Purple Line Preliminary Economic Benefits Study Executive Summary

8/9/2019 Purple Line Preliminary Economic Benefits Study Executive Summary

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Prepared for

Maryland Transit Administration

Prepared for

Transportation Economics & Management Systems, Inc. October 2010

Purple Line

Preliminary Economic Benefits Study

Executive Summary

TEMS


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Transportation Economics & Management Systems, Inc. Purple Line Preliminary Economic Benefits Study – Executive Summary 2

THE ECONOMIC ANALYSIS

The economic analysis performed in this study considers the impact of building the Purple Line from the perspective of thesupply side of the economy. The supply side of the economy is the most interesting aspect of economic analysis as it deals

with issues such as jobs, income, property development, tax base and construction impacts, which are key policy anddecision making concerns. Three assessments were undertaken:

1. Productivity Improvements: These benefits are due to the increased efficiencies associated with building theproject. It answers the question “If this project is built, does it help the economy work better?”

The Purple Line does make the economy of the corridor work better because it effectively improves accessibilitybetween the major economic centers and allows people to move more efficiently and, more importantly, makeconnections that were previously difficult to make. Business travelers can travel more easily from one location toanother using the Purple Line and the existing Metro, MARC, and Amtrak lines. Students from the University ofMaryland College Park can more easily connect with their homes, their dorms, and other academic facilitiesTourists and social travelers can more easily connect with Baltimore, the Northeast corridor, and BWI Airport. Thisimproved connectivity will have a very large impact on the economy.

2. Tax Base Improvements: These benefits are a result of the increased incomes and property values generated bythe productivity improvements of the project, which in turn generate an expanded tax base.

3. Construction Spending: Construction of the Purple Line will generate significant economic impact all along thecorridor. While these impacts are not direct benefits in economic terms to the overall U.S. economy as the Federagovernment could spend the money in Florida with the same (or virtually the same) result, construction of the PurpleLine represents a huge investment in the communities along the corridor. Its construction will have significant stimuluimpacts for these communities, as well as the overall region in terms of increased employment, incomes, andregional output of goods and services.

As shown in Exhibit 2, the overall impact is a surge in the regional economy because all three supply side factors –productivity improvements, tax base improvements and construction impacts – are working together.

The level of benefits will depend on three key factors:

• The level of integration and improved accessibility provided by the Purple Line,

• The sensitivity of the local economy to the proposed Purple Line, and

• The overall capital cost of the Purple Line.

Exhibit 2: Economic Evaluation Process

OverallOverall

BenefitsBenefits

andand

ImpactsImpacts

Permanent ImpactPermanent ImpactEconomic Rent AnalysisEconomic Rent Analysis

•• EmploymentEmployment

•• Income BenefitsIncome Benefits

•• Property ValuesProperty Values

Temporary ImpactTemporary ImpactInputInput--Output AnalysisOutput Analysis

•• Temporary JobsTemporary Jobs

•• EarningsEarnings

•• Industrial OutputIndustrial Output

Tax RevenuesTax Revenues

Supply Side Productivity DataSupply Side Productivity Data

•• Generalized CostGeneralized Cost

•• Trip VolumesTrip Volumes

•• EmploymentEmployment

•• Average/Median IncomeAverage/Median Income•• Property ValuesProperty Values

Construction Impacts DataConstruction Impacts Data

•• Regional InputRegional Input--OutputOutputMultipliersMultipliers

•• Capital CostsCapital Costs

Transfer Payment DataTransfer Payment Data

••Tax Rates: Federal,Tax Rates: Federal,State, LocalState, Local


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ESTIMATING BENEFITS AND IMPACTS

Exhibit 3: Purple Line Economic Rent Analysis Model

To estimate the impacts and benefits of the Purple Line, a series of socioeconomic and transportation factors needed to bemeasured. Fortunately, much of the data needed was available from existing sources. Data sources included:

• Population and Employment Data – Metropolitan Washington Council of Governments, Baltimore MetropolitanCouncil and Bureau of Labor Statistics

• Income, Household and Property Value Data – Bureau of Economic Analysis, U.S. Census

• Transportation Data: Origin, Destination and Network information – Metropolitan Washington Council ofGovernments, Baltimore Metropolitan Council

• Stated Preference Travel Behavior Data for the Purple Line – Maryland Transit Administration

• Capital Cost Data from Purple Line Environmental Impact Study – Maryland Transit Administration

ESTIMATING THE PRODUCTIVITY IMPROVEMENTS Productivity benefits were estimated using an “Economic Rent Analysis.” In this analysis, the importance of transportationaccessibility was first measured against the key indicators of economic well being -- jobs, income, and property valuesThis first analysis showed that the proposed Purple Line corridor is very sensitive to improvements in east-west accessibilitybecause there are very few highway and transit alternatives between economic centers along what is a very powerfueconomic corridor. To the north, the I-495 Beltway is highly congested and local roads like the East-West Highway,Western Avenue, and Sligo Avenue do not provide the degree of connectivity that might be expected of a normal urbanstreet system. The quality of east-west connectivity is very poor due to the very extensive set of north-south park systems.

