Part 1. National Overview

1.1 Background and Study Objective

Background. It has been long recognized that highways can enable economic development by providing access between regions - thus making it possible for new kinds of economic activities to occur which would not otherwise be occurring. Indeed, roads across the Roman Empire in ancient times and later the Silk Route from Europe to China in the Middle Ages both facilitated the development of new markets, new suppliers, and new types of business activity. In more modern times in the US, the federal government has recognized that national highway networks, by affecting regional access conditions, can also affect economic development opportunities. That was the fundamental motivation for federal funding of the Appalachian Development Highway System.

In the last two decades, a growing number of economic research studies have also shown that businesses can realize cost advantages from economies of scale, just-in-time production processes and logistical efficiencies as a result of access to broader labor markets, supply markets and customer markets. The availability of market access and the value of these associated cost factors are considered in business location and investment decisions. However, the value of accessibility improvements - for improving productivity, helping to attract new business investment in areas of need, and addressing equity concerns for economically distressed areas - are typically beyond the standard engineering evaluation of highway investment needs.

Recognition of the importance of local, as well as regional, access has led a number of states to fund special road programs to support economic development. A 1999 study - NCHRP Synthesis 290: Current Practices for Assessing Economic Development Impacts from Transportation Investments - described a number of these state programs.

There has also been new interest in the relationship of highways and economic development at the federal level in the US. As noted by FHWA in the Statement of Work for this study, "FHWA funded a study entitled Availability and Utility of Empirical Information Relevant to the Relationship of Economic and Highway Capacity Increases or New Facilities with Special Emphasis on the 1990's. Congress is also interested in this subject as evident by wording in language contained in Senate Report 106-55 and House of Representatives." FHWA has also recently administered an Economic Development Highways initiative to assist state DOTs in addressing planning issues relating to highways serving economically depressed rural regions.

However, as noted in the FHWA Statement of Work, "Notwithstanding the above, there has never been a quantitative estimate of how many dollars per year are dedicated to highway economic development nor any analysis of whether such programs could be improved by ongoing coordination or by consideration of national guidelines."

Finally, it is important to note that when we refer to economic development highway investments in this report, we can mean any road investments that are at least partially justified as access improvements to areas where there is expected to be a resulting positive impact on business activity (with an associated job creation and income increase). This can include long distance highways and/or local access roads connecting to them.

Study Objective. The purpose of this study is to provide a better understanding of the scope of highway related economic development being undertaken by State Transportation Agencies, and to consider whether national guidelines could benefit the public by making such programs better. This report accordingly summarizes the nature of the highway-related economic development programs funded by US states, and the level of total dollar funding for these programs being undertaken by state transportation departments during FY 2001-2002. For each individual state, Section 2 provides a profile of the characteristics of their relevant programs or policies relating to highways and economic development.

1.2 Definition and Classification Methodology

Definition. There are many variations among states in the form of support for highway investment to promote economic development, as well as the types of road projects covered by these programs and the way in which the economic development justification is defined. Thus, we start out by providing an overview of the many ways in which state transportation departments support highway investment for economic development. We then focus in on the subset of these cases that meet more formal criteria as economic development highway programs.

The Broad View - Different Forms of State Support for Economic Development. The consultant team completed interviews with representatives of state transportation agencies in all 50 States, and found that 39 states had some form of formal administrative recognition or support for investing in roads to further economic development goals. Based on these findings, we identified four categories of state involvement in highways and economic development. (Note that some states fall into more than one of these categories.)

Informal Processes for Highway Funding Based on Economic Development Considerations. A large element of economic development-related highway spending still occurs outside of the funding of any formal economic development highway programs. In fact, some of the earliest roads in America were economic development roads, aimed at increasing access to areas for commerce rather than addressing congestion on existing roads. Many state transportation departments have long made highway investments to address economic development goals on a case-by-case basis, i.e., not as part of any formal funding from economic development highway programs. Recent examples of major four-lane highways that were justified in part by explicit economic development motivations, but not funded by state economic development highway programs, include Wisconsin State Highway 29 and New York State's Southern Tier Expressway. These projects can be viewed as "strategic investments" - projects with long-range goals of facilitating greater economic growth in areas that had been economically lagging.

