ECONOMIC FORECASTING REVIEW - Parsons Brinckerhoff

EFR 

ECONOMIC FORECASTING REVIEW 

Volume 3 • Issue 2 

December 2009 

a publication of the Strategic Consulting Group of Parsons Brinckerhoff 

Rosa Parks Transit Center

a publication of the Strategic Consulting Group of Parsons Brinckerhoff 

Volume 3 • Issue 1 

May 2009 

California High-Speed Rail 

Vol. 3 • Issue 2 

Editor's Note 

Editor’s Note 

EFR is a publication of the Strategic Consulting Group of Parsons Brinckerhoff. 

It provides analysis and perspectives on topical issues that are germane to the 

transport infrastructure sector. In this, our seventh issue, the EFR is divided into 

two sections - Perspectives and Articles. 

Previous issues 

Volume 1 

Issue 1 

2006 

The Perspectives section includes articles by our columnists, who articulate their 

viewpoints on public policy, economics, cost escalation, and goods movement on 

a recurring basis. The content in this section is time sensitive, i.e. the viewpoints 

articulated in the articles are based on the best available information as of 

December 2009 and are subject to change with evolving market conditions. Mort 

Downey discusses future U.S. transportation funding legislation; Matt Nespoli 

examines the current U.S. economic conditions and provides a viewpoint on the 

future direction of the economy; Kumudu Gunasekera and Brad Ship evaluate the 

construction economy and present a five-year construction escalation forecast; and 

Scudder Smith discusses the implications of the economic recession on the future 

of container trade. 

Volume 1 

Issue 2 

2007 

In the Articles section, Steve Lockwood espouses the need for an organized 

sector-wide process to nurture the development of a technology transfer process; 

Wayne McDaniel discusses the emerging market opportunity for performance 

management services; Ira Hirschman analyzes the effects of fuel price on the U.S. 

freight rail industry; Howard Wood and Jeff Ensor share their recent experiences 

working with numerous agencies to submit TIGER grant applications; Stephen 

Kuhr and Brian Reed discuss ways to develop and implement strategies to fund 

regulatory-driven infrastructure improvements at a wastewater utility; Sonika 

Sethi provides a methodology for estimating impacts of transportation capacity 

expansion; Randy Ivory introduces iPMIS, an integrated project management 

information system develop by PB; and Jignesh Mehta discusses CarbonFIT, 

a sketch-planning tool that combines algorithms to estimate greenhouse gas 

emissions with the power of GIS to visualize and compare various scenarios. 

Volume 1 

Issue 3 

2007 

Volume 2 

Issue 1 

2008 

In upcoming issues, we will continue to provide analyses and forecasts of the 

current and future economic landscape and cover pressing topics with the rigor 

and efficacy you’ve come to expect from this publication. 

About Last Issue 

Kumudu Gunasekera, Ph.D. 

Editor 

Volume 2 

Issue 2 

2008 

EFR 

ECONOMIC FORECASTING REVIEW 

Volume 3 

Issue 1 

2009 

This issue includes a broad set of articles on topics ranging 

from construction cost escalation, the stimulus bill, 

freight, risk management, alternative fuels, and regional 

economics to sustainability. 

To download: 

http://www.pbworld.com/news_ 

events/publications/efr 

i

EFR Vol. 3 • Issue 2 

EFR Team 

Contents 

Editor: 

Dr. Kumudu Gunasekera 

Senior Advisor: 

Dr. Ira Hirschman 

Associate Editors: 

Rolando Amaya 

Nick Schmidt 

Editorial Assistance: 

Susan Lysaght 

Cover Design: 

John Winkel 

Review Panel: 

Brent Baker 

Dr. Yuval Cohen 

Judy Cooper 

David Earley 

Nellie Finnegan 

Scudder Smith 

Perspectives 

1 Transportation Funding Goes into 

Overtime 

Mort Downey 

3 U.S. Economic Performance and 

Outlook 

Matt Nespoli 

9 Construction Economic Review & 

Highway Cost Escalation Forecast 

Dr. Kumudu Gunasekera 

Brad Ship 

14 Is the U.S. Container Trade 

Recession Over? 

Scudder Smith 

Articles 

18 Technology Transfer for Future 

Surface Transportation 

Steve Lockwood 

25 Performance Management: 

Emerging Market Opportunity? 

Wayne McDaniel 

28 Fuel Prices and the U.S. Freight 

Rail Industry 


32 PB Assists TIGER Grant 

Applications 

Howard Wood 

Jeff Ensor 

Volume 3 

Issue 2 

December 2009 

EFR is a publication of the strategic 

consulting group of Parsons 

Brinckerhoff, which is a wholly owned 

subsidiary of Balfour Beatty. 

36 An Innovative Billing System at a 

Wastewater Utility 

Stephen Kuhr 

Brian Reed 

40 Estimating Impacts of 

Transportation Capacity Expansion 

Sonika Sethi 

Please direct questions or comments to 

Kumudu Gunasekera, Ph.D.: 

gunasekera@pbworld.com 

202-661-5330 

7% 

6% 

5% 

4% 

3% 

2% 

1% 

0% 

Reauthorization and funding page 1 

2.5% 

3.75% 

4% 

6.5% 

5% 

2010 2011 2012 2013 2014 

44 Integrated Project Management 

Information Systems 

Randy Ivory 

48 Sustainable Scenario Planning 

with CarbonFIT 

Jignesh Mehta 

Highway construction cost forecast page 9 

U.S. container trade page 14 

Transportation technology transfer page 18 

ii


Transportation Funding Goes into Overtime 

Transportation Funding Goes into Overtime 

Kevin Dooley 

by 

Mort Downey 

MOST observers of the transportation planning and 

development process will tell you that stability 

and predictability of funding is a critical element 

in a good outcome. But events in Washington are moving 

in exactly the opposite direction. While Federal funding is 

not the entire picture, it is the catalyst to the planning and 

programming process that drives other decisions—the use 

of state and local funds, issuances of bonds, development of 

public-private partnerships and the like. When this essential 

element is missing, the entire process can lock up. 

We experienced this phenomenon a few years ago, when the 

passage of the so-called SAFETEA-LU surface transportation 

bill was about two years late and required at least a dozen 

temporary extensions to put out incremental sums of money. 

We are seeing it now with aviation legislation, where the 

permanent program for airport grants has been operating 

on a temporary basis for more than two years with no end in 

sight. 

Our surface transportation programs—highways, transit, 

and safety—are now sliding down this slippery slope. 

SAFETEA-LU’s six-year authorizations expired on September 

30, 2009, but there’s only limited hope for a timely and 

complete successor. Congress has now put two extensions 

in place, first for a month and then for six weeks, promising 

that they will do another short-term extension before their 

holiday recess, taking the programs through February 

23rd. For technical reasons, the highway program is 

particularly starved, with the month-to-month allocations 

sized at about two-thirds of last year’s level. While transit 

funding has theoretically been extended, the Federal Transit 

Administration has not to date been willing to do partial 

distributions because these lead to multiple grants for the 

same projects. 

Were we doing business as usual, as was the case when 

SAFETEA-LU lagged, the impact would be serious but not 

fatal. But this is not a time for business as usual. President 

Obama and the Congress wisely included infrastructure 

investment as part of the recovery program designed to claw 

our way out of the deepest economic downturn since the 

Great Depression. That program has been a great success, 

with the U.S. Department of Transportation moving a 

combination of regular and recovery funding to the states 

during 2009 at a rate nearly twice the normal. But the 

recovery stimulus was meant to be incremental investment 

above the normal, converging back to normal as the recovery 

takes hold. Now we face the situation where a failure to 

authorize will turn the glide path of convergence into a cliff, 

with drastic economic consequences to the infrastructure 

industry. 

One could ask why the delay, given the general consensus 

that we need to do more reinvestment in our infrastructure. 

There’s a simple answer. We can’t arrive at any consensus 

on how to pay for what we need, and we would like to see 

reforms in the way our programs are delivered as part of the 

federal-state-local partnership. This need for funding based 

on reform was recognized when SAFETEA-LU was enacted. 

That bill chartered two national commissions to review and 

report on the issues of infrastructure policy and funding. 

Each of those commissions operated in a very professional 

way, collecting data, reaching out to stakeholders and 

1


crafting detailed proposals. Their two reports have been 

available for months, and they are generally in sync. There 

is a need for more investment if we are to maintain the 

condition and performance of our existing infrastructure. 

There are justifiable needs for new investment to bring the 

system into line with today’s geographic and economic 

realities. And there can be ways to pay for what we need, if 

the political will is there. 

We know that the current source of federal revenue, the fuel 

tax, has not performed well in recent years. It doesn’t track 

with inflation. It suffers when the national goals of energy 

conservation improve automobile fuel economy standards. 

And we see greater opportunities in the future to link our 

revenue system more closely to system performance through 

technologies like congestion charging and road pricing. 

The commission charged with specific review of financing 

concluded unanimously that a two-fold strategy was needed. 

Immediate fuel tax increases are needed to restore the 

purchasing power of our programs, while we focus on the 

research, development, and implementation steps for a new 

approach. 

Notwithstanding the logic of these positions, we are at a 

stalemate. The House Transportation and Infrastructure 

(T&I) Committee, under the leadership of Chairman Jim 

Oberstar (D-MN), focused like a laser on these needs and 

developed a proposal for a six-year bill priced at $450 billion 

for highways and transit, plus an allocation of $50 billion for 

the newly identified needs of high speed rail. This compares 

to the roughly $286 billion during the comparable six-year 

SAFETEA-LU period and would come much closer to the 

identified needs levels. The bill also includes numerous 

programmatic changes aimed at more effective program 

delivery. 

But the T&I Committee can only recommend what needs 

to happen. Before their bill can even be considered by the 

full House of Representatives, it must be coupled with a 

revenue proposal coming out of the House Ways and Means 

Committee, which has the sole jurisdiction over taxes. The 

tax language is needed even to continue the existing taxes 

and trust fund with the special budget status they enjoy. 

Enacting any new revenues to support an enhanced program 

will be a heavier political lift. The consensus of almost all 

parties involved in the debate is that no tax increases can be 

proposed during the current downturn, given the economic 

and political realities. So the Oberstar bill languishes in 

committee. The House assented to a single three-month 

extension at full funding levels, but this has not become law. 

has their own views on the policies and the politics. The 

new President, after a review of his options, offered the 

proposal for an eighteen-month extension, hoping that he 

and his Administration could gain time to put together a 

comprehensive policy proposal to be put forward at a time 

when the economic climate would allow consideration of 

new revenues. 

The Senate, where action is much more complex given 

the multiple committees involved in the bill, was initially 

willing to grant that extension, using a number of potentially 

questionable revenue devices to cover for the lack of taxes. 

Senate committee leadership at one point dropped back 

to the idea of a six-month extension to some point in 2010, 

without a clear picture of what happens next. They now seem 

to favor a one-year extension based on their revenue devices, 

and the House seems ready to accept that as part of a second 

jobs bill that will also provide for some new general funded 

grants like those in the first stimulus. 

What will emerge as a long-term solution, and when it 

happens, is unpredictable and surprises are bound to 

happen. The legislative agenda is crowded, with issues 

like health care and climate change taking precedence 

and consuming most available legislative time. But the 

implications for the economy will be recognized, and we 

can hope they will be drivers of action. If we want our 

transportation system to support a robust economy, we have 

to invest in its upkeep and develop coherent long-term plans 

for its improvement. • 

Author: 

Mort Downey has more than 50 years of 

distinguished public service, including eight years 

as the U.S. Deputy Secretary of Transportation. 

Most recently, Mort led President Obama’s 

Transition Team for U.S. DOT and served as 

senior advisor to Secretary LaHood during the 

Senate confirmation process. He is a senior 

advisor to PB, providing advisory services 

on federal legislation, policy development, 

infrastructure finance, and transportation market 

trends. 

M.A., New York University; 

B.A., Yale University 

downey@pbworld.com 

More hurdles stand in the way of action. Even if the 

House were to reach consensus on a bill, the Senate and 

the President need to agree, and each of those parties 

2


U.S. Economic Performance and Outlook 


Ed Yourdon 

by 

Matt Nespoli 

THE U.S. economy, as measured by the gross domestic 

product, expanded 2.2 percent in the third quarter of 

2009, the first positive growth since the second quarter 

of 2008. Most economists now believe that the recession has 

ended and the recovery, although very weak, is underway. 

Percent Change (annual rate) 

3% 

2% 

1% 

0% 

-1% 

-2% 

-3% 

-4% 

-5% 

-6% 

-7% 

2007 Q4 

2008 Q1 

2008 Q2 

U.S. quarterly real GDP growth 

2008 Q3 

2008 Q4 

2009 Q1 

2009 Q2 

2009 Q3 

source: BEA 

The main driver of the rebound in the third quarter was 

consumer spending (see chart to the above right), which 

thawed thanks to the “cash-for-clunkers” program in August. 

Vehicle purchases accounted for more than half of the growth 

in consumer spending in Q3. Since the “cash-for-clunkers” 

program is now expired, growth in consumer spending is 

expected to weaken over the near term. 

Business investment turned positive in Q3 after seven 

straight quarters of decline. Firms began demanding goods 

to replenish their inventories, which had been depleting 

since the second half of 2008 (see bottom chart). Inventories 

still remain low relative to historical levels, and will need to 

continue to be replenished in the near term, which will likely 

generate some positive manufacturing growth. 

Percent Change (annual rate) 

6% 

4% 

2% 

0% 

-2% 

-4% 

-6% 

-8% 

-10% 

-12% 

2.1% -0.7% 1.5% 

Q4 2007 

Q1 2008 

Q2 2008 

-2.7% 

Q3 2008 

-5.4% 

Q4 2008 

-6.4% 

Q1 2009 

-0.7% 

Q2 2009 

2.8% 

Consumer Spending Business Investment Government Spending Net Exports 

Components of U.S. quarterly real GDP growth 

Index 

60 

50 

40 

30 

20 

10 

0 

Dec-07 

Feb-08 

Apr-08 

Jun-08 

Aug-08 

Monthly ISM manufacturing 

inventories index 

Oct-08 

Dec-08 

Feb-09 

Apr-09 

Jun-09 

Q3 2009 

source: BEA 

Aug-09 

Oct-09 

source: Institute for Supply Management 

3


Thanks in part to the first-time home buyers tax credit, 

residential real estate investment also turned positive in Q3 

for the first time in four years, and average U.S. house prices 

increased 2.2 percent from Q2. Residential investment growth 

accounted for nearly half of the increase in total business 

fixed investment in Q3. However, mortgage foreclosure and 

delinquency rates remained at record levels through the third 

quarter of 2009, an important fact that underlies why many 

consumers are still nervous about spending. 

Billion 2000 Dollars 

900 

800 

700 

600 

500 

400 

300 

200 

100 

0 

2000 Q1 

2000 Q3 

2001 Q1 

2001 Q3 

2002 Q1 

2002 Q3 

2003 Q1 

2003 Q3 

2004 Q1 

2004 Q3 

2005 Q1 

2005 Q3 

2006 Q1 

2006 Q3 

2007 Q1 

Real Private Residential Investment 

2007 Q3 

2008 Q1 

2008 Q3 

2009 Q1 

2009 Q3 

Case Shiller 20-City Avg. Home Prices 

Real private residential investment (left axis) 

and U.S. home price index (right axis) 

250 

200 

150 

100 

50 

0 

Case Shiller Index 

source: BEA 

Nonresidential spending declined for the fifth quarter in a 

row, although the pace of decline has slowed substantially. 

Businesses increased purchases of equipment and software, 

but continued decreasing investment in structures and 

industrial equipment. This suggests that firms are not likely 

to hire new workers over the near term. 

Quarterly Percent Change 

2% 

1% 

0% 

-1% 

-2% 

-3% 

-4% 

-5% 

-6% 

Q4 2007 

Q1 2008 

Q2 2008 

Quarterly percent change in real 

private nonresidential investment 

Q3 2008 

Q4 2008 

Q1 2009 

Q2 2009 

Q3 2009 

source: BEA 

U.S. net exports declined slightly in the third quarter. Goods 

exports increased for the first time since 2008 Q2, indicating 

that global demand is starting to rise again, but imports 

grew faster than exports, driven by the temporary increase 

in U.S. consumer demand. This occurred in spite of a 

weakening dollar. 

Billions of US Dollarsd 

210 

190 

170 

150 

130 

110 

90 

70 

50 

Oct-07 

Nov-07 

Dec-07 

Jan-08 

ion 

U.S. nominal goods exports and imports 

Exports 

Feb-08 

Mar-08 

Apr-08 

May-08 

Jun-08 

Jul-08 

Aug-08 

Sep-08 

Oct-08 

Nov-08 

Dec-08 

Jan-09 

Feb-09 

Mar-09 

Apr-09 

Imports 

May-09 

Jun-09 

Jul-09 

Aug-09 

source: BEA 

The economy is expected to continue its positive growth 

trajectory through the end of 2009 and 2010, but at a slow 

pace. The major driver of near-term growth is likely to be 

manufacturing production to continue replenishing business 

inventories. Consumer spending is expected to remain 

subdued over the near term, as the temporary “cash for 

clunkers” and home-buyer stimulus programs expire and as 

job growth remains weak. Exports are expected to also post 

slow growth in the near term given the anemic projections 

for global demand. 

Using a weighted average of IMF, Global Insight, Blue Chip, 

and CBO projections, GDP growth is expected to expand 

2.1 percent in 2010, well below the historical average of 3.0 

percent. The recovery is expected to continue at a slow pace 

through 2013, with the highest expansion expected to occur 

in 2012. 

The latest long-term growth forecasts from Global Insight 

expect GDP growth around 2.7 percent, a lower level than the 

average growth experienced over the last 40 years. 

Employment 

In spite of the recent uptick in economic growth, the current 

unemployment rate stood at 10 percent through the end of 

November, the highest rate since 1983 and well above the full 

employment rate of five percent. Recent job losses have been 

concentrated in the construction, manufacturing, retail, and 

transportation and warehousing sectors. 

When including those who want full-time jobs but have 

stopped searching or only found part-time work, the 

unemployment rate was 17.2 percent through November, 

highlighting the true weakness of the labor market. 

The outlook for unemployment is bleak over the medium 

term. The weak expected consumer spending that will 

depress GDP growth in the near term will also prevent 

businesses from expanding output to levels that justify hiring 

new workers. Consumer spending will not rebound until 

4



5% 

4% 

3% 

2% 

1% 

0% 

-1% 

-2% 

Real GDP Growth Weighted Average 

2009 2010 2011 2012 2013 2014 

-2.5% 2.1% 2.8% 3.0% 2.8% 2.4% 

-3% 

2008 2009 2010 2011 2012 2013 2014 

U.S. real GPD growth forecasts 

Weighted Average Global Insight (10/09) IMF (10/09) Blue Chip (11/09) CBO (8/09) 

12% 

6% 

10% 

8% 

6% 

4% 

2% 

Twelve-Month Percent Change 

5% 

4% 

3% 

2% 

1% 

0% 

-1% 

-2% 

All Items 

Excluding Food & Energy 

0% 

Jan-00 

Jul-00 

Jan-01 

Jul-01 

Jan-02 

Jul-02 

Jan-03 

Jul-03 

Jan-04 

Jul-04 

Jan-05 

Jul-05 

Jan-06 

-3% 

Dec-07 

Feb-08 

Apr-08 

Jun-08 

Aug-08 

Oct-08 

Dec-08 

Feb-09 

Apr-09 

Jun-09 

Aug-09 

Civilian unemployment rate 

Jul-06 

Jan-07 

Jul-07 

Jan-08 

Jul-08 

Jan-09 

Jul-09 

source: BLS 

U.S. headline and core consumer price indexes 

source: BLS 

consumer confidence improves, and although confidence 

has slowly been rising in recent months, it is far from its 

historical average. 

Although the latest BLS numbers (released in December 

2009) show an uptick in employment (unemployment edged 

down to 10 percent in November 2009 from 10.2 percent 

in October 2009), a full and sustained recovery of the labor 

market may be slow and prolonged (lasting up to 10 years). 

Consumer price inflation 

In spite of the federal funds rate hovering near zero, inflation 

is currently not an issue; in fact, as the chart to the right 

shows, twelve-month headline inflation has actually been 

negative, due mainly to the fall in energy prices relative 

to the price spikes of 2008. Core inflation, which excludes 

food and energy and is watched more closely by the Federal 

Reserve, is below the informal target rate of two percent. 

Long-term inflation expectations also remain well within the 

Federal Reserve’s comfort zone, even with the large increases 

in the money supply from the TARP program. The current 

expected annual inflation over the next 10 years, derived 

from the spread between nominal and inflation-indexed 

Treasury securities, is around two percent, slightly below 

historical expectations. 

Energy prices 

Global crude oil prices have rebounded to $75/barrel after 

falling from the 2008 record highs above $125/barrel. The rise 

in energy prices since 2009 Q1 was mainly due to increasing 

consumption by China and other Asian economies, and the 

drop in the U.S. dollar relative to most world currencies. The 

U.S. Energy Information Administration (EIA) and the NY 

Mercantile Exchange futures market (NYMEX) expect oil 

prices to remain relatively stable through 2010, as increasing 

demand for oil from the U.S. and other advanced economies 

is met with increased supply and existing inventories. 

However, the EIA notes that uncertainty regarding the 

current forecast is high. 

For the U.S., the EIA expects that gasoline and diesel fuel 

prices will remain stable over the rest of 2009 and 2010, 

although there is considerable upside price risk depending 

5


on the pace of the global recovery and the U.S. dollar. U.S. 

liquid fuels consumption is expected to increase 1.7 percent 

in 2010 as the economy begins to rebound, and production in 

the lower 48 states is also expected to rise. 

