SHUTE, MIHALYU-\EINBERCERr-r-p396 HAYESSTREET, SANFRANCISCO,CA94102T: (a1s)ss2-7272 F: (a1s)552-s816www.smwlaw.comAugust 3,2015CATHERINEC. ENGBERCAttorneyengberg@s mwlaw.comVia E-Mail andFedExGarrett DamrathChief EnvironmentalPlannerCaliforniaDepartmentof TransportationDistrict7100 SouthMainStreet,MS-I6ALosAngeles,California90012garrett.damrath@dot.ca.govPhilip A. WashingtonChief Executive OfficerLosAngelesCountyMetropolitanTransportationAgencyOneGateway PlazaLosAngeles,California 90012-2952washin gtonp@metro.netRe: Route710 North SAnalysisof CostsandBenefitsDear Mr. Damrath and Mr. Washington:Thesecomments are submittedon behalf of ConnectedCities and Communitiesregardingthe Analysisof Costsand Benehts("CBA") for the StateRoute 710 NorthStudy Alternatives("Project").Our firm previouslysubmittedcomments on the adequacyof the Draft EnvironmentalImpact Report/Statement("DEIR/S") for the Project.Ourcomments, dated July 9, 2015,identif,rednumerousflawsin the DEIR/S's analysis andmitigation of a host of environmental impactsresulting from the Project,particularlyitsfreewaytunnel alternatives.TheCBA, unfortunately,perpetuatestheseeffors.The CBAconcludesthat thefreewaytunnel alternatives,particularlythe singlebore alternative,wouldhavethegreatest benefitsrelative to its costs. However, the CBA, like the DEIVS,assumesthatthe freewaytunnel alternativeswill relievetraffic congestion, when in fact the opposite istrue. Similarly, it understatesthe trueenvironmental costs of the Project-particularlywith respectto air pollutionand greenhousegasemissions-byconsideringemissionsfrom vehiclesfor only20 yearsof the 100-year life of the freewaytunnels. Conveniently,the CBA doesconsiderthe 100-yearlife of the tunnelwhenit considersProjectbenefits,and allocates a generous $769 million (singlebore)and $1.39billion (double bore)"residual value"to thesealternatives.Moreover,contraryto acceptedcost-benefitevaluationmethodology, the CBAassignsroughly$1 billion in employmentbenefits.G arrett D amrath,C al i fornia D ep artmentof TransportationPhilip A. Washington,LosAngelesMetropolitanTransportationAuthorityAugust3,2015Page 2Inclusionof these o'benefits" is all the morequestionable becausethere is no guaranteethat workers will come from the studyarea.In addition, the DEIVS doesnot identiffemployment opportunities as a Projectobjective;consequently, the CBAerrs byincludingit as a Projectbenef,rt.The followingtablesummarizesthe CBA's calculationsof net presentvalue("NPV"for eachalternative,and identifies just a few of the manyanalytical flawsreflected in the NPVestimates.Obviouslythe single bore freewaytunnelwill no longerrise to the top once the CBAis revised to include accurateassumptions andmethodology.For the reasons detailedin this letter,and the reportspreparedby Nelson\Nygaardandthe Maxima Group(attachedas Exhibits I and 2),fheCBA is deeplyflawed andmisleading. We urgeLA Metroand Caltransto correct the CBA's analysis consistentwith acceptedcost/benefitanalysis methodology and commonsense.Of criticalimportance,the revisedCBAmust clearly documenteachof its assumptionsforcalculating eachof the alternativescosts and benefits. The currentCBA providesnoAnalyticalFlawsAlternative CBA'sestimationofNPV ($NrTSNI/TDM 343FreewayTunnelSingle Bore1,477 to 1,590-37 to 506ooverstatestravel time benef,rtooverstatesresidualvalue($769 M [single bore];$1.39B [double bore])ofails to justiff inclusionof "employmentbenefits"($S08M fsingle bore]; $1.38 Bfdouble bore])Ounderstatesair pollution and GHG costsFreewayTunnelDouble BoreBRT 369-870 ooverstatesresidualvalueofails to justiff inclusionof "employmentbenefits"($714M)LRTSHUTE,MIHALY(r-utetN B E RGE R LrpG arrettDamrath,C alifornia D epartment o f TransportationPhilip A. Washington,Los AngelesMetropolitanTransportationAuthorityAugust 3,2015Page 3detailregardingassumptions or methodology and thereforethe public and decision-makers are often forcedto guessas to how the