Posted: September 14th, 2022

Case Study

 3 questions 

Case Study Assignment One

MPA 5810 Public-Private Partnerships

Students will individually prepare a typed response to the following questions about the case study Raju,

Sudhakar. (2008). “Project NPV, Positive Externalities, Social Cost-Benefit Analysis—The Kansas City

Light Rail Project.” Journal of Public Transportation. Students may use tables, appendices, calculations,

or references as needed. Students may not consult with one another or seek external help on this

assignment. You should rely on readings from the class as needed.

Please answer the following questions about the Kansas City Light Rail case:

1. What are the federal funding assumptions for the project? How does this assumption relate to other

transit projects?

2. Bent Flyvbjerg encourages a technique known as reference class forecasting to examine infrastructure

projects. Do you see evidence of this approach or similar approach being used in the study? Discuss

the author’s approach.

3. The author utilizes NPV and IRR to examine the cash flows for this project. Based on the Yescombe

reading, what concerns exist with using this approach for this particular project? How does the author

acknowledge these concerns? Do you agree?

4. From a behavioral perspective, do you believe the author’s purported benefits of lower auto travel as

a result of the light rail are realistic? What about the social benefit he conveys as a result of the light

rail?

59

Project NPV, Po

s

itive Externalities, Social Cost-Benefit Analysis

Project NPV, Positive Externalities,
Social Cost-Benefit Analysis—

The Kansas City Light Rail Project
Sudhakar Raju, Rockhurst Universit

y

Abstract

The Heartland Light Rail project represents Kansas City’s biggest infrastructural
investment in decades. The ballot initiative for the light rail project was voted down
three times until it was finally approved in November 2006. Using best estimates of
construction costs, operating expenses and federal funding, I estimate the net pres-
ent value (NPV) of the project to be negative $343 million. From a standard NPV
perspective the Kansas City light rail transit (LRT) system is unlikely to break even.
However, if the negative externalities of auto travel and the positive externalities
associated with light rail are properly accounted for in a comprehensive social cost-
benefit framework, investment in the Kansas City LRT system becomes an increas-
ingly feasible option.

Introduction
In November 2006, after several previous failed attempts, voters in Kansas Cit

y

approved a measure for the construction of a light rail transit (LRT) system that
would be partly financed by a 3/8-cent sales tax for 25 years. According to the offi-
cial ballot language, the plan proposes the construction of a new $1 billion, 27-mile
Heartland Light Rail system. The plan also proposes enlarging the light rail system’s
service area by employing a green fleet of 60 electric shuttles that would provide
connecting transit service to nearby job and shopping centers.

Journal of Public Transportation, Vol. 11, No. 4, 2008

60

Kansas City and Transportation
During the 1990s, Kansas City embarked on a widespread strategic planning ini-
tiative. A key recommendation of the initiative involved the city’s transportation
system. Federal Highway Administration (FHWA) data indicated that the poor
quality of Kansas City roads imposed annual vehicle operation costs of $651 on
Kansas City drivers1—the highest in the nation’s major cities outside California.
Data from the 2003 national Consumer Expenditure Survey indicated that among
major metropolitan areas, Kansas City residents spent about 20 percent of their
budget on transportation—the fifth highest in the nation. Kansas City offers no
real alternatives to driving and, with continued growth, transportation is pro-
jected to become even more time-consuming and costly. As a result, a key recom-
mendation of the planning initiative was for the development of a light rail transit
system to “enhance the movement of people, to protect clean air, and to protect
the natural environment … and the promotion of more clustered development
along transit corridors.”2

Kansas City is actually composed of two cities—Kansas City, Missouri and Kansas
City, Kansas. Kansas City, Missouri is, by itself, the largest city in Missouri. The com-
bined population of the greater Kansas City metropolitan area is close to 2 million.
Once known primarily for agriculture and manufacturing, Kansas City today has
a diversified economic base composed of telecommunications, banking, finance,
and service-based industries. Kansas City is also a transportation hub and a major
national distribution center. Transportation is, therefore, central to the continued
development of Kansas City.

Notwithstanding the importance of transportation for Kansas City’s economic
development, recent investment in transportation infrastructure in Kansas
City has been poor. In a study conducted by the Mid-America Regional Council
(MARC), a regional public policy research organization located in Kansas City,
Kansas City ranked at the bottom of a group of peer cities in terms of public trans-
portation financing. The only public transit offered by the city is bus services. But
even this service is underinvested; in fact, Kansas City would have to double its bus
services to reach the average of its peer cities.

Due to the extensive highway projects implemented in Kansas City during the
1970s and 1980s, Kansas City possesses the most freeway lane miles per capita of
all large urbanized areas in the United States and the fourth highest total roadway
miles per person.3 Even though Kansas City ranks high in the number of roadway
miles per person, its roads are in worse condition than national and peer city aver-

61

Project NPV, Positive Externalities, Social Cost-Benefit Analysis

ages. The Road Information Program’s (TRIP’s) 2004 Bumpy Roads Ahead report
found that Kansas City’s “poor” pavement conditions significantly exceeded
national averages, and Kansas City had a smaller percentage of roads classified as
“good.” In addition, overall pavement conditions have notably deteriorated since
2000.

Transportation by automobile is, by far, the preferred mode of transportation in
Kansas City, and recent studies indicate that reliance on automobiles is continuing
to grow. More than 93 percent of all trips are by automobile, of which 83 percent
are single-occupancy trips and 10 percent are carpool trips. About 4 percent work
from home, 1 percent walk to work, and public transit accounts for the remaining
1 percent.

The extensive roadway system in Kansas City offsets the excessive reliance on
automobiles; thus, congestion is not a major problem. However, there is significant
congestion during peak periods, and nearly all studies are in agreement that con-
gestion is growing. The 2001 Travel Time Study conducted by MARC found that
congested travel as a percentage of peak vehicle miles traveled increased from 5
percent in 1982 to 32 percent in 2002. However, this still compares very favorably
to other urban areas in which congested travel increased far more substantially,
from 24 percent in 1982 to 65 percent in 2002. The low-density urban form of Kan-
sas City means that travel distances in Kansas City are longer. The average vehicle
miles of travel (VMT) per person in Kansas City was 28.65, whereas the average for
metropolitan areas of similar size was 24.04 VMT per person each day.4 However,
the relatively lower congestion in Kansas City results in greater travel speeds and
shorter travel times. The MARC 2001 Travel Time Study found that even though
average travel speeds steadily increased, “there are several routes where conges-
tion is an increasing problem. This is evident in that there is a large percentage of
routes and segments with delay … and several of the most highly traveled routes in
the region have significantly more delay than in previous studies.” A similar study
by the Missouri Department of Transportation found that of the 10 most heavily-
congested sections of the urban Missouri interstate highways, 7 are located in
Kansas City.5

The Heartland Rail System
Planning for the Kansas City LRT system began in the 1990s. The Technology Work
Team considered six technology options—improved bus service, bus rapid transit

Journal of Public Transportation, Vol. 11, No. 4, 2008

62

with dedicated guideway (such as in Ottawa or Curitiba), electrified bus rapid
transit (as in Lille, France or Mexico City), electrified street car, monorail and light
rail—and settled on light rail as the preferred technology with electric bus transit
as a second option.

