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Robert J. Shapiro and Kevin A. Hassett
Executive Summary
America’s highways, roads and public transportation systems
contribute to virtually everything of value in our economy and lives – from
linking businesses to their suppliers and customers, to bringing jobs, education,
health care, recreation and government services within every American’s reach.
Economists have explored the economic impact of public investment for over two
decades and consistently found that surface transportation systems increase
economic output, reduce prices, and raise incomes and profits. Investing in
this extensive network has produced enormous economic returns for virtually
every person and business in the United States.
Healthy Returns measures those benefits and the
costs required to achieve them. Dr. Robert Shapiro and Dr. Kevin Hassett use
state-of-the-art economic analysis to determine the current return to U.S. businesses
from the nation’s investments in highways, roads and public transit, and the
economic value of these systems to America’s commuters. They compare these benefits
to the costs borne by taxpayers, drivers and transit passengers to build, operate
and maintain these systems, and conclude that America’s surface transportation
network produces over $4 in direct benefits for each $1 in direct costs. The
report also explores some of the more indirect benefits of surface transportation,
including their role supporting America’s global competitiveness.
The major findings of Healthy Returns:
- U.S. companies and individuals derive over $788 billion a year in direct
economic benefits from using highways and public transportation
to conduct business and commute for work.
- U.S. businesses derive $314.7 billion a year in economic benefits from
their use of surface transportation system, mainly through lower costs and
higher productivity.
- American as individuals derive $473.7 billion in direct economic benefits
from their use of highways and public transit, in the time they save commuting
to work and the additional income they can earn by working farther from home.
- Increased investment in highways and public transportation systems would
increase the benefits derived by both businesses and individuals.
- By contrast, the direct economic costs to Americans of building,
operating and maintaining highways, roads and public transit systems total
$185.1 billion a year in taxes and other fees.
- All told, spending on America’s surface transportation network generates
more than $603 billion a year in net economic benefits.
- This $603 billion estimate substantially understates the full net
benefits. For example, the estimate relies on a conservative rate of return
for public infrastructure and does not include the value of surface transportation
in facilitating people’s access to schools, medical facilities and other non-work-related
destinations. The estimate also may not capture all of the ways in which highways
and public transit support economic growth and help U.S. workers and companies
compete in global markets.
Healthy Returns:
The Economic Impact of Public Investment in Surface Transportation
I. Introduction
The prosperity, wealth and free movement that Americans enjoy
today could not exist without decades of public investments in highways, roads,
and bus and rail systems. The markets that make up the economy could not operate
efficiently without the extensive networks of surface transportation systems
that link businesses to their suppliers and customers, and give every American
access to a wide range of goods, services and jobs. Moreover, the impact of
transportation investments are not limited to the economy; they also bring
education, health care, recreation, government services and more within virtually
every American’s reach.
This study measures the economic benefits of the American
surface transportation system and the direct costs entailed to achieve them.
We have found that America’s businesses and people derive nearly $790 billion
a year in direct economic benefits from their use of the nation’s highways
and transit systems. Based on new analysis developed for this study, highway
and transit spending produce $314.7 billion in direct, annual economic benefits
for businesses, principally by reducing their costs and promoting higher productivity.
Surface transportation investments also generate $473.7 billion a year in
direct economic benefits to individual Americans, in the value of the time
they save commuting to work and the higher income they can earn by working
further from home.
These benefits involves costs as well: Americans pay $185.1
billion a year in taxes, fares, tolls, and other fees to build, operate and
maintain the highway and transit networks that generate those returns. Taking
account of both the direct benefits and direct costs associated with America’s
use of surface transportation, we find that public investments in highways
and public transit produce $603.3 billion a year in net benefits for Americans
and U.S. businesses.
These figures almost certainly understate the true
net benefits. Our calculation of nearly $315 billion in annual, direct benefits
to businesses, for example, assumes a lower rate of return on public infrastructure
than many other analysts use. Our finding that highways and transit generate
almost $474 billion a year in economic returns to individuals covers benefits
related to work but not the value people derive from greater access to schools,
medical facilities, and other destinations. These calculations also do not
capture all of the ways in which surface transportation systems support stronger
economic growth and help American businesses and workers compete successfully
in global markets.