documentreaches its conclusions.I.UnderBothNEPA andCEQA'the Agencies May Not Rely on the CBAtoSelect a Preferred Alternativeor Approvethe Project.The CBAstatesthatit wasprepared at the directionof Metro's Boardof Directors,but that it is not a requirementof the NationalEnvironmentalPolicyAct ("NEPA") or theCaliforniaEnvironmental Quality Act ("CEQA"). This assertiondoesnotexcusetheagenciesfrom preparing an accurateanalysis of the Project'scosts and benefits. NEPAprohibitsagenciesfromrelying on cost-benefitanalysesthat,like thisone, containmisleading assumptions and inflatedeconomicbenefits.See Hughes RverWatershedConservancy v. Glickman(4thCir. 1996) 81 F.3d 437,446-47 (agency'srelianceon astudythatcontainedfaulty economicanalysis violated NEPA because it failed to"ensur[e] that members of the public ha[d]accurateinformationto enable them toevaluatethe Project"and"impairedfair considerationof the Project'sadverseenvironmentaleffects" ); seealso Hgh Country Conservaton Advocatesv. United StatesForest Serv,, 52 F . Supp. 3d ll7 4,1 191 (D. Colo.2014) (factthatcost benefit analysis isnotrequiredunder NEPAdoesnot permitagencyto rely on quantifiedeconomicbenefitswhile ignoringproject costs related to greenhousegas emissions).. Nor may the agenciesrely on the CBA to support any findingsor statementofoverridingconsiderationsunder CEQA.Agencies'statementsof overridingconsiderationsmust be supported by substantialevidence in the record.CEQAGuidelines, 14 CCR $ 15093(c)."The statement'sputposes are underminedif . . . itmisleadsthe readerabout the relativemagnitudeof the impactsand benefitsthe agencyhas considered." WoodwardParkHomeownersAss'n,Inc. v. Ctyof Fresno(2007)150Cal.App.4th683,718 (statement of overridingconsiderationsinvalid whereit "appliedathumbto thescale"and its assesslnent of the economiccostsand benefitsof the projectwasnot supported by substantialevidence).NEPA and CEQAthusrequirethe agencies to correct the CBA's flawed analysisprior to identifringa PreferredAlternativeor adoptingfindingsin support of anystatementof overridingconsiderations.||.The CBA Grossly OverstatesBenefitsAssociatedwith Travel TimeSavings.The CBAconcludes that the freewaytunnelalternativeswill outperformthe otheralternativeswithrespectto travel timesavingsby an entireorder of magnitude.It assigns,SHUTE,MIHALY(r=VEINBERGERu-pG arrettD amrath, C ali fornia D ep artmento f TransportationPhilip A. Washington,LosAngelesMetropolitanTransportationAuthorityAugust 3,2015Page 4for example, a "benef,it" of approximately 52.5 billion for travel timesavingsassociatedwith the single borefreewaytunnel alternative,comparedto approximately $500 millionfor the TSI\4/TDMalternative.See CBA, Exh. 3-5.The freewaytunnel alternatives' "beneflts" are based on deficient DEIR/Sanalyses,includingdeeplyflawed travel demandmodeling. Theseflaws are fullydescribedin our July 9, 2015letter,Exhibit 1 (Nelson\NygaardReport),as wellas inNelson\Nygaard'sCBAReportReview.Once corrected, the CBA's calculation of netpresentvalueof the freewayalternativeswould likelybe significantly reduced.Keyflawsof the DEIR/S,the traveldemandmodeland the CBA'straveltimesavings analysis include:aaaThe travel demandmodelandthe resultingCBAanalysis fail to account forinduced traff,rcthat wouldresultfrom the freewaytunnel alternatives.Overthe short-term,congestionmayactually be reducedas a resultof thefreewaytunnel alternatives'increasedcapacity.However,becausetheDEIR/Sonlyanalyzedtraffic-relatedimpactsfor a ten yearperiod (between2025and2035),thepurportedefficiencygains, if any, wouldbe expectedto dissipate as a resultof induceddemand.Had the DEIR/SevaluatedtheProject'simpact on traffic conditionsthrough2050,the alleged traveltimesavings, if any,wouldbe greatly diminished.Rather thanalleviatingtrafFrc, the freewaytunnel alternativeswouldsimplycausebottlenecksto shift between locations.TheCBA, like the trafficmodel, failsto recognizethisphenomenon. As an