January 5, 2017

A new study commissioned by the Treasury Department identifies 40 transportation and water “megaprojects” costing a total of $334 billion that, the study estimates, could bring as much as $1.3 trillion in national economic benefits.

A December 30 statement from Treasury indicated that the study was in support of the Obama Administration’s “Build America Investment Initiative.” It came from Treasury, not Transportation or the Army Corps of Engineers, because part of the initative was expanded tax-exempt bonding authorities repeatedly proposed by the White House, the Qualified Public Infrastructure Bond (QPIB) and Financing America’s Infrastructure Renewal (FAIR) programs.

The Treasury statement said that “The study, authored over the past year by a team of third-party, independent infrastructure experts, highlights how investing in infrastructure projects may generate economic benefits for businesses, consumers, travelers, and residents across the country.”

Almost one-third of the total project costs – $101 billion – are in a single project (building true high-speed rail in the Northeast Corridor from D.C. to Boston). After a 3 percent per year discount rate has been applied to the capital cost (reducing it to $75 billion), the study estimates that the gross economic benefits from the project would be somewhere between $150 billion and $300 billion. This gives a benefit-cost ratio of between 2.0 and 4.0, which is actually on the low end of the projects included in the study.

In order to gauge net economic benefits, the discounted capital cost has to be subtracted from the gross number, leaving somewhere between $75 billion and $225 billion. (The median number of that range is $150 billion, which is printed in the table in the report.)

The projects with the highest benefit-cost ratios analyzed in the report, exceeding a 10 to 1 benefit-cost ratio in each case, are:

• Capacity upgrades to the Interstate 10 corridor from Florida to California ($28.6 billion nominal capital cost; over $236 billion in net economic benefits).
• A national project to increase traffic efficiency by coordinating traffic signals ($455 million nominal capital cost; over $3.9 billion in net economic benefits).
• Expansion of Interstate 70-East in Denver, Colorado ($1.9 billion nominal capital cost; over $15.6 billion in net economic benefits).
• A proposed linear induction rail system to move shipping containers between Juarez, Mexico and El Paso, Texas ($1.1 billion nominal capital cost; over $9.4 billion in net economic benefits).
• Improved freight rail transfer facilities in New Orleans, Louisiana ($721 million nominal capital cost; over $5.5 billion in net economic benefits).
• A new highway-rail bridge across the Mississippi River near Memphis, Tennessee ($603 million nominal capital cost; over $5.0 billion in net economic benefits).
• A water medium diversion project between the Mississippi River and the River aux Chenes ridges in Louisiana ($421 million nominal capital cost; over $3.5 billion in net economic benefits).
• Another water medium diversion project in Myrtle Grove, Louisiana ($302 million nominal capital cost; over $2.5 billion in net economic benefits).

ETW focuses on the nominal capital cost, not the discounted cost over time, because those are the dollar amounts that politicians will have to vote to appropriate, loan, or borrow in order to build the projects.

Not a part of the top 40 list were two ultra-super-megaprojects that are still in the hypothetical stages. The report estimates that spending $1.3 trillion to fully accommodate autonomous vehicles on U.S. roads would bring in $5.0 to $7.5 trillion in net economic benefits (BCA in the 7.0 to 10.0 range), and that a full recapitalization of the National Highway System would cost $790 billion but would yield between $1.6 and $3.1 trillion in net economic benefits (BCA in the 4.0 to 7.0 range).

The table showing the top 40 projects is below. The full study is here.

(Online update, Jan. 30, 2017 – Bob Poole at the Reason Foundation has taken issue with the cost-benefit analyses of the projects in the Treasury list. His views can be found here.)