Coal prices are expected by the EIA to fall slightly over 

the near term, as U.S. coal supply is projected to decline 

2.3 percent from the weak 2009 levels even in spite of the 

opening of several new coal-fired power plants. 

Dollars per Barrel 

Dollars per Gallon 

$150 

$125 

$100 

$75 

$50 

$25 

$0 $- 

Jan-08 

$5.00 

$4.50 

$4.00 

$3.50 

$3.00 

$2.50 

$2.00 

$1.50 

$1.00 

$0.50 

$0.00 

Dec-07 

Feb-08 

Apr-08 

Apr-08 

Jul-08 

Jun-08 

Gasoline 

Aug-08 

Oct-08 

Oct-08 

Jan-09 

Short-term outlook for global 

source: U.S. Energy Information 

crude oil prices (WTI) Administration 

Dec-08 

Diesel 

Short-term outlook for gasoline 

and diesel prices 

Feb-09 

Apr-09 

Apr-09 

Jun-09 

Aug-09 

Oct-09 

Dec-09 

Feb-10 

Apr-10 

Jun-10 

Aug-10 

Oct-10 

Dec-10 

source: U.S. Energy Information 

Administration 

Interest rates 

Over the last two years, interest rates for Treasury securities 

at all maturity levels have fallen, due to the decrease in 

federal funds rates to near-zero levels, the “flight to quality” 

that accompanied the 2008 financial crisis, and declining 

inflation expectations. Current yields on short-term Treasury 

bills are around 0.1 percent, while 10-year Treasury notes are 

close to 3.5 percent and 30-year Treasuries are roughly 4.3 

percent. 

Many economists expect that the Federal Reserve will leave 

its targeted federal funds rate unchanged at least through the 

end of 2010, and possibly longer. As previously mentioned, 

10-year inflation expectations are currently below average, 

since the gap between potential and actual output is expected 

Jul-09 

Oct-09 

Jan-10 

Apr-10 

Jul-10 

NYMEX 

EIA 

Oct-10 

to remain large for the foreseeable future. As long as 

unemployment remains high and capacity utilization (the 

ratio of actual output to potential output) low (see below), 

the economy will not be anywhere close to overheating, and 

the Federal Reserve will face no pressure to raise the federal 

funds rates from its current near-zero level. 

If the Federal Reserve chooses to keep the federal funds 

rate at its current level, long-term rates for Treasury and 

municipal securities will likely remain between four and five 

percent over the near term. 

Percent 

5% 

4% 

3% 

2% 

1% 

0% 

1M 1Y 5Y 10Y 30Y 

Oct-07 Apr-08 Oct-08 Apr-09 Dec-09 

Treasury yield curves 

90% 

85% 

80% 

75% 

70% 

65% 

60% 

55% 

50% 

Jan-00 

Jul-00 

Jan-01 

Jul-01 

Jan-02 

Jul-02 

U.S. capacity utilization 

40-year average 

Jan-03 

Jul-03 

source: U.S. Energy Information Administration 

Jan-04 

Jul-04 

Jan-05 

Jul-05 

Jan-06 

Jul-06 

Jan-07 

Jul-07 

9/09: 

13% below average 

Jan-08 

Jul-08 

Jan-09 

Jul-09 

source: U.S. Energy Information Administration 

Fiscal receipts 

The recession has caused a fiscal crisis in nearly all 50 states, 

as tax revenues from sales, personal income, corporate 

income, and capital gains have consistently come in lower 

than expected since the recession began in December 2007. 

Since job growth and business expansion is expected to be 

weak in the near term, poor fiscal conditions are expected to 

continue from FY 2010 through FY 2012. 

According to the National Association of State Budget 

Officers (NASBO), fiscal 2009 general fund expenditures are 

currently estimated to decline 2.2 percent compared to fiscal 

6



Total Nominal State Fiscal Balances 

Total Balance ($ in Millions) 

Region/State Fiscal 2008 Fiscal 2009 Fiscal 2010 

New England 

Connecticut $1,382 $1,100 $586 

Maine 116 75 90 

Massachusetts 2,406 1,466 1,014 

New Hampshire 106 51 51 

Rhode Island 61 10 121 

Vermont 58 60 57 

Mid-Atlantic 

Delaware 526 378 393 

Maryland 1,172 1,134 744 

New Jersey 1,304 699 500 

New York 2,754 1,514 1,242 

Pennsylvania 1,325 515 141 

Great Lakes 

Illinois 417 417 417 

Indiana 1,413 1,275 1,040 

Michigan 460 2 -130 

Ohio 2,694 1,336 1,242 

Wisconsin 131 216 237 

Plains 

Iowa 641 594 448 

Kansas 527 58 1 

Minnesota 1,920 569 903 

Missouri 1,115 483 271 

Nebraska 1,130 853 560 

North Dakota 653 703 543 

South Dakota 107 107 107 

Total Nominal State Fiscal Balances (continued) 

Total Balance ($ in Millions) 

Region/State Fiscal 2008 Fiscal 2009 Fiscal 2010 

Southeast 

Alabama $467 $237 $216 

Arkansas 0 0 0 

Florida 1,666 1,125 389 

Georgia 2,217 2,217 2,217 

Kentucky 300 47 24 

Louisiana 1,641 1,641 854 

Mississippi 440 375 300 

North Carolina 1,386 537 537 

South Carolina 324 147 211 

Tennessee 1,098 686 750 

Virginia 1,328 755 602 

West Virginia* 1,132 456 564 

Southwest 

Arizona 151 -430 15 

New Mexico 735 568 515 

Oklahoma 886 650 354 

Texas 11,171 8,698 8,539 

Rocky Mountain 

Colorado 327 148 161 

Idaho 380 198 152 

Montana 436 341 274 

Utah 414 395 270 

Wyoming 306 284 279 

Far West 

Alaska 8,746 5,396 4,643 

California 2,376 -2,341 3,182 

Hawaii 405 138 114 

2008 levels. Likewise, NASBO recommends a 2.5 percent 

decrease in governors’ budgeted expenditures for FY 2010. 

States currently estimate that they will have faced $230 

billion in reported budget gaps between fiscal 2009 and fiscal 

2011. Of this $230 billion, states have already closed $46.2 

billion in budget gaps during fiscal 2009. 

While the American Recovery and Reinvestment Act helped 

states avoid severe cuts in essential services, it has not 

ended the need for states to cut spending. In FY 2010, many 

states are expected to continue layoffs and cuts in employee 

benefits, across-the-board spending cuts, reductions in local 

aid, and higher transportation and motor vehicle fees. 

U.S. regional economic performance and outlook 

While the national economy will continue to recover 

slowly and very gradually, there are differences among 

regions in how deeply the recession has cut, how quickly 

or slowly recovery will occur, and how shallow or robust 

the recovery will be. Moreover, the nature of recovery will 

Nevada 388 187 307 

Oregon 91 341 -237 

Washington 1,093 -49 -1,139 

Total $62,319 $36,655 $34,669 

* 2009 data are estimates. 2010 data are projections source: NASBO 

vary from place to place, with some areas led alternatively 

by residential real estate, retailing, manufacturing activity, 

technology, agriculture, or something else. But in almost 

all regions, employment growth will lag other measures of 

recovery, and some sectors, such as commercial real estate, 

are expected to continue to weaken into 2010. 

Beginning in 2008 and extending through mid-2009, the 

recession hit certain states most severely, while a very few 

areas have been less dramatically effected. In percentage 

terms, states which experienced the worst losses in 

employment were concentrated in the industrial heartland 

and parts of the Upper Midwest, including Michigan 

(-3.2), Indiana (-1.8), Ohio (-1.9), Wisconsin, and Minnesota. 

Arizona and Oregon were also badly hit, with job losses of 

7


1.7 percent and 1.5 percent, respectively. Oregon, a state 

heavily dependent on its forestry and agricultural industries, 

was heavily impacted by the contractions in housing 

and other construction, and trade. In absolute numbers, 

California lost by far the most jobs (over one million, or a 

doubling in the number of jobless), and along with nine other 

states, 1 had unemployment rates well above 10 percent by 

the early summer 2009. By contrast, Texas did not lose jobs, 

and a few places actually gained, including the District of 

Columbia, Maryland, and the Dakotas. A number of other 

south central states also escaped major employment losses, 

due to proximity to the Texas market, concentrations of 

military activity, and stable pre-recession housing markets 

not overly caught up in the housing bubble. 

3.2 ≤ 

5.4 ≤ 

7.6 ≤ 

9.9 ≤ 

12.1 ≤ 

< 5.4 

< 7.6 

< 9.9 

< 12.1 

≤ 14.3 

Over the longer term, the strongest recovery and growth 

is projected to occur in the West/Southwest regions, and in 

the Southeast—the same areas which have led growth for 

at least the past two decades. 2 The Southeast is expected 

to see a service and tourism industry lead recovery. 

However, recovery will be spotty at best in the near term. 

California, for example, is experiencing a state budget 

crisis of monumental proportions, although major public 

infrastructure projects, supported by federal assistance, 

may help to speed a recovery there. Moreover, the dramatic 

reductions in import activity have affected California’s 

transportation, warehousing, and distribution sector, a major 

driver for that state. Mountain regions will experience 

eventual growth lead by natural resources. 

October 2009 state unemployment rates 

source: Federal Reserve Bank of St. Louis 

Authors: 

Matt Nespoli specializes in economic impact 

modeling, cost-benefit analysis, international 

trade and macroeconomic forecasting, and revenue 

forecasting for various public sector infrastructure 

clients in the U.S. and Latin America. 

B.A., Economics, Villanova University 

nespoli@pbworld.com 

For the worst hit areas—the industrial Midwest and 

Michigan in particular—it is expected that simply recouping 

the jobs lost in the last year and half will take more than 

a decade, while population growth, even if modest, will 

translate into additional upward pressure on unemployment 

rates. In general, areas of the Midwest and Upper Midwest 

may actually experience zero population growth or even 

depopulation—a trend that will not be favorable for retailing 

and the housing construction industries in these areas. • 

1 

Michigan, Rhode Island, Oregon, S. Carolina, Nevada, Ohio, N. Carolina, and Kentucky 

2 

Forecasts by IHS Global Insight, U.S. Markets, Summer 2009. This projection is consistent with other forecasters, including the Federal 

Reserve, Beige Book, October 2009. 

8


Construction Economic Review & Highway Cost Escalation Forecast 


dailyinvention 

by 

Dr. Kumudu Gunasekera and Brad Ship 

UNTIL 2002, construction cost escalation followed 

general inflation – measured by the Consumer Price 

Index (CPI) – in a stable, linear trend. From 2002 

on, the variance between construction cost escalation (as 

measured by ENR’s Construction Cost Index) and general 

CPI inflation (shown to the right), has significantly increased. 

This divergence between general inflation and construction 

cost escalation has been driven largely (although not 

entirely) by volatile growth in key global commodity prices, 

particularly oil and steel. November 2008 through January 

2009 saw the biggest widening in the variance, due in part to 

the run up in steel and fuel prices from the second quarter of 

the year, which had impacts that lagged declines in overall 

inflation. 

Since January 2009, due to the global economic recession, 

CCI has had negative or no growth while CPI has had a 

modest inflationary effect. Moreover, the variance between 

the two has begun to decrease – thereby reducing the gap 

between the two. Despite the recent decrease, the variance 

between CPI inflation and CCI inflation is still at historically 

high levels. Due to this increased variance, federal, state, and 

local agencies, as well as private investors, have recognized 

the importance of obtaining construction cost escalation 

forecasts that reflect factors specific to construction, rather 

than general inflation (i.e., CPI). 

While ENR’s CCI is widely accepted in the industry, it 

is intended to measure the construction industry as a 

whole. It uses cost inputs which are generally applicable to 

construction (such as lumber, PVC, and other inputs) and 

Index Value 

175 

160 

145 

130 

1993 

1994 

1995 

1996 

1997 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

115 

100 

85 

CPI, CCI, and variance between 

the two from 1993-2009 

Variance CPI-US CCI-US 

2008 

2009 

2010 

which do not necessarily represent major cost components 

of transportation infrastructure construction. Given the high 

degree of specialization and wide variance of cost inputs 

between construction types, it is difficult to use one broadbrush 

forecast for all applications. 

In order to track costs over time and judge the actual growth 

of costs of highway construction projects, PB developed 

an index of highway construction costs. This index is 

based on cost components developed through work on 

numerous highway construction projects across the U.S. The 

components included in this index are: 

• Construction labor 

• Construction equipment 

• Steel 

• Asphalt and asphalt binder 

• Aggregate 

• Concrete 

25 

20 

15 

10 

5 

0 

-5 

Index Difference (CCI - CPI) 

source: BLS, ENR 

9


Each component is measured by the U.S. Bureau of Labor 

Statistics (BLS) and shown below. These are combined to 

create the PB Highway Cost Index, which is based on PB’s 

estimate of the relative share of total highway construction 

costs attributed to each component. The resulting index 

represents average highway construction cost for the U.S. 

as a whole. Different projects and capital programs will 

vary from this index depending on the mix of project and 

work types, as well as local contractor and material supplier 

markets. 

As shown below, PB’s Highway Construction Cost Index 

varies significantly from ENR’s Construction Cost Index, 

particularly beginning in 2006. This difference is largely due 

to PB’s inclusion of asphalt prices in its index. ENR’s index is 

a general construction index and therefore does not account 

for asphalt prices, which are the primary drivers for the large 

spike in highway construction prices in the summer of 2008. 

200 

180 

160 

140 

120 

100 

80 

60 

40 

20 

0 

-20 

Jan-1999 

Jul-1999 

Jan-2000 

Jul-2000 

Jan-2001 

Jul-2001 

Jan-2002 

Jul-2002 

Jan-2003 

Jul-2003 

Jan-2004 

Jul-2004 

Jan-2005 

Jul-2005 

Jul-2006 

Jan-2007 

Jul-2007 

Jan-2006 

Jan-2008 

Jul-2008 

Jan-2009 

Jul-2009 

Variance PB Highway Construction Cost Index ENR CCI 

PB highway construction cost index 

vs. ENR construction cost index 

source: PB, ENR 

Construction cost inflation will be driven by both 

endogenous (resource) and exogenous (market) factors. 

Endogenous factors are internal while exogenous are 

external. These factors are detailed in the following sections. 

Based on analysis of these factors, an outlook for highway 

construction costs was developed and is presented below. It 

is important to note that this is a national-level forecast and, 

as such, the user should make appropriate adjustments based 

on specific project characteristics and local market conditions 

when applying this forecast to individual highway 

infrastructure projects. More detailed analysis of the topics 

discussed in this section is included later in this article. 

7% 

6% 

5% 

4% 

3% 

2% 

1% 

0% 

2.5% 

3.75% 

4% 

6.5% 

2010 2011 2012 2013 2014 

PB five-year highway construction cost forecast 

5% 

source: PB analysis 

Over the past year, stimulus funding has not caused high 

construction inflation, as anticipated. This is largely due 

to the substantial reduction in private sector construction 

and the facts that stimulus funding for transportation 

infrastructure was less than anticipated and has been 

somewhat slow to actually materialize. Although public 

sector construction spending has increased over the past 

few years, it has not made up for the losses in private sector 

spending. Additionally, stimulus funds have not been spent 

as quickly as was anticipated in the previous forecast. As a 

result, EFR forecasts cost escalation of 2.5 percent in 2010. 

Asphalt prices (which are largely driven by oil prices) 

dropped substantially in late 2008 and 2009 which is 

evidenced by PB’s Highway Construction Cost Index. 

When oil price growth occurs again, asphalt prices will also 

increase. However, asphalt price escalation is likely to lag 

behind prices for crude oil. Moody’s Economy.com (a third 

party forecast provider) anticipates high escalation of crude 

oil in 2010. EFR forecasts higher escalation (3.75 percent) in 

2011 as asphalt prices lag behind crude oil. 

Another reason why construction prices have remained low 

is heavy competition in contract bidding. Depressed demand 

for construction has led to an over-supply of contractors. 

As these contractors compete for fewer contracts, they bid 

with increasingly lower margins. As long as construction 

activity remains depressed, market forces will eventually 

drive contractors out of business who are either working on 

razor thin margins or unable to find enough work. Thus, the 

supply of contractors will come more in line with demand. 

In addition, it is anticipated that the impacts of a second 

stimulus (“jobs” bill) will begin to be felt in 2012. Market 

recovery, stabilization of the contractor market, and effects of 

both stimulus packages will lead to moderate price escalation 

(four percent) in 2012. 

As the economy begins to recover in earnest by 2013, 

stimulus spending on transportation construction will still 

be occurring from both ARRA and a likely “jobs” bill. The 

combination of increasing private sector spending in the 

recovery and the continued elevated public sector spending 

will lead to even higher construction cost escalation (6.5 

percent) in 2013. This trend is likely to continue through 

2014, but will ease some from the initial economic recovery. 

Resource costs affecting construction costs 

Construction Labor – despite high unemployment levels, 

construction wages have increased marginally above general 

inflation. While construction labor fell during 2008 Q4 and 

2009 Q1, they experienced strong growth in 2009 Q3 and 

2009 Q4. This results in relatively modest wage growth on an 

annual basis. 

10



Machinery and Equipment – U.S. is a net exporter of 

construction machinery and equipment. Equipment costs 

have remained relatively stable over last few years. Decrease 

in global demand and weak dollar are two factors that are 

expected to affect the cost of equipment in the near future. 

Given that these two are countervailing forces, we expect 

equipment costs to remain stable over the next few years. 

Steel – after the steep run up in 2008 and market correction 

thereafter, the cost of steel has slightly rebounded in the most 

recent BLS Producer Price Index (PPI) data, a 5.7 percent 

increase from 2009 Q2 to 2009 Q3. We expect steel prices to 

moderately increase in the next few years. 

Asphalt – asphalt prices are closely correlated with crude 

oil and refined petroleum prices, but there can be a lag in 

the effect. As forecasted by Moody’s Economy.com, crude oil 

prices are expected to spike up in 2010, which may result in 

an increase in asphalt prices in 2011. Recent BLS PPI shows a 

six percent increase from 2009 Q2 to 2009 Q3. 

Aggregate – aggregate is a highly localized commodity, and 

as such prices would vary from region to region. Relative 

to other commodities, aggregates have withstood the 

downward price pressures of the recession. Recent BLS PPI 

data shows a 0.3 percent decrease from 2009 Q2 to 2009 Q3. 

We anticipate aggregate prices to remain flat for the next few 

years. 

Ready Mix Concrete – concrete prices, relative to other 

commodities have withstood the downward price pressures 

of the recession. In fact, BLS’s PPI recently showed a price 

decrease of one percent in 2009 Q3 from 2009 Q2. Over the 

next few years, we anticipate a moderate increase in concrete 

prices primarily because of increases in global demand and 

increased transportation costs (concrete prices are closely tied 

to transportation costs and energy costs in general). 

Market factors affecting construction costs 

Stimulus funding 

The previously anticipated inflationary impacts from 

stimulus funding are not being fully felt in 2009. This is 

driven by two key factors. 

First, only a small percentage of stimulus funds have 

actually been spent. Currently, only $5.29 billion of the $30.28 

billion available to the Department of Transportation have 

been paid out. 1 While the Department of Transportation 

spending is not the only infrastructure spending in the 

American Recovery and Reinvestment Act of 2009 (ARRA), 

it represents approximately 80 percent of all transportation 

and infrastructure spending. 2 Given that there is at least 

some anticipated lag in stimulus effects on the economy from 

government spending, it is consistent that there would be no 

clear impact in 2009. 

It is anticipated that stimulus spending on transportation 

projects will continue through 2019, with approximately 

20 percent of total stimulus spending in FY 2010 and 

approximately 75 percent of all spending completed by the 

end of FY 2013. 3 

The second key factor is that while public spending on 

construction projects has increased by approximately 27 

percent in the past three years, private sector spending has 

fallen 32 percent. As a result, total construction spending fell 

Available 

Paid Out 

$5.29 B 

$30.28 B 

$0 $8 $16 $24 $32 

Stimulus spending to date 

source: www.recovery.gov 

The following page shows PPI from the U.S. Bureau of 

Labor Statistics for construction cost components, except 

Construction Labor which is the average hourly earnings 

of construction workers, also obtained from BLS. For ease 

of use, they have been adjusted so that all share a common 

base value of 100 in 1999. This allows a clearer comparison of 

growth in each index. The first six components are included 

in PB’s Highway Construction Cost Index, while the last two 

components are tracked as additional information sources. 

The graphics show annual data from 1999 to 2007 and then 

quarterly data for the past seven quarters. 

USD (billions) 

$1,400 

Private Public 

$1,159 B 

$1,200 

$1,000 

$800 

$600 

$400 

$200 

$0 

$903B 

$256B 

2006-Q3 

200 -Q4 

2007-Q1 

200 -Q2 

2007-Q3 

2007-Q4 

2008-Q1 

2008-Q2 

2008-Q3 

Public and private construction spending (2006 – 2009) 

2008-Q4 

2009-Q1 

2009-Q2 

$936 B 

$611B $325B 

2009-Q3 

1 

Figure current as of October 30th, 2009 and accessed via www.recovery.gov. 

2 

Total infrastructure spending of $38.16 billion based on data published by the House of Representatives Transportation and Infrastructure 

Committee (http://transportation.house.gov/Media/file/Full%20Committee/Stimulus/Total%20Infrastructure%20Investment%20Funding_Single%20Table.pdf). 

3 

Congressional Budget Office, March 2, 2009. Fiscal years are U.S. government fiscal years which end September 30th. 

