The Road to Wealth Destruction

The soon-to-be-built Charlottesville Bypass provides a lousy economic return on investment. Only government would spend $244 million on a project that yields less than $8 million a year in benefits to the public.

By James A. Bacon

The citizens of Charlottesville and Albemarle County think they have a traffic congestion problem on U.S 29 north of the city. Of course, everybody thinks they have a traffic problem. You should see the intersection of Parham and Patterson near my home in Henrico County around 5:30 p.m. It can take three or four cycles to get through the stop light. And try driving on Interstate 95 in Prince William County. It’s far worse than anything in the Richmond region – you can get stuck in stop-and-go traffic at 6:30 in the morning!

The question is whether the congestion on U.S. 29 north of Charlottesville is so numbingly God-awful compared to all the other traffic hell-holes in Virginia as to warrant a $244 million investment (including sunk expenses) to build a bypass, as the McDonnell administration has decided to do.

For more than a half year now I’ve been writing about the Bypass from a distance, here in Henrico. At times, the controversy seemed remote and abstract. To really understand the controversy, I decided I needed to experience the frustration, the agony and the road rage of driving on U.S. 29 first hand. So, one day in December, using a digital stop watch to track my time, I spent more than an hour driving up and down the congested highway corridor slated for bypass. I wanted to see for myself just how bad things got during rush hour.

It was a regular workday, the University of Virginia was in session and traffic conditions were routine. I set some rules for myself: no lane weaving, no bumper hugging and no gunning through yellow lights to alter the outcome. While I was behaving myself, there would be no cursing, fist shaking or banging on the steering wheel either. I would drive like a normal person.

The results were far from anything I expected.

The stretch of U.S. 29 in question runs through 14 stoplights and is lined with restaurants, shopping malls, office buildings and other development. Although the road is designated a highway of statewide significance — one of Virginia’s three major north-south freight  routes — Albemarle County zoned the land around it as a primary growth corridor. Thousands of people use the road to drive to work every day at the University of Virginia and other Charlottesville employment centers.

Figuring that morning rush hour would experience the worst congestion, I picked the period of 7:30 a.m. to 8:30 a.m. to drive back and forth between Ashwood Boulevard at the proposed northern terminus of the Bypass and the U.S. 250 Bypass underpass to the south. Driving north against the rush hour traffic established a base line: My three trips averaged 7 minutes and 42 seconds. Traffic was smooth flowing throughout, although delays did occur during lengthy stop lights at the Hydraulic and Rio road intersections.

Likewise, I drove south three times with the rush hour traffic. My first trip took the longest. I was surprised at how smoothly traffic moved but I did get hung up at the Rio Road intersection for a long stoplight cycle. Thanks to the synchronized lights, however, I whizzed through the major intersections without a hitch on the next two trips. The average drive time for all three: 7 minutes and 21 seconds – faster than when I was driving against the rush hour tide!

At the end of the exercise, I had one question: Traffic congestion? What traffic congestion? These people know nothing about traffic congestion!! What is all the hoo-ha about?

ROI – No, that’s Not French for “King,” although It Is a Foreign Word in Virginia

A variety of claims have been advanced in favor of building the Bypass. First, there is an economic benefit to reducing the amount of time people lose being stuck in traffic congestion. Second, the project will improve safety, reducing the number of traffic accidents on an accident-prone stretch of road. And third, it will promote economic development – not necessarily in the Charlottesville region but in points south, specifically in Danville and Lynchburg. Building the Bypass around Charlottesville’s congestion hot spot, it could be argued, will reduce truck travel times and improve the competitive posture of manufacturing businesses that use U.S. 29 as a freight corridor.

While the claims are not implausible on their face, no one has subjected them to rigorous study. The Virginia Department of Transportation has never conducted a Return on Investment (ROI) analysis to determine how much economic benefit the commonwealth will derive from its $244 million expenditure, much less how that ROI would compare to alternative transportation improvements. 

