CHAPTER 8. CVISN BENEFIT/COST ANALYSIS

This chapter describes a comprehensive benefit/cost analysis (BCA) that has been carried out for the CVISN MDI. Benefit/cost analysis is a public sector evaluation tool that compares all of a project’s benefits to society to all of the project’s costs to society. The question to be answered in a BCA is: Do these benefits exceed the costs? If the answer is yes, the benefit/cost ratio (BCR) is greater than one, and the project is said to be economically “feasible” or economically “justified.” Commercial feasibility, the analogous private sector criterion, is much narrower in the benefits and costs it compares. Benefits are restricted to commercial revenue, and costs are limited only to those paid directly by the project developer.

8.1 Approach

In the case of CVISN, considerable public benefits can be expected. However, revenue paid by CVISN users is essentially zero since CVISN is intended to make a regulatory system operate at lower cost and increased effectiveness to both its users and to society. The benefits quantified for inclusion in this BCA do not include every conceivable public benefit of CVISN, but they do include the major categories of benefits:

· Roadside Enforcement [including safety information exchange (SIE) and electronic screening]

- Crashes avoided

- Transit-time savings [including operating and maintenance (O & M) and air and noise pollution]

· Electronic Credentialing

- Operating cost savings to states

- Operating cost savings to carriers

- Inventory cost savings to carriers

The costs included in the BCA include:

· Roadside Enforcement

- One-time start-up costs to states

- Replacement capital costs to states in future years

- Increased operating costs to states

- Increased operating costs to carriers

- Increased out-of-service (OOS) costs to carriers

· Electronic Credentialing [1]

- One-time start up costs to states

- Replacement capital costs to states in future years

All costs and benefits occurring each year between 2000 and 2025 are included in the BCA and each is discounted back to 2000 using both a 4 percent and 7 percent real discount rate to calculate the present values of the benefits and costs in 1999 dollars. The use of a 4 percent real discount rate in these benefit/cost calculations has been recommended by economists in both the public and private sector.[2] The use of a 7 percent real discount is a more stringent test and has been required for nearly two decades for use in BCAs of federal programs by the U.S. Office of Management and Budget (OMB).

The categories of benefits and costs are different and more limited for electronic credentialing (EC) than for roadside enforcement (RE). For the former, they include only costs and cost savings, while for roadside enforcement, the over-the-road operations of motor carriers are directly affected. This leads to a more extensive array of costs and benefits including crashes avoided and truck transit-time savings. For these reasons, we have conducted the BCA separately for three CVISN roadside enforcement (RE) scenarios and two electronic credentialing (EC) scenarios. The scenarios represent varying options and layers or phases of CVISN deployment, and also various possible effects that CVISN technologies may have on state enforcement and motor carrier/driver behaviors and operations. Each scenario is described below.

Roadside Enforcement Scenarios

Three national scenarios are evaluated for CVISN’s roadside enforcement element. These consist of increasingly more comprehensive application and effectiveness of CVISN components.

Scenario RE 1. Upgrade of fixed inspection sites to Aspen capability, including PCs and printers to provide improved data for selecting high-risk vehicles for inspection. However, no electronic screening capability is included.

Scenario RE 2. Electronic screening and all inspections focused on high-risk vehicles, with no assumed change in compliance rates. Improvements include those in Scenario RE 1 plus automated vehicle identification, mainline weight-in-motion, electronic signs, loop detectors, electronic snapshot capability, wireless communication, SAFER mailbox, CVIEW or equivalent, and in‑truck transponders for low‑risk vehicles.

Scenario RE 3. Scenario RE 2 with the assumption of a 25 percent decrease in motor carrier safety regulation violation rates.

Finally, to assess the sensitivity of the findings to changes in assumptions, one additional roadside scenario is defined as

Scenario RE 3*. Scenario RE 2 with the assumption of a 10 percent decrease in motor carrier safety regulation violation rates.

Electronic Credentialing Scenarios

Two scenarios are evaluated for electronic credentialing.

Scenario EC 1. End‑to‑end IRP credentialing for those states with in-house credentialing interface systems (i.e., currently not using VISTA), as well as end-to-end IFTA and the IRP clearinghouse.

