Hiawatha Light Rail Transit:A Cost-Benefit Analysis

Ellie Delancey

Albert d’Hoste

Meredith Fisher

Mason Joshua

Public Expenditure Analysis

April 30, 2005

Presentation Structure

I. Project Background

II. Benefits

III. Costs

IV. Synthesis

V. Conclusion

WHAT IS A LIGHT RAIL TRANSIT?

• Lightweight passenger rail cars operating on a two-rail track similar to railroad tracks• Driven electronically with power drawn from anoverhead electric line• Usually runs on the street with the right of way

GOALS FOR THE HIAWATHA LIGHT RAIL

Expand travel options throughout the City of Minnesota with the light rail transit service and the alteration of select bus routes

Attract new business opportunities in the areas linked by the light rail as well as provide a more efficient means of transport for adjacent businesses

Maintain nearby areas by incorporating the advice of residents and businesses with standing into the plans for land use and station area development

http://www.ce.umn.edu/~levinson/ce5212/Case8/CS8.html

ALTERNATIVES TO A LIGHT RAIL TRANSIT LINE

• Do nothing

• Increase the frequency of buses and diversify the routes

STATISTICS• The light rail system is 12 miles long, connecting downtown Minneapolis, Minneapolis/St. Paul International Airport, and Mall of America in Bloomington

• 17 stations, 24 cars each 94 ft. long

• Top speed at 55mph with general service speed of 40mph and slower speed downtown

•Current ridership expected is approx. 19,300 per weekday in 2005

•Timed transfers with buses

LRT ROUTE SELECTION

Routes chosen based upon:• highly trafficked areas• cost of construction• ridership potential• areas formerly serviced by

railroad lines

PROJECT TIMELINE

Ground broken for Hiawatha LRT project

First segment of Hiawatha LRT opened

Began service to airport and Mall of America

2001

2002

2003

20042000

19971995

Citizen transit supporters met to discuss the need for rail transit service in Minnesota

*(not to scale)

1998

1999

1996

State funding for light rail obtained

FINANCING FOR HIAWATHA LRT

The Hiawatha LRT was financed through federal and local grants.

Source: http://www.metrocouncil.org/transportation/lrt/lrt-overview.htm

Source Amount (in millions)

FTA Section 5309 New Starts $334.30

State of Minnesota 100

Metropolitan Airports Commission 87

Hennepin County Regional Rail Authority 84.2

Federal Congestion Mitigation & Air Quality 49.8

Transit Capital Grant 39.9

Minnesota Department of Transportation 20.1

Total $715.30

FINANCING FOR HIAWATHA LRT (cont.)

…a different perspective on the LRT financing…

Level of State & Local Involvement

46%

14%

12%

12%

7%

6% 3%

FTA Section 5309 New Starts

State of Minnesota

Metropolitan Airports Commission

Hennepin County Regional RailAuthority

Federal Congestion Mitigation & AirQuality

Transit Capital Grant

Minnesota Department ofTransportation

Benefits

Benefits

I. Quantitative

II. Supplementary

III. Qualitative

IV. Methodology

BenefitsI. Quantitative

Travel time savings $123.0

Remaining capital value $77.1

Avoided auto operating costs $66.3

Crash costs reduction $26.3

Pollution reduction $25.5

Total Quantitative Benefits $318.1

source: Final Hiawatha Corridor LRT Benefit-Cost Analysis, Minnesota Dept. of

Transportation, Office of Investment Management 1999

In millions of $’s

BenefitsII. Supplementary

Avoided public infrastructure $32.3

Avoided auto ownership $18.0

Parking ramps not built $11.1

Total Potential Benefits $61.4

• Depends entirely on altered behavior, which is difficult to predict

source: Final Hiawatha Corridor LRT Benefit-Cost Analysis, Minnesota Dept. of

Transportation, Office of Investment Management 1999

In millions of $’s

BenefitsIII. Qualitative

• Stimulate urban redevelopment• Provide transportation for low income

travelers• Serve as the catalyst towards a more

comprehensive transit network• Promote transit-oriented development

– centralized business and residential zones encourage transit use, lessening dependence on autos

BenefitsIV. Methodology – Travel Time Savings

• Largest benefit by far• Less congestion• Time savings for both drivers and LRT riders

