Transit as Economic Development

In recent decades urban transportation policies have migrated out from forgotten corners within department of public works buildings to hip and flashy places where hot-button issues like bike-sharing, car-sharing, complete streets, and transportation equity are addressed. This article tracks why transportation has become a front and center matter for mayors across the country and why transportation is seen now as a key economic development tool.

Urban congestion in Manhattan (source: Best Practices for NYC)

In economic terms, cities are agglomerations that provide economic benefits that make it more beneficial to locate businesses there than elsewhere.

Such beneficial agglomerations also tend to produce "productive inefficiencies", —things like air pollution, parking cost, and congestion. These inefficiencies begin to limit or even reduce the agglomeration benefits.

Vehicle-based mobility in a growing agglomeration initially increases as more jobs and amenities locate in an area and can be easily accessed by automobile. As growth continues, vehicle-based mobility plateaus and finally reverses unless diversification of modes is achieved that in turn activates agglomeration growth patterns that have fewer productive inefficiencies.  The costs of inefficiencies such as commute times, health outcomes, and access inequities initially accrue on the public side or become a burden on individuals without necessarily prompting action on the part of private enterprise which tends to be unconcerned with “external” costs.

Source: Todd Litman,  Victoria Institute: Evaluating Transportation
and Development Impacts 

Beyond a certain point, though, the productive inefficiencies cannot be ignored any longer and external costs become internal even to private business. Examples of this include employers having a hard time getting employees to their jobs or finding employees altogether, because a metropolitan area becomes simply unattractive to live in and can't attract talent. Poor health outcomes in the general population also can have a direct impact on company productivity. 

Poor mobility can create a drag on profitability in terms of bringing goods to and from their origins and destinations. In an economy where human capital is the largest asset for many private businesses, the aggregate of poor transportation policies translates directly into lack of competitiveness while a comprehensive approach to transportation can make a metro area attractive and a magnet for talent that can allocate anywhere it wants. Frequently used examples for comprehensive and transformative urban transportation are Vancouver and Toronto in Canada, Portland, OR in the U.S., Bremen in Germany, London, UK and Hongkong.

The US drives more than twice as much but demand is leveling off

Mobility and flow of traffic have traditionally been the focus of the transportation policies of U.S. cities, with a strong priority on the use of cars. Car-centric approaches included building ample parking, urban freeways, and a focus on "level of service" (i.e., traffic delay at intersections) which resulted in "green wave" signal management, rush hour parking restrictions, and one way streets. Metro areas have exhausted all those cost-effective measures and realized that further vehicle travel will not only require measures that are far more costly than whatever benefits but will actually compound the damage that the car-centric policies have already wreaked on many aspects of city life. The previously neglected external costs have come into focus, namely sprawl from urban flight, lack of pedestrian safety and the general deterioration of the quality of life that has come with streets that only serve the purpose of moving cars. With the traditional car-centric measures exhausted, congestion in urbanized areas has increased. The Heritage Foundation realizes this as well, although it continues to advocate against transit and for more roads:

Meanwhile, transit has not reduced traffic congestion. Urban traffic congestion in the 52 metropolitan areas with populations of over 1 million people has increased by 150 percent since 1982, according to Texas Transportation Institute data. This is to be expected, because road capacity has not kept up with the increase in driving. (Solutions 2016)

The general conclusion among urban transportation experts is that cities cannot "build themselves out of congestion" and that a more diverse approach with stronger transit use and more active transportation is needed to align cost and benefits again. At the same time benefits need to be defined more broadly and metrics that measure success in transportation have to be recalibrated. Already, mobility as the desired outcome has been replaced by accessibility as a broader objective. Moving people isn't a purpose in itself; instead, it is about access to opportunities such as jobs, entertainment, shopping and education. A new look at transportation begins to includes consideration of externalities such as land use or urban agglomeration.  While urban flight, dispersal and sprawl has unleashed a diabolic feedback loop that continually increases the demand for transportation, agglomeration, density, and infill reduce the need to travel. The new slogan is that the best trip is the one not taken, not because it is impossible to take it but because the destinations are right where you need them.