example,in the a.m. peakperiod under the NoBuild alternative,the northbound section of I-710 at I-10 is modeledas the 280th most congestedfreeway segmentin the greaterLosAngelesregion. In the dual-borefreewaytunnel alternative,thissegmentmoves up the list 256placesto becomethe 24thmost congestedfreeway segmentin the region.The CBA's sensitivityanalysis for "valueof time" reveals a bias in favor ofthe freewaytunnelusers,and againsttransitusers. Ratherthan usingafactor of $13.25 for bothautoandtransit users, the sensitivityanalysisusesa factor of 522.57 for autoand $6.35 for transit. Such figures suggest avalue judgment thatdrivers are more valuable,without any evidence.InSHUTE,MIHALY(r-utuNBERCERu-pGarrettD amrath, C al i fornia D ep artmento f TransportationPhilip A. Washington,Los AngelesMetropolitanTransportationAuthorityAugust3,2015Page 5fact, manytransitusers choose transit so that theymay work andcommunicateduring theircommute,in ways thatdriverscannot.The calculation of travel time savings commencesat "openingday" (2020or 2025) andincludes20 yearsof forecastedtravel timesavings.However,the CBAdoesnot appear to discountthese numbersfor the minimumfiveto six years of travel timelosses due to traffic delays/detoursduringtunnelconstruction.III.TheCBA UnderstatesCosts AssociatedWith Air Pollutionand GreenhouseGas Emissions.TheCBA assignsa $5-40 million "disbenefit," i.e., cost,associatedwith increasedair pollution resulting thefreewaytunnel alternatives.The TSIWTDM, BRT and LRTalternatives,on the other hand,wouldnot worsenthe region'sair qualityand arethereforeassigneda benefit of $10-$30 million.The CBA'smonetization of costs associatedwithair pollution resulting from thefreewaytunnelalternativesis grosslyunderstated, for the followingreasons:The CBAignores the sharpincreasein particulate emissionsthat wouldoccurduring the minimum five to six yearsof tunnel construction.TheCBAshouldmonetizetheseconstruction-relatedimpacts.The DEIVSconcludesthat the freewaytunnel alternativeswouldresultina substantialregional beneft for publichealth.Yet, in directcontrasttothis f,rnding,the DEIVS's technicalappendixdisclosesthat the freewaytunnel alternativeswould causelocalized cancerincreasedueto addedvehicle emissions. In fact, the technicalappendixdeterminesthattheincreasedcancerrisk at certainlocationswould be a staggering149in Imillion, compared to the SouthCoast Air Quality ManagementDistrict's10-in-1million cancerrisk significancethreshold. Giventhe DEIR/S'seffoneousand highly misleading finding regardingthe tunnel alternatives'alleged healthbenefts,it is likelythat the CBAassumedthese samebenefts.A CBA thataccuratelyreflectedthef,rndings in the DEIR/S'stechnical appendiceswouldhavetaken intoaccountthe economicburdenof cancersuchas healthcare expendituresand productivity loss. The CBAshould be revised to include an accuratemonetization of these healthimpacts.SHUTE,MIHALY(r-u,tetNBERGERu_pooGarrett D amrath, C aliforni a D ep artmento f TransportationPhilip A. Washington,Los AngelesMetropolitanTransportationAuthorityAugust 3,2015Page 6o As explainedin The Maxima's Groupreport,the CBAfails to consider ormonetizethe adverse healtheffectsassociated with venting concentratedvehicle emissions fromthe freewaytunnelsinto near-roadwaycommunities.Theseadverse healtheffectsincludeincreasedrates ofasthma,ear-nose-throatinfections, heartattack and stroke.rThe CBA ignoresandfails to monetizethe longterm increaseingreenhousegas emissions that will resultover the 1O0-yearlife of thetunnelalternatives.SeeHighCountry Conserv.Advocates,52F.Supp.3dat1191 (agency'sfailureto considereconomiccosts of greenhousegasemissionsviolatesNEPA).IV.TheCBA Includes ResidualBenefitsWhiteIgnoringResidualCosts.The CBA's analysis generally includes20 yearsof projectedcosts andbenefits.However, it skewsthe analysis heavilytoward the tunnel alternativesby assigning a 100-year "residual benefit"to these alternative.The CBA's