A Trillion Dollars, Or Cents Per Day

The current U.S. healthcare reform proposal is often described as costing a trillion dollars. That will make it difficult to pass. However, the same program could legitimately be described as costing residents just cents per day (or, "less than a cup of coffee"), which would enhance its chance of success (a trillion dollars over ten years is $100 billion annually, about $320 annually per capita, or less than $1 per day, which can legitimately be called "cents per day").

How things are measured can have a major impact on how they are perceived and evaluated, and therefore their political feasibility. Measured one way, a particular policy or program may seem costly and inefficient. Measured another way and the same proposal may seem affordable and worthwhile.

For example, when traffic accidents are measured per vehicle-mile, as traffic safety experts tend to prefer, crash rates have declined about 60% during the last half-century, suggesting that current traffic safety programs are effective and should be continued. However, when measured per capita, as with other health risks, crash rates hardly declined at all, despite safety strategies such as seatbelts, airbags, reduced drunk drivers, improved roadway design, and improved emergency response and medical care, implying that current safety programs are ineffective and new approaches should be applied.

This figure illustrates U.S. traffic fatality trends over four decades. During this period crash rates declined per vehicle-mile, suggesting that safety programs are effective, but when measured per capita, as with other health risks, crash rates declined little, despite significant increases in seatbelt use and other safety improvements, suggesting that new approaches are needed to increase safety. (Based on FHWA data).

Here are basic rules. To make something seem expensive report total costs and only a narrow range of benefits. To make it seem cheap, report its costs in a form such as "cents per day" and highlight its full benefits. For example, critics often complain that public transit projects are costly and ineffective by reporting total project costs ("Since 1960, federal, state, and local governments have provided a stunning $385 billion in inflation-adjusted funds to America's transit systems--including almost $150 billion in federal subsidies") and considering just congestion reduction or emission reduction benefits. However, public transit investments are small compared with total expenditures on roads, parking facilities and vehicles.

For example, the $385 billion public transit subsidies described above as "stunning" represents less than $10 billion annually, which is about 10% of total government transportation budgets; which is less than 5% of total expenditures by governements and businesses on roads and parking facilities; and perhaps 1% of total expenditures by governments, businesses and consumers on roads, parking facilities and vehicles. You could legitimately say that, "For a few cents per day your community can have a public transportation system that helps reduce traffic congestion, reduce road and parking facility costs, provides consumer savings, increases traffic safety, improves mobility for non-drivers, and improves public fitness and health."

What is a responsible analyst to do? I generally recommend that project and program costs be reported in real (inflation adjusted) per-capita-annual-dollars, which is relatively easy to understand and compare with other common expenditures. Exactly which costs are included, and the group of people included in the denominator (which can be residents, taxpayers, households, users, etc.) should be clearly defined. It is also helpful to compare project costs with similar program, such as existing program costs (the proposed U.S. healthcare reform proposal costs would represent a 10% increase from projected Medicare and Medicaid expenditures, or less than 2% of total healthcare costs), or with peers. For example, a new transportation program can be compared with current transportation expenditures; with total transportation expenditures by govenments, businesses and consumers on transporatation facilities and services; or with what other jurisdictions are spending.

If possible, estimate costs and benefits with and without the program. For example, when analyzing a public transit project or mobility management program, estimate the project costs and the value of various savings and benefits to governments, businesses and consumers.

Decision-making is difficult enough without confusion over how costs and benefits are measured. A few simple rules can help planners, public officials and the general public focus on the key issues, the value of a particular policy or program.

For more information see:

Cambridge Systematics (2009), Performance Measurement Framework for Highway Capacity Decision Making, Strategic Highway Research Program Report Report S2-C02-RR, Transportation Research Board (www.trb.org); at http://onlinepubs.trb.org/onlinepubs/shrp2/shrp2_S2-C02-RR.pdf.

CUTR (2007), Economics of Travel Demand Management: Comparative Cost Effectiveness and Public Investment, Center for Urban Transportation Research (www.nctr.usf.edu); at www.nctr.usf.edu/pdf/77704.pdf. 

DfT (2006), Transport Analysis Guidance, Integrated Transport Economics and Appraisal, Department for Transport (www.webtag.org.uk/index.htm).

EDRG (2007), Monetary Valuation Per Dollar Of Investment In Different Performance Measures, American Association of State Highway and Transportation Officials (AASHTO) Standing Committee on Planning (www.transportation.org); at www.dot.state.tx.us/services/transportation_planning_and_programming/la_entrada/files/nchrp.pdf.

FHWA (2001), Transportation Performance Measures Toolbox, Operations, Federal Highway Administration (www.ops.fhwa.dot.gov/travel/deployment_task_force/perf_measures.htm).

Todd Litman (2001), What's It Worth? Life Cycle and Benefit/Cost Analysis for Evaluating Economic Value, Presented at Internet Symposium on Benefit-Cost Analysis, Transportation Association of Canada (www.tac-atc.ca); at www.vtpi.org/worth.pdf. 

Todd Litman (2002), Transportation Cost and Benefit Analysis: Techniques, Estimates and Implications, VTPI (www.vtpi.org); at www.vtpi.org/tca.

Todd Litman (2003), "Measuring Transportation: Traffic, Mobility and Accessibility," ITE Journal (www.ite.org), Vol. 73, No. 10, October, pp. 28-32; at www.vtpi.org/measure.pdf.

Todd Litman (2005), Evaluating Rail Transit Criticism, Victoria Transport Policy Institute (www.vtpi.org); at www.vtpi.org/railcrit.pdf.

Michael Meyer and Richard Schuman (2002), "Transportation Performance Measures and Data," ITE Journal (www.ite.org), November 2002, pp. 48-49; based on Measuring System Performance: The Keys to Establishing Operations as a Core Agency Mission, Office of Operations, Federal Highway Administration (www.ops.fhwa.dot.gov/nat_dialogue.htm).

Todd Litman (2007), Guide to Calculating Mobility Management Benefits, Victoria Transport Policy Institute (www.vtpi.org); at www.vtpi.org/tdmben.pdf.

Kenneth Small (1999), "Project Evaluation," in Transportation Policy and Economics, Brookings (www.brookings.edu); at www.uctc.net/papers/379.pdf.

Gerald Wilde (1984), "On the Choice of the Denominator in the Calculation of Crash Rates," in S. Yager (ed.), Transport Risk Assessment, University of Waterloo Press (Waterloo).

WRDC (2004), Measuring What Matters, Western Rural Development Center (www.extension.usu.edu/wrdc/resources/research/index.htm).