Even without counting these more indeterminate benefits,
the hard data speak for themselves: A strong commitment to surface transportation
and the spending to support it make basic economic sense.
II.The Economic Benefits of Highways and
Public Transportation
The public roadways and mass transit systems that make up
America’s surface transportation network are a basic and substantial factor
in the country’s economic growth, productivity and overall welfare. For everyone
but the most intrepid walkers, virtually every activity that occurs outside
the home – from work and school to medical care and recreation – depends on
surface transportation. Virtually everything we use and enjoy inside our homes
and in our workplaces – from food and furniture to medicine and security –
similarly depends on highways and public transportation. The funds used to
build, maintain and operate the nation’s highways, roads and public bus and
train systems are critical investments in our rising living standards and
improving quality of life.
Surface Transportation and Global Competitiveness
Economists have explored the economic impact of public investment
for over two decades and consistently found that surface transportation systems
increase economic output, reduce prices, and raise incomes and profits. For
example, efficient roads and transit systems lower a firm’s transportation
costs, raising its productivity and the return on its private investment,
which further increases investment, productivity and incomes.
In this sense, sub-par surface transportation can affect
economic activity much like a high tax: If a firm has to bear the costs of
slow transport of its products (or workers) compared to competitors in other
places, the additional cost acts much like a tax. Some nations use low taxes
to attract new production, often with considerable success; and one recent
study found that major tax havens with less than one percent of the world’s
population (outside the U.S.) and 2.3 percent of global GDP "host 5.7 percent
of the foreign employment and 8.4 percent of foreign property, plant and equipment
of American firms." Accordingly, the quality of a nation’s road
and public transit systems can affect its attractiveness as a site for investment
and business, and the global competitiveness of its firms and workers.
Moreover, research has demonstrated clearly that public investments
in highways and public transit can raise an economy’s underlying growth rate.
One leading study found that a one percentage-point increase in a country’s
total public capital stock raises its growth by about 0.3 percentage-points,
and for a lengthy period of time. Other research has shown the other side
of this relationship: Poor infrastructure constrains growth and increases
congestion by channeling and often limiting a nation’s economic development
to its largest cities. Conversely, public spending on highways and public
transportation systems that relieve congestion and disperse economic activity
can boost a nation’s growth, especially in countries actively engaged in international
trade.
These findings point to other links between a country’s infrastructure
spending and its international competitiveness. For example, while advances
in transportation and other technologies enable firms to shift production
to distant places, a country can make itself an attractive location for economic
activity by improving its surface transportation systems. There are also strong
connections between a nation’s competitiveness and its capacity for innovation,
especially in geographical "clusters" such as Silicon Valley where knowledge,
capabilities and resources are highly concentrated. These clusters rely on
extensive transportation networks to both facilitate their own development
and export their innovations to foreign markets. In these ways and others
examined below, a nation’s commitment to finance advanced surface transportation
system plays an important role in its overall global competitiveness.
Measuring the Economic Return on Public Investments in
Surface Transportation
We can estimate the economic value of surface transportation
with some precision by simply approaching it like any other investment. Most
studies show that while the yields from investments, public and private, vary
from very small to very large, investment in public infrastructure as a whole
has generally produced higher returns than private investment as a whole.
One study conducted for the Federal Highway Administration (FHWA) found that
the net return on highway capital averaged 32 percent from 1960 to 1991, ranging
from 54 percent in the 1960s to 16 percent for the 1980s. By comparison, private
capital over that period produced an average net return of 17 percent.
Economists do not agree on the precise level of these overall
benefits, with results varying based on factors such as how they measure returns
and the time period covered. Here, we adopt a conservative approach in order
to establish a floor or the absolute minimum benefits for the economy
from public spending on surface transportation: We adopt the lowest yield
found by the FHWA – a 16 percent net social rate of return on highways in
the 1980s.