approachis flawed, for severalreasons:o The CBA's approachruns contraryto Caltranscost-benefitevaluationmethodology,which includesno guidance for assigninga "residual value."o The CBAfails to include commensurate"residualcosts"associated withthe freewaytunnel alternatives'increasedair pollution, greenhousegasemissions andtraffic congestion.o The CBA's inclusionof residualvalueinflatesthe tunnelalternatives'purportedbenefitsand misleads the public,in violationof NEPA.,SeGlickman,Sl F.3d af 446-47.V.The CBA Failsto Justify Inclusionof Purported EmploymentBenefits.The CBA tipsthe scalesin favor of the tunnel alternativesby assigning roughly$1billion in employmentbenefts to these alternatives.Thispurported"benefit" has noplace in the CBAor in the agencies'considerationof the Project,for the followingreasons:The CBA's approachruns contraryto Caltranscost-benefitevaluationmethodology.aSHUTE,MIHALYC1.--\EINBERGERilpGarrett D amrath, C alifornia D ep artm ent of TransportationPhilip A. Washington,LosAngelesMetropolitanTransportationAuthorityAugust 3,2015PageTaoThe DEIR/Sdoesnot identiff increasedemploymentof constructionandmaintenance workers as a ProjectObjective.Employmentearningswouldnot defrayproject costs becauseit is likelythat alargeportionof thoseearningswouldbe accumulated outside thestudy area.Althoughthisis notdisclosed in theCBA, discussionwith one of theconsultants involvedin its preparationrevealedthat the estimateofjobscreatedis simplybased uponan assumed creationmetricof x numberofjobs per construction dollar. This approachincorrectlyinflatesthe numberofjobs attributedto the tunnelalternativessince the tunnelboring machinesshould cost a minimum of $80 million;theuse of two TBMs is plannedforsingle bore tunnelconstruction, and fourfor the dual boretunnels.Sinceno TBM manufactureris locatedin California,let alonethe UnitedStates,the numberofjobs attributedto suchalternativesis significantly inflated.oVI.ConclusionIn conclusion,the CBA's errors are not flyspeck;theyunderminethe document'sentire analysis. LA Metro and Caltrans must revise the CBA to correctits flawed analysisprior to identiringa preferredProject alternative.Verytruly yours,SHUTE, MIHALY& WEINBERGERLLPCatherine C. EngbergRachel B. HooperLaurel L. Impett, AICPListof ExhibitsExhibit 1: Nelson\Nygaard CBA ReportReview(July 16,2015)Exhibit 2:TheMaximaGroup'sCommentson Metro's710AlternativesCostBenef,rtAnalysis(July 23, 2015)SHUTE,MIHALYe}-\EINBERGERLpExhbit 1MEMORANDUMTo:ProiectTeomFrom: Poul MooreDote: July I 6,2015Subiect: Nelson\NygoordGBA ReportReviewFollowingis Nelson\Nygaard'sinitial reviewof the"Analysis of CostsandBenefitsfortheStateRoute 7ro North Study Alternatives"(CBA) developedby Metro,released onJuneLg,2ot1.Methodof Presentation of BenefitsThe CBAstatesthatbenefits"are typicallyexaminedindependent oftheir relationshipto costs."This is false.Noone responsiblefor a budgetwouldcontendthat magnitudeof cost is irrelevant.By choosingto presentthe "results"in terms of net presentvaluerather thana ratioofbenefit tocost,thereportfavorsbigness.This is anincompletepictureof theeffectivenessof spendinglimitedfiscal resources - in thecaseof thefreewaytunnels,resources thatare not available.Aspresentedin the report,the order ofpreference(ranked by net presentvaluein millions) is:SingleBore FreewayDualBore Freeway'BRTTSMfTDMtT$r"sgo$506$sog$344-$soIf, however,the alternatives were presentedin terms of theratioofbenefit to cost,theresultswouldbequite different:TSM/TDM2.3SingleBore Freeway1.8BRTL.IDualBoreFreeway1.1LRT0.6The TSM/TDMalternative(evenas poordesignedasit is in the DEIR)clearprovidesmorepublicbenefitperdollarspent.It stands to reasonthatthe best way to create morenet presentvaluewould be to ramp up the TSM/TDMspendingto thesame levelas the single boretunnelspending.If as much moneywere spentonTSM/TDMas is projected for the single borefreewayand thesame2.3ratio held, the TSM/TDMalternativewouldprovide $z,693,ooo,ooo of benefit- over $r billion morethanthesingleboretunnel. This seems like a soundstrategyto explore.BRTAlternative CostsThe bulk of costfor the BRTalternativeappearsto be operatingandmaintenance(O&M)costandTSM/TDMsupplementalenhancements.However,the informationprovidedraisessomequestions:TSM/TDMEachof the buildalternatives includes someelementsofTSM/TDM. Bothfreewayalternativesand the LRTinclude about $So million.TheBRT alternative,however,includes $roz million -near equal to the constructioncost ofthe BRT itself. Theremay be two possibleexplanations:1.Enhancedsupportfor the corebus service - Formore detail, the document refersthereaderto the SR 7to NorthSrudy - BRTOperatingPlan(CHzMHill. Marchgr, zot4).That document hasa sectionentitledTSMAlternative (Bus Components),whichpresumably documentswhat theseTSM/TDMcomponentsareintended to be. Thatsectionsays"These enhancementsrelateprimarito frequencyof service. By providinghigher frequencyseryicethroughoutthestudy area,localbus transitbecomesanincreasinglyviablealternativeto privateautomobiletravel whilereducingtraveltimesandenhancingmobilitysignificantlyfor existing transitusers."If the costof substantiallyincreasingbus service throughoutthe study areais being assignedto the BRT as a cost,then Metroshouldconfirmthattheresultingridership increasesthatwould be expectedhavebeen calculatedin the alternative's benefits.If not, thesecostsshouldbe removedfromthe anasis.2.Simplisticapplicationof a rule of thumb - TheCBA,on page 2-T hasa short paragraphthat suggests"TSM/TDMAlternativecosts weredeterminedforeachintersection,localstreet,and hook ramp locationbased on a valueof $zo,ooo per intersectionand perITSlocation,and $S3,ooo per lanemile."If the methodolog'usedforthisanalysis wassimplyapplythese linearcoststo theBRT alternative(which is twice as long asthe LRTalternative)withoutany modelingofthe attendantbenefits,thiscost shouldbesubtracted.O&M CostTheCBAcovers thecost of operatingBRT asthe most substantialelementoftheoverall cost ofthisalternative.The reportindicatesthatthesecostsamount to a fullyallocatedcostrateof$tg+.Zo per revenue servicehour. This is a reasonablenumberconsistentwithMetro's reportingand is inclusiveof all O&Mcosts.The CBAindicatesthatthesehour costsadd up to $28 millionannually(Tablez-3), howeverthe SR 7to NorthStudy - BRTOperatingPlanindicatesthesecostsareonly $5 millionfor themore expensive of thetwoBRT alternatives basedontheserviceplan outlined(Tabler). It is not clear whythe numbershownin the CBAis somuchhigher.If these costswere, in fact, adjusteddownward,it is likely that the BRT alternativewouldapproacha ratioofbenefitto costverysimilarto the 2.3 achieved by the TSM/TDMalternative.In any event,it wouldonly takea minor downwardcost adjustmentto cause theBRTto performbetter thanthesingle bore tunnel.Valueof TimePagesz-randz-zgo into some detailaboutwhy and how the Cal - B/C modelwaschosenasthetool forthisanalysis.However,the sensitivityanalysisincludes a notethata "differentvalueoftime(VOT)featuringdifferentVOTs for autoand transit userswasapplied - 8zz.S7 forautoand$6.9S for transit(zor4prices) - insteadofthe Cal-B/Cassumptions ($13.25 forboth autoandtransit)."The document doesnot explain the logicforthis analysis,nor why it hasany relevance.This is concerning as it seemsto suggesta valuejudgment thatthetimeof onegroup of modalusersis morevaluable thananother.Even if a narrowanalysisofthe currentincomesof regionaldrivers versestransit ridersillustratedthis typeof disparity,factoringdecision-makingprocessesto favor those who arecurrent moreaffluentis a path to hard-wiring poverty. The region and itstransportation agenciesare allcommittedto equitabletransportation options, soit is importantthatprojectselectionprocessesbe structureto support these goals.Including ananalysisthatsuggestsotherwise, could inappropriateinfluencereadersof the report.The basisforandrelevanceof thiselementof