Mobilizing Infrastructure Investment

MOBILIZING INFRASTRUCTURE INVESTMENT

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STATE OF AFFAIRS: THE TIME IS NOW The decline of infrastructure in America is well publicized, and yet little action has been taken to improve our transportation to a state of good repair or to increase our capacity for moving people and goods. In 2017, the United States received a D+ on the American Infrastructure Report Card from the American Society of Civil Engineers (ASCE), which examines bridge, water, transportation, and other infrastructure across the country; this benchmark for infrastructure is often cited by policymakers on both sides of the political aisle to make the case for further investment. But since the report card’s origination in 1988, the ASCE’s overall score for infrastructure has noticeably declined (and has been considered “failing” since 1998),1 raising questions about the weight and effectiveness of this kind of evaluation. Americans are suffering from the effects of inaction. The ASCE estimates that each household’s disposable income falls by $3,400 each year due to infrastructure deficiencies. 2 On average, congestion alone costs drivers in the United States $1,400 yearly, bringing national losses to $300 billion. In car-dependent cities like Los Angeles, drivers now annually spend 104 hours in rush-hour traffic jams. In New York City, which benefits from the nation’s top urban transit system,3 ride-hailing vehicles now outnumber yellow cabs by a factor of five4 and trips via ride-hailing giant Uber surpass those of taxis.5 But cars aren’t just resulting in productivity losses; automobile crashes killed 40,000 Americans in 2016, a 14% increase since 2014,6 and each tank of gasoline is estimated to Figure 1 405 freeway near Los Angeles International Airport cause $18.42 in health and climate costs.7 (Source: Business Insider)

Upgrading America’s transportation infrastructure systems to a state of good repair would cost roughly $2.5 trillion by 2025, with a funding gap of nearly 50%.8 Expanding capacity and deploying new technologies would require billions or even trillions more.9 How has government made the case for investing in infrastructure in the past? Are those approaches viable in today’s political and economic climate? National infrastructure strategies have been developed and implemented in the United States approximately every half century since the beginning of the Republic. Each of these plans has sustained the growth and development of the nation and its economy. Today, however, for the first time in American history, there is no long-range vision for the future of the nation’s infrastructure.

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“Report Card History.” ASCE’s 2017 Infrastructure Report Card (blog). Accessed November 9, 2017. https://www.infrastructurereportcard.org/making-the-grade/report-card-history/. 2 “Failure to Act Report.” ASCE’s 2017 Infrastructure Report Card (blog). Accessed November 13, 2017. https://www.infrastructurereportcard.org/the-impact/failure-to-act-report/. 3 Fischer-Baum, Reuben. “How Your City’s Public Transit Stacks Up.” FiveThirtyEight (blog), July 31, 2014. https://fivethirtyeight.com/features/how-your-citys-public-transit-stacks-up/. 4 McGinty, Jo Craven. “Traffic Is Piling Up—and So Are Its Costs.” WSJ. Accessed November 13, 2017. https://www.wsj.com/articles/traffic-is-piling-upand-so-are-its-costs-1510322400. 5 “Uber Is Now More Popular Than Yellow Cabs in NYC.” NBC New York. Accessed November 22, 2017. http://www.nbcnewyork.com/news/local/Uber-Yellow-Taxis-New-York-City-Ride-Hailing-Apps-Cabs-Lyft-Via-450793183.html. 6 Korosec, Kristen. “2016 Was the Deadliest Year on American Roads in Nearly a Decade.” Fortune. Accessed November 13, 2017. http://fortune.com/2017/02/15/traffic-deadliest-year/. 7 Holmes-Gen, Bonnie. “Health and Climate Benefits of Zero Emission Vehicles.” American Lung Association in California. October 2016. http://www.lung.org/local-content/california/documents/2016zeroemissions.pdf. 8 “Economic Impact.” ASCE’s 2017 Infrastructure Report Card (blog). Accessed November 13, 2017. https://www.infrastructurereportcard.org/the-impact/economic-impact/. 9 “Economic Impact.” ASCE’s 2017 Infrastructure Report Card (blog). Accessed December 14, 2017. https://www.infrastructurereportcard.org/the-impact/economic-impact/. 3

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In 1808, Thomas Jefferson and his Treasury Secretary, Albert Gallatin, proposed that a national network of roads and canals be built to promote development of the west and to link these areas with the East Coast. They also proposed that federal lands be sold or granted to private investors to finance and build these projects. Later, many of these canal corridors became rights-of-way for railroads, which were financed and built using the same land grant process across the country. This plan also spurred smaller regional investments like the Erie Canal, created to bring goods from upstate to the growing port of New York City. Then, in the 1860s, during the Civil War, President Abraham Lincoln proposed building the Transcontinental Railroad and other western railroads, which promoted development across the west and tied the West Coast to the rest of the nation. At the same time, Lincoln advanced creation of the Land Grant University system, using grants of public lands to promote establishment of public research universities in every state. And he proposed other measures adopted by Congress to promote research and technology and settlement of under-populated areas of the country. These included the National Figure 2 United States Infrastructure Investments and Economic Impacts (Source: 13th US Congress, GTG Technology Group) Academy of Sciences and the Homestead Act.10 In 1908, President Theodore Roosevelt proposed a new national infrastructure strategy, this time organized around development of the nation’s natural resource systems. This led to the creation of the inland navigation network stretching from the Ohio and Missouri Rivers to the Gulf Coast and on the Columbia River on the West Coast. This plan also proposed development of hydro-electric, irrigation and flood control projects on rivers across the West and South. And it advanced creation of the national forest and park systems.11 Many of these projects were built by President Franklin Roosevelt in the 1930s as part of the New Deal’s public works construction program. Among the many public works completed during this period were the nation’s first limited access highways in Pennsylvania, New York, Connecticut, and California, and hydro-electric dams on the Colorado, Columbia and Tennessee Rivers. Other public works included thousands of schools, hospitals, libraries, and local roads, New York’s Triboro and Whitestone Bridges, the West Wing of the White House, and electrification of vast areas of the South and West by the Rural Electrification Administration.12 The Roosevelt Administration also proposed the creation of a nationwide network of interstate limited access highways, a vision realized during the administration of President Dwight Eisenhower in the 1956 National Defense and Interstate Highway Act. The Interstate Highways transformed the country, enabling rapid expansion of metropolitan areas throughout the post-World War II era, and helped underpin a five-fold increase in GDP in the five decades following adoption of this act.13 In every era, the scale and complexity of these efforts tested the nation’s leaders with considerable challenges, ranging from regional divisions to controversies over the appropriate role of public and private sectors to significant feats of

“Land-Grant College Act of 1862 | United States Legislation.” Encyclopedia Britannica. Accessed December 17, 2017. https://www.britannica.com/topic/Land-Grant-College-Act-of-1862. 11 “PBS - THE WEST - Theodore Roosevelt, The Conservation of Natural Resources (1907).” Accessed December 17, 2017. http://www.pbs.org/weta/thewest/resources/archives/eight/trconserv.htm. 12 “New Deal | Definition, Programs, Summary, & Facts.” Encyclopedia Britannica. Accessed December 17, 2017. https://www.britannica.com/event/New-Deal. 13 “The Next American System ~ [OP-ED] 1808 – 1908 – 2008: National Planning for America | Blueprint America | PBS.” Blueprint America (blog), January 23, 2010. http://www.pbs.org/wnet/blueprintamerica/reports/by-topic/commuting-transit/beyond-the-motor-cityanalysis-1808-%e2%80%93-1908-%e2%80%93-2008-national-planning-for-america/885/. 10

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civil engineering. America’s explosive growth over the 19th and 20th centuries was due, in large part, to the systems created through these robust transportation networks.14 It has now been more than six decades since the United States has had a long-range infrastructure strategy. And federal funding, both in absolute terms and as a share of GDP, has declined to levels not seen since the 1920s. In the absence of a national infrastructure vision and funding, some regions are finding ways to solve infrastructure challenges on their own. In the Denver metropolitan area, for example, the region’s fiscally constrained 2040 Metro Vision Regional Transportation Plan attempts to make the most out of a funding shortfall. The FasTracks program, a major transit investment for the Denver Region, has proven to be a big win for public transportation in the region, and its approval reflects significant public support for transit.15 This ambitious regional rail investment and associated land use plans are reconfiguring metro Denver as a vibrant and growing transit-oriented region. Dallas, Houston, and a number of other cities are adopting similar ambitious rail investment programs. In recent years, Los Angeles has also made significant investments and progress towards completing transit capital projects such as Metro’s Orange Line extension (BRT) and Expo Line (rail). In total, there are currently five major Metro Rail projects under construction in the LA metro region. These transit projects have relied heavily on funding from Measure R, which took effect 2009 and imposed a 0.5% sales tax in LA County. Measure R is expected to generate about $40 billion in revenue for transportation projects through 2039, the lion’s share of which will be used for urban rail projects.16 It should be noted that the successes in Denver and Los Angeles are an aberration in the United States, in part due to the absence of federal financial support for ambitious new transit infrastructure systems. Today’s infrastructure quagmire is the result of a broad range of financial, regulatory, risk, and governance challenges: ●

Failure to finance capital assets at the federal level defers benefits. Today, federal budgetary rules like the OMB Circular A-11, which requires capital costs to be “scored” upfront, present obstacles to federal asset acquisition and financing.17 Government investments in physical assets are required to be expensed upfront, just like salaries and wages, encouraging agencies to select projects with the lowest cost instead of considering the project’s value over its life-cycle.18 This budgeting system delays the procurement of capital-intensive assets, even ones that are necessary, and defers public benefits resulting from needed investment.

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Poorly-conceived and managed permitting processes waste money and harm the environment. Infrastructure project approvals today can take up to a decade or more. Incoherent approval systems result in a confusing mess of regulators and bureaucracy. And deliberately tedious environmental reviews are “diluted by a tidal wave of marginal detail.”19 While community engagement can improve a project, today’s focus on securing total consensus stretches project timelines and increases costs.

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Conventional forms of project delivery, involving planning, design, bid, and build as sequential stages results in schedules that extend over decades, raising costs. While some jurisdictions allow design-build, design-build-operate-maintain, and special-purpose project-based authorities, many do not.

“Public Roads - Federal-Aid Highway Act of 1956: Creating The Interstate System , Summer 1996 -.” Accessed December 17, 2017. https://www.fhwa.dot.gov/publications/publicroads/96summer/p96su10.cfm. 15 Denver Regional Council of Governments. (2017). 2040 Metro Vision Regional Transportation Plan. 16 “What Is the 2016 RTP/SCS? - 2016 SCAG RTP/SCS.” Accessed December 17, 2017. http://scagrtpscs.net/Pages/2016RTPSCS.aspx. 17 “Critical Asset Procurement Reform: A Federal P3 Capital Asset Financing Proposal.” Public Works Financing (journal), April 2017. 18 Ibid 19 “Two years, Not Ten Years: Redesigning Infrastructure Approvals.” Philip K. Howard. Page 4. 14

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Inadequate risk management processes deliver projects late and over-budget. Inadequate anticipation of lifecycle risks and lack of flexibility to react to unforeseen issues ends up compromising the success of projects. According to McKinsey, “direct value losses due to undermanagement of risks for today’s pipeline of large-scale projects may exceed $1.5 trillion in the next five years;”20 the growing complexity and size of infrastructure projects will only drive aggregate losses upwards if risks are not properly managed.

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Governance mired in politics leads to deferral of infrastructure investment. Major infrastructure projects relying on state and federal funding are particularly susceptible to partisan disagreements, and political turnover works against long-term projects. The existing system does not encourage or reward innovative thinking.

Early on in his presidency, Donald Trump confidently endorsed the public-private partnership (P3) model to quickly and efficiently build, repair, and manage roads, bridges, and airports. Trump asserted that this type of collaboration could be used to finance and deliver a significant share of his proposed $1 trillion infrastructure investment program. When properly designed and implemented, P3s can transfer risks and responsibilities to the private sector, attract private-sector financing for state and local government initiatives, and leverage private sector talent to deliver projects efficiently.21 More recently, however, the President has offered disparaging remarks on the P3 model, describing them as “more trouble than they’re worth” and calling into question a central pillar of his administration’s approach to public works finance.22 The Roadmap Forward This report, authored by city planning graduate students at the University of Pennsylvania, sets out to analyze the intrinsic problems facing infrastructure investment and propose strategies that could be used to advance a new generation of national infrastructure investments. This report also explores the role that various types of technological innovation could play in transforming the nation’s infrastructure needs. Technology in the realm of infrastructure and transportation is advancing at an increasingly rapid pace and introducing new modes of mobility (including ride-hailing), causing some industry experts to posit that automated vehicle (AV) technology could make urban car ownership obsolete within the next ten years.23 Our report also considers the role that AVs could play in a radically altered transportation investment strategy by assessing best- and worst-case scenarios for its rollout. Because making the case for infrastructure investment has challenged politicians and business leaders nationally, we also aim to build a compelling argument that will be meaningful to all constituents: urban and rural, advantaged and disadvantaged, and regardless of party affiliation This report explores the challenges that must be addressed if the nation is to move ahead with an ambitious transportation investment program. These include obstacles facing our elected leaders as they consider moving for the enormous challenge of infrastructure finance through a discussion of the following topics: 1. Calculating Costs and Benefits (p. 8-13): We propose an fresh approach to measuring costs and benefits to spotlight returns on investment. 2. Reforming Delivery Strategies (p. 14-27): Current permitting, procurement and project delivery strategies are failing to deliver projects on time and on budget. In this section, we unpack the mechanics of making project delivery more cost effective and efficient. 3. Taking advantage of New Technologies (p. 28-37): Today’s conversation about the role of technology in transportation infrastructure is full of conjecture about the timeline of AVs and flying vehicles. We reframe this Beckers, Frank, and Uwe Stegemann. “A Risk-Management Approach to a Successful Infrastructure Project | McKinsey & Company.” Accessed November 10, 2017. https://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights/a-riskmanagement-approach-to-a-successful-infrastructure-project. 21 Goldstein, Matthew, and Patricia Cohen. “Public-Private Projects Where the Public Pays and Pays.” The New York Times, June 6, 2017, sec. DealBook. https://www.nytimes.com/2017/06/06/business/dealbook/trump-infrastructure-plan-privatized-taxpayers.html. 22 Mann, Ted, and Siobhan Hughes. “Lawmakers: Trump Calls Public-Private Infrastructure Partnerships ‘More Trouble Than They’re Worth’.” Wall Street Journal, September 27, 2017, sec. Politics. https://www.wsj.com/articles/lawmakers-trump-calls-public-privateinfrastructure-partnerships-more-trouble-than-theyre-worth-1506471610. 23 “Lyft’s President Says Car Ownership Will ‘All But End’ in U.S. Cities by 2025,” Fortune, accessed December 17, 2017, http://fortune.com/2016/09/18/lyft-no-car-ownership-by-2025/. 20

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conversation to consider how communities should leverage these new technologies to grow all benefit streams efficiently across multiple scenarios. This report then goes on to recommend solutions to these challenges, and approaches that can be used to build public and political support for these actions, the following sections; 4. Building Towards the Future (p. 38): Here, we outline actions that will mobilize people and resources to get our nation’s infrastructure back on track. 5. Making the Case (p. 39-40): We conclude our discussion of infrastructure finance in America with a messaging strategy for policymakers and business leaders. Making the case for further investment will require a broad-based coalition-building effort that translates key issues into terms that galvanize taxpayers and system users. We advocate swift action to prepare communities across the United States for the future of transportation.