Scenario EC 2. End‑to‑end IRP credentialing with VISTA for those states currently using VISTA, as well as (again) end-to-end IFTA and the IRP clearinghouse.

Descriptions, deployments, and costs of each of these improvements are presented in detail in Chapters 2, 3, and 6.

Section 8.1 summarizes the results of the BCA. Section 8.2 gives additional background on the factors used in the BCA, and the approach to analyzing these factors. Section 8.3 details the results of the analysis as projected for the years 2000 to 2025. Section 8.4 presents the results of a qualitative discussion of reduced pavement damage as a related benefit of increased targeting of overweight trucks. Supporting data and economic modeling tables for the BCA appear in Appendices D.1 through D.3.

8.2 Summary of Results

Tables 8-1a to 8-1e summarize the results of the BCA for each of the five scenarios using the more stringent 7 percent discount rate.

For the three roadside enforcement scenarios, Tables 8-1a to 8-1c show that the BCRs range from 0.62 to 5.0, depending on the scenario. For the simplest roadside enforcement scenario, RE 1, which is the upgrade to Aspen without electronic screening, the BCR is less than 1.0, showing that Aspen by itself is economically not worthwhile. For the two roadside enforcement scenarios that involve electronic screening, RE 2 and RE 3 (and RE 3*), the BCRs increase considerably, as do the present values (NPVs) of the net benefits of these improvements. For Scenario RE 2, which assumes no change in compliance behavior, the NPV is over $2.5 billion. With improved compliance behavior, which is an important objective of these systems, the increase in the NPV is truly impressive, totaling $5.7 and $10.4 billion for Scenarios RE 3* and RE 3, respectively. Therefore, the systems involved in the two roadside enforcement scenarios that include electronic screening and travel time savings to carriers are economically well justified, even with the use of the more stringent 7 percent real discount rate. All costs are expressed as U.S. dollars in 1999.

Table 8-1a: Scenario RE 1: Upgrade to Aspen Only

Total Benefits

Total Costs

$69,076,000

111,591,000

Net Present Value

! $42,515,000

Benefit/Cost Ratio

0.62

Table 8-1b: Scenario RE 2: Electronic Screening with No Change in Violation Rates

Total Benefits

Total Costs

$5,301,300,000

2,635,900,000

Net Present Value

$2,665,400,000

Benefit/Cost Ratio

2.0

Table 8-1c: Scenario RE 3 (RE 3*): Electronic Screening with a 25 percent (10 percent) Decrease in Safety Violation Rates

	RE 3	RE 3*
Total Benefits Total Costs	$12,995,000,000 2,601,000,000	$8,379,000,000 2,622,000,000
Net Present Value	$10,394,000,000	$5,757,000,000
Benefit/Cost Ratio	5.0	3.2

Table 8-1d: Scenario EC 1: EC in States without VISTA

Total Benefits

Total Costs

$557,700,000

44,500,000

Net Present Value

$513,200,000

Benefit/Cost Ratio

12.5

Table 8-1e: Scenario EC 2: EC in States with VISTA

Total Benefits

Total Costs

$339,300,000

8,400,000

Net Present Value

$330,900,000

Benefit/Cost Ratio

40.4

The electronic credentialing scenarios are characterized by huge BCRs as shown in Tables 8-1d and 8-1e. For Scenario EC 1, the benefit/cost ratio is 12.5, meaning the total benefits of electronic credentialing for states not using VISTA are over 12 times as large as the total costs. For states using VISTA (Scenario EC 2), Table 8-1e shows that the BCR is over 40. Therefore, the electronic credentialing elements of CVISN easily pass the important BCA criterion for determining whether such systems are economically justified.

Finally, as noted earlier, electronic credentialing’s impacts are all costs or cost savings. This allows us to report the BCA results of electronic credentialing as a function of the level of deployment, as shown in Figure 8-1. The figure also shows that the benefit/cost ratio will vary with the percent deployment (i.e., percent of accounts/transactions handled electronically) and that there is a breakeven deployment percentage at which the BCR will equal 1.0 [i.e., at which the costs of EC will equal the baseline (pre EC) costs].

Figure 8-1. Costs of Electronic Credentialing With and Without CVISN

Where a = one-time statewide start-up costs to deploy EC.

