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Discussion Paper On The Evaluation Of Economic Development

Introduction

In the interest of receiving robust public input and comment on the topic, this document is intended to present one possible method for evaluating the potential economic development impacts of projects applying for Federal Transit Administration (FTA) Section 5309 New Starts funds. After receiving feedback on how it might evaluate economic development impacts of New Starts projects , FTA intends to prepare proposed policy guidance at some point in the future that would be published for notice and comment before any particular approach is finalized.

For the purposes of the economic development criterion, FTA defines economic development as the extent to which a proposed New Starts project is likely to contribute to additional, transit-supportive development within the new station areas to be constructed as part of the project. In 2005, FTA initiated a study of the economic development impacts of transit investments with the objective of developing a quantitative measure of the economic development impacts of transit to determine whether or not it could be reliably included in the evaluation of major transit capital investments. That study developed and evaluated two approaches to estimating the economic development impacts of major transit capital investments:

  • Forecasting economic benefits at a regional scale using regional economic models; and
  • Attempting to predict station area development impacts based on proximity to rail stations.

These two methods appear to be unsatisfactory for a variety of reasons. The use of regional economic models was found to be relatively expensive and produced widely divergent results between the two case studies that were not easily explained. The second approach of using rail station proximity to forecast station area development was also unsatisfactory because the analysis found a statistically significant development impact where no impact was expected or observable and failed to find any significant impact in areas where most observers would agree an economic development impact has occurred.

In order to guide future research in this area, FTA convened a panel of experts in late 2007 to consider the potential methodologies available to measure the economic development benefits of transit. The panel suggested two main methods to achieve FTA’s goal: 1) to use hedonic models to estimate the land value impacts of major transit investments, and 2) to use integrated transportation/land-use models to forecast changes in land-use patterns that result from transportation investments and the benefits associated with those changes. FTA has two ongoing research projects on the use of integrated transportation/land-use models and has sponsored two Transit Cooperative Research Program (TCRP) projects (H-39 and SH-12) to study the impact of transit on economic development. The TCRP studies are ongoing.

The panel also reviewed a number of other economic development methodologies (see the report on FTA’s website at http://www.fta.dot.gov/documents/Econ_Dev_Expert_Panel_Report.pdf) including a qualitative assessment approach such as the one described later in this discussion paper. FTA is considering using this qualitative assessment approach as an interim evaluation methodology until the results of these ongoing research efforts are available; an approach supported by the expert panel.

Approach to the Economic Development Criterion

The approach described in this discussion paper is not a modeling approach and does not rest on forecasts of economic development. Rather, it describes a method based on an assessment of the key conditions that FTA believes contribute to and facilitate the economic development impacts of transit projects.

The method envisioned by FTA is based on a review of the academic and professional literature on the impact of transportation projects on economic development. The basic underlying relationship between economic development and transportation is accessibility. When a transportation project improves the accessibility of a parcel of land, the value of that parcel increases along with its development potential. However, several studies have shown that additional development does not occur simply as a result of more accessibility, but also depends on the availability of developable land, local policies, and local economic conditions.

The economic development criterion described here incorporates elements of the previous land use criterion, including land use plans, policies, and implementation support activities that may lead to additional transit-supportive development, as well as indicators of regional economic health and local development activity. At a conceptual level the economic development assessment is the product of two considerations:

  • The total additional transit-supportive development that can be expected to occur in station areas; and
  • The contribution of the New Starts transit project to achieving this development.

The first consideration, total expected development, is dependent upon three specific factors:

  • The developability of land in station areas;
  • Land use plans and policies encouraging transit-supportive development; and
  • The economic climate for development.

The second consideration, the contribution of the New Starts project, is further dependent upon two factors:

  • The accessibility benefits of the project; and
  • The permanence of the transit investment.