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COSTS & BENEFITS: A FRESH LOOK Today, policymakers place too much emphasis on the current cost of infrastructure rather than the associated public benefits generated over time. Many of these benefits, including improvements to public health, environmental quality, and reduced carbon production, can be difficult to quantify. Additionally, the wider economic benefits of major transformational projects, which may take decades to materialize, are even harder to anticipate and quantify. The large cost overruns experienced by Boston’s “Big Dig,” for example, are well-known and easily quantifiable. But the transformation that this project has produced in the region’s economic performance and quality of life are still emerging. In light of these challenges, it is important to assess the broad range of benefits resulting from transportation infrastructure investment and examine where they have been successfully quantified. By following these best practices, decision-makers can select projects that will generate the best return on investment over their lifetime and show that smart investments are worth their cost. Table 1: Benefit/Cost Consideration Criteria Often Considered Financial return Congestion relief/added capacity Safety Quality of service State of good repair

Sometimes Considered Pollution reduction (e.g. air, GHG, noise) Savings through efficient freight movement. Savings through energy efficiency. Resilience/risk mitigation Environmental protection Long-term O&M costs

Often Overlooked Long term effect on economic growth and productivity Economic spillover effect on region Access and social equity Cost of inaction Regional/national competitiveness

Infrastructure investments spearheaded by government aim to produce a wide range of public benefits. While the immediate costs needed to close the infrastructure gap in the United States are daunting, smart investments in infrastructure repair, increased capacity, and new transport technologies are crucial for the welfare of the American citizens, economy, and environment. These investments will pay dividends for decades to come. Accounting for difficult-to-quantify benefits when evaluating and prioritizing investments identifies the projects that can generate positive returns given the significant local and national benefits that accrue over the longer term. The process of identifying and quantifying benefits can help make investment decisions more data-driven and defensible. Moreover, it can save government money. McKinsey estimates that “the optimization of infrastructure portfolios, through the elimination of poorly-conceived projects and selection of better alternatives would free up an estimated 15-35% of new capital spending.”24 A clear understanding of a project’s benefits and advancement of policy goals can help elected officials better allocate resources and select projects that provide the highest return on investment. Emphasizing the many benefits gained from infrastructure helps build the case for infrastructure investment and adds to the transparency of the decision-making process.

Underestimated Costs Cost of doing nothing Efficient infrastructure systems are required for society to function. Roads, airports, bridges, railroads, and tunnels provide the foundations for our built environment and enable citizens and businesses to pursue their personal and financial interests. Despite this crucial role, lack of investment in recent decades has left many of these systems in disrepair and with diminished capacity.

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McKinsey & Company, Infrastructure productivity: How to save $1 trillion a year, 2013 8

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New York City’s subway system, one of the most important and iconic inner-city transportation systems in the United States, is a prominent example of this paradigm. In the last decade, the system’s on-time

Figure 4 New York Subway On-Time Performance by Line (Source: New York Times) Figure 3 New York City Subway Capacity and Usage Trends (Source: New York Times)

performance has worsened dramatically, severely impacting mobility, accessibility, and level of service in the nation’s largest city. One of the culprits of this problem is the aging equipment of the 112-yearold system.25 But the main cause of the delays is overcrowding. Since 1990, ridership of the system has nearly doubled, while capacity has decreased slightly.26 This problem is especially exacerbated during rush hour, when the system simply cannot satisfy demand. The widespread delays waste people’s time and money, and limit the possible physical and economic growth of the region. Failure to make the needed investments in infrastructure carries a cost as well. This “cost of doing nothing” may even surpass the long-term cost of smart, targeted investments. Many organizations evaluate the cost of inaction explicitly in their strategic plans. As reported in the San Francisco Metropolitan Transit Authority (SFMTA)’s Performance Assessment Report, “the annual benefits for rail maintenance are seven times the annual cost;” without maintaining rail assets, “travelers would take between 270,000 and 320,000 fewer transit trips, leading to increasing congestion or just less travel overall.”27 Cost of thinking short-term Today’s approach to infrastructure investment in the United States is decidedly reactive, as evidenced by the failure of the I-35W bridge in Minneapolis, a heavily utilized connector known to be structurally deficient since the 1990s. Fifteen people died and 145 were injured when the bridge collapsed in 2007, and many local businesses saw a 40-50% decline in profits in the months following the collapse.28 The total economic loss to Minnesota’s economy was estimated at $60 million from 2007-200829 on top of the replacement cost of $400 million.30 Ultimately, policymakers leading the reconstruction ignored the need to expand the bridge’s capacity and the possibility of integrating light rail, two desires voiced by local officials and the public, just to ensure the project arrived on time and on budget.31 This reactionary approach to infrastructure investment is costly, ineffective, and results in poorly-conceived projects. Doing nothing or postponing action results in greater spending over the long term and foregoes many social and economic benefits. Overlooked Benefits Economic vitality, productivity, and jobs Because investing in infrastructure requires a large amount of capital, supporters often point to future economic benefits to justify projects. These benefits are felt across four interconnected levels: the individual, the business community, municipal and regional bodies, and the nation at large. On an individual level, more reliable and extensive transportation networks translate into greater access to employment opportunities. Better transportation also enhances worker productivity, which is beneficial for both individuals and businesses. The combination of these benefits means that individuals have more disposable income to spend in other areas of the economy. The American Society of Civil Engineers estimated that from Emma G Fitzsimmons and Ford Fessenden, “Every New York City Subway Line Is Getting Worse. Here’s Why”, New York Times, 2017 26 Ibid. 27 Ibid. 28 Anderson Jr., G.R., “Economy in Freefall: Businesses around the 35W bridge site may not survive to see a new span”, CityPages, 2007 29 Minnesota Department of Employment and Economic Development, Economic Impacts of the I-35W Bridge Collapse, 2011 7 Tom Scheck, “Cost of bridge collapse could reach $400 million”, MPR News, 2007 31 Tom Scheck, “I-35W bridge reconstruction could delay other projects”, MPR News, 2007 25

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2010 to 2020 the cost of degrading surface transportation on households would amount to $481 billion.32 When looking at infrastructure in the United States, the decrease in worker productivity and resulting job cutbacks from aging transportation systems will amount to losses of $28,000 in disposable income per household by 2020.33 For businesses, improved transportation expands the available labor pool by providing greater access to talent. The state of infrastructure also determines a business’ ability to grow, as slower movement of goods and high cost of shipping means lowers profits and less capital to reinvest in R&D. In 2010, the ASCE quantified this cost by estimating that, if infrastructure in the United States is not improved by 2020, losses in business sales will total nearly $1 trillion.34 The strength of the economy produces significant implications for the larger municipality as well. Economic productivity and growth are key objectives for cities and regions: a lower cost of producing and transporting goods enables a municipality to compete for businesses that are relocating. The same principle can be applied to the U.S. overall, as the country competes with other modern nations around the world, the GDP is highly influenced by investment in infrastructure. While the exact metric depends heavily on the state of the economy, the impact of $1 investment in infrastructure can increase the GDP as much as $1- $2.50 in the case of an economic recession, and by $0.86 during a period of economic growth.35 Measuring the impact of a project on economic growth is challenging because externalities come into play but also because spillover effects are hard to quantify. The effect of state infrastructure spending on economic growth has been found to be smaller than the effect of federal spending due to this “spillover effect.” Since it is hard to measure effects across state lines, economic models often underestimate the effect of infrastructure investments. This poses a particular problem when combined with the fact that states are often the lead agency and typically provide over 50% of project funding for highway and transit project,36 likely leading to a skewed project selection process. Spillover effects are also seen in the strengthening of agglomeration economies; as infrastructure improves and more companies locate close to one another, there is often an increase in productivity through the efficient exchange of goods, people, and ideas. 37 This is difficult to quantify but important to consider. Finally, the impacts of infrastructure investment (and disinvestment) show that failure of one infrastructure system can become a drag on other infrastructure systems. For example, if a rail system is unreliable, congestion on roads will increase, making the overall impact of disinvestment even greater. In outlining the positive effects of infrastructure investment, these spillover effects are often not weighted heavily enough.

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Economic Development Research Group, Failure to Act 2013, Ibid, 34 Ibid, 35 Elizabeth Mcnichol, “It’s Time for States to Invest in Infrastructure,” Center on Budget and Policy Priorities, 36 Ibid, 37 JJ Laird, et al, “Transformational Transport Infrastructure: Cost Benefit Analysis Challenges.” Town Planning Review 85, no.6 (2014): 709 – 730. 33

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Social benefits and equity In the United States, there is a great disparity between economic productivity and job opportunities across cities and regions. In 2016, the national unemployment rate hovered below five percent, while the unemployment rate in El Centro, California was as high as 18%. 38 Investing in infrastructure within areas facing high rates of unemployment or historic underinvestment may positively impact these communities and make them more competitive, especially considering transportation is the second greatest household expenditure, after housing. 39 Transit infrastructure provides opportunities to develop housing nearby, allowing a municipality to grow density and access to jobs. For low-income families in areas underserved by transit, getting to work means owning a car and travelling long distances from low-cost housing to the CBD; by expanding a transportation network and neighborhoods connected by transit, more affordable housing options become available. As part of larger efforts to develop more equitable communities, reliable access to transit becomes a key measure of success and must be considered as part of a project’s impact over its life-cycle.

CROSSRAIL England’s Crossrail, now called the Elizabeth Line, is a 118-kilometre railway line running through parts of London and the counties of Berkshire, Buckinghamshire, and Essex. The Business Case Report developed for this project includes a Benefits Costs Ratio citing time saving and congestion relief as the two main benefits of the project. In response to studies showing that London is projected to grow by about 1.3 million people and 750,000 jobs by 2031, proponents of Crossrail were able to cite the 10% increase in capacity and the decrease in congestion by 20-60% (depending on the line). Crossrail thus became a necessary investment to support London’s growth and economy, and it was shown that 40% of the net transport economic benefits for Crossrail will come from increased capacity. However, not included in the Benefits Costs Ratio are the ‘Wider Economic Benefits’ which are outlined separately. Crossrail is estimated to bring 1.5 million more people within 45 minutes of the existing major employment centers, enabling the ability for employment growth and the regeneration of certain areas along Crossrail’s route. According to the Transport for London, Crossrail is estimated to increase the UK’s GDP by 3.97-5.87 pounds for every 1 pound spent. This revenue is expected to come from increase tax receipts, increased earnings for UK businesses, agglomeration benefits, and a re-allocation of labor to more productive jobs. The existence of these important benefits outside of the traditional Cost Benefit Ratio demonstrates the need to look beyond this measurement in order to capture the true value of a project. Source: Crossrail Business Case Updated: Summary Report July 2010

Environmental quality Adding road capacity generally contributes to negative externalities by producing more greenhouse gas (GHG) emissions and pollutants, while transit and active modes of transportation generate environmental and health benefits. Both the TIGER BCA Guide40 and Plan Bay Area 204041 specify the monetary social costs associated with per unit carbon emissions and each type of pollutants. The Bay Area Metropolitan Transportation Commission’s evaluation also incorporates noise pollution from auto and truck miles traveled. Positive environmental impacts improving the health of citizens should also be considered within any assessment of benefits. For example, TIGER estimates the social benefits of reducing CO2 to be $86 per metric ton by 2050, mostly a result of reducing effects of sea level rise, agricultural costs, and energy costs. And a reduction of one metric ton of particulate matter, which induces adverse health effects particularly in urban areas, is estimated to have a social benefit of over $360,000. MTC’s evaluation states that, for a reduction in 100 miles traveled, the social cost of noise abatement translates to $0.13 for personal automobiles and $1.70 for trucks. With the advancement of technologies and project delivery strategies, new infrastructure projects tend to produce smaller ecological footprint due to increased efficiency and environmental-friendly design and construction. Congestion relief Congestion is a major issue facing America's transportation infrastructure, and travel-time saving measured by “value of time” is an important benefit in project evaluations. It is estimated that in the United States there were more than $295 billion direct and indirect congestion costs in 2016 alone.42 In the assessment of costs, the value of travel time is usually calculated Josh Bivens, “How to Improve Infrastructure Project Selection,” Economic Policy Institute, Bureau of Labor Statistics, Consumer Expenditures 2016, 40 USDOT, “TIGER Benefit-Cost Analysis Resource Guide.” 41 Mackenzie et al., “Land Use Modeling Report Draft Supplemental Report March 2017 Metropolitan Transportation Commission Association of Bay Area Governments.” 42 Cookson and Pishue, “INRIX Global Traffic Scorecard.” 38 39

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based on mode and travel purpose. For example, a one hour travel time reduction for surface mode passengers conducting local personal trip would yield a $12.50 benefit, while it could be $24.40 for people traveling for business.43 The Metropolitan Planning Organization of San Francisco Bay Area differentiates the rate between in-vehicle, out-of-vehicle and freight/truck travel.44 Investing in the maintenance of rail assets could shift car-users to transit, thus relieving roadway congestion and freeing up valuable time. The improved transit capacity and reliability would reduce the cost of schedule delay and denied boarding, increasing comfort and producing significant time-saving benefits. Safety Road accidents lead to significant economic and social costs. According to the National Safety Council (NSC), taking the bus is 170 times safer than riding a car and national data also show that public transit is among the safest ways to travel.45 Recent studies estimated that each fatal collision costs an average of $6 million per incident,46 taking approximately $900 out of each American’s pocket and sapping 1.9% of annual growth from the United States economy.47 Aside from monetary costs reflecting property damages, medical treatment, and lost income imposed in all road users, additional costs to consider include pain, grief, and reduced quality of life. Decision-makers must make trade-offs between safety and other planning elements, such as travel time costs and vehicle operating costs, increasingly, cities are adopting Vision Zero strategies. The United States Department of Transportation (US DOT)48 values each automobile accident at $6 million in its cost-benefit analysis when evaluating road safety improvement projects, but these measurements can be contentious as they require putting a dollar value on human life. Competitiveness The World Economic Forum (WEF) describes infrastructure as the second pillar of global competitiveness, claiming that “extensive and efficient infrastructure is critical for ensuring the effective functioning of the economy.”49 While the United States has been ranked in the top five most competitive nations for nine of the last ten reporting cycles, it has lagged in infrastructure quality, ranking 11th in the 2016-2017 reporting cycle.50 Investments in infrastructure are fundamental for economic growth, productivity level, and social mobility, and efficient infrastructure works to incorporate underdeveloped regions into the nation’s economy, thereby promoting economic growth, economic mobility, and innovation. Large developing countries like China and India have made significant investments to improve their infrastructure in recent years, with China spending more than eight percent of its GDP on infrastructure (compared to two percent in the United States).51 As countries like China and India increase their infrastructure spending and become increasingly competitive global economies, the United States must ramp up investment in its physical infrastructure to remain competitive. Conclusion Benefits described in this section are difficult to predict and quantify but should not be overlooked. Ensuring that all the benefits which stand to be gained by timely investments are considered and communicated can help policymakers build a case for renewed investment in the nation’s infrastructure. No methodology fits all types of projects in all contexts, and the process of predicting future returns involves a degree of uncertainty and risk. Despite this uncertain return on investment, the consideration of possible benefits can provide decisionmakers with the holistic viewpoint needed to make informed decisions about whether investments are worthwhile. Moreover, investment in the built environment is one of the best tools policymakers have in reaching their objectives of improving the social, economic, and environmental conditions of their communities. Fixating on project costs and financial returns in the near-term makes policy objectives difficult to achieve and often more costly in the long-term. Smart investments are tied to