11


250 

Construction Labor 

250 

Machinery and Equipment 

200 

200 

150 

150 

100 

100 

50 

50 

0 

0 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 Q1 

2008 Q2 

2008 Q3 

2008 Q4 

2009 Q1 

2009 Q2 

2009 Q3 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 Q1 

2008 Q2 

2008 Q3 

2008 Q4 

2009 Q1 

2009 Q2 

2009 Q3 

250 

Steel 

500 

Asphalt 

200 

400 

150 

300 

100 

200 

50 

100 

0 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 Q1 

2008 Q2 

2008 Q3 

2008 Q4 

2009 Q1 

2009 Q2 

2009 Q3 

0 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 Q1 

2008 Q2 

2008 Q3 

2008 Q4 

2009 Q1 

2009 Q2 

2009 Q3 

250 

Aggregate 

250 

Ready-Mixed Concrete 

200 

200 

150 

150 

100 

100 

50 

50 

0 

0 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 Q1 

2008 Q2 

2008 Q3 

2008 Q4 

2009 Q1 

2009 Q2 

2009 Q3 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 Q1 

2008 Q2 

2008 Q3 

2008 Q4 

2009 Q1 

2009 Q2 

2009 Q3 

250 

200 

Highway & Street Construction 

800 

700 

600 

Diesel 

150 

500 

400 

100 

300 

50 

200 

100 

0 

0 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 Q1 

2008 Q2 

2008 Q3 

2008 Q4 

2009 Q1 

2009 Q2 

2009 Q3 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 Q1 

2008 Q2 

2008 Q3 

2008 Q4 

2009 Q1 

2009 Q2 

2009 Q3 

Highway and other construction cost indicators 

source: BLS 

Note: All indices correspond to the BLS indices, but have been readjusted to have a base value of 100 in 1999. Light gray bars represent yearly 

values while lighter gray bars represent quarterly values. 

12



more than 19 percent in the same time period. Regardless 

of increases in public spending, which are a result of 

stimulus spending, total demand for construction has fallen 

considerably over the past three years. 

Stimulus funding for transportation construction is 

anticipated to continue through 2019. In 2010, we anticipate 

this public spending stimulus to merely offset the decrease 

in private sector spending. However, with the anticipated 

economic recovery which would reinvigorate the private 

sector construction market, from 2011 onwards we expect the 

stimulus to have an inflationary effect on construction costs. 

At the time of publication the U.S. House of Representatives 

was beginning debate on a second stimulus package or 

“jobs” bill known as the Jobs for Main Street Act of 2010. 

The bill as written includes $48 billion in new funding for 

infrastructure programs ($37.3 billion allocated to highway, 

transit, aviation and rail programs). Little additional detail 

was available at the time of publication and it is not certain 

what, if any, funding will be passed. Whatever a final “jobs 

bill” contains, the impacts to construction escalation are 

likely to lag similarly to the impacts from ARRA. 

Bid market / local contractor competition 

In addition to depressed commodity prices, contractors and 

subcontractors, in order to keep their crews busy and remain 

in business, are significantly reducing their margins, which 

results in aggressive bidding (i.e., low bids), and pursuing 

smaller projects that are outside their traditional geographic 

boundaries that they would traditionally not have bid on. 

This results in higher contractor competition. 

As a result, contractor bids are coming in much lower 

than agency estimates. For example, in California, bids on 

large scale projects are falling as much as 70 percent below 

preliminary agency estimates. This is a complete reversal 

from the “construction boom” times when preliminary 

agency estimates used to include a 10 percent to 15 percent 

margin for cost escalation. • 

Agency Project Cost change from original estimate 

S.F. International Airport 

Terminal 2 rebuild 

-8.2% 

S.F. Department of Public Works 3rd/7th/Howard/Leavenworth Streets Sewer Replacement 

-11.4% 

Hetch Hetchy (S.F. PUC) 

Water treatment plant improvements in San Mateo 

-13.8% 


New Crystal Springs bypass tunnel 

-14.3% 


Design and construction of a water treatment facility near Tracy 

-15.2% 


Upgrades to pump station in Sunol Valley 

-17.6% 


Noe Valley water main improvement 

-20.8% 

S.F. Department of Public Works Balboa Street Phase I Pavement Renovation and Sewer Replacement 

-21.0% 


Seismic upgrades to water valves in South San Francisco and Daly City 

-28.1% 

S.F. Department of Public Works Various Locations Pavement Renovation 

-32.0% 


Seismic upgrades to pipeline crossing at Hayward Fault 

-40.9% 


Lake Merced Pump Station upgrades 

-42.1% 

BART 

Tunnel section of Warm Springs extension 

-45.4% 


Increasing discharge channel capacity in San Mateo County -72.0% 

Estimated versus actual bids source: San Francisco Business Times, September 2009 

Authors: 

Dr. Kumudu Gunasekera is a senior 

infrastructure economist specializing in highway/ 

transit cost benefit analyses, regional economic 

impact assessments, econometric forecasting, and 

goods movement analysis. 

Ph.D., M.A., Boston University; 

B.A., Hobart and William Smith Colleges 

gunasekera@pbworld.com 

Brad Ship combines a background in engineering 

with knowledge and training in business, finance, 

and economics to advise clients on infrastructure 

finance and economics. 

M.E.M., Dartmouth College; 

B.S., Lafayette College 

shipb@pbworld.com 

13


Is the U.S. Container Trade Recession Over? 

Jose D. Leon Guerrero Commercial Port 

Port Authority of Guam 

by 

Scudder Smith 

DIFFERENT sectors of the U.S. economy have widely 

varying cycles relative to aggregate economic 

expansion and contraction. Perhaps most notable 

is unemployment continuing to rise well after a recession 

officially ends. 

Container trade versus real economic growth 

Previous articles suggested that container trade growth, 

that had seemed to be impervious to economic slowdowns, 

would be likely to grow in the medium to long-term at rates 

closer to real GDP. 1 It is now beyond doubt that container 

trade has become more adversely affected by economic 

decline, as shown to the right (top figure). What began as 

an unprecedented 4.8 percent drop in container trade in 

2008 now seems modest compared to a projected double 

digit decline in total container volumes in 2009. The critical 

questions facing the container transportation industry today 

are when the recession in container trade will end and what 

the recovery will look like. 

Timing of the U.S. container trade recession 

Real annual GDP and total container trade growth rates 

would seem to indicate that the U.S. container trade recession 

began in 2008, perhaps roughly coincident with the official 

beginning of the economic recession in December 2007, 

and that it is continuing into 2009. However, a look at U.S. 

containerized imports (which are the predominant part 

of container trade) suggests that the U.S. container trade 

recession actually began in 2007 Q3 as U.S. import container 

tonnage dropped below levels for the same quarter from the 

previous year (see adjacent bottom figure). This would place 

15% 

10% 

5% 

0% 

-5% 

-10% 

-15% 

-20% 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

1999 

US TEUs 

US Real GDP 

2000 

2001 

U.S. real GDP and total container trade 

growth rates (*2009 volumes are projected 

based on year-to-date data) 

20% 

15% 

10% 

5% 

0% 

-5% 

-10% 

-15% 

-20% 

-25% 

2006 Q1 

2006 Q2 

2006 Q3 

2006 Q4 

2007 Q1 

2007 Q2 

2007 Q3 

2007 Q4 

2002 

2008 Q1 

Change in total U.S. and West Coast container 

import tonnage (from year-ago same quarter) 

2003 

2008 Q2 

2004 

2008 Q3 

2005 

2006 

2007 

2008 

2009 * 

source: AAPA, BEA, 

and PB analysis 

US Total 

West Coast 

2008 Q4 

20009 Q1 

2009 Q2 

2009 Q3 

source: U.S. Census Bureau 

and PB analysis 

1 

Scudder Smith (May 2009), A New Normal for U.S. Container Trade, 

EFR Vol 3, Issue 1 

14



the beginning of the container trade recession at about six 

months ahead of the economic recession. 

These data also show that year over year changes in quarterly 

container import trade reached a maximum decline in 2009 

Q2 at -22.5 percent, with Q3 decline of “just” 18.0 percent. 

If this slowdown in quarterly declines holds into 2009 Q4 

and beyond, 2009 Q3 could be considered the end of the U.S. 

trade recession. If this remains the case, the U.S. container 

trade recession will have lasted two full years. 

U.S. West Coast—higher growth, greater fall 

This figure also includes data for the U.S. West Coast (shown 

as a purple line on the lower graph on the previous page). 

While West Coast container imports grew more rapidly than 

the U.S. total in 2006 and into early 2007, the West Coast has 

also experienced a steeper decline than the U.S. as a whole 

during the two-year container trade recession. 

The most recent monthly data for West Coast ports shows 

that for October, a peak volume month, declines in total 

container TEU volumes have continued to moderate (see 

below). The 15.6 percent decline in October 2009 volume 

compared to October 2008 is a reduction from the maximum 

21.5 percent drop recorded in 2009 Q1. In fact, using this 

measure, declines have been slowing beginning in 2009 Q2 

(at -19.2 percent) and continuing in 2009 Q3 (-16.1 percent). 

10% 

5% 

0% 

-5% 

-10% 

-15% 

-20% 

-25% 

2006 Q1 

2006 Q2 

2006 Q3 

2006 Q4 

2007 Q1 

2007 Q2 

2007 Q3 

2007 Q4 

2008 Q1 

Change in total West Coast container 

TEU volumes (from year-ago same period) 

2008 Q2 

2008 Q3 

2008 Q4 

2009 Q1 

2009 Q2 

2009 Q3 

2009 Oct 

source: Pacific Maritime 

Association and PB Analysis 

Is the U.S. container trade recession over? If so, 

what next? 

It appears the U.S. container trade recession is over, at least 

in a technical sense, having reached a deep trough. But, 

like unemployed individuals, this may be of scant comfort 

to those in the container transportation industry looking at 

2009 volumes that will match those of 2003. The important 

question at this point is what the recovery will look like. 

Some of the fundamental drivers of container trade include 

aggregate economic growth, housing and residential 

construction, consumer saving and spending, and changes in 

inventories. 

Aggregate economic growth 

Aggregate economic growth projections are reviewed in 

the preceding article, U.S. Economic Performance and Outlook. 

Summarizing the implications for container trade growth, the 

outlook is positive for economic growth in the next few years, 

but growth is likely to be much more modest than that seen 

in the recent past. This provides the basic underpinnings of 

short-term trade growth prospects, that is, modest growth of 

two to three percent. 

Housing and residential construction 

After a long period of decline beginning in early 2006, the 

housing sector and residential construction appear to be 

rebounding, beginning in 2009 Q3. These sectors are basic 

drivers of a wide range of U.S. containerized imports from 

wood products and building materials to furniture and 

household furnishings. Stabilization of these economic 

sectors will mean that imports of related products may begin 

to contribute to trade growth or, at a minimum, cease to be a 

cause of further declines in container volumes. In summary, 

stabilization of these sectors will provide a boost to container 

trade growth, the amount of such boost depending on the 

strength of the recovery. 

Personal savings 

Consumer spending is a key driver of container trade, and 

this spending is dependent on personal incomes but also 

on personal savings rates. Smith (2009) 1 pointed out that 

historically low savings rates contributed to rapid increases 

in consumer spending from 2005 through 2007. Saving 

rate declines, and spending growth, were enabled in part 

by increasing housing values and expanding credit. The 

personal savings rate more than tripled from a low of 1.2 

percent in 2008 Q1 to an average of 3.8 percent in the six 

quarters from 2008 Q2 though 2009 Q3. A direct corollary of 

this savings rate increase is a decrease in consumer spending, 

discussed in the section below. 

6% 

5% 

4% 

3% 

2% 

1% 

0% 

2004 Q1 

2004 Q3 

2005 Q1 

2005 Q3 

2006 Q1 

2006 Q3 

Personal savings rates jumped from 

historic lows beginning in 2008 Q2 

2007 Q1 

2007 Q3 

2008 Q1 

2008 Q3 

2009 Q1 

2009 Q3 

source: BEA and PB Analysis 

15


10% 

8% 

6% 

4% 

2% 

0% 

-2% 

-4% 

-6% 

1971 

1972 

1973 

1974 

1975 

1976 

1977 

1978 

1979 

1980 

1981 

1982 

1983 

1984 

1985 

1986 

1987 

1988 

1989 

1990 

1991 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 

2009 

Historic declines in real consumer spending on goods have occurred in 2008-2009 

source: BEA and PB analysis 

Consumer spending 

A major contributor to the sharp decline in container trade 

experienced over the past two years is the decline in total 

real consumer spending, especially spending on goods, 

that occurred in 2008 and also in 2009. Real consumer 

spending on goods declined 2.1 percent in 2008 while 2009 

spending has declined 2.3 percent, based on data through 

the third quarter (see above). To put this in perspective, real 

annual aggregate consumer spending has not declined in 

two consecutive years since 1930 through 1934. Consumer 

spending on goods last declined in two consecutive years in 

1942 and 1943. 

More consumer spending will lead to increases in U.S. imports 

David Davies 

In many product categories the declines in consumer 

spending have apparently ended, based on 2009 Q3 and 

October data. For example, real consumer spending on 

furniture and furnishings peaked at $167 billion in 2007 Q4 

and dropped to a rate of $146 billion in 2009 Q2 (a decrease of 

12.5 percent). Spending in this category increased to annual 

rates of $148 billion in 2009 Q3 and to $149 billion in October. 

180 

170 

160 

150 

140 

130 

2006 Q1 

2006 Q2 

2006 Q3 

2006 Q4 

2007 Q1 

2007 Q2 

2007 Q3 

2007 Q4 

Real personal consumption expenditures source: BEA and PB analysis 

on furniture and furnishings (seasonally 

adjusted at annual rates in billions of 2005 Dollars) 

2008 Q1 

2008 Q2 

2008 Q3 

2008 Q4 

2009 Q1 

2009 Q2 

2009 Q3 

2009 Oct 

As consumer spending rebounds across many product 

categories, this will directly lead to increases in U.S. imports 

and container trade. Growth in spending, and imports, will 

be tempered by growth in incomes which may be dampened 

by slow employment growth. If savings rates do not increase 

further, this will also allow higher consumer spending. 

Inventories 

Another major factor contributing to declines in U.S. 

imports has been a reduction in inventories. As consumer 

spending and U.S. manufacturing declined, all parties in 

product supply chains including retailers, wholesalers, and 

manufacturers have naturally tended to reduce inventories. 

Some inventory reductions contribute to declines in U.S. 

manufacturing, but reductions also depress sourcing from 

overseas locations. Thus, U.S. imports have declined due to 

sharp drops in underlying consumer spending demand but 

also declined in the inflow of intermediate and final goods 

stocks. 

As displayed on the next page, inventories began to decline 

in the retail sector in 2007 Q1 in apparel and department 

stores and later in 2007 in building materials. In food and 

beverages, inventories generally increase with steady 

16



55 

50 

45 

40 

35 

30 

25 

20 

2006 Q1 

2006 Q2 

2006 Q3 

2006 Q4 

2007 Q1 

2007 Q2 

2007 Q3 

2007 Q4 

Building materials, garden equipment 

Food and beverage 

2008 Q1 

Furniture, furnishings, electronics, appliances 

Real inventories for major retail store 

categories (seasonally adjusted billions 

of 2005 dollars) 

2008 Q2 

2008 Q3 

2008 Q4 

2009 Q1 

2009 Q2 

2009 Q3 

Clothing and accessories 

Department stores 

source: BEA and PB analysis 

It is also possible that the severity of the recession may have 

altered companies’ inventory management philosophies 

and processes leading to lowered required inventory levels 

(e.g. by expanding Just-in-Time product sourcing). To the 

extent this is the case, a rebound in inventories may be less 

than would have occurred in shorter or less severe economic 

cycles experienced in the past. This would, in turn, tend to 

dampen expected recovery growth rates. 

Summary 

The U.S. container trade recession appears to have ended in 

2009 Q3. 

However, the recovery in 2010 and 2011 is likely to be 

modest, buoyed by growth in the aggregate economy, a mild 

turnaround in housing and residential construction and 

increases in consumer spending. Possibly dampening growth 

are the potential for continued increases in savings rates and 

declines in inventories. • 

Author: 

Scudder Smith specializes in international trade 

and goods movement analysis and forecasting. 

He has extensive project experience in evaluating 

infrastructure capacity and analyzing demand 

forecast for goods movement. 

Concrete Forms 

A mild turnaround in housing and residential construction, along with more 

consumer spending, will likely buoy a mild recovery in 2010 and 2011 

M.S., B.S.: Massachusetts Institute of Technology 

smithsc@pbworld.com 

growth in consumption. An almost unnoticeable decline 

occurred in food and beverage stores in 2008 Q4 following 

a short-lived drop in consumer spending in the second half 

of 2008. In furniture and household equipment, declines 

did not occur until 2008 and 2009. This aggregate sector has 

been held up by consumer electronics where real consumer 

spending has generally increased over the period shown. The 

previous page (bottom left) shows that consumer spending 

on furniture and furnishings declined beginning in 2008 Q1. 

Inventory levels in furniture manufacturing and wholesaling 

reflect these spending declines. 

The continuing decline in inventories through 2009 Q3 

suggests that declines may still be dampening overall 

container trade across many industries and product groups. 

With an outlook for modest growth in consumer spending, 

inventory reductions may not have yet reached bottom, 

and eventual increases in inventory levels may not add to 

increasing trade until 2010 and 2011. 

17


Technology Transfer for Future Surface Transportation 

Argonne National Laboratory 

by 

Steve Lockwood 

AS the 21st Century progresses, 

both internal and external 

forces will increasingly 

drive the surface transportation 

systems toward new types and 

levels of performance. In the longrun 

many, if not most, of these 

technologies originate from outside 

the transportation sector. Presently, 

surface transportation lacks an 

organized sector-wide process to 

nurture the development of an 

advanced technology transfer process 

from outside the sector. There are 

useful lessons to be learned from 

other sectors that might be adapted 

in the development of a set of new 

institutional arrangements for surface 

transportation. This article addresses 

the stakes and key challenges to this 

type of technology transfer. 

The drive towards economic 

competitiveness, improved 

environment and livability—not to 

mention a more reliable, safe and 

cost-effective transportation—is 

introducing new demands for a 

more sustainable basis for surface 

transportation, with implications 

for all components of the system: 

infrastructure, vehicles and their 

operational systems and interactions. 

None of these demands are totally new 

and some positive trends are visible 

in many areas. But what is new is the 

growing pressure to move past vague 

sector commitments to sustainability 

towards institutionalized requirements 

for performance-based management 

fostered by powerful policy support 

and legal imperatives from outside the 

transportation sector. The suggestions 

of some skeptical interest groups 

notwithstanding, accommodating and 

even surpassing these multi-valued 

expectations will not be accomplished 

by reducing the investment in 

transportation. To the contrary, a range 

of recent studies indicates that relevant 

performance levels will require a 

robust sector, combining innovative 

infrastructure designs and materials, 

new vehicle technologies, an array of 

systems and services together with 

aggressive operational management of 

the vehicle-infrastructure system, if the 

appropriate performance objectives of 

“triple bottom line” are to be met. 

The term “technology transfer” can be 

misleading. Individual technologies 

do not impact performance in isolation. 

To become relevant, most must be 

developed in combinations (systems 

or subsystems) called “platforms” that 

together provide the transportation 

performance-related functionality. 

Performance and relevant 

technology 

As shown by a few examples in the 

table on the following page, improving 

systems performance is substantially 

dependent on key technologies from 

outside transportation technology. 

Some of these technologies are 

emerging from basic research in 

other sectors and are not often widely 

appreciated within transportation. 

Example platforms may include 

combinations that make up systems 

for vehicle power trains, vehicle 

infrastructure communications, energy 

sources / emission controls, crash 

avoidance systems, advanced design 

visualization, among many others. The 

table on the following page illustrates 

the relationships across a range of 

performance categories and measures, 

technology trends and systems to the 

key technologies themselves. The key 

technologies highlighted suggest how 

far outside of the transportation arena 

many of the potentially important 

technologies are located 

In this context, a long-term perspective 

is important. It is increasingly 

18



Performance 

Categories Measures Trends Platforms Key Technologies 

Mobility 

Travel 

Demand 

Reliability 

Safety 

• Travel time/speed 

• Delay 

• Vehicle hours of travel 

• Accessibility 

• Travel cost to users 

• Vehicle mi/hr of travel 

• Fuel consumption 

• Accessibility measures 

• User Costs 

• Environmental impacts 

• On-time variability 

• Buffer index 

• Crash rates/severity 

• Fatalities & rates 

• Secondary crashes 

• Higher speed transit & rail 

• Demand responsive transit 

• Bus rapid transit 

• Vehicle sharing systems 

• Light vehicle options 

• Real-time congestion mgt 

• Tele-working, -shopping, 

-entertain’t, -conferencing 

• TOD patterns 

• Non-motorized travel 

• Real-time congestion & 

incident mgt 

• Improved real-time 

traveler information 

• Real-time weather mgt 

• Passive to active safety 

• Collision avoidance 

• Improved crashworthiness 

• Automated enforcement 

• Driver assistance/support 

• Automated-vehiclehighway 

system 

likely (given the focus of desired 

performance) that many of the relevant 

technologies come from outside the 

transport sector – both those related 

to public infrastructure development 

and those related to the private sector 

vehicles and services. Many of the 

promising technologies include 

IT, communications, energy, nano 

materials, biochemistry, etc. – many 

of which are substantially outside the 

expertise, and even the awareness of 

the infrastructure and vehicle systems 

industry as they currently operate. 