ROI analysis is fundamental to the corporate world, but it’s a foreign word to Virginia government. The unwillingness or inability to conduct such an analysis means that billions of dollars worth of transportation projects around the state are funded on the basis of ideology, gut feelings, lobbying pressure and raw politics – not where the money can be most productively employed. The issue is all the more pressing today, given the McDonnell administration’s use of borrowed money and public private partnerships to fund billions of dollars of new road, highway and bridge construction over the next several years.

Legislation before the General Assembly would require the Virginia Department of Transportation to assign a “rating” to major Northern Virginia transportation projects but its methodology is incomplete. It would consider only the benefits of ameliorating traffic congestion and of minimizing the loss of life in the event of a homeland security emergency. In this essay, I will take a first crack at conducting a more thorough-going analysis, addressing congestion relief, improved safety, and economic development each in turn. As a first effort, it has inevitable shortcomings. I have not figured out, for instance, how to incorporate environmental costs and benefits into the equation. My hope is to inspire state and local officials to recognize the advantage of such an approach and to apply the resources to do a more comprehensive job. In an ideal world, the methodology could be applied to any transportation project, whether a road, highway, bridge or mass transit, in the hope of reaching decisions that do the greatest good for the greatest number of people.

Congestion Relief

Calculating the cost of congestion relief is relatively straightforward. The first step is to ascertain the time saved per trip. In the case of the Charlottesville Bypass, we can estimate time saved by comparing the average length of time it takes to travel from the northern Bypass terminus at Ashwood Boulevard to the southern Bypass terminus at Leonard Sandridge Road (a) when using the existing U.S. 29/U.S. 250 route and (b) when using the proposed Bypass.

Bypass map
According to my measurements, the time it takes to travel from the northern terminus to U.S. 250 averages 7 minutes and 42 seconds. To that must be added an additional 1 minute and 30 seconds for the time it takes to hop onto the 250 Bypass and dog-leg over to the proposed terminus. Total average time elapsed: 9 minutes and 12 seconds.
The Bypass itself will run 6.5 miles, and the highway will be designed for 60 miles per hour. Therefore, under normal conditions the trip will take roughly 6 minutes, 30 seconds, thus shaving 2 minutes and 42 seconds on average off each trip.

In theory, there could be a secondary benefit. Because the bypass will take traffic off the existing U.S. 29, motorists using that highway should encounter fewer cars, hence, less congestion. In theory, those drivers, too, could save time. However, the stoplights, last synchronized in 2010, are handling the current volume of traffic with minimal back-up and delay. Taking cars and trucks off the highway will not make a material difference until the overall traffic volume increases considerably.

There is one other factor to consider. Although I did not personally witness any back-ups on the ramp connecting U.S. 29 and the U.S. 250 Bypass when I was taking my measurements, veterans of the Charlottesville traffic scene pointed out that some of the worst congestion occurs there. That ramp – referred to as the “Best Buy” ramp because it is located near a Best Buy big box store (see pink dot on map) – can add two or three minutes of delay for anyone traveling through the city, depending upon the time of day. However, local officials expect to whittle down that backup with the simple addition of a short lane on U.S. 29. That project, estimated to cost $4.7 million, is scheduled to be advertised for construction in FY 2014.

Once a time saving has been estimated, the next step is estimating how many cars and trucks will benefit from it.

The most recent traffic analysis of the U.S. 29 Bypass was conducted in 1996-97 by Parsons Brinckerhoff Quade & Douglas (PB) as part of its Interchange Feasibility Study. Drawing upon earlier work, PB estimated that bypass traffic would amount to 17,400 vehicles per day in 2010. But that forecast, contends the Charlottesville Albemarle Transportation Coalition in a detailed critique of the traffic projections, assumed the existence of two interchanges on the Bypass – one at Barracks Road and one at Rio Road – that would have significantly boosted local traffic. Those interchanges, notes the anti-Bypass coalition, are no longer in the plans!

Correcting for that major design change, CATCO estimates that traffic would have been 6,470 to 10,600 vehicles per day had the Bypass been constructed by 2010, and would increase to between 8,800 and 14,400 per day by 2022. Assuming the Bypass opens in 2014, a reasonable working estimate would fall around the midpoint of those figures, or about 10,000 vehicles per day.