USDOT, “TIGER Benefit-Cost Analysis Resource Guide.” Mackenzie et al., “LAND USE MODELING REPORT DRAFT SUPPLEMENTAL REPORT MARCH 2017 Metropolitan Transportation Commission Association of Bay Area Governments.” 45 Christopher E. Ferrell. "The Benefits of Transit in the United States: A Review and Analysis of Benefit-Cost Studies" Mineta Transportation Institute Publications. July, 2015. 46 Larry Copeland, "AAA: Fatal motor vehicle crash costs $6 million." USA Today, November 02, 2011 47 National Highway Traffic Safety Administration, "New NHTSA Study Shows Motor Vehicle Crashes Have $871 Billion Economic and Societal Impact on U.S. Citizens", 2016 48 Trottenberg, Polly, and Robert S. Rivkin, "Guidance on Treatment of the Economic Value of a Statistical Life in U.S. Department of Transportation Analyses." US Department of Transportation, March 01, 2013 49 Klaus Schwab, “The Global Competitiveness Report 2017–2018”, World Economic Forum, 2017 50 Klaus Schwab, “The Global Competitiveness Report 2016–2017”, World Economic Forum, 2016 51 McKinsey & Company, Infrastructure productivity: How to save $1 trillion a year, 2013 43 44

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policy goals and long-term strategic planning are necessary in order to change the current reactive paradigm of infrastructure investment in the US.

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Effective Transportation Infrastructure Delivery

EFFECTIVE TRANSPORTATION INFRASTRUCTURE DELIVERY

During the early- and mid-20th century, the United States led the world in industrial and transportation infrastructure construction. Over the last several decades, we have neglected upkeep and new investments, losing the capacity to deliver complex projects efficiently and effectively. Today’s most complex projects routinely miss deadlines and run over-budget as a result. Attempting to address these issues, this chapter explores the four aspects of infrastructure delivery that produce the greatest impacts on current inefficiencies: Regulation, Risk Management, Governance, and Project Financing. Beyond increased efficiency, however, as projects become more dependable and evidence accrues that funds are spent responsibly, constituents and other stakeholders will regain confidence in government’s ability to deliver infrastructure effectively and will be more willing to fund it. This is essential for the United States moving forward because efficient delivery will not be enough on its own to transform the United States back into a global infrastructure leader. Inevitably, a major portion of the funding will come from conventional revenue sources—“Taxes, Tolls, Fees, and Fares”—so public engagement and broad political support are critical to a long-term commitment to the overhaul of America’s Transportation Infrastructure. Each of the following sections will focus on one of these four key areas of infrastructure delivery. They will first introduce the topic, explaining how it factors into project delivery, and then outline the problems that have arisen in recent decades contributing to inefficient project delivery. Next, each section will present recommendations for how to approach and ultimately resolve these problems using strategies gathered from case studies and industry experts. Finally, each section concludes by indicating how these strategies will transform the delivery process, or by suggesting how strategies can be expanded to create even greater efficiency in American applications. First, let’s consider the successes of the Tappan Zee Bridge reconstruction. This project exemplifies efficient and effective project delivery using the latest in innovative delivery strategies and served as a model for the development of our recommendations. The Tappan Zee Bridge: A Bellwether Case The new Tappan Zee Bridge demonstrates that innovative project delivery strategies, when managed strategically, can bring projects to completion in record time and below budget. The bridge, now entering the final stage of construction, connects New York’s Rockland and Westchester counties and is one of the largest single design-build contracts for a transportation project in the country, with a cost of $3.98 billion. 52 The project’s success has been attributed to several factors, including a nimble NEPA process, early research and outreach, innovative procurement strategies, outstanding coordination, and stalwart leadership. Tappan Zee was one of the first projects to use President Obama’s expedited environmental review process, known as the “Dashboard,” which increased Federal agency coordination to an unprecedented Figure 5 “West Coast Lifter” steaming south away from the Tappan Zee extent. This coordination enabled concurrent review of Bridge Source: Karen Rae (TRB) Presentation, A New NY Bridge the Clean Water Act and NEPA processes, enabling an earlier project permit application.53 Coordination also contributed to extensive public outreach and research conducted at the project’s outset, steps that created a foundation of stakeholder buy-in as well as robust preliminary information from which the delivery teams could build.

52

The New NY Bridge. http://www.newnybridge.com/. United States FHWA, More Efficient and Effective Permitting and Environmental Review Speeds Work on Tappan Zee Bridge Replacement, Successes in Stewardship, 2016. https://www.environment.fhwa.dot.gov/strmlng/newsletters/feb16nl.pdf 53

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The project also benefitted from its strong advocates. The New York State Thruway Authority was given autonomy to deliver the project, with experienced businessman Howard P. Milstein at the helm, providing focused leadership throughout the process.54 Finally, the project utilized design-build procurement, which fast-tracked development by combining the design and construction of the project, enabling consortiums of engineers and construction experts to work together to value engineer the project from design to completion. This collaboration spurred innovation, and led to the use of the “West Coast Lifter”, a large shallow draft floating crane, that made the use of larger beams possible, limiting dredging costs and environmental risks. The Tappan Zee stands as a testament to the efficacy of sound delivery methods as it progressed with its budget and ahead of schedule.

REALIGNMENT OF NEPA AND PROJECT PROCUREMENT REGULATIONS Throughout the history of the United States, Federal and State governments have developed regulations for a host of different reasons. Some regulations are developed to manage the country’s resources or protect the environment, while others are developed to prevent the abuse of political influence for the benefit of a select few. In any case, regulations are developed to ensure that resources are used equitably and for the good of the public at large. Yet, over the course of our history, even the best regulations have sometimes been co-opted or fallen behind the evolution of social or technological progress. Here, we focus on two such regulations, which create outsized negative effects on project delivery, and we provide discrete strategies for how to alter or realign them to better serve public interests. Challenges There are a host of Federal and State regulations that hold up projects and increase costs, but we have focused on the two regulatory issues we believe cause the greatest costs and delays to project delivery while producing only limited public benefits. These are issues with the National Environmental Protection Act (NEPA) and project procurement regulations at both the State and Federal Level. Examples of the typical issues caused by these regulations follow:

1. NEPA, since its enactment in 1970, has become a costly and time-consuming part of infrastructure delivery. While valued for its role informing decision makers on the potential environmental impacts of federal projects, NEPA’s burdensome requirements and susceptibility to litigation contribute to the excessive length and costs of infrastructure delivery. According to United States Department of Energy data, median contractor fees for NEPA services from 2003 to 2012 amounted to $1.4 million55 per project and had an average preparation time of 4.6 years.56 As agencies attempt to avoid litigation, the documents that fulfill NEPA requirements, Environmental Impact Statements (EIS), have swelled from their original 300-page format and are now often over 10,000 pages long.57 While litigation has decreased in recent years, litigation cases today are often high-profile, spurring subsequent projects to produce overly defensive and detailed EIS, further exacerbating cost and length issues. Unfortunately, even the most comprehensive EISs often do not deter opponents whose objections are motivated by self-interest or politics. These kinds of opponents litigate to stifle progress, regardless of the environmental review’s quality.58 Beyond the increased costs this situation creates, EISs have also strayed from their original intent as decisionmaking aids. Today, their length and detail make them largely opaque both to decision-makers and other project stakeholders.

2. Regulatory Barriers to Alternative Procurement Strategies impede the widespread adoption of creative and effective models, such as design-build (DB) and design-build-operate-maintain (DBOM), which have a

Success Stories in the Region: The New Tappan Zee Bridge, Building New York’s Infrastructure: Institutions and Funding, The Milstein Forum #1, 2015. 55 United States Government Accountability Office, National Environmental Policy Act: Little Information Exists on NEPA Analyses, Report to Congressional Requestors, 2014. 56 Ibid. 57 Philip Howard, Two Years not Ten Years: Redesigning Infrastructure Approvals. Common Good, 2015. 58 United States Department of Energy, 2011 Litigation Survey, 2011, http://energy.gov/sites/prod/files/2013/09/f2/2011_NEPA_Litigation_Survey_Final.pdf 54

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demonstrated ability to improve delivery of complex projects. These regulatory barriers are manifested uniquely at Federal and State levels. At the Federal level, the Federal Acquisition Regulation (“FAR”) governs how federal agencies may contract for services. Within the FAR, there is a restriction on awarding construction to the same firm that designed the project without prior agency approval. Only recently a provision was added to allow for DB selection upon meeting certain criteria.59 So, while limited flexibility is indeed embedded in the FAR, the regulation must be navigated correctly to enable alternative procurements. Unfortunately, education on properly navigating the regulation is limited.60 Typically, the most common selection process used by the federal government today is based on lowest contractor price, and other selection methods are often discarded as overly complicated or time-consuming.61 However, lowest price selection is not always an appropriate model for assessing design-build projects and does not lend itself well to lowest overall project cost, since it ignores past performance of the contractor and does not facilitate the collaboration necessary for successful design-build projects. Finally, regulations that enable innovative procurement models are not consistent among states. Although DB and DBOM authorization is spreading, many states still prohibit or limit the use of these proven strategies for efficient infrastructure delivery.

Figure 2. Source: Design Build Institute of America

Glavinich, Thomas. “Design Build in the Public Sector.” EC Mag. Dan Ward, Lt. Col., "Reform the FAR? Maybe you should try reading it first...," Bloomberg Government. 61 Duncomb, Barbara and Joshua Prentice. “Lowest Price Technically Acceptable Procurements: The Good, The Bad, and the Reality,” Biz Journals. 59 60

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Recommendations Update Public Outreach Process to Improve NEPA Outcomes More meaningful education and outreach should be conducted at project outsets. Historically, FHWA and most State DOTs have not encouraged public involvement in the early stages of the planning process.62 The key here is that the public consultation process begins in advance of the normal comment process before an agency has created its full proposal. After this consultation period, interested stakeholders can seek a seat at the negotiating table.63 Regardless of whether the negotiated rulemaking process is fully adopted, an earlier public review will be valuable for identifying issues and encouraging stakeholder input and consideration of legitimate environmental and other concerns. This would enable changes in projects to avoid unanticipated community or environmental concerns and consequential controversy and delay. Shorten Statute of Limitations and Limit Standing of Those able to Litigate over NEPA The current two-year statute of limitations is too long. It creates uncertainty over whether projects will move forward or be held up by lawsuits brought against project’s environmental reviews at the last possible moment. Instead, a 180-day statute of limitations should be imposed and standing should be limited to those who have been involved in the process from its outset. Canada’s recent environmental reform and their “standing test” for litigation provide a precedent for limiting standing. Some argue that Canada’s standing test has hurt public trust in the process; however, trust in government incurs much more damage when critical infrastructure projects are plagued by delay and cost overruns. Enhanced public outreach at the outset and increased opportunity for input can help allay these concerns. Dedicate NEPA Project Champions A designated project champion should be brought on to each project to shepherd it through the NEPA process. The champion’s main role should be to anticipate obstacles that may impede progress with NEPA compliance and overcome any problems as they occur. The champion could facilitate agency working sessions, bringing several agencies to the table for a day-long or multi-day session to work through problem issues, eliminating the need for lengthy comment and review periods. This champion would accumulate NEPA expertise and help keep the project on track. Create Legislation to Streamline Concurrent Reviews Concurrent permitting and design scheduling was instrumental to the accelerated delivery of the replacement of New York State’s Tappan Zee Bridge. This process, which used a design-build approach with competitive bids from qualified private organizations, allowed the Clean Water Act’s Section 404 public outreach to be completed simultaneously with the NEPA review and preliminary design. The time savings offered by concurrent reviews and design-build procurement allowed for faster project permitting.64 To date, lack of knowledge and general confusion around the costs and benefits of synchronization have prevented widespread use of concurrent reviews. To allay these issues, in 2015, the Federal Highway Administration (FHWA) released a guide to concurrent processes to raise awareness, but further encouragement is needed.65 This can be facilitated by altering regulation so that it requires agencies to establish review schedules that maximize simultaneous processes when appropriate. Provide Education and Guides to enable navigation of the FAR system The Federal Acquisition Regulation (FAR) system is extremely complex, but does enable innovative procurement models if navigated correctly. The Design-Build Institute of America has made great strides educating and raising awareness about the FAR, but more work needs to be done. A detailed reference guide that advises how to navigate regulatory processes most effectively for innovative procurement projects, like the FHWA’s guide on concurrent permitting practices, should be created.

James Tripp, “Streamlining NEPA's Environmental Review Process: Suggestions for Agency Reform”, NYU Environmental Law Journal, 74,110 (2003). 63 Ibid. 64 United States FHWA, More Efficient and Effective Permitting and Environmental Review Speeds Work on Tappan Zee Bridge Replacement, Successes in Stewardship. February 2016. 65 United States FHWA, 2015 Redbook: Synchronizing Environmental Reviews for Transportation and other Infrastructure Projects, Publication No. FHWA-HEP-15-047. 62

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Allow Qualifications-Based Contractor Selection Governments must also be allowed to use qualifications-based contractor selection instead of selecting vendors solely based on lowest price bids. The lowest bidder does not always lead to the highest quality asset and lowest costs over project lifecycles. Governments should, instead, balance quality, technical competence, and past performance with costs in the selection process. 66 Expand Design-Build Enabling Regulations within State Governments At the state level, there needs to be an expansion of design-build enabling legislation generally. For a delivery model that has shown itself so effective at delivering complex projects on time and on budget, there is no reason its use should be limited. We should instead be enabling it with regulatory reform and possibly via even more proactive measures. Moving Forward The recommendations for NEPA reform outlined above will result in environmental statements that are both easier to prepare and for stakeholders to digest, while reducing delays and costs. By keeping NEPA review focused, EISs can better meet their intended purpose: exposing potential environmental consequences to decision makers. NEPA should not be a tool used to stop important infrastructure projects because of immaterial or avoidable project critiques. We have an imperative to reform NEPA so that is more concise, accessible, and focused. The benefits of innovative procurement processes like DB and DBOM have become increasingly apparent in recent years. But despite their success rate and popularity, tools to facilitate implementation have not been developed. More work must be done to support the use of these procurement strategies and to update regulations to enable them. As infrastructure in the United States continues to lag behind other countries’ and as essential transportation corridors fall further into disrepair, sensible regulation reform is a step that must be taken immediately to get delivery of American infrastructure back on track.