The Heartland Rail system would serve some of Kansas City’s densest residential
neighborhoods in the mid- and south-town areas. The proposed system align-
ment runs through downtown Kansas City, serving an employment corridor with
250,000 jobs. The primary market that would be served by the proposed light rail
system is work trips though strong connections to cultural and shopping centers
would result in a strong secondary market. During peak weekday morning and
evening periods, service is proposed to be provided every 12 minutes.

Capital Costs, Operating Costs, and Funding for the
Heartland Light Rail Project
The Heartland Rail system, as proposed, would constitute one of the biggest infra-
structural investments in Kansas City history. Detailed estimates of capital costs,
cash inflows, and cash outflows for the project is provided in the Central Business
Corridor (CBC) Transit Plan. The essential features of the project and the underly-
ing project assumptions of the CBC Transit plan are summarized in Table 1.

The CBC plan assumes that the project would be funded by three major sources.
Federal funding of $593 million was assumed to cover 60.50 percent of the capital
costs of the project. A 3/8-cent sales tax for 25 years was assumed to generate $29
million in the first year and a total of $878 million over the 25-year tax period. The
project would also be funded by a $195 million, 19-year, 7.70 percent bond issue,
which would result in interest payments of $19.87 million annually. The funding
for the project would become effective on April 1, 2009.

The Financial Economics of the Heartland Light Rail System—
Project Analysis
While detailed estimates of capital costs, cash inflows, and cash outflows over the
25-year life of the light rail system are provided in the Central Business Corridor
(CBC) Transit Plan, there is no attempt to provide an economic or financial analy-
sis of the project. The project inflow and outflow estimates provided by the CBC
plan over the 25-year life of the project are shown in Table 2.

63

Project NPV, Positive Externalities, Social Cost-Benefit Analysis

Table 1. Project Assumptions

Project Life 25 years
• Capital Period 8 years (Year 1 – Year 8)
• Operating Period 17 years (Year 9 – Year 25)

Estimated (Inflation Adjusted) Capital Costs $9

81

Base Estimate of Annual Operating/Maintenance Costs $15.20 million
Annual Growth in Operating/Maintenance Cost 4%
Annual Operating/Maintenance Cost in Year 9 $20.80 million
($15.20 x [1 + .04]8 = $20.80)
Total Operation and Maintenance Cost (Years 9 – 25) $493

Federal Capital Funding Percentage 60.50%
Secondary Funds Base Assumption $1.50 million
(Annual Growth Rate 1.80%)

Base Estimate from Sales Taxes $29 million
Estimated Annual Growth in Taxes 1.80%
Tax Period 25 years

Bond Issue $195 million
Bond Repayment Period 19 years
Bond Interest Rate 7.50%
Annual Bond Interest Payment
$19.87 million
($195 million issue, Effective rate of 7.70%, 19 years)

Base Estimate of Fare Revenue (Year 9 of project) $6.11 million

Annual Growth Rate in Fare Revenues 1.80%

Journal of Public Transportation, Vol. 11, No. 4, 2008

64

Ta
bl

e
2.

P
ro

je
ct

C
os

t a
nd

R
ev

en
ue

F
lo

w
s

(in
m

ill
io

ns
):

E
st

im
at

es

B

as
ed

o
n

CB
C

St
ud

y

N
ot

es
: T

ot
al

C
ap

ita
l O

ut
flo

w
s =

C
ap

i

ta
l C

os
ts

+
O

pe
ra

tio
n

&
M

ai
nt

en
an

ce
+

B
on

d
Pa

ym
en

t

To
ta

l C
ap

ita
l I

nfl
ow

s =
B

on
d

Sa
le

s +
F

ed
er

al
F

un
ds

+
S

ec
on

da
ry

F
un

ds
+

O
th

er
F

un
di

ng
+

S
al

es
T

ax
R

ev
en

ue
s +

F
ar

e
Bo

x
Re

ve
nu

es
+

In
te

re
st

E
ar

ne
d

65

Project NPV, Positive Externalities, Social Cost-Benefit Analysis

A good starting point for financial analysis is to compute the NPV of the Kansas
City LRT project. For long-term capital projects, the Federal Transit Authority
(FTA) recommends using a project discount rate of 7 percent.6 Using this as the
applicable discount rate, the NPV of the project based on the CBC Transit Plan
estimates turn out to be about $70 million. However, this NPV value is based on
preliminary estimates provided in the CBC Transit Plan and needs to be readjusted
in the light of recent developments and other factors such as inflationary effects.
The most significant revisions to the preliminary estimates are:

• The CBC Transit Plan estimates are based on operating cost assumptions of
$20.80 million. More realistic estimates suggest that operating costs would
probably be in the range of $25-$30 million annually. The mid-point of this
range is used here with the assumption (as in the CBC study) that operating
costs escalate annually at 4 percent.

• The CBC Transit Plan revenue estimates are based on a ½-cent sales tax
assumption. The actual amount approved by Kansas City voters was 3/8
cents. (Thus, actual sales tax revenues earmarked for the project are 25
percent lower.) The lower estimate suggests that a 3/8-cent sales tax would
generate sales tax revenues of $23 million annually. The CBC estimates were
revised to reflect the lower sales tax with the assumption (as in the CBC
study) that sales tax revenues increase by 1.75 percent annually.

The revised estimates are shown in Table 3. The NPV of the project based on the
net cash flows of the project turn out to be -$53.31 million, while the Internal Rate
of Return (IRR) is 10.58 percent7—a clear signal that the project has some inherent
problems.

What is clear from an analysis of the cash flow stream is that the project is heavily-
dependent on federal funding. Ironically, the only periods in which the project has
any positive cash flow stream are the initial years—the periods when one would
expect the project to run deficits because of high capital costs. This is due to the
fairly high values assumed for federal funding. While capital costs reach a peak in
years 6-8, a bond issue in Year 7 partially offsets some of these capital costs, result-
ing in a net inflow in Year 7.