Across America, state transportation departments also make "opportunistic investments' - completing or improving highway interchanges and local highway connections to facilitate specific opportunities that arise to capture new industrial development at desired locations. Many of these investments have been completed on a case-by-case basis with combinations of local, state and private business funding that does not necessarily involve any formal economic development highway program.

Both the previously cited examples of major roads and the opportunistic investments discussed above are motivated by economic development yet often occur outside of formal economic development highway programs. For this reason, readers should recognize that the economic development highway programs described and documented in this report represent only a portion of total state highway funding that goes to support this category of investment.

Focusing on State Programs with Dedicated Funds for Economic Development. While there are policies supporting economic development as a factor in highway funding decisions, and there are informal processes where economic development is a motivation for highway funding, it is not possible to identify the amount of spending associated with these situations. There are two reasons for this: (1) Without formal funding programs, there is usually no tracking of how many projects had economic development as a major factor in decision-making, and (2) Even when specific projects can be identified, there is usually no basis for identifying the relative importance or relative share of spending associated with economic development.

For purposes of this study, we thus focus on formal Economic Development Highway programs, i.e., state programs that provide direct funding for road and/or highway investments based on economic development considerations through operation of formal application and disbursement processes. This corresponds to categories #1 and #2 of the four categories previously presented. We recognize that all of these state-funded economic development highway programs meet three fundamental criteria:

• They have formal application processes, eligibility criteria and project selection criteria.
• They rely on funds directly allocated by the states that provide direct financial support for capital investment in new, expanded or upgraded highways or connector roads; and
• The road projects that they support are justified primarily based on economic development (providing access to facilitate job and income growth), rather than based on need to expand capacity to meet projected demand (given the locations of current roads and trip generators).

Categorizing FormalState Programs Based on Program Operation and Project Eligibility. Among formal state programs, we can identify five variants in terms of program operation and types of projects funded:

(A) State Road Programs with Specific Economic Development Requirements - These are state programs with earmarked funding for construction of local road projects that are needed so that target businesses can expand or locate in the state. Normally, local communities apply or nominate projects for this funding. The state DOT provides state funding contingent on a promise of matching private investment to create a specific number of new jobs or provide a specific dollar amount of private capital investment in new business facilities in the local area. They generally include some provision for private reimbursement to the state if the expected number of jobs or value of investment does not subsequently materialize. Through this general mechanism, the state programs are intended to "leverage" new private sector business investment in business locations in the state. In some of the programs, local communities are also expected to cover a portion of the project costs.

Ten States have economic development road programs that fall within this category - Alabama, Illinois, Iowa, New York, North Carolina, Oklahoma, Oregon, South Dakota, Virginia and Wisconsin. Most of these States continually monitor and publish information on the number of jobs and amount of private capital that is leveraged by the programs. In FY 2002, these ten States expended $73.7 million for road project funding under this type of program. The six States that analyze job creation in about the same manner estimate that about 12,343 new jobs were or will be created or retained by FY 2002 with expenditure of about $53,741,148. A breakdown of the funding and impacts of these ten State programs is shown in Table 1.

Table 1. State Road Programs with Specific Economic Development Requirements

State	Program	State Amount Expended FY 2002*	State Funds Budgeted FY 2002**	Jobs Created	Private Sector Investment
Alabama Department of Transportation	Industrial Access Program	$10,110,900	$12,000,000	3,166	$439,410,000
Illinois Department of Transportation	Economic Development Program	$14,560,4121	$10,000,000	4,230	NA
Iowa Department of Transportation	Revitalize Iowa's Sound Economy Fund	$15,991,402 2	$9,670,0003	1,210	$3,940,300
Oklahoma Department of Transportation	Industrial Access Road Program	$6,037,000 4	$2,500,000 5	1,397	$469,500,000
South Dakota Department of Transportation	Industrial Park Grant Program	$857,550	$1,000,000	343	$10,577,000
Wisconsin Department of Transportation	Transportation Economic Assistance Program	$5,923,884 6	$7,250,000	1,997	$330,340,000
Sub Total of Programs with Job Tracking		$53,481,148	$42,420,000	12,343	$1,253,767,300
New York Department of Transportation	Industrial Access Program	$15,000,000	$25,000,000 7	NA	NA
Oregon Department of Transportation	Immediate Opportunity Fund	$500,000	$1,000,000	NA	NA
VirginiaDepartment of Transportation	Industrial Access Road Program	$4,506,500	$5,500,000	N/A	NA
North Carolina Department of Transportation	Public and Industrial Access Program	$191,542 8	$2,000,000 9	NA	NA
Sub Total of Programs with no Job Tracking		$20,198,042	$33,500,000
Grand Total		$73,679,190	$75,920,000	12,343	$1,253,767,300