For EC in states currently operating without VISTA, the breakeven deployment size in percentage terms is less than 10 percent. This is easily seen from Table 8-1d when it is considered that the total costs are start-up and replacement capital costs that are fixed statewide, while the cost saving benefits vary linearly with the number or percent of carriers using EC. Thus, the line representing “Costs with EC” in Figure 8-1 is really flat. For Scenario EC 1, the breakeven percentage deployment (equal to the inverse of the BCR) is 8 percent at a 7 percent real discount rate. Similarly for EC in states with VISTA (Scenario EC 2), the breakeven percent deployment is only 2.5 percent. At deployments above these levels, electronic credentialing is economically justified with rapidly increasing BCRs, reaching the BCRs in Tables 8‑1d and 8‑1e at 100 percent deployment.

8.3 Background and Approach

An important objective of this evaluation of the Commercial Vehicle Information Systems and Networks (CVISN) Model Deployment Initiative (MDI) is to conduct a rigorous benefit/cost analysis (BCA) to determine the net economic benefits, if any, of the CVISN MDI. This chapter describes this BCA. In the public sector, BCA helps maximize economic efficiency, or the total net benefits to the public from an investment. The electronic credentialing and roadside enforcement elements of CVISN are expected to make commercial vehicle credentialing less costly, and safety inspections more effective. The electronic screening of commercial vehicles is also expected to save transit time for trucks with good safety compliance records by enabling them to bypass inspection stations at highway speeds in most cases. It is also hoped that this benefit will motivate carriers to improve their safety compliance behavior.

Trucks bypassing inspection stations will not only experience time savings for themselves and their cargo, but also they provide energy savings and air and noise pollution benefits for the public. Of most importance to the public, however, are the cost savings and productivity increases of electronic credentialing to the states and carriers, and the improved targeting for inspection of unsafe vehicles enabled by the new information systems that make up the roadside enforcement element of CVISN. The benefits of crashes avoided by removing unsafe trucks from highways include the value of lives saved, injuries avoided, reduced property damage to trucks, their cargo, and to other vehicles, and reduced delay to all vehicles from congestion due to crashes. These public benefits from CVISN are obviously important in justifying the expenditures needed to implement and operate these systems.

The question to be answered in this BCA is whether all the benefits exceed all the costs. This means that all the benefits and costs input to a BCA must have some inherent value to society. It is important for government to consider all such impacts, even if the private sector does not. And, while the actual summing of the benefits and costs in a BCA is straightforward, identifying the right inputs and observing or estimating their values is not.

In particular, for a benefit or cost to be included in a BCA, it must be:

· Quantifiable

· Monetizable

· Not duplicative

· Not a transfer.

Benefits must be quantifiable in order to attach a monetary value to them. However, not all quantifiable benefits have economic value to society. Not duplicative means that we cannot double count the same benefits and costs, even though they may appear to some not to be duplicative. And, finally, transfers between affected groups are not net changes in benefits to society, and, therefore, cannot be included in a BCA.

Each of the benefits and costs in a BCA is discounted to a present value over the economic life of a project. For the CVISN MDI, benefits are assumed to begin immediately with the one-time start-up costs in the year 2000, and extend for a 25-year period through 2025. This allows 25 years of economic returns for the project, which will include one or more replacement cycles for equipment and software at appropriate intervals.

The Benefits and Costs Included in the BCA

The benefits included in this BCA are as follows:

· Roadside Enforcement (including safety information exchange and electronic screening)

- Crashes avoided

- Transit-time savings (including operations and maintenance and air and noise pollution)

· Electronic Credentialing

- Operating cost savings to states

- Operating cost savings to carriers

- Inventory cost savings to carriers

The costs included in the BCA are:

· Roadside Enforcement

- One-time start-up cost to state

- Replacement capital costs to states

- Increased operating costs to states

- Increased operating costs to carriers

- Increased out-of-service (OOS) costs to carriers

· Electronic Credentialing [3]

- One-time start-up cost to states

- Replacement capital costs to states in future years

All of the benefits and costs included in the BCA are derived from the hypothetical impacts of the CVISN pilots on the customers of CVISN. The CVISN project may alter the administration of commercial vehicle enforcement and regulatory processes in various ways, but the net economic benefits cannot be assessed until the impacts are translated into the measures listed above. These impacts are the result of changes in accidents, administrative and compliance costs, motor carrier behavior, and other changes in commercial vehicle regulatory administration and transportation activities. These evaluation measures determine the type of data that need to be collected and analyzed in the CVISN evaluation. The process of identifying the benefit measures listed above is described below for each of the five traditional ITS goal areas (safety, efficiency, productivity, mobility, and energy/environment).