Our analysis begins with estimates of the "current-cost net-capital
stock" of the various assets of surface-transportation systems, which represents
the market value of those assets and is equivalent to the value today of the
expected future services derived from the assets. The Bureau of Economic Analysis
(BEA) calculates the current-cost net-capital stock of most public fixed assets
and reports that the value of the assets that comprise U.S. highway, road
and street systems was nearly $1,603.7 billion is 2003, with federal highway
assets accounting for $39.6 billion, and state and local highways and streets
accounting for $1,564.1 billion.
The BEA does not calculate the value of public transportation
assets, so we have constructed our own estimates (Table 2, below) using the
following method. We start with the basic elements of capital spending by
all transit authorities: Rolling stock (buses, railroad engines and passenger
cars); investments in equipment and structural facilities (industrial equipment,
information technologies, office buildings, industrial buildings and railroad
structures); and other capital spending (vehicles, structures, and equipment).
Next, we identify corresponding assets from the private sector and the ratio
of annual private capital spending on each of these asset classes and its
current-cost net-capital stock as determined by the BEA. We apply these ratios
to corresponding capital spending on similar assets by public transit authorities
and thereby derive new estimates of the current-cost net-capital stock for
public transportation in the United States.
Using this method, we estimate that the value of all of the
current assets in U.S. public transportation systems came to more than $363
billion in 2003: More than $37 billion for public bus systems and more than
$326 billion for public rail systems.
Table 1. Current-Cost Net Capital Stock, Public Transportation
Systems, 2003
|
Asset
|
Investment
($ billions)
|
Ratio, Investment to Capital Stock
|
Net Capital Stock ($ billions)
|
|
Rolling Stock
|
$3.7301
|
|
$33.957
|
| Bus Systems |
$1.8829 |
0.2740 |
$6.872 |
| Rail |
$1.8472 |
0.0682 |
$27.085 |
|
Facilities: Equipment/ Structures
|
$8.4685
|
|
$319.363
|
| Bus Systems |
$1.6756 |
0.3185/0.1163/0.0495 |
$25.751 |
| Rail |
$6.7929 |
0.3185/0.1163/0.01390/0.0495 |
$293.612 |
|
Other: Vehicles/ Structures/Equipment
|
$1.0414
|
|
$9.973
|
| Bus Systems |
$0.4432 |
0.3185/0.2631/0.0495 |
$4.589 |
| Rail |
$0.5982 |
0.3185/0.2631/0.0495 |
$5.384 |
|
Total Bus Systems
|
$4.0017
|
|
$37.212
|
|
Total Rail
|
$9.2383
|
|
$326.081
|
|
TOTAL
|
$13.240
|
|
$363.293
|
Adding to this total the value of highway and road assets
calculated by the BEA, we find that the total net capital stock of all surface
transportation comes to $1,967 billion (Table 2, below). Applying to this
net capital stock the FHWA calculation of a 16 percent return on highway capital
in the 1980s, the most conservative return available, we find that America’s
surface transportation system produces direct annual economic benefits to
U.S. businesses totaling, at a minimum, nearly $315 billion.
Table 2. Economic Benefits of Surface Transportation for
U.S. Business, 2003
| Capital Asset |
Net Capital Stock (billions) |
Economic Benefits (billions) |
| Roadways |
$1,603.7 |
$256.6 |
| Public Transit Systems |
$363.3 |
$58.1 |
| Total |
$1,967.0 |
$314.7 |
This estimate covers only the returns derived directly by
businesses; it does not include other "consumer benefits," such as the value
of the time people save by using highways and public transit to commute to
and from work or school, receive medical care, go shopping, and so on. There
are no rigorous economic analyses in this area, but we can measure the likely
magnitude in at least the case of people commuting to work.