New technology, some even in the 

“basic” stage of development, is likely 

to play a major (if not the major) role 

in the transition to more sustainable 

transportation system performance 

in both the infrastructure, vehicle 

and systems operations arena. A 


Nano materials, like these solar cells that are 

10,000 times smaller than the width of a human 

hair, is likely a promising technology 

• In-vehicle information 

• V2I comm 

• Vehicle-to-vehicle comm 

• Dual mode transit systems 

• Automatic train controls 

• Improved information 

display/resolution 

• Improved video conference 

• Web-based transactions 

• Incident detection 

• Integrated comm 

• Advanced (micro) weather 

prediction/treatment systems 

• Crash avoidance systems 

• Intersection collision 

avoidance 

• Automatic vehicle 

identification 

• Driver alertness 

maintenance 

Acronyms/Abbreviations: 

Management (mgt), Communications (comm), Artifical Intelligence (A.I.), Transit-Oriented Development (TOD) 

Increased ( ), Reduced ( ) 

Example performance objectives as related to measures, platforms and technologies 

• Sensors & Controls 

• A.I./robotics 

• Dedicated 

short-range comm 

• GPS 

• Next-gen wireless 

• Intelligent software 

assistants 

• High capacity/ 

resolution video 

• Digital imaging 

• Infrared sensing 

• Driver behavior 

analysis 

• Ergonomics/ 

anthropometrics 

• Biological machines 

• Nanotechnology 

• Meta-materials 

key challenge that lies ahead is how 

to identify, evaluate, test, adapt, and 

implement such new technologies in a 

cost-effective manner and time frame 

relevant to meeting the new demands 

of sustainability. 

External technology transfer 

Technology is not an automatic 

process that takes place within the 

normal dynamics of either the surface 

transportation infrastructure or vehicle 

systems industries. Useful transfer, 

especially across sector boundaries, 

must be an intentional process tailored 

to its destination and must take place 

with that ultimate context in mind. 

The transportation sector, both 

public and private, has longstanding 

mechanisms for the internal 

incremental development and transfer 

of technology. In the private sector, 

the competitive vehicle original 

equipment industry has its own 

research laboratories, as well as outside 

contract research. In the public sector, 

there is modest research effort, internal 

to both federal and state agencies and 

university-based. With few exceptions, 

these efforts focus largely on adapting 

and commercializing slow advances in 

technologies substantially developed 

within the industries themselves. 

Organized contact with advancing 

technologies in other sectors is minimal. 

This framework reflects the unique 

characteristics of the transportation 

sector: the long life of vehicles and 

infrastructure; the separation of the 

public and private sectors; the lack of 

modal integration; the lack of clear 

“markets” for new products and 

services; and fragmented ownership 

and operational responsibilities. Even 

where there may be awareness, the 

financial and institutional capacity 

of both these industries has been 

substantially weakened by other factors 

such as the inability to retain technical 

capacity, funding constraints, and the 

fragmented nature of the industries. 

At present, surface transportation lacks 

organized sector-wide structure and 

processes to identify, assess, shape, 

and adopt technologies from outside 

the sector, especially those that may 

still be in early stages of development 

but may have substantial potential 

to contribute to transportation 

system performance objectives across 

all surface transportation modes. 

There is no systematic institutional 

structure and process to target 

promising technologies and manage 

their development, adaptation, and 

integration into surface transportation. 

Institutional framework for 

technology transfer 

Within surface transportation, a new 

and more formal technology transfer 

process is needed if the focus is to 

effectively deal with technology “not 

invented here” – from outside the 

existing transportation research arena. 

The identification of barriers to be 

overcome by a proposed approach for 

an efficient technology transfer process 

depends on a clear understanding of 

the steps in technology development, 

transfer, and adaptation/adoption 

process. This process must be 

established to effectively deal with each 

stage of the process involved regarding 

technologies from outside the sector. 

The key stages include: 

19


• Research and development – especially 

systematic detection of external 

technology opportunities related to 

acknowledged performance needs in 

transportation 

• Evaluation and Testing – dealing with 

the support of and relationships with 

testing and analysis entities and the 

issues of sponsorship, ownership, 

intellectual property 

• Adaptation – including sponsorship, 

relationships to sectoral standards, 

impact analysis 

• Adoption/Implementation – focused 

on commercialization and 

dissemination approaches, publicprivate 

partnerships, implementation 

mechanisms and feedback 

Technology transfer in 

transportation sector – current 

state of play 

Institutions are key to bridging the 

gap between performance objectives, 

relevant technological trends, and 

the development of an appropriate 

process for identifying, assessing, 

shaping, and adopting innovative 

technologies. There is no existing 

standard best practice model for 

process and institutional arrangements 

across all required steps in the 

technology identification-transferadaptation/adoption 

process. One 

key feature of a desired future surface 

transportation technology transfer 

process is its responsiveness to 

public policy in shaping the overall 

objectives. Communication across the 

institutional boundaries between basic 

research, emerging technology testing, 

performance analysis, and technology 

adaptation/adoption are also essential 

features. In addition, the process 

must be practical. Therefore, special 

attention must be given to the realism 

and practicality of the process. There 

are a range of current mechanisms 

that relate to technology transfer in the 

surface transportation sector. It should 

be noted that most of the focus relates 

to adaptation and applications of 

already well-understood technologies. 

Key features of these mechanisms 

include: 

State-level programs 

State DOTs and other transportation 

agencies, often acting through 

AASHTO, APTA, and ARA committee 

processes, and with U.S. DOT and TRB 

support, have a variety of programs 

that involve technology adaptation and 

applications, including their support of 

the NHCRP, SHRP2 and the University 

Transportation Centers programs 

(UTCs), the LTAP/TTAP processes, 

peer and lead state programs, and 

programs of major authorities and 

state DOT coalitions. On average, state 

DOTs have neither the staff capacity 

nor inclination to adopt unproven 

technologies and innovations, and 

there is an understandable aversion to 

risk and severe financial constraints 

as well. UTCs conduct a wide range 

of research, often in response to state 

interests, but the focus tends to be 

on the applied. A few of the larger 

university affiliated entities conduct 

a wide range of research, often with 

industry partners, some of which goes 

beyond applications. In addition, there 

are other non-transportation state 

agencies with technology incubation 

and transfer functions—typically 

within state commerce and economic 

development entities—and highly 

oriented to supporting the private 

sector. 

U.S. DOT 

All of the surface modal 

administrations (FHWA, FTA, FRA, 

RITA, NHTSA) have some research and 

technology transfer activities reflective 

of the size of their program. With 

RITA coordination, and the efforts of 

FHWA (TFHRC) and NHTSA, there 

have been important contributions in 

technology adaptation and proof-ofconcept 

in areas of ITS, pavements, 

asset management, crash-avoidance, 

and other key areas through several 

key program efforts such as UTC 

research, SHRP2, the IntelliDrive (VII) 

program, and other ITS and NHTSA 

research activities. Research Strategic 

Plans have been developed for U.S. 

DOT, RITA, and modal agencies that 

target purposes and expected outcomes 

and benefit from TRB Research and 

Technology Coordinating Committee 

(RTCC) oversight. However, the 

longer-term research effort is confined 

to relatively small programs, such as 

the Exploratory Advanced Research 

Program (EARP), that represent less 

than 10 percent of total DOT-supported 

research, and occasional assignments 

contracted to federal laboratories, such 

as the Oak Ridge National Laboratory 

(ORNL). 

The Chevy Volt can travel up to 40 miles on a single charge; a case where private sector is developing 

technologies in anticipation of public sector regulations 

minuk 

20



Federal regulatory actions impacting 

technology 

In addition to the direct technologyoriented 

activities of U.S. DOT, other 

federal actions can have a dramatic 

impact on the rate of technology 

development. These include support of 

standards development by both private 

standards development organizations 

(SDO) and state DOTs, and regulation 

of safety, health, environmental 

issues, and occupant protection. The 

recent U.S. DOT policy emphasis on 

performance measurement is another 

type of influence that can drive an 

interest in technological change. 

Transportation research conducted at Argonne National Laboratory 


Transportation private sector (vehicles, 

infrastructure, systems and services) 

Private sector technology transfer 

within the automotive and energy 

industries are heavily weighted to 

applying new technology directly. 

Some of the technology focus 

related to public policy objectives 

is conducted under cooperative 

research arrangements via the auto 

industry consortium, i.e. U.S. Car, 

and include the PNGV and Advanced 

Battery Consortium. The potential 

for revenue-producing customer 

services has spurred a wide range 

of communication and traveler 

information services applications. 

The current uncertain status of the 

U.S. vehicle industry and the gradual 

consolidation in construction and 

materials industries may indicate 

either future threats or opportunities to 

private sector research 

Public-private partnerships 

Many of the government-sponsored 

technology transfer activities 

described above have institutionalized 

government/research entity partnership 

aspects, varying with regard to the 

phase of technology transfer. U.S. DOT, 

through RITA and NHTSA, has both 

contract and cooperative approaches 

to taking emerging technologies 

and embedding them on workable 

platforms for demonstration. Most 

notable among these have been the 

attempts via the UMTA TransBus, 

the FHWA Automated Highway 

Consortium, and the RITA VII 

consortium. 

International experience in the 

transportation sector 

Japan and the European Union have 

high levels of investment in organized 

technology transfer process that 

approximate those used in the more 

technology-oriented sectors in the U.S. 

Research is more consistently goaldriven 

and on a top-down basis with 

close government-industry cooperation 

at a further upstream point than is 

the U.S. convention. There are also 

highly institutionalized processes for 

intellectual property protection. 

Institutional barriers to 

implementation of technology 

solutions 

A comparison of the necessary 

stages in technology transfer, as 

described above with the current 

arrangements, suggests some key 

challenges. The specific requirements 

of any institutionalized process for 

technology identification and adoption 

will vary with the type of technology, 

its industry, its current development 

state, and its adopting institution. 

As suggested above, the existing 

approaches in surface transportation 

have limited capacities for the key 

steps in technology transfer from 

outside the sector as their historical 

focus has been on adaptation and 

deployment. In addition, there are 

several key institutional characteristics 

that shape the responsiveness of the 

surface transportation sector to new 

technologies and approaches. These 

limitations include: 

• Fragmentation of a large number of 

independent units both in the public 

sector and in the private sector 

• Institutional culture within public 

agencies dominated by long-life 

systems with modest incentives and 

financial capacity for change 

• Limited resources of investment 

capital in the public and private 

sectors and a shortage of technologyknowledgeable 

personnel 

• Limited customer feedback and 

stakeholder involvement with regard to 

emerging tastes, needs, and interests 

• Legacy systems that “monopolize” 

technology (e.g. transit or taxis) 

and discourage introduction of new 

services and systems (e.g. demandresponsive 

transit and car sharing) 

• Regulatory uncertainties regarding the 

future application of environmental/ 

energy performance standards 

related to emissions and other factors 

• Risk aversion related to significant 

investments with uncertain payoffs 

• Lack of sustainable legislative support 

from both Congress and state 

legislatures 

21


Complicating the formation of a 

national process is the impact of current 

events: the automotive industry is 

currently in a state of unprecedented 

reorganization, and the public sector 

infrastructure industry is struggling to 

achieve an adequate funding base. 

Moving forward, therefore, requires 

a carefully thought out approach that 

can cope with both the challenges 

and the opportunities of the future. 

Given the importance of incorporating 

new technology to key public policy 

objectives, and the limited scope of the 

existing institutional arrangements, 

a new national framework is needed; 

one that can integrate stakeholders and 

processes across the industry while 

adapting to the unique attributes of 

individual organizations is essential for 

the evolution of transportation service. 

Technology transfer history in 

other relevant sectors 

The current nascent state of technology 

transfer in much of the surface 

transportation sector and focus on the 

longer-term and emerging technologies 

suggests that there may be important 

lessons to be learned in other sectors. 

Some of these other sectors have welldeveloped 

institutional arrangements 

for each of the stages in the technology 

transfer process that are substantially 

adapted to dealing with both new and 

external technology transfer. Some key 

observations include: 

Energy, aerospace, defense and 

commerce 

Most advanced research in the U.S. is 

conducted in three kinds of centers: 

government labs, industrial labs and 

universities. Several other sectors 

with advanced technology interests 

have evolved a set of institutional 

and process practices from which 

the transportation sector can profit. 

These include the U.S. ACOE, whose 

programs impact inland waterways, 

as well as non-transportation entities 

such as NSF, DOD, NASA, DOE, 

NIH, and DOC, which are supported 

through both university research and 

the expensive network of federal labs 

– with significant federal funding and 

formal technology transfer programs, 

partnerships agreements, and activities. 

These sectors have developed a series 

of tools such as: Cooperative Research 

and Development Agreements 

(CRADAs), “spin-out” and “spin-in” 

mechanisms for commercialization, 

technology incubators, competitions 

and awards programs, and wellorganized 

approaches to intellectual 

property and royalties. 

Industrial labs 

Some private sectors support advanced 

technology research centers – especially 

in advanced defense, communications, 

and information systems, such as 

Telcordia, Xerox PARC, and GE labs. 

Private entities have also formed precompetitive 

research consortia (not all 

successful) including MCC, SEMATEC, 

and others. 

Biomedical research 

In this sector, there is an increasingly 

managed approach to bridging the gap 

between research and user/commercial 

application. It possesses both crossdisciplinary 

and inter-institutional 

dimensions. The public health stakes 

and commercial opportunities have 

led to a set of organized conventions 

that link basic research directly with 

clinical investigation and trials for the 

efficacy, safety, and commercialization 

of key therapies. This process is 

highly organized with the aggressive 

engagement of pharmaceutical 

companies, significant research entity 

management, and a range of legal 

and financial investment practices 

designed to protect and encourage the 

biomedical research community. The 

NIH has an Office of Translational 

Research that supports this process, 

where the flow of knowledge can move 

in both directions between research 

and applications experience. Significant 

financial stakes have led to the 

institutionalization of variants of this 

process throughout the industry. 

mightyohm 

Biomedical research employs an increasingly 

managed approach to bridging the gap between 

research and user/commercial application 

Key lessons from the 

conventions of other sectors 

The comparison with practices in 

other sectors highlights several key 

differences between these sectors and 

surface transportation. For example 

these sectors have processes and 

relationships that can accomplish the 

following: 

• Needs targeting and advanced 

technology detection through 

organized research on industry 

communications 

• Legal mechanisms to protect 

intellectual property and patents 

and to manage the apportionment of 

licenses, royalties and fees 

• Legal accommodation of precompetitive 

collaboration 

• Financial incentives, competitions, 

awards and prizes 

• Industry-specific commercialization 

strategies 

• Formal researcher-industry 

partnerships 

• Active venture capital and university 

seed capital 

• Strong government funding 

• Aggressive spin-off, spin-in 

technology transfer arrangements 

• Specific organizations and staff 

within each party to support T2 

activities 

22



These characteristics suggest some 

important future directions for surface 

transportation. 

Development of a new 

technology transfer process for 

surface transportation 

The experience of other sectors 

suggests an organized structure for 

institutionalization of an effective 

technology transfer process. Each 

stage of a process capable of external 

technology transfer requires a set of 

process and institutional capabilities 

and partnerships. The absence of 

a key step can substantially affect 

the likelihood, time, and cost of 

bringing a given innovation forward 

to implementation. Given the range 

of barriers to be overcome, any 

process must be comprised of a set 

of components: responsibilities, 

procedures, relationships, and 

resources. This is needed to provide 

both key steps in technology transfer 

for each of the stages and identified 

key barriers for each step. That 

material can be used as the basis for 

the initial identification of process 

components. As shown below, the 

process components can be described 

and related to their functions across the 

range of technology transfer activities 

and to the entities likely to be involved. 

Stakeholders 

U.S. DOT & Agencies 

Other Federal 

Agencies and Offices 

Associations: 

• State/local govt’s 

• Industry 

Research Entities: 

• Federal 

• University 

Private Sector: 

• Automotive 

• Infrastructure 

• Services 

Process Components 

Long-range Strategic Plan 

Technology Transfer Entity 

Legal Guidelines 

Scanning Process 

Policy Validation 

Sustainable Funding 

Public Information 

Program Coordination 

Public/Private Cooperation 

Incentives 

Key components of a technology transfer process 

Congressional Relationships 

Building on the existing 

processes, entities, and 

relationships in place 

There is no existing model that 

addresses the complete range of 

technologies, sectors, entities, and 

potential functional components 

that might effectively overcome the 

barriers. However, key elements 

of a comprehensive approach are 

apparent and may be combined 

into alternative models. There are 

already several activities in place 

that provide some of the needed 

function. The current activities of 

RITA and FHWA provide a strong 

foundation for technology adaptation 

and processes internal to FHWA, and 

NHTSA provides important technology 

adoption functions. Additionally, 

the department-lab relationships 

within DOE may provide the basis 

for expansion more directly into 

surface transportation. The legal and 

managerial experience in translational 

research may also be useful in areas 

dealing directly with the private sector. 

Strategies to mitigate barriers 

Given the range of barriers to be 

overcome, any process must be 

comprised of a set of components: 

responsibilities, procedures, 

relationships, and resources. This is 

Technology Transfer Stages 

1 Research & 

Development 

2 Evaluation & 

Testing 

3 Adaptation 

4 Adoption/ 

Implementation 

needed to provide both key steps in 

technology transfer for each of the 

stages and identified key barriers for 

each step. That material can be used as 

the basis for the initial identification of 

process components. Key components 

of such an initiative would include: 

• A long-range strategy plan at the 

sector level (25 years) 

• Development of an interagency 

technology transfer function 

• Establishment of clear legal 

guidelines 

• A performance-driven technology 

scanning process 

• Policy validation of a new 

performance-based research and 

technology transfer missions 

• Sustainable funding through 

legislative support 

• Mechanism for public information 

and accountability 

• Coordination among federal aid 

programs 

• Development of improved forms of 

public private cooperation 

• Application of the complete range of 

incentives 

• Improved Congressional 

relationships 

Alternative process model 

dimensions 

Alternative models can be composed 

for an improved technology process 

in the surface transportation sector 

that differ in scope, intensity and 

sponsorship. The options can vary 

along several key dimensions 

including: performance and technology 

focus, staging, functional scope, and 

institutional leadership. Existing 

experience noted beforehand, in both 

in transportation and other sectors, 

suggests a range of options. These 

options might be implemented in 

whole or part and combined to 

comprise alternative approaches. 

Enhanced business-as-usual based on 

an extension of current arrangements 

and roles of the U.S. DOT (FHWA 

and the TFHRC, FTA, RITA and the 

23


Volpe Center, the UTC program, TRB, 

AASHTO and other current research 

initiatives). 

New process regulations and technical 

support focused on specific barriers 

to effective performance-based 

technology transfer such as the Office 

of Translational Research at NIH and 

using tools such as CREDAs. 

Separate performance platform-specific 

consortium initiatives with tailored publicprivate 

partnerships building on the 

experience of the Automated Vehicle- 

Highway (AHS) Consortium, the 

Vehicle-Infrastructure Integration (VII) 

consortium, the Partnership for a New 

Generation of Vehicles (PNGV), and the 

Advanced Battery Consortium. 

New U.S. DOT technology transfer 

agency on a multimodal basis focused 

on overcoming information and legal 

barriers such as the DOE Office of 

Technology Transfer with its federal 

laboratory relationships. 

Legislated federal interdepartmental entity 

with federal-state involvement including 

interdepartmental involvement such 

as the U.S. DOT-HUD Sustainable 

Communities Partnership initiative. 

New public-private corporations for 

technology transfer chartered by 

Congress and based on the Federal 

Government Corporation model such 

as TVA and COMSAT. 

Closing 

Presently, surface transportation 

lacks an organized sector-wide 

process to nurture the development 

of a technology transfer process 

from outside the sector and that 

contributes to transportation system 

performance objectives across all 

surface transportation modes. There 

are useful lessons to be learned from 

other sectors that might be adapted 

in the development of a set of new 

institutional arrangements for surface 

transportation. This article sets out 

the major challenges and suggests an 

approach to developing technology 

transfer mechanisms. 

The most important component of 

an enhanced technology transfer 

process for the surface transportation 

sector will be sustainable leadership 

consistent with the broad scope 

and long time frame involved. 

Institutionalizing the broadest 

Author: 


Argonne National Laboratory is one of the largest DOE research centers. The laboratory conducts a 

variety of research, including for surface transportation. 

possible scope of technology transfer 

requires a high level of organizational 

commitment on a sustainable basis. 

The implications of this requirement 

are a national initiative with strong 

congressional policy and financial 

support and a program structure 

appropriately involving all key 

stakeholders, both public and 

private. • 

Steve Lockwood is a senior vice president with over 35 years of industry 

experience. He provides senior level direction on innovative approaches 

to policy, finance, project, and program development related to systems 

operations and management and ITS, with a special emphasis on publicprivate 

partnerships, innovative finance and deployment, and other 

institutional issues. 

Transportation Engineering Studies, University of Pennsylvania; 

M.S., University of Pennsylvania; 

M.Arch, Harvard University; 

B.A., Harvard College 

lockwoods@pbworld.com 

24

Vol. 3 • Issue 2 Performance Management: Emerging Market Opportunity? 

Performance Management: Emerging Market Opportunity? 

Irargerich 

by 

Wayne McDaniel 

“This is not business as usual. The 

American public has every right to see what 

they will get for increased transportation 

investment. We have to be accountable and 

we have to move to a performance-based 

program focused on national goals. That’s 

where state transportation leaders want to 

go.” Allen Biehler, AASHTO President 

PERFORMANCE management 

is clearly a hot topic in U.S. 

transportation circles. The 

key drivers for the current high level 

of interest and PB’s response to this 

market opportunity are described in 

this article. It closes with a cautionary 

lesson from the past. 