Since the five ITS goal areas double count some benefits, and include benefits that make no contribution to economic efficiency (and, thus, have no economic value), only four of the five ITS goal areas include potential benefits (or disbenefits) that should be input to the CVISN BCA. The reasons for this are explained below under efficiency benefit measures.

BCA Safety Benefit Measures

The anticipated safety benefits of CVISN from increased motor carrier compliance with state safety regulations are extremely important. The benefits consist primarily of reductions in truck‑related crashes caused by violations of vehicle or driver safety regulations. The crashes are avoided either because additional trucks or drivers are placed out of service due to more efficient enforcement practices or the number of violations is reduced in response to enhanced enforcement (the indirect effect). The safety benefit will take the form of decreased fatalities and personal injuries, and decreased property damage costs from accidents. Note that in quantifying this benefit, we include the total cost to society of crashes, including the losses and delays to other motorists due to these accidents [4]. We do not subtract the costs covered by insurance from the cost savings since the cost savings will lower insurance costs for everyone and all the accident cost savings should be included in this benefit.

BCA Efficiency Benefit Measures

A major source of confusion on the proper inputs to an ITS BCA stems from the fact that economists and engineers sometimes use the same term to mean different things. Most importantly, in economics, efficiency means maximizing total net benefits from an investment or policy. This means that the economic efficiency goal includes all the ITS goals that have (a dollar) value to society. However, engineers use the term efficiency much more narrowly to mean more output per unit of input (“engineering efficiency”).

The efficiency goal that is well accepted as one of the five major ITS goals is the engineering efficiency goal, not the economic efficiency goal. Measures of achievement of the engineering efficiency goal do not enter into a BCA. This is because increased output per unit of input is best measured in transportation as increased throughput or capacity (e.g., vehicles per hour, inspections per hour, inspections per person-hour). Converting this benefit to a dollar value to society falls under the productivity goal in the form of cost savings.

BCA Productivity Benefit Measures

Productivity means lower costs to produce a given level of output. Cost savings are an important measure of achievement of the CVISN productivity goal (e.g., cost per vehicle registration, reduced truck transit time, etc.). This benefit includes the savings to motor carriers and government agencies that result from CVISN. These cost savings certainly have value to society and enter into a BCA to calculate the net worth of CVISN investments.

With regard to roadside enforcement, the productivity-related cost savings to compliant motor carriers results from saving time by bypassing inspection sites at highway speeds. We do not assume any shortening of the time to inspect each truck selected for inspection, nor is it assumed that the number of truck inspections will change. Rather, CVISN may be expected to result in a better targeting of truck inspections since more of these trucks will have been prescreened for violations using the real-time access to timely and accurate data for targeting high-risk carriers provided by CVISN. Therefore, rather than a cost savings to states, the benefit to the states is increased numbers of out‑of‑service (OOS) violations and improved compliance resulting in fewer crashes. Cost savings to states are foregone for the benefit of increased output from the inspection process in the form of increased safety as measured by fewer crashes. This increased output provided by CVISN is an important benefit. Government officials, including law enforcement officials, would like to be evaluated not only by the costs they cut, but by what they do. On the other hand, there will be a cost to some motor carriers to improve their compliance and/or deal with increased numbers of OOS violations.

With regard to electronic credentialing, the benefits of CVISN to both states and motor carriers are limited to cost savings (possibly substantial). States can change their credentialing output only with legislative changes in the number of transactions required. Such changes are exogenous to the CVISN MDI and do not enter this BCA. Similarly, motor carriers can benefit from the cost savings that electronic credentialing’s speed and increased operating flexibility provides them. The benefits include both direct operating cost savings and increased fleet utilization from the increased speed with which carriers can get their trucks on the road due to faster credentialing.

