Monday, February 12, 2007

RTA Capital Plan Trips Over ROI

The previous post questioned the wisdom of the proposal of the RTA and the Moving Beyond Congestion proponents in their recently-released Final Report for $10 billion in additional capital funding for public transit in the six-county region over the next five years. That proposal results in the following allocation of the available and proposed new capital dollars:

CTA 45.2%
Metra 50.3 %
Pace 4.5%

In other words, the CTA gets a bit more than half of the capital dollars relative to its 80% share of transit riders in the region while Metra's share of capital dollars is more than three times as large as its 14% share of transit riders.

Almost $6 billion of the proposed package is devoted to projects that "enhance" or "expand" the region's public transit system. Here the emphasis on suburban transit investments over investments in the urban core of the region that generates 80% of the trips by transit is even more pronounced:

CTA 16.9%
Metra 75.9%
Pace 7.2%

The Report itself casts serious doubt on the notion that the region is likely to maximize the benefits from an increased investment in public transit--e.g., traffic congestion relief--by concentrating that investment on transit serving the relatively low-density suburban areas.

Pages 69-76 of the Report contains a return on investment analysis of the $10 billion in proposed new capital investment and the $2 billion in proposed new operating subsidies. The ROI analyses considers five categories of benefits associated with public transit:

Direct user benefits (e.g., cost savings received by transit users)
Reduction in accident rates (travel on transit is safer than travel by car)
Reduction in air pollution
Reduced need for parking spaces
Reduced roadway congestion

Through various assumptions and methodologies the RTA came to the following conclusions:

Capital Investment ROI

Cost: $12.4 billion (includes both existing capital funding and $10 billion in new funding)
Benefit: $13.6 billion

ROI: 1.1 to 1

Operating Subsidy ROI

Cost: $10.1 billion
Benefit: $28.8 billion

ROI: 2.9 to 1

The projected ROI for the capital plan--which is heavily tilted to suburban transit--is marginal at best. A dollar of capital investment yields only $1.10 of benefit.

The projected ROI for the proposed new operating subsidies--which will go predominately to the CTA--is much more robust. A dollar spent for that use yields almost $3 of benefit.

I'm no economist, but doesn't the meager ROI for the proposed capital plan suggest two things that are not necessarily mutually exclusive. First, it suggests that the plan results in an over investment in transit and that the optimum level of investment--one that will generate a more robust ROI--is much less than $10 billion. Second, the anemic ROI suggests that the proposed plan focuses investment in the wrong places, namely, in areas that lack the density and transit-supportive land-use policies necessary to sustain a public transit system with high ridership levels.

Can we infer even more from this striking ROI differential? The robust ROI from the proposed operating subsidies suggest that even more investment in transit serving the urban core will yield a higher ROI than heavy capital investment in new suburban transit. In other words, if the operating subsidies necessary to maintain the CTA system yield a 3:1 ROI then maybe it makes sense to fund additional service in the urban core until the ROI begins to drop off.

There should be some ROI standard--let's arbitrarily say it might be 2:1--that will come when money now allocated predominately to expand the suburban transit infrastructure is reallocated to transit in the urban core. As that reallocation proceeds, the remaining suburban investments will presumably show an increased ROI and the new urban core investments will show a decreased ROI. At some point in the reallocation process we will hit that ratio sweet spot whatever it might be.

Again, I caution that I am not an economist. Nevertheless, the anemic ROI associated with the RTA's proposed capital plan that is heavily tilted in favor of suburban transit and the relatively robust ROI associated with operating subsidies directed at transit serving the region's urban core should be a warning. That ROI disparity is a warning that the request for more funding by the Moving Beyond Congestion proponents and the RTA and their proposed allocation of those new funds may not be in the region's best interest.

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