Again, we begin with conservative assumptions in order to
establish a floor or minimum level of these consumer benefits. In particular,
we do not try to include the vast benefits people derive from using surface
transportation for purposes other then commuting to and from work. Instead,
we simply posit that the use of highways, roads and public transit to travel
to and from work saves an average worker the economic value of one working
hour per day, in both time saved directly and the additional earnings derived
from being able to work at some distance from their homes. Based on three
pieces of data -- 101.7 million Americans drove to and from work in 2003 and
another 5.1 million commuted to work using public transportation; Americans
earn on average $17.75 per hour (2003); and, Americans work on average 250
days per year -- we can estimate that Americans derive some $474 billion in
annual benefits from using surface transportation to commute to and from work.
Table 3. Economic Benefits of Surface Transportation to
Commuters, 2003
| |
Number |
Earnings |
Hours |
Value (billions) |
| Automobile Commuters |
101,664,000 |
$17.75/hour |
250 |
$451.1 |
| Transit Commuters |
5,081,000 |
$17.75/hour |
250 |
$22.6 |
| TOTAL |
106,745,000 |
$17.75/hour |
250 |
$473.7 |
Taken together, American businesses and commuters derive a minimum of
$788 billion a year in direct economic benefits from public spending on highways,
roads and public transportation (Table 4, below).
Table 4. Total Economic Benefits of Surface Transportation,
2003, $ billions
|
|
Highways |
Public Transportation |
Total |
| Business |
$256.6
|
$58.1 |
$314.7 |
| Commuters |
$451.1
|
$22.6 |
$473.7 |
| Total |
$707.7 |
$80.7 |
$788.4 |
Once again, this overall estimate relies on a lower rate
of return on infrastructure than found by many studies, and assumes a minimal
amount of travel time saved by commuters by using surface transportation.
It also does not include many uses of surface transportation that produce
returns for hundreds of millions of people, such as access to health care,
discount shopping, recreation and other activities. It is virtually certain
that the total annual economic benefits produced by public spending on roads,
highways and transit substantially exceed $788 billion. Moreover, as in the
private sector, higher levels of investment in surface transportation networks
will produce greater benefits for American businesses and individuals.
III.The Direct Costs of the Surface Transportation System
Surface transportation system involve substantial direct
costs, covering the taxes, fares, tolls, and other receipts that support the
capital and operating expenses for highways, roads and public transit systems.
Taken together, the annual costs of building, operating and maintaining
the nation’s surface transportation systems come to less than one-fourth of
the direct benefits generated by these systems.
In 2003, American government at all levels spent $185 billion
on surface transportation, including nearly $144 billion on federal, state
and local highways and roads, and a little over $41 billion on public transit
systems. We avoid double counting by classifying federal grants to states
and cities as federal spending only and attributing transfers between state
and local governments to the originating level of government.
Table 5. Spending on Surface Transportation, All Levels
of Government, 2003
|
|
Amount |
Share |
| Highways |
$143.8 billion |
77.7% |
| Capital Outlays |
($69.9 billion) |
(37.7%) |
| Operating Expenses |
($35.5 billion) |
(19.2%) |
| Other |
($38.5 billion) |
(20.8%) |
| Public Transportation |
$41.3 billion |
22.3% |
| Capital Outlays |
($13.2 billion) |
(7.2%) |
| Operating Expenses |
($28.1 billion) |
(15.2%) |
| TOTAL |
$185.1 billion |
100.0% |
The federal government spends less on surface transportation
than either states or localities (Table 6). State support just for highways
accounts for nearly 39 percent of all spending for surface transportation,
while federal spending for both highways and public transit accounts for roughly
the same amount as localities spend on highways alone.
Table 6. Spending on Surface Transportation by Level of
Government, 2003
|
|
Amount |
Share |
| Federal Spending |
$39.9 billion |
21.6% |
| Grants – Highways |
($30.6 billion) |
(16.5) |
| Federal Highways, Other |
($2.4 billion) |
(1.3%) |
| Grants – Transit |
($6.9 billion) |
(3.7%) |
| State Spending – Highways |
$71.7 billion |
38.7% |
| Local Spending – Highways |
$39.1 billion |
21.1% |
| State/Local – Transit |
$34.4 billion |
18.6% |
| Total |
$185.1 billion |
100.0% |
The funding for highways and public transit comes from many
sources, including fuel taxes, property and income taxes, highway tolls, bus
and rail fares, other operator receipts, and bond issues (Table 7). Motor
fuel taxes are the largest source of funding for highways and roads, especially
state gasoline taxes. By contrast, public transit derived most of its support
from local revenues and fares.