The most instructive aspect of the financial analysis is the non-self sustaining
nature of the project in the operating phase covering years 9-25. Net cash flows
in the operating phase of the project are negative in every year of the project. In
principle, the operating phase is somewhat less subject to uncertainty since the

Journal of Public Transportation, Vol. 11, No. 4, 2008

66

Ta
bl

e
3.

P
ro

je
ct

C
os

t a
nd

R
ev

en
ue

F
lo

w
s

(in
m

ill
io

ns
):

R
ev

is
ed

E
st

im
at

es
B

as
ed

o
n

CB
C

St
ud

y

N
ot

es
:

To
ta

l C
ap

ita
l O

ut
flo

w
s =

C
ap

ita
l C

os
ts

+
O

pe
ra

tio
n

&
M

ai
nt

en
an

ce
+

B
on

d
Pa

ym
en

t

To
ta

l C
ap

ita
l I

nfl
ow

s =
B

on
d

Sa
le

s +
F

ed
er

al
F

un
ds

+
S

ec
on

da
ry

F
un

ds
+

O
th

er
F

un
di

ng
+

S
al

es
T

ax
R

ev
en

ue
s +

F
ar

e
Bo

x
Re

ve
nu

es

N

et
C

as
h

flo
w

=
T

ot
al

C
ap

ita
l I

nfl
ow

s –
C

ap
ita

l O
ut

flo
w

s

67

Project NPV, Positive Externalities, Social Cost-Benefit Analysis

major uncertainty in infrastructural projects tends to center around the substan-
tial initial investment costs. Four major factors determine the economic viability
of the Heartland Light Rail project in the operating phase of the project: operating
and maintenance costs, bond interest payments, sales tax revenues, and fare box
revenues. The effect of each of these variables are analyzed below.

Operating and Maintenance Costs
The budgeted value for operating and maintenance cost in the first year of the K.C.
Light Rail project is $20.80 million. A more realistic estimate, taking into account
factors such as cost escalation and inflation, is $25-$30 million. Using a mid-range
estimate of operating costs, the NPV of the project, as pointed out earlier, turns
out to be negative. Now, suppose one were to give the operating costs of the
project more latitude. What is the lowest value that one could assume for base
operating costs and still end up with a positive value for NPV? Holding everything
else constant, the effect on NPV for different base year operating and maintenance
cost assumptions is reported below.8

Table 4. Project Sensitivity to Base Year Operating &
Maintenance Cost Assumptions

Thus, operating and maintenance costs would have to be lower than $20.33
million at inception of project operation for NPV to be positive. Given that the
current estimate is $25 million, it seems unlikely that operating and maintenance
costs could go as low as $20.33 million. In addition, if the annual percentage
increase in operating costs were higher than 4 percent, the resulting NPV’s would
be even more unfavorable.

Bond Interest Payments
The base estimates are based on partial funding of the Heartland Light Rail Project
through a $195 million, 7.70 percent effective rate, 19-year bond issue in Year 7 of
the project. This results in interest obligations of $19.87 million over 19 years. How
low would interest obligations have to be to result in a break-even NPV?

Journal of Public Transportation, Vol. 11, No. 4, 2008

68

The effective interest rate assumed for the Heartland Light Rail bond issue is 7.70
percent. Of course, future interest rates are unknown, but, based on Kansas City’s
current credit rating, an interest rate of 7.70 percent seems reasonable and per-
haps even on the higher side. In 2007, Kansas City issued $138 million of general
obligation “GO series 2007A” bonds at a rate of 4.60 percent. All three credit rating
agencies—Standard and Poor’s, Moody’s, and Fitch Ratings—affirmed their belief
in the City’s financial strength. In Table 5, a19-year bond issue of $195 million is
assumed, and the effect of different interest rates and debt servicing levels on
project NPV is computed.

Table 5. Project Sensitivity to Interest Cost Assumptions

Note: The above is based on a $195 million, 19-year bond issue.

It is clear from the sensitivity analysis above that even if long-term interest rates
were to decline to a historical low of 4 percent, the resulting savings in debt servic-
ing costs is insufficient to result in a non-negative NPV. Since long-term interest
rates have historically been around 7.50 percent, it is improbable for much savings
to be realized from a decline in annual debt servicing costs alone.

Suppose we were to consider two other options—increasing the size of the bond
issue or increasing the maturity of the issue. It is important to recognize that size,
maturity, and annual payments are all simultaneously determined, so that chang-
ing any one variable affects the value of at least one of the other variables. Now
suppose that the size of the issue was increased from $195 million to some higher
value while maturity of the issue is kept constant. What effect would this have on
the NPV of the project? The results are reported in Table 6.

Clearly, increasing the size of the bond issue worsens the NPV of the project. This
is due to the fact that while a larger bond issue increases the cash inflow in Year
7, it also results in higher debt servicing burdens in the outer years of the project.
In fact, a lower issue size may be the answer, but there may be constraints about
running unacceptably high levels of deficits in the initial years of the project.

69

Project NPV, Positive Externalities, Social Cost-Benefit Analysis

Table 6. Project Sensitivity to Bond Issue Size

Note: The above assumes an effective
funding cost of 7.70 percent and a
maturity of 19 years.

Would increasing the maturity of the bond issue and consequently reducing the
annual debt servicing burden improve the NPV of the project? Suppose the size
of the issue and interest rate remained at $195 million and 7.70 percent, but the
maturity of the issue was increased from 19 to 25 years. The annual debt servicing
burden in this case would decrease from $19.87 million to $17.80 million over the
life of the project, and NPV would improve from the base case NPV of -$53.31 mil-
lion to -$45 million.

At an extreme, imagine that Kansas City could issue a perpetual bond. Suppose
the issue size is $195 million and the interest rate is 7.70 percent. In this case, the
annuity payments would decline from the base case estimate of $19.87 million per
annum to perpetual annuity payments of $15.02 million ($195m x .0770). This is
the lowest-possible annual debt servicing burden attainable by increasing bond
maturity. However, this would still result in a negative NPV.

The bottom line is this: Declining interest rates and consequently a lower debt
burden would improve NPV, but even at very low interest rates the project does
not break even. Other solutions, such as increasing the size of the bond issue or
increasing the maturity of the bond issue, are either not helpful or do not impact
the NPV in any substantive manner.

Sales Tax Revenues
Initial estimates suggested a ½-cent sales tax earmarked for the Heartland Light
Rail project. Anti-tax sentiment is, however, very strong in Kansas City, and
the final amount approved for the light rail project by Kansas City voters was a
3/8-cent tax for 25 years. The possibility for increasing the sales tax rate is remote;

Journal of Public Transportation, Vol. 11, No. 4, 2008

70

the ballot language is very specific, and no significant changes can be made with-
out submitting any changes to a vote. Thus, increasing sales tax revenues to pro-
vide additional funding for the project seems unlikely.