In its annual 2011 Urban Mobility Report, the Texas Transportation Institute(TTI) estimates the cost of traffic congestion for 101 urban areas across the United States. Using an elaborate methodology, TTI calculated the cost of travel delay (extra travel time) plus the cost of extra fuel consumed (due to driving in congested conditions) at $16.30 per person-hour for individuals. Because not all motorists drive solo — average ridership amounts to 1.25 passengers per vehicle – that translates into $20.38 per car. The cost of time delay is $88.12 per hour for commercial trucks.

On the basis of TTI assumptions, the projected time and gasoline savings for a single trip on the Charlottesville Bypass will work out to $3.88 per truck and $0.90 per car.  Assuming 10,000 vehicles per day, seven percent of which are trucks, we can calculate a total time-value saved of $11,086 daily, or $5.8 million per year.

Thus, for an expenditure of $244 million, the commonwealth of Virginia can expect to create economic value of $5.8 million annually from congestion relief, or a Return on Investment of 2.4%. That is a poor rate of return. With the commonwealth of Virginia borrowing money at the rate of roughly 4.4% for 30-year bonds, the Charlottesville Bypass would destroy economic value if congestion relief were the only factor considered.

Road Safety

But that’s not the whole story. Another justification for building the Bypass is to reduce the number of traffic accidents on the most accident-prone stretch of U.S. 29. According to a November 2010 American Automobile Association report, “Crashes vs. Congestion,” the societal cost of traffic accidents, injuries and fatalities nationally is almost $300 billion, or three times the cost of traffic congestion. Success in reducing the number of traffic accidents in the U.S. 29 corridor potentially would not only reduce human suffering but represent a huge economic gain.

Drawing upon third-party research and 2009 data, the AAA estimates that a single automobile fatality costs society $6 million, while a traffic injury costs $126,000. Additionally, routine accidents can cost thousands of dollars in property damage to cars. According to the Highway Loss Data Institute (HLSI), it costs $4,000 to repair an automobile involved in an accident, and typically many accidents involve two or more vehicles.

According to the Albemarle County and Charlottesville police departments, the number of accidents that occurred on the bypassed portions of U.S. 29 and the U.S. 250 Bypass averaged 289 per year in 2010 and 2011, while the number of injuries averaged 108. There were no fatalities. Using AAA numbers, the injuries equated to an economic loss of $13.6 million in 2011. Using HSLI numbers and assuming an average of two cars per accident, auto repair costs amounted to $2.3 million.

Clearly, the potential exists to reap large economic gains by reducing the number of accidents an injuries along U.S. 29. The tricky part is calculating what impact the Charlottesville Bypass would have.

Assuming the Bypass diverts 10,000 vehicles, it would reduce traffic volume in the affected area by roughly 20%. Would that reduce the number of traffic accidents?

Ray Khoury, chief VDOT engineer, says yes. He attributes the frequency of accidents to the combination of high traffic flow and the large number of intersections, traffic signals, driveways and other turning points in the business corridor. The Bypass would reduce the frequency of accidents, he says. “Any time you take traffic out of a transportation corridor, especially trucks, you will reduce the potential for crashes.”

A reduction in the number of accidents does not necessarily translate into lower economic cost, however. As the AAA report states:

A complex relationship exists between congestion and crashes. Although the evidence is mixed, less congested roadways appear to lead to fewer, but more severe, crashes. This relationship is especially strong in the case of crash severity; that is, more severe crashes occur on less congested roadways due in large part to faster speeds. On more congested roadways, the number of crashes may increase, but they may be primarily minor crashes reflecting the increased weaving and access/egress movements often occurring on congested road segments.

Khoury does not expect speeds to increase on U.S. 29. The signal progression will continue to moderate speeds, he says. Thus, the business corridor would appear to enjoy the best of both words: reduced volume without a concomitant increase in speed. All other things being equal, there is every reason to expect fewer crashes with no offsetting increase in severity.