Transit benefits from congestion reduction (Source: Mineta Institute)

“Transportation demand in the 21st Century reflects a shift in thinking
about the most basic reasons for transportation investment itself—
from a system that provides the potential for mobility to one that
provides individuals and business with reliable access to economic
opportunities and social activities.” (National Transportation Policy Project)

The ultimate goal (or output) of transportation is accessibility, people and industry’s ability to access desired resources, services and markets, which can include raw materials, labor, worksites, professional services, business meetings, clients and distributors. Increased accessibility (a reduction in the time, money or risk required to reach resources and services) increased productivity. (Litman, 2016)

With access as the new metric, the discussion of equity is not far behind. Are transportation expenditures distributed in a fair way and more importantly, are services accessible to all segments of the population equally? Improved transit has quickly become the focus of the discussion about urban disparities and providing more opportunity. Todd Litman distinguishes three types of (transit) equity:

1. Horizontal Equity (also called “fairness”). This is concerned with the fairness of impact allocation between individuals and groups considered comparable in ability and need. Horizontal equity implies that consumers should “get what they pay for and pay for what they get,” unless a subsidy is specifically justified.
2. Vertical Equity With Regard to Income. According to this definition, transport is most equitable if it provides the greatest benefits and least costs to lower-income people. Policies that provide relatively large benefits to lower-income groups are called progressive and those that burden lower-income people are called regressive.
3. Vertical Equity With Regard to Mobility Need and Ability. This assumes that everyone should enjoy at least a basic level of access, including people with special needs and constrains, which may require extra resources and subsidies, such as extra expenditures to accommodate people with disabilities or targeted subsidies. (Litman, 2016)

Regarding equity, even the conservative Heritage Foundation with its very critical view of the effectiveness of transit concedes:

The reality is that, without a car, the overwhelming majority of commuters, low-income and higher-income alike, are stranded with inferior employment opportunities, since they can access so few of the jobs in the metropolitan area by transit, walking, or cycling. (Solutions 2016).

Household cost for transportation increased dramatically

The Brookings Institution realized that with all the past emphasis on mobility data about access were scarce. In 2011, Brookings prepared and published a widely recognized study titled "Missed Opportunity: Transit and Jobs in Metropolitan America". The good news: 70% of residents in US metro areas have some access to transit. The bad news: Job access overall is woefully poor, even if one considers jobs accessible by transit via commutes of up to 90 minutes:

The typical metropolitan resident can reach about 30 percent of jobs in their metropolitan area via transit in 90 minutes. Job access differs considerably across metro areas, from 60 percent in Honolulu to just 7 percent in Palm Bay, reflecting variable transit coverage levels and service frequencies, and variable levels of employment and population decentralization. Among very large metro areas, the share of jobs accessible via transit ranges from 37 percent
in Washington and New York to 16 percent in Miami.(Brookings)

It is easy to see how the issue of access from the view of industry and employers can be combined with the issue of equity from the view of employees in a win-win approach. In the current urban renaissance , and the still ongoing economic recovery, certain industries experience difficulties in finding employees. The private sector, previously largely indifferent to public transportation, has begun to promote improved urban transit and get behind the discussion of transit as a solution to equity discrepancies as well.

As a result, most U.S. cities with their long-standing history of car-centric transportation policies have engaged in a dramatic policy shift that means nothing less than upending their transportation strategies. 

Although public transportation is a $61.3 billion industry in the United States, public funds for expensive urban transit expansion remain scarce. The shift in transportation policies, resulting in a significant increase in need, makes them even scarcer. In short, any desire to construct urban transit now requires creative ways of funding, especially since the political will to fund transit projects remains weak on the State level and in Congress where rural legislators have the upper hand.

Preferences of younger and older voters: transit is among the extremely high priorities

Analyzed like a regular business, transit is seen as a loser because it always costs more than it takes in (globally the only exception seems to be Hongkong).  To win in the political arena requires building the argument beyond simply comparing internal costs (building and operating a transit system) with internal benefits (fare box recovery).  The inclusion of external benefits, especially jobs access and equity, is important but monetary quantification is difficult. Transit investments, then, must show that they can improve the productive inefficiencies where more roads and more vehicle trips cannot. Can and will the external benefits outweigh the operational losses in a fiscal sense?

Metro residents seem to vote yes on this question. Transit initiatives have been more successful at the ballot box than with politicians in Congress or various State Houses: According to the American Public Transportation Association (APTA), between 2003 and 2014, more than 75 percent of the 435 transit ballot measures over that 11-year period were approved by voters, with such approval consistent across regions of the country and across party affiliations.

The preferences of especially younger voters have had an impact on the overall availability of transit and especially rail transit in the U.S., according to APTA. In 1980 there were only 18 commuter rail systems compared to 28 in 2014. The number of light rail systems increased from nine in 1980 to 35 in 2014. There is some form of rail transit in 32 states, the District of Columbia and Puerto Rico.

For a while, federal funding has responded to the new needs: In its 2015 report APTA states that "Federal appropriations for public transportation have increased from $3.9 billion in FY 1995 to $10.7 billion in FY 2015. Nearly 80 percent of this amount is provided through the Mass Transit Account of the Highway Trust Fund. Public transit projects have successfully competed for flexible funds that could be transferred from highways to transit and have received more than $19 billion since the program’s inception in 1992. Public transit projects also got a boost from the Transportation Investment Generating Economic Recovery (TIGER) discretionary grant program, for which all transportation modes were eligible. However, a lot of these programs were one time only or will change with the tides in Washington. Cities cannot continue to rely on federal largess and urgently need to find ways to fund a much higher portion of their transportation expenditures themselves.

