On Benefit / Cost Analysis and Project Selection in Transport

Before I left Minnesota I was asked by a Representative in the Legislature how to improve Department of Transportation project selection (following up on this presentation in February). I wrote back this (I revised and extended my remarks for the blog):

What are transport “needs”? It’s simple, a project is a “need” when the full benefits exceed the full costs. [Clearly very few projects are a “need” in an existential sense, but what we are talking about are more than “wants” in that they are net benefits for society, by definition.]

Measuring benefits and costs can be tricky, but it is not impossible to get a first order estimate, and the general principle is straight-forward. Sadly almost no agency requires actual benefit/cost analysis.

So I would suggest rules something like:

  1. All highway, transit, airport, and port projects that are considered in project-selection processes involving expenditure of state or federal funds above $5 million shall undergo a consistent, peer-reviewed, monetized benefit/cost analysis that would
    • Consider the full benefits and full costs of the project (in comparison with a no-build alternative) incorporating changes in: number of passengers and freight, travel time and travel time reliability, accessibility to employment and workforce, land value, wider economic benefits, crashes and crash severity, air, water, land, noise, pollution costs, and carbon emissions, public health (including both physical activity and pollution levels), vehicle operating costs, as well as the costs of building, maintaining, and operating the project over time.
    • Consider these costs and benefits distinctly for the population as a whole as well as any relevant transportation disadvantaged groups
    • Consider these costs and benefits not only for the project, but for the relevant portion of the transportation network, including related transportation sections both upstream and downstream of the project and competing with the project.
    • Consider uncertainty bounds in the estimation
  2. These analyses must be performed according to a standard methodology published by the Department of Transportation (DOT).
  3. The methodology and analyses shall be reviewed every two years by a national panel of transport and economics experts convened by DOT.
  4. The results of these analyses, including both the final results as well as the component estimations, shall be made public and posted on the DOT website in a readily accessible manner. An Annual Report of considered and selected projects shall be provided with the full benefits and full costs reported, and justification provided for any projects that were selected over other projects with higher expected benefit/cost ratios.
  5. In order to improve travel and cost forecasting, and provide an understanding of the accuracy of such forecasts:
    • The project-delivering agency shall review project cost estimates made at the time the project was approved for construction upon completion of the project, and report to the Legislature a table of expected and actual cost expenditures for all projects.
    • The agency shall review travel demand estimates made at the time the project was approved for construction 5, 10, and 20 years after completion of the project and report to the Legislature a table of expected travel and actual travel for all projects.