This yields a total of five factors to be assessed, as numbered above which are consistent with the five factors cited in the Notice of Proposed Rulemaking (NPRM) on New Starts issued on August 3rd, 2007.1. Readers may wish to review the NPRM and related comments on FTA’s website2. In FTA’s conceptual approach, the last two factors would not require project sponsors to generate or submit additional information but would be based on information already routinely submitted to FTA as part of the New Starts evaluation and rating process. The accessibility benefits of a project can be assessed based on the user benefits that accrue to those who live or are destined to zones near the proposed stations. This measure as well as other potential measures of accessibility can be derived from each project sponsor’s submission of information on their travel forecasts and will not require any additional work. The permanence of the investment can be measured by the average useful life of the investment weighted by the cost of each major project element. This information is routinely provided on the Standardized Cost Category worksheets currently submitted by each project sponsor. These factors will not be addressed further in this discussion paper. The subjects of this discussion paper are the potential submission requirements for factors 1, 2, and 3 and their evaluation.

Overview of Potential Measures

The potential developability measure would attempt to determine the extent to which additional development could be accommodated in the proposed station areas. Evaluation factors might include the amount of vacant land available for development in station areas measured by the number and size of vacant and developable parcels. In addition, transit projects that significantly increase land values may spur re-development of underutilized parcels. The existence of underutilized land in station areas might be identified by a particularly low ratio of improvement value to land value. Often, structural barriers inhibit additional development; therefore the analysis of developability might include an assessment of barriers such as environmental issues, inadequate infrastructure, zoning or regulations, or a preponderance of small/non-contiguous parcels.

The evaluation of transit-supportive plans and policies would indicate whether local governments were actively promoting high density transit supportive land uses. This factor is similar to portions of the existing land use criterion and would evaluate local policies that promote pedestrian movements, promote mixed uses adjacent to transit, limit parking, and provide high, transit supportive matter-of-right residential and commercial densities in station areas.

The evaluation of economic climate would attempt to assess the economic health of the region and corridor as an indicator of the extent to which economic conditions are likely to support additional growth in station areas. This measure would, by necessity, rely on a variety of measures dictated by the availability and quality of local data sources. Economic indicators might include forecasts of metropolitan area growth, historical data on the growth of corridor and regional property values, trends in commercial floorspace asking rents in the corridor, median prices for owner-occupied housing units in the corridor and region, average corridor and regional land values, commercial floorspace vacancy rates, and the existence of development subsidies and tax policies to promote additional development and their associated costs. In corridors with a significant amount of vacant or underutilized land, the project sponsor would need to assess the reasons for the lack of development and the degree to which those factors hindering development would persist after the proposed project is constructed.

Assessment Method

The overall approach to assessing a project and assigning an economic development rating would be somewhat different than for the current land use criterion. For land use, contractors selected by FTA review land use materials submitted by the project sponsor, prepared an assessment report, and assigned preliminary ratings. In contrast to that approach, for the economic development criterion contractors would assemble and analyze information provided by the project sponsor in more detail than for the land use criterion and would not assign preliminary ratings. They would then prepare a summary report to FTA, and a panel of FTA experts would assign ratings for all projects. (For some metrics that can be described with quantitative information, the consultant could assign “benchmark” ratings of “high,” “medium,” or “low” to assist FTA in assigning an overall rating; however, no particular weighting scheme is provided for combining the individual factors or metrics.) This process can therefore be described in three steps, as follows:

  1. The project sponsor assembles supporting information and provides this information to FTA and its contractors. The narrative template for providing this information is referred to as Template A-1.
  2. FTA contractors review the information, conduct additional analysis, and place it in a consistent summary format. The document template in which the contractors should provide this summary information is referred to as Template B-1. It is accompanied by two spreadsheets (available from FTA but not included here due to their size and format), referred to as Template B-2 and Template B-3, that provide calculation aids for the reviewer.
  3. FTA staff review the information assembled by the contractors and assign a rating based on this information.

The economic development criterion envisioned here is similar to the previous land use criterion in that it focuses on land use plans, policies, and development within a ½ mile radius of proposed new stations associated with the New Starts project. Existing station areas are not considered, nor are any broader impacts that may occur beyond the immediate station areas.

The remainder of this discussion paper describes the potential approach to assessing and rating each factor. For each factor, the paper describes 1) the information that would be provided by the project sponsor; and 2) the analysis and reporting tasks for FTA’s consultants.

Notes:

1 Federal Register Vol. 72, No. 149, 43328-43377; http://www.fta.dot.gov/planning/newstarts/planning_environment_5615.html

2 http://www.regulations.gov/fdmspublic/component/main?main=DocumentDetail&d=FTA-2007-0033-0002