222,664 hours x $9.12

7.9 minutes saved per ride

BenefitsMethodology – Remaining Capital Value

LRT capital $40.85

Utility relocation $26.30

Highways $8.92

Supplementary Parking

$1.03

Total Discounted

PV in ’99 $

$77.1

• Bulk of capital value derived from facilities

• Utility relocation benefits private and public utility companies

In millions of $’s

BenefitsMethodology – Avoided Auto Op. Costs

• Parked cars don’t need gas and depreciate less

(4,173,765 VMT x $0.26) ÷ discount factor

BenefitsMethodology – Bus Crash Avoidance

• Why assume a reduction in bus VMTs at all?• Bus ridership actually increased in five LRT

cities

- = ÷ =

BenefitsMethodology – Car Crash Avoidance

• Parked cars can’t wreck

- = ÷ =

BenefitsMethodology – Pollution Reduction

Decreased auto usage ► less emissions

Economic benefits ►reduced health care costs associated with pollution

x

Unadjusted Total Benefits

in millions $

24%

39%

21%

8%

8%

Travel Time$123.0

Remaining Capital Value$77.1

Avoided Auto Operating Costs

$66.3

Reduced Accidents$26.3

Reduced Pollution$25.5

Unadjusted Total Benefits =

$318.1 million

Costs

Costs

I. Breakdown

II. Methodology

CostsI. Breakdown

Capital costs $460.6

Operating costs $167.4

Utility relocation $90.7

Highway improvements $40.3

Supplementary parking $6.4

Total Costs $765.4

Source: Minnesota Dept of TransportationOffice of Investment Management

(in millions)

CostsII. Methodology – Capital Costs

1999 $42.6

2000 $39.3

2001 $80.7

2002 $155.3

2003 $112.2

2004 $26.1

2005 $4.3

Total Capital Costs

$460.6

Source: Minnesota Dept of TransportationOffice of Investment Management

CostsMethodology – Operating Costs

Source: Minnesota Dept of TransportationOffice of Investment Management

Operating costs Methodology (contd)

• LRT Operating costs are in 1999 dollars per

year.

• The inflation rate assumed was 2%

• Also, the following real discount rate was used: 3.3% (inclusive of the inflation rate above)

CostsMethodology – Other Costs

Utility relocation $90.7

Highway improvements $40.3

Supplementary parking $6.4

• The next table explains how these costs were calculated.

Source: Minnesota Dept of TransportationOffice of Investment Management

Total Costs

NPV of Total Costs = $765. 4

1%22%

12%

60%5%

Utility Relocation

Capital

Highway Investments

Supplementary Parking

Operating

Source: Minnesota Dept of TransportationOffice of Investment Management

Synthesis

Synthesis: testing the core assumptions

Good News- Ridership projections

Bad News- Discount rate- Capital costs- Time savings- Reduced crash risk- Avoided auto costs- Operating costs

First the good news…

Actual ridership figures were higher than projected

• Since opening on June 26, 2004, customers have taken 2.9 million rides, which is double the estimated projection

• Ridership has been so high that 3 new light rail cars were purchased

• Nearly 40% are new to public transit

Source: Light Rail Now NewsLog. Minneapolis: Nearly 40% of light rail riders are new to transit. February 16, 2005. www.lightrailnow.org/news/n_newslog002.htm#MIN_20050216

And now the bad news…

The discount rate chosen inflates benefits and deflates costs

Source: Minnesota Department of Transportation. Final Hiawatha Corridor LRT Benefit-Cost Analysis. November 4, 1999

Base Case Conservative Optimistic

Discount rate 3.30% 7% 2%

Benefit-cost ratio 0.42 0.27 0.48

Sensitivity analysis, LRT benefit-cost study

The conservative estimate is closer to the real opportunity cost of capital, which reflects the market rate of investment

Capital costs were likely higher than projected

• Project approved at $400 million in 1997 – since then it has grown to $715 million

• Officials say the expansion was a result of changes and added features, not overspending

• But, “overspending” is in the eye of the beholder…

“If you keep changing the number, then of what significance is that…we will never know how much it costs.” – Rep. Phil Krinkie, R-Shoreville

Source: Duluth News Tribune, Project officials say light-rail line to arrive on budget. July 13, 2004

Time savings either zero or negative

• Almost immediately after the rail opened, motorists noticed a significant increase in congestion

• Planners programmed traffic lights to give priority to trains – previously lights were synchronized to speed traffic flow with minimal stops

• The effect: an additional 10-20 minute commute for those commuting on Highway 55

Source: Duluth News Tribune. Light rail could mean worse traffic in south Minneapolis. June 25, 2004

Time savings estimates have a dramatic effect on benefit/cost ratio

Present Value, 1999 dollars Share

BenefitsTravel time savings 0 0%Crash risk 26,276,501 13%Avoided auto operating costs 66,256,139 34%Environmental 25,472,565 13%Remaining capital value 77,104,286 40%Present value of Total Benefits 195,109,491 100%

Benefit-cost ratio 0.25

Decrease from 0.42!