Fare Box Revenues
The CBC Transit Plan assumes that fare box revenues in the first operational year
of the project (Year 9) will be around $6.11 million and increase roughly at the rate
of 1.76 percent annually. Demand estimates of ridership are not provided in the
CBC Study, but one can extrapolate from the above value.

Assume a one-way fare price of $3. At a single trip cost of $3, the number of pas-
senger boardings required to generate $6.11 million is about 2.036 million per year
or 8,146 weekday boardings ([$6.11 million] / [$3 x 250 working days]). Assume
for simplicity that 100 percent of the rides are generated by daily round trip com-
muters. This implies that the number of round trips assumed in the CBC study is
4,073 round-trips per working day. Thus, at a one-way trip price of $3, the fare box
revenue projections will be fulfilled if there are 4,073 daily round-trip commuters
per working day. At a lower fare price of $2 per one-way trip, it can similarly be
determined that the required number of daily round trip commuters is 6,110.

Are the estimates for the number of riders above feasible? One way to answer this
question is to look at the usage for current modes of transportation in Kansas City.
Data from 2005 compiled by the U.S. Census Bureau on “Commuting to Work”
indicates that, of the 914,000 daily commuters in the greater Kansas City metro
area, an overwhelming number (800,0000 or 88%) drove alone; 80,731 (9%) car-
pooled, and 9,767 (1.07%) used public transportation. Clearly, public transporta-
tion is not a preferred transportation mode in Kansas City. However, the assumed
number of daily commuters in the CBC study (4,073)—even given the disappoint-
ing number of current daily public transit users—seems low. The proposed Kansas
City light rail system would serve a route corridor estimated to contain 250,000
workers. If 1.63 percent of these workers would choose to use light rail, the rider-
ship estimates in the CBC study would be fulfilled.

Ridership estimates are invariably subject to varying degrees of error. Suppose
the problem is looked at somewhat differently and a related question is asked.
Holding everything else constant, what is the lowest estimate of fare box revenues
that would result in a break even NPV? The model suggests that fare box revenues
of $14.47 million in the first year of the project (or more than twice the revenue
assumed in the CBC Study) would result in a break-even NPV. Annual fare box

71

Project NPV, Positive Externalities, Social Cost-Benefit Analysis

revenues of $14.47 million implies 14,470 round-trips per working day ([$14.47
million] / [$4 round-trip cost x 250 days]). In fact, if the one-way trip cost was
increased to $2.50 from $2, the required number of round-trips per day would be
even lower, at 11,576.9 While options relating to sales tax revenues, bond funding,
maturity of the bond issue, etc., do not seem to hold much promise, estimates for
ridership in Kansas City seem to hold more promise. The reason for this is counter-
intuitive: the very fact that regions like Kansas City are so poorly served by public
transportation constitutes an advantage in the sense that a good public transit
system has a great deal of potential and much room to grow.

How likely are the ridership estimates above? Does light rail hold promise for Kan-
sas City? In this regard, the experience of St. Louis, Missouri may be instructive.
In fact, if one wanted to use a reference city to draw a comparison with Kansas
City, it would be difficult to come up with a better example than St. Louis. Besides
being geographically proximate, both cities share strong cultural ties. St. Louis
uses a light rail system called MetroLink, which consists of two lines that carry an
average of 49,287 people each weekday. In 2006, a second line (Shrewsbury Line)
opened for operation and within seven months reached ridership targets that
were predicted to be reached eight years later. The St. Louis Dispatch (March 22,
2007) reported that ”average weekday boardings vary month to month but were
up 30,500 in January over the same month last year.… In four of the months since
the line’s inauguration in August, average weekday ridership surpassed 63,000—a
number that transportation planners thought would not be reached until 2015.”
The St. Louis Dispatch argued that commuters, fed up with high gasoline prices and
congested roadways, were finally beginning to consider public transportation as a
serious alternative in the Midwest. If the experience of St. Louis is anything to go
by, public transit’s time may have finally arrived in Kansas City.

Operating Costs, Capital Costs and Federal Funding
for the Heartland Light Rail Project
This section analyzes three aspects of the Heartland Light Rail project that are
subject to a considerable degree of uncertainty—operating costs, capital costs,
and federal funding—and then attempts to use the experience of other U.S. cit-
ies to construct realistic cost and funding estimates for the Heartland Light Rail
Project.

Journal of Public Transportation, Vol. 11, No. 4, 2008

72

Operating Costs
Most criticism of light rail transit systems center around the high capital and oper-
ating costs of LRT systems as compared to bus systems. Table 7 compares operat-
ing costs for LRT and bus systems in 12 cities and then computes the operational
cost savings from using a LRT system.

Table 7. Comparison of Operating Expenses per Passenger Mile (PM) for LRT
versus Bus Systems in Selected Cities (2003)

Source: These values are derived from Table 12 (Transit Operating Expenses by Mode, Type of
Service and Function) and Table 19 (Transit Operating Statistics: Service Supplied and Consumed)
of the National Transit Database (NTB) 2003 figures. Annual LRT Operating Savings is computed
by considering the cost advantage of LRT over bus systems and then multiplying the result by the
number of annual LRT passenger miles. Note that negative figures imply that LRT is more expen-
sive than the bus system in that city. Values do not add up exactly because of rounding.10

Clearly, LRT systems in most cities result in lower operating costs than bus sys-
tems.11 The results reported above can be reinforced by looking at the most recent
data available from the National Transit Database on annual operating costs for
LRT and bus systems for the U.S. as a whole.

73

Project NPV, Positive Externalities, Social Cost-Benefit Analysis

Table 8. Comparison of Operating Expenses for
Light Rail and Bus Systems in the U.S.

Source: See 2006 National Transit Profile, National Transit Database.

An approximation of the operational cost benefit of LRT systems over bus systems
for the U.S. as a whole can be calculated thus. Since operating cost per LRT passen-
ger mile is $.20 cheaper than bus systems, and LRT accounted for 1,865.7 million
passenger miles, the annual cost savings from LRT systems for the U.S. as a whole
in 2006 was about $373 million.

The bottom line is that operating costs are not a reasonable basis on which to
criticize LRT systems. The empirical evidence is reasonably clear that operating
expenses for LRT systems are lower than bus systems. Based on this experience,
it can reasonably be concluded that, over the long run, operating expenses of the
Heartland Light Rail would probably be lower than bus operating costs.

