Misinterpreting the Benefits of Highway Construction

Among the most common claims made during last year's ISTEA reauthorization debate was that more highway funds were needed to boost our nation's economy - an effective, if vague argument, which emboldened Congress to authorize roughly $171 billion in highway spending within TEA-21. As states and metropolitan areas prepare their short and long-term transportation plans, the challenge will be for them to determine what role highway investment will play to make these regions more economically competitive. Unfortunately, it won't be easy. While current research indicates that the regional economic benefits of new highways are at best lackluster, political leaders will have a hard time resisting the desire to support big road construction projects in the name of economic development.

That desire is fairly easy to understand. There's little doubt that new highways make adjacent locations valuable by improving their accessibility and shortening travel times. In fact, a number of recent studies have found that housing and commercial development follows new highway construction for precisely this reason. In one recent study by researchers at the University of California, the authors concluded that "our results offer strong support for one overriding conclusion: highway capacity expansion stimulates development activity, both residential and non-residential, in the corridors served by the expanded facilities." Not surprisingly, the expectation of these benefits tends to anchor local economic development plans, which is why developers who have a stake in such projects lobby their representatives so forcefully to ensure their support.

Highway Spending Adds Little Value

Beyond the highly localized benefits that highway projects tend to confer, transportation economists generally agree that at the regional level, additional highway capacity offers little added value in terms of productivity, economic competitiveness, or efficiency. This is a jarring revelation for many individuals who still believe that the tremendous productivity gains resulting from infrastructure spending during the 1950s and 1960s can be repeated with the right level of spending. However, those gains were achieved back in the days when the nation lacked a network of modern highways, and Interstate construction was needed for basic connectivity to facilitate the flow of goods and services between regions, states - the entire continent. But as the Interstate system was completed, economists found that returns on infrastructure investment diminished as well, because the efficiency gains from this basic connectivity had mostly been captured.

One of the early major studies that questioned the regional economic development potential of highways was an analysis of the land use and urban development impacts of beltways conducted for the US Department of Transportation and the US Department of Housing and Urban Development in 1980. The report's authors found that, "no strong evidence exists demonstrating that beltways improve a metropolitan area's competitive advantage.ÉA proposed beltway only rarely can be justified on the even partial basis that it will enhance the region's economic position." The study, which was prepared by Payne-Maxie Consultants, concluded that, "because any net gains are likely to be small, potential adverse impacts of beltway construction probably cannot be balanced by beltway-induced regional economic growth."

Shifting Activity Within a Region

In later years, other economists have reached similar findings. Professor Marlon Boarnet of the University of California at Irvine, for example, recently reviewed the literature on the economic productivity benefits of highways and concluded that, "Recent evidence suggests that, at the margin, highway infrastructure contributes little to state or national productivity." Striving to reconcile the apparent contradiction between his findings and the expectations of local developers and officials, Boarnet contends that while new roads are likely to create new economic activity for a limited area, they also tend to shift economic growth from one place to another within a metropolitan region.

This notion that highway investment shifts economic activity from one place to another is not new. In fact, some of John Kain's early work on the spatial mismatch theory included evidence on the link between highway construction and the migration of commerce and jobs to the suburbs. But what is significant is the preponderance of evidence that the economic benefits of highway construction in one community tend to come at the expense of other places within the same region.

This represents a serious challenge for transportation decision makers. First, they must somehow deal with the clear disconnect between the misguided expectation of benefits from highway investment and the actual performance of such projects at the regional level. Second, many academics and planners point out that these expectations often bias the transportation decision-making process to favor road building, because the benefits of new highways tend to represent a migration of activity rather than real economic growth.

Picking Winners and Losers

Perhaps the most serious issue emerging from our understanding of highways and the displacement of economic activity is the question of who benefits and who loses in the regional competition for transportation investment and economic growth. Typically, suburban areas are prospering at the expense of central cities, according to many scholars, including Buz Paaswell of the City University of New York. In his research on the New York City region, Paaswell argues that "Major relocations of jobs, housing and support activities to the suburbs have occurred at the expense of central cities. Investment in highways has facilitated this restructuring". What's worse, these central city losses tend to translate into regional losses as well, because many experts, such as Senior Economist Richard Voith of the Federal Reserve Bank of Philadelphia, argue that healthy central city economies are a key ingredient to regional competitiveness. Without a targeted approach to economic development that prioritizes overall regional health over intra-regional competition, investment strategies are likely to serve as weapons in the destructive "economic war" among cities and suburbs, regions, and states.

Fortunately, leaders in many metropolitan areas have demonstrated an understanding of these pitfalls by facing the regional economic reality of diminishing returns from highway investment. As many have argued, the new challenges facing our highly mature transportation system still revolve around ensuring convenient, efficient, and predictable access and mobility to enable the movement of goods, services and people. For most regions, this means cost effectively providing congestion relief, curbing runaway sprawl, and providing greater transportation choices. However, new conditions require new solutions, and roadway construction is becoming less useful compared to strategies that help us make more efficient use of our existing system, including infrastructure maintenance, intermodal connectivity, land use coordination, support for transit and non-motorized modes of transportation, technology improvements, and pricing. TEA-21 provides the resources that regions need to implement these strategies.

In addition to its continued support for metropolitan governance, it authorizes higher levels of funding for programs like the Congestion Mitigation and Air Quality Improvement Program, the Enhancements Program, Transit programs, the Transportation and Community and System Preservation Pilot Projects and a range of other flexible programs that will help build stronger regional economies. The complex task of balancing investment and the ever changing needs of a mature transportation system certainly demands that they all be put to good use.