Federal legislation 

The Surface Transportation 

Authorization Act of 2009 (popularly 

known as the Oberstar Bill) currently 

under consideration in the House 

features the establishment of 

performance metrics in each of the 

major program areas. Further, in a 

dramatic departure from the traditional 

formula-driven approach to most 

federal transportation (especially 

highway) programs, it makes funding 

contingent upon the establishment 

and achievement of performancedriven 

funding plans by recipients. 

The Oberstar Bill uses the terms 

“performance target” or “performance 

measure” 95 times (as compared with 

eight references in the predecessor 

legislation, SAFETEA-LU). Companion 

legislation has not yet been introduced 

in the Senate, but discussions with 

Senate staffers indicate that Senators, 

both Democrat and Republican, are 

thinking along very similar lines. 

And the Administration has the 

same mindset, as exemplified by the 

many performance-related criteria it 

established for the discretionary grant 

programs authorized in the American 

Recovery and Reinvestment Act of 

2009. 

The Oberstar Bill’s overall approach is 

to add a performance metric for each of 

the major programs (Freight, Highway 

Safety, Critical Assets, Metropolitan 

Mobility and Access, Statewide 

and Metropolitan Planning, among 

others) to focus attention on these 

respective program’s most important 

objectives and to increase transparency. 

However, this metric is an additional 

program overlaid on top of existing 

rules, regulations, and reporting 

requirements. It could be argued that 

truly transformational legislation 

would replace existing requirements 

with performance-based management, 

rather than supplementing these 

requirements. This would allow 

federal fund recipients greater 

latitude to devise their own solutions 

to transportation issues and be held 

accountable for the results. 

National commissions 

Congressional interest in this topic 

was preceded by reports from two 

national commissions, each of which 

recommended increased emphasis 

on performance management. The 

National Surface Transportation Policy 

and Revenue Study Commission 

called for “Federal funding that is 

performance-based and focused 

on cost-beneficial outcomes with 

accountability for the full range of 

economic, environmental, and social 

costs and benefits of investments.” 

Similarly, the National Surface 

Transportation Infrastructure Financing 

Commission found that “The current 

funding allocation construct does not 

place adequate emphasis on directing 

funds to improve system performance 

or on holding funding recipients 

accountable for real outcomes” and 

viewed “greater emphasis on moving 

to a more performance-based system as 

critical.” 

25


Both of these commissions were 

charged by Congress with exploring 

methods to increase transportation 

funding and both clearly recognized 

that funding proposals needed to be 

accompanied by reforms to improve 

performance and accountability in 

order to be tenable. 

AASHTO and its member 

departments 

Even the American Association of 

State Highway and Transportation 

Officials (AASHTO) has climbed on 

this wagon, as demonstrated by the 

quote from a speech delivered by 

PennDOT Secretary Allen Biehler 

as he took up the reins as AASHTO 

President in 2008. That statement 

was considered remarkable since the 

traditional AASHTO position resisted 

the notion of any kind of program that 

could be used to compare the relative 

performance of the states against a 

national standard. The often-stated 

view was that each state was unique in 

terms of differing conditions, funding 

and objectives, thus making meaningful 

comparisons impossible. More recently, 

AASHTO’s October 2009 resolution 

regarding the authorization of federal 

highway and transit programs 

included: 

“National objectives and performance 

measures should be developed 

collaboratively by the U.S. DOT 

and State DOTs to bring focus and 

accountability for results to the 

program. To further that goal the 

legislation should authorize a statedriven 

performance management 

process to establish targets through 

which each state does its part to achieve 

national objectives.” 

To reiterate, this represents a dramatic 

departure from the traditional 

position of AASHTO and its member 

departments. However, special 

attention should be paid to the 

phrase “state-driven”. That’s a key 

consideration for AASHTO and its 

members, both now and in the past. 

Minutes 

35 

30 

25 

20 

15 

10 

5 

0 

30.0 

16.1 

3.8 

J a n. 

Average Time to Clear Traffic Backup From Incident 

St. Louis 

23.6 

16.6 

4.0 

F e b. 

March 

20.5 

16.5 

6.3 

13.5 

12.4 

5.0 

Apri l 

21.1 

4.9 

11.0 

4.9 

The organization has now established 

a Standing Committee of Performance 

Management to provide structure for 

its continued activity on this topic. The 

committee is led by two of AASHTO’s 

more proactive members (Missouri 

DOT Director Pete Rahn as Chair and 

Michigan DOT Director Kirk Steudle as 

Vice Chair) and has established eight 

task forces. 

As is typically the case, some State 

DOTs are further along the curve in 

developing proficiency with a new 

management tool than others. Three of 

the leaders are Minnesota, Missouri, 

and Washington. MnDOT’s Annual 

Transportation Performance Report 

(located at http://www.dot.state. 

mn.us/measures/performancereports. 

html) has been in place since the 

1980s and features a Scorecard that 

measures the agency’s performance 

in 16 policy areas, comparing targets 

versus actual, and providing a fiveyear 

trend analysis. For example, 

MnDOT has a bare lane target after 

winter storms end that varies by 

traffic volume category (zero to three 

hours for super commuter routes). 

The Scorecard reports a target of 

greater than 70 percent, actual 2008 

results of 75 percent, and a five-year 

trend analysis indicating gradually 

improving performance until December 

May 

9.2 

J une 

8.6 

17.6 

14.7 

5.4 

J uly 

19.0 

14.6 

4.3 

Aug . 

Calendar Month 

One of the 117 performance measures published in MoDOT’s Tracker report 

17.7 

9.8 

5.3 

Sep t. 

13.0 

Oc t. 

6.1 

Nov. 

13.2 12.6 

7.4 

Dec. 

2009 

2008 

2007 

DESIRED 

TREND 

‘08/January ‘09 when frequent, heavy 

snowfalls and extreme cold conditions 

retarded the effectiveness of chemicals. 

MoDOT publishes Tracker (available 

at http://www.modot.mo.gov/about/ 

general_info/Tracker.htm), a monthly 

report built around 18 “Tangible 

Results” (example: Uninterrupted 

Traffic Flow). The assessment on 

achievement of these results is 

supported by 117 performance 

measures (example above: Average 

Time to Clear Traffic Incident) reported 

each and every month. Each result 

and measure has a Driver who is 

individually identified in the report 

and is accountable for performance. 

WSDOT publishes The Gray Notebook 

(located at http://www.wsdot.wa.gov/ 

accountability/graynotebook/default. 

htm), a quarterly performance report 

with extensive information on virtually 

all aspects of the Department’s 

activities. It includes a Performance 

Dashboard which serves a similar 

purpose as MnDOT’s Scorecard. 

WSDOT has placed great emphasis 

on using the Gray Notebook and 

related documents to report its ability 

to meet commitments and improve 

performance, thereby building 

credibility with the legislature, media, 

and the general public. The Department 

secured major revenue increases in 2003 

5.3 

source: MoDOT 

26

Vol. 3 • Issue 2 Performance Management: Emerging Market Opportunity? 

and 2005 and this new-found credibility 

was a primary factor in receiving and 

keeping the increased funding. The 

Gray Notebook was initially conceived 

by former Transportation Secretary 

Doug MacDonald. It has now passed 

one institutional test by continuing to 

be a key Department document during 

the tenure of his successor, Secretary 

Paula Hammond. 

PB service offering 

Cognizant of these developments, 

Parsons Brinckerhoff is honing 

its performance management 

qualifications, building upon highlyrelated 

work conducted over the 

past decade. This previous and 

ongoing experience includes Howard 

Wood’s creation of performancedriven 

pavement and bridge 

programs while at Ohio DOT; a 

series of asset management-related 

research projects conducted for the 

Transportation Research Board (asset 

management was a precursor to the 

current emphasis on performance 

management and embodies most of the 

same principles); asset management 

programs in Ontario, Canada, the 

United Kingdom, Utah, and Virginia; 

and current projects for the Federal 

Highway Administration to develop 

an implementation framework for 

a performance-based federal-aid 

highway program. 

A cautionary note 

Thus, there is much to be excited about 

with the current focus on performance 

management. However, for those 

blessed (burdened?) with lengthy 

experience in transportation policy 

and management much of the recent 

discussion is hauntingly familiar. In 

the late 1980s there was a similar burst 

of interest and activity in increasing 

the degree of sophistication in the 

management of state transportation 

agencies and this found expression in 

the Intermodal Surface Transportation 

Efficiency Act of 1991 (ISTEA). Among 

ISTEA’s many innovative provisions 

was a requirement for states to establish 

management information systems to set 

priorities for transportation projects in 

six areas - highway pavement, bridges, 

highway safety, traffic congestion, 

public transportation facilities 

and equipment, and intermodal 

transportation facilities and systems. 

The theory was that management 

systems would be designed to help 

states address transportation needs 

from a technical standpoint so that 

decisions would not be purely 

politically driven. 

Before ISTEA, many states had in 

place some management system 

elements, particularly for highway 

pavements and bridges, but for other 

states, this represented a departure, 

a new way of operating. However, 

for all states these new requirements 

quickly became decidedly unpopular 

because they were viewed as unfunded 

federal mandates. And this was the 

view of even those states that were 

well advanced in the development of 

management systems – they wanted to 

implement these systems as a means to 

improve decision-making and program 

performance, not because they were 

being forced to do so by the federal 

government. 

In the ensuing controversy, the 

requirements for these systems were 

initially modified and deadlines 

extended and then, one by one, 

deleted. In the end, none survived 

and management system advocates 

were forced to conclude that the 

movement had actually been set back 

by the federal mandate. One can only 

hope that lessons have been learned 

from this experience and that the next 

round will exhibit a greater degree 

of sensitivity to states’ concerns and 

a spirit of partnership designed to 

engender rather than undercut 

support. • 

PB’s approach to performance 

management is oriented to key goal 

areas such as: 

• Assure System Safety & Security 

• Increase Mobility/Reduce Congestion 

• Promote (Support) Economic 

Development 

• Promote effective Infrastructure 

Asset Management/Preservation 

Investments 

• Assure Environmental Protection 

• Streamline Project Delivery 

• Improve Energy Management and 

Carbon Footprint Reduction 

Author: 

Wayne McDaniel is a principal consultant with over 38 years 

transportation experience, both public and private sector. He has extensive 

experience in asset management, a field that is now transitioning to 

performance management. He currently manages two major on-call 

consulting services contracts with Maryland agencies. 

M.A., University of California at Los Angeles; 

B.A., University of California at Los Angeles 

mcdaniel@pbworld.com 

27


Fuel Prices and the U.S. Freight Rail Industry 

Max Wolfe 

by 


AMERICA’S freight railroads 

have undergone resurgence 

over the last two decades. Rail 

shipping volumes grew to a record in 

2006, Class I railroad equities earnings 

have grown significantly, and rail 

productivity has improved. While 

the current economic recession has 

substantially lowered rail volumes, 

there will be recovery at some point, 

and volumes will recover too, albeit at 

a lowered expansion path. However, 

the bottom line success of the major 

freight railroads, which are exclusively 

diesel powered, may be more seriously 

threatened by the specter of continued 

and rapid escalation of oil prices, the 

major (but not the only) determinant of 

diesel fuel prices. Indeed, the threat to 

some regional and short line railroads 

is even greater, as these companies 

operate on slim to virtually zero 

margins. This article discusses some 

of the types of impacts to the nation’s 

freight railroads that may be expected 

over time as oil prices climb, both 

steadily and as price spikes periodically 

occur. 

Oil price increases 

The figure below, from the U.S. 

Department of Energy Office of Energy 

Information, charts nominal and real 

diesel fuel prices since 1980. Until 

about 2000, real diesel prices actually 

fell; after 2002, both nominal and real 

prices increased steadily, as inflation 

was low. As everyone knows, the floor 

fell out on fuel prices at the end of 2008, 

although price levels have “recovered” 

(from the producers’ perspective) a 

good deal since then. 

Over time, oil and fuel prices, including 

diesel fuel, can be expected to grow at 

increasingly faster rates, as world oil 

supplies dwindle and as world demand 

Cents per Gallon 

500 

450 

400 

350 

300 

250 

200 

150 

100 

50 

0 

Nominal 

Real 

increases. China’s economic growth, as 

well as growth of the other emerging 

economies of India, Russia, and 

Brazil, will drive this pace toward and 

—eventually—beyond a global tipping 

point. The notion of a tipping point 

has been best articulated in the wellknown 

“Hirsch” report, commissioned 

by the U.S. Department of Energy 

(DOE) . In that report, the authors 

note that “…the peaking of world oil 

production presents the U.S. and the 

world with an unprecedented risk 

management problem. As peaking is 

approached, liquid fuel prices and price 

volatility will increase dramatically, 

and, without timely mitigation, the 

economic, social, and political costs will 

Projections 

Jan-80 

Jan-82 

Jan-84 

Jan-86 

Jan-88 

Jan-90 

Jan-92 

Jan-94 

Jan-96 

Jan-98 

Jan-00 

Jan-02 

Jan-04 

Jan-06 

Jan-08 

Jan-10 

Nominal and real diesel fuel prices 

source: EIA 

28



be unprecedented. Viable mitigation 

options exist on both the supply and 

demand sides, but to have substantial 

impact, they must be initiated more 

than a decade in advance of peaking.” 

Experts differ, but the peak may occur 

around 2020, or earlier, depending on 

assumptions. 

Railroad response 

There are several aspects of rail 

industry behavior that define the likely 

range of impacts: 

• The railroads’ direct market response 

to higher fuel costs 

• The impacts of fuel increases on 

overall demand for goods movement 

• The impacts on rail-truck mode split 

• Specific implications for key industry 

sectors which rely on rail 

While steep and rapid diesel price 

increases represent a direct and 

significant increase in railroad costs 

and are a threat to rail margins, 

evidence shows that freight railroads 

have weathered these storms rather 

well in the past—including the recent 

past—even while diesel prices have 

risen more rapidly than general 

producer prices. 

Several factors have played in rail’s 

favor: 

• The short-term influence of rising 

fuel prices gave more efficient rail an 

edge, as trucks are much more fuel 

intensive than rail 

• Long-term forces of international 

trade growth, which require lengthy 

shipping of containers more suited 

to rail 

• Truck driver shortages and hours 

of service rules have reduced the 

productivity of trucking, as has 

increased highway congestion in all 

urban areas 

• Rail productivity has improved as 

the major freight railroads have 

increasingly shifted their business 

model toward unit train service and 

long distance intermodal services 

as well as adopted improved 

technology 

• Lack of any similar significant 

technological or operating changes 

in motor carrier transportation has 

prevented trucking companies from 

mitigating the effects of increased 

fuel costs 

Freight rail’s direct market 

response 

As fuel prices increase rapidly, freight 

railroads have and will continue 

to respond with some combination 

of cost cutting, seeking to shift fuel 

price increases forward to customers 

via regulated fuel surcharges, and 

eliminating low margin services and 

increasing high margin services to the 

extent market conditions and railroad 

fixed assets permit. High margin 

services for the railroads include unit 

trains and intermodal services, where 

long trains of 100 cars or more are made 

up, and travel essentially non-stop to a 

final destination or intermodal facility 

for further distribution or drayage. 

Railroads are and can be expected to be 

successful in implementing all of these 

strategies—at least to a point. 

For example, railroads are allowed 

to implement fuel surcharges 

under strict accounting rules and 

conventions established by the Surface 

Transportation Board. While fuel 

surcharges are also allowed under 

trucking industry regulations, the 

surcharges are more “effective” for the 

railroads. First, not all truckers utilize 

the surcharges – small independent 

truckers, in particular, generally 

do not have this option. More 

Increasing train length helps save fuel costs 

importantly, because fuel is a much 

higher proportion of the costs of truck 

operations than for rail, the size of 

the surcharge is much greater in the 

trucking industry, and rates increase 

by a much larger increment placing 

trucking at a further competitive 

disadvantage. Finally, because 

the trucking industry is far more 

competitive than the railroad industry, 

the ability of truckers to actually shift 

these costs forward to customers is 

more limited, as truckers are pushed to 

strip margins to barebones levels, even 

with the surcharges. 

Overall impacts on freight 

demand 

Freight railroads benefited enormously 

—both in terms of absolute volumes 

and in freight mode share—from the 

decade-long increase in global trade. 

This increase occurred even as diesel 

prices increased in real terms. Rail 

shipping volumes grew to a record 

in 2006, boosting shares and earnings 

at the four biggest operators: Union 

Pacific Corp., Burlington Northern 

Santa Fe Corp., CSX Corp. and Norfolk 

Southern Corp. The S&P’s 500 Rail 

Index has tripled since March 2003. 

As the price of oil climbed 37 percent 

in five months from January 18th, 

2007, shares of Union Pacific based 

in Omaha, Neb., the biggest U.S. 

railroad company, gained 24 percent. 

Shares of CSX based in Jacksonville, 

Fla., the third-largest, rose 26 percent. 

Income for all class-one railroads was 

$4.9 billion in 2005, according to the 

Association of American Railroads 

Rennett Stowe 

29


(AAR). In 2007, it was $6.8 billion, a 39 

percent increase. 

While trucks offer a cost advantage 

on most short haul movements and 

can reach places that are not typically 

accessible by rail, they consume about 

four times as much fuel to move a 

shipment as a train does, according 

to U.S. Energy Department data. And 

with the higher fuel costs in 2007 and 

2008, shipping rates were about five 

times higher for trucks compared to 

trains. During this time, railroads 

also saw an added benefit from the 

rising price of oil because it drove up 

domestic demand for coal and ethanol 

as energy sources. Both commodities 

are carried mainly by rail, as are corn 

and fertilizer which are both used 

to produce ethanol. Union Pacific 

credited ethanol-related shipping for a 

24 percent surge in first-quarter profit 

in 2007. The railroad’s agricultural 

shipping revenue grew by eight percent 

in the same quarter as farmers planted 

the most corn since World War II, and 

chemical shipping revenue, including 

finished ethanol, rose nine percent. 

The rail industry also obtained more 

West Coast port traffic due to the 

increased number of rail lines that 

reach port terminals; at the same time, 

traffic congestion increased the time it 

takes for trucks to enter and exit ports. 

Modal competitive effects 

– truck vs. rail 

The preponderance of evidence is 

that this decade’s increases in diesel 

fuel prices have resulted in significant 

mode shifts from truck to rail. While 

trucks offer a cost advantage on most 

short hauls and can reach places that 

are not typically accessible by rail, they 

consume about four times as much fuel 

to move a shipment as a train does, 

according to U.S. Energy Department 

data. And with the higher fuel costs 

in 2007 and 2008, shipping rates were 

about five times higher for trucks per 

ton compared to trains. 

Trucks offer short haul advantages over rail, but consume four times as much fuel 

Statistical analyses further confirm 

the mode shift toward rail as diesel 

prices increased. A recent study 

conducted on behalf of the Association 

of American Railroads (AAR) found 

that, even when controlling for growth 

in overall freight volumes and world 

trade, fuel price increases still were 

found to be positively correlated with 

rail mode share, indicating that the 

negative impact on trucking outweighs 

any negative effect on the railroads 

themselves. Viewed differently, the 

results of this research indicate that 

even controlling for the effects of fuel 

price increases, increased trade, import 

and export activity will still drive mode 

shares higher for rail, as the increased 

trade activity shifts demand into more 

rail-friendly intermodal transportation. 

There are limits beyond which mode 

shift to rail cannot be expected, 

however. At some point, diesel price 

increases will push railroads to a 

financially untenable position, even as 

demand wants to shift from truck to 

rail. Limitations to rail capacity will 

make it difficult for railroads to absorb 

the additional demand, and costs will 

begin to outstrip market gains. At that 

point, the railroads can be expected 

to commence a serious shedding of 

lowest margin services, and will also 

commence—out of necessity—investing 

in alternative propulsions systems. 

Rennett Stowe 

Impacts on demand for 

selected key rail dependent 

industries 

Following the general trends, fuel price 

increases have, at least in recent times, 

been relatively favorable for freight rail 

providers in many parts of the country 

and for certain major industries. 

Specific industries have turned more 

towards rail in some instances, or are 

poised to do so. This is due mainly to 

rail’s increasing cost advantage as fuel 

prices rise and the much larger volume 

of goods moved by truck, which offers 

a very large base of “low hanging 

fruit” from which market share can 

be diverted. At the same time, higher 

energy costs affect many of the most 

important rail dependent sectors in 

direct ways, which impact the railroads 

from the demand side: 

Energy: During recent years of fuel 

price increases, railroads saw a doublebenefit 

from the rising price of oil 

because it drove up domestic demand 

for coal and ethanol as energy sources. 

Both commodities are carried mainly 

by rail, as are corn and fertilizer which 

are both used to produce ethanol. 

Union Pacific credited ethanol-related 

shipping for a 24 percent surge in firstquarter 

profit in 2007. This positive 

effect may not be sustainable, however, 

as energy production shifts from coal 

—even “clean coal”—to alternative 

sources. On the other hand, only the 

30



railroads can practically move wind 

turbines, providing some (albeit small) 

compensatory boost to the railroads. 