RISK MANAGEMENT Due to the complexity and scope of modern infrastructure projects, risk is an unavoidable aspect of project delivery. Projects encounter unforeseen site conditions, workforce issues, delays in site acquisition, changes in operating regulations, political opposition or regulatory delays, as well as numerous other changes that have the potential to disrupt project deliveries. Yet current practice in the United States does not generally manage or mitigate these risks to the extent that it could. This contributes to pervasive project delays and cost overruns due to unforeseen complications. While the abundance of risk factors that affect infrastructure over a project’s life-cycle precludes complete risk mitigation, research and experience have shown that certain strategies can effectively reduce the costs associated with many common risks. These strategies also enable risk sharing between public and private participants in the infrastructure development process, reducing the burden that is typically borne by the public sector. Challenges In theory, risk should stem only from entirely unforeseeable events that may occur over the life-cycle of a project; yet, in practice, this accounts for only a small portion of infrastructure delivery problems. Instead, lack of timely information and inadequate coordination among actors often create the greatest risks that projects face. Examples of typical issues that exacerbate risks during project delivery follow: 1. Inadequate preliminary study can lead to the costliest delays in infrastructure delivery. Without a firm understanding of the project’s landscape—whether ecological, political, geological, social, or economic—there are far too many unknowns and thus more opportunities for unforeseen problems to arise, leading to cost overruns and delays as projects progress. 2. Insufficient anticipation of lifecycle issues can be similarly costly. Even with complete information at a project’s outset, if there is no effort to extrapolate costs through the operation and management phase of the asset, projects can set themselves up for long-term failure and financial difficulty.

Institute of America, “DBIA Position Statement:Federal, State and Municipal ‘Lowest Price Technically Acceptable’ Procurement,” DBIA. 66Design-Build

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3. Siloed information occurs when individual teams with separate delivery tasks do not or cannot communicate. This creates the risk that decisions made in one project area will not align with decisions made in others, creating costly friction when mismatches are realized during delivery. 4. Lack of flexibility prevents infrastructure delivery entities from being able to react when issues arise. This is typically an issue when team members do not have the authority to enact solutions without engaging first in a cumbersome approval process or when design decisions are calcified early in the process, precluding alterations to mitigate current costs or future risks that may develop. 5. Unclear risk responsibility, classification, and response protocols frequently mean that identified risks do not receive the attention or treatment they should. Risks may be overlooked entirely or receive inefficient treatment, with resources spent in disproportion to the magnitude of the risk they are mitigating. 6. Misaligned interests across project players frequently result in the poor management of overall project risks. The goal of a project’s lead organization is to produce a valuable asset within the agreed-upon budget, but often other parties involved in complex projects have their own goals and interests. For example, contractors may prioritize their own profits and insulate themselves from risks over overall project risk mitigation and cost savings. The Infrastructure Risk Group, a conglomerate of infrastructure experts from the UK, discusses how this can result in contractors “gaming” the project or engaging in “strategic misrepresentation” to ensure that they retain contingencies for themselves even if it means project delay and extra overall expense.67 Recommendations Assembly of Reliable Pre-Bid Information Information gathering should be a priority for a risk-aware organization. From the outset, robust information must be collected to provide a basis for initial risk assessments and decision-making. Information should take all forms during preliminary stages – including relevant ecological, geographic, stakeholder, and political information – to ensure that risk assessment encompasses all potential issues that might arise during project delivery. As projects progress, information gathering and conveyance to decision-makers should remain a priority where embedded information pipelines and regularly scheduled update meetings becoming fixtures in the process. This will ensure that information is continually conveyed across applicable actors and up the management chain. Clear Authority Structure based on Risk Identification and Allocation Authority structures with a clear hierarchy of project managers should be established. Once these structures are created, managers should delegate responsibility for risk identification. Project leaders should consider what risks the project is likely to face and should specify what kinds and how many risks their subordinates are responsible for identifying. This structure establishes a culture of risk awareness within the organization from the project’s start, creates a baseline of identified risks, and forms a point from which risks can be allocated to the appropriate parties and mitigation can begin. Risk Allocation and Early Private Sector Engagement in Design-Build and DBOM projects Following identification, risks need to be allocated to the teams or organizations most able to bear and alleviate them. Management of the leading public organization should maintain a clear record of risk allocation, outlining the specific risks and the named risk owner. For complex projects, private contractors should be considered to bear a larger portion of risks since they have an aptitude for handling risks in these projects, often shortening construction times, reducing costs, and introducing innovation.68 Management must weigh alternatives and, if private sector partners are best suited to bear certain risks, those risks should be transferred to them as early in the process as possible. Beckers et al. (2013) note that the benefits of private industry involvement are often under-realized because “private risk takers and their management techniques are introduced too late in the process to influence risk management and allocation.”69 Establish a Common Vocabulary and a Generic Risk Profile

67

Infrastructure Risk Group, Managing Cost Risk & Uncertainty in Infrastructure Projects, Leading Practice and Improvement: Report from the Infrastructure Risk Group, 2013. 68 HM Treasury & Infrastructure UK, Infrastructure Cost Review, 2010. 69 Beckers et al., A Risk Management approach to a Successful Infrastructure Project: Initiation, Financing, and Execution, McKinsey Working Papers on Risk, Number 52, 2013. 19

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A common vocabulary of technical terms and a generic risk profile must be established and made available for use by all parties to reduce the friction in information exchange and facilitate consistent risk analysis and response. Management of the leading agency should establish preliminary guidelines for vocabulary, risk assessment, and risk response at the outset. Beyond these initial guidelines, however, the Infrastructure Risk Group maintains that a central project database is the best way to ensure consistent communication and treatment of risk across project areas and phases. 70 This central database should contain profiles of identified risks and information on the magnitude of previous responses for teams to reference when determining the severity of a subsequently identified risk, acceptable risk exposure, and appropriate cost of the response. Incentivization and Pain/Gainsharing To ensure that all partners’ interests are aligned, leading agencies need to understand all potential partners’ respective goals before engaging them. Partnerships will be more efficient when contractors are given a stake in the success of the project and asked to engage in the “pain/gain” of a development. 71 Public-private partnerships have become popular tools to share project risks across sectors, since P3s often give private firms a direct economic interest in the project, but incentive structures have been effective in more conventional procurements models as well. Both the Infrastructure Risk Group and Beckers et al. highlight the importance of aligning contractor interests with project risk reduction for risk management and recommend P3s or incentive structures as effective tools for improving contractor behavior.

INFRASTRUCTURE ONTARIO

Figure 6. Union Pearson Express Line, Greater Ontario, completed 2014. Overseen by Infrastructure Ontario from concept to completion, this project

was procured under a Design-Build-Finance scheme arriving on time and on budget. Source: Infrastructure Ontario

Infrastructure Ontario (IO) is a public agency owned by the Province of Ontario that provides a range of services to support various Ontario Government initiatives aimed at modernizing and maximizing the value of public infrastructure and real estate. Despite their public standing, they like to think of themselves as “a private sector company doing public service.” IO’s knowledge of and relationships with the private sector enable them to advise government on appropriate partners and partnership structures. Leveraging their expertise in infrastructure delivery best practices, IO also provides templates for governments to conduct their own project risk assessments or acts in a consultant capacity. With a record of helping deliver projects on-budget and onschedule, IO has garnered international attention as a global leader in infrastructure delivery. 8

Forward-looking and Risk-aware Attitude Entities involved in project delivery should be “constantly looking forward and asking relevant questions.” Managers especially need to consider the consequences of actions and how current decisions impact future costs. They should always be working to involve partners early and to coordinate all aspects of the project from the start because “minimizing risk is maximizing coordination and reducing friction between stakeholders.” 72 Yet, beyond adopting a forward-looking ethos themselves, managers should constantly be promoting risk sensitivity throughout the organization so that all team members consider the ramifications of their actions on future phases and understand how decision-making can be coordinated throughout the delivery structure. Moving Forward The strategies outlined above are powerful tools for managing risk during the development of individual infrastructure projects. However, rapid delivery of infrastructure across the United States will require coordination between multiple projects and a consistent pipeline of future projects. Too many or too few infrastructure projects occurring simultaneously, especially within the same region, creates systemic risks that must be addressed on a larger scale. Specifically, issues related to Project Labor Agreements (PLAs) and deficiency of experienced and talented government staff and skilled

70

Infrastructure Risk Group, 2013. Beckers et al., 2013. 72 Beckers et al., 2013. 71

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construction workers present risks that cannot be addressed on a project-by-project basis. Instead, these risks need to be addressed collectively, for all infrastructure projects within a region The first regional-scale issue to highlight is an inconsistent project pipeline, which creates a chronic oversupply or undersupply of skilled labor. Since labor unions control the supply of skilled labor needed to execute complex infrastructure projects, they wield considerable power in infrastructure delivery which they exercise when negotiating PLAs. This means that when few infrastructure projects are in progress, unions force projects to overstaff, driving up project costs. Conversely, when many projects are in progress, unions have too few experienced members to meet demand and the quality and efficiency of labor diminishes. The lack of a coordinated project pipeline creates jagged demand, which exposes projects to the risk of a fluctuating labor supply market. The second of these regional issues is that effective risk management within individual delivery processes requires significant experience, talent, and capacity. However, with limited resources to draw on, few of the government bodies leading infrastructure projects have staff that meets these requirements. For example, complex contracts that require incentivizing several different partners to perform specialized tasks cannot be drawn up by a typical government manager. These kinds of documents require considerable additional expertise. What is required to address large-scale risk management issues is a special purpose entity to coordinate, provide support, and gather information for all infrastructure projects within a state or region. Such an entity could be responsible for coordinating schedules and act as a repository of information, experience, and legal expertise for management to consult throughout procurement and delivery. Just as management should be responsible for managing risk across various areas in individual projects, these entities would be responsible for managing risk affecting all regional projects.

GOVERNANCE In the United States, most infrastructure projects are owned, operated, and financed by state and local governments. This gives local politicians outsize control over infrastructure spending but also means that the electorate has a direct say in who is in charge, and thus what policies will be pursued throughout the term. Also, the current political system is not ideal for optimal infrastructure delivery. Systemic problems across all levels of government lead to little action and a lack of capacity to complete projects or even start them. Mitigating these governance problems now, and preventing them from interfering in the future, is vitally important as there will be a time when the populous’ demand for new infrastructure will be too great to ignore and politicians will need the tools to swiftly implement a new national infrastructure program. Challenges The national infrastructure crisis seen today, with failing bridges, decaying roads, and increasing congestion, is in many ways a political problem. Any national infrastructure reform effort must begin by recognizing the political issues found at all levels of American government and how these prevent our leaders from developing the proper incentives and leadership to get projects done. Advancing an ambitious national transportation investment program will require that we overcome a range of political obstacles. 1. Extreme partisanship has emerged as a key obstacle preventing the development of necessary infrastructure projects across the nation levels of government. Partisanship makes gaining approval for major transportation and infrastructure bills difficult as elected officials judge legislation based on political motives rather than on projects’ merits. Infrastructure investment should not be a partisan issue. 2. Political turnover can pose significant challenges for infrastructure development. Most state and local officials are term-limited to keep elected officials responsive to their citizens. But this also works against large-scale and long-term infrastructure projects, as leaders are reluctant to put in sufficient effort and spend political capital to push through projects that will not be completed until after they leave office. 3. Lack of capacity to take risks necessary to devise innovative cost-saving measures severely limits government’s ability to deliver infrastructure on time and on budget. Because government workers are not rewarded for innovative solutions, they are often reluctant to risk their position to improve upon the status quo. Instead, they rely on standard procedures. This has led to slow adoption of innovative ideas and new technologies that would reduce cost and delivery time for infrastructure projects.

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Establish Special Purpose Project Delivery Entities Separating issues like political partisanship and term limits from the delivery of needed infrastructure requires an extra buffer isolating in-progress projects from political interference. While all major infrastructure projects should be planned and authorized with government involvement, too many projects are delayed or aborted due to interference from elected officials or bureaucrats. To prevent this, some leaders have established special purpose delivery entities (often referred to as authorities, corporations, or companies). These organizations are created with the express purpose of delivering either a single infrastructure project or a series of associated projects. These entities are typically focused on a specific project or type of project. Special purpose organizations, particularly those who will be contracting with private sector teams, can hire the expertise needed to negotiate contracts and deliver specific projects efficiently. The most successful infrastructure delivery entities offer competitive salaries and encourage employees to innovate. An infrastructure delivery organization can finance projects across multiple government funding cycles and apply for federal and state grants. This autonomy also helps avoid delays due to inconsistent funding streams, allowing for funds to be allocated ahead of time instead of being parsed into inconsistent yearly budgets. In large projects with multiple funding organizations, these entities make paying for infrastructure easier by acting as a central repository where multiple states or cities can contribute funds without needing to coordinate with the multiple stakeholders on how they are spent. Most importantly, once funds are transferred, they become part of the project and cannot be taken back due to political changes. These organizations should have a board composed of political appointees and private sector representatives. This will further insulate the leadership of the corporation and delivery of the project from political volatility and facilitate coordination between both public and private stakeholders. Endowing these corporations with the ability to bring in experts makes them better suited for issuing RFPs and negotiating procurement with private financing, engineering, design, and construction partners. Some states are taking such delivery entities a step further. For example, California passed legislation enabling Enhanced Infrastructure Financing Districts. These organizations are a form of infrastructure delivery entity that also have the power to establish Public Financing Authorities, giving the entity access to the capital resources necessary to manage, deliver, and maintain projects. Mark Pisano, current Professor of Practice of Public Administration at USC Price and former Executive Director of the Southern California Association of Governments, writes that these Public Finance Authorities “could be neighborhood sized or, by using [California’s] joint Power Authority, they could be regional or megaregional…a scale that enables the wealth-generating effect of investments to be captured is the starting principle.”73

THE UNITED KINGDOM

Figure 7. Train delivering concrete to London's Crossrail project, a venture led by a delivery corporation and built through a P3. Source: Wired Magazine The United Kingdom has been an early adopter of both infrastructure delivery entities and public-private partnerships. Infrastructure delivery entities have been utilized for a string of major projects, beginning with the HS1 High Speed Rail Link between the Channel Tunnel and London, followed by the massive redevelopment of Stratford, in East London for the 2012 Summer Olympics. Today the most notable projects utilizing this management format include London Crossrail and the HS2, a high-speed rail link from London to Manchester. In each case a public agency has established a special purpose company to deliver the project. Project managers and staff are hired for this purpose, and consultants and construction companies are brought in as needed to deliver the projects. Upon project completion, the infrastructure is either bid out to a concessionaire for operation and/or turned over to the managing agency. The delivery corporation is then terminated, and project staff move on to other endeavors. In each of these cases, projects have been delivered on-time and on-budget. For economic hubs like London, completing projects on time is particularly important, as fixing infrastructure gaps quickly minimizes business disruption and allows for continued GDP growth (Figure 3).