Table 7. Financing Surface Transportation: Taxes and Other
Revenues,
By Level of Government, 2003
|
|
Amount ($ billions) |
Share of Total Receipts
|
| Highways |
$143.87
|
77.7%
|
| Federal Fuel and Vehicle Taxes |
$27.7
|
15.0%
|
| Other Federal Revenues |
$5.3
|
2.9%
|
| State Fuel and Vehicle Taxes |
$43.7
|
23.6%
|
| Other State Highway Taxes and Tolls |
$5.0
|
2.7%
|
| Other State Receipts |
$23.0
|
12.4%
|
| Local Fuel and Vehicle Taxes |
$2.2
|
1.2%
|
| Other Local Receipts |
$41.33
|
22.3%
|
| Transit |
$30.31
|
18.7%
|
| Federal Fuel Taxes and Other Receipts |
$6.9
|
3.7%
|
| State Fuel Taxes and Other Receipts |
$8.3
|
4.5%
|
| Local Receipts |
$14.4
|
7.8%
|
| Fares and Operator Receipts |
$11.7
|
6.3%
|
| TOTAL |
$185.1
|
100.0%
|
IV. Conclusion
By every economic measure, public spending for America’s
highways and public transportation systems has been a very sound investment.
These surface transportation systems contribute to virtually everything of
value in our economy and lives -- from transporting goods and people for business
purposes, to educating our children, treating illness and enjoying leisure
time. They are important factors in determining the nation’s overall growth
rate and affect our capacity for innovation and global competitiveness.
For this study, we have quantified some of those benefits
by calculating the annual economic returns derived by American businesses
and individuals from past investments and current spending on surface transportation.
We found, first, that U.S. businesses in 2003 derived $314.7 billion in direct
economic benefits from the use of highways and public transportation, chiefly
in lower costs and higher productivity. We further found that individual Americans
derived nearly an additional $473.7 billion in benefits in 2003 from using
highways and public transit to commute to work, chiefly in the time they saved
and the higher pay they could earn by working further from home.
To secure these $788 billion in annual benefits, Americans
in 2003 spent $185.1 billion in taxes, fees, fares and other charges to build,
operate and maintain the nation’s highways, roads and public transportation
systems. Taking full account of these costs, we conclude that America derived
more than $603 billion in net economic benefits from surface transportation
in 2003. Furthermore, higher investment in surface transportation should produce
larger net benefits for both U.S. businesses and individual Americans.
This conclusion almost certainly understates the true
net benefits of our investments in highways and public transportation. The
estimate of nearly $315 billion for the annual, direct benefits to the business
sector assumes a lower rate of return on public infrastructure than that used
in many other studies. Similarly, the finding that highways and public transit
generate nearly $474 billion a year in returns to individuals does not include
the economic benefits that people derive from easy access to schools, medical
facilities, and other destinations other than their workplaces. These findings
establish clearly that strong commitments to surface transportation and the
spending required to support it well serve America’s economic interest.
* * *
Footnotes
This study was supported and sponsored by the private sector
business members of the American Public Transportation Association.
2 For a survey of these studies, see M. Ishaq
Nadiri and Theofanis Mamuneas, "Contributions of Highway Capital to Output
and Productivity Growth in the U,.S. Economy and Industries," Federal Highway
Administration Office of Policy Development, Department of Transportation,
September 1998.
3 James R. Hines Jr., "Do Tax Havens Flourish?",
NBER working paper 10935, November, 2004.
4 David Aschauer, "Public Capital and Economic
Growth: Issues of Quantity, Finance, and Efficiency," Working Paper No. 233,
The Jerome Levy Economics Institute, April 1998.