A careful assessment and comparison of the overall economic benefits of  various transportation investment strategies is therefore more needed than ever before.

Many studies have been prepared to monetize transit benefits, some are listed below this article. They typically show that transit investments have, indeed, significant external benefits including:

• Direct job creation from transit construction and operation of transit
• Better job access for transit dependent populations
• Health benefits in urban agglomerations from cleaner air, more walking to increased safety
• an increased workforce pool for industries 
• decreased mobility cost for individual households which can reduce car usage or ownership
• increased quality of life attracting additional talent
• increased equity

Additionally there are indirect or secondary benefits that are often more difficult to attribute to one particular cause. On the local level such secondary benefits include:

• increased property values
• increased retail activity
• shifts in land use potentially resulting in population growth

 There are even secondary benefits to be had on a national or global scale:

• reduction of green house gas emissions
• reduction of trade imbalances due to lower demand for fossil fuel or increased manufacturing inside the country to to better access to the existing labor pool.

Every time a metro area added about 4 seats to rails and buses per 1,000 residents, the central city ended up with 320 more employees per square mile — an increase of 19 percent. Adding 85 rail miles delivered a 7 percent increase. A 10 percent expansion in transit service (by adding either rail and bus seats or rail miles) produced a wage increase between $53 and $194 per worker per year in the city center. The gross metropolitan product rose between 1 and 2 percent, too.(CityLab)

However, numeric benefits assessments are exceedingly complicated, in part because positive outcomes are not only quantitative but also qualitative. Agglomeration benefits of transit are the largest where the efficiencies of roadways have vanquished due to the above described factors, namely congestion and lack of additional space. Benefits of transit also vary with the size of cities, with the mode of transit, and with the extent to which transit routes form overall metropolitan systems. As one would imagine, larger cities yield higher cost benefit ratios, rail yields bigger effects than bus, and large systems perform much better than individual rail lines that remain isolated.

According to Litman, areas that invest in “large rail” systems, in which rail is major component of the transportation system, reap more than three times the benefits in congestion savings than those that invested in “small rail,” in which rail is a minor component of the transportation system, and nearly seven times the benefit compared with “bus only” areas.

Transit’s efficiency has huge implications for our major cities. In a study of dozens of cities around the world, higher transit ridership correlated to greater overall economic success and a higher standard of living.c It also found that the transportation systems of large Canadian and European cities, with theirstrong transit focus, are more efficient than those of large American cities—consuming just over 7 percent of gross  regional product, compared to almost 13 percent.
The job-creation powers of transit investment have been confirmed by the British Columbia Treasury Board, which found that spending on transit creates jobs more cost-effectively than spending on other modes of transportation. It estimated that a $1 million transit expenditure creates an average of 21.4 new jobs, compared to 7.5 jobs for the same automotive expense, or just 4.5 jobs in the petroleum industry. Transit Means Business

Transit helped the Twin Cities to attract business

Revamped transportation priorities that favor transit and active modes (walking, biking) over cars have worked as proof of concept in re-branding entire cities. The original precedents for that approach such as Portland, OR and Vancouver, BC have shown success in any number of metrics for decades. Additional evidence of success has since come from diverse cities which tried to replicate less car-centric transportation policies in a variety of ways. Examples include Los Angeles, CA, Charlotte, NC or the District of Columbia. Litman compared vehicle miles traveled (VMT) in various cities and concluded that VMT was inverse proportional to economic prosperity:

...among U.S. urban regions, increased per capita vehicle-miles of travel (VMT) is associated with a reduction in per capita Gross Domestic Product (GDP).
This relationship probably reflects a variety of factors: higher VMT results from more sprawled land use, and increases direct user costs and indirect costs to society. Higher consumer expenditures on vehicles and fuel reduce regional employment and business activity and increase the cost of living and therefore wages (i.e., the limit development of industries that require many lower-wage employees), and higher external costs (congestion, road and parking facilities, accident and pollution damages, etc.) impose economic costs. This suggests that transport policies that reduce VMT by improving alternative modes; more efficient road, parking and fuel pricing; and more accessible and multi-modal land use policies probably increase economic productivity.

Careful analysis proves that transit doesn't only provide better access within a given land use distribution but that transit itself will influence agglomeration and allocation of uses, i.e. it shapes the city.