As a result, it can be seen in Exhibits 3 and 4, the Economic Rent model is very strong statistically as reflected in its R2 and Tvalues, which measure the significance of the equation and its coefficients.

The accessibility elasticity (B1) shows a very strong relationship (-3.30 to -3.94) between accessibility and employment,income, and property value.

These results are two to three times the value that might be found in Frederick, Howard, Anne Arundel, or St. Mary’scounties. For example, the accessibility elasticity for the proposed MD4 Bridge improvements in St. Mary’s and CalverCounties is only 30-40 percent of the elasticity for the Purple Line.

0

2

4

6

8

10

12

2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1 4.3

E m p l o y m e n t D e n s i t y

GC

y = -3.3033x + 17.67

R-square = 0.5037

0

2

4

6

8

10

12

2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1 4.3

E m p l o y m e n t D e n s i t y

GC

y = -3.3033x + 17.67

R-square = 0.5037

Exhibit 4: Purple Line Economic Rent Analysis Results

0.51-17.40-3.94Property Value Density

0.53-17.94-3.83Household Density

0.53-18.15-3.79Income Density

0.50-14.63-3.30Employment Density0.53-18.32-3.70Population Density

R2T –Statistics

for β1

β1Socioeconomic Variables

0.51-17.40-3.94Property Value Density

0.53-17.94-3.83Household Density

0.53-18.15-3.79Income Density

0.50-14.63-3.30Employment Density0.53-18.32-3.70Population Density

R2T –Statistics

for β1

β1Socioeconomic Variables


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ESTIMATING BENEFITS AND IMPACTS

ESTIMATING THE TAX BASE EXPANSION The potential increase in the tax base was estimated by applying appropriate tax rates to the increases in incomes, retaisales and property values associated with the productivity improvements of the Purple Line. The tax rates are shown in

Exhibit 5.

*Local tax considers only the county tax for Montgomery County and Prince George’s County, which is 3.2%.*State tax rates are based on individual’s income tax only, changes in corporate tax base are not considered.

ESTIMATING THE CONSTRUCTION SPENDING IMPACT The impact of the construction spending to build the Purple Line represents a very significant impact in terms of temporaryjobs, incomes and regional output, particularly in Montgomery and Prince George’s Counties. The analysis was performedusing the U.S. Department of Commerce Regional Input-Output Model System (RIMS II). The model was applied assuming a$1.6 billion project constructed over five years.

Exhibit 5: Purple Line Corridor Tax Rates*

0.7%0.4%0.8%State Property Tax

--3.2%Local Income Tax

3.9%6.3%4.3%State Income Tax

12.6%15.9%12.5%Federal Income Tax

VirginiaWashington,DCMaryland

0.7%0.4%0.8%State Property Tax

--3.2%Local Income Tax

3.9%6.3%4.3%State Income Tax

12.6%15.9%12.5%Federal Income Tax


5%6%6%Sales Tax


5%6%6%Sales Tax



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Exhibit 6: Productivity Benefits: Household Income per Year (Millions 2010 $)(Corridor only)

Exhibit 7: Productivity Benefits: Purple Line Employment Impact

(Corridor only)

BENEFITS AND IMPACTS

PRODUCTIVITY BENEFITS The Economic Analysis shows that the project will increase per capita income in the corridor by $1,413, producing a $1.5billion per year increase in incomes over the 30-year life of the project. See Exhibit 6. Both Montgomery and Prince

George’s Counties show a very significant increase in income due to the high degree of interaction expected betweenstations such as Bethesda, Silver Spring, UM Campus Center and New Carrollton. DC also receives income benefit (17% ofthe total) due to the closeness of the corridor to DC, particularly in the Silver Spring area.

In terms of employment, the benefit of the Purple Line will be to generate over 22,000 new permanent jobs per year andover the life of the project some 700,000 person years of work will be generated in the corridor, with a large share of thegrowth going to professional services (25 percent), manufacturing, trade and transportation (16 percent), health care (13percent), and administration and management (10 percent). See Exhibit 7.

While over 65 percent of the jobs will be generated in Montgomery and Prince George’s County, some 33 percent of thejobs will be created in DC. This is due to the proximity of the Purple Line to DC and the high level of both blue collar andprofessional service employment shared by DC, Montgomery County and Prince George’s County.