Agriculture: Recent fuel price increases 

have created a more mixed outcome 

for the freight railroads in the case of 

agricultural products. In the case of 

major agricultural commodity exports 

from the Midwest farm belt, higher oil 

and fuel prices have not been especially 

favorable to the railroads. Together, 

corn and wheat comprise a significant 

share of the through rail traffic from 

Upper Midwest production regions 

to Pacific Northwest ports. Higher 

oil prices resulted—particularly 

during the 2008 oil price run up—in 

a substantial reduction in U.S. grain 

exports, as foreign importers saw 

transportation delivery costs increase 

greatly. Moreover, higher diesel prices 

tend to shift grain exports to the inland 

waterway/Mississippi River basin and 

Gulf Ports, further eroding rail market 

demand. In addition to direct price 

effects on grain exports, higher prices 

affect the way grain (particularly corn) 

is used. According to the Foreign 

Policy Association, as much as onethird 

of U.S. production of corn was 

shifted to ethanol production at the 

high point of oil prices. While more 

than half of ethanol moves by rail, 

much of it also moves by truck, as 

ethanol supply chains are relatively 

short at the present. Between 2000 

and 2005, rail’s share of corn ethanol 

decreased from 69 percent to 60 

percent. 

looking for alternatives to relying solely 

on trucking. More shippers have turned 

to rail transportation to move fruit to 

domestic markets. 

Are the nation’s railroads 

sufficiently poised to respond 

to these increases over time? 

In the short run, railroads will 

undoubtedly respond by shedding 

marginal services and trimming costs, 

but the margin for this is already small, 

as most marginal services have already 

been eliminated. Short line railroads 

will have a rockier future in many 

cases. Over time, freight railroads 

will simply have to respond to fuel 

price increases, which—assuming the 

mollybob 

Rail electrification will be prohibitively costly in 

all but the most heavily trafficked corridors 

“Tipping Point” model is accurate— 

will be unsustainable from a business 

perspective. First and foremost, this 

will mean shifting from diesel powered 

to alternative powered engines. 

Electrification will be prohibitively 

costly in all but the most heavily 

trafficked corridors, although new 

rail corridor developments, including 

high speed rail corridors, may provide 

a solution in some cases. Even clean 

diesel or non-petroleum conventionally 

fueled engines, powered by ethanol 

or other organically derived fuel, 

will require expensive adaptations or 

equipment replacement. Government 

can—indeed will probably have to— 

help, through investment tax credits, 

carbon credits, a railroad version of 

the “cash for clunkers” program, and 

possibly other means. Some of the cost 

can be passed on to end-users through 

rate increases, but not all. 

Adaptation will be necessary, and 

will occur and government assistance 

will be needed to mitigate the 

massive costs to U.S. industries and 

consumers. Political support for such 

assistance, of course, will be difficult 

in a perpetual climate of “no new 

taxes”, and assistance to railroads will 

almost certainly warrant assistance 

to the trucking industry as well. 

However, absent this assistance, the 

U.S. consumer will incur the hidden tax 

implicit in increased prices at the store. 

It will be costly, but the costs of doing 

nothing will be greater. • 

In localized markets, diesel price 

increases have resulted in some 

significant gains from agricultural 

customers. Using Oregon as a case 

study (where PB is leading the 

development of the Statewide Freight 

Plan for Oregon DOT), the increases 

in fuel costs—starting in 2006 and 

culminating at the end of 2008—have 

contributed to the shut down of a local 

trucking companies; subsequently, 

the shortage of available trucks has 

Oregon’s $727 million nursery industry 

Author: 

Dr. Ira Hirschman is a principal economist with over 27 years of 

consulting experience. He has managed or been the primary economic 

analyst for transportation, urban development, and infrastructure 

development studies both in the U.S. and internationally. 

Ph.D. and M.A., Rutgers University 

hirschman@pbworld.com 

31


PB Assists TIGER Grant Applications 

Dru Bloomfield 

by 

Howard Wood and Jeff Ensor 

IN response to the country’s 

extraordinary economic crisis, 

Congress and the Obama 

Administration created several new 

infrastructure grant programs as 

part of the American Recovery and 

Reinvestment Act of 2009 (ARRA). One 

such program was for Supplemental 

Discretionary Grants for a National 

Transportation System, more 

commonly referred to as the U.S. 

DOT “TIGER Discretionary Grant” 

or “TIGER Grant” program, which 

sought to fill the funding gap in large 

surface transportation capital projects 

that could not only create jobs and 

economic activity quickly but also 

generate significant long-term benefits. 

PB’s Strategic Consulting practice 

helped state, local, and private-sector 

clients create 44 applications, including 

highway/bridge, transit, Intelligent 

Transportation System, class I freight 

rail, short line railroad, multimodal 

passenger facility, and port projects. 

Unparalleled program demand 

Even before U.S. DOT announced 

the TIGER grant program guidelines 

in May/June 2009, the program had 

generated a flurry of interest. Many 

highway megaproject sponsors viewed 

the program as a unique opportunity 

to complete their financial plan with 

competitive federal dollars, which have 

been almost non-existent in recent years 

due to 100 percent earmarking of other 

discretionary programs (e.g., Projects 

of National and Regional Significance). 

As a result of U.S. DOT Secretary 

LaHood’s spring 2009 comments that 

the program would likely focus on 

projects not funded under other ARRA 

programs (e.g., port and intermodal), 

many freight sponsors began 

positioning their projects early and 

got a jump start on the key analyses. 

However, public statements by DOT 

officials in various industry meetings, 

as well as the announcement of the 

Administration’s Livability Initiative, 

sent a signal that transit projects might 

also do well. 

By the time of the application deadline 

on September 15, 2009, a total of 1,381 

applications had requested $56.9 

billion from the $1.5 billion program. 

In other words, the program was 38 

times oversubscribed—far more than 

the other discretionary transportation 

programs funded by ARRA or any 

other in recent history. 

Program review: TIGER, 

TIGER, burning bright 

The TIGER program criteria were 

unique in that they focused on 

quantifying several considerations 

that typically are not the province of 

transportation project selection. Some 

highlights of the program were: 

State of Good Repair: Applicants had to 

demonstrate that their projects would 

utilize asset management practices and 

have sustainable funding for their longterm 

maintenance. 

Near-Term Job Creation: the TIGER 

program required an analysis of the 

number of construction-related jobs 

that would be created by the projects. 

Long-Term Economic Competitiveness: 

In addition to construction jobs, the 

TIGER program targeted transportation 

projects that could quantify their 

long-term impacts on economic 

competitiveness or generate economic 

development (new business location 

or expansion, or neighborhood 

redevelopment) springing forth from 

the transportation investment. 

Benefit-Cost Analysis: U.S. DOT 

encouraged the use of benefit-cost 

analysis in application development, 

32


Strategic Consulting Assists TIGER Trant Applications 

and required grant requests greater 

than $100 million to demonstrate that 

the benefits would exceed the costs. 

Livability: The program also placed 

emphasis on the “livability” aspects, 

such as the extent to which housing 

and employment are linked by lowcost 

transportation options, or the 

development of non-highway travel 

alternatives. 

Sustainability: The TIGER guidelines 

requested an analysis of a project’s 

“sustainability” aspects—its impact on 

air quality, energy consumption, and 

benefits to the environment. 

Partnership: Although up to 100 percent 

of the project cost could be requested, 

projects that included non-federal 

sources in the financial plan and/or 

demonstrated unprecedented levels of 

partnership with other entities received 

extra credit. 

Economic Distress: Finally, investments 

were targeted at federally-defined 

Economically Distressed Areas—areas 

with high unemployment rates and 

low per capita average annual incomes. 

It is expected that economic distress 

considerations will play an important 

role in allocating TIGER funds. 

In addition to these project attributes, 

grant guidelines stressed “readiness” of 

projects (level of design, environmental 

clearance) and their timeline for 

completion, providing further 

emphasis on the intent of the program 

to help jump-start the economy. 

Few federal grant programs have ever 

attempted to consider such a wide 

range of impacts across such a diverse 

set of transportation projects. In part 

because of the far-reaching nature 

of the criteria, many projects were 

not prepared to provide quantitative 

evidence of their impacts on these 

criteria and were forced to perform 

simplified analyses in order to meet the 

program timeline. 

Riding the TIGER: PB 

assistance with grant 

applications 

As might be expected for such a novel 

program, the TIGER program criteria 

created new challenges for grant 

applicants, who were tasked with 

developing compelling applications 

that could meet or exceed high 

expectations on a relatively short 

time frame and in a short application 

document. Dozens of clients reached 

out to PB for assistance and advice. 

The role of PB’s Strategic Consulting 

staff ranged from performing 

targeted economic analysis to 

providing strategic recommendations 

to developing and writing entire 

applications. 

At the outset of each TIGER 

application discussion, PB’s Strategic 

Consulting staff provided clients 

with an overview of the program, 

key differentiators, imperatives to 

submitting a competitive application, 

and information from around the 

country about the unprecedented level 

of interest in this highly competitive 

program. PB provided clients with an 

honest assessment of the proposed 

TIGER application’s chances, and in 

many cases PB recommended against 

preparing an application knowing that 

Jose D. Leon Guerrero Commercial Port 

Port Authority of Guam 

The Port Authority of Guam applied for TIGER grant funds for port modernization. PB provided 

application assistance. 

it was unlikely to be competitive and 

that the clients’ time and money could 

be used better elsewhere. 

Once the strongest project proposals 

were identified, PB assembled a multidisciplinary 

team of federal policy 

experts, economists, and engineers 

to perform analysis and write the 

applications. In many cases, PB staff 

helped clients shape elements of their 

project into the most appropriate scope 

for TIGER eligibility and criteria. Then 

the more technical analyses of job 

creation and economic benefits were 

initiated. 

PB’s economists were instrumental in 

providing several types of economic 

analysis. For nearly every application, 

PB prepared an estimate of the 

construction or manufacturing jobs 

and impacts that would result from 

the project. To quantify these (shortterm) 

impacts, PB often used Bureau 

of Economic Analysis (BEA) Regional 

Input-Output Modeling System (RIMS 

II) multipliers. RIMS II multipliers 

classify each cost category according 

to industry sector, and provide direct 

impacts (new spending, hiring, and 

production by construction companies 

or vehicle manufacturers) and indirect 

impacts (secondary, inter-industry 

33


purchases in the local economy 

in support of the construction or 

manufacturing project). This type of 

analysis provided a geographically 

specific estimate of direct and indirect 

impacts, classified by industrial sector, 

resulting from proposed project 

spending. 

For some projects, PB used its PRISM 

tool to estimate both short- and longterm 

regional economic benefits of a 

proposed TIGER project (for more on 

PRISM, see EFR Volume 3, Issue 1). 

Use of the PRISM tool not only allowed 

for an estimate of short-term impacts, 

but it also allowed PB economists to 

convert a project’s post-construction 

time and cost savings into an estimate 

of new long-term jobs, production, and 

value added in any future year. PRISM 

proved to be an ideal and invaluable 

tool for many TIGER applications. 

Using estimates of a project’s 

construction costs, operating and 

maintenance costs, asset life cycles, 

and long-term economic benefits, PB 

analysts created or updated project 

benefit-cost ratio and net present 

value calculations using U.S. DOT’s 

guidelines for discount rates and 

economic valuations. Sensitivity 

analysis was performed in many cases. 

Some sponsors did not yet have a 

project’s benefits quantified in a manner 

suitable for benefit-cost analysis, in 

which case PB helped clients quantify 

impacts for a benefit-cost analysis or 

develop an alternative approach. 

In a very brief period of time, PB 

economists and policy experts 

provided clients with detailed and 

credible estimates of economic benefits. 

This data was then summarized and 

assembled into highly organized and 

readable narratives, which met all the 

U.S. DOT requirements for TIGER 

applications. Like our clients, PB 

eagerly awaits U.S. DOT announcement 

of TIGER grant awards, expected in 

early 2010. 

Analysis: did this TIGER have 

teeth? 

With 38 times more in dollar requests 

than funding available, the TIGER 

program will surely result in many 

meritorious projects not receiving 

grants. For these projects, a rejected 

TIGER application should be the 

beginning—not the end—of a quest for 

a viable financial plan. 

PB’s Strategic Consulting practice 

has extensive experience with 

helping public and private sector 

clients develop traditional as well 

as innovative financial plans for 

transportation projects. For proposed 

TIGER projects with positive economic 

development attributes, one option 

may be to identify a value capture 

strategy that can convert a stream 

of benefits to an up-front capital 

contribution using project financing. 

Such value capture tools might include 

assessment districts, tax increment 

financing, tolls, or joint development 

contributions. In some cases, it may 

be possible to arrange a public-private 

partnership to share a project’s risks, 

benefits, and costs. 

Many project sponsors have expended 

a great deal of effort to create and 

submit their TIGER grant applications. 

Rather than accepting “no” for an 

answer, moving meritorious projects 

to the shelf, it would be advisable 

for these agencies to use their TIGER 

application as a project pro forma 

Official ARRA construction sign 

document to consider other sources 

of public and private financing, or to 

perform additional analysis to better 

make a case for the project to decisionmakers 

in the future. 

Outlook: will TIGER change its 

stripes? 

For many years, the trend has 

been to reduce the share of federal 

transportation dollars that are 

awarded on a competitive basis (with 

the exception of the Federal Transit 

Administration’s New Starts Program, 

which has continued to maintain its 

discretionary nature and increase 

in size). Particularly in highway 

funding, the federal government 

has been “hands off” when it comes 

to individual project selection. A 

dramatic exception to this trend 

happened with ARRA, which allocated 

significant sums of transportation 

dollars to competitive programs such 

as TIGER, the high-speed intercity 

passenger rail program, a transit CO 2 

and energy efficiency program, and 

a small shipyards program. Some are 

calling for up to one-third of federal 

transportation dollars to be allocated on 

a competitive basis in the future. 

Are discretionary grants a sign 

of things to come from federal 

transportation programs? The answer 

is probably “yes,” but there are many 

more lessons to glean from the TIGER 

program. 

First, increased accountability is 

certain to be a key part of future 

federal funding programs. Two 

congressionally-chartered commissions 

called for more rigor in transportation 

project selection, and the FHWA has 

indicated a growing interest in various 

benefit-cost methodologies. The TIGER 

grant program provided U.S. DOT with 

a test bed for benefit-cost analysis, and 

it is reasonable to believe such analysis 

will become a standard requirement, at 

least for some programs. 

34


Strategic Consulting Assists TIGER Trant Applications 

The TIGER program is expected to place particular emphasis on freight investments 

Second, the TIGER program reflected a 

strong belief that certain transportation 

investments can increase our country’s 

economic competitiveness and/or 

generate economic development. 

This notion is not new, and FHWA 

has sponsored development of 

various analytical tools to assess the 

economic impacts of transportation 

projects. However, there is clearly 

a belief that current transportation 

programs are missing at least some 

economic development opportunities, 

so the transportation community 

can expect renewed emphasis on 

development in pending program 

reauthorization. In many cases the 

economic competitiveness benefits can 

be quantified, and this analysis can 

often be more effective if done before 

the rush to write an application. 

Perhaps not surprisingly, the 

TIGER program placed particular 

emphasis on freight investments—a 

common concern voiced by nearly 

every quarter of the transportation 

community. Lacking other sources 

of consistent program funding, the 

TIGER program provides a boost 

for freight investments. Additional 

funds could soon be allocated to 

freight projects through the so-called 

“TIGER II” (formally called “National 

Infrastructure Investments” in the 

FY2010 appropriations bill) program or 

Authors: 

runner310 

the Projects of National and Regional 

Significance program, but the outcomes 

the TIGER grant decisions will help 

lay the groundwork for a more formal 

freight program to come. 

Along with freight, livability and 

sustainability concerns figure 

prominently in contemporary 

transportation policy discussions. 

Livability concerns are more local 

—linking housing and jobs, and 

providing transportation options 

—while sustainability considers a 

more global awareness of petroleum 

dependence, CO 2 

emissions, and air 

quality. Discussion of these issues 

is rapidly turning into policy, as 

Howard Wood is a principal consultant specializing in statewide and 

metropolitan planning, freight planning, performance management, 

ITS and transportation policy development. He has led transportation 

planning studies for state DOTs and MPOs, and is developing financing 

plans for a number of intermodal projects across the U.S. 

M.S., Rutgers University; B.S., Ohio State University 

wood@pbworld.com 

Jeffrey Ensor is an expert in surface transportation policy, finance, and 

economics. He frequently advises public and private sector clients on 

federal legislation, grant programs, and federal-aid requirements. 

M.S., Massachusetts Institute of Technology; 

B.S., Washington State University 

ensor@pbworld.com 

evidenced by the June announcement 

by U.S. DOT, HUD, and EPA of an 

interagency partnership with six 

livability principles to coordinate 

policy. At the very least, livability and 

sustainability principles are likely to be 

a requirement in future transportation 

planning processes, and we may see 

new federal funding programs to 

advance these issues. In fact, FTA 

recently announced that it is seeking 

applications (due February 8th) for 

$280M of Livability grants for streetcar, 

bus, and bus facility projects. Many also 

see some form of a cap-and-trade CO 2 

program as likely in the coming years, 

which will have far reaching impacts 

on the transportation sector. 

Finally, the TIGER program is a 

tremendous test for U.S. DOT. This 

Department is tasked with the 

monumental challenge of allocating an 

extremely limited amount of funds in a 

manner that rewards the best projects, 

is perceived as fair and transparent, 

and is deemed politically acceptable. If 

U.S. DOT can do this, Congress will be 

more likely to provide the Department 

with the authority and resources to 

continue TIGER-like programs. As 

evidence of some initial trust, Congress 

recently appropriated $600 million for 

U.S. DOT to make so-called TIGER II 

grants in 2010. • 

35


An Innovative Billing System at a Wastewater Utility 

m.gifford 

by 

Stephen Kuhr and Brian Reed 

THE combined sewer systems 

typically found in older U.S. 

cities were designed to collect 

stormwater runoff, domestic sewage, 

and industrial wastewater in the same 

pipe. Modern system design uses one 

pipe to convey stormwater runoff to 

nearby water bodies and a separate 

pipe to convey domestic and industrial 

sewage to a treatment plant. Most 

of the time, combined sewer systems 

convey all of their wastewater to a 

treatment plant, however, during 

periods of heavy precipitation the 

volume of stormwater runoff plus 

the wastewater going into the pipes 

can exceed the capacity and excess, 

untreated wastewater empties directly 

into nearby water bodies . These 

events are known as Combined Sewer 

Overflows (CSOs). 

Over the last 10 years the District of 

Columbia Water and Sewer Authority 

faced a series of challenges to prepare 

for the implementation of $2.2 billion in 

federally mandated improvements to 

its 100+ year old wastewater collection 

system to reduce CSOs into the waters 

of the District of Columbia. First, the 

Authority needed to develop a program 

and rate schedule that its customers 

could afford while still addressing 

other critical capital needs. Second, the 

Authority needed to determine how 

to allocate the program costs. Lastly, 

the Authority needed to develop the 

policies, systems, and work processes 

to implement the rate structure and 

collect revenue. 

PB helped the Authority navigate each 

of these challenges by offering financial 

advisory support in negotiations with 

the federal government, researching 

rate structure options, and developing 

of a unique system of billing customers 

on the basis of their property’s 

impervious area. 

What can customers afford? 

The Authority’s discussions with the 

EPA regarding ways to mitigate the 

effects of CSOs began in the late 1990s. 

In the planning phase, the Authority 

drafted a long-term control plan 

(LTCP) to implement a program of 

improvements, principally tunnels, to 

reduce CSO events. It was imperative 

to determine the shortest delivery 

period that could be reasonably 

affordable to D.C. residents. Working 

closely with the Authority’s finance and 

engineering executives, PB developed 

scenarios to evaluate the impacts of the 

proposed options on the Authority’s 

customers. With this, the Authority 

negotiated a 20-year delivery schedule 

with federal regulators, 33 percent 

longer than other cities. A longer 

delivery schedule resulted in a reduced 

rate impact on customers and gave the 

Authority greater flexibility in their 

capital program. 

Who should pay the cost of the 

CSO program? 

In parallel with the regulatory 

negotiations, PB assisted the Authority 

in evaluating how best to recover 

the costs of the CSO program. To 

the maximum degree possible, the 

Authority’s Board of Directors sought 

to assign the program costs to those 

customers driving the program costs. 

Once this principle was articulated the 

challenge became determining how 

best to accomplish this goal. 

CSOs occur during heavy periods of 

precipitation when the stormwater 

runoff overwhelms the capacity of the 

system. Properties with large amounts 

of impervious surfaces (buildings, 

paved areas, parking lots, etc.) will 

contribute more runoff to the drainage 

infrastructure than a park or properties 

with grass, which allow stormwater 

runoff to percolate through the soil. 

36



The Authority desired a rate structure 

that would capture this cause-andeffect 

relationship. PB’s comprehensive 

cost recovery study reviewed rate 

structures in practice in addition to 

providing benchmarking information 

on CSO LTCP’s in other communities. 

The review showed the extensive use 

of cost allocation based on the amount 

of impervious surface on properties for 

stormwater programs. Although this 

was a proven approach in stormwater 

programs, it was a new approach for a 

CSO program. 

Similar to many other utilities, the 

Authority charged customers water 

and sewer rates based on the volume of 

water passing through the customer’s 

meter. Using this structure for the 

CSO program was an option but it 

implied the more water a customer 

consumed the more a customer would 

pay towards the CSO program; a poor 

fit to the proposed cause-and-effect rate 

structure. 

An important consideration for any 

change from volumetric rates to 

land-based rates was the profile of the 

Authority’s customers, specifically 

the water consumption and land 

ownership characteristics. The above 

table presents data from Authority 

billing records on water consumption 

versus total impervious area on 

individual properties by customer 

category. 

The table demonstrates that switching 

to an impervious area-based rate 

would meet the Authority’s objective 

of having the cost-causer pay more of 

the costs of the program. It also shows 

that switching rate structures would 

result in customer categories being 

winners and losers while some would 

remain about the same. Multi-Family 

properties such as high-rise residential 

buildings occupy a relatively small 

footprint but consume higher volumes 

of water for domestic uses such as 

dish and clothes washing. So, an 

apartment building would typically 

Water consumption vs percent of impervious area 

on property 

Customer 

Water 

Consumption, 

FY08 

Percent of 

Impervious 

Area, sq. ft. 

