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 an overhead 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

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 Citizen transit supporters met to discuss the need for rail transit service in Minnesota *(not to scale) State funding for light rail obtained

FINANCING FOR HIAWATHA LRT The Hiawatha LRT was financed through federal and local grants. Source: SourceAmount (in millions) FTA Section 5309 New Starts$ State of Minnesota100 Metropolitan Airports Commission87 Hennepin County Regional Rail Authority84.2 Federal Congestion Mitigation & Air Quality49.8 Transit Capital Grant39.9 Minnesota Department of Transportation20.1 Total$715.30

FINANCING FOR HIAWATHA LRT (cont.) …a different perspective on the LRT financing…

Benefits

I.Quantitative II.Supplementary III.Qualitative IV.Methodology

Benefits I. 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

Benefits II. 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

Benefits III. 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

Benefits IV. Methodology – Travel Time Savings Largest benefit by far Less congestion Time savings for both drivers and LRT riders 222,664 hours x $ minutes saved per ride

Benefits Methodology – 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

Benefits Methodology – Avoided Auto Op. Costs Parked cars don’t need gas and depreciate less (4,173,765 VMT x $0.26) ÷ discount factor

Benefits Methodology – Bus Crash Avoidance Why assume a reduction in bus VMTs at all? Bus ridership actually increased in five LRT cities - = ÷ =

Benefits Methodology – Car Crash Avoidance Parked cars can’t wreck - = ÷ =

Benefits Methodology – Pollution Reduction Decreased auto usage ► less emissions Economic benefits ►reduced health care costs associated with pollution x

Unadjusted Total Benefits Unadjusted Total Benefits = $318.1 million

Costs

I.Breakdown II.Methodology

Costs I. 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 Transportation Office of Investment Management (in millions)

Costs II. Methodology – Capital Costs 1999$ $ $ $ $ $ $4.3 Total Capital Costs $460.6 Source: Minnesota Dept of Transportation Office of Investment Management

Costs Methodology – Operating Costs Source: Minnesota Dept of Transportation Office 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)

Costs Methodology – 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 Transportation Office of Investment Management

Total Costs Source: Minnesota Dept of Transportation Office 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,

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 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 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 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

Higher ridership has low effect on avoided auto operating costs *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, 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! 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 Adjusted Total Benefits = $135.7 million

Adjusted Total Costs 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

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…!