Capital Costs
Even though operating costs of LRT systems are, on average, lower than bus
systems, the capital costs of light rail systems are another matter. Data on con-
struction costs of light rail systems are not easily available. A recent paper by
Baum-Snow and Kahn (2005) uses a variety of sources to provide an estimate
of construction costs for major rail transit projects.12 The data reveal wide varia-
tions in construction costs, depending on the type of construction (see Table 9).
The least-expensive lines are typically those that are built on the surface either
as upgrades of existing railroad lines or on city streets. At the other extreme are
bored tunnel lines, which can cost more than $300 million per mile. For instance,
Seattle’s new LRT system is expected to cost $179 million per mile, while at the
other extreme the LRT systems in Baltimore, Sacramento, and Salt Lake City cost
less than $20 million per mile. Since most of these systems were built at different
points in time, it is difficult to directly compare capital costs. Table 9 reports capi-
tal costs for major LRT projects in 2003 dollars13 to facilitate comparison with the
LRT and bus operating cost data reported in Table 7. These capital costs are then
amortized over 30 years at 7 percent per annum and reported in the third column
of the table.14 Utilizing data from Table 7, the last column reports the annual

Journal of Public Transportation, Vol. 11, No. 4, 2008

74

operational cost savings from using an LRT system. In comparing columns 3 and
4, it is evident that, in every case, the amortized annual capital cost of LRT systems
are invariably higher than the operational cost savings generated by LRT systems.

Since operational savings of LRT systems do not cover their capital costs, a com-
mon argument is to expand bus service as a more feasible alternative to investing
in capital intensive light rail projects. A recent paper by Thompson and Matoff
(2003) analyzes bus systems in selected cities and comes to the conclusion that
“regions that choose to improve their public transit systems based on express
buses do not escape making heavy capital expenditures”(p. 311). Thompson and
Matoff also point out that arguments based on “saving” money on capital invest-
ment projects and routing those savings to expanding bus services seem fallacious.
They point out that:

The region that made the smallest capital investment in its transit system—
Columbus—severely reduced the amount of service that it provided per capita.
If the position of the critics were correct, Columbus, by not “wasting” funds on
capital investment, should have had large resources left over to greatly expand
its bus service; obviously, that has not happened…. It is clear that transit agencies
that have pursued development of multidestinational networks that include rail

Table 9. Estimated Light Rail Capital Costs

Note: The last column is derived from Table 7.

75

Project NPV, Positive Externalities, Social Cost-Benefit Analysis

for trunk lines have been able to generate significant ridership without sacrificing
effectiveness, efficiency or equity. (p. 311).

As pointed out earlier, the wide variations in capital costs of LRT systems arise
primarily from the type of construction as well as factors like right of way acquisi-
tion costs. If one considers only projects since 2000 (and ignores an outlier such
as Seattle), the approximate average construction costs per mile of an LRT system
is about $35 million per mile. A base estimate for the Heartland Light Rail project,
then, is $945 million ($35 million per mile x 27 miles). This value is, in fact, the same
as that assumed in the Kansas City light rail ballot initiative. If one makes allow-
ances for cost escalations and inflation, a reasonable capital cost estimate for the
Heartland Light Rail project is about $1 billion. This value is used in the subsequent
sensitivity analysis.

Federal Funding
Even though the dollar value of federal capital funds assistance to transit agencies
has been increasing over the last decade, the percentage contributed by federal
agencies has been generally falling. The percentage of federal funding assumed in
the Central Business Corridor Transit Study is 60 percent. This is an unrealistically
high percentage that is out of line with the realities of current federal capital fund-
ing. The most recent data from the National Transit Database suggests that the
current level of federal assistance is about 39 percent. This is used as a base value
for federal assistance in the subsequent analysis.

In light of the above, previous values assumed in the Central Business Corridor plan
are readjusted to reflect the current realities of capital costs and federal funding. In
addition, the operating phase of the project is adjusted to be 25 years rather than
the 17 years assumed in the Central Business Corridor study. The revised capital/
operating phase, cost, and revenue assumptions are reported in Table 10.

The NPV based on these results is not encouraging. The Heartland Light Rail proj-
ect consistently runs a loss in almost every year, with the result that the project
NPV is about -$343 million. (See the last column of Table 11 for the discounted
project cash flow estimates). Given that capital and operating costs are not subject
to a decrease, the only way that the project would be viable is if fare box revenues
were to increase dramatically. What would fare revenues need to be for the project
to break even? The financial model indicates that fare box revenues would have
to be $52.27 million in the first year of the project with ridership increasing at 2
percent p.a. over the 25-year operating phase of the project. At a single-trip fare

Journal of Public Transportation, Vol. 11, No. 4, 2008

76

of $2.50, with a fare revenue of $52.27 million, implies 20.908 million annual pas-
senger boardings, or 41,816 weekday round-trip boardings. This level of ridership
is not unattainable. The most recent data available from the St. Louis Metrolink
system indicate that, over the annual period from July 2006 to June 2007, the
Metrolink system accommodated 16.885 million or 33,772 round-trip weekday
boardings15—an increase of 43 percent over the previous year. Moreover, the
Kansas City transit corridor contains 250,000 jobs and an estimated population of
about 300,000 within ½ to ¾ miles of the transit corridor.16 If these two factors are
anything to go by, a weekday ridership that would eventually result in a project
breakeven for the Kansas City LRT system is not out of the question.

Table 10. Revised Project Cost/Revenue Assumptions

77

Project NPV, Positive Externalities, Social Cost-Benefit Analysis

Ta
bl

e
11

. P
ro

je
ct

C
os

t a
nd

R
ev

en
ue

F
lo

w
s

(in
m

ill
io

ns
):

Fi
na

l E
st

im
at

es

Journal of Public Transportation, Vol. 11, No. 4, 2008

78

Ta
bl

e
11

. P
ro

je
ct

C
os

t a
nd

R
ev

en
ue

F
lo

w
s

(in
m

ill
io

ns
):

Fi
na

l E
st

im
at

es

co
nt

’d
.

N
ot

e:
Fo

r d
efi

ni
tio

n
of

T
ot

al
C

ap
ita

l O
ut

flo
w

s,
To

ta
l C

ap
ita

l I
nfl

ow
s,

an
d

N
et

C
as

h
Fl

ow
, s

ee
n

ot
es

fo
r T

ab
le

3
.