With regard to the latter, this BCA assumes carriers can register new trucks faster and, thus, save on truck inventory costs. Registration renewals are assumed to be scheduled, with or without EC, to keep existing truck fleets in service. Also, oversize/overweight (OS/OW) permits were not included in the EC portions of the CVISN MDI, so no benefits for faster credentialing of these permits were included in the BCA. Finally, significant or measurable levels of increased revenue to motor carriers from goods shipped are not anticipated as a result of the CVISN program. This is discussed in the mobility section below.

Another potential productivity cost savings to states is pavement cost savings (increased pavement life or productivity) from fewer un-permitted overweight trucks on the road. This is a savings that can be expected to materialize over the long term, well beyond the term of the CVISN MDI. For these reasons, we exclude it from the quantitative results of this BCA. However, a discussion of this issue with some rough benefit estimates is included in this chapter.

Other productivity-related outcome measures may have economic value to some, but should be excluded from a BCA because they represent transfers of benefits. For example, CVISN may increase the fee revenue “production” from more effective regulatory enforcement and compliance with CVISN. However, this should not be treated as a net benefit that enters into a BCA, since it is really a transfer from the carriers to state government.

Finally, as explained under the mobility and energy/environment goal areas below, certain benefits that fall under other goal areas are included in the calculation of productivity benefits due to the way unit costs are calculated in the available literature. Examples of these are:

· Reduced delay to the motoring public from CV accidents (mobility goal area benefit included in accident cost saving)

· Gallons of fuel saved by motor carriers (energy goal area cost included in the truck transit-time operating cost saving).

BCA Mobility Benefit Measures

Mobility is measured by the net benefits to travelers or other transportation consumers from a transportation improvement. To avoid double counting, the most important measure of achievement of the mobility goal is purposely omitted as an input to our BCA. This is the portion of the CVISN motor carrier productivity cost savings benefit (if any) that is passed on to the shipper/receiver (e.g., a value-added manufacturer, wholesaler, retail store), or to the final consumer. We can avoid the very difficult problem of collecting data on some elusive cost savings passed on to customers by including in the BCA the entire direct CVISN productivity benefit (the cost savings to motor carriers). Whether these cost savings are passed on to customers is immaterial for the BCA since the total benefit to society is the same.

Three non-motor carrier cost saving mobility measures are valid inputs to a CVISN BCA:

· Reduced highway delays to the public due to reduced motor carrier (truck) crashes.

· Reduced time in transit that reduces shipper/receiver inventory costs.

· Increased shipper/receiver satisfaction with carriers (e.g., use of safety rating data).

The first measure impacts the public in a different way than the CVISN productivity measure, (i.e., it impacts public benefits differently from the costs of the shipped goods). It is included in the accident cost saving benefit since the literature includes this in the cost of accidents. Similarly, the value to shippers/receivers of decreasing time in transit to reduce inventory costs is included in the motor carrier value of truck travel time. With regard to the third measure, to the extent that shippers are willing to pay separately for (i.e., that they value) the safety rating data, this benefit is additive to the carrier cost savings from reduced accidents. However, we have not been able to measure it in this evaluation. Also, the third measure can affect the volume of carrier business and, therefore, revenues. However, additional revenues are presumably mostly transfers, not increases in output or total goods shipped. Therefore, they do not provide net benefits for input to a BCA.[5]

BCA Energy and Environment Benefit Measures

Energy savings in the form of decreased fuel use are included in the value of transit‑time‑related operating cost savings to motor carriers. Similarly, the values of air and noise pollution reductions from CVISN are separately calculated, but included in the transit‑time‑related benefits input to the BCA.

Benefits Summary

Table 8-2 summarizes the evaluation benefit measures for input to the CVISN BCA arranged by the customers who benefit. States and motor carriers are the primary beneficiaries of the most important productivity (cost saving) and safety benefits. Shippers/receivers and the public benefit as well from these impacts of CVISN. However, the BCA values these benefits in the aggregate to assess the total net worth of a project. This minimizes any tendency to double count these benefits.

Table 8-2. Classifications of Benefits and Their Incidence

Benefit Description	Customer Impacted
Benefit Description	State	Carriers (and Shippers)	Public
Roadside Enforcement:
Ÿ Safety
- Crashes avoided