thesensitivityanalysisshould beexplainedmorefullyand Metroshould considerremovingthisanalysisaltogether.Rather,the oppositerelationshipcouldbe argued.Timespentontransit is less "lost"timethanthatspentdriving, sincetransit riderscan workor communicatein waysthat cardrivers cannot.Thisis, in fact,why many riderschoosetransit over driving.The CBAfails to accountfor thisreal.AccountineforTollsThe CBAreportindicatesthattollswere not includedasa CBAbenefit(or disbenefit)becausetheyareconsidered"transferbenefits."Presumablythis means thatsincethe tolls paidby userswill helpto defraythe cost ofthe tunnelthey wouldbepresenton bothsidesof a cost/benefitequation(or ratio) and thereforeneed notbeaccounted.This is a fallacious conclusionformultiple reasonsbut specificabecausethereis no guaranteethat the tolls collectedover thezoyear periodof CBAanalysiswill cover thefull privatecontributionto tunnelconstruction.It isinaccurateto ignore the disbenefitof all of the tolls collectedpast the 20yearanalysisperiodwhileassigninga residual valueof the constructedtunnel as a benefit.In simple terms (with noadjustments made to presentdollars)here is howthe math wouldchange:Assumption Set t (Similar to CBAAnaIgsis)a. TunnelCost: $3 Billionb.TimeBenefit: 4oo MillionPerson Hours @ gr3/hr = gsBillionc.ResidualValue: g75o BillionRatio of Benefits to Costs: ((b+c)/a) = 1.9Assumption Set z (More accurateMethodology)a. TunnelCost: ($3 Billionminus $r.6 B Toll Revenue after DebtService) = $r.4 Billionb.TimeBenefit: 4oo MillionPerson Hours @ gr3/hr = g5Billionc.ResidualValue: gZSo Billiond. TollsCollected = (610 Million Trips x $+) = $2.+ BillionRatio of Benefits to Costs: ((b+c)/(a+d)) = r.sAs stated, theabove is a simplisticdemonstrationmeantto illustratethatomittingthe tolls fromtheanalysisresults in four primaryproblems:1. BasicMath - Lookingat ratiosbuilt of numerous factors meansthatpresenceof tolls (ortoll-relatedborrowing) in the numeratorand denominatordoesnot necessaricancel.z.Costof Money - Any tollmoneythatis intended to fund constructiondoesnot existat thetimeof tunnel constructionand so mustbe borrowed,with interest.3. Incompatibletime cycles - The CBAonly analyzeda zo year period for costsand benefits,then gave the residualvalueofthetunnellife cyclebackas a benefit.This wouldonlybevalidif alltollswere collectedand done in the zo year window,which theylikelywon't be.The above analysisquantifiesthiszo years oftollingandonly gives that levelof relief tothetunnelcost.4. Tolls affect behavior - Tollsarenot simplya "transferbenefit."Thetolls areresponsiblefor much of the traveltimebenefit.As statedon pageES-3of theDEIR "the traveltimesavings do not factorin the costof tolls, whichin the single-borevariationsfunctiontokeepthetunneloperatingat a higher speed."To accountfor the benefitoftimesavingswhileignoringthe cost is counter to thepointof a benefit/costanalysis.TheCBAshouldbere-run accountingfortoll revenues (andthecost of servicingthedebt) andassociatedtravel behaviorchangesto better understandtheir effects on costsandbenefits.FlawedModelingResultsTheanalysis substantiallyoverestimatestravel timesavings.This is problematicsincepage2-1ostatesthattravel time "oftenproducesthe majority ofthebenefits"of a CBA. An erroron thiselementis significant.Theanalysisoftraveltimesavings are flawed in severalways:1. Ashas been documented elsewhere, the travelanasisperformed forthe DEIR(andusedfor theCBA)didnotaccountfor theproven dSmamic of inducedtravel.2. The descriptionof methodology on pagee-to refersto calculationoftraffic growthover2o-yearsat r% compounded annua.Notonly doesthisseem odd,giventheavailabilof a traveldemandmodelthat reports vehicledelays,but theassumptionflysin the faceof availabledata whichsuggesttraffic volumes havebeenfair steadyover the past 30years.3. The methodologysuggeststhat trave-l timewasonly calculatedfor highwayusers.Inparticular,it makes no sense to evaluatea transit alternativeand not