Residential 21.3% 28.8% 

Multi-family 20.7% 10.7% 

Commercial 33.0% 32.5% 

Municipal 3.2% 6.4% 

D.C. Housing 

Authority 

2.9% 1.2% 

Federal 16.9% 17.9% 

Authority use, 

other 

2.0% 2.5% 

Total 100.0% 100.% 

 

source: WASA 

pay less for the CSO LTCP because they 

have relatively less of an impervious 

footprint compared to their share 

of water consumption. On the other 

hand, Municipal land use would have 

much higher charges under this rate 

structure since they have the opposite 

characteristics: a large impervious area 

footprint compared to their relative 

share of water consumption. 

How should customers be 

billed? 

Part of the implementation phase was 

ensuring that the Authority possessed 

the legal authority to create a new rate 

structure. The Authority’s enabling 

legislation gave it the ability to bill and 

collect for volumetric water and sewer 

fees and other related charges such as 

hook-up fees. PB advised the Authority 

on the phrasing of a modification to 

the city’s code to allow for the use of 

an Impervious Area Charge (IAC). 

The IAC was developed as a service 

charge and not a tax as the Federal 

government, an important Authority 

customer, cannot be taxed but can be 

assessed a service charge. 

Implementing a new rate structure 

would require altering the Authority’s 

databases and customer bills for the 

estimated 120,000-plus customer 

accounts. The Authority’s Customer 

Information System (CIS) was set up 

to bill customers for water and sewer 

Impervious area approach: Definition of ERU 

1,000 sq. ft. 

1,200 sq. ft. 800 sq. ft. 

Example: 

1 ERU = 1,000 square feet of impervious area 

Equivalent 

residential unit 

source: Florida 

Stormwater Association 

volumetric fees. The CIS and the 

customer bills needed to be revised to 

include the new IAC billing fields. The 

rate structure needed to be transparent 

and easily understood by staff and 

customers. 

PB’s research showed that a 

methodology commonly used by 

stormwater utilities to simplify billing 

is the use of the Equivalent Residential 

Unit (ERU). The ERU represents either 

the mean or median impervious area of 

all residential properties. An example 

ERU calculation is depicted above. 

Under the ERU methodology, 

residential customers are charged 

one ERU per month and the other 

land use or customer categories 

(Commercial, Federal, etc.) are charged 

in multiples of ERUs. An advantage 

of the ERU approach is that billing of 

the approximate 105,000 residential 

customers is greatly simplified for 

Authority staff since they will all be 

charged the same amount each month 

(1 ERU). 

Implementing the IAC required 

capturing data from many sources and 

integrating it into the Authority’s billing 

procedures. The D.C. government 

maintains property data layers in a 

Geographic Information System (GIS) 

platform for public and agency use. 

37


This data includes information on 

individual properties such as address, 

owner, land features (buildings, 

sidewalks, roads), and property type 

(residential, commercial, etc.). 

To create the IAC system, the D.C. 

government’s property-based data and 

the Authority’s customer-based data 

in its CIS needed to be linked in a GIS 

format. PB worked with Authority 

staff and consultants to implement a 

new system to handle the billing of the 

IAC: the Impervious Area Information 

System (IAIS). A central objective of 

the IAIS was to allow the Authority to 

synchronize property owning customer 

information with the customer’s 

respective property’s physical 

attributes, such as the amount of 

impervious area (buildings, driveways, 

sidewalks, etc), in one database. The 

CIS contained tabular data (name, 

address, etc.) and the D.C. GIS data 

contained tabular data plus spatial 

information (coordinates on a map). 

The IAIS would also give the Authority 

a powerful tool for spatial analysis. 

What’s does a new billing 

system require? 

As part of the initial work effort to 

design the IAIS, PB interviewed the 

Authority stakeholders to determine 

the conceptual framework of the 

system and to outline the technical 

requirements needed to bill customers 

for the IAC. The IAIS system design 

was accomplished by using the Systems 

Vee Process Diagram for 

Engineering VEE Methodology. 

Systems Engineering 

PB developed a Concept of 

Operation document and Functional 

Requirements matrix to assist in the 

development of the data warehouse, 

system and application. A decision 

was made early in the project 

development that the Authority would 

utilize existing data from the D.C. 

government to build the system since 

their data contained the best property 

information. During the design phase, 

PB worked with the Authority technical 

staff to further develop the IAIS and to 

evaluate and analyze all existing data 

sources. 

The software development process 

was a combination of rapid-prototype 

and iterative development methods 

that required close coordination with 

Authority staff. The application 

was designed to interface and work 

in conjunction with the Authority 

enterprise-wide Oracle data warehouse. 

How good is the data? 

PB worked with multiple D.C. 

government agencies (including the 

Office of the Architect of the Capitol 

and Office of the Surveyor) to develop 

the data to support the IAIS. Data 

sources were evaluated, catalogued, 

System architecture 

Graphical user 

interface: 

IAIS Tool Suite: 

Datawarehouse: 

ESRI ArcGIS 9.3 application 

Visual Basic.Net 

Oracle 10G Spatial 

and analyzed for quality, thoroughness, 

gaps, and update frequencies/methods. 

Once assessed, a multi-phased 

approach to clean and prepare the data 

for implementation into the IAIS was 

undertaken by PB, using multiple staff 

in three separate office locations. 

The customer data was a core 

component of the system and PB staff 

worked on site to update and validate 

customer locations (spatially), address 

(mailing and service), ownership, 

status, type, relationship to other 

customer locations on single properties, 

and impervious area information 

(square feet, type of feature, and 

original feature source/version). 

PB implemented a rigid QA and data 

integrity evaluation process. The 

process involved a review of existing 

data, gap analysis, identification and 

prioritization of issues, and risk/benefit 

analysis to determine recommendations 

for data processing. Options and risks 

were presented in a series of workshops 

with the Authority oversight 

committees where PB worked with the 

Authority to determine methods to 

support the long-term maintenance and 

updates of the data. 

A significant effort in the data analysis 

was creating geometry for the 

“missing” properties and correcting 

data anomalies in GIS since the 

property records for the District did 

not include most federal properties. 

Phase 1 - 

Planning/Requirements 

Phase 2 - 

Design 

Phase 3 - 

Implementation 

Phase 4 - 

O&M - Lifecyle Plan Renewal 

Regional 

Architecture 

Needs 

Assessment 

Concept 

Selection 

Project 

Planning 

Sys. Eng. 

Management 

Planning 

Operations 

& 

Maintenance 

Changes 

and 

Upgrades 

Retirement/ 

Replacement 

Concept 

of 

Operations 

System 

Validation 

Initial Deployment 

System/ 

Functional 

Requirements 

System 

Verification & 

Integration 

Design 

High-Level Design 

Subsystem 

Requirements 

Detailed Design 

Database Design 

UI Mockups 

Subsystem 

Verification & 

Integration 

Unit 

Testing 

Implemenation 

Software Engineering 

Code Development 

Hardware Fabrication/Config. 

Time 

VEE systems engineering methodology diagram 

Sources: 

FHWA Systems Engineering Guidebook 

DOD Systems Development Process 

sources: FHWA Systems Engineering Guidebook, DOD Systems Development Process 

38



All of the data was then incorporated 

into the PB-designed Oracle 10G data 

warehouse schema to support the IAIS. 

DCRA 

How does the authority use the 

system? 

PB performed a series of interview 

workshops to assist the Authority in 

determining the system architecture, 

components and how it was to function 

within the Authority. As part of this 

process, PB developed the master list 

of requirements and assigned weighted 

priorities to each in coordination 

with the Authority technical and 

management staff. Once the initial 

prioritizations were complete, a 

high-level risk mitigation plan was 

implemented. 

Property Data 

OTR 

Property Data 

DCGIS 

IA Features & 

Data Layers 

IAIS data flow diagram 

DCWASA 

Enterprise DB – 

IAIS 

DCWASA 

Enterprise DB – 

Customer Data 

Vertex 

Customer Information System 

& Billing 

source: PB 

Business processes needed to maintain 

the IAIS, and a series of step-bystep 

procedures that Authority staff 

needed to follow in order to process 

information within the Authority were 

developed by PB as well as a detailed 

training program for the Authority 

technical and management staff. 

Residential 

roof-tops 

Commercial 

roof-tops 

Roll out 

The Authority rolled out the system in 

May 2009. An aggressive campaign to 

inform their customers and the public 

of the change on their bills started more 

than one year before the IAC went live. 

PB supported the Authority at meetings 

with the City Council and major 

customers. The public information 

campaign was deemed successful in 

part because of minimal customer 

complaints or appeals and the lower 

than expected calls to Customer Service 

after the first bills were mailed. Over 

time the Authority anticipates revenues 

to reach up to $150 million each year to 

pay for the $2.2 billion CSO program. 

PB’s financial and rate-making services 

in combination with technical expertise 

in business process design, database 

and software development gave the 

Authority the full suite of services 

necessary to implement the $2.2 billion 

program. • 

Examples of impervious surfaces 

Authors: 

Parking lots 

Stephen Kuhr advises clients on strategic infrastructure issues 

specializing in water and wastewater finance and rates. He combines a 

business and engineering education to elaborate infrastructure studies 

in the U.S. and internationally in the areas of finance, strategy, and due 

diligence. 

MBA, IESE Business School, University of Navarra; 

B.S., Purdue University 

kuhr@pbworld.com 

Brian Reed is a senior system engineer and specializes in managing 

technology and information systems, workflow automation, and complex 

infrastructure projects. He has a background in Civil Engineering and 

Management Information Systems, including datawarehouse design, 

administration and Geographic Information Systems. 

B.S., Loyola College; B.S., Drexel University 

reedb@pbworld.com 

39


Estimating Impacts of Transportation Capacity Expansion 

FHKE 

by 

Sonika Sethi 

EVALUATING long-term impacts 

of transportation improvements, 

particularly network capacity 

expansions, can be a fundamentally 

challenging proposition. Not only is 

there great uncertainty in the nature 

and extent of impacts over a long time 

horizon, but also a want for established 

procedures and robust research in 

this area. At the same time, empirical 

evidence has shown that capacity 

additions, particularly in the context of 

roadway networks, have the potential 

to induce travel and development that 

would not have taken place had those 

expansions in the system not occurred. 

Traditional methods of travel 

forecasting do not take into account 

development and travel induced solely 

by new available capacity. This can 

sometimes result in over-estimation of 

travel time savings benefits. To add 

to the importance of estimating these 

impacts, the National Environmental 

Policy Act (NEPA) has provisions that 

necessitate the analysis of indirect 

demand effects. Several high-profile 

EISs that failed to adequately account 

for indirect impacts have been 

challenged in court. 1 

Induced development 

Induced development (or indirect 

land use) impacts are defined as those 

land use impacts spurred by projects 

that occur later in time, but are still 

reasonably foreseeable. 2 In order 

to ascertain incremental impacts of 

development resulting from a project, 

it is important to first estimate the 

magnitude and distribution of the 

induced development. 

Evaluating the long-term fiscal impacts 

of the “Build Alternatives” requires 

an understanding of the increment of 

new residential and nonresidential 

development that may be induced 

with the construction of the proposed 

project. In the case of a highway 

extension project for instance, induced 

development impacts may be more 

specifically defined as those that may 

result from the Build Alternative 

outside of the construction footprint 

of the proposed highway extension 

corridor. 

Estimating induced development 

from transportation expansion is an 

evolving art more than it is a science. 

Federal agencies such as the Council 

on Environmental Quality (CEQ) and 

the Federal Highway Administration 

(FHWA), while attempting to provide 

guidance, have concluded in position 

papers that there is no one correct way, 

nor a prescribed specific technique or 

method that must be used, to conduct 

such analysis. 3 However a combination 

of qualitative and quantitative 

methods can be employed in order to 

ascertain these impacts within a certain 

acceptable range of accuracy. 

1 

Uri Avin, Robert Cervero, et. al., Forecasting Land Use Effects of Urban Transportation Projects, prepared for AASHTO Standing Committee 

on Environment, 2007 

2 

Council of Environmental Quality Regulations Implementing NEPA (National Environmental Policy Act), 1986. 40 CFR, Parts 1500-1508. 

3 

Louis Berger and Associates, 1998. Guidance for Estimating the Indirect Effects of Proposed Transportation Projects, Report 403. National 

Cooperative Highway Research Program, Transportation Research Board, National Research Council, National Academy Press, Washington, 

D.C. 

40



Qualitative analysis 

Through a rigorous process of data 

collection regarding ancillary factors 

that govern development (other than 

transportation network improvements) 

and through interviews with local 

planning professionals and real estate 

experts, a reasonable theory can be 

formed regarding developmental 

impacts of the project. Some of the key 

questions to address would be: 

Changes in network performance: What 

does the transportation project do to 

highway performance (accessibility, 

travel-time, volume, mobility, and 

safety) that is different from what that 

performance would be without it? 

Change in accessibility is one of the 

key determinants of the magnitude of 

development attributable to the project. 

Expected growth: How do those changes 

in travel performance influence factors 

that help shape development patterns 

such as population and employment 

growth? Does the project have potential 

to spur new development or would it 

just redistribute expected growth? 

Public policy: What policies exist on the 

books to offer resistance to potential 

land use change? 

Answers to these and similar questions 

can be sought through a process of 

interviews, where various stakeholders 

are asked to provide qualitative inputs 

while also classifying outcomes in 

ranges (such as low, medium, high for 

travel time benefits, land supply, etc.) 

These ranges can then be mapped to 

probability of induced development 

through use of experienced judgment. 

For instance, if the project brings about 

“high” or significant improvement 

in the transportation network 

performance, measured through 

greater time savings and/or through a 

better or faster connection to a poorly 

connected rural or suburban area, the 

potential for induced development 

may be high. However, a project which 

results in “low” or “moderate” travel 

time savings may have lesser potential 

to encourage induced development 

as it may not give enough incentive 

to deviate from planned development 

patterns. 

Quantitative analysis 

As argued above, growth invariably 

spurs travel. Hence one indicator of the 

magnitude of induced development 

is increment of travel. Cervero’s (2003) 

Longer-Term Path Model captures the 

relationship between transportation 

supply, induced development, and 

induced travel. 

In order to understand induced travel 

it is essential to look at transportation 

through the “supply” and “demand” 

lens of classical economics. In 

transportation, typically the supplyside 

comprises the transportation 

infrastructure and the quantity of 

supply is the available capacity on 

the existing modes, such as the road 

network capacity during peak periods 

of travel. Travel demand on the other 

hand is the demand (existing or latent) 

for people to travel using a particular 

mode during a specific time period. 

The equilibrium-governing price is a 

composite “generalized cost,” which 

is a sum total of the time cost of travel 

and the out-of-pocket expenses such 

as fuel and vehicle maintenance 

Land supply: What is the land supply 

situation in the study region? The more 

limited the supply, the more likely 

that improved access will contribute 

to pressure for zoning changes in the 

study area. 

SUPPLY: 

Lane Mile 

Growth 

Share 

Near-Term Path Model 

BENEFIT: + 

+ 

Roadway 

Speed – 

DEMAND: 

VMT 

Growth 

Share 

Other factors affecting development: What 

other factors influence development 

patterns? Access alone is not sufficient 

to trigger development. Other key 

public facilities like sewer and water 

may need to be available to the study 

area at a reasonable cost. If they are, 

improvements in access are more likely 

to support land use change. 

Other market factors: Where has growth 

been going? How does this trend 

correspond with current plans and 

zoning? Are access, travel time or 

other factors limiting conditions on 

development in the study area? 

SUPPLY: 

Lane Mile 

Growth 

Share 

+ 

+ 

Cervero’s Longer-Term Path Model 

– 

Longer-Term Path Model 

BENEFIT: 

Roadway 

Speed 

+ 

DEVELOPMENT 

ACTIVITY: 

Building Growth 

Share 

+ 

– 

+ 

+ 

DEMAND: 

VMT 

Growth 

Share 

Near term 

Longer term 

source: Robert Cervero 

41


expenses, parking and tolls, and other 

transportation taxes. The time cost 

of travel is generally accounted for 

in travel estimation by applying user 

value-of-time assumptions. 

Supply before 

Supply after increase in 

network capacity 

At their very basic level, travel 

estimation methods aim to look for 

an equilibrium between supply and 

demand. This equilibrium represents 

the balance of “price” and level of 

system users for which all of those 

users are willing to pay to travel at 

any given time. Since every route 

between an origin and a destination has 

an “associated” price, this process of 

optimization helps to arrive at the most 

likely route a traveler would be willing 

to take at a given time between two 

given points on the network. 

Additional demand for travel beyond 

the equilibrium level is “priced-out” 

—this demand represents additional 

travel that wants to occur, but is 

unwilling to do so at the current time 

and price. Such additional demand 

may remain latent (travel doesn’t 

occur) or may be redistributed to other 

times of day and/or other lower cost 

modes. However, since any incremental 

travel not only uses up existing 

supply, but also shifts price (due to 

added congestion), this equilibrium 

is dynamic and can only be arrived 

at through an iterative process of 

estimation. 

Using this model it is easy to see why 

an increase in supply (system capacity) 

would lead to a commensurate increase 

in demand as the “congestion price” 

reduces as a result of available new 

capacity. Hence in case of lane-mile 

additions to a highway for instance, 

induced travel is the increment of travel 

that is either: 

• A result of expression of latent travel 

demand (short-term generative), i.e. 

those travelers who otherwise would 

not make the trip due to congestion, 

but given the new available capacity, 

are encouraged to make it. 

Price of Travel 

P1 

Pd 

P2 

Q1 

Quantity of Travel 

• Attributable to new development 

(long-term generative), i.e. new trips 

due to the new (induced) residential 

and commercial development in the 

vicinity of the project. 

• A result of spatial and temporal shifts 

in traffic (redistributive), i.e. those 

travelers that change route and time 

of travel to take most advantage of 

the new available capacity. 

In theory, redistribution of travel is 

not accounted for as new or induced 

travel since no additional vehicle miles 

Q2 

Demand 

Long term Induced 

Demand 

This graph represents system demand and supply of transportation infrastructure. It is important to note 

that an upward sloping supply curve indicates the existing available excess capacity on the network which 

can potentially be put to use as congestion increases on certain parts of the system. 

PB’s approach 

Estimate 

Incremental Travel 

(# trips) 

Apply Trip Generation 

Factors 

(trips/ HH or trips/sq.ft. retail) 

Compute Commensurate 

Development 

(# HH or sq.ft. retail development) 

Qd 

are added as long as competing routes 

have roughly comparable lengths. 

The magnitude of induced travel can 

be measured using various available 

techniques even though each comes 

with their own set of limitations. Also, 

for the purpose of ascertaining induced 

development effects, it is the long-term 

generative travel that would be of 

interest. 

Estimating incremental travel 

For quantitative estimation of 

incremental induced travel, there are 

a few methodologies available with 

varying data requirements. From a 

literature review, key amongst them are 

meta-analysis and FHWA’s Spreadsheet 

Model for Induced Travel Estimation 

(SMITE). The primary input in most 

quantitative methods of analysis 

is the price elasticity of demand, 

which can either be judged through a 

qualitative analysis of travel trends and 

development potential in the region, 

or through empirical analysis of extent 

of induced travel and development in 

other “peer” cases of transportation 

network improvements, or both. This 

is a key factor in order to quantitatively 

evaluate the potential of the investment 

to induce travel and development. 

These models generate incremental 

long-term generative travel in the form 

of vehicle miles traveled (VMT). 

42



In addition, a process such as SMITE 

may require more data such as average 

annual daily traffic before and after the 

improvement, the capacity addition 

and speed profiles that can be obtained 

from a regional travel demand model. 

The basic premise for a model such 

as SMITE is that the impact of a 

transportation capacity expansion 

on travel is two-way, in that capacity 

expansion leads to greater demand. 

However, as demand increases, 

congestion on the facility also increases 

thus increasing the price of travel 

and imposing a downward push on 

demand until equilibrium is reached. 

For meta-analysis, a much simpler 

procedure is used to arrive at total 

incremental travel and a factor, which 

is based on empirical analysis, may 

be used to parse out the long-term 

generative travel from the short-term 

effects. 

The incremental VMT attributable to 

long-term generative impacts can be 

converted to trips and local surveys can 

be used to estimate the share of these 

trips occurring for different purposes. 

Induced development potential 

can then be computed through the 

following two steps: 

Applications 

There are many wide-reaching 

applications of induced travel and 

induced development forecasting: 

Estimating true travel benefits: Induced 

travel estimation can be used to refine 

forecasts obtained through traditional 

forecasting methods and arrive at 

a more realistic estimate of travel 

benefits. 

Estimating true developmental benefits 

(on employment, livability and hence 

on regional economy): It can be used 

to make a case for realistic impacts 

of a transportation project—for 

instance for federal grants—which 

ask for estimation of true benefits to 

the economy/region of a proposed 

transportation project. 

Estimating true environmental benefits: 

Induced travel can have a detrimental 

impact on congestion that the project 

aims to alleviate. This is important 

in assessing the true environmental 

impacts of the proposed project. 

Estimating fiscal impact: Given cost 

of providing services and ancillary 

infrastructure to new development as 

well as the incremental tax revenues 

Nrbelex 

Induced travel and development forecasting 

can help estimate true travel, development, and 

environmental benefits. 

from it, induced development can 

result in a fiscal impact on city/ regional 

authorities. A prior analysis of induced 

development can help in estimating 

this impact. • 

1. Finding appropriate trip generation 

factors: Trip generation factors can 

be obtained either from the ITE trip 

generation manual or from local 

surveys, studies or travel modeling 

exercises. These factors are usually 

location or context specific and hence 

would differ from region to region. 