73

Mark Pisano, Innovations in Planning and Funding Infrastructure Renewal: The London Experiment. Innovation in the Public and Nonprofit Sectors: A Public Solutions Handbook. Routledge, 2015 22

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Increase Use of Alternative Procurement Models The method of infrastructure procurement is perhaps the biggest choice that any government must make for project delivery. There are a multitude of options for governments to consider when choosing procurement strategies. For small-scale projects, traditional design-bid-build strategies still work best. Such projects do not require a delivery corporation since the design and delivery phases tend to be straightforward. However, as projects increase in scale and complexity, additional management, expertise, and private sector involvement should be sought to mitigate risk and guide delivery. In these cases, choosing an alternative procurement strategy is paramount and requires significant research and project modeling (see Figure 3).

Figure 3. Screening and modeling work that must be completed to make the proper decision on project procurement. Design-BidBuild is the traditional method of project delivery, but for many large and complex projects, choosing an alternative method can result in significant savings. Source: AECOM

Figure 4 shows the spectrum of possible project delivery options that rely on various levels of private sector involvement. Expensive projects with clear revenue sources, such as tolls, are good candidates for involving the private sector in financing and maintenance, but all complex projects should consider design-build at a minimum. A design-build project sources both design and construction to one firm, or consortium of firms working together. This makes value engineering easier and mitigates design and management risks that the government would have to carry when transitioning from designing to construction under standard procurement methods.

Design-Build

Design-Build Finance

Design-Build Maintain

More Government Leadership

Design-Build Finance Maintain

Design-Build Finance Operate Maintain

Fully Private Infrastructure

More Private Leadership

Figure 4. P3 infrastructure procurement options governments can choose from. Examples of private infrastructure include Elon Musk’s Hyperloop or New Balance’s regional rail station in Massachusetts. Choosing the right option for a project is of vital to project success, and should be made by a project delivery entity with intricate knowledge of the current development and deep expertise in infrastructure procurement.

Public-Private Partnerships are an increasingly used in infrastructure procurement in the United States but have also been used to great success in Canada and the United Kingdom. They should be considered for every project that entails extended management responsibility for a complex multi-phase delivery. P3s can help distribute project risks across both the public and private sector, making it easier for leaders to try new techniques instead of resorting to standard methodologies. For 23

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states and cities facing financial issues, P3s can also be a valuable way to take projects off their balance sheets or bypass debt ceiling limits for needed projects, but only if the entire process is kept transparent to the public.74 In many cases, it is useful to outsource project leadership so that the government can focus on its core activities and strengths. Research indicates that P3s can reduce lifecycle costs and provide a guaranteed return on the government's investment.75 However, Public-Private Partnerships carry some inherent risks due to the complexities of negotiating contracts and decisions regarding lenders, concessionaires, and potential operators. P3s do, inherently create a cost to the public.76 In all cases, the government is outsourcing commercial risk to a private corporation and this will potentially result in a more expensive project overall and the government still holds the underlying financial risk should the project fail. Also, when political leaders take it upon themselves to negotiate the contracts, the results are often less than satisfactory. As an example, the Indiana I-69 expansion sought to bring in a private company to help deliver a new stretch of highway. Government officials with little knowledge of P3s conducted the negotiations and chose to enter into a contract with a risky company with little sector expertise that could not meet its obligations. If used correctly, Public-Private Partnerships have demonstrated their ability to deliver large infrastructure projects on budget and on schedule. While their use is rightfully scrutinized due to real challenges and high-profile implementation blunders, proper governance and leadership can all but remove these risks from consideration. Unfortunately, the skills necessary to mitigate these risks are often not found in political organizations. As Dag Detter and Stefan Folster write in their book The Public Wealth of Cities, negotiating P3 contracts “ideally require[s] the kind of professional organization that is represented by an independent holding company set up for the sole purpose of managing commercial assets while retaining public ownership.”77 As introduced earlier in this chapter, a special purpose infrastructure delivery entity is best positioned to perform these negotiations and to select the appropriate procurement arrangement to ensure effective and efficient project delivery. Moving Forward A strong case can be made for creating special purpose project delivery entities to manage permitting, risk, and financing– and in some cases operations—for large, complex infrastructure projects. Even the best managed political institutions can have difficulty maintaining the focus required to deliver a single project efficiently. As we move forward, we must develop reliable entities and strategies for delivering infrastructure effectively, despite political risks. Special purpose delivery entities are uniquely suited to manage infrastructure delivery in that they are separated from the political process and can call upon industry experts to help guide projects to completion. Delivery entities provide a host of benefits in terms of streamlining project financing and increasing coordination between stakeholders. Furthermore, because of their singular mission and expertise, they are the best-positioned entity to determine appropriate procurement strategies and enter into a Public-Private Partnership.

FINANCE FINANCING Transportation infrastructure in the United States functions as a public utility and benefits from significant government contribution through direct funding, borrowing authority, and/or subsidies. While most users of this infrastructure do not internalize the marginal cost of their use (which could fund maintenance, expansion, and offset other impacts), eliminating the government subsidy in its entirety could threaten mobility for the socioeconomically disadvantaged. The goal, then, is to leverage existing and potential revenues more effectively to align public and private interests. Challenges Limited availability of government funds and investor uncertainty about returns on investment are the biggest issues currently facing infrastructure finance. Insufficient information and leadership create skepticism around public sector infrastructure investment, deterring private sector capital. Given the challenge of shrinking government budgets, debt finance remains critical, since “for governmental projects, debt may fund 90 percent or more of the ‘capital stack.’”78 But debt service coverage ratios require an estimation of cash flows promising a degree of certainty to investors evaluating 74

S. Barend, Tackling US Infrastructure Needs Through P3s, AECOM Capital, 9/15/2017. L.Y. Tang, Q. Shen & E. Cheng, A review of studies on Public-Private Partnership projects in the construction industry, International Journal of Project Management, 2010. 76 M.M. Kumaraswamy, X.Q., Governmental role in BOT-led infrastructure development, International Journal of Project Management, 2001. 77 D. Detter & S. Folster, The Public Wealth of Cities, Brooking Institution Press, 2017. 78 B. Grote and J. Ryan, “Critical Asset Procurement Reform: A Federal P3 Capital Asset Financing Proposal.” Public Works Financing, April 2017. 75

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deals. Yet these projections are often rooted in speculation and there is rarely an authority responsible for attracting and managing the private sector throughout the process. Thus, the two most significant issues with infrastructure finance are as follows: 1. Uncertain cash flow projections increase borrowing costs and preclude private sector investment altogether. Taxes, tolls, fares and fees (TTFF) are the principal drivers of cash flows used to service the debt behind infrastructure projects, but the breakdown of these streams is frequently based on conjecture or tenuous projections. Without a clear picture of operating income and potential sensitivities, it is impossible to test the business case and compare competing benefitcost analyses. While projects worthy of investment may exist, their structure will largely depend on the soundness of TTFF projections and guarantees. 2. Lack of leadership spurs a general loss of confidence, which increases risk, reduces the appetite for private sector investment, and ultimately raises the barriers to initiating projects. Financial markets respond to formal and informal feedback mechanisms. Courting financial players presently on the sidelines will require leadership that recognizes and proactively embraces new business development. Formally, recent investments in major infrastructure projects have produced lackluster business results, in large part due to improper risk allocation, and prolonged permitting timelines. There is no person, organization, or institution that signals priorities and rewards. New leadership, whether individual or institutional, can change the perception and reality of the infrastructure investment environment and reverse the negative perception currently preventing investment in large-scale infrastructure. Recommendations Commit Tax Revenues Tolls, fares, and fees carry much less political volatility than taxes, but tax revenues can play an important role in funding important infrastructure investments. Special tax levies earmarked for infrastructure are justifiable by many metrics, especially when weighing the benefits of job creation and economic productivity. Using tax revenues to fund infrastructure can minimize the need for debt finance, avail private sector capital, and reduce the cost of borrowing.7980 Publish Infrastructure Business Plans While there are many infrastructure plans proposed at the state, local, and regional level, many of these plans lack the financial considerations offered by business plans, such as assumptions related to cash flows, projected profit and loss, and pertinent comparisons to similar project risk and returns. Bolstering current plans with an assessment of business opportunities and constraints could create a degree of competition from potential investors in the private sector. 81 Publishing these plans would allow for them to be coordinated and combined into projects with potentially larger scope and impact, which could avail additional private financing due to scale. Establish a National Special Purpose Infrastructure Financing Entity (SPIFC) The goal of such an SPIFC would be to attract private capital to American infrastructure projects and house the intelligence required for efficient long-term capital coordination. This entity would be responsible for providing grants, loans and credit enhancement for major infrastructure projects being advanced by state, municipal or private entities. By centralizing the coordination of the largest and most complex projects of national significance in this single entity, they could provide the leadership and seed funding that major projects currently lack. It could also be deployed at a regional scale and fill the present gap of informally signaling priorities to markets. The SPIFC would be held accountable for determining the appropriate mix of debt-financing, tax-receipts, etc., that would be best for realizing projected gains in accordance with its own capital and any capital budget provisions made by Congress. Establish a Federal Capital Budget Most major projects have a useful life that spans half a century or more, so it is unrealistic to fund projects out of the federal government’s already stretched operating budget all at once. Infrastructure investments carry a large expense, and projects that must be fully expensed in the year commissioned (as is now required) will dwarf other budgeted items. A federal capital “Crossrail – Wider Economic Benefits,” Crossrail. Accessed November 20, 2017. http://www.crossrail.co.uk/route/wider-economicbenefits 80 “Crossrail – Funding,” Crossrail. Accessed November 20, 2017. http://www.crossrail.co.uk/about-us/funding 81 M. Pisano, F. Silva, interviewed by The Planning Report. A New Tool for Urban Economic Development: EIFDs Demystified, The Planning Report. June 2015. https://www.planningreport.com/2015/06/03/new-tool-urban-economic-development-eifds-demystified 79

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budget would remove this political conundrum by removing all but the debt service requirements of infrastructure investments from the operating budget. Per recommendations by the SPIFC, Congress could make annual appropriations to cover debt service on Treasury bonds and other instruments dedicated to this capital budget. Moving Forward The bond market has historically played an integral role in financing American infrastructure projects. Today, the United States’ municipal bond market is valued at almost $4 trillion and new bond types and increasing market capacity present opportunities for new investments in infrastructure.82 The recently passed tax bill could put tax-exemption for Private Activity Bonds, one of the most efficient infrastructure financing vehicles, at risk. Similarly, the legislation also proposes eliminating state and local tax deductions, which is particularly worrisome for states that rely on additional taxes to for infrastructure financing. A national infrastructure financing entity may be even more critical to securing funding for projects if these taxdeductions are eliminated at the federal level. Next, carefully projecting future cash flows from infrastructure projects is essential to determine the needed funding available for infrastructure investments.83 Taxes are arguably the most critical element of TTFFs to explore, in part because they are a revenue stream that offers flexibility in securing other forms of financing. As discussed above, public tax revenue can be used to provide credit enhancement, lowering the cost of borrowing and incentivizing private capital. One promising mechanism for promoting higher and more consistent tax assessments are value-capture schemes where public improvements are directly tied to tax increases making them more palatable to the public. Figure 5, shows additional tools that could be used to leverage the bond market and TTFFs to fund and finance infrastructure delivery. Lastly, strong leadership is essential. As things stand, the federal government does not, and likely will not, have the capacity to fund a sweeping improvement of national transportation infrastructure. But by providing leadership, either in the form of a special purpose entity or directly by establishing a federal capital budget so that more federal dollars can be spent, the federal government will spur the private, local, and regional spending the will be necessary to carry-out large-scale transportation infrastructure improvements. EXAMPLES

COSTS

BENEFITS

Potential moral hazard if localities can issue debt without reasonable oversight.

Makes infrastructure debt more accessible and attractive to a wider range of investors.

Legislative bodies may have to share taxing authority with many other public finance authorities, which may further complicate the tax scheme.

Can reduce the cost of borrowing, incentivize new investment partners, and spur economic productivity.

Congestion Pricing Inflation-adjusted

Many users will have a reduced subsidy for infrastructure use.

Additional revenues that may be capitalized to lower finance costs.

Inflation-adjusted

Many users will have a reduced subsidy for infrastructure use.

Additional revenues that may be capitalized to lower finance costs.

PAB—Private Activity Bonds

BONDS

AFF—America Fast Forward Bonds QPIB—Qualified Public Infrastructure Bonds Extend Tax Credits & Permit Swaps Against Any Tax Liability

TAXES

TOLLS

FARES

Earmark special taxes for infrastructure projects Value-Capture

82

R. Puentes and P. Sabol. Building Better Infrastructure with Better Bonds. Brookings. April 2015. https://www.brookings.edu/research/building-better-infrastructure-with-better-bonds/ 83 R. Puentes, F. Rohatyn, R. Little, S. Goldsmith, interview by J. Masters. Infrastructure Investment and U.S. Competitiveness. April 2011. https://www.cfr.org/expert-roundup/infrastructure-investment-and-us-competitiveness 26

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FEES

Asset Recycling VMT (Uber/Lyft)

Potential moral hazard if government assets are transferred or leased to the private sector without review.

Additional revenue from the use of assets that presently do not generate revenue.

Figure 5. An abbreviated list of tools that leverage the bond market and TTFFs to deliver infrastructure projects

Conclusion The essential first step in establishing an effective national transportation investment strategy will be to secure long-term financing for this program. As noted above, there are many ways that the federal government could finance its share of this program, but to be successful, Washington will have to play a critical role providing leadership and incentivizing state, local and private funding to share in this responsibility. Beyond financing, it will also be necessary to reform several elements of project planning, permitting, procurement and project delivery. These reforms will ensure that projects can be delivered on time and on budget and build public confidence and political support for spending the public funds required for this effort. Using the strategies outlined in this chapter, these reforms should be attainable.

