The Public Cost of Increased Commuting

in Northern Virginia •

An Economic Analysis of Highways, Metrorail, and Congestion Tolls

October 2003

A n E c o n o m i c A n a l y s i s I n S u p p o r t o f T e l e w o r k

s p o n s o r e d b y

T h e T e l e w o r k C o n s o r t i u m 2 2 1 4 R o c k H i l l R o a d H e r n d o n , V A 2 0 1 7 0

h t t p : / / w w w . t e l e w o r k c o n s o r t i u m . o r g

e m a i l : t e l e w o r k @ t e l e w o r k c o n s o r t i u m . o r g

C o m m u t i n g p h o t o s b y M i d d H u n t .

© 2 0 0 3 T e l e w o r k C o n s o r t i u m , I n c . , H e r n d o n , V i r g i n i a

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A M e s s a g e f r o m t h e T e l e w o r k C o n s o r t i u m

The Telework Consortium was founded in 2002 to enhance the understanding and practice of remote collaboration technology for individuals who are part of our global knowledge economy. To this end, our researchers and industrial partners have evaluated and fielded state-of-the-art communication tools and systems to create rich, face-to-face computer-based communications.

It is our experience that video presence, using computer-based, Internet communications

channels, removes many roadblocks in remote collaboration between a manager and his remote workers. Seeing is critically important, since studies show that most of the information transmitted between people is non-verbal.

We are fortunate in having many strong partnerships with leading communication and

information technology companies, who have responded in inserting leading technologies into our Telework Lab and Pilot Projects.

In addition to technology and quality of life aspects, the Telework Consortium is also

concerned with the business and cost justification for the adoption of telework. Professor Anthony Yezer, a highly respected economist at The George Washington University, has led a research team to attempt to quantify some of the financial impacts of telework upon our society. We are grateful to Professor Yezer and his team for this work, which gives us new perspectives and quantitative insights into the real costs of our commuter society.

If we may provide more information to you about the Telework Consortium, please contact

Alex Cudaback at (703) 864-6519. You may also visit us on the web at http://www.teleworkconsortium.org.

William Mularie, Ph.D. John Starke Chief Executive Officer President

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The Public Cost of Increased Commuting in Northern Virginia

An Economic Analysis of

Highways, Metrorail, and Congestion Tolls

Anthony M. Yezer Professor of Economics The George Washington University Center for Economic Research October 2003 Support for this research was provided by the Telework Consortium. Substantial research assistance by Adam Finkelstein and Andres Lang was essential to the completion of this work. The views expressed in this paper are the sole responsibility of the author. Contact Anthony Yezer at 202-994-6755 or yezer@gwu.edu.

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Executive Summary Of Findings This research report estimates the social benefits, beyond any personal savings in travel cost, of increasing the number of workers involved in telework as a substitute for commuting. Currently, the commuter connections program sponsored by the Metropolitan Washington Council of Governments sponsors the Metropolitan Washington Telework Resource Center. Presumably this reflects a recognition that telework produces social benefits by lowering congestion. Two approaches to estimating these social benefits are adopted in this study. First, the social benefits are estimated based on current levels of public sector subsidies for urban transportation. Both highway and mass transit subsidy costs are considered. Second, the literature on optimal peak period highway tolls is used to estimate the social benefit of reductions in commuting if telework increased. Overall the benefits identified here should be regarded as lower-bound estimates of the total benefits from increased telework because they ignore environmental and other costs related to urban commuting. In addition, benefits of enhanced security associated with decentralization facilitated by telework are omitted from the analysis. As an illustrative example, the report is framed in the context of Northern Virginia. This report does not consider costs of installation of telework capabilities or productivity effects. The benefits of telework concentrate on the savings in costs related to commuting in large cities. These costs fall into two categories. The first category is private benefits experienced by the worker (and implicitly by the employer) in terms of savings in time, tolls, gasoline, and automobile maintenance. The second category is external or public benefits to the rest of society that arise when there is a fall in congestion during peak periods and a rise in air quality associated with lower automobile emissions. These public or social benefits provide the rationale for government subsidy for urban transportation improvements designed to lower current levels of congestion. In effect, the external benefits of increasing telework are being measured in terms of current levels of government subsidy directed toward transportation systems designed to lower congestion or optimal peak-period tolls levied on commuters. By lowering the number of commuters, telework serves as a potential alternative to these government subsidies and the tolls are justified by the attempt to confront commuters with the congestion costs that they are imposing on other drivers. The reasoning that public benefits of telework be measured by government costs of subsidies for alternative solutions to rush-hour congestion arises directly from cost efficiency analysis. If a public purpose can be accomplished through two different expenditure programs, then the benefits of one program can be measured by the costs of achieving the same level of service from the other program. Obviously, the argument that public benefits from telework be measured by costs of alternative transportation subsidy programs is stronger if one believes that urban transportation is provided in a cost-effective manner. Such questions are beyond the scope of this report. However, to guard against the possibility that a particular transportation project with low cost-effectiveness is chosen, a variety of projects are analyzed, including highway improvements and mass transportation as well as the literature on optimal congestion tolls. The results indicate that current subsidies for

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alternatives to telework are very high, regardless of the alternative chosen and that they are comparable to cost measures based on optimal tolls. Implicit Social Benefit Based on Highway Project Subsidy Estimates A number of highway projects designed to reduce congestion in Northern Virginia are either underway or have been approved. The cost per commuter-mile on these projects can be estimated using estimated construction and maintenance costs and assuming that the additional vehicle lanes created operate at capacity, i.e., 2,000 vehicles per hour, during the entire rush-hour period. In the cost estimates made here, no allowance is made for costs of additional congestion created by the construction process. No costs related to air pollution or other environmental damage during either the periods of construct or use are included in the estimates. For projects involving HOV lanes, it is assumed that each of the 2,000 vehicles per hour carries 2 passengers. No allowance is made for effects such as accidents or bad weather that lower the carrying capacity of the road and raise cost per commuter. Construction costs were converted to annualized costs using a 4% depreciation rate and 5% annual cost of capital. Note that the effect of decisions to ignore cost elements and to impose low capital costs is to give a lower-bound estimate of the annual costs per commuter served by these additions to highway capacity. Finally, no allowance is made for costs accrued during the planning and construction period. In effect, these cost computations are based on the assumption that projects are finished instantly rather than over a period of years. This assumption lowers costs substantially. Based on data availability, four projects were chosen for specific analysis. Adding two general lanes and two reversible HOV lanes to I-66 outside the beltway involves an annual cost per commuter-mile of $211.86, or an annual subsidy of $3,177.90 for a 15-mile commute. Adding two general lanes to I-95 from Newington to Occoquan requires an expenditure of $178.01 per commuter-mile or $2,670.15 annual subsidy for a 15-mile commute. The 4.4 miles of HOV lanes added to I-95 in Fairfax County have an annual cost per commuter-mile of $210.94 or an annual cost of $3,164.10 for those commuters traveling 15 miles. Finally, 6.7 miles of additional HOV lanes added to I-95 in Prince William County required a $142.14 per year for each mile of commuter travel or an annual cost of $2,132.10 per 15-mile commute. Note that these are recent projects and reflect the willingness of state and local governments to pay for marginal additions to highway capacity. Overall, it appears that these projects imply that current levels of rush-hour congestion are deemed to be such a problem in Northern Virginia that public highway transportation projects with annualized highway construction and operation costs well above $200 per mile per commuter are being approved and undertaken. These are annual costs per mile. Thus the subsidy cost implied by current project approval standards per commuter for a 15-mile trip is approximately $3,000 per year. These subsidy costs per commuter incurred by governments in recent transportation projects are conservative because they were made under assumptions that tend to produce lower-bound results and ignore substantial problems associated with congestion during construction and environmental effects of increasing automobile use.