Total: $1.5 Billion per Year • Professional Services: $389 M (25%)

• Manufacturing Trade &Transportation: $216 M (14%)

• Healthcare: $164 M (11%)

• Entertainment Accommodation & Food Services: $149 M (10%)

• Construction: $135 M (9%)

• Educational & Admin.Services: $141 M (9%)

• Finance and Insurance: $115 M (8%)

• Real Estate & Enterprise Management: $127 M (8%)

• Information: $94 M (6%)

Total: 22,355 jobs per Year

• Professional Services: 5,687 (25%)

• Manufacturing Trade & Transportation: 3,540 (16%)

• Healthcare: 2,806 (13%)

• Administrative & Management: 2,294 (10%)

• Entertainment Accommodation & Food Services: 2,334 (10%)

• Information Finance & Insurance: 1,884 (8%)

• Construction: 1,495 (7%)

• Real Estate & Enterprise Management: 1,177 (5%)

• Educational Services: 1,073 (5%)


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Exhibit 11: Temporary Construction Jobs, Income, and Output

(Millions 2010 $)

BENEFITS AND IMPACTS

CONSTRUCTION IMPACTS The impact of building the Purple Line would be to provide a significant stimulus to Montgomery County and PrinceGeorge’s County economies. Exhibit 11 shows the job creation, and income that will enter the regions economy each year

In Montgomery and Prince George’s Counties this would be nearly $160 million per year. Overall, nearly $200 million peyear of extra income will be generated from just building the project. Over five years this represents nearly a billiondollars of extra money in the economy of the corridor. See Exhibit 12.

In terms of the overall economy, the increase in Gross Regional Product is $1.1 billion per year, or $5.6 billion over thefive-year construction period. This provides a dramatic increase in demand for goods and services within Montgomery andPrince George’s Counties. This includes the full range of goods and services including professional services, manufacturingconstruction, transportation, administration and management services.

In Exhibit 12, it can be seen that the construction of the Purple Line will create 3,600 jobs per year or over 18,000 personyears of work in the region. It will increase income by $780 million dollars over five years and increase regionalproductivity by 5.6 billion over the five-year time horizon of the project.

Exhibit 12: Temporary Construction Summary (2010 $)

TemporaryJobs

AnnualImpact Year

1 - 5

TotalPersonyears of

work

IncomeAnnualImpact

Year 1 - 5

TotalIncome

OutputAnnualImpact

Year 1 - 5

OutputTotal

Total 3,676 18,380 $ 156.00 $ 780.01 $ 1,114.89 $ 5,574.48

TemporaryJobs

AnnualImpact Year

1 - 5

TotalPersonyears of

work

IncomeAnnualImpact

Year 1 - 5

TotalIncome

OutputAnnualImpact

Year 1 - 5

OutputTotal

Total 3,676 18,380 $ 156.00 $ 780.01 $ 1,114.89 $ 5,574.48

•Temporary Jobs Created: 3,676 jobs per year or 18,380person years of work for five years of projectconstruction.

•Increase Income by $156 million per year or $780 millionfor five years of project construction, which is, 51percent of project cost.

•Increase in Output in terms of Goods and Services by$5.6 billion for five years of project construction, which

is, over three times project cost.


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CONCLUSIONS

Because a very high level of east-west access is being provided between the communities along the Purple Line corridorand because the corridor has a very high level of economic vitality, the economic benefit and the impact of building thePurple Line is considerable. The cost of the purple line project is nearly $2 billion including Capital Cost of $1.6 billionspent over five years and operating cost of $20 million per year or $390 million over the life of the project. In productivityterms, the regional impact of the Purple Line over the 30-year life of the project will –

• Create over 27,000 new permanent jobs per year or nearly 800,000 person years of work over the life ofthe project.

• Raise income by $1.8 billion (2010 $) per year, which is more than the capital cost of the project or $36billion over the life of the project.

• Increase in property values along the corridor – existing properties and new development – by 1.6 percent or$9.8 billion (2010 $).

• Provide new urban development options at key locations along the corridor, such as Connecticut AvenueLangley Park, and Riverdale Road, and in Bethesda, Silver Spring, College Park, and New Carrollton.

Its increase in government tax revenues (2010 $) over the life of the project will be to create –

• At the Federal level, $4.7 billion expansion of the income tax base with an investment of 800 million.

• At the State level, $2.6 billion expansion of the income tax base with an investment of 1.2 billion.

• At the local level, $2.3 billion expansion of the income tax base.

Over the 30-year life of the project, the value to the Federal, State and Local government from building the project will be$10 billion (2010 $) or five times the proposed investment.

With respect to construction impacts –

• 3,676 full-time construction jobs per year (or 18,380 person years of work for five years) will be added for

the five-year construction period.• $0.78 billion (2010 $) for five year of project construction in income will be generated by both the direct and

indirect jobs.

During the five-year construction period, total income generated by construction will be 50 percent of the capital cost ofthe Purple Line.

In terms of economic efficiency, the Purple Line increases the Gross Regional Product in the corridor by $5.6 billion(2010 $) or more than three times the project‘s capital cost.

The economic case for developing the Purple Line is very strong. Its development puts into place a key infrastructureimprovement that is needed for both the further development of the communities along the corridor and to further extendthe benefit of building the north-south Metro, MARC and Amtrak networks. It allows the corridor to gain the quality of lifeand sustainable growth that has been so valuable in the region’s evolution.

Documents

Purple Line Preliminary Economic Benefits Study Executive Summary