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NEW TECHNOLOGIES: TRANSPORTATION INFRASTRUCTURE IN THE AGE OF AUTOMATED (AND SHARED) VEHICLES With the development, and expansion of app-based ride-sharing and the proposal for intercity travel on a subterranean hyperloop, the United States is entering a period of rapid innovation in transportation infrastructure technology. If the United States is to sustain its global competitiveness and strong economy, it is crucial for the country to maintain its leadership in this ‘smart’ new world. The technologies on the near horizon have the potential to shift the way infrastructure projects are permitted, managed for risk reduction, governed, and financed. Our research has highlighted seven new technologies that merit serious consideration in terms of their possibilities and implications. These include technologies that will: • Improve efficiency of intercity travel, such as high-speed rail and the hyperloop – a subterranean vehicle that travels above magnetic tracks to cover substantial distances in record time (e.g. New York to Washington DC in 29 minutes); • Re-think goods movement through reliance on drones; • Facilitate interconnected infrastructure with individuals and within larger systems through application of the Internet of Things (IoT); and, • Transform mobility and shape new travel patterns through ride sharing facilitated by transportation network companies (TNCs) and ‘self-driving’ or automated vehicles (AVs); These innovations have the power to completely transform both the built form as well as the mechanisms employed to design, manage, and fund infrastructure projects. See Appendix A for brief overview and outline of implications for each mode are discussed. Of these modes, perhaps the most discussed new technology slated to transform the United States’ landscape and society is the automated vehicle, or AV. The idea of ‘self-driving’ vehicles elicits a sense of wonder and media hype that urges the auto industry, transportation institutions, and general public to carefully plan for the realm of possibilities associated with a driverless world. It is the role of planners and policymakers to not only imagine how the world will change, but to work towards the best possible scenario for communities and leverage new technologies to achieve a broad range of mobility, economic, social, environmental, public health and other benefit streams. These technologies are realistic and imminent, and understanding their potential impact is critical for infrastructure investment. Automated Vehicles There is a common agreement among scholars and transportation experts that the future of mobility will be defined by automated vehicles. (US DOT Secretary, Elaine L. Chao, recently referred to AVs as the most important innovation in transportation history.) 84 AVs constitute a paradigm shift in the way people and goods will move from an origin to a destination, but the nature of this change and its impacts and externalities are still uncertain. According to Boston Consulting Group (BCG)’s Autonomous Vehicle Adoption Study, the automated vehicles industry will have a market of $77 billion by 2035.85 Clearly, there is a market for the service, but the effects on safety, congestion, land-use, and society are difficult to predict. Predictions of AV mobility portray a complex landscape of multiple scenarios that change with time: • •

AVs may initially reduce congestion, but the new available road capacity could induce demand and reinstate the previous congested condition;86 AVs may reduce human error and, therefore, the number of traffic casualties, but the systems will need to be tested first—artificial intelligence systems require time to “learn”— and even after this process is completed the system will not be flawless;87

US DOT & NHTSA. “Automated Driving Systems 2.0: A Vision for Safety.” US DOT & NHTSA, September 2017. https://www.nhtsa.gov/sites/nhtsa.dot.gov/files/documents/13069a-ads2.0_090617_v9a_tag.pdf. 85Boston Consulting Group. “Autonomous Vehicle Adoption Study - BCG.” https://www.bcg.com. Accessed November 14, 2017. https://www.bcg.com/en-us/industries/automotive/autonomous-vehicle-adoption-study.aspx. 86 Olson, Kristin. “Arup | Thoughts | Will Driverless Vehicles Cut Congestion?” Accessed November 14, 2017. http://thoughts.arup.com/post/details/455/will-driverless-vehicles-cut-congestion. 87 Hsu, Jeremy. “When It Comes to Safety, Autonomous Cars Are Still ‘Teen Drivers.’” Scientific American. Accessed November 14, 2017. https://www.scientificamerican.com/article/when-it-comes-to-safety-autonomous-cars-are-still-teen-drivers1/. 84

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• • • •

If AVs do reduce congestion, this could lead to sprawl,88 AVs may attract passengers away from conventional shared transportation modes, but the higher-capacity systems including high-traffic rail and bus services will remain essential to achieving mobility,89 AVs could eliminate the “first and last leg” challenge that has always faced mass transit systems, by providing seamless connections to final origins and destinations; and, AV’s could transform transit station areas and downtowns by eliminating the need for parking in these locations and reducing the need for travel lanes and on-street parking, providing additional land for transit-oriented development and pedestrian space in these locations.

In order to understand the impacts of AVs, we modeled best and worst-case scenarios assessing safety, congestion, national economy, climate change, and equity. These scenarios inform policy recommendations to guide the development AVs to achieve optimal outcomes. SAFETY The United States has seen a significant decrease in its fatality rate resulting from car-related collisions in recent decades, but the frequency of accidents still surpasses other developed nations.90 Many cities have implemented Vision Zero projects to reduce traffic fatalities to zero, and some are participating in a coalition, the Vision Zero Network, to share best practices, data, and professional development opportunities to achieve their goals faster. Despite the significant commitment that these cities are making to these efforts, reaching their goal of zero fatalities seem distant, especially when current fatality rates are put in perspective.91 Nonetheless, AV advocates claim that their products will provide a shortcut that will lead the nation closer to the achievement of these goals. The latest report on automated vehicles published by the US DOT and NHTSA, Automated Driving Systems 2.0: A Vision for Safety, shows that authorities believe these technologies will establish safer streets across the country. However, some authorities and members of the public agree that the technology might also bring new threats that could harm individuals and communities. Apart from the physical safety of the users (the potential to reduce traffic collisions and accidents), the discussion is often accompanied with concerns of cybersecurity and privacy. Recent terrorist attacks with personal and commercial vehicles demonstrate that cyberattacks using AVs within the realm of possibility. A distinct but equally valid concern associated with driverless cars is the use of personal information for commercial and marketing purposes or the risk of personal information being accessed by hackers.92 How will these security themes associated with AV technology unfold in the future? What regulations and laws should be enacted to ensure a successful transition to full automation of the United States transportation fleet? Attempting to imagine the future of security in transportation and answer the aforementioned questions, we draw the following best and worst scenarios and outlined necessary policies to help achieve a sustainable, equitable future. Best Case Scenario—Safety: Safer Streets and Unbreachable Systems By 2040, the number of traffic fatalities will be reduced to zero in American cities when the entire fleet of vehicle traffic is automated. By this year, cities that had defined a clear commitment to initiatives such as Vision Zero, will have restricted traffic of non-automated vehicles within certain areas in order to prevent dangerous and uncoordinated interactions among non-automated and automated vehicles.93 The federal government has provided powerful incentive for states and cities to embrace AVs, accelerating the universal adoption of this technology

Lang, Nikolaus, Michael Rüßmann, and Jeffrey Chua. “Making Autonomous Vehicles a Reality: Mobility in 21st-Century Boston Localized.” https://www.bcg.com. Accessed November 14, 2017. https://www.bcg.com/publications/2017/automotive-makingautonomous-vehicles-a-reality.aspx. 89“Autonomous Vehicles: Threat or Opportunity for Urban Mobility?,” January 17, 2017. http://www.metro-magazine.com/governmentissues/news/719599/autonomous-vehicles-threat-or-opportunity-for-urban-mobility-paper-asks. 90 Hangyu Chen, Aria. “U.S. Has Highest Road Death Rate.” CNN. Accessed November 17, 2017. http://www.cnn.com/2016/07/07/health/us-highest-crash-death-rate/index.html. 91 US DOT & NHTSA. “Automated Driving Systems 2.0: A Vision for Safety.” 92 LaFrance, Adrienne. “How Self-Driving Cars Will Threaten Privacy.” The Atlantic, March 21, 2016. https://www.theatlantic.com/technology/archive/2016/03/self-driving-cars-and-the-looming-privacy-apocalypse/474600/. 93 Crow, Allison. “How Safe Are Self-Driving Cars? - Rocky Mountain Institute.” Accessed November 14, 2017. https://www.rmi.org/news/safe-self-driving-cars/. 88

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AV fleets are designed not only with redundant security systems to prevent cyberattacks but also with emergency systems that permit a safe deactivation in case of failure.94 Similar to other technological products, users are able to determine the amount and type of information that is collected by automakers and ridesharing companies. All the information that is critical for the system’s proper functionality is shared without threatening the privacy of the user. Worst Case Scenario—Safety: AVs Bring More Accidents and More Threats By 2040, fully automated vehicles, partially automated vehicles, and non-automated vehicles will be sharing American highways and streets. Traffic collisions rates will increase due to the lack of coordination among automated and nonautomated vehicles, but due to the safety measures and quick-reaction times of automated vehicles, the number of fatalities will remain the same. Tech companies leading the AV market will initially profit from leading users to adopt these products. But cyberattacks and the release of private user information will affect the reputation of the system, leading more users to opt for partially or nonautomated vehicles. This will only add to the existing lack of coordination by bringing more non-automated vehicles to the streets. Recommended Policy and Program 1. To ensure a symbiotic relationship between automated vehicles and non-automated ones, authorities will need to require non-automated vehicles to incorporate vehicle-to-vehicle communication equipment or adopt buyouts (“cash for tech clunkers”) to speed universal adoption of this technology. 2. To ensure the safety of users and the general public, authorities should enact policies that hold AV industries accountable to specific safety standards with regards to design, cybersecurity, and management of user information. CLIMATE CHANGE Management of climate change and environmental issues influence national competitiveness on the global scale.95 To mitigate the effects of climate change, the United States and much of the world, have committed to proactive environmental measures such as reduced GHG and integration of renewable energy sources. Transportation is a key component of this agenda, as it currently accounts for one-fourth of the GHG emissions produced by the United States.96 Notably, more than half of these emissions are the product of passenger vehicles, suggesting that innovations or new trends in travel patterns could leverage significant impacts on the environment.97 With regard to AVs, these impacts are three-fold, and tied to three areas: GHG Emissions, Vehicle Miles Traveled (VMT), and Development Patterns. Greenhouse Gas Emissions The United States Department of Energy concluded that AVs could “reduce energy consumption in transportation by as much as 90 percent, or increase it by more than 200 percent.”98 The range of outcomes associated with AVs is linked to the use of the vehicles (shared or personal) and the features of the vehicle (e.g. fuel-based operations, or electric vehicles). In addition to the driving techniques, the operation of shared automated vehicles (SAVs) can also play an impactful role in reducing GHG emissions. One of the most effective possibilities towards reduced emissions is the concept of AV rightsizing, wherein ride-share services provide users with a car most appropriate for their trip.99 Finally, integrating electricpowered capabilities into the cars of the future will help to mitigate some of the emission-related environmental impacts. Compared with today’s vehicles, automated electric vehicles have potential to reduce emissions (per mile) by 80-90 percent. Vehicles Miles Traveled (VMT)

Jonathan, and Steven Shladover. “Potential Cyberattacks on Automated Vehicles.” Intelligent Transportation Systems, IEEE Transactions On PP (September 16, 2014): 1–11. https://doi.org/10.1109/TITS.2014.2342271. 95 Spencer, Thomas, Richard Baron, Michel Colombier, and Sartor & Oliver. 2015. Reframing Climate and Competititiveness: Is there a Need for Cooperation on National Climate Change Policies? 96 Brown, Austin, Jeffrey Gonder, and Brittany Repac. 2013. "Autonomous Vehicles Have a Wide Range of Possible Impacts." 97 Alexander-Kearns, Myriam, Miranda Peterson, and Alison Cassady. 2016. "The Impact of Vehicle Automation on Carbon Emissions: Where Uncertainty Lies." 98 Brown, Austin, Jeffrey Gonder, and Brittany Repac. 2013. "Autonomous Vehicles Have a Wide Range of Possible Impacts." 99 Greenblatt, Jeffery, and Samveg Saxena. 2015. "Autonomous taxis could greatly reduce greenhouse-gas emissions of US light-duty vehicles." 94Petit,

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A primary concern associated with AVs is the possibility of exponential increases in VMT. The ultimate outcome will be decided based on incentives for SAVs over personal ownership of vehicles. A study based on only five percent adoption of automated vehicle technology found that one SAV can replace nearly twelve conventional vehicles (i.e., the model predicted that travel for 20,000 car owning individuals could be served by 1,700 SAVs).100 In general, the projected increase in VMT is a factor of convenience, cost, and comfort—as driving becomes more comfortable, safer, and less demanding, people may opt to accommodate increasingly longer commutes, encouraging sprawl. Development Patterns The potential for increased VMT and accessibility made possible by AVs could be an impetus for a second wave of suburbanization. How development patterns and consumer preferences respond to AVs remains one of the fundamental questions surrounding the technology. In dense urban areas, this also sparks consideration of adaptive reuse of transportation infrastructure rendered useless through AVs. Most notably, the potential to reclaim parking garages and street space used for vehicle storage poses great opportunity for urban form and economy. This opportunity hinges on whether AVs take the form of shared vehicles or sustain a personal ownership model. It is imperative for leaders to recognize that, no matter how fast an AV can travel, it is not a competitive option when compared to the carrying capacity of a transit route. Consider the contrast between estimating the number of automated, single-occupancy cars necessary to accommodate daily commuting in New York City, as compared with the subway system that carries nearly six million riders each day. To help encourage cities from shifting away from transit, development patterns that center on transit should be prioritized or incentivized through TOD practices and policies. Considering these scenarios is especially critical for cities built around the automobile, like Dallas, as AVs are poised to tip the scales towards retrofit or resurgence of sprawl. At best, the added mobility of a shared, automated network may reduce reliance on the high capacity highways and expansive parking options, and provide the opportunity to reshape the culture— and design of—these cities towards increasingly sustainable frameworks. This lies in contrast to other predictions of AVs, in which increased convenience, reduced cost, and ease of travel spurs a dramatic increase in VMT. In the latter case, the reliance on vehicles exacerbates the sprawling and inefficient land-use patterns. At this juncture, it is imperative that policymakers understand the implications associated with these two scenarios—sprawl retrofit, and sprawl resurgence – and what interventions can facilitate a preferred outcome. Imagining Dallas in 2040 provides model for considering a range of futures made possible through AVs. Dallas is poised to gain 3.7 million residents in the next twenty years, a staggering 53 percent increase on the existing population of seven million. This growth is coupled with an additional 2.1 million jobs. The land and travel capacity required to accommodate this growth will overwhelm the existing Dallas highway system and require significant infrastructure investment. In the absence of AVs, Dallas is projected to increase VMT by more than 114 million miles, in which case residents can expect to spend twice as many hours in traffic, and the region can expect to lose $33 billion to costs of congestion. With AVs, how will these projections change? Best Case Scenario—Climate Change: A Long-range Plan Realized The North Central Texas Council of Governments (NCTCOG) sees this trajectory as an opportunity to implement highcapacity, connected transit network and encourage a shift to more sustainable forms of transit. Of the nearly four million residents who have moved to the Dallas area, many have chosen to infill existing neighborhoods and few of those in the city own a car. Most rely on ride-sharing to connect to transit. New intercity high-speed rail connectors provide fast and efficient travel between major economic areas, while new commuter rails connect existing neighborhoods to downtown. On Highways 75 and 635, excess capacity has been reclaimed as designated space for transit-only lanes, while other lanes have been adapted to serve solely SAVs or other high occupancy vehicles. This modal shift, paired with reduced congestion on major roadways, has resulted in a demonstrated reduction in GHG emissions and improvement in air quality. Worst Case Scenario—Climate Change: New Lanes on I-635 In waiting too long to break ground on the innovative transit projects that formed the foundation of Mobility2040, NCTCOG reallocates funding streams towards vehicular mobility. Congestion and VMT increase at a rate disproportionate to the growth in population and jobs, as more people now have access to on-demand personal vehicles. Residents have chosen to relocate far from the central business districts of most cities or corridors, as driving is now considered a productive component of the day.