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Implicit Social Benefit Based on Metrorail Subsidy Estimates Mass transit is an alternative solution to the urban commuting problem. In this section, two separate estimates of the annualized government subsidy cost per commuter by Metrorail are developed. The first estimate is based on the average subsidy per commuter for the entire Metrorail system. This subsidy includes current operating subsidies based on the difference in operating costs and revenues and an allowance for annualized capital costs. The second estimate is constructed based on capital costs for the proposed extension of the Orange Line from its current terminus at Vienna/Fairfax to Centreville, Virginia. These 8 miles of new track are proposed for the I-66 median and will include 4 new stations. This project reflects willingness to incur additional or "marginal" subsidy costs in order to alleviate congestion. We expect that the average annual subsidy per commuter will be lower than the marginal subsidy per consumer as extensions of the subway are made into less densely developed areas and passenger volumes tend to fall. If anything, the marginal subsidy costs are more appropriate as an indirect measure of the implicit benefits of telework. Following previous analysis in the literature, the subsidy costs measured and reported here are based on a 5% annual depreciation rate and 5% annual capital cost. Ridership is based on actual Metro peak-period passengers carried for the entire system and on projections for ridership for the Centreville extension. Unlike the case of highways where subsidy costs per mile of travel can be computed, the costs reported for Metrorail are based on peak-load trips regardless of length. Clearly, most Metrorail commuters either drive or ride a subsidized bus service as part of their daily trip. Subsidies associated with these elements of the trip are not considered here. The average annual subsidy cost per commuter trip for Metrorail is approximately $4,200, excluding subsidies associated with travel to and from Metrorail stations. This subsidy consists of approximately two-thirds capital cost subsidy and one-third operating cost subsidy. The average annual capital and operating cost subsidy for the Centreville extension appears to be at least $6,200 and may be significantly higher depending on number of projected riders. Implicit Social Benefit Based on Optimal Highway Toll Estimates Current levels of congestion on urban highways have prompted experimentation with tolls, particularly rush-hour charges, to ration road space and improve traffic flow. The rationale for optimal tolls within economics is that marginal users of congested roads impose social costs on other commuters in the form of slower travel time and higher operating costs. While no formal analysis of optimal tolls for highways in Northern Virginia could be found in the academic literature, models fit to toll roads in other cities were identified. Given that national estimates of traffic congestion place the Washington metropolitan area near the top, optimal tolls estimated for other cities should provide a lower bound of optimal tolls in Northern Virginia.

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Based on the literature on optimal urban highway tolls, estimates of optimal tolls in the range of $0.315 per mile, or approximately $2,360 per year per vehicle assuming a 15-mile journey to work, seem reasonable. Given that the optimal toll is based on the external delay cost imposed by marginal users of congested roads, these costs are saved when rush-hour commuters are turned into teleworkers. Therefore this annual fee serves as an estimate of the annual social benefits of telework in urban areas experiencing substantial traffic congestion. Conclusions Regarding Estimates of the Implicit Benefits of Telework It appears that the subsidy cost savings associated with encouraging a worker currently making a 15-mile commute to work to switch to telework range are approximately $3,000 per year based on highway cost savings if the commute is by automobile and range from $4,200 to $6,200 or more if the commute is by Metrorail. Finally, if the costs associated with the marginal commuter are reduced to a measure based on the optimal toll for congested urban highways, the literature suggests that the congestion costs avoided when workers are switched from automobiles to telework are approximately $2,360 per year. Each of these measures of the social benefits of increased telework is based on social costs of commuting that are avoided when workers switch travel to centralized workplaces to work at home or in nearby suburban locations. While each measure implies substantial annual social benefits to telework, the differences among them may appear surprising. In fact, these different benefit measures are remarkably consistent. The rationale for higher subsidy associated with Metrorail likely arises because it is viewed as a more environmentally friendly solution to the urban transportation problem. Air, noise, and visual pollution associated with the automobile, as well as hazards to pedestrians, argue that there are positive social benefits associated with moving automobile riders to Metrorail. The lower social benefit associated with measures based on optimal rush-hour tolls arises because these tolls mainly shift travel from peak periods and may create secondary road congestion outside rush hour. The optimal tolls are based on current levels of highway congestion and highway project subsidies reflect expected future conditions. Given the rate at which congestion is increasing in Northern Virginia, it is likely that optimal tolls in the future will be much higher and reflect the levels of subsidy inherent in current highway projects. Telework could be viewed as the most environmentally friendly alternative of all and thus deserving of an even larger subsidy to the extent that it can substitute for rush-hour commuting by either automobile or mass transit! Regardless of the precise measure adopted, it is evident that replacing commuters with teleworkers produces substantial benefits for society, whether in the form of highway congestion avoided or mass transit subsidies. Continued economic growth in the Washington area and rising traffic congestion will only cause the significant social benefits of telework to increase in the future.

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The Public Cost of Increased Commuting in Northern Virginia

An Economic Analysis of

Highways, Metrorail, and Congestion Tolls

Introduction When employers and workers make decisions about the amount of telework, they do this based on private benefits and costs that they experience. Among these private benefits is the saving of time and expense of the journey to work. However, each teleworker has effects on society that extend well beyond the private benefits and costs used by the employer and employee in making the telework decision. These external effects are termed "social benefits" and they arise because each teleworker added means one commuter removed. Given the substantial subsidies currently granted to commuters, the social benefit of telework can be measured as the additional subsidy to commuters avoided. In congested urban transportation systems, the subsidy necessary to accommodate additional commuters may be very large. This report considers the specific case in Northern Virginia, where high and increasing rush-hour congestion has prompted substantial investments and/or serious planning for expanding highways and fixed-rail transit. These public sector expenditures to increase the capacity of the highway and transit system are not financed by user fees paid by commuters. Thus the expenditures for these facilities are subsidies to commuters. The incremental cost of current and proposed transportation projects can be compared to the additional commuters accommodated by the project, and the marginal cost of serving an additional commuter can be computed. The social benefit of telecommuting arises because it is a substitute for measures designed to expand commuting capacity. Put another way, the marginal cost of expanding the transportation system to serve additional commuters serves as an indirect measure of the social benefit of telecommuting. The current level of subsidy for commuters from Northern Virginia is based on recent highway projects and on Metrorail subsidies, both the average level of subsidy per rush-hour rider and the subsidy associated with the proposed Centreville line extension. The projects selected for this subsidy cost computation were not selected because of their cost, feasibility, or economic justification. This report takes no position on whether new transportation projects recently approved or under discussion are economically justified. This report should not be viewed as a commentary on transportation planning or project selection by the Virginia Department of Transportation or the Washington Metropolitan Area Transportation Authority. The specific projects chosen for cost analysis here were selected based on the need to find recent examples of approved or proposed improvements designed to relieve congestion in Northern Virginia and on the adequacy of publicly available data to perform a cost analysis. The estimates ignore a number of important elements of cost, particularly the delay and disruption during construction, and hence serve as lower-bound estimates of actual costs of expanding transportation capacity. Traffic congestion gives rise to another indirect measure of the social benefit of telework. There is lively academic discussion of peak-period highway tolls that are justified as charges designed to deal with the substantial congestion costs imposed on automobile commuters when motorists are added to a crowded highway. These proposed optimal tolls reflect the social cost of