5 Vernon Henderson, "The Effects of Urban Concentration
on Economic Growth," National Bureau of Economic Research, NBER Working Paper
No. 7503, January, 2000.
6 Miroslav Jovanavic, "Local versus Global Location
of Firms and Industries," Journal of Economic Integration, 18 (1), March 2003.
7 M. Ishaq Nadiri and Theofanis Mamuneas, op.
cit.
8 Bureau of Economic Analysis, Standard Fixed
Assets Tables, Table 7.1b, "Current-Cost Net Stock of Government Fixed
Assets, 1997-2003," November 2004, www.bea.gov/bea/dn/FA2004..
9 Data: Capital spending, transit: American Public
Transportation Association; Private sector capital stock: Bureau of Economic
Analysis, Standard Fixed Asset Tables, op. cit., Table 2.1;
Business Investment: Bureau of Economic Analysis, National Income and
Product Accounts, Gross Domestic Product.
10 The ratios of investment to net capital stock
in facilities: information technologies, 0.3185; industrial equipment, 0.1163;
buildings, 0.0495; railroad structures, 0.0139. The ratios of investment to
net capital stock in other investments: information technologies, 0.3175;
automobiles, 0.2631; buildings, 0.0495.
11 National Transportation Statistics, 2004,
Bureau of Transportation Statistics, Department of Transportation, Table 1-38.
12 Highway Statistics 2001, Federal Highway
Administration, Department of Transportation, Table HF-2, Table MT-2A, Table
MT-2B.
13 National Compensation Survey: Occupational
Wages in the United States, Bureau of Labor Statistics, Department of
Labor, July 2003, Table 1.
14 We exclude funds used to refinance bonds, retained
in the Highway Trust Fund or held in state reserves.
15 The Federal Transit Administration provided $5.14 billion for
public transit in 2000, of which 80 percent or $4.11 billion came from federal
fuel taxes; the remaining 20 percent or $1.03 billion, came from general revenues,
as did an additional $0.11 billion (totaling $1.14 billion from "Other Federal
Revenues.")
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About the Authors
Dr. Robert J. Shapiro is chairman of Sonecon, LLC,
a private firm that advises U.S. and foreign businesses, governments and non-profit
organizations on market conditions and economic policy. He is also a Fellow
of the Progressive Policy Institute, Economic Counselor to the U.S. Conference
Board, and a director of the Ax:son-Johnson Foundation in Sweden and the Center
for International Political Economy in New York. From 1997 to 2001, Dr. Shapiro
was Under Secretary of Commerce for Economic Affairs. In that position, he
oversaw economic policy for the Commerce Department and directed the Nation’s
major statistical agencies, including the Census Bureau as it conducted the
decennial Census. Prior to that post, he was co-founder and Vice President
of the Progressive Policy Institute and principal economic advisor to William
Clinton in his 1991-1992 presidential campaign. He also was Legislative Director
for Senator Daniel P. Moynihan and Associate Editor of U.S. News &
World Report. Dr. Shapiro has been a Fellow of Harvard University, the
Brookings Institution and the National Bureau of Economic Research; and he
holds a Ph.D. and M.A. from Harvard University, a M.Sc. from the London School
of Economics, and an A.B. from the University of Chicago.
Dr. Kevin A. Hassett is director of Economic Policy
Studies and Resident Scholar at the American Enterprise Institute, where he
focuses on macroeconomics, public finance and tax policy. He is also the author,
co-author or editor of six books, including most recently Bubbleology:
The Remarkable Science of Stock Market Winners and Losers. Dr. Hassett
was chief economic adviser to Senator John McCain in his 2000 presidential
campaign. Previously, he was a senior economist at the Board of Governors
of the Federal Reserve System and Associate Professor of economics and finance
at the Graduate School of Business of Columbia University. He also has served
as policy consultant to the Treasury Department during the administrations
of Presidents George H. W. Bush and William Clinton. Dr. Hassett holds a Ph.D.
from the University of Pennsylvania and a B.A. from Swarthmore College.
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