100

Fagnant, Daniel J., Kara M. Kockelman, and Prateek Bansal. 2015. "Operations of a Shared Autonomous Vehicle Fleet for the Austin, Texas Market." 31

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The AV industries have dictated the process of AV-integration into society without notable input from stakeholders or policymakers, and as a result there are few sustainable features mitigating negative externalities. Political gridlock and a reluctance to act have resulted in missed opportunities to generate economic development from adapting existing infrastructure to satisfy new demand. Much of the roadways and highways in Dallas remain unchanged since pre-AV service. Several years into the introduction of AVs, nearly 15 percent of households own their own AV. The initial reduction in congestion was quickly nullified by induced demand. Most workers commute by driving (or are driven by AVs), and alternative modes are disappearing from the landscape. Without riders and in the absence of a sustainable taxing scheme, the DART service has been greatly reduced (and performance has plummeted due to reduced headways and reliability). Overall, the Dallas of 2040 is transitioning from becoming a car-centric city to an entirely car-dependent city, at the expense of many environmental indicators such as pollution. Recommended Policy and Programs 1. Prioritize investments in transit systems. Consider partnerships with transit agencies to facilitate the use of AVs and SAVs for providing first and last leg connections. 2. Institute a per-mile road usage fee or VMT tax. Variations in rate could reflect vehicle occupancy or vehicle type (e.g. electric vehicles). 3. Prioritize and incentivize a shift towards electric vehicles (EVs) or movement from traditional fuel-based vehicles. This could be facilitated through tax-related incentives, or subsidies. A movement towards EVs will also require an increase in the availability of related infrastructure, especially charging stations. 4. Planning organizations and policymakers are recommended to promote transit-oriented development (TOD) to both reduce sprawl and to encourage ridership of transit systems. 5. Create shared mobility stations that provide a range of mobility options at transportation centers. This may include the provision of bike share dock stations, ride sharing access points, or car sharing options. Ideally, these services are available on a single fare system for ease and to promote transfer opportunities. CONGESTION Automated vehicles have the potential to reduce the externalities caused by congestion in American cities if integrated with ridesharing services and controlled with specific legal regulations that prioritize public transit ridership over automobile trips. The technological capabilities of self-driving cars can ease congestion by reducing the spatial footprint of automobiles. With the help of computer system, the required safe distance between vehicles shrinks. Non-automated vehicles require at least two-second distance from other vehicles, while AVs need less. Some AV technology companies are also developing truckplatooning, linking of multiple trucks in convoy, to shorten the distance between trucks, which grows road capacity and has a positive impact on congestion.101 The quicker reaction time of automated vehicles can also play a significant role in congestion reduction. Robotic cars can react to unpredictable situations and stop much quicker than human drivers, thus shortening the coordinating time in heavy traffic. According to Fehr & Peers’, the average freeway capacity before reaching oversaturated conditions increases from 2,300 vehicles per hour per lane (vphpl) to 3,200 in a 100% AV scenario.102 If shared AVs become the default mode of traveling, the resultant decrease in the number of single occupancy vehicles will ease the congestion level a substantial amount. In the 50% shared AVs scenario, the VMT value is, on average, approximately 18% lower than the 100% private AV ownership dominant scenario, and the number of vehicle trips is almost ten percent lower on average.103 In a fully shared automated future, the utilization of roadway capacity and vehicle resources is highly efficient compared to today’s condition, as well as compared to a car ownership based future.

European Automobile Manufacturers Association. “What Is Truck Platooning?” Acea- European Automobile Manufacturers Association, 2017. http://www.acea.be/uploads/publications/Platooning_roadmap.pdf. 102 Fehr & Peers. “AV Simulation Research.” Assessing the Effects of Autonomous Vehicles (AVs) on Freeway Operations (blog), November 3, 2017. http://www.fehrandpeers.com/av-simulation-research/. 103 Fehr & Peers. “Latest Autonomous Vehicle Research.” How Will Autonomous Vehicles Influence the Future of Travel? (blog), June 30, 2017. http://www.fehrandpeers.com/autonomous-vehicle-research/. 101

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Even though most models predict large benefits coming from AVs, these benefits could be offset by other factors.104 Selfdriving vehicles might induce travel demand, furthering congestion on the streets. Still, travel patterns and congestion levels are difficult to predict. Best Case Scenario—Congestion: Integration of Shared AVs with Public Transit By 2040, the integration of AVs and ridesharing has significantly decreased congestion in American cities. Auto-ownership in dense areas has decreased due to the low cost of ridesharing service and the multimodal options available. Old on-street parking spaces have been re-legislated as additional bicycle or traffic lanes, and in some areas they have been transformed into wider sidewalks. Self-driving fleets transport goods and people smoothly to every corner of the country. AVs have mitigated the need for additional capacity by allowing for a more efficient use of space - cars are travelling along the interstate highway at closer distances from each other and at greater speeds, therefore, easing the congestion among existing lanes. People greatly reduce their travel time, and the value of the time saved is having spillovers across multiple economic sectors. Goods are shipped in a relatively high speed, two-to-three times faster than the years preceding the arrival of AV technologies, triggering huge economic growth and creating substantial benefits for industry and communities. Worst Case Scenario—Congestion: AVs Become the New American Dream (or Nightmare) Rather than transition to a shared use of vehicles, most Americans have opted for the private ownership of automated vehicles. Even though congestion initially decreased with the inclusion of automated vehicles in the streets in the 2020s, the growth of the urban population and the larger fleet of cars was not accompanied with larger infrastructure capacity leading to a reinstatement of previous congestion levels.105 Recommended Policy and Programs 1. Metropolitan Planning Organizations should establish a clear hierarchy of mode prioritization and place public transit, walking and biking as the most appropriate modes to combat congestion. Automated vehicles and ridesharing services should be integrated in mobility plans to meet the needs that are not met by public transit services (i.e. first/last leg trips, demand response service). 2. Regulations should be in place to ensure that shared automated vehicles do not compete with public transit by replicating existing public transit routes. 3. Within the realm of automated vehicles, shared AVs should be prioritized instead of privately owned ones to ensure an efficient use of road capacity. 4. Companies that provide ride-sharing AV services should share their data with city government. This partnership will help the public sector and transportation planners analyze the congestion impacts of AVs. There's no evidence today that AV will reduce congestion, in fact, with the increase in demand, there might be more cars hitting the road. Hence, data is essential to evaluate the changes in travel demand and develop strategies to deal with congestion. 5. State and local government should invest in the redesign process of streets and sidewalks that are needed for the successful deployment of AVs (i.e. drop areas). At the same time, the public sector should develop ways to partner with the AV ridesharing industries to fund these infrastructural changes. NATIONAL COMPETITIVENESS AVs will affect multiple sectors of the American economy: initially, automakers and software and accessories producers will profit from consumer demand for the technology, which is expected to be strong.106 The ubiquitous presence of AVs in the daily life of American citizens has the potential to transform transportation from a commodity to a service and move both goods and people quicker, safer, smarter and more sustainable way, from which infrastructure, operation and employment structure will benefit. Automated Vehicles Makers Car manufacturers and ridesharing companies will be the first sectors to reap the benefits from the adoption of AVs. There are approximately 30 companies around the world engaging in AV research and development; the top three companies are Fehr & Peers. “Next-Generation Vehicles.” Effects of Next-Generation Vehicles (blog), February 26, 2014. http://www.fehrandpeers.com/fpthink/nextgenerationvehicles/. 105 Condliffe, Jamie. “Watch a Single Autonomous Car Stop a Traffic Jam from Happening.” MIT Technology Review. Accessed December 13, 2017. https://www.technologyreview.com/s/607841/a-single-autonomous-car-has-a-huge-impact-on-alleviating-traffic/. 106 “Ford Exec Points to ‘Great Progress’ on Driverless Cars.” USA TODAY. Accessed November 21, 2017. https://www.usatoday.com/story/money/cars/2017/07/02/ford-ceo-says-company-making-great-progress-driverless-car/103332398/. 104

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American ones: TESLA, Uber, and Google.107 The primacy of these companies in the global market puts the United States in a position of leadership in the AV technology sector. At the same time, European car manufacturers are taking the lead in the transition to electric vehicles, and have agreed to a common system for vehicle charging. Mobility-as-a-Service As one of the early adopters of AVs, truck companies will have the potential to move goods continuously without interruptions that are inherent to human labor. Automated trucks can move in convoy with shorter headways and continuously improve their route based on dynamic traffic data. In this way, the capacity of the road, the speed of the convoy, and the efficiency of each ride will increase, leading to a significant increase in productivity. Greater efficiency in the movement of goods will improve customer satisfaction in online shopping and food delivery108 and increase the demand for goods movement. In the long-term, passengers and goods will flow immediately in response to—and in anticipation of—demand. Instead of purchasing a car and dealing with the risk of congestion on road and parking costs, Americans will opt for on-demand mobility services. This scenario also presents new challenges for the U.S transportation network; specifically, the regulation of Automated Vehicles and Non-Automated Vehicles, freight travel and passenger travel, and the maintenance of more frequently worn out infrastructure. Infrastructure Transformation Consumers may start to pay a user fee for each trip utilizing public roadways according to miles traveled. Because carmakers and ridesharing companies will be the primary operators of the road network, these vendors can charge customers directly and pay governments through a separate toll. The consistent cash flows provided by this kind of toll will incent more investors to participate in infrastructure investment; however, it is critical for policymakers to note that, without modifying the current approach to taxation, conditions will only worsen, harming competitiveness. By integrating AVs with high-capacity transit corridors, such as high-speed rail and public transit, first- and last-leg trips could increase transit ridership. Maintaining and growing ridership is essential for the upkeep of transit infrastructure. AVs also have the potential to reduce the amount of surface area required for roadways, returning that space to the public realm. But if the systems are not integrated, platooning AVs might operate as high-speed trains on the road and requiring additional space. Intelligent Investment and Operation By adopting AVs, data availability will increase, which can be processed for more informed decisions and resource allocation. With origin and destination of each trip available, the demand of passengers and customers can be easily interpreted. The market opportunity is huge. Also, policymakers will be able to understand travel pattern and road usage more directly, enabling them to allocate limited resources in advance, saving operating and managing expense. Employment Shift The adoption of AVs will largely shift current employment structure. Millions of drivers are no longer needed and many hightech jobs with higher value per capita will be created, such as electronics & software and digital media. Providing different requirements of the old and new jobs, successful transformation relies heavily on proactive skill training. At the same time, new jobs will be created in systems design, data collection and distribution, monitoring of performance, and customer relations. Making these jobs accessible should be a responsibility of the system operators. Gains and Losses Based on our previous assumptions, AVs have the potential to add $7 trillion to the global economy. The reduction of collisions will represent savings of up to $1.2 trillion in the United States only (or $3.8 per person). 109 The cost of transportation per mile will drop five to eight-fold with the adoption of automated ridesharing.110 The alternative development of parking spaces, shopping malls and roads have huge potential economic benefits too. Take parking space for example, 107

"The Impact of Autonomous Vehicles on the Shipping Industry." National Transport. Accessed December 12, 2017. https://www.nationaltransportllc.com/impact-autonomous-vehicles-shipping-industry. 108 Lanctot, Roger. Accelerating The Future: The Economic Impact Of The Emerging Passenger Economy. June 1, 2017. Accessed December 12, 2017. https://www.strategyanalytics.com/access-services/automotive/autonomous-vehicles/reports/reportdetail/accelerating-the-future-the-economic-impact-of-the-emerging-passenger-economy#.Wi_PrbaZOL8. 109 "Morgan Stanley — the Economic Benefits of Driverless Cars." RobotEnomics. August 18, 2017. Accessed December 12, 2017. https://robotenomics.com/2014/02/26/morgan-stanley-the-economic-benefits-of-driverless-cars/ 110 Chen, T. Donna, Kara M. Kockelman, and Josiah P. Hanna. "Operations of a shared, autonomous, electric vehicle fleet: Implications of vehicle & charging infrastructure decisions." Transportation Research Part A: Policy and Practice 94 (2016): 243-54. doi:10.1016/j.tra.2016.08.020.

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the current total value of parking spaces is $4.5 trillion. Providing a one percent decrease in parking will increase property value by $45 billion.111 The transformation in freight system will generate $3 trillion of direct revenue and $200 billion indirect revenue worldwide.112 Freight industry alone will add $100 Billion to the United States economy. Despite the aforementioned benefits, it is important for policy makers to be cognizant that both best and worst scenarios for the future of AVs are possible, and without proactive policies and programs, the radical economic transition generated by AVs can also have severe negative externalities. Best Case Scenario—National Competitiveness: AVs’ economic benefits spillover to multiple sectors In 2040, the United States will have separate freight and passenger transportation systems and the major operators become several big carriers are under government control. The fully automated freight network will have links both on the ground and underground that connect shipping and delivery points. Workers will commute to their jobs in centralized distribution centers to direct cargo throughout local or regional systems. Goods movement is faster and more efficient because of fewer labor constraints, truck platooning, separate transportation system and integrated industry. Passengers are now consumers of applications and services that rely on AVs. Food delivery and online shopping are more popular and convenient. Commute trips might be provided by employers or property owners too. In 2040, infrastructure is easier to deliver because of steady funding stream that AVs contribute to, based on their VMT. Infrastructural funds are allocated to maintain and retrofit of existing roads into smart roads. These smart roads can submit maintenance requests themselves for immediate repair. Also, AVs and public transit are integrated together. Based on shared open data, AV operators will prepare AVs for riders in advance. Public transit becomes a more enjoyable and reliable mode that is popular to all. New development opportunities emerge everywhere. Cities become more livable and walkable with fewer cars and more retail and open spaces. Worst Case Scenario—National Competitiveness: AVs operate on current system and result in economic stagnation In 2040, freight companies cannot find enough skilled workers. Despite the fact that a large number of drivers are waiting to be recruited again, they are unfamiliar will the software that manage the traffic. Both unfilled occupations and unemployment rate are high. Also, the platooning AVs supplant the role of public transit, and introduce more high-speed cars on the road. The walkability of streets decreases, bankrupting retails alongside. AV sector is fragmented with all kinds of operators competing for a portion of customers and leaving the rest underserved. The inefficient resource allocation slows down the United States economy. In 2040, infrastructure will be underfunded because America continues to rely on the gasoline tax as the primary source of funding. AVs, while driving intensively, do not pay for infrastructure simply because they do not use gasoline. The U.S lacks money to upgrade transportation network specifically for automated vehicles. No improvements or repair are made to those worn out roads. In the end, the United States transportation will be damaged to a point of dysfunction, and unable to support its economic activities. Recommended Policy and Program: 1. Workforce training: ensure that the demand for skilled drivers is met with enough skilled technical “drivers.” 2. VMT Tax or Automated Vehicle Tax: effectively collect infrastructure funds. 3. Governed data sharing platform 4. Integrating AVs to public transit EQUITY Today, we continue to suffer from social problems created by the Interstate Highway System. Mike Maciag of Governing Magazine writes that “people who use public transportation are disproportionately poorer” than other commuters in nearly

111

Victoria Transport Policy Institute. (2017) Transportation Cost and Benefit Analysis - Parking Costs. Retrieved from http://www.vtpi.org/tca/tca0504.pdf 112 Marshall, Aarian. "Robocars Could Add $7 Trillion to the Global Economy."