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the increase in travel delays when there are additional highway users. Because telework reduces peak-period highway demand, it provides social benefits that can be measured by the tolls that would have been charged if these drivers used congested roads. The final levels of subsidy per commuter trip for highway and Metrorail projects as well as rush-hour tolls identified here may appear high to readers, but they are consistent with estimates that have appeared in the literature. Indeed, they should be viewed as lower-bound estimates of project costs. Overall, it appears that the social benefit associated with reduced commuting in Northern Virginia that would be achieved by expanding telework is substantial. Background on Traffic Congestion and Transportation Needs in the Washington Area The purpose of this section is to demonstrate that traffic congestion in the Washington area has increased, cost of providing additional transportation capacity to serve growing demand has grown, and future demand for transportation is expected to grow faster than planned transportation capacity. Put another way, this section argues that congestion has been getting worse, and, under the current planning environment, it will continue to get worse. Most readers will find these statements non-controversial and may skip to the end of this section. For those who require documentation, a brief review of the rationale for these statements is provided here along with references that provide really depressing reading for commuters. The 2002 Urban Mobility Study by the Texas Transportation Institute ranks the 1Washington, D.C., metropolitan area fourth in travel time to work and DC’s 84 hours per year in annual delay per peak-period traveler ranks third among metropolitan areas.2 The Washington area ranked fifth in annual excess fuel consumption based on this 84 hours per year of delay and sixth in annual total cost of congestion taking both fuel and time cost of congestion into account. Delay per peak traveler increased steadily over the years. From 1982 to 2000 delay per peak traveler increased from 24 to 84 hours per year, an average rate of about 3.3 hours per year, placing D.C. sixth among U.S. cities in rate of rise of this dismal statistic. Over the 1994-2000 period, the rate of increase in delay per peak-period traveler increased 3.0 hours per year, a slight deceleration (pun intended) in the rate of increase. While past performance does not necessarily predict future behavior, there is substantial evidence that congestion in the D.C. area will continue to grow. Vehicle miles traveled in the area are expected to grow by 60% over the next 20 years, while highway capacity is projected to increase

1 See, National Capital Region Transportation Planning Board, 2000 Update to the Financially Constrained Long-Range Transportation Plan for the National Capital Region, May 2002.

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2 See, Texas Transportation Institute, Urban Roadway Congestion: Annual Report, Texas A & M University, College Station, Texas, 2002.

only 20%.3 Given that congestion delays tend to increase at an increasing rate as highway demand grows, the prospect that growth in delay per peak-period traveler could exceed the past pace of 3 hours per year seems likely. Regarding prospects for highway congestion specifically in Northern Virginia, it is estimated that $15 billion in expenditures will be necessary simply to maintain current levels of congestion.4 The Intermodal Surface Transportation Act of 1991 recognized that transportation planning must be financially constrained, including only those projects that the region can actually afford to build and operate once costs of maintenance for existing systems are deducted. Over the 25 years to 2025, expenditure is projected to be $77 billion, with 80%going for operation and maintenance and the remainder split almost equally between transit (mainly Metrorail) and highway expansion. Based on this evidence, it appears that traffic congestion and delays are currently significant and expected to increase in the Washington, D.C. metropolitan area generally and Northern Virginia in particular. Given that the social benefits of telework estimated in this study are based on the benefits of reduced commuting because of telework, the benefit estimates computed, based on conditions today, tend to underestimate future benefits. Increasing future congestion will result in larger social benefits of telework. Private Versus Social Benefits of Telework Telework has obvious private benefits received by employees and employers. These benefits include worker savings in costs of travel to work, both time cost and out-of-pocket costs for travel and parking. Employees may benefit from telework because they have special needs to be at or near home. Private benefits accruing to employers include savings on office space and the ability to access a widely dispersed workforce. To the extent that all benefits from telework are private, i.e. received by either the employee or employer, market allocations of resources to telework are socially efficient and there is no justification for subsidy. We will see that, in addition to the private benefits, there are significant social benefits of telework that form the basis for the argument that telework should be subsidized. As will be clear in the analysis below, telework has social benefits beyond the advantages to employers and employees. The primary source of these social benefits is the reduction in commuting and hence in rush-hour congestion because teleworkers do not congest highways, parking lots, or mass transit systems. This reduction in congestion is a social benefit accruing to commuters, not teleworkers or their employers. Accordingly, market allocations of resources to telework will tend to ignore these social benefits, and private employers will under-invest in 3 See, U.S. Department of Transportation, Enhanced Planning Review of the Transportation Planning Process in the Washington, D.C. Metropolitan Area,

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4 See, Northern Virginia Transportation Coordinating Council, Northern Virginia 2020 Transportation Plan: Summary Report. Fairfax, Virginia, (2000).

telework compared to a social optimum. The standard remedy for this under-allocation is to provide government subsidies for activities generating significant levels of social benefits. Accordingly, a finding of substantial social benefits associated with telework would provide a strong argument for government subsidies for expanding telework. The challenge facing this study is to find a measure of the social benefits associated with shifting commuters into telework. This search is considered in the next section. Why Do Transportation Subsidies Measure Social Benefits of Telework? There are really two parts to this question. First, the characteristics of transportation subsidies need to be identified and a means for measuring subsidies must be devised. Second, a rationale for relating social benefits of telework to transportation subsidies must be developed. These tasks will be considered in turn for both automobile and fixed-rail commuters. Transportation Subsidies for Automobile Commuters Many of the costs of automobile commuting, including fuel, automobile services, parking and time, are paid by the commuter. Indeed, fuel cost even includes a modest tax component that is properly interpreted as a payment of part of the subsidy cost. Computations performed later in this report will demonstrate that the tax on gasoline is not a significant part of subsidy. Transportation subsidies for automobile commuters arise from the cost of producing and maintaining the highway system itself. This cost includes land, construction cost, and physical maintenance of the road surface. Other cost components, particularly environmental costs associated with automobile pollution and costs of policing, could logically be added to transportation subsidies, but, because of difficulties in measurement, will be ignored here. The transportation subsidies of particular interest here are the marginal costs associated with expansion of the highway network for the purpose of accommodating higher rush-hour commuting volumes. The costs associated with such incremental expansions of the highway system are justified by their effect on rush-hour congestion. This is an important point. Some level of highway investment is necessary to facilitate generalized access during non-rush-hour periods. The highway costs that can be attributed directly to commuters are the costs of expansion necessary to accommodate the higher traffic volumes associated with peak-load commuting. Fortunately, it is possible to identify such highway projects in Northern Virginia. The costs of these projects have been estimated by the Virginia Department of Transportation and the incremental number of automobiles accommodated by the new and proposed projects is easily estimated. It is then a rather simple matter to divide incremental costs of a project by the incremental volume of commuters accommodated in order to estimate the transportation subsidy per additional commuter associated with new and proposed highway projects in Northern Virginia. Transportation Subsidies for Metrorail Commuters

