return on transportation_investments_mehalko
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Return on Transportation Return on Transportation InvestmentsInvestments
September 20, 2007September 20, 2007
DenverDenver
““Investment Decisions are made on Return Investment Decisions are made on Return on Investment analyses or …on Investment analyses or …
Instinct or Vision”Instinct or Vision”
A Strong Case for A Strong Case for The Great Plains CorridorThe Great Plains Corridor
“…freight transportation enhancements that reduce the costs of moving goods (and services) to and from markets are critical to economic expansion”
“Freight Transportation Improvements and the Economy” USDOT/FHWA 2004
14% of US GDP14% of US GDP
38.5 million citizens38.5 million citizens
$166.7 billion trading region with $166.7 billion trading region with Canada and MexicoCanada and Mexico
22.1% of U.S. Agricultural 22.1% of U.S. Agricultural Goods Goods
25% of U.S. ethanol refining 25% of U.S. ethanol refining capacitycapacity
NAFTA’s #2 NAFTA’s #2 busiest portbusiest port
Great Plains International Conference 2007
A Strong Case for Investment inA Strong Case for Investment inThe Great Plains CorridorThe Great Plains Corridor
Great Plains “Great” GDPGreat Plains “Great” GDP
Bureau of Economic Analysis 2007
70% increase in freight movement by 2030
International trade is forecast to grow faster than domestic trade
28% of production in the United States is based on just-in-time delivery (AASHTO 2002).
Needs & InvestmentNeeds & Investment
US logistics costs exceeded $1 trillion in 2000, comprising US logistics costs exceeded $1 trillion in 2000, comprising 10 percent of GDP (Delaney).10 percent of GDP (Delaney).
Transportation
Infrastructure Investment
Increased Transportation Capacity, Efficiency, Reliability, and Level of Service
Transportation Cost Savings
Transit Time Savings (Reliability
Improvement)
Business Expansion (Relocation and Restructuring)
Increased Productivity
Increased Competitiveness
Increased Economic Growth
Transportation Investments & Transportation Investments & the Economythe Economy
Effects of Improved Freight TransportationEffects of Improved Freight Transportation
First Order BenefitsFirst Order Benefits Immediate cost reductionsImmediate cost reductions
(reduced transit times/increased (reduced transit times/increased reliability)reliability)
Second-Order BenefitsSecond-Order Benefits Reorganization effect gainsReorganization effect gains
(increases in output/input)(increases in output/input)
Third-order BenefitsThird-order Benefits Additional Reorganization effects Additional Reorganization effects (improved/new products)(improved/new products)
Other EffectsOther Effects Increase in Regional Employment Increase in Regional Employment & Income& Income
Estimating ROTIEstimating ROTI
Construction ofConstruction ofTransportationTransportation ImprovementsImprovements
Improved Improved Transportation Transportation
OperationsOperations
DirectDirectExpendituresExpenditures
ImprovedImprovedAccess/Access/
MobilityMobility
EnhancedEnhancedRegionalRegional GrowthGrowth
Multiplier EffectsMultiplier Effects(REMI Model)(REMI Model)
Economic ImpactsEconomic Impacts•Employment Employment •Personal IncomePersonal Income•Business BenefitsBusiness Benefits
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ROTI for the Ports to Plains ROTI for the Ports to Plains CorridorCorridor
$’s in millions$’s in millions
(2004 dollars)(2004 dollars)
Development Development CostsCosts $2,868$2,868
Committed Committed FundsFunds ($331)($331)
Funds Needed Funds Needed to Develop to Develop
CorridorCorridor$2,537$2,537
Ports to Plains CDMP 2004
Summary of Economic Benefits by Summary of Economic Benefits by CategoryCategory
CategoryCategory JobsJobsTotal Income Total Income
2006-20302006-2030
(Millions 2004$ @ 7%)(Millions 2004$ @ 7%)
Construction (person Construction (person years)years) 2,5002,500 $41$41
Distribution with some Distribution with some Manufacturing (2030)Manufacturing (2030) 39,63639,636 $4,258$4,258
Roadside Services (2030)Roadside Services (2030) 2,0312,031 $216$216
Tourism (2030)Tourism (2030) 280280 $27.0$27.0
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Ports to Plains CDMP 2004
State/Local Fiscal BenefitsState/Local Fiscal BenefitsMillions $2004 @ 7% Discount RateMillions $2004 @ 7% Discount Rate
Jobs and incomes (personal Jobs and incomes (personal and business) are produced as and business) are produced as part of the benefit dollars part of the benefit dollars
(local, state and federal)(local, state and federal)
Local Fiscal Local Fiscal BenefitsBenefits CorridorCorridor
SalesSales $41$41
HotelHotel $1$1
Total LocalTotal Local $42$42
State Fiscal State Fiscal BenefitsBenefits CorridorCorridor