79

Project NPV, Positive Externalities, Social Cost-Benefit Analysis

Social Cost-Benefit Analysis of the Heartland Light Rail Project
An important aspect to recognize about financial analysis is that, even though
financial analysis of projects is invariably useful, the finances involved in a project
essentially represent transfer payments between different economic entities—
e.g., from federal taxpayers to local economies or from one group of tax payers to
another. A more comprehensive analysis should take into account the economic/
social costs and benefits generated by infrastructural projects. The previous sec-
tion implied that daily round trip ridership of the Heartland Light Rail project
would have to be about 42,000 for the project to break even. Suppose the actual
level of ridership falls far short of this level? Could the project still be justified based
on other social benefit/social cost arguments?

There is a logical reason for the inability of most mass transit systems to be profit-
able. After a century of massive government investment in roads and highways,
the cost of motor vehicle transportation is subsidized to such an extent that public
transit systems find it impossible to raise fares by enough to be operationally self-
sufficient. Vuchic (1999)17 referring to a study by the U.S. Office of Technology
Assessment (OTA) estimates that car drivers pay only about 60 percent of the
total costs of their travel while the other 40 percent (highway construction costs,
maintenance costs, etc.) is subsidized by different levels of government. Other
implicit costs, such as free parking, are subsidized by employers, store owners,
schools, etc., while various social and environmental costs are absorbed by society.
It is, thus, hardly surprising that public transit systems are unable to compete
against motor vehicle transportation. Henry and Dobbs (2005, p.3)18 make a simi-
lar argument:

The competing roadway-based transportation systems … have been struc-
tured to minimize motorists’ out-of-pocket costs. The high costs of private
motor vehicle travel are covered by a largely unobtrusive umbrella of public
and private subsidization as well as the transfer of “external costs” (like acci-
dents and air pollution) to the general public…. Against this heavily subsi-
dized, government promoted competition, public transport operators find it
impossible to charge fares high enough to secure “profitable” operation.”

An estimate of the costs of auto transportation should, therefore, take into
account the externalities imposed by auto traffic such as congestion, accidents,
pollution, time delays, etc. Several studies provide estimates of the total cost of
motor vehicle use. Among the most comprehensive are those by Delucchi (1996),
Small (1997), Small (1999), Delucchi (1997),19 and Delucchi (2000). While the

Journal of Public Transportation, Vol. 11, No. 4, 2008

80

1996 and 1997 studies by Delucchi provide estimates of the total cost of all motor
vehicle usage, Delucchi (2000) breaks down the external costs of motor vehicle
usage into costs for different transportation modes. Table 12 includes Delucchi’s
estimates of the external costs of the two primary competing modes considered
in this section—auto transportation and light rail transportation.20

Table 12. External Costs of Passenger Transportation Modes
(cents per vehicle mile)

The possible range of external costs per passenger mile for autos is 5 to 28 cents, or
a mid-point cost estimate of 11.70 cents. If one subtracts the external cost of .35
cents for light rail from this figure, the result (approximately 11 cents) constitutes
an estimate of the external cost benefit provided by light rail over auto transporta-
tion. To this figure of 11 cents per passenger mile we need to add other positive
externalities provided by LRT that were not explicitly valued in the Delucchi study.
These include land use impact, preservation of wetlands, land erosion control,
emission reduction benefits, conservation of non-renewable resources, rising
property values around rail corridors, revitalization of transit corridors, enhanced
mobility for the transit dependent, etc. In the current situation of rising gasoline
prices, these positive externalities are likely to be considerable.

Quantifying the social benefits that arise from light rail is not easy. While operat-
ing and capital costs of light rail are explicit and thus easily quantified, many of
the social benefits conferred by light rail are implicit and therefore easily ignored
in policy debates. The problem of overlapping benefits and double counting
involved in quantifying external benefits adds to the uncertainty surrounding
such estimates. However, such social benefits could, in fact, be considerable. The
following examples from the literature provide some notion of the dollar values
attributed to these externalities.21 McPhearson et al. (1997) estimate that increas-

81

Project NPV, Positive Externalities, Social Cost-Benefit Analysis

ing tree cover by 10 percent saves annual heating and cooling costs by $50 to $90
per dwelling. They also estimate the NPV of a single tree to be $402. Riddel (2001)
estimates that as a result of 15,000 acres of open space, housing prices in Boulder,
Colorado increased an average of $10,000 for median-priced homes. Roe, Irwin and
Morrow-Jones (2004) found that a 10 percent increase in the amount of farmland
led to a rise in housing prices of $394 for lower priced homes and about $1,100 for
higher priced homes. Kiker and Hodges (2002) estimated the economic benefits
of natural lands in Northeast Florida at $2.6 billion per year. A subsequent study
by Kroeger (2005) extended the Kiker and Hodges’ work to other types of benefits
and arrived at an even higher value of $3.2 billion per year.22 Table 13 summarizes
the cost estimates provided by various studies on land use impact effects:23

Table 13. Land Use Impact of Auto Travel

The land use impact estimates in Table 13 are subject to a substantial degree of
uncertainty. Some of the effects reported above may be double counted; other
effects are ignored since they simply cannot be easily quantified. The most sig-
nificant of the non-quantified effects is the effect of light rail transit on property
values. Suppose for the time being we ignore this effect. The fundamental politi-
cal issue then centers on whether the “subsidy” to rail transit (the negative NPV
of $343 million that was computed in the earlier section) could be offset by the
implicit positive externalities conferred by the LRT system. How large would these
externality benefits need to be? A negative NPV of $343 million over 33 years dis-
counted at 7 percent p.a. implies that the LRT system would have to confer annual
benefits of $26.89 million every year for 33 years for the project to break even. Are
savings of such magnitude feasible?

The external cost estimates above imply that a conservative estimate of the net
external cost savings from light rail over auto transport is about 11 cents per pas-
senger mile. The land use impact savings from LRT adds another 14 cents, for a

Journal of Public Transportation, Vol. 11, No. 4, 2008

82

total of 25 cents. Since there is almost certainly some element of double counting
between Delucchi’s estimates and the land use impact effects reported in Table
13, assume that the land use impact effect is not 14 cents but only half as much,
or 7 cents. This results in a net external cost savings of 18 cents per passenger mile.
Given that the average driver’s round-trip work commute is about 30 miles per
day in Kansas City,24 this implies that annual external cost savings would be $26.89
million if the number of cars would decrease by 19,919 per workday ($.18/mile x
30 miles/day x 250 days/year x 19,919 cars).25 In other words, if 19,919 cars were
taken off the roads because of a travel mode shift from auto travel to light rail
transit, the Heartland Light Rail project would be justifiable based on the savings
in external costs alone.