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Metrorail is the primary commuting alternative to the automobile. Of course commuters using Metrorail are likely to use other modes, such as automobile or bus, to reach the nearest Metrorail station. This component of the commuting trip has its own element of subsidy that will be ignored in this study. Estimates of transportation subsidies for Metrorail commuters will be based entirely on the subsidy component of the fixed-rail component of the journey to work. As was the case with highway subsidies, by ignoring significant subsidy components of Metrorail commuting, the transportation subsidies estimated here form a lower-bound estimate of the actual transportation subsidy associated with Metrorail. As is well-known, Metrorail fares cover only a portion of system operating costs and they cover none of the capital costs associated with construction of the system. Therefore, estimates of the transportation subsidy for Metrorail commuters will be based on the sum of the capital cost and the portion of operating cost not covered by fares, i.e. the operating subsidy. Metrorail cost estimates are more complex than those for highways discussed above because Metrorail is a system serving the metropolitan area. It is difficult to isolate incremental projects designed to raise the capacity of Metrorail to serve Northern Virginia. Given this problem, two approaches to measuring transportation subsidies for Metrorail commuters will be used in this study. First, an average subsidy per peak-hour user will be computed based on all peak-load travel in the Metrorail system. This average subsidy is the quotient of the total annual Metrorail subsidy divided by annual peak-load ridership. The total annual subsidy is the sum of the annualized value of the capital subsidy to Metrorail riders plus the operating subsidy net of fare revenue. This subsidy measure follows directly from procedures used elsewhere in the literature.5 Second, a marginal transportation subsidy per rider appropriate for Northern Virginia will be computed based on the subsidy cost per commuter for the proposed extension of Metrorail service to Centreville. This is a proposed extension and its benefit/cost ratio may prove too low for it to ever become a reality. Nevertheless, the Centreville line proposal is being considered seriously and it provides a benchmark measure of the level of subsidy being considered to encourage commuters to switch from highways to fixed rail travel. As was the case with highway subsidy estimates, the Metrorail subsidies will consider only the most obvious cost elements and will not consider environmental effects of the system or the subsidies associated with highway and bus travel necessary to reach the Metrorail stations. Social Benefits of Telework Measured in Terms of Transportation Subsidies As noted above, proposed extensions to the highway system and Metrorail require substantial subsidies from the public sector. The rationale for these subsidies is that the expansion in capacity relieves rush-hour congestion associated with present and projected levels of commuting. 5 For example, see the discussion of Metrorail subsidies in Edwin Mills and Bruce Hamilton, Urban Economics, Fifth Edition, (New York: Harper Collins), 1994, pp. 303-305.

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This report accepts that rationale, i.e. there is no attempt to question the economic rationale for adding capacity to accommodate current and projected levels of commuting. To the extent that the public subsidies for automobile and fixed-rail commuting are justified, any innovation that reduces the volume of commuting provides social benefits in the form of reduced need for continued expansion of the transportation system. Telework is one means to reduce commuting; hence it provides a social benefit by reducing the need for future transportation subsidies. Is it likely that expanding telework will eliminate the need for additional highway or Metrorail subsidies in the future? This question is well beyond the scope of this report. However, it is important to recognize that all evidence suggests that future attempts to increase the capacity of the highway or fixed-rail transportation systems in Northern Virginia will require even higher levels of subsidy per commuter than current projects. Even if expanding telework does not eliminate the need for all or most of these projects, the calculations of social benefit performed here are appropriate because telework reduces the need for some of the projects. Social benefit is measured at the margin. In order to have the social benefit computed in this study, it is merely necessary for telework to lower or significantly delay the need for some proposed expansion of the transportation system. Selection of Recent Northern Virginia Highway Projects for Cost Measurement A number of major transportation projects have been proposed or are currently underway in Northern Virginia. For the purposes of this report, projects were selected based on data availability and on the relation between the project and current rush-hour commuting problems in Northern Virginia. Therefore projects that expand current highway capacity in order to relieve rush-hour congestion were selected because the incremental expenditure could be related directly to the higher traffic volume associated with commuting. The ideal project for measuring social benefits of telework is one that adds one or more lanes to an existing major commuting route in Northern Virginia. The vast majority of highway projects underway and planned for the future involves lane additions, often HOV lanes, rather than new construction.6 The four projects suggested for analysis are discussed below. I-66 Outside the Beltway This project involves the addition of one general-purpose lane in each direction to I-66 running from I-495 to Route 50, a distance of 6 miles. In addition, the proposal would provide for one reversible HOV lane from I-495 to Route 28 bypass for a distance of 12 miles. Capital cost of the construction has been estimated at $460,000,000 and right-of-way cost at $75,000,000 for a total of $535,000,000.7 This project is in the planning stage. The proposed project includes transit 6 See, the discussion in National Capital Region Transportation Planning Board, Update to the Financially Constrained Transportation Plan for the National Capital Region, May 15, 2002, Section 4.

7 From the I-66 Corridor Major Investment Study, Virginia Department of Transportation, 1998.

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improvements but the costs and benefits analyzed here are for the highway component only. I-95 From Newington to Occoquan This widening of I-95 is adding one general-purpose lane in each direction over the six miles from Newington to Occoquan. Capital cost has been estimated at $37,845,000. Although land cost was been reported at $2,155,000, this appears to be a historic cost, and land cost has been estimated at 35% of capital cost or $13,245,750 for a total cost of $51,090,750.8 Preliminary engineering work on this project is underway with construction expected to last beyond 2006. I-95 Fairfax County HOV One HOV lane in each direction was recently added to I-95 in Fairfax County from Route 644 to Route 638; a distance of 4.4 miles was added with construction completed in 2001. Capital cost was estimated at $67,678,000 and, using the 35% rule of thumb, land cost is estimated at $23,687,300. This gives a total land plus capital cost of $91,365,300.9 I-95 Prince William County HOV One HOV lane in each direction was built over a distance of approximately 6.7 miles. Total capital cost of the construction was estimated at $68,735,000. Given the absence of information on right-of-way cost, it was estimated at 35% of capital cost or $24,063,000 for a total capital and land cots of $92,798,000.10 Measuring the Social Benefit of Telework Using the Cost of Highway Projects Social benefit of telework is based on the subsidy cost per commuter inherent in recently proposed or implemented highway projects in Northern Virginia. These subsidy costs are estimated for the four highway expansion efforts noted above. The estimates made here are intentionally simple in that they ignore a number of cost components that are more difficult to estimate and concentrate on the most straightforward expenditures. Accordingly, the estimates should be regarded as conservative and reflect a lower bound of the actual social benefit of telework. Cost of each highway project was computed as the sum of: (1) annualized capital and depreciation costs for engineering and construction, (2) annualized capital cost of land, and (3) maintenance cost. Annualized capital and depreciation costs were computed by applying a 5%

