Chapter One

Transportation and Economic Development

Transportation is a basic enabler of economic activity and ultimately helps to shape society's material success. A proper understanding of the economic implications of transportation choices can facilitate identifying the most effective way to direct public and private investment in infrastructure and prioritize the investments.

In this chapter the relationship between economic development and transportation policy is explored. To provide context for the issues involved, this chapter discusses the role of congestion in limiting growth, the importance of transportation in the "New Economy," and transportation's connection to global trade. The interaction between transportation, economic development, and land use is also examined.

Four significant points can be drawn from the discussion that follows. They are:

Definitions

Economic development is a fairly broad concept that refers to the material aspects of a community's welfare. There are a number of facets of development: growth in income, equitable distribution of income, decreased infant mortality rates, increased literacy rates, and other "quality of life" indicators. One consistent factor used by economists to define economic development is growth in community income or wealth.

Productivity represents the efficiency with which goods and services are produced. Generally, it is believed economic development activity should focus on investments and strategies to increase productivity, that is, the economic output within an area relative to the cost of producing that output.

Productivity can be increased in a number of ways, such as the introduction of new technologies and investments in education and training. Transportation infrastructure investments contribute to productivity increases by reducing the costs of producing and distributing goods and services. Thus, as depicted in Figure I-1, productivity is the key to economic growth, and capital investment is the key to improved productivity

Chapter TitleA recent study by the Federal Highway Administration (FHWA), for example, estimates a $1.00 increase in the U.S. capital stock has historically generated about 30 cents of cost savings producer benefits each year over the lifetime of the underlying road improvements. The nonpartisan Congressional Budget Office (CBO) cautions, however, that unlike many federal investment projects orientated toward non-economic goals, infrastructure investments should be targeted toward cost-beneficial projects to ensure the best return on that investment.

Economic Development's Relationship to Transportation

Economic development and transportation are closely related. An increase in economic activity, for example, typically stimulates transportation demand by increasing the number of workers commuting to and from work, customers traveling to and from business areas, and products being shipped between producers and consumers. Additional demand can trigger the need for transportation improvements. Improvements that decrease transportation costs may, in turn, decrease production costs and stimulate economic development.

A number of factors reinforce the linkage between transportation and economic development and highlight the importance of a high performing transportation system. Specifically:

Importance of targeting. Increased economic growth is not guaranteed because of improvements made to the transportation infrastructure. In a fully developed economy, transportation can act as a constraint rather than an incentive for economic development. Poor access or poor average speeds can deter economic development in affected locales. On the other hand, investment in areas that already have adequate access and good speeds cannot expect to achieve large gains in economic development through transportation improvements.

In the private sector, market forces help decision makers ensure investments will be targeted to the most beneficial return. In the public sector, market forces are weak, and objectives are multifaceted. Public officials need to ensure transportation investments yield productive gains to the economy and that these exceed the costs of achieving them. Policy makers need to consider two points when making investment decisions:

Measuring economic benefits. There are a number of techniques and procedures that can be used to assist in measuring the benefits of transportation investments. These techniques vary considerably in terms of complexity, data requirements, cost, and reliability. These procedures are generally aimed toward measuring the impacts of growth-related outcomes or distribution-related objectives. Typically more than one approach is necessary to capture the extent of the impacts.

Generally speaking, economic benefits are the sum of the economic activities generated within an area due to a specific industry, project, or activity. The economic benefits of transportation facilities, if measured at all, generally focus on regional or local impacts. To demonstrate some of the economic implications of transportation choices, an examination of how regional impacts can be measured is provided using seaports or airports as an example.

Airports and seaports. Both seaports and airports are valuable economic assets. These facilities can be thought of as "economic engines" in an area because they have an economic effect well beyond their immediate physical boundaries and attract other economic activity. For example, these facilities bring tourists and other travelers to an area, provide businesses with additional shipping options, and increase opportunities for trade, especially on a national and worldwide scale. These facilities are also unique because they require a management posture and a skill set for planning, operations, and marketing that is different than that of overseeing the maintenance and operation of highway and mass transit facilities.

Economic benefits. The economic benefits of a transportation facility can be thought of as the total of its transportation benefits and economic impacts. The transportation benefit is the value of the service a facility brings to its surrounding area. In the case of an airport, this means time saved and costs avoided by the movement of people and goods that would be moved by different modes of transportation or not at all.

The economic impact of these facilities measures the employment provided and goods and services consumed by the activity fostered at a facility. These effects can be further divided into direct, indirect, and induced impacts. (Indirect and induced impacts are also collectively referred to as secondary impacts). Direct impacts are the result of economic activity at a facility; indirect impacts are activities that do not occur at a facility but can be attributed to a facility. Induced impacts refer to the "multiplier effect" of direct and indirect impacts. For example:

These impacts can be measured against a number of variables but typically include: employment; gross state product and regional product; state taxes; local taxes, population, area construction; etc. The above example is meant to demonstrate the application of one type of approach and to provide an illustration of the impacts certain facilities can have. Often this particular analysis will only speak to a specific point in time and no allowance is made for the time-phasing of costs and benefits, which is an important factor in a rate of return analysis.