* "Expended" amount spent by the state transportation agency on transportation projects, predominantly in FY 2002.

** "Budgeted" amount administratively established by the state transportation agency for grant purposes.

¹ In FY 2002, approved funding exceeded the budget; the balance was funded from other state programs.

² Total RISE funds approved in FY 2002 include both grant and loan funding.

³ RISE projects receive 32.2% of $30 million annually allocated.

⁴In FY 2002, the program funded more than the minimum annual requirement.

⁵ The minimum annual requirement is $2.5 million on Industrial Access projects per state fiscal year.

⁶ Represents highway portion of total approved multi-modal program funds.

⁷ IAP is re-established annually with the passage of the state budget. With the FY 2001-2002, the program was funded at $25 million. In FY 2002-2003, the funding is reduced to $15 million.

⁸ Represents Industrial Access Projects for FY 2002-2003.

⁹Public and Industrial Access program funds industrial access projects, and public transportation projects. In addition, North Carolina has a program of urban loop projects that bears some resemble to a Georgia program noted in Table 4. However, the Georgia program is rural while the North Carolina program is more urban and thus partially congestion oriented. North Carolina also has non-highway projects funded by the TE account of the STP program, however, these are not counted since this study concerns actually highway projects. Finally, North Carolina, was, as of the report date, developing a strategic corridors initiative that might, in future years, be considered an economic development highway program.

(B) State Road Funding for Targeted Local Areas - These are state programs with earmarked funding for local transportation projects to serve new or expanded industrial parks or facilities in areas of economic need. They do not have a specific private sector job creation or private capital investment requirement as Category A (and hence there is generally no tracking of economic impacts). Instead, states require the local community to apply for the project funding and remain as a partner, through matching capital funding and/or responsibility for ongoing road maintenance.

Four States have economic development road programs that fall within this category - Kansas, Tennessee, West Virginia, and Wyoming. In FY 2002, these four States expended $21 million for road project funding under this type of program. A breakdown of the funding and impacts of these four State programs is shown in Table 2.

Table 2. State Road Funding for Targeted Local Areas

State	Program	State Amount Expended FY 2002*	State Funds Budgeted FY 2002**
Kansas Department of Transportation	Local Partnership Program	$3,298,000	$3,000,000
Tennessee Department of Transportation	Industrial Access Roads Program	$10,800,000	$10,800,000
West Virginia Department of Transportation	Industrial Access Road Program	$3,112,800	$3,500,000
Wyoming Department of Transportation	Industrial Road Program	$3,712,590	$2,000,0001
Subtotal		$20,923,390	$19,300,000

* "Expended" amount spent by the state transportation agency on transportation projects, predominantly in FY 2002.

** "Budgeted" amount administratively established by the state transportation agency for grant purposes.

¹ Funded at $4.0 million per biennium

(C) State Road Funding in Partnership with State Economic Development Office - These are state programs that provide grant funds to support local road projects that are supportive of the broader economic development efforts of local and/or state economic development agencies. Generally, the grants are made on the basis of local applications and an assessment by staff of the state-level economic development agency, concerning the existing local economic development need and the expected local economic development benefit. As a result, some of the states do track economic need and project impacts. However, the methods used to estimate jobs created is not necessarily consistent with the methodology used by the States shown in Table 1.

