Manhattan East Side Access Project Second Avenue Subway pea team

Manhattan East Side Access Project Second Avenue Subway

• PEA Team:

• Jay Horwitz

• Bryan Mullins

• Muyiwa Teriba May 3, 2004

Overview of Presentation

• I. Introduction

• II. Funding and Finance

• III. Costs

• IV. Benefits

• V. Synthesis

• INTRODUCTION

What is SAS?

• 8.5 mile subway project from 125th Street to the financial district in Lower Manhattan

• Will include 16 new stations along path under Second Avenue

• Purpose to provide faster travel for current transit riders and relieve severe overcrowding conditions on Lexington Avenue line

• Construction time estimated to start in 2004 and last 17 years

On the Table for Nearly a Century

• Population density of East Side increased dramatically at turn of century

• Proposals to build north-south subway line along Second Avenue date back to 1929

• During 1960s a two-track subway line from the Bronx to Lower Manhattan resulted in construction of several tunnel segments

• However, construction suspended in 1970s due to City’s financial crisis

Transportation Problems have Renewed Interest in SAS Proposal

• Lexington Avenue express service (4/5/6) operates with passenger loads that exceed New York City Transit guidelines

• Overcrowding expected to increase

• Access (1/4 to 1/2 mile) to subway service is lacking on far East Side of Manhattan

• Overcrowding lengthens trip times and causes service delays

• Majority of rush hour buses are crowded and travel speeds are slow due to traffic congestion

• Severe traffic congestion on local streets and FDR Drive contribute to New York City’s inability to meet National Ambient Air Quality Standards

SAS Wins Favor Among Officials, Community Groups, General Public

Map of SAS and System Interconnection

• FUNDING

Project Funding: Preliminary Consideration and Commitment

Where are we in the process?

• COSTS

Costs Overview

• $1.05 billion for 2000-2004 Capital Program

• $728 million for 2000-2004 Capital Program personnel costs

• $16.8 billion total capital cost from 2004-2021

• $16.18 billion for project management, design, construction, right-of-way
• $624.9 million for rolling stock

• $348.6 million annual operating cost starting in 2021 over 50 years at 2004 present value of $2.8 billion

• $1.13 billion cost per mile

• $210 incremental cost per incremental rider*

Elements of $16.8 bn Total Capital Cost

• Northbound and Southbound twin tunnels (8.5 miles each)

• 16 new stations

• 30-35 fan plants

• Numerous pump rooms

• Electrical power substations

• 1-2 new or expanded train storage and maintenance yards

• Connections to existing stations

2000-2004 Capital Program Allocates $1.05 Billion for SAS

2000-2004 Capital Program Also Yields Personnel Costs

Cost-Per-Mile of Major Transit Projects Shows Magnitude of SAS

Cost Timeline

Baseline Cost Figure

• BENEFITS

Benefits (Qualitative Overview)

• New York City’s Economic Priorities:

• Retain/Expand diversified workforce
• Improve competitiveness in economic cycles
• Improve growth in outer boroughs

• Improved commute to Manhattan, which generates more than one-third of wages and one-quarter of jobs in tri-state region

• 70,000 full-time jobs created during SAS construction

• 600,000 riders will experience shorter commutes/time savings

• Auto trips reduced by 30,000 per day

• Improved security of transit network

Benefits (Quantitative Overview)

• $7 billion gain in wages

• $7.4 billion gross increase in city’s productivity

• $1.26 billion in benefits from time savings

• $319.1 million in ridership

Methodology for Estimating Benefits

Total Benefits

• $21.02 billion comprising:

• $12.62 billion in economic development benefits including job growth, commercial development and residential development
• $8.4 billion in transportation benefits including time savings and ridership

• **Figures cover a 50-year period

Benefits Critique

• Jobs

• 70,000 jobs from SAS over 17 years worth $1,000,000 per job

• No explanation of where these jobs will come from
• New jobs, or job movement/reallocation?
• What kind of jobs? Value?
• 22,500 direct construction jobs estimated, majority of which will be short term in nature
• No reference to jobs lost resulting from construction
• No analysis of net jobs created (some jobs will be permanently lost due to subway, e.g. taxi drivers)

Benefits Critique

• Time Savings

• Estimated $1.26 billion in time savings

• No discussion or analysis of how much of this time savings value will be translated into dollars
• No estimation of “net” time savings taking into account time wasted as a result of delays caused by construction
• Time savings valued at today’s estimation to time value

Benefits Critique

• Changes to “Time Savings” Benefits

• SYNTHESIS

Context: This Project Must Inevitably Compete for Scarce Resources

• Total New York City budget FY2005: $46.9 billion

• SAS equals a non-trivial fraction

• Financial pressure on City anticipated

• Budget deficits expected to range from $3.7 billion to $4.2 billion annually from 2006-2008
• Debt service increases from $2.4 billion in 2004 to $4.3 billion in 2008

• However, New York City pays $11.4 billion more in federal taxes and $2.6 billion more in state taxes than it receives in funding*

What should we count?

• Depending on how you look at who has standing, things change:

• Do federal dollars mean national standing?
• Or, is it New York City’s turn at the federal transit pot?

• New real estate development?

• Where is the marginal benefit?

• Jobs?

• Construction? Business relocation?
• Looks like redistribution of federal funds

• Nearly $2 billion in sunk costs?

• Planning, design and assessment are all expensive; these costs cannot be recouped if project is a “no go”

What is an appropriate discount rate?

• OMB Guidelines (public investment) = 7%

• “approximates marginal pre-tax rate of return on an average private investment”

• U.S. Treasury bond rate (30 year) = 5.2%

• New York City municipal bond rate = 6.5%

• This is a long-lived project with high up-front costs—it matters

Sensitivity Analysis: Discount Rate

Sensitivity Analysis: Putting the Core Assumptions to the Test

• Ridership assumptions/forecast

• Number of incremental riders (typically 150% overestimated)
• Subway shift (tight travel corridors in New York City)

• Development assumptions

• Incremental job creation: these remain a non-factor

• Capital costs

• Time distribution matters
• Overruns: time and cost (will focus on project creep)

Comparing Proponents’ Research with Our Base Case

Summary: What’s going on here?

• Applying discount rates uniformly:

• Makes costs look better, however…
• This is very expensive even relative to comparable transit projects

• Standing is important; we chose to ignore economic development because:

• Difficult to estimate magnitude of effect
• Studies did not employ reasonable estimation techniques
• Very difficult to isolate marginal effects
• Given national standing, marginal effects even less likely to appear

More Detailed Analysis Should Examine

• Air quality improvements from mass transit

• Quality of life: transportation options

• Social equity: distributional weighting according to rider income distribution (Harlem, Lower East Side); access to CBDs

• Value added of increased multimodal interconnection with other regional transportation

• Real estate squeeze on low-income areas—a chronic problem in New York City