The New Economy

Within the last two decades, the so-called "New Economy" has emerged in the United States. This new economic order represents a fundamental change in industrial and occupational order, an increased level of entrepreneurship and competition, and an escalating trend toward globalization -- all of which have been stimulated to one degree or another by ground-breaking advances in information technologies. The New Economy challenges state governments to focus on innovation, education, technology, and constant adaptation to change, in order to take advantage of the enormous potential for growth.

A number of the characteristics of the New Economy as compared to the old demonstrate that a high performing transportation system remains an important aspect of both. A few of those elements are outlined in Table I-1. The New Economy requires a highly mobile workforce, flexibility in production that is global in scope, and a continuing emphasis on time and costs.

 

     

Table I-1. Elements of the Old and New Economy

Issue

Old Economy

New Economy

Markets

Stable

Dynamic

Scope of Competition

National

Global

Potential Geographic Mobility of Business

Low

High

Competition between Regions

Low

High

Organization of Production

Mass Production

Flexible Production

Source of Competitive Advantage

Lowering Cost Through Economies of Scale

Innovation, Quality, Time-To-Market, and Cost

Relations with Other Firms

Go it Alone

Alliances and Collaboration

Source: Progressive Policy Institute

Global trade and commerce in Connecticut. International trade has become an integral part of the U.S. and world economies and is a significant factor in the New Economy. The combined total of U.S. exports and imports has increased from less than 5.5 percent of Gross Domestic Product (GDP) in 1950, to 11 percent in 1970, to 25 percent in 1997. Global trade is important to Connecticut in a number of ways. Research by the Connecticut Economic Research Center (CERC), the Connecticut Business and Industry Association (CBIA), the Department of Economic and Community Development, and others suggest companies that are not global traders can be at a significant disadvantage and the extent of global trading is expected to increase. Some key points are:

A recently released survey by CBIA of about 800 small and mid-sized businesses in Connecticut underscores the continuing importance of a high performing transportation system to the business community. The survey found 64 percent of respondents believed a first rate transportation system was important to Connecticut's overall economic growth. Moreover, about half of the respondents rated the current transportation infrastructure as poor. Only 9 percent rated it as good or excellent, while the remainder said it was neither good nor poor.

Congestion as a Limitation to Growth

Transportation policy shapes the landscape by determining the accessibility of competing locations and the mobility of people and goods. Economic growth is threatened by conditions that limit accessibility and mobility. As mobility is reduced, productivity declines, the costs of doing business increase, and the desirability of an area is diminished.

Mobility can be reduced through the physical deterioration of transportation facilities as well as inadequate capacity. A lack of attention to the periodic upkeep of the existing transportation network can lead to the closure of roads and bridges, reduced speeds, and other negative impacts. By most accounts, the condition of Connecticut's roads and bridges has improved considerably over the last 15 years.

The loss of capacity, however, as measured by the amount of congestion has increased. Congestion translates into increased travel time and fuel consumption. As these increase, productivity declines, and costs associated with labor and fuel as well as environmental degradation increase.

Congestion in Connecticut. Measurements of highway congestion in Connecticut show it has increased, and it is projected to worsen. In 1988, DOT systematically measured arterial capacity flows, and in May 1994, updated the 1988 report to include expressways and all state numbered routes maintained by the state. In 1996, the department began issuing an annual report on congestion throughout the state, using a congestion management system.

Chapter TitleCapacity, according to ConnDOT, is the maximum hourly rate at which vehicles can reasonably expect to pass a uniform segment of roadway during a specified time period under prevailing roadway, traffic, and control conditions. State roads are divided into segments based on average daily traffic, lane widths, and number of lanes. Road segments are assigned peak hour traffic capacities based on roadway characteristics. The actual hourly traffic volume of a road segment is compared to its capacity in order to develop a ratio. Any segment with a volume to capacity ratio of 1.0 or more is considered over capacity. Any segment within 10 percent of capacity (or a ratio of .90 to .99) is considered approaching capacity.

Figure I-2 shows the actual capacity status of Connecticut arterial roadways for 1987, for state roads and expressways in 1999, and a projection of capacity for 2020. In 1987, 5 percent of state numbered routes were over capacity, while 3 percent were approaching capacity.1 In 1999, 15 percent of roadways exceeded capacity, and 4 percent were approaching capacity.

Forecasts by DOT of population, employment, land use, traffic volumes, and transportation projects have been used to develop a projection for the year 2020. By that time, 26 percent of the roadways are projected to be over capacity and 5 percent will be approaching capacity.

Figure I-3 shows the percent of state roads approaching or over capacity by the state's 15 planning regions and two unaffiliated towns in 1999. The southwestern portion of the state, essentially from New Haven to Greenwich, has the greatest amount of congestion. Both Greater Bridgeport and the Southwest planning regions show that over 40 percent of state roads are over or approaching capacity, with the Northeastern and Northwestern planning areas have close to none. While the Federal Highway Administration has a methodology for calculating the cost of congestion, ConnDOT does not estimate this cost for Connecticut.