Six States have economic development road programs that fall within this category - Arizona, Massachusetts, Michigan, Missouri, North Carolina and Washington. Most often, the partner organization shares a portion of the total project cost (such as Missouri's Economic Development & Cost Sharing, and Arizona's ESP programs) or simply participate in project administration along with the economic development agency (such as the case of The Commonwealth of Massachusetts Executive, Office of Transportation and Construction (EOTC)'s PWED, Michigan's TEDF programs, and Washington's REV program). In FY 2002, these 6 States expended $55.6 million for road projects under this type of program. A breakdown of the funding and impacts of these six State programs is shown in Table 3.

Table 3. State Road Funding in Partnership with State Economic Development Office

State	Program	State Amount Expended FY 2002*	State Funds Budgeted FY 2002**	Jobs Created	Private Sector Investment
Arizona Dept. of Transportation	Economic Strength Projects Program	$1,085,538	$1,000,000	1,844	$220,271,478
Executive Office of Transportation and Construction	Public Works Economic Development Grant Program	$17,171,440	$20,000,0001	NA	NA
Michigan Dept. of Transportation	Target Industry Development category of TEDF	$11,724,216	$19,900,000 2	NA	NA
Missouri Dept. of Transportation	Economic Development Cost Sharing Program	$12,440,750 3	$15,000,000 4	N/A	N/A
North Carolina Dept. of Trans.	Economic Development Program	$9,900,000	$20,000,000	11,520	$477,000,000
Washington Dept. of Transportation	Rural Economic Vitality Program	$3,266,0006	No fixed budget5	Full data not available	NA
Subtotal		$55,587,944	$75,900,000	13,364	$697,271,478

* "Expended" amount spent by the state transportation agency on transportation projects, predominantly in FY 2002.

** "Budgeted" amount administratively established by the state transportation agency for grant purposes.

¹ EOTC's PWED Program is funded through the Transportation Bond Act. Most recent apportionment included $66 million for PWED, which covers a multi-year award period.

² In FY 2002, the Target industry category was awarded $19.9 million in funds.

³ Combined cost sharing and economic development projects FY 2002.

⁴ Annual Cost Sharing / Economic Development Fund.

⁵ Nearly $68 million of Federal TEA 21 funds have been invested in REV projects.

⁶ Calendar Year 2001 expended amount.

(D) Planned Economic Development Highway Corridors. These are state programs that focus not on local access roads and interchanges, but rather, on improving specific highway connections to promote the economic development of depressed areas. These programs specifically fund highway network improvements that are intended to provide better connections to economic markets for small and medium size communities whose economic development has been lagging the state due (at least in part) to their sub-standard accessibility to other parts of the state.

Four States have economic development highway programs that fall within this category - Florida, Georgia, Louisiana and Mississippi. Some (such as Florida) also fund capital investment in facilities for other modes of transportation. We have tried to identify the roads portion of these programs, although it is not always easy to disaggregate this portion of the total funding, since some of the projects simultaneously serve multiple modes of travel. We estimate that in FY 2002, these four States provided funding of $449.6 million for road project funding under this type of program. A breakdown of the funding and impacts of these four State programs is shown in Table 4.

Table 4. SingleState Planned Economic Development Corridors

Table	Program	State Amount Expended FY 2002*	Est. Total Cost for Completion
Florida Department of Transportation	Transportation Outreach Program	$69,751,307 1	$91,800,000
Georgia Department of Transportation	Governor's Road Improvement Program	$106,000,000	$3,600,000,000
Louisiana Department of Transportation	Transportation Infrastructure Model for Economic Development	$99,717,258	$2,500,000,000
Mississippi Department of Transportation	Advocating Highways for Economic Advancement	$174,146,393	$5,500,000,000
Subtotal		$449,614,958	$11,690,000,000

* "Expended" amount spent by the state transportation agency on transportation projects, predominantly in FY 2002.

¹ Highway portion of total approved multi-modal program funds

(E) Multi-State ARC Program. Note: This category is included in the text because it involves state funding for economic development highways. However, due to the unique state-federal shared roles, it is counted separately from the other economic development highway programs in this report.

A total of 13 eastern States participate