Reduced crash risk benefits either zero or negative

According to Federal Highway Transportation experts:Drivers have responded to long waits with U-turns and signal violations, creating "potential severe safety issues".

• Thus, because of signal timing and congestion issues, crash risk has actually increased!

Source: NBC News, KARE11. Report: Light Rail Slows Street Traffic www.kare11.com/news/news_article.aspx?storyid=72841

Higher ridership has low effect on avoided auto operating costs

Annual Ridership

New LRT from auto daily

PV avoided operating costs

1999 86,801,215$

2000(before = $66,256,139)

2001200220032004 2,900,000 7,2042005 6,295,000 7,8192028 14,199,404 17,636

*Estimates assume double the rate of growth (3.6% vs. 1.8%) and the increased actual ridership estimates

*

Avoided auto operating costs are overestimated

• Planners assumed that cars cost 26¢ per mile to operate

• However, this estimate includes variable costs like gasoline and fixed costs like insurance

• About half of the cost of a car is fixed

Source: Capital Roundup. Committee on State Government Finance learns more about light rail. December 9, 1999. www.hometownsource.com/capitol/1999/december/1209.html

So, unless light rail causes people to sell their cars, then the estimate should be cut in half – from $66.3 million to $32.15 million

Operating costs were double discounted!

Operating cost in 1999 dollars (000s)

Discount factor

Present Value Operating

Costs (000s) NPV1999 1.00 - 167,3912000 1.03 -2001 1.07 -2002 1.10 -2003 3,358 1.14 2,9492004 6,717 1.18 5,7102005 11,384 1.22 9,3692006 11,384 1.26 9,0702007 11,384 1.30 8,780

Source: Minnesota Department of Transportation. Final Hiawatha Corridor LRT Benefit-Cost Analysis. November 4, 1999

So, the proper estimate should be twice the reported figure, or $334.8 million.

Conclusions

Adjusted Total Benefits

in millions $

0 0

26.3

123

77.1

25.5

66.3

25.533.15

77.1

0

20

40

60

80

100

120

140

Travel Time RemainingCapital Value

Auto OperatingCosts

ReducedAccidents

ReducedPollution

Unadjusted

Adjusted

Adjusted Total Benefits = $135.7 million

Adjusted Total Costs

in millions $

6.4

90.7

460.6

40.2

167.4

40.2

334.8

460.6

90.7

6.40

50

100

150

200

250

300

350

400

450

500

Capital UtilityReolocation

AccomodatingHighway

Investments

SupplementaryParking

Operating

Unadjusted

Adjusted

Adjusted Total Costs = $932.8 million

So what is really going on here?

Account for majority of benefits, not very sensitive to higher ridership estimates

Bulk of funding provided by federal government

Underreported & potentially drains funds from bus system

Present Value, 1999 dollars Share

BenefitsTravel time savings 0 0%Crash risk 0 0%Avoided auto operating costs 33,128,070 24%Environmental 25,472,565 19%Remaining capital value LRT system 40,853,224 30% Utility relocation 26,295,801 19% Accomodating highway investments 8,921,629 7% Supplementary parking at Fort Snelling 1,033,632 1%Present value of Total Benefits 135,704,921 100%

CostsLRT Capital 460,608,547 49%Utility relocation 90,719,163 10%Accomodating highway investments 40,261,466 4%Supplementary parking at Fort Snelling 6,442,762 1%LRT system operating costs 334,782,082 36%Present value of Total Social Costs 932,814,020 100%

Net Present Value (797,109,100)Benefit-cost ratio 0.15

Summary

The Hiawatha LRT system was built despite low economic returns to society Original report estimated only 42¢ in benefits for every dollar spent

Our analysis shows that only 15¢ in benefits for each dollar spent

Qualitative benefits won out Smart growth/livable communities: denser region-wide land use

Economic development, increased business productivity

Symbolic: Minneapolis/St. Paul as a world-class city

And if you can get federal and state governments to fund you, then why not?! Guaranteed federal funding of 50% of capital costs through “New Starts”

Less than 1/3 of capital cost covered by local funds, and 40% of operating costs to be funded by the State

Now, here comes the Northstar line…!