2. Computing incremental development: 

Incremental development can 

be computed by applying trip 

generation factors to trips by purpose 

to estimate additional home and 

employment centers that will be built 

in the vicinity of the development 

and contribute to the additional trips. 

Author: 

Sonika Sethi specializes in applications of transportation model results 

to economic, financial and policy decisions. She has worked extensively on 

toll revenue forecasting, financial feasibility analysis of tolling, toll road 

O&M forecasting, estimating impacts of induced travel, fiscal impacts 

analyses, strategic demand and capacity studies for freight infrastructure 

systems and travel markets analysis for public transit. 

M.S., Northwestern University; 

M.S., University of Dundee; 

B.A., School of Planning and Architecture, New Delhi, India 

sethi@pbworld.com 

43


Integrated Project Management Information Systems 

pdstahl 

by 

Randy Ivory 

THE evolution of computer 

systems to help the management 

of projects over the last 20 

years is redefining modern project 

management as much as the airplane 

changed transatlantic travel a century 

prior. Fifteen years ago project 

teams began relying on off-the-shelf 

software applications to help manage 

and control projects. Ten years ago, 

internet-based applications began 

providing quick and easy decentralized 

access to view and manage project 

information. Five years ago, these 

systems matured into well-built, 

independent applications available 

for use for both local and distributed 

teams. Today, teams are utilizing an 

integrated approach to access multiplatform 

project software solutions 

while leveraging the ease of the internet 

for use, access, and availability. Parsons 

Brinckerhoff now delivers a simple 

yet powerful data portal, which is the 

culmination of this progression, known 

as the “Integrated Project Management 

Information System,” or simply iPMIS. 

iPMIS applications are an integrated 

suite of normally independent project 

control software tools. Used in 

conjunction with established business 

processes, they provide effective 

project management, proficient project 

control and efficient project delivery 

to improve service, increase revenue, 

and reduce costs for projects. A typical 

iPMIS implementation implies the 

existence of single, unified product, but 

in reality, an iPMIS solution represents 

a suite of third-party software solutions 

used in combination to represent a 

holistic view of project and program 

data. iPMIS implementations leverage 

the software applications in use on a 

project to create a personalized project 

management tool which is highly 

efficient, cost effective, and results in 

less risk than a custom-built solution. 

The key advantage for projects is that 

an iPMIS system is not dependent 

on any single application, and by 

design capitalizes on the variety of 

applications that a project already 

utilizes as part of its process of doing 

business. 

iPMIS solutions are designed to 

provide business intelligence to help 

resolve many of the information 

gaps that exist on projects today. 

Through the use of data warehousing, 

information captured by project control 

systems can be combined to produce 

rich program dashboards and project 

level reporting. Being web-based portal 

solutions, iPMIS systems are easily 

accessible by any team member that 

has sufficient application permissions 

and access to the internet. Gone are 

the days of team members having to 

remember many unique passwords to 

access disparate systems; with iPMIS, 

users can access the collective system 

data through a portal with a single 

password. 

One of the core success factors behind 

an effective iPMIS system is the 

determination and configuration of 

the Work Breakdown Structure (WBS). 

The WBS coding structure provides the 

means whereby third-party software 

tools can be made available for data 

queries and combined to provide 

unique reporting insight. With the 

use of an enterprise WBS, individual 

systems can be added or removed over 

the course of a project life cycle without 

interrupting the use or effectiveness of 

an overall iPMIS, all while keeping data 

integrity intact among applications in 

use. 

The key to getting an iPMIS system 

set up correctly is to utilize project 

control professionals in setting up 

commercial platforms for managing 

cost, schedule, risk, document control, 

44



Accessibility 

• Ability to easily set security and 

permissions to project data 

• Web-based accessibility from 

anywhere in the world with an 

internet connection 

• Ease of access to multiple disparate 

applications 

• Single source access to all relevant 

project data 

iPMIS implementation phases 

The implementation of an iPMIS 

system on a project is improved by 

applying proven methodologies for 

delivery. Although each project is 

unique, the implementation process 

usually evolves through the following 

path: 

Project dashboard showing integration from schedule, cost, risk and other project management 

applications 

Project dashboard showing integration 

from schedule, cost, risk and other project 

management applications 

and other applications used to provide 

project information to decision makers. 

Properly configured, these tools 

provide the core software infrastructure 

backbone. As these systems are 

updated, the iPMIS system will provide 

a combined suite of applications with 

accurate information. 

iPMIS benefits 

Benefits of implementing an iPMIS 

solution can be summarized into three 

distinct areas: 

Cost 

• Fewer user licenses for applications 

are required 

• Reduced analytical labor costs in 

producing project reports 

• Standardization costs are greatly 

reduced 

• Reduced new software costs resulting 

from the leveraging of existing clientowned 

software 

• Leveraging existing client-owned 

software results in a reduction of new 

software purchases 

Efficiency 

• Dashboards present summarized 

project data, schedule, cost, and risk 

status on one screen 

• Customized user interfaces with 

specific views of project information 

• The ability to access many 

applications from one centralized 

location 

• Users can generate their own query 

information 

• The WBS provides an intuitive 

structure that organizes project data 

and information in a way that is 

easily understood by the user 

Phase I - project definition 

During project definition, iPMIS 

teams work to identify what software 

tools will be needed to manage the 

project, based on client and/or project 

requirements. It is not unusual for 

clients to specify particular software to 

be utilized based on their experience or 

existing project-related purchases. 

Phase II – consolidation 

Business processes are further defined, 

streamlined, and consolidated. The 

WBS is created in this phase. Value 

engineering from a software and 

systems integration perspective may 

also take place during consolidation. 

Phase III – integration 

Selected tools are integrated into the 

iPMIS while conforming to the WBS 

coding structure. The integration 

process is iterative in nature, with 

the first iterations typically being 

the delivery of the iPMIS web-based 

portal with at least two integrated 

applications. The iterative approach 

provides a method for quickly seeing 

progress on the development of the 

long-term solution while allowing 

future updates to be identified and 

incorporated in a modular fashion. 

45


Phase IV – implementation 

Implementation usually begins 

following the first iteration in Phase 

III. Beta testing, user training and 

the initial rollout is conducted in this 

phase. An effective implementation 

promotes early adoption, buy-in, and 

eventually sets up the overall success of 

an iPMIS system. 

Phase V – maintenance 

As project control experts feed and 

manage project control applications, 

iPMIS is brought to life and is set to 

begin to evolve through the project 

lifecycle. Updates to commercial 

software and general iPMIS 

maintenance activities continue to 

be performed to ensure system 

integrity and to adapt the project iPMIS 

to changing needs. 

“Agile” development of iPMIS 

Years ago, it was assumed that the 

way to prevent misunderstandings 

was to execute a “big requirements 

up front” (BRUF) process. With this 

approach, a business analyst would 

solicit long drawn out requirements 

in great detail and would document 

it all in a very large specification 

document, quite often hundreds of 

pages long. Unfortunately, documents 

of this size are not always read by most 

of the key players and often become 

obsolete as quickly as they are written. 

This leads to missed requirements 

and a development process which is 

misunderstood. 

Another drawback with a BRUF 

approach is that, based on documents 

provided, software developers go to 

work to produce software that exactly 

matches the specification, which 

is often already out of date when 

development begins. The unfortunate, 

but all too often encountered, result 

is that by the time that the newly 

completed software product is 

unveiled, the client finds that the 

system identified many months earlier 

no longer meets project requirements. 

The lack of solid and clear 

communications will usually lead to a 

failed project, which is why, historically, 

the majority of software projects worldwide 

exceed cost budgets and time 

allocations. 

An effective solution to avoid common 

pitfalls is to utilize a type of iterative 

or “agile” process, using Feature 

Driven Development (FDD) through 

an iteratively staged process. This has 

been widely embraced throughout 

the software development industry. 

Through experience, PB has learned 

that an iterative approach, somewhat 

agilistic in nature, provides major 

benefits over the antiquated BRUF 

methodology. Using the iterative 

approach, if a client receives a software 

deliverable which turns out to be 

something other than was expected, it 

usually stems from a communications 

issue, not a technical one. This is what 

an iterative approach aims to solve. It 

is a proven and capable methodology 

in systems integration and software 

delivery in all industries. 

The iterative process does not 

necessarily reduce the overall delivery 

schedule of an iPMIS system, but it 

does capture requirements and deliver 

them in bite-sized portions, providing 

a more effective development process. 

This also reduces cost in delivering 

solutions on target throughout the 

project lifecycle. 

Requirements are typically gathered 

using a variety of means, including 

workshops and personal interviews. 

Once captured, they are packaged 

into small iterations or scheduled 

releases. With this approach projects 

Initial 

Planning • 

Requirements • 

Planning • 

Evaluation • 

Two- to 

Four-Week 

Iterations 

• Analysis and 

Design 

• Testing 

• Implementation 

• Deployment 

Image depicting the iterative lifecycle through 

phases of an iPMIS project 

can often see the first iterations of an 

iPMIS deployed in as little as four 

weeks, allowing project teams to begin 

realizing value at the first release. Using 

an iterative approach, functionality is 

prioritized with each iteration so as 

client needs change, so can the iPMIS 

deliverable. 

Two main benefits to this type of agile 

approach include: 

1. Decreasing project risk and allowing 

the initial budget for an iPMIS 

system to match only what it takes to 

get to the first release. 

2. Encouraging buy-in to the iPMIS 

project, which is critical for project 

success. Buy-in is enhanced greatly 

since key decision makers can 

quickly see and comprehend the 

value of an iPMIS system within 

a few weeks of the start date. 

Additional iterations are often 

released in as little as two-week 

increments allowing project team 

members to see the changes and 

update requests made only days 

earlier. 

In summary, the FDD approach 

provides clients and project team 

members with the ability to make 

changes to an iPMIS master program at 

each step along the development path, 

providing a best fit for their project and 

ultimately for success. 

Proven iPMIS success 

PB has several active iPMIS projects 

in place. Functional and third-party 

software applications are typically 

included in these projects. 

The goal of PB’s iPMIS systems is 

to incorporate a Services Oriented 

Architecture (SOA), which is a service 

used in software delivery whereby 

web parts can be published and/or 

consumed by other applications. SOA 

provides the ability for reuse among 

many common iPMIS integrations. For 

example, a web part for integrating 

46



to Primavera P6 may be reused by 

many iPMIS applications. Over time, 

libraries of web parts are created which 

provide the ability to deliver iPMIS 

systems much faster than traditional 

deliveries, all while greatly reducing 

risk. By combining the knowledge 

of the Architectural Engineering 

Construction (AEC) domain and project 

control systems and processes, PB will 

continue to place itself in a unique 

position to provide iPMIS systems as 

strong differentiators to their clients 

well into the future. 

Perhaps the most exciting element of 

iPMIS systems is the fact that clients 

are enthusiastically accepting the value 

proposition they provide. Clients and 

project teams have quickly embraced 

this technology and approach. The 

immediate benefits iPMIS provides 

become obvious once an iPMIS is 

implemented. Past tool investments 

that have not been realized as well as 

lagging business processes can quickly 

take on new life in an integrated 

fashion, all shaped to enhance the 

strategic vision of an organization. 

Costs are decreased while efficiencies 

are gained through leveraging 

applications and business-based 

workflows through an iPMIS system. 

The increasingly popular integrated 

approach to project management 

information systems will continue to be 

the way forward in the AEC industry 

for many years to come. • 

iPMIS dashboard listing schedule and overall project health indicators 

Functional and third-party software applications 

typically included in iPMIS projects. iPMIS can 

be applied to work with most functions and 

commercial software. 

Project Control 

Function 

Financial 

Management 

Scheduling 

Contract 

Administration 

Cost Estimating 

Risk Management 

Data Management 

Typical Commercial 

Software 

Oracle Financials, PRISM, 

Primavera P6 

Primavera P6, Microsoft 

Project 

Contract Manager, 

Meridian, others 

Timberline, WinEst, others 

Pertmaster, Palisade @Risk 

SharePoint, other 

commercial systems 

For more information please contact: 

John Saroufim, Director of Program 

Management Systems TEC 

+1-617-960-4812 

Saroufim@pbworld.com 

Gino Monteferrante, Director of 

Project Controls 

+1-407-353-2118 

Monteferrante@pbworld.com 

Randy Ivory, Director of Project 

Information Management 

+1-303-390-5835 

Ivoryr@pbworld.com 

Author: 

Randy Ivory has 18 years experience and specializes in web-based 

project management systems. He is Director of the Project Information 

Management group within the Program Management Systems Technical 

Excellence Center. 

M.S., Business Information Systems, Utah State University; 

B.A., Behavioral Science and Health, University of Utah 

Ivoryr@pbworld.com 

47


Sustainable Scenario Planning with CarbonFIT 

by 

Jignesh Mehta 

ACCORDING to the U.S. 

EPA, about 28 percent, of the 

total greenhouse gas (GHG) 

emissions in the U.S. comes from the 

transportation sector. The residential 

and commercial sectors generate about 

18 percent and 17 percent, respectively, 

of GHG emissions which include 

emissions from lighting, heating, 

cooling, appliances, cooking, and other 

activities. Since 1990, the emissions 

from transportation, commercial, and 

residential sectors have gone up by 

about 30 percent, outpacing emissions 

from all other sectors, including the 

industrial sector. 

Recognizing the urgency to curb 

emissions from these sectors, many 

states and local governments across the 

U.S. have established GHG reduction 

targets and passed legislation to reduce 

the GHG emissions. The State of 

California, for example, has adopted 

the 2006 Global Warming Solutions 

Act (AB 32) setting a state-wide target 

to reduce GHG emissions to 1990 

levels or less by the year 2020, and 80 

percent lower than that by 2050. Also, 

California recently passed a landmark 

legislation (SB 375) that requires 

the California Air Resources Board 

(CARB) to set GHG emission reduction 

targets for passenger and light duty 

vehicles for the years 2020 and 2035 in 

each of its 18 Metropolitan Planning 

Organization (MPO) regions. This has 

obliged the MPOs to integrate land 

use and transportation planning by 

adopting a Sustainable Communities 

Strategy (SCS) as part of their Regional 

Transportation Plan (RTP) process. 

MPOs are required to work with the 

local communities in a bottom-up 

scenario planning process to prepare 

the strategy that meets the regional 

targets. 

Agriculture 

7% 

Residential 

17% 

Industry 

30% 

U.S. greenhouse gas 

emissions profile 

Commercial 

18% 

Transportation 

28% 

source: EPA 

California is not alone in this effort 

to reduce the carbon footprint. Many 

other states are actively preparing their 

climate action plans and updating 

their comprehensive plans to integrate 

land use and transportation to reduce 

GHG emissions. It is critical to 

develop a long-range plan to reduce 

GHG emissions at neighborhood, 

community, or regional levels. 

Traditionally, planning processes have 

primarily focused on land use changes 

and the impact on travel demand and 

transportation network. But now there 

is a new awareness and an urgency to 

look at how potential changes in land 

use and transportation will impact a 

community’s carbon footprint, GHG 

emissions, energy consumption, and 

other factors. 

One of the biggest challenges of such 

planning processes is to quickly build 

and evaluate a series of test scenarios 

without involving complex, expensive, 

and time-consuming travel demand 

modeling. A sketch-level scenario 

evaluation tool that allows quick 

comparative evaluation of the land 

use and transportation scenarios for 

their GHG emissions, carbon footprint 

and energy consumption is key to the 

planning processes. 

48


Sustainable Scenario Planning with CarbonFIT 

Scenario building with 

CarbonFIT 

CarbonFIT is sketch planning 

tool that combines algorithms to 

estimate greenhouse gas emissions 

with power of GIS to visualize and 

compare various scenarios with 

a “business-as-usual” scenario. 

CarbonFIT’s interactive mapping 

and visualization ability allows the 

viewing of alternative scenarios and 

their impact on demographic, travel, 

and environmental factors in real time. 

With its live mapping and graphic 

interface, CarbonFIT can be also useful 

in participatory exercises with policy 

makers, planners, and stakeholders. 

How does CarbonFIT work? 

CarbonFIT uses the “business-as-usual” 

land use layer as a starting point. Once 

set up with project specific datasets, 

assumptions, and coefficients, it allows 

users to create alternative land use 

and transportation scenarios. Using 

the map interface, users select areas 

for development or redevelopment 

and apply appropriate land use 

mix and densities from the land use 

menu. CarbonFIT also allows varying 

transportation factors such as trip rates, 

average fuel efficiency, or parking 

pricing using a set of slider bars. 

CarbonFIT scenario comparison 

Once applied, these changes 

immediately trigger a fresh run of 

indicator formulas that calculate 

emissions from two sources: auto trips 

generated by the land use, and energy 

consumption for the building type. 

CarbonFIT evaluates land use for its 

proximity to transit, its mixed-use 

characteristics and density to apply 

appropriate trip reduction factors. The 

results are immediately reflected on the 

maps and bar charts. The interface also 

allows a quick comparison with other 

scenarios and shows a warning sign if 

thresholds are crossed. 

CarbonFIT can be used at various 

scales, from neighborhood or urban 

centers to the county or regional levels 

with multiple sub-areas. CarbonFIT can 

CarbonFIT visualization 

also provide an interface with regional 

transportation models. Depending 

on project needs, it can be set up to 

provide various outputs at traffic 

analysis zone (TAZ) levels. This is 

especially helpful in projects where 

the preferred scenarios are taken to the 

next level of scrutiny using regional 

transportation models. 

Sustainable scenario building 

for Tysons Corner 

A planning and urban design project 

for Tysons Corner, Virginia was 

the genesis of the carbon footprint 

estimation methods that evolved to 

form the backbone of CarbonFIT. 

49


PB was hired to help Fairfax County, 

Virginia develop a new long-range 

vision and urban design plan for 

Tysons Corner. The vision for Tysons 

Corner is a transformation from a 

classic auto-based “edge city” into 

a livable, walkable, transit-oriented 

downtown with four new heavy rail 

stations. To achieve this transformation, 

it needed an integrated planning and 

urban design approach that is informed 

by rigorous scenario analysis. 

Currently, Tysons Corner has about 

45 million square feet of floor space, 

including residential, office, and 

retail space. Over 2,000 neighborhood 

residents, business owners, developers, 

and other stakeholders participated 

in a series of community workshops 

and public meetings. They helped 

develop various land use and density 

alternatives, ranging from 200 percent 

to 300 percent more floor space than 

existing. The alternatives added mixed 

use developments in walkable street 

patterns and concentrated density 

around transit stations. 

Tysons Corner alternative scenario 

To evaluate the alternatives for their 

carbon emissions, PB developed a 

special method that estimated carbon 

emissions from two sources: auto trips 

generated by the land uses, and energy 

consumption according to the building 

type. This method was developed 

further and integrated with GIS-based 

CommunityViz platform used in 

CarbonFIT. 

The analysis found the preferred 

alternative with 175 percent more 

development to have a 16 percent 

smaller carbon footprint than the 

current plan scenario. The preferred 

alternative will form the basis for 

the comprehensive plan for Tysons 

Corner. The ability to demonstrate 

carbon savings associated with transitoriented, 

denser, and well-designed 

development, with analytic rigor, and 

in a user-friendly format, is extremely 

useful to planning and future transit 

development projects. • 

Tysons Corner stakeholder workshop 

Author: 

Jignesh Mehta is a senior urban designer and planner with experience in 

urban design for transit-oriented developments to land use-transportation 

planning and regional growth management. Jignesh specializes in 

sustainable scenario planning and impact analysis. 

M.U.P., University of Illinois, Chicago; 

B.A., CEPT, India 

mehta@pbworld.com 

50

About the Cover 

The construction of the Rosa Parks Transit Center, a new 

multimodal facility in downtown Detroit (Michigan), 

was completed in 2009. The $22.5 million project was 

designed by Parsons Brinckerhoff (PB) on behalf of the 

Detroit Department of Transportation (DDOT). 

Located at Michigan and Cass Avenues, the Rosa Parks 

Transit Center is a 25,000 square-foot indoor facility 

with over two acres of exterior transit access. It enables 

customers to make connections to 21 DDOT bus routes, 

the SMART suburban bus system, Transit Windsor for 

international connections, and taxi access in a single 

downtown transportation hub. It also provides pedestrian 

connectivity to the Detroit People Mover stations at 

Michigan and Times Square, and was planned to eventually 

connect to the city’s future light rail transit system. The 

center offers travelers such services as on-site security, 

restrooms, information booth, cashier’s office, café, retail 

and automatic ticket vending. 

The design of the new station is light and airy, highlighted 

by seven, cloud-like fabric canopies. Made of a tough, 

flexible glass coated fiber, the canopies offer both form 

and function, providing the openness of a park-like setting 

combined with the strength to hold up to Michigan’s ever 

changing and sometimes intense weather conditions. The 

canopies are designed to funnel rainwater to unoccupied 

garden areas, providing nourishment for plants and a 

pleasant environment for transit customers. 

The Detroit Free Press has called the transit center “a 

thoroughly modern facility with the look and feel of an 

airport terminal. The design inspiration for the sharply 

angled building and adjacent covered area comes from the 

image of an airplane wing in the clouds.” 

Previous issues of EFR can be accessed via: 

http://www.pbworld.com/news_events/publications/efr 

Disclaimer: 

The information in the EFR has been obtained from 

and is based upon sources believed to be reliable; however we do not guarantee its accuracy and it may be incomplete 

or condensed. As such, this publication is not to be relied upon in substitution for the exercise of your independent judgment.

ECONOMIC FORECASTING REVIEW - Parsons Brinckerhoff

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