8 From the Virginia Transportation Development Plan, Virginia Department of Transportation, 2000.

9 From the Virginia Transportation Development Plan. Virginia Department of Transportation, 2000. 9

10 From the Virginia Transportation Development Plan, Virginia Department of Transportation, 2000.

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interest rate and a 4% depreciation rate to the total engineering and capital costs reported for each project. Annualized land cost was computed by applying the 5% interest rate to estimated land cost, and annual maintenance cost of $17,000 per lane-mile is based on planning documents.11 As noted above, these annualized highway cost estimates ignore all environmental costs associated with automobile use. They also assume that the highway construction is accomplished instantly with no dislocation to current commuters. Obviously, these projects require several years to complete and create substantial congestion costs for commuters. A full accounting of highway costs would capitalize the engineering and construction costs during the years before project completion along with congestion costs imposed on motorists. This could result in a 20% increase in total costs. Annual cost per commuter-mile is the ratio of annualized total cost to the annual number of commuter-mile capacity added as a result of the project. In keeping with the general effort here to produce lower-bound estimates of the social benefits of telework, the highway projects were assumed to perform at a high level of efficiency, i.e., to carry very large numbers of commuters. Each lane of additional highway was assumed to carry 2,000 vehicles per hour, based on the straight-line carrying capacity of uninterrupted highways.12 The peak-load period is assumed to extend for 2 hours in the morning and afternoon with each commuter making a round trip during these periods. Put another way, the measurement of commuter-miles assumes that a trip is made into the city in the morning followed by a return trip made out of the city in the afternoon. Cost per commuter-mile is the quotient of the annualized total cost of the project divided by the length of the project in miles and the number of commuters carried in a 2-hour period. Thus adding either one lane each way or a single reversible lane to a 6-mile segment of highway would add a total of 2,000 vehicles per hour x 2 hours per day x 6 miles of highway = 24,000 passenger miles of rush-hour commuting capacity to the system. This estimate makes no allowance for the effects of weather, accidents, congestion, or police actions on traffic flow. HOV lanes are assumed to operate at this same capacity level and each vehicle is assumed to carry two commuters. Obviously, if HOV lanes were to be as crowded as other travel lanes, the incentive to HOV commuting would be lost, but the assumption of high levels of HOV use is maintained here consistent with the policy of providing lower-bound estimates of telework benefits. Estimates of the annual subsidy cost per commuter-mile are presented below and discussed in some detail in Appendix A.

11 See, Northern Virginia Transportation Coordinating Council, Northern Virginia 2020 Transportation Plan, 1999, page 156.

12 See standards set in, Transportation Research Board, Highway Capacity Manual (Special Report 209). Washington, D.C.: National Research Council, 1985. page 7-5.

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I-66 Outside the Beltway Total annualized cost for this project is estimated at $45,762,000. Given a capacity of 216,000 passenger-miles during rush hour, the total annual subsidy cost per commuter-mile is $211.86, or an annual subsidy of $3,177.90 per worker commuting 15 miles. I-95 From Newington to Occoquan This project has a total annualized cost of $4,272,338 with the capacity to accommodate 24,000 commuter-miles per rush hour. This gives a total annual subsidy cost of $178.01 per commuter-mile. The annual cost per commuter is $2,670.15, assuming a 15-mile journey to work. I-95 Fairfax County HOV The total annualized cost for this project is $7,424,970, and it can accommodate 35,200 commuter-miles during rush hour. Total annual cost per commuter-mile is $210.94 and the subsidy for a 15-mile commute to work is $3,164.10 per year. I-95 Prince William County HOV Estimated annualized cost for this expansion is $7,618,720. It is expected to accommodate 53,600 rush-hour commuter miles yielding an annual cost per commuter-mile of $142.40. Annual subsidy for a 15-mile commute to work is $2,132.10. Overall, these estimates suggest that highway projects, underway, recently completed, and proposed, indicate that current transportation planning standards are consistent with an annual subsidy cost per commuter-mile of approximately $200, or a subsidy of $3,000 per year for each commuter with a 15-mile journey to work. Obviously, some projects may have lower subsidy rates and perhaps these are approved more readily, but the margin for transportation project approval is clearly consistent with the $200 subsidy cost per commuter-mile figure. These subsidy estimates are conservative in that they ignore some substantial cost elements and are based on very favorable highway performance. Appendix B presents sensitivity tests demonstrating that these subsidy estimates are robust in that they do not vary substantially if the parameters used in the estimates vary within a reasonable range. To the extent that telework is a substitute for highway expansion that is particularly attractive to workers with a longer journey to work, it generates annual social benefits that are conservatively estimated at $3,000 per teleworker. Measuring the Social Benefit of Telework Using the Cost for Metrorail Two approaches to measuring the subsidy per commuter for Metrorail are adopted here. The average cost approach is based on the ratio of the annualized cost for Metrorail less the fares paid to the number of rush-hour passengers transported. The marginal cost or project-based approach uses the cost of the Centreville line extension less fares divided by the number of rush-hour passengers served.

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The Average Cost Approach to Transportation Costs for Metrorail Commuters The average cost approach considers the subsidy per rush-hour rider for the entire Metrorail system that includes the District of Columbia as well as Maryland. A computation of this average cost has already appeared in the literature, specifically in Urban Economics (Fifth Edition) by Edwin Mills and Bruce Hamilton.13 The authors’ discussion of the computation is brief and instructive. “In 1981, the average weekday ridership was 290,000 (145,000 each way). Capital cost through 1981 was $4,828 billion; at a 10% cost of capital (interest and depreciation), the annual capital cost is $483 million. Dividing the capital cost by 250 (workdays per year) gives daily capital cost at $1,932,000. Dividing by 145,000 riders gives and interest and depreciation cost of $13.32 per round trip. Operating expenses were $92,400,000 for fiscal year 1981, which comes to $2.60 per round trip. Capital plus operating cost was $15.92 per round trip.” (pages 303-304) This analysis can be restated in terms of the measure of social benefit for telework adopted here by subtracting the average round-trip fare appropriate for 1981, $3.00, from the $15.92 round trip cost and multiplying the difference, $12.92 by 250 workdays per year to get an annual subsidy per commuter of $3,230 in terms of 1981 dollars. If we inflate this figure, conservatively, by the GDP (gross domestic product) deflator of 1.79 2001 dollars per 1981 dollar, the annual subsidy per commuter in 1981 would be $5,782 in terms of current dollars.14 The calculation of average cost per commuter for Metrorail performed here is similar to the previous work of Mills and Hamilton except that the time period since construction began is now so extensive that some explicit adjustment for inflation and depreciation in computing the current value of the capital stock is necessary. Accordingly, the capital cost computation was based on the sum of capital expenditure recorded for each year from 1970 to 2001. The capital expenditure was adjusted for inflation using the GDP deflator and for depreciation using 5% per year as a standard.15 The current value of Metrorail capital stock, i.e., past investment in Metrorail less depreciation, estimated for the end of 2001 is $6,428 million dollars. The annualized capital cost is the sum of a 5% interest

14 Adjusting for inflation using the Consumer Price Index would result in a larger subsidy cost measure in terms of current dollars. However, the GDP deflator seems most appropriate for restating construction cost in current dollars.

15 Sensitivity tests were performed in which depreciation rates of 2.5% and 10% were used in addition to 5%. The final effect of changing depreciation rates on average cost is small because raising depreciation lowers the current value of the capital stock but it also raises the estimate of annual depreciation cost going forward.