Sales TaxSales Tax $76$76
Personal Personal IncomeIncome $53$53
Corporate Corporate IncomeIncome $4$4
Hotel TaxHotel Tax $2$2
Unemp. Unemp. InsuranceInsurance $24$24
Franchise TaxFranchise Tax $6$6
Fuel TaxFuel Tax $17$17
Total StateTotal State $183$183
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Ports to Plains CDMP 2004
ROTI for the Ports to Plains ROTI for the Ports to Plains CorridorCorridor
Economic Benefits = $4.5 billion (using 7% Economic Benefits = $4.5 billion (using 7% discount rate)discount rate)
Cost of Corridor (2004) = $2.87 billionCost of Corridor (2004) = $2.87 billion
But thru 2030 (using 7% discount rate)But thru 2030 (using 7% discount rate)
= $1.5 billion (period comparable to = $1.5 billion (period comparable to benefits)benefits)
Producing ROTI = 3.0 : 1Producing ROTI = 3.0 : 1
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Ports to Plains CDMP 2004
Effects of Improved Freight TransportationEffects of Improved Freight Transportation
First Order BenefitsFirst Order Benefits Immediate cost reductionsImmediate cost reductions
(reduced transit times/increased (reduced transit times/increased reliability)reliability)
Second-Order BenefitsSecond-Order Benefits Reorganization effect gainsReorganization effect gains
(increases in output/input)(increases in output/input)
Third-order BenefitsThird-order Benefits Additional Reorganization effects Additional Reorganization effects (improved/new products)(improved/new products)
Other EffectsOther Effects Increase in Regional Employment Increase in Regional Employment & Income& Income
Alabama Auto Suppliers LocationsAlabama Auto Suppliers Locations
Auto Assemblers cluster at locations featuring one or more Auto Assemblers cluster at locations featuring one or more four-lane highwaysfour-lane highways
Majority of suppliers are located within 400 miles (one-day Majority of suppliers are located within 400 miles (one-day drive) of an assembly plantdrive) of an assembly plant
JIT shipments require connectivity to expanded interstate JIT shipments require connectivity to expanded interstate systemssystems
Majority of auto manufacturers locate within 5 miles of a Majority of auto manufacturers locate within 5 miles of a four-lane US or interstate highway four-lane US or interstate highway
Alabama Auto Suppliers Alabama Auto Suppliers LocationsLocations
47%
32%
15%2%4%
< 5 miles6-10 miles11-15 miles
16-20 miles> 20 miles
Auto Assemblers cluster at Auto Assemblers cluster at locations featuring one or more locations featuring one or more four-lane highwaysfour-lane highways
JIT shipments JIT shipments require require connectivityconnectivity
Proximity to 4-lane highwaysProximity to 4-lane highways
“on-line” orderto shipping the assembled
computer with software loaded and tested
reduce parts inventory from an industry
norm of 75 to 100 days to 6.6 days
36 hours
Third Order BenefitsThird Order Benefits
What Other States Have FoundWhat Other States Have Found
StateState Level of Level of InvestmentInvestment
Economic Economic BenefitBenefit
Job Job CreationCreation
South South Carolina (1)Carolina (1)
$950 million$950 million
annuallyannually$2.1 Billion$2.1 Billion 24,00024,000
Wisconsin (2)Wisconsin (2) Additional Additional $275 million$275 million
annuallyannually
$156 million $156 million increase in increase in personal personal incomeincome
4,3004,300
(1) Moore School of Business, 2003 “ The South Carolina Department of Transportation and its Economic Impact on the State of Carolina”
(2) Cambridge Systematics, Inc. 2003 “Transportation Improvements Grow Wisconsin’s Economy: The Economic Benefits of Transportation Benefits”
Creating a Economic Strategy for Creating a Economic Strategy for the Great Plains Corridorthe Great Plains Corridor
Improve access Improve access within urbanized within urbanized areaarea
Improve Improve connectivity connectivity between between production/distribproduction/distribution centersution centers
Access/circulation Access/circulation changes in rural changes in rural or urban areasor urban areas
Serve Existing Serve Existing EmployersEmployersEncourage new Encourage new compatible compatible EmployersEmployersQuality of LifeQuality of LifeFacilitate Facilitate Changing Changing Character of Character of EmployersEmployers
Jobs MaintainedJobs MaintainedPossible new Possible new industries & industries & wage growthwage growthBusiness Business Investment Investment likelylikely
Primary Economic Primary Economic Development Development ObjectivesObjectives
Ex-Ante Ex-Ante ConsiderationsConsiderations
Project TypologyProject Typology
““Go the Distance……Go the Distance……
They will come… they will most They will come… they will most definitely come”definitely come”