in south Minneapolis. June 25, 2004
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Time savings estimates have a dramatic effect on benefit/cost ratio
Present Value, 1999 dollars Share
BenefitsTravel time savings 0 0%Crash risk 26,276,501 13%Avoided auto operating costs 66,256,139 34%Environmental 25,472,565 13%Remaining capital value 77,104,286 40%Present value of Total Benefits 195,109,491 100%
Benefit-cost ratio 0.25
Decrease from 0.42!
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Reduced crash risk benefits either zero or negative
According to Federal Highway Transportation experts:Drivers have responded to long waits with U-turns and signal violations, creating "potential severe safety issues".
• Thus, because of signal timing and congestion issues, crash risk has actually increased!
Source: NBC News, KARE11. Report: Light Rail Slows Street Traffic www.kare11.com/news/news_article.aspx?storyid=72841
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Higher ridership has low effect on avoided auto operating costs
Annual Ridership
New LRT from auto daily
PV avoided operating costs
1999 86,801,215$
2000(before = $66,256,139)
2001200220032004 2,900,000 7,2042005 6,295,000 7,8192028 14,199,404 17,636
*Estimates assume double the rate of growth (3.6% vs. 1.8%) and the increased actual ridership estimates
*
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Avoided auto operating costs are overestimated
• Planners assumed that cars cost 26¢ per mile to operate
• However, this estimate includes variable costs like gasoline and fixed costs like insurance
• About half of the cost of a car is fixed
Source: Capital Roundup. Committee on State Government Finance learns more about light rail. December 9, 1999. www.hometownsource.com/capitol/1999/december/1209.html
So, unless light rail causes people to sell their cars, then the estimate should be cut in half – from $66.3 million to $32.15 million
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Operating costs were double discounted!
Operating cost in 1999 dollars (000s)
Discount factor
Present Value Operating
Costs (000s) NPV1999 1.00 - 167,3912000 1.03 -2001 1.07 -2002 1.10 -2003 3,358 1.14 2,9492004 6,717 1.18 5,7102005 11,384 1.22 9,3692006 11,384 1.26 9,0702007 11,384 1.30 8,780
Source: Minnesota Department of Transportation. Final Hiawatha Corridor LRT Benefit-Cost Analysis. November 4, 1999
So, the proper estimate should be twice the reported figure, or $334.8 million.
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Conclusions
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Adjusted Total Benefits
in millions $
0 0
26.3
123
77.1
25.5
66.3
25.533.15
77.1
0
20
40
60
80
100
120
140
Travel Time RemainingCapital Value
Auto OperatingCosts
ReducedAccidents
ReducedPollution
Unadjusted
Adjusted
Adjusted Total Benefits = $135.7 million
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Adjusted Total Costs
in millions $
6.4
90.7
460.6
40.2
167.4
40.2
334.8
460.6
90.7
6.40
50
100
150
200
250
300
350
400
450
500
Capital UtilityReolocation
AccomodatingHighway
Investments
SupplementaryParking
Operating
Unadjusted
Adjusted
Adjusted Total Costs = $932.8 million
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So what is really going on here?
Account for majority of benefits, not very sensitive to higher ridership estimates
Bulk of funding provided by federal government
Underreported & potentially drains funds from bus system
Present Value, 1999 dollars Share
BenefitsTravel time savings 0 0%Crash risk 0 0%Avoided auto operating costs 33,128,070 24%Environmental 25,472,565 19%Remaining capital value LRT system 40,853,224 30% Utility relocation 26,295,801 19% Accomodating highway investments 8,921,629 7% Supplementary parking at Fort Snelling 1,033,632 1%Present value of Total Benefits 135,704,921 100%
CostsLRT Capital 460,608,547 49%Utility relocation 90,719,163 10%Accomodating highway investments 40,261,466 4%Supplementary parking at Fort Snelling 6,442,762 1%LRT system operating costs 334,782,082 36%Present value of Total Social Costs 932,814,020 100%
Net Present Value (797,109,100)Benefit-cost ratio 0.15
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Summary
The Hiawatha LRT system was built despite low economic returns to society Original report estimated only 42¢ in benefits for every dollar spent
Our analysis shows that only 15¢ in benefits for each dollar spent
Qualitative benefits won out Smart growth/livable communities: denser region-wide land use
Economic development, increased business productivity
Symbolic: Minneapolis/St. Paul as a world-class city
And if you can get federal and state governments to fund you, then why not?! Guaranteed federal funding of 50% of capital costs through “New Starts”
Less than 1/3 of capital cost covered by local funds, and 40% of operating costs to be funded by the State
Now, here comes the Northstar line…!