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Another way of examining the congestion problem is to compare how the traffic in Connecticut's urban areas compares to other states. The U.S. DOT conducts an annual survey of vehicle traffic on specific types of roads in 402 urbanized areas. While not a direct congestion measure, it does provide an idea as to how high traffic areas (and therefore, potentially congested areas) in Connecticut compare to high traffic areas elsewhere. The U.S. DOT report provides the daily vehicle miles traveled and the miles of roadway for each of the urbanized areas.

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A ratio was developed to make valid comparisons by dividing the daily vehicle miles of travel on interstate highways by the miles of interstate highway in the 308 urbanized areas with interstate roadways. The results are shown in Figure I-4. Stamford, Norwalk, and Bridgeport-Milford rank 13th, 16th, and 22nd respectively among the 308 areas. While not anywhere near Los Angeles at 208,206 daily vehicle miles per interstate mile, those Fairfield County areas are prominent among the country's high traffic areas and significantly higher than Connecticut's six other urbanized areas.

A number of variables contribute to congestion on our highways. A few of the major ones are:

Land Use Connection

Congestion is also related to the type of activity permitted in a given area. Transportation and land use are inexorably connected. Local boards and officials typically make land use decisions in Connecticut. ConnDOT, similar to most state transportation departments, has no role in local zoning and defers to local governments on land use issues.

The limited input ConnDOT has involves issues before the State Traffic Commission (STC). The State Traffic Commission, composed of the commissioners of the Connecticut Departments of Transportation, Public Safety, and Motor Vehicles, has review authority when a development abuts or adjoins a state highway or substantially affects state highway traffic. State statutes require developers of facilities that are significant generators of traffic to pay for necessary roadway improvements to accommodate that increased traffic.

By providing transportation facilities and services, whether through building highways, providing grants for local transportation improvements, or providing assistance to transit services, ConnDOT affects land use patterns in many different ways. Similarly, all development and land use decisions will ultimately affect travel patterns, and thus influence decisions made by state transportation officials regarding project planning and programming. For example, geographic shifts in population and businesses from cites to suburbs, as encouraged and supported by zoning and land use activities on the local level, have resulted in an increase in suburb-to-suburb commuting. This change has increased traffic and runs against the traditional hub and spoke system of roads and transit that converge in cities. This makes the mass transit option less financially viable and has led to increases in congestion.

State departments of transportation help shape land use by providing infrastructure to improve accessibility and mobility. Transportation's most significant impact on land development occurs when access is provided to land. Increased access to land raises its potential for development, and more development generates additional travel. Once access has been provided, land patterns begin to change over a period of time. The results of these changes are for the most part irreversible.

Emerging land use concerns. Concerns over urban sprawl have surfaced in many areas of the nation. Debates have occurred about transportation's role in creating urban sprawl, suburban congestion, and a jobs/housing mismatch. Many have argued efforts to expand the highway system contribute to urban sprawl by decreasing travel times from urban to suburban/rural areas and making undeveloped areas attractive for residential and commercial uses. However, some studies have suggested highway facilities, some time after construction, produced driving times that often exceeded the predicted drive times. These findings may have implications for the use of highways to solve long-term congestion problems.

Factors contributing to sprawl often do not fall within the control of transportation departments, including the movement of jobs to the suburbs, lower transportation costs versus lower housing costs, the preference of many people to live in remote areas away from the problems of cities, and the desire for larger housing lots. The debate over sprawl and transportation, however, has led many communities to develop measures to limit sprawl, including the institution of restrictive land use controls. Some policies favor the provision of state infrastructure to designated growth areas following state mandated land use plans.

A Call for a Strategic Framework

Problems with congestion and access to the global transportation network were highlighted in a recent report sponsored by the Connecticut Regional Institute for the 21st Century, a coalition of public, private, and nonprofit entities that provides a forum to discuss and consider regional issues and opportunities. The report, Connecticut Strategic Economic Framework (also referred to as the Gallis report, after its author Michael Gallis), identifies Connecticut's principal economic regions (based on economic geography not political geography) and recommends actions be taken based on the needs of the regions to better respond to the global marketplace. In addition, a companion report was issued that focused on Bradley International Airport and examined the airport's relationship to the metropolitan regions and the global transportation network.

The report emphasizes the restructuring of the world's economic geography, due to the collapse of the Soviet Union in 1991 and the development of new trading blocks. In this atmosphere, metropolitan regions function as the foundation of economic activity and hubs in the global transportation and communications network. The principle observations of the report include:

Specifically, with regard to transportation, Gallis points out:

The report recommends the adoption of "a multi-modal transportation strategy for the state (in conjunction with the five other New England states, New York, and the Maritime Provinces) to ensure the movement of people and goods in a cost competitive and environmentally responsible manner including more effective connection to the New York area markets."2

1 Expressway data were not included in DOT's 1987 congestion report, but are part of subsequent reports. Concern over the comparability of the years based on this factor was reduced after committee staff found the proportion of expressways approaching and over capacity in subsequent years was basically the same as that found for other state roads

2 Connecticut Strategic Economic Framework, Connecticut Regional Institute for the 21st Century, November 1999.

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