Fatal accidents
The red flags show the locations of fatal accidents in and around Charlottesville in 2010. For all the accidents that occur on the roads to be bypassed (in yellow), fatalities are rare.

On the other hand, the Bypass termini at Ashwood Boulevard in the north end and Leonard Sandridge Road on the south end will significantly increase the complexity of traffic flow at those two intersections, thereby increasing the likelihood of accidents and injuries at those two locations.

Khoury says that VDOT has not conducted any studies to examine the impact of the Bypass on the number or severity of traffic accidents. So, calculating an economic benefit, if any, from improved safety would be an exercise in speculation. Throwing caution to the winds, however, I will endeavor to calculate an order-of-magnitude estimate. First, I assume that, all other things being equal, reducing the traffic volume by 20% will lead to a 20% decline in the number of accidents and injuries. Second, I assume that converting two simple traffic-lighted intersections at each end of the Bypass into two complex intersections will increase the corridor-wide number of accidents by 5%. If both assumptions are roughly accurate, the Bypass will reduce the $15.9 million in annual economic damage from traffic accidents by $2.4 million.

Adding the conjectured savings from fewer traffic accidents and injuries would increase the total economic savings to $8.2 million annually. While that would increase the Return on Investment on the $244 million Bypass investment to 3.4%, it still would fall beneath the commonwealth’s 4.4% cost of capital and still would result in net wealth destruction.

Economic Development

Economic development is the third main justification for the bypass. The U.S. 29 corridor is the primary growth corridor and an economic engine for the Charlottesville-Albemarle region. The Workplace 29 report published by the Free Enterprise Forum found that the area contributes 45% of the county’s local tax revenue, supports 20,000 jobs and generates roughly $800 million in annual salaries. While the Forum endorsed the Charlottesville Bypass, the organization has made no concrete claims regarding its local economic impact.

Forum President Neil Williamson supports the Bypass as much for what it wouldn’t do as for what it would. The project would render unnecessary the alternative approach of converting the U.S. 29 business district into what he calls an “expressway.” Building separated-grade interchanges and restricting access to the highway at key intersections, as described in the Places29 plan, would harm many businesses located in the corridor, he says.

Can he document an economic benefit from the Bypass? Williamson concedes that he cannot. But he suggests that the main alternative, Places29, would cause some businesses to change locations – “some within the county, maybe some outside the county.” What would the damage be? He acknowledges that he cannot put a number on the impact.

Likewise, Rex Hammond, president of the Lynchburg Regional Chamber, freely admits that he cannot document any tangible benefit to the Lynchburg economy. Rather, noting the region’s lack of access to an Interstate highway, he flips the burden of proof to those who have opposed the project. “How do we judge the number of companies that have not located in Lynchburg and Danville? How do we know how many trucking companies would have done business here? How do we know how many tourists would have come through our community? How do you measure lost opportunities because of the condition of the highway as it is?”

Lynchburg travel time
Any response to Hammond’s question is speculative, but it is far from self evident that shaving three minutes off the travel time between Lynchburg and, say, Philadelphia, New York City or Boston would measurably improve the economic competitiveness of manufacturers in Central Virginia or make Lynchburg a more attractive travel destination for Northern tourists. According to Google Maps, the travel time from Lynchburg to the Big Apple is seven hours and 56 minutes. Saving three minutes by taking the Charlottesville Bypass would reduce the length of the trip by 1/160th. In any case, delays in Charlottesville are likely to be far surpassed by congestion-related delays in the Washington, D.C., area.

 

Indeed, Hammond stresses that the Bypass is part of a larger problem – the increasing congestion of U.S. 29 due to encroaching development, stop lights, crossovers and commercial driveways. The Bypass, he says, is a Band-Aid. “You have deal with the systemic issue. This is the state’s highway, the nation’s. … The way we allow access points and red lights and commercial and residential development has to change” or the Bypass will have to be extended. The state can build the bypass but if it allows developers and home builders unrestricted access to U.S. 29 north of the bypass, congestion will crop up again.