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every American city;113 underfunded transit systems that serve mostly poor and working-class residents do not compete with the travel times of private vehicles. Those who work in agriculture or construction, particularly Hispanic immigrants, often lack a public transport option altogether. 114 And there is evidence that transport authorities unconstitutionally discriminate against minority users, with the US DOT currently investigating Maryland transport policies for violations of civil rights. 115 As gentrification takes hold around the country, working people face risk of displacement to suburban municipalities that do not coordinate transit regionally, thus preventing employment stability and opportunities. AVs have the potential to exacerbate historical and existing social equity problems, or may be harnessed to solve the injustices of today’s municipal transportation systems. Unlike Eisenhower’s public highway system, it is likely that, in the near term, private companies and wealthy individuals will own much of the stock of automated vehicles. The onus falls on cities, states, and the federal government to step in carefully regulate AVs create a system that expands equitable access. In 2040, AVs have the potential to change the face of Philadelphia, with major implications for local social equity. Worst Case Scenario—Equity: AVs increase inequities across Philadelphia In 2040 Philadelphia, wealthy residents and multinational corporations are the exclusive owners of a rapidly expanding fleet of AVs. In an effort to attract entrepreneurial activity, technological innovation, and jobs, the city has minimally regulated automated vehicles. Middle class individuals pay an increasing share of regressive traffic tickets. 116 Congestion has worsened since AVs started to swamp the roads, yet those who can afford them do not lose time the same way as those who cannot afford them. Liberation up of time spent commuting for the wealthy is spawning a new wave of leapfrog development and middle-to-upper class exurbia that is less amenable to public and active transit, segregates residents by class, removes property-owning taxpayers from the city proper, and adds obstacles to road safety and environmental sustainability. Automated taxi companies have for the past decade significantly undercut public transit with artificially low prices. One can hail a ride from South Philadelphia to Chestnut Hill, a trip that takes at least half an hour, for less than $10; shorter rides tend to cost less than $5. Though these companies have been losing money, they are succeeding in sapping transit resources. A high national speed limit, despite being quite safe for passengers, has driven block parties and children playing off the neighborhood streets of Philadelphia. Best Case Scenario—Equity: Redemptive Automation The year is 2040, and Philadelphians—of every income level and every neighborhood—can travel where they need to go, quicker and cheaper than ever before. The dawn of automated vehicles has revolutionized equity in urban transit. Shared automated taxis have flourished. This new system complements a financially burgeoning SEPTA, which is serving a diverse user base of all classes and ethnicities. This partnership between public transit and private ridesharing has begun to tie together all areas of the city economically and socially. Private ridesharing companies have invested in public infrastructure, including curbside loading docks and special rightsof-way.117 Recognizing that their fate is connected to SEPTA’s, they have also invested heavily in expansion and upgrading of public transport systems. Because this transit-ridesharing combination has proven so effective, efficient, and universal, individual automobile ownership rates has fallen steeply. None of this would have been possible without the extensive ‘public engagement’ that the City has developed and supported. 118 Charrettes are continuously held in neighborhoods across the city to provide input to city policies, and community organizations have been given control over regulations such as speed limits and distribution of space. Finally, underemployed people have been given priority in job training in new jobs related to automation of vehicles.

Maciag, Mike. “Public Transportation’s Demographic Divide.” Governing The States and Localities, February 25, 2014. http://www.governing.com/topics/transportation-infrastructure/gov-public-transportation-riders-demographic-divide-for-cities.html. 114Ibid 115 Duncan, Ian. “On Last Day, Obama Administration Announced Civil Rights Review of Maryland Transportation,” January 24, 2017. http://www.governing.com/topics/transportation-infrastructure/tns-maryland-hogan-investigation-transportation.html. 116 Tech Policy Lab. “Driverless Seattle: How Cities Can Plan For Automated Vehicles?” University of Washington, 2017. http://www.mobility-innovation-center.uwcomotion-sites.com/wp-content/uploads/2017/02/TPL_Driverless-Seattle_2017.pdf. 117 Bliss, Laura. “Who’s Calling the Shots On Autonomous Vehicles?” CityLab. Accessed December 13, 2017. https://www.citylab.com/politics/2017/04/whos-calling-the-shots-on-autonomous-vehicles/523386/. 118 Ibid 113

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Recommended Policy and Programs: 1. Workforce training to help bridge the gap for people in industries/fields (e.g. freight) 2. Shared Vehicles and mobility 3. Smart growth prioritizing TOD, removing requirements for parking, and the adaptive reuse of parking garages and other buildings for community purposes 4. Using AVs to prioritize pedestrian/bicycle safety (/ safety for vulnerable users) 5. Data (data reciprocity, using data to inform more equitable planning decisions Preparing for AVs AVs are coming and will transform American transportation systems. Governments at the local, state, and federal level must champion to preempt adverse consequences by preparing our existing infrastructure. Mobilizing new policy and infrastructure investment to welcome technological advancement will stimulate an efficient new phase in inner-city transport.

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BUILDING TOWARD THE FUTURE

BUILDING TOWARD THE FUTURE

This report urges Americans policymakers to marshal greater investment in infrastructure to stimulate economic growth. Here, we have tackled a wide range of topics to bring clarity to a discussion presently complicated by politics: Costs & Benefits: A Fresh Approach shows how we can reframe the conversation around project evaluation. By showing the true costs of continuing down our current path and the benefits can be realized from new, high quality transportation infrastructure, we can begin to raise awareness about the precarious situation the United States is in today and value of better infrastructure. Through this reframing, we also hope to create fact-based criteria from which to develop prioritization of policies and projects moving forward. Effective Infrastructure Delivery proposes a set of strategies to streamline project delivery—strategies principally related to embracing innovative methods, adoption of special purpose entities, and cutting red tape. Streamlining these strategies will not only cut costs and delivery times for infrastructure, but in so doing will also help to restore popular and political confidence in American government’s ability to deliver quality infrastructure efficiently. We hope that better frameworks for evaluation and improved project delivery will be enough to garner popular and political support for significantly increasing investment in American infrastructure in the coming decades. This investment is crucial to success, since renewal and expansion of our major transportation corridors to meet future requirements will require significantly more capital investment than this country has been willing to make in recent decades. New Technologies looks toward the future and highlights the importance of capitalizing on the opportunities provided by emerging transportation technologies. New technologies, and AVs in particular, have the potential to significantly alter the face of American transportation, for better or worse. By preparing for the rise of AVs as we make infrastructure investments through better integration with transit, transitioning to “smart” infrastructure, and championing shared mobility, we can ensure that we make the best possible use of these technologies. If we follow this approach for greater transportation infrastructure, we believe that the American roads, bridges, and highways can soon be the best in the world and propel the United States to economic superiority and social prosperity in this century as it did in the last.

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MAKING THE CASE

MAKING THE CASE

Changing the conversation around infrastructure in the United States requires a new approach to convincing both taxpayers and the business community that benefits to investment outweigh the costs. What will persuade Americans to support transportation investments? First, most taxpayers face great economic uncertainty. According to the Pew Research Center, 84% of registered voters indicated that the future of the economy would be an important decision in deciding how to cast their votes in the 2016 presidential election.119 Infrastructure investment has the potential to minimize economic anxiety by producing jobs and greater capacity for American businesses. Furthermore, Americans will see this investment mitigate congestion, carbon emissions, and casualties, all while bolstering American competitiveness on a global scale. The decisions we make today will directly affect the world our children and grandchildren inherit, just as the systems in place today are due to the infrastructure campaigns of earlier generations. It is now our time to shepherd the next wave of infrastructure investment and revive the American economy for future generations. Messaging for Taxpayers •

Financial Benefits: The cost of degrading surface transportation on American households will amount to $481 billion between 2010 and 2020.120 When looking at infrastructure across the US, the decrease in worker productivity and resulting job cutbacks from poor infrastructure will amount to a loss of $28,000 in disposable income per household by 2020.121 Americans simply cannot afford to defer investment any longer.

•

American Competitiveness: The United States has lost is competitive advantage in technology. In order to remain a leader for innovation on the global stage, the United States must invest in infrastructure to support the rollout of new technologies like automated vehicles. Our livelihoods depend on it.

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Equity: The wealth gap in America is vast—and growing. Disconnected parts of the country will continue to fall behind if there is no attempt to bring them into contact with denser areas through transportation investment. Investing in these communities results in spillovers that benefit the region as a whole.

Messaging for the Business Community •

Avoided Losses: If infrastructure in the United States is not improved by 2020, there will be nearly $1 trillion lost in business sales. 122 While the exact metric depends heavily on the state of the economy, the impact of $1 investment in infrastructure can increase the GDP as much as $1-2.50 in the case of an economic recession and by $0.86 during a period of economic growth.123 Businesses must consider long-term economic benefits on their balance sheet when evaluating investment opportunities.

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Cost Savings: Businesses hoping to leverage AV technology for distributing goods depend on the quality of roadways for efficient, reliable service. AVs will only increase the bottom life if transportation infrastructure can support them.

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Value Capture: Investment in transportation infrastructure creates opportunities for value capture. Supporting government entities in the operations and maintenance of a road enhances the value of surrounding land. Better infrastructure means higher land values for businesses owning property.

“4. Top Voting Issues in 2016 Election.” Pew Research Center for the People and the Press (blog), July 7, 2016. http://www.peoplepress.org/2016/07/07/4-top-voting-issues-in-2016-election/. 120 Economic Development Research Group, 2013 121 EDRG, 2013 122 ASCE 123 Mcnichol, 2017 119

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Current politics showcase intense polarity in Washington. Still, both parties have expressed interest in infrastructure investment to support economic development. This report establishes a baseline for beginning collaborative, productive discussions. Today, a lack of leadership represents the largest gap in infrastructure delivery. The role of individual and institutional leaders in guiding the conversation cannot be overstated. Infrastructure investment can only be mobilized with a strong leader at the helm.

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APPENDIX A

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WORKS CITED

WORKS CITED

American Society of Civil Engineers. “Failure to Act Report.” ASCE’s 2017 Infrastructure Report Card (blog). Accessed November 13, 2017. https://www.infrastructurereportcard.org/the-impact/failure-to-act-report/. American Society of Civil Engineers. “Economic Impact.” ASCE’s 2017 Infrastructure Report Card (blog). Accessed November 13, 2017. https://www.infrastructurereportcard.org/the-impact/economic-impact/. Alexander-Kearns, Myriam, Miranda Peterson, and Alison Cassady. 2016. "The Impact of Vehicle Automation on Carbon Emissions: Where Uncertainty Lies." Center for American Progress. Center for American Progress. November 18. Accessed November 15, 2017. https://www.americanprogress.org/issues/green/reports/2016/11/18/292588/theimpact-of-vehicle-automation-on-carbon-emissions-where-uncertainty-lies/. Anderson Jr., G.R., “Economy in Freefall: Businesses around the 35W bridge site may not survive to see a new span”, CityPages, 2007. https://web.archive.org/web/20080617010725/http://www.citypages.com/2007-09-05/news/economy-in-freefall/ BCG. n.d. "Autonomous Vehicle Adoption Study ." Boston Consulting Group. Accessed 11 14, 2017. https://www.bcg.com/en-us/industries/automotive/autonomous-vehicle-adoption-study.aspx. Barend, Samara. Tackling US Infrastructure Needs Through P3s, AECOM Capital, 9/15/2017. Beckers Frank, et al., A Risk Management approach to a Successful Infrastructure Project: Initiation, Financing, and Execution, McKinsey Working Papers on Risk, Number 52, 2013. Bivens, Josh. “How to Improve Infrastructure Project Selection: Account for Positive Regional Spillovers, Environmental Impacts, and Job Creation Benefits.” Economic Policy Institute. October 18, 2017. http://www.epi.org/publication/how-to-improve-infrastructure-project-selection-account-for-positive-regionalspillovers-environmental-impacts-and-job-creation-benefits/ Bliss, Laura. 2017. "Who's Calling the Shots On Autonomous Vehicles?" CityLab. April 25. https://www.citylab.com/politics/2017/04/whos-calling-the-shots-on-autonomous-vehicles/523386/. Brown, Austin, Jeffrey Gonder, and Brittany Repac. 2013. "Autonomous Vehicles Have a Wide Range of Possible Impacts." National Renewable Energy Laboratory. July 16. Accessed November 15, 2017. https://www.nrel.gov/docs/fy13osti/59210.pdf. Bureau of Labor Statistics. Consumer Expenditures 2016. https://www.bls.gov/news.release/cesan.nr0.htm. Chen, T Donna, Kara M. Kockelman, and Josiah P. Hanna. 2016. "Operations of a shared, autonomous, electric vehicle fleet: Implications of vehicle & charging infrastructure decisions." Transportation Research Part A: Policy and Practice 243-254. https://econpapers.repec.org/article/eeetransa/v_3a94_3ay_3a2016_3ai_3ac_3ap_3a243254.htm. City of London Corporation. Crossrail Business Case Updated: Summary Report 2010. https://www.cityoflondon.gov.uk/business/economic-research-and-information/researchpublications/Documents/research-2015/Impact-of-Crossrail-briefing-paper.pdf. Clements, Lewis, and Kara Kockelman. 2017. "Economics Effects of Automated Vehicles." Transportation Research Record: Journal of the Transportation Research Board 106-114. http://trrjournalonline.trb.org/doi/pdf/10.3141/2606-14. Cookson, Graham, and Bob Pishue. “INRIX Global Traffic Scorecard.” Inrix Global Traffic Scorecard, no. February (2017): 44. https://media.bizj.us/view/img/10360454/inrix2016trafficscorecarden.pdf

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