Few studies have related transit services to physical agglomeration measures. Previous research has concluded that higher employment accessibility is associated with higher wages and firm revenues, but has not explicitly investigated the causal chain implicit in the hypothesis that public transit services increase agglomeration economies by influencing city size and density. Transit Service, Physical Agglomeration, and Productivity in U.S. Metropolitan Areas

Employer Survey  about transit's role: Arlington County, VA

Transit, then, is no longer just a function of existing agglomerations that are a precondition for its existence, but it becomes a catalyst for further agglomeration or as Todd Litman puts it:

high quality transit is much more than a vehicle; it is an integrated system that includes compact, high quality stops and stations surrounded by compact and mixed-use development, good walking and cycling conditions, good taxi services, reduced parking supply, and more social acceptance of carfree living. Public transit projects often serve as a catalyst for this type of transit-oriented development (TOD).

Where these features exist, residents own significantly fewer automobiles, drive less, and rely more on a combination of alternative modes (walking, cycling, ridesharing, public transit, taxi and delivery services).
Residents of transit-oriented developments tend to own about half as many vehicles, generate half as many vehicle trips, and rely on walking, cycling and public transit much more than in automobile-dependent communities 

In other words, those cities not only managed to get out of the vicious cycle of dispersal, congestion, and decline, but they reversed it and achieved a virtuous cycle of agglomeration, growth, and prosperity.  

It is now obvious that cities that will not execute the transportation shift will suffer a slow decline. Lack of mobility choices will not only prevent a metro area from growing and attracting talent but will also prevent land use aggregation that is ultimately necessary for an attractive city in terms of urban design and place-making. As a result, the downward spiral of car-centric transportation will not only make a city less and less efficient but actually hollow its economy out.

The bi-partisan Mineta Transportation Institute founded by Congress puts it this way:

Jobs and economic stimulus are among the largest benefit categories from transit investments: Benefits to jobs and the economy were found to be one of the most important categories in the benefit-cost studies reviewed. While these benefits tended to be larger in urbanized areas compared with small urban and rural areas, smaller population areas stand to gain substantially from transit services, with between 40%-46% of total transit benefits attributable to jobs and the economy.

..in the case of central city employment density, estimated wage increases range between $1.5 million and $1.8 billion per metropolitan area yearly for a 10 per cent increase in transit seats or rail service miles per capita. Firms and households likely receive unanticipated agglomeration benefits from transit-induced densification and growth, and current benefit–cost evaluations may therefore underestimate the benefits of improving transit service, particularly in large cities with existing transit networks. (The Benefits of Transit in the United States)

Where better transit increases the tax base of municipalities, it allows cities to invest those benefits towards the elimination of other productive inefficiencies such as poor education, unkempt parks or even high crime. In other words, transportation may hold the key to an interlocking set of feedback loops that can put metro areas on a better path not only for mobility and access but a number of other desirable outcomes as well. The District of Columbia added about 45,000 residents in a single decade without increasing the vehicle miles added. It did that because it had a large transit system for its size and because it had implemented a transportation policy that put pedestrians, buses, bicycles, and car share first.

This paradigm shift isn't easy. Metro areas will need to figure out how to initially pay for additional transit capital expenditures and the operations that follow. Even if the long-term benefit is without doubt, they have to devise an entire system of management from planning to procurement and operation that includes cost control and effectiveness measurements and metrics that include external and qualitative benefits and assure that those benefits become visible in city income. The autonomous vehicle won't make transit superfluous. However, if deployed in the same fashion as the cyrrent private car it will exacerbate dispersion and land use that makes transit so hard in the first place.

Klaus Philipsen, FAIA

Todd Litman, April 2016, Victoria Institute: Evaluating Transportation and Development Impacts 
Todd Litman Nov. 2016, Evaluating Public Transit Benefits and Costs
APTA: The Business Case for Investment in Public Transportation, 2015\
Mineta Transportation Institute: The Benefits of Transit in the United States: A Review and Analysis of Benefit-Cost Studies, July 2015
Chatman, Urban Studies April 2014: Transit Service, Urban Agglomeration and Economic Development
APTA 2009: Economic Impact of Public Transportation Investment
Canadian Study: Transit Means Business
Diaz: Impacts of Rail Transit on Property Values
RPA Study: Home values and transit (2010)
TRB Report 78: Benefits and Costs of Public Transit Projects (2002)
World Cities Best Practices (NYC 2008): Innovations in Transportation
Best Practice in National Support for Urban Transportation 
Urban Transport Group: The Case for Active Travel
Transport for London 2013
Integrated Transportation Strategy Bremen, Germany
"Missed Opportunity": Transit and Jobs in Metropolitan America, Brookings Metropolitan Policy Program, May 2011
National Transportation Policy Project: Performance Metrics for the Evaluation of Transportation Programs (2009)