The bottom line: While Bypass proponents argue that there are economic benefits to the Bypass, they do so in abstract terms and they concede that they have no tangible evidence to back up their claims. No one has conducted any studies. The benefits, such as they are, cannot be measured with any confidence. As such, it is impossible to incorporate economic impact into any Return on Investment model.

Cost of Project

One other major factor affects Return on Investment: the cost of the Bypass. For purposes of discussion, I have used VDOT’s official $244 million estimate as the basis for my calculations. But the actual cost could be higher or lower, depending upon how bidders respond to VDOT’s RFP this spring. In internal discussions, VDOT engineers have warned that the project could be vastly more expensive than originally anticipated: The cost of cutting through mountains and filling ravines in sections of the route could run as much as $100 million higher than the official estimate. Additionally, the Southern Environmental Law Center has highlighted the difficulty of squeezing both the Bypass and the Berkmar Drive extension, another high priority project, through a bottleneck at the North Fork of the Rivanna River.

But the McDonnell administration has cited three reasons why it can keep the project on budget. First, elaborate on/off ramps in the original design can be simplified, and excavation costs can be reduced by raising the highway elevation. Second, the project will be administered as a “design-build” contract, which enables the private contractor to conduct design and construction work simultaneously, thus completing work faster. And third, thanks to weak economic conditions, project bids have been coming in 15% to 20% lower than VDOT engineer estimates over the last year and a half.

The ROI analysis is complicated by one additional factor: the cost of highway maintenance and operations. Given an average maintenance cost of $21,000 per lane-mile across the state’s 22,000 miles of primary roads, the Bypass can be expected to add $546,000 a year in ongoing costs.

So, to recapitulate:

+ $5.8 million in savings from congestion mitigation
+ $2.4 million in savings from reduced accidents and injuries
– $0.5 in increased operations and maintenance costs
—————————–
= $7.7 million net economic benefit

Now, let’s run a sensitivity analysis. If the bids come in $50 million lower than the official $244 million estimate, the Return on Investment will be 4.0% based upon congestion mitigation and reduced traffic accidents/injuries. If the bids come in $50 million over, the ROI will be 2.7%. That compares to the 4.4% interest the commonwealth pays on its debt. Thus, even under the most optimistic cost scenario the Bypass never reaches economic break even. Under all other cost scenarios, it destroys significant value.

Alternative Investments

In the business world, corporate executives compare the anticipated Return on Investment of one project with the ROI on alternative uses of the capital. Many potentially profitable investments never get made because capital can be steered to projects that generate an even higher rate of return. In the instance of U.S 29, there are alternatives to building the Bypass.

A 2010 Commonwealth Transportation Board study of the U.S. 29 corridor spelled out detailed ideas for reducing congestion and improving safety in northern Albemarle County. Potential investments include re-timing traffic signals every three years, installing traffic cameras and queue detectors, and building service roads that link businesses without the necessity of hopping onto the highway. Grade-separated interchanges at major intersections also could improve traffic flow and reduce complex traffic patterns that contribute to accidents.

The region’s Places29 plan provides a detailed blueprint for applying the principles discussed in that study. The goal of the investments would be to reduce travel times in the corridor for everyone, not just cars and trucks passing through the region. Places29 would replace the traffic-lighted intersections at Hydraulic and Rio Roads with interchanges, complete parallel roads on the Hillsdale and Berkmar Drive extensions, make more ramp improvements to U.S. 250, make improvements to lesser intersections and build pedestrian ramps over U.S. 29. All the Places29 priority projects contemplated for the next 10 years could be funded for half the cost of the Bypass. VDOT never studied the potential ROI of the projects on that list.

The McDonnell administration didn’t invent the current system for prioritizing transportation projects, which has evolved over many decades. But Governor Bob McDonnell does plan to spend billions of dollars – most of it borrowed – on mega-projects even bigger than the Bypass during his four-year tenure in office, so it is reasonable for citizens to insist that he allocate that money in a way that will accomplish the most good for the most number of people. The Charlottesville Bypass falls far short of meeting that standard. And, without more objective criteria for ranking transporation priorities, so could the projects that follow.

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This article was made possible by a sponsorship of the Piedmont Environmental Council.