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rate and the 5% depreciation rate applied to this capital stock or $643 million dollars per year. The operating cost is $728 million per year. When operating revenues of $390 million are deducted, this leaves an operating subsidy of $339 million per year and implies a total annual subsidy including both operating subsidy and annualized capital cost of $339 + $643 = $982 million. Average peak-hour morning ridership of 0.23 million is taken as an upper-bound estimate of the number of commuters served and this implies an annual subsidy per commuter of $982 million/0.23 million or $4,269 per commuter. Thus the estimated social benefit per teleworker based on the average subsidy per Metrorail rider is $4,269 - i.e., society apparently is willing to pay an annual subsidy of $4,269 to allow a commuter to use Metrorail rather than commute by an alternative mode. The $4,269 annual subsidy figure per Metrorail commuter does not include any subsidy associated with bus systems used to collect passengers or for the highways that are used by Metrorail passengers to access stations by automobile. The higher annual subsidy per commuter for Metrorail may be justified by environmental pollution or more general aesthetic concerns arising from differences in external effects of fixed-rail versus highway commuting. In any event, the larger subsidy per commuter for fixed rail is not surprising. Note further that this updated estimate of subsidy per average Metrorail commuter is roughly consistent with the updated estimate by Mills and Hamilton. The Marginal Cost Approach to Transportation Costs for Metrorail Commuters Given the focus of this study on social benefits of telework in Northern Virginia, it is desirable to relate Metrorail subsidy elements to marginal rather than average users and to Northern Virginia rather than general system riders. The proposal by the Virginia Department of Transportation to extend the Metrorail Orange Line from its current terminus at Vienna/Fairfax-GMU to Centreville provides an opportunity to generate estimates of current marginal subsidies for Metrorail commuters in Northern Virginia.16 The proposed Centreville extension would use the I-66 median and run 8 miles with 4 new stations located at approximately 2-mile intervals. Estimated construction cost for the project is $657 million, including new rail cars. Construction would begin after 2005. Applying a 5% interest rate and 5% discount rate to this capital cost yields an estimated annualized cost of $65.7 million. The average morning rush-hour ridership using the Vienna station is currently 10,363 passengers. Making the very generous assumption that all these riders would ride all the way to the Centreville station, the annualized capital cost per commuter is $65.7 million/0.010363 million or $6,180 per commuter. Again, making the very conservative assumption that the operating subsidy per passenger on this extension would be the same as the average operating subsidy for the rest of the Metrorail system, the total subsidy per commuter per year for capital and operating cost is $7,654 = $6,180 capital subsidy plus $1,474 operating subsidy. Alternatively, the capital subsidy could be

16 This discussion of the extension from Vienna to Centreville is based on: Virginia Department of Transportation, I-66 Corridor Major Investment Study, 1998.

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calculated based on the Virginia Department of Transportation estimate that the Centreville extension would serve 3,000 passengers during the morning rush hour. In this case, the annual capital subsidy per commuter becomes $65.7 million/0.003 million commuters or $21,900 per year and the total subsidy per commuter on the Centreville extension is $23,374 per year = $21,900 annual capital subsidy plus $1,474 annual operating subsidy. This analysis suggests that, based on the proposed Centreville extension, a marginal cost estimate of the annual subsidy per Metrorail commuter is even larger, i.e., greater than $7,500 per year, than the $4,269 per year estimated as the average subsidy per Metrorail commuter. Note that these are very conservative estimates that ignore subsidies for bus transit and/or highway travel to the Metrorail stations and assume that the fixed-rail facility is constructed instantly with no congestion cost imposed on society. Recent review of the Centreville extension by the U.S. Department of Transportation has indicated that they may regard the cost per rider as excessive and approval of the project as planned is in doubt. Accordingly, it appears that costs above $7,000 per rider are regarded as larger than any social benefits given current levels of commuting demand. Overall, the social benefit per teleworker estimated using Metrorail subsidies certainly appears to exceed $4,000 per year. Measuring Social Benefits of Telework Based on Studies of Optimal Congestion Tolls Congestion tolls have been proposed for urban highways, particularly tolls adjusted to deal with high rates of congestion during rush hours. The Intermodal Surface Transportation Efficiency Act of 1991 required that the Department of Transportation undertake studies and demonstration projects to evaluate “congestion pricing,” or the charging of tolls on congested urban highways. While we are unaware of any demonstrations that have taken place in Northern Virginia, it is possible to apply some of the excellent results obtained elsewhere to urban highways in Northern Virginia.

How do optimal congestion tolls on urban highways relate to the social benefits of telework? The topic of congestion pricing on highways has long been the object of study in economics.17 While models of congestion pricing have become more sophisticated over time, the basic principle has not changed. Highway congestion is present when the entry of additional vehicles on the highway results in slower vehicle velocity on the roadway. As highways designed for vehicle velocities of 60 miles or more per hour approach their capacity limits of approximately 2,000 vehicles per lane per hour, vehicle velocity slows dramatically. Individual motorists choosing to use the road consider only the private benefit to themselves based on travel time. They do not consider the external cost imposed on others as their trip slows travel. This external effect can easily become very large. Consider, for example, the case in which a highway currently carries 1,800 vehicles in a lane. If one additional automobile slows traffic velocity by one-tenth of a mile per hour, say from 50.1 mph to 50.0 mph, the change in private cost to the individual motorist will be imperceptible,

13

17 See, for example, A.C. Pigou, The Economics of Welfare, (1920), or Frank Knight, “Some Fallacies in the Interpretation of Social Cost, Quarterly Journal of Economics, (1924).

raising travel time per mile by 0.14 seconds or 2.16 seconds for a 15-mile trip. However, the social cost is substantial because all 1,800 motorists using the lane experience the delay. This means that the total delay cost is 1,800 motorists multiplied by 0.14 seconds per mile or 4.31 minutes of additional travel time per mile or, multiplying the 0.14-second delay by 1,800 motorists, 64.65 minutes of additional travel time over a 15-mile trip. If additional travel time and the associated vehicle operating cost are valued conservatively at $10 per hour per motorist, then the external delay cost imposed on others from this one additional commuter is $10.78 for a 15-mile trip. Clearly, the decision to commute on congested urban highways can result in substantial additional delay costs imposed on others. What is the relation between congestion tolls on highways, which are set equal to the external cost in terms of additional congestion, and the benefits of telework? By removing additional commuters from urban highways during peak travel periods, telework eliminates the congestion costs that they would have imposed on others and lowers commuting times for those who do not telework. These external benefits from telework accrue to the rest of society and take the form of time and operating cost savings such as those demonstrated in the example above where an additional commuter slowed vehicle velocity. Given that this report is concerned with the social benefits of telework in Northern Virginia, it would be most convenient if a high-quality congestion pricing study had been done recently for highways in that area. While a literature search did not reveal such a study, it is possible to take representative results from congestion pricing studies done elsewhere and apply them to the problems of Northern Virginia. A recent study by Liu and McDonald generated optimal congestion prices for SR-91, a California highway running approximately 10 miles between the employment centers of Orange County and residential areas in Riverside County.18 Because this highway already had peak-load tolls, it was possible for Liu and McDonald to construct and calibrate a very precise traffic simulation model. They then solved the model to determine the optimal toll, where the toll was based on the external congestion costs imposed on other motorists. The optimal toll is $0.315 per mile or $3.15 for the 10-mile trip.19 Allowing commuters to make 500 trips per year (250 days x 2 trips per day) gives a total annual cost per commuter of $1,575. Given that tolls represent payments for external delay costs imposed on others, this can be used directly as an estimated marginal social benefit of telework assuming that each teleworker would have taken a 10-mile trip to 18 See, Louie Nan Liu and John F. McDonald, “Efficient Congestion Tolls in the Presence of Unpriced Congestion: A Peak and Off-Peak Simulation Model,” Journal of Urban Economics, Vol. 44, (1998), pp. 352-366.

14

19 The actual toll charged on SR-91 for varies by time of day between $1.00 and $4.75 per mile and is discounted for HOV users. SR-91 operates with two “value-priced” express lanes and four other lanes without any toll. The computation of optimal tolls assumes all lanes carry tolls. For a detailed discussion of the SR-91 experiment see, Edward Sullivan, Continuation Study to Evaluate the Impacts of the SR 91 Value-Priced Express Lanes Final Report, State of California, Department of Transportation, Traffic Operations Program, (December 2000).

work. Of course, as trip length increases to 15 miles, the social benefit rises proportionally to $2,362 per year. Note that this is the external cost imposed by the marginal commuter and is in addition to the private cost of time and out-of-pocket expenses associated with the journey to work.