accountfor thetravel time of actualtransit riders.It is not appropriateto ignore,forexample,all of thecurrentlocalbusriders,pedestriansand cyclistswhose travel timemaybeimproved bytheBRT,LRTor TSM/TDMalternatives.The factthatthesetravelersdo not currentdrive in a car should notnegatethebenefitsthattheywill accruefrom improvedtransitservice.4. The DEIRignoressignificantdelaysthat wouldresult from constructionofthe dual boretunnel.TheDEIRmodel doesnot includespillback (traffic backups,commonin LosAngeles, thatspill over into upstream segments and accumuate),butinsteadassumesthatall carswill getthroughthe bottleneck. TheEIR modelnumbersfor I-7ronorthboundat I-ro (theprimary upstream source of northboundtunneltraffic)indicatesthat traffic wouldbegin spillingback aT7 a.m.andthe queuewouldgetlonger and longerduringtheday.If thiswereaccountedfor, thatsegment wouldmove from the z8othmostcongested freewaysegmentin thegreaterLos Angelesregion (as reported by theDEIR) to become the z4ttt. To failto accountfor thismassive degradation is unacceptable.Other Fiscal QuestionsAssumptionsaboutlong term employment(which the CBAestimatedbasedupon Europeanresearch)and residualvalue (which like much ofthe CBAassessmentappearsto favor mega-infrastructure) arenot addressed in thismemoand will beleft to an economicanalyst.Exhbit 2THE MAXIMAGROUPLLCReolEsloleondBusinessSolulions23 Jvly2015To:Project TeomFrom: Potricio FlynnSubject: lnitiol Commentson Metro'sZl0 AlternotvesCostBenefit Anolysis(CBA)I hovereod the Metro 7,l0 AlternotivesCostBenefit Anolysis(CBA) doted June 19,2015ond offer the followingpreliminorycommentsoboutthe finonciolond economicospects of the onolysisond the report.sed it isThe net presentvolue opprooch to evoluoting projects hos three keyottributes:NPV considersboth coshflows ond limingNPV uses oll the coshflows of the projectNPV discountsthe coshflows properlyThe chollengewith public infrostructureprojects is to occurotelycoptureoll of oproject's coshflows; determineon opproprioteperiodof time for the onolysis;ossigno discount rote thot reflectsproject risk; ond determineo residuol voluethotcopluresfuturebenefits beyond the onolysisperiod.mesel lude ihnnni*nlrainvestmentin*ar'luilhthafi rnnalnl*arnoliveln oddition to the significont differencesin the initiol copitolcostossocioted withthe tunnel ond the TSM/TDMondBRTolternotives, eochproject hos o differenlrequirementfor periodic copitolinvestmenilo keepthe infrostructurein workingorder. This copturescostsoboveondbeyond regulor operolionsondmointenonce,ond includes replocementof roodwoys, equipment,ond othercostlycopitolitems.The CBAdiscusses copitolreplocementcosts in Section2.2.2.2where it stotesthot "Reconstructionof povemenl os ossumedto cosl $i,2s0,000 perlone mileond toke ploceeverytwentyyeors with trucks presentond everythiriy yeors forthe freewoy olternotivewithouitrucks."Giventhe twentyyeor onolysisperiod, itseemsos lhoughthe significont requiredcopitolreinvesiment ossocioledwiththe tunnel olternotiveswillnot be fully reflecledin the onnuolcoshflows.for2.nc{c ^c^^PogeI of33. The employment benefitis directlycorreloted to copitolcost, skewing thebenefitsto the most costlyolternotives.Employment benefitsore directlycorreloted to copitolexpenditures.Thedisporityin copitol costs insuresthot the highercost projectswill generote morejobs thon lowercost olternoiives.4. luusefullife,fovoringthe higher cost olternotives.The residuol voluecolculolionin the CBA seemsio refer to the remoining usefullife of the project rotherthon the estimqtedvolueof future benefits. Residuolvolueis better estimotedby copitolizingthe net operoting income(expectedfuture revenuesor benefits less operoting costs)to opproximote the volueofproject benefitsbeyond the onolyticol period. Thiscopitolizedvolue isdecreosed by the copitolcostsrequired for on-goingoperotions.Evenif thecopitolreinvestmeni is not reflected in the onolysisperiod (see comment1), itconond