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Goal
Using the principles of benefit-cost analysis (BCA) or economic impact analysis (EIA), provide evidence that the benefits, including environmental, economic, and social benefits, justify the full life-cycle costs.
Sustainability Linkage
Conducting economic analyses supports all of the triple bottom line sustainability principles by ensuring that agencies consider improvements where benefits exceed the investment costs for the project through analysis of impacts to local businesses, emissions, safety, and others.
Background & Scoring Requirements
Background
For the purpose of this criterion, the key terms are defined as follows:
- “Benefit-Cost Analysis” – A BCA assesses the benefits of projects and programs in comparison to their costs. It normally includes all direct user and agency costs and benefits that the agency is able to estimate, including operating costs, travel time costs, and often other impacts such as crash and pollution costs, but broader economic impacts are excluded in traditional BCA. Benefit-cost analysis is typically applied in transportation studies to identify the net present value (NPV) of the societal benefits that can be associated with a project or program, net of the investment costs.This includes benefits that are not reflected in any monetary transaction.
- "Broader economic impacts" – Broader economic impacts include: (1) indirect impacts, which occur when industries that are directly affected by goods and services from other industries, and (2) induced impacts, which occur from increased household spending due to higher regional wages. Impacts (1) and (2) are considered "follow-on" impacts, and while they are typically included in an EIA, they are explicitly excluded from a BCA.
- "Economic Impact Analysis" – An EIA is concerned with the wider economic impacts such as equity, employment, and property values in an area’s economy due to the investment in the program or project. It includes the travel time or other costs or benefits as well as indirect and induced impacts on business growth that are not included in benefit-cost analysis. It asks the question: “What do the economic indicators of interest look like with or without a project or program?” as measured by forecasted outcomes expected to occur under each scenario. Impacts are shown by the change in the number of disenfranchised communities, jobs, in worker income, and in gross domestic product (GDP) or gross state product (GSP) that results in future years as a consequence of the transportation programs or projects. For more information, review the FHWA’s SHRP2 Solutions Easier to Use Tools for Improved Economic Analysis website 1.
Scoring Requirements
Requirement PD-01.1
2 - 5 points. Perform Economic Analyses
Scoring is based on the following, cumulative requirements:
- Requirement PD-01.1a
2 points. Benefit-Cost Analysis
A BCA for the project must be completed using acceptable industry practices. The U.S. DOT provides guidance for developing a BCA within the Tiger BCA Resource Guide2. If using the analysis to compare alternatives, one alternative that may be included is a no-build option. Performing a BCA for a project facilitates justification that the environmental, economic, and social benefits expected justify the investment costs for the project.
- Requirement PD-01.1b
3 points. Economic Impact Analysis
Perform an EIA, which includes the following (if relevant):
- Quantification of benefits, including social, environmental, and economic factors; and
- Quantification of impacts to regions, land values, and businesses.
Resources
The following resources are referenced in this criterion and consolidated here:
- FHWA, SHRP2 Solutions Easier to Use Tools for Improved Economic Analysis website, http://www.fhwa.dot.gov/goshrp2/solutions/capacity/c03_c11/economic_analysis_tools
- U.S. DOT, TIGER BCA Resource Guide (2014), http://www.dot.gov/policy-initiatives/tiger/tiger-bca-resource-guide-2014
Case Studies & Criterion Examples
Arizona DOT - Using INVEST to Integrate Sustainability: The Arizona Department of Transportation (ADOT) decided to use all three modules of INVEST – System Planning, Project Development, and Operations and Maintenance – to help the agency meet its sustainability goals across the transportation life cycle. ADOT used INVEST to integrate and advance existing sustainability efforts and to push forward new efforts. INVEST’s comprehensive sustainability framework and criteria helped ADOT institutionalize sustainability across the agency and with local partners through inclusion in manuals, trainings, and awards. This case study focuses on ADOT’s use of the Project Development module.
RIDOT - Optimizing Economic, Social, and Environmental Sustainability in Project Planning: RIDOT used the INVEST, Version 1.2 Project Development (PD) module to evaluate the social, economic, and environmental sustainability of its Dexter Street rehabilitation project. After the Dexter Street roadway project was completed in July 2016, RIDOT determined that assessing the sustainability of its project development and construction process would provide substantial value to the project team and the agency by helping to guide future projects in a more sustainable direction. Specifically, RIDOT used INVEST to identify areas of strength in its current project planning and construction process, as well as areas in need of improvement. By highlighting and noting the criteria that did not achieve full scores for the Dexter Street project, RIDOT is now in a better position to improve on these areas for future projects.
Arizona DOT - Sonoran Corridor Study: In February 2017, the Federal Highway Administration (FHWA) and Arizona Department of Transportation (ADOT) initiated an environmental review process for the Sonoran Corridor, which would connect Interstate 19 and Interstate 10 south of the Tucson International Airport. A Corridor Selection Report (CSR) and Tier 1 Environmental Impact Statement (EIS) were prepared as part of this process in accordance with the National Environmental Policy Act (NEPA) and other regulatory requirements. The project objective is to identify an appropriate and approximate 2000-foot corridor for a future roadway that would be subject to a detailed design and a Tier 2 environmental review to identify a final roadway alignment and necessary project mitigation treatments. At the direction of ADOT, this case study evaluates processes and methodologies used for development of the Sonoran Corridor Tier 1 EIS compared to INVEST guiding principles.
Scoring Sources
The project is considered to have met this criterion if the requirements above can be reasonably substantiated through the existence of one or more of the following documentation sources (or equal where not available):
- Results from a Benefit-Cost Analysis and/or Economic Impact Analysis.
- Documentation of techniques and underlying assumptions for any economic model(s) used to generate results.