Liu and McDonald note that their results are generally consistent with the previous literature, including studies involving simulations models calibrated for other highways.20 In addition, the social cost estimates, $1,575 ($2,362) for a 10-mile (15-mile) commute are of the same general magnitude as the annualized cost estimates per additional peak-period automobile that were obtained in previous sections where the cost implications of recent Northern Virginia highway projects were analyzed. Again, this consistency should not be surprising because additional highway capacity also lowers peak-period congestion, and the social benefit of this fall in congestion is approximated by the optimal toll. Indeed, revenues generated by the optimal toll should just be sufficient to generate the costs required to produce a marginal addition to highway capacity if the expansion of the highway system is to be justified economically. Of course, the analysis performed here has not considered environmental and other related costs of highway capacity expansion. It is interesting that current levels of marginal cost per commuter served are roughly similar to the marginal social cost of congestion reflected in the optimal toll that would be charged on a congested urban highway system.21 Conclusions on the Social Benefits of Telework in Northern Virginia Use of indirect techniques to measure benefits is common in economics. In this particular case, the objective is to measure the social benefits of telework by measuring current levels of subsidy for commuting by automobile or Metrorail in Northern Virginia. Fortunately, a number of projects designed to raise capacity of existing facilities have either been proposed or are underway in the area, and the expected costs of these efforts are a matter of public record. Using this information,

20 See, for example, John F. McDonald, “Urban Highway Congestion: An Analysis of Second-Best Tolls, Transportation, Vol. 22, (1995), pp. 353-369; D. Bernstein and I. El Sanhouri, “Congestion Pricing with and Untolled Alternative,” unpublished draft, M.I.T., (1994); and E. Verhoef, P. Nijkamp, and P. Reitveld, “Second-best congestion pricing, the case of an unpriced alternative,” Journal of Urban Economics, Vol. 40, (1996), pp. 279-302.

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21 The term “optimal” used to describe the congestion tax, reflects the practice in the literature on congestion tolls that are based on external congestion costs. It is not meant to endorse a particular public policy toward congestion tolls for Northern Virginia. A recent study has suggested that the case for congestion tolls for use in the Washington, D.C. area, while strong, should not be endorsed without qualification. See, Ian W.Y. Parry, “Funding Transportation Spending in Metropolitan Washington, D.C.: The Costs of Alternative Revenue Sources,” Journal of Urban Economics, Vol 52, (2002), pp. 362-390 and Peter Nelson, Ian W.H. Parry, and Martin Wachs, “Is Northern Virginia Voting on the Right Transportation Tax,” Issue Brief 02-05, Resources for the Future, (October 2002).

very conservative estimates of the implied levels of annual subsidy per commuter at which transportation projects are currently approved are approximately $3,000 per year for commuters driving 15 miles to work and $4,000 or more per year for Metrorail commuters. Finally, estimates of congestion costs on urban highways based on the literature on optimal tolls place social benefits of reducing automobile commuting through expanded telework in the range of $2,300 per worker. While each social benefit measure implies substantial annual savings from expanded telework, the differences among them may appear surprising. Actually, they are remarkably consistent. The rationale for higher subsidy associated with Metrorail likely arises because it is viewed as a more environmentally friendly solution to the urban transportation problem. Air, noise, and visible pollution associated with the automobile as well as hazards to pedestrians argue that there are positive social benefits associated with moving automobile riders to Metrorail. The lower social benefit associated with measures based on optimal rush-hour tolls follows logically because the tolls tend to displace congestion to off-peak periods and they are based on current levels of highway congestion while highway project subsidies reflect future conditions. Given the rate at which congestion is increasing in Northern Virginia, it is likely that optimal tolls in the future will be much higher and reflect the levels of subsidy inherent in current highway projects. It is important that telework could be viewed as the most environmentally friendly alternative of all and thus deserving of the largest subsidy to the extent that it can substitute for rush-hour commuting by either automobile or mass transit. Regardless of the precise measure adopted, it is evident that replacing commuters with teleworkers produces substantial benefits for society, whether in the form of highway congestion avoided or mass transit subsidies. As the discussion of trends in the Washington area established, continued economic growth and rising traffic congestion guarantee that the social benefits of telework computed here will surely increase significantly in the future.

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Appendix A: Background On Highway Cost Computations

Generalized Discussion of the Subsidy Cost Computation:

The subsidy cost, SC, is calculated as the cost per commuter-mile (both inbound and outbound) per year:

SCP

AC= (1)

P is the morning or evening peak capacity of a new construction project (in number of passengers, not vehicles) and AC is its annualized cost. This peak-period capacity is calculated:

PtHmBmmG p HBG =

+ +

*2

2 * (2)

p is the capacity, per lane, per mile, per hour of one lane of interstate highway, assumed here to be 2,000. This assumption holds for a straight length of limited-access highway with no obstructions, carrying only passenger cars.1 G is the total number of general-purpose lanes, divided by 2, because rush-hour traffic flows in one direction. B is the number of barrier separated reversible HOV lanes, multiplied by 2 because each car is assumed to carry 2 passengers. H is the number of regular HOV lanes, because they flow in only one direction but carry 2 passengers. The number of miles of each particular lane the project extends for is represented by m, and t is the duration of the peak period in hours, assumed here to be 2. The annual cost of a highway construction project is:

(r + d)K + O(GmG + BmB + HmH) + rW = AC (3)

K is the capital cost. The interest rate r is assumed here to be 5%. Depreciation, d, is assumed to be 4%. O represents annual maintenance and operating cost, $17,000 per lane, per mile, per year.2 W is the right-of-way cost. Estimate of Subsidy Costs: To estimate subsidy costs, four current and proposed construction projects in Northern Virginia are considered. I-66 Outside the Beltway:3 These improvements are now in the planning stage, with an Environmental Impact Statement expected in January of 2002. This project proposes to construct 1 general-purpose lane in each

17

direction on I-66 from I-495 (the Capital Beltway) to Route 50, a distance of 6 miles. The project also includes the construction of 2 barrier-separated, reversible HOV lanes from I-495 to the route 28 bypass, a distance of 12 miles. While the proposed plans also include transit improvements, only the highway costs and benefits have been isolated here. The listed capital cost is $460,000,000 and the right-of-way cost $75,000,000. Given the scope of the project, the total capacity added is estimated at 216,000 passenger miles per peak period. This yields a subsidy cost per commuter-mile of $211.86. I-95 Newington to Occoquan (VA 123)4: Preliminary engineering for this project is underway, with construction expected to last beyond 2006. The proposal is to construct 1 general-purpose lane in each direction along I-95 from Newington to Occoquan, or about 6 miles. Building these lanes will require a capital and engineering cost of $37,845,000. The Virginia Department of Transportation reports the expected right-of-way cost at $2,155,000, although this may only capture current costs and omit amounts paid in previous fiscal years. In such cases, a true right-of-way cost may be estimated by taking 35% of the capital and engineering costs5. This method yields an estimated right-of-way cost of $13,245,750. The new lanes will allow 24,000 passenger miles per peak period. Using the reported right-of-way cost, the subsidy cost per commuter-mile is $154.90 while the estimated right of way cost produces a subsidy cost of $178.01 per commuter-mile. I-95, Fairfax County HOV Lane Extension6: One HOV lane in each direction was recently added to I-95 in Fairfax County from North of route 644 to North of route 638, excepting the Springfield interchange, a distance of 4.4 miles. The capital and engineering costs of these improvements totaled $67,678,000. No right-of -way cost was reported, presumably because land was previously acquired. The estimated right-of-way cost, 35% of capital and engineering cost, is $23,687,300. The 2 HOV lanes will accommodate 35,200 passenger miles per peak period. This indicates a subsidy cost of $210.94 per commuter-mile. I-95, Prince William County HOV Extension7: Construction will be complete by 2002 on one new HOV lane in each direction for approximately 6.7 miles along I-95 in two separate locations. These lanes required a capital and engineering cost of $68,753,000. Again, no right-of-way cost is reported, so it can be estimated at 35% of capital and engineering costs, or $24,063,000. The new HOV lanes create capacity for 53,600 passenger miles per peak-period. The subsidy cost for this project is therefore $142.14 per commuter-mile.