The external cost savings of 18 cents per mile is one possible estimate of external
costs. A larger estimate of external costs is provided in a comprehensive study
conducted by the Victoria Transport Policy Institute (VTPI) on the externalities
imposed by motor vehicle travel. The VTPI study considers 20 different cost cat-
egories separated into internal and external costs, including such external costs
as parking, congestion, land value, transport diversity, pollution, noise, barrier
effects, waste, etc.,and estimates such external costs26 at 59 cents per vehicle mile,
more than three times the 18 cents in external cost savings considered earlier. This
implies that the required decrease in the number of cars is even lower at 6,077 cars
per work day to generate the equal annuity amount of $26.89 million ($.59/mile x
30 miles/day x 250 days/year x 6,077 cars).27

It should be noted that the external cost estimates used above do not take into
consideration the effect that light rail would have on property values. The Cen-
tral Business Corridor Transit Plan estimates that the Heartland light rail project
would stimulate new investment of more than U$ 1 billion, increase employment
by about 13,000 and provide new annual taxes of about U$17 million.28 If these
property impact estimates are even marginally correct, it is then quite probable
that the substantial overhead costs involved in light rail would essentially pay for
itself through its externality effects.

Conclusion
The Heartland Light Rail project represents Kansas City’s biggest infrastructural
investment in decades. The ballot initiative for the light rail project was voted
down three times until it was finally approved in November 2006. The very fact

83

Project NPV, Positive Externalities, Social Cost-Benefit Analysis

that the light rail project idea was so resilient in the face of strenuous opposition
provides some evidence that LRT may be an idea whose time has finally arrived in
Kansas City.

A strict financial analysis of the project is not encouraging. Using best estimates of
construction costs, operating expenses and federal funding, the NPV of the proj-
ect is estimated to be negative $343 million. However, if one were to include the
annual savings in external costs from lower auto travel, the Kansas City light rail
project becomes an increasingly attractive option.

Since light rail projects involve substantial public funding a debate on their costs
and benefits appropriately belongs in the domain of public policy. A major prob-
lem, however, in rationally evaluating the merits of such projects is that the public
dialogue is often complicated by studies that make their case by either considering
only costs that are explicit or ignoring non-monetized, implicit social benefits. The
truth seems to be that if evaluated on a strict financial basis alone, light rail systems
are unlikely to be completely self-sufficient. However, if light rail losses are not of
such a magnitude that the project is completely unfeasible, it is very probable that
social benefits could still render such projects worthwhile.

Acknowledgements

The author would like to express his appreciation to Prof. Jose Gomez-Ibanez of
Harvard University’s Kennedy School of Government for very helpful comments
on an earlier draft of the paper. He would also like to thank Todd Litman of
the Victoria Transport Policy Institute for helpful suggestions. All errors are the
author’s sole responsibility.

Endnotes
1 The Road Information Program (TRIP), “Rough Ride in the City: Metro Areas

with the Roughest Rides and Strategies to Make our Roads Smoother,” October
2006.

2 “Central Business Corridor Transit Plan,” Final Report, April 27, 2001.

3 These data are from the 2003 Highway Statistics published by the Federal High-
way Administration (FHWA).

4 See the Texas Transportation Institute’s 2004 Urban Mobility Study.

Journal of Public Transportation, Vol. 11, No. 4, 2008

84

5 See Chart 3 (page 16) of The Road Information Program (TRIP), “Rough Ride in
the City: Metro Areas with the Roughest Rides and Strategies to Make our Roads
Smoother,” October 2006.

6 Typically, a project’s cost of capital should be computed as a weighted aver-
age cost of capital (WACC) where the weights are the proportions of debt and
equity and the costs pertain to the cost of debt and cost of equity. The cost of
equity is typically determined using the Capital Asset Pricing Model (CAPM).
This method of estimating WACC is inapplicable for publicly funded projects
since no equity is issued. An approximate cost of capital for the Kansas City LRT
project can be determined thus. The cost of capital of a project is linked to the
risk of the underlying assets supporting the project. In 2007, Kansas City issued
General Obligation (GO) bonds at a yield of 4.60%. Assuming that the LRT proj-
ect is more risky than Kansas City’s asset base, we can add a “premium” over
the yield of Kansas City GO bonds. Adding a premium of 200 basis points or 2%
results in the assumed project cost of capital of 7%. For a detailed discussion of
project valuation see Chapter 19 of Principles of Corporate Finance, “Financing
and Valuation,” Brealey, Myers and Allen (2006).

7 Note that the project is non-normal—that is, negative cash flows occur during
the life of the project. In such situations, the IRR criterion can be misleading. In
the subsequent analysis, the IRR values are not reported for this reason.

8 I continue to assume that operating costs will increase by 4% p.a. from the base
year estimate of operating and maintenance costs.

9 Given that the American Public Transportation Association has estimated that
the total cost of riding public transportation (including transfers, parking, etc.)
at a base fare of $2.50 is $2454/year versus estimated driving costs for midsize
cars of $8,580/year, public transportation seems a bargain. However, whether
the public perceives it this way, especially in auto dependent areas like Kansas
City, remains to be seen.

10 Some of these values are also reported in Toole (2005), “Does Light Rail Pay for
Itself?” (see www.ti.org/vaupdate57.html). I follow a similar logic to that in the
article in determining operational cost savings for light rail. The sample set of
cities reported in the table is limited to those cities for which construction costs
for light rail are available. This is to facilitate a comparison of operational cost
with capital costs. See a subsequent section of this paper.

85

Project NPV, Positive Externalities, Social Cost-Benefit Analysis

11 An important part of the reason is that since light rail systems serve the densest
transit corridors, operational costs for light rail generally tend to be lesser than
low passenger density serving bus systems.

12 See Table 1 of Baum-Snow and Kahn (2005). Data for LRT capital costs in some
major cities is unfortunately not available. For instance, data on capital costs for
both D.C. and Chicago’s rail transit system are unavailable.

13 Construction cost data from the Baum-Snow and Kahn (2005) paper is con-
verted into 2003 dollars and reported in Toole (2005), “Does Light Rail Pay for
Itself?” (see www.ti.org/vaupdate57.html).

14 The average life span of rail hardware is 30 years. The amortization rate of 7% is
prescribed by the Federal Transit Administration (FTA) for amortizing capital
costs. See Toole (2005).

15 “Metro System Ridership” numbers reported on www.metrostlouis.org

16 This estimate is contained in the Kansas City Long Range Transportation Plan,
Figure 5-7, pp. 5-13. See also Exhibits 1 and 2 that depict the spatial and demo-
graphic characteristics of the primary transit corridor.

17 Vuchic, Transportation for Livable Cities, Center for Urban Policy Research, Rut-
gers University, December 1999.

18 Henry and Dobbs, “Why St. Louis’s MetroLink Light Railway is a Mobility Bar-
gain,” May 2005. Available on www.lightrailnow.org

19 Delucchi (1997) is a comprehensive study of the total social cost of motor
vehicle use based on 20 reports published by the UC Institute of Transportation
Studies, Davis. Delucchi (1996) provides a summary of the 1997 study.

