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A Scenario Approach to Future Highway Investment

Need for a Scenarios Approach

To project investment needs, several scenarios were employed in response to the changes in highway travel demand. The scenarios include the following factors:

The scenarios cover a time span of six years from 2009 to 2015, the next authorization timeframe, but are based on 20-year perspectives.
The scenarios are based on travel growth estimates ranging from no growth to a maximum of 1.4 percent per year for the six-year period.
Program costs shown are total capital program estimates for highways and bridges by all levels of government for all levels of the highway system.
All scenarios represent the sum of projects that have been subjected to a benefits-cost test; only projects with benefits exceeding costs are permitted into the calculation.
All scenarios are based on a multimodal context in which a range of alternative demand levels for other modes of travel can be accommodated.
All scenarios include a separate investment component for bridges designed to advance further the progress made in bridge conditions.
All scenarios assume that the cost effective operations deployments designed to ease the flow of traffic and enhance the efficiency of existing investments have been made.

The Backlog Effect

While significant future growth has an important effect on investment needs, even with limited growth there are still substantial benefits to be obtained by investment. The existence of a massive investment backlog in the highway system is perhaps the key factor to consider. As shown below, the backlog of investment requirements had grown to $430 billion by 2006. With the extensive increases in construction costs, the backlog is considerably higher today.

An overall estimate of the combined highway and bridge backlog is that, as of 2008, it had increased to about $490 billion. If there were no current backlog, the 20-year needs for each scenario would be considerably less per year, perhaps by around $25 billion per year.

The bridge backlog, which was reported to be $87 billion in 1997, had dropped to approximately $52 billion in the 2004 Bottom Line; the 2006 Condition and Performance Report showed a bridge backlog of just above $65 billion.

The backlog can be considered to be that level of investment that is justified today without any further future growth in the system or any further future deterioration due to time, system wear, and weathering. Note that 58 percent of the 2006 backlog was the product of current capacity deficiencies.

Two Investment Scenarios

Two scenarios were tested in this analysis which assessed investment levels that would increase both system condition and performance: one scenario in which VMT increased at 1.4 percent annually, and a second where VMT increased at 1.0 percent annually.

Below is a graphic of the investment needs factors considered:

Scenario Results

The results of the two VMT-based variations on the “Cost to Improve” Conditions and Performance scenario are outlined below.

“Cost to Improve” Terminology. U.S. DOT has decided to change the terminology used in its Condition and Performance reports to more precisely convey what their analysis means. In place of the term “Cost to Improve” for highways, they have decided to use the term “Maximum Economic Investment,” which they define as, “the maximum average annual level of investment that could be utilized while still investing only in cost-beneficial highway investments over 20 years.” While AASHTO understands why U.S. DOT has chosen to change its terminology, we have decided to continue to use the term “Cost to Improve” for highways, bridges, and transit in this and subsequent Bottom Line Reports. We believe the term is consistent with the drive in many states to use “plain English” to communicate to the public in official publications and that it continues to convey the concept of “optimal” investment levels more simply than does the term “Maximum Economic Investment.” We will, however, in the criteria used to estimate the “Cost to Improve” dollar amounts for highways, bridges, and transit, continue to use the same factors used by U.S. DOT to make its estimates. It continues to be our objective to keep the two reports as comparable as possible.

AASHTO has discontinued reporting on a “Cost to Maintain” number for highways, bridges, and transit, because it is our judgement that the analysis behind this term no longer serves a useful purpose. The term “Cost to Maintain” was used to identify a level of investment which would continue the condition and performance of highway, bridge, and transit at levels that are recognized as inadequate and unsatisfactory. That is not a policy objective the state DOTs believe is useful or which we believe should be seriously considered as an option. This analysis and future Bottom Line Reports will address only the “Cost to Improve” standard for highways, bridges, and transit.

By comparison to the above figures, AASHTO’s 2002 Bottom Line Report estimated a highway “Cost to Improve” annual investment need of $125.6 billion per year, based on a 2.1 percent forecast of growth in VMT per year. Since then, the increased costs and higher backlog for both highways and bridges have more than outweighed the lower investment estimates that might result from reduced vehicle miles of travel.

A Payoff Graphic

To understand the benefits the public can expect from future investment, AASHTO examined five performance measures for each level of travel growth.

These results show the impacts on highway performance of levels of investment considered to be economically justified. While greater investment might improve certain areas of performance, the FHWA model does not calculate those benefits. The table compares improvements to present performance levels.

The “Cost to Improve” investment provides significant improvement in road smoothness. Smoothness would actually improve somewhat more with higher traffic volumes because more new roads with new pavements are built; roads are reconstructed earlier and improve the overall pavement condition.
Average speed improves by two miles per hour, or almost a 5 percent improvement. Speed improvements are unaffected by the small change in estimated VMT as investment levels keep pace.
Hours of delay per mile of travel is significantly reduced by investment, by about 16.5 percent for each growth scenario. A motorist traveling 15,000 miles per year would save about 12 hours by not sitting in congestion.
Small decreases occur in the percentage of traffic occurring under conditions of delay.
User costs are reduced by about 2.5 percent in both cases. When multiplied by the number of miles driven, the economic gain is substantial. For a motorist traveling 15,000 miles per year, the savings would amount to some $400 annually.

Adjusting for Further Cost Increases from 2006 to 2008

The above numbers are based on 2006 costs which have been incorporated into the latest version of HERS that was used in this analysis. From 2006 through June of 2008, the Producer Price Index for Highway Construction increased by just over 26 percent, resulting in about a 12 percent increase in the full economic needs for each scenario:

1.00 percent VMT growth per year: $148 billion, for 2008
1.41 percent VMT growth per year: $186 billion, for 2008

Special Bridge Scenarios—Faster Elimination of the Bridge Needs Backlog

Using federal bridge models, forecasts are made of the rapidity with which the backlog of bridge needs can be reduced at various levels of investment in bridges. As can be seen, the backlog is never eliminated at funding levels of $5 billion or $10 billion per year. At $20 billion per year, the backlog is eliminated within eight years.

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