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Summary Table Supporting Cost Computations:

I-66 Outside the Beltway

I-95 Newington

to Occoquan

I-95 Fairfax Co.

HOV

I-95 Prince William Co.

HOV Capital and Engineering

Cost

$460,000,000 $37,845,000 $67,678,000 $68,753,000

Annual Maintenance

Costs

$612,000 $204,000 $149,600 $227,800

Interest Rate 5% 5% 5% 5% Annual

Depreciation 4% 4% 4% 4%

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Annual Cost $45,762,000 $4,272,338 $7,424,970 $7,618,720 New General Lanes

2 2 0 0

New HOV Lanes

0 0 2 2

New Reversible HOV Lanes

2 0 0 0

Miles of New General Lanes

6 miles 6 miles 0 miles 0 miles

Miles of New HOV Lanes

0 miles 0 miles 4.4 miles 6.7 miles

Miles of New Reversible HOV Lanes

12 miles 0 miles 0 miles 0 miles

Peak Period 2 hours 2 hours 2 hours 2 hours New Passenger Capacity

216,000 passenger

miles

24,000 passenger

miles

35,200 passenger

miles

53,600 passenger

miles

Total Annual Subsidy Cost per Mile of Commute

$211.86 $178.01 $210.94 $142.14

Annual Subsidy for 15 Mile Commute

$3,177.90 $2,670.15 $3,164.10 $2,132.10

Sensitivity Analysis of Highway Cost Computations: Capacity Factors The factors affecting capacity considered are the per-mile per-hour capacity a lane of highway (p) and the length of time (in hours) a peak period lasts (t). Increases in either will lead to decreases in the subsidy cost. When either is increased or decreased by a percentage α, the subsidy cost changes by a percentage of -α/(1+α). For example, for a 10% increase in p, or an α of .1, the subsidy cost changes by a factor of –9%. The new subsidy cost is simply 1 plus this factor multiplied by the old subsidy cost.

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The following are the changes in subsidy costs resulting from percentage various changes to p, the per-mile, per-hour capacity of a lane of highway or in t, the length of a commuting period. The original values are 2,000 and 2 hours. Subsidy Costs Time (hrs) Capacity %Change I-66 W. of Belt. I-95 Newington I-95-Fairfax I-95 PW %change

1.8 1800 -10% $235.40 $197.80 $234.38 $157.93 9.00%1.9 1900 -5% $223.01 $187.39 $222.04 $149.62 4.75%

2 2000 0% $211.86 $178.02 $210.94 $142.14 0.00%2.1 2100 5% $201.77 $169.54 $200.90 $135.37 -5.25%2.2 2200 10% $192.60 $161.84 $191.76 $129.22 -11.00%2.3 2300 15% $184.23 $154.80 $183.43 $123.60 -17.25%2.4 2400 20% $176.55 $148.35 $175.78 $118.45 -24.00%2.5 2500 25% $169.49 $142.42 $168.75 $113.71 -31.25%

Cost Factors The factors affecting the annual cost of a highway project are the rate of interest (r) and the rate of depreciation (d). An increase in either of these will increase the subsidy costs, although at different rates determined by the capital cost, right-of-way cost, and maintenance costs associated with each individual project. When r is changed by a percentage β, the subsidy cost changes by a percentage of:

SCrWBmHmGmOKdr

WKr

bhg

∆=+++++

+)()(

)( β

For each project considered, this factor is listed as a function of β. Project Factor I-66 Outside the Beltway .59β I-95 Newington to Occoquan .60β I-95 Fairfax Co. .62β I-95 Prince William Co. .61β

The following table shows the changes in subsidy costs for each project resulting from a change in the interest rate. The original rate is 5%.

21

Subsidy Costs Rate %Ch I-66 W. of Belt. % Ch. I-95 Newington % Ch. I-95-Fairfax % Ch. I-95 PW %ch

3% -40% $161.86 -23.6% $135.30 -24.0% $158.63 -24.8% $107.46 -24.4%4% -20% $186.86 -11.8% $156.66 -12.0% $184.78 -12.4% $124.80 -12.2%5% 0% $211.86 0.0% $178.02 0.0% $210.94 0.0% $142.14 0.0%6% 20% $236.86 11.8% $199.38 12.0% $237.10 12.4% $159.48 12.2%7% 40% $261.86 23.6% $220.74 24.0% $263.25 24.8% $176.82 24.4%8% 60% $286.86 35.4% $242.11 36.0% $289.41 37.2% $194.16 36.6%9% 80% $311.86 47.2% $263.47 48.0% $315.57 49.6% $211.50 48.8%

10% 100% $336.86 59.0% $284.83 60.0% $341.72 62.0% $228.85 61.0% When d is multiplied by a percentage δ, the subsidy cost changes by a factor of:

SCrWBmHmGmOKdr

dK

bhg

∆=+++++ )()(

δ

For each project considered, this factor is listed as a function of δ. Project Factor I-66 Outside the Beltway .40δ I-95 Newington to Occoquan .35δ I-95 Fairfax Co. .36δ I-95 Prince William Co. .36δ The following table shows the changes in subsidy costs for each project resulting from a change in the rate of depreciation. The original rate is 4%. Subsidy Costs Rate %Ch I-66 W. of Belt. % Ch. I-95 Newington % Ch. I-95-Fairfax % Ch. I-95 PW %ch

1% -80% $144.06 -32.0% $128.17 -28.0% $150.19 -28.8% $101.20 -28.8%3% -40% $177.96 -16.0% $153.10 -14.0% $180.56 -14.4% $121.67 -14.4%4% -20% $194.91 -8.0% $165.56 -7.0% $195.75 -7.2% $131.91 -7.2%5% 0% $211.86 0.0% $178.02 0.0% $210.94 0.0% $142.14 0.0%6% 20% $228.81 8.0% $190.48 7.0% $226.13 7.2% $152.37 7.2%7% 40% $245.76 16.0% $202.94 14.0% $241.32 14.4% $162.61 14.4%8% 60% $262.71 24.0% $215.40 21.0% $256.50 21.6% $172.84 21.6%9% 80% $279.66 32.0% $227.87 28.0% $271.69 28.8% $183.08 28.8%

22

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References for Appendix A: 1 Transportation Research Board. Highway Capacity Manual (Special Report 209). Washington: National Research Council, 1985, p 7-5. 2 Northern Virginia Transportation Coordinating Council. Northern Virginia 2020 Transportation Plan. 1999, p 156. 3 Virginia Department of Transportation. I-66 Corridor Major Investment Study. 1998, pp 57-62. 4 Virginia Department of Transportation. Virginia Transportation Development Plan. 2000. 5 Northern Virginia Transportation Coordinating Council. Northern Virginia 2020 Transportation Plan. 1999, p 156. 6 Virginia Department of Transportation. Virginia Transportation Development Plan. 2000. 7 Virginia Department of Transportation. Virginia Transportation Development Plan. 2000.