20 The estimates here are extracted from page 12 of Delucchi (2000). In the actual
table provided by Delucchi, there is an estimate of government subsidies for
light rail which increases the total external cost of light rail. I ignore this subsidy
for light rail since my focus here is to ask the question, Are the positive externali-
ties provided by light rail sufficient to offset the cost disadvantages arising from
the high capital cost of the Heartland LRT System?

21 See Banzhaf and Jawahar (2005) for a comprehensive introduction to this lit-
erature.

Journal of Public Transportation, Vol. 11, No. 4, 2008

86

22 The underlying research in both these papers contributed to a provision passed
by the Florida legislature in 2005. The provision encourages local governments
to require a full cost accounting analysis for any proposed new development.

23 See Litman (2007), Table 5.14-13, p. 5.14-21.

24 U.S. Census Bureau data indicate that the mean travel time to work in Missouri
is about 23 minutes. At 40 mph, this indicates an average one-way commute of
about 15 miles.

25 This calculation assumes one passenger per car. In addition to these external
costs, TRIP estimates that the poor condition of roads in Kansas City imposes an
additional operational cost per automobile of $651 per year.

26 Victoria Transport Policy Institute, Transportation Cost and Benefit Analysis,
May 2007 (available on www.vtpi.org). See Table 6-6 on pp. 6-10.

27 In addition to these external costs, TRIP estimates that the poor condition of
roads in Kansas City impose an additional operational cost per automobile of
$651 per year.

28 See Appendix B of the Central Business Corridor Transit Plan, Final Report.

29 See Castelazo and Garrett (2004)’s “Light Rail: Boon or Boondogle,” which
invokes the “give them a Toyota Prius instead” argument. A response to this
study is contained in Henry and Dobbs (2005), “Why St. Louis’s Metro Link Rail-
way in a Mobility Bargain.”

References

Banzhaf, S., and P. Jawahar. 2005. Public benefits of undeveloped lands on urban
outskirts: None market valuation studies and their role in land use plans,
Resources for the Future. Available at http://www.biodiversitypartners.org/
econ/assessingwealth/PublicBenefits

Baum-Snow, N., and M. Kahn. 2005. Effects of urban rail transit expansions: Evi-
dence from sixteen cities, 1970-2000. Brookings-Wharton Papers on Urban
Affairs.

Brealey, R., S. Myers, and F. Allen. 2006. Principles of corporate finance. New York:
McGraw-Hill Irwin.

87

Project NPV, Positive Externalities, Social Cost-Benefit Analysis

Castelazo, M., and T. Garrett. 2004. Light rail: Boon or boondogle. Regional Econo-
mist, Federal Reserve Bank of St. Louis.

Central Business Corridor Transit Plan. April 27, 2001. Final Report.

Delucchi, Mark. 1997. Annualized social cost of motor vehicle use in the U.S.
1990-1991: Summary of theory, methods, data, and results. University of Cali-
fornia, Institute of Transportation Studies. UCD-ITS-RR-96-3 (1). Available at
www.its.ucdavis.edu,

Delucchi, M. 1996. Total cost of motor vehicle use. Access 8: 7-13.

Delucchi, M. 2000. Should we try to get the prices right? Access10: 10-14.

Henry, L., and D. Dobbs. 2005. Why St. Louis’s Metro Link Railway is a mobility
bargain. Available on www.lightrailnow.org.

Kiker, C.F., and A.W. Hodges. 2002. Economic benefits of natural land conservation:
Case study of northeast Florida. Final Report. Washington, DC: Defenders of
Wildlife.

Kroeger, T. 2005. The economic value of ecosystem services in four counties in north-
eastern Florida. Washington, DC: Defenders of Wildlife.

Litman, T. 2007. Transportation cost and benefit analysis: Techniques, estimates
and implications. Available on www.vtpi.org.

McPhearson, G., D. Nowak, G. Heisler, S. Grimmond, C. Souch, R. Grant, and R.
Rowan. 1997. Quantifying urban forest structure, function, and value: The
chicago Urban forest climate project. Urban Ecosystems 1: 49-61.

Mid America Regional Council (MARC), Long Range Transportation Outlook
Transportation Outlook 2030. Available at http://www.marc.org/out-
look2030/

Mid America Regional Council (MARC) (2000/2001). Travel Time Study.

Riddel, M. 2001. A dynamic approach to estimating hedonic prices for environ-
mental goods: An application to open space purchase. Land Economics 77 (4):
494-512.

Road Information Program (TRIP). 2006. Rough ride in the city: Metro areas with
the roughest rides and strategies to make our roads smoother.

Road Information Program (TRIP). 2004. Bumpy roads ahead.

Journal of Public Transportation, Vol. 11, No. 4, 2008

88

Roe, B., E.G. Irwin, and H.A. Morrow-Jones. 2004. The effects of farmland, farmland
preservation, and other neighborhood amenities on housing values and resi-
dential growth. Land Economics 80(1): 55-75.

Small, K. 1997. Economics and urban transportation policy in the United States.
Regional Science and Urban Economics 27: 671-691.

Small, K., et al. 1999. Valuation of travel time savings and predictability in con-
gested conditions for highway user cost estimation. NCHRP 431, Transporta-
tion Research Board.

St. Louis Dispatch. March 22, 2007

Thompson, G., and T. G. Matoff. 2003. Keeping up with the Joneses: Planning for
transit in decentralizing regions. Journal of the American Planning Association
69 (3): 296-312.

Toole, R. 2005. Does light rail pay for itself? Available at http://www.ti.org/vaup-
date57.html.

U.S. Census Bureau. 2005. Commuting to Work.

Victoria Transport Policy Institute. 2007. Transportation cost and benefit analysis.
Available at www.vtpi.org

Vuchic,V. 1999. Transportation for livable cities. Rutgers University: Center for
Urban Policy Research.

About the Author

Sudhakar Raju (sudhakar.raju@rockhurst.edu) is Professor of Finance at Rock-
hurst University in Kansas City, Missouri. He is a graduate of Harvard University
and has served as a consultant to organizations such as the Chicago Board of
Trade, the World Bank, and the United Nations. This paper was written while he
was at the Kennedy School of Government, Harvard University.

Expert paper writers are just a few clicks away

Place an order in 3 easy steps. Takes less than 5 mins.

Calculate the price of your order

You will get a personal manager and a discount.
We'll send you the first draft for approval by at
Total price:
$0.00