shouldbe included in the determinotionof residuolvolue.The CBAdiscussesresiduol volue with respect to the tunnel olternotives,but doesnot providemuchdetoil for the olternotives.Thetunnel residuolvolueisesiimoted be the remoiningusefullife of the osset, ond nol the volueof thefuture benefitsit will provideless the copitolreinvestmentrequired to keep itoperotionql in the future.Thisis inconsistentwith the principolsof net presentvolueonolysis.Furthermore,the significonldifferencesin cost for the ronge of projecis ossuresthot the tunnel olternotives with theirhugeinitiol copiiol costs will hoveresiduolvoluesthot overwhelmthe lower cosl olternotives.5. The discountroteused does not reflect the differentiolin riskossocioledwith lhevorious options.The CBA ossumeslhot oll projecis will be discountedof lhe somerote (fourpercent). Thisis conceptuollyincorrectond inconsistenlwilhthe view of copitolmorkets.The discount role is correloted To the riskinessof the project: the higherthe risk,the higherthe discount rote. li is cleorthol o TSM/TDMprojeci, for exomple,issignificontly less riskyin both constructionond operotion thon o tunnel.Assumingthotbenefils from both projects would be volued of the somediscount rote isincorrectond skewsthe onolysisto fovorthe more riskytunnel olternotives.Copitol morketsossume o discount rote for the project thot looks of Theweightedoverogecosl of copitol. Very lorge infrosiructure projectstypicollyhove privotesectorinvestmenlond porticipotion.The required return on privolecopitolis often 20 percent or more.Thishigherreturnrequirementreflectsboththe riskinessof the project ond meonsthot theweightedoveroge costof copitolis significontly higherthon lowercosls olternotives thot ore publicly funded.Poge 2 of 36Usingthe some discount roie for oll of the olternotives in the CBA ignores lhesignificont riskossocioted withconstructionond operotionsof the tunnelolternotives ond overstotestheirnet present volue.mt tooventing. The methodologyfor estimoting the emissions-relotedcosts ondbenefitsof the proposed olternotives seemsverysimplistic,relyingon the Col B/Cmodelto estimote the difference in emissions betweenthe vorious olternotivesbosedon chongesin VMT.Thisopproochdoes not occount for lheconcentrotionin emissions likelyto result from the ventingplon for ihe tunneloliernotives. Theseventshovethe potentiol to concentrotechemicol pollution,diesel micro-porticles, ondbroke ond tire porticlesof the tunnelventingsites.Numerous studies hove identified the public heolthcostsossocioted with oirpollution. The USCEnvironmentolHeolthCentersof the KeckSchoolof Medicinehove been prominent in the reseorchof the heolthospectsof neor-roodwoyoirpollution. Studiescleorly show the higherriskof osthmo; eor, noseond throotinfections; heort ottock; ond stroke in locotions impocted by concentrotedtruckond oulotroffic.A July 2015 studyby the EnvironmentolHeolthCentersdetoilsthe impoctof neor-roodwoy pollution on coronoryheori heolth.Thesociolond economiccostsossocioted with chronic heolthconditions,whilechollenging to estimote, ore reol ondsignificont. Thisincludesdirectcosts suchos hospitolizotionond long-termtreotment os well os indirectcosts such os lostlime of work,obsenteeism of work/school,ond loss of productivity.TheCol B/Cestimote of emissionsimpoctsdoes not oddresspublic heolthconsiderotionsgiven the venting plon for the proposedtunnel olternotives.The misopplicotionof the NPVopprooch ond the use of incorrectossumptions,the incompleteonolysisof long-termcostssuch os the public heolth impocl ofventedemissions, olongwithihe issuesroised in the NelsonNygoordmemodoted June23, 2015 cost significontdoubton the integrity of the ZIOExlensioncBAond suggesfthere shouldbe o differentopprooch lo the economiccomporisonof project olternotives.The rotio of benefils to cosls, os discussedinthe NelsonNygoordmemo,is o betterindicotion of the relotive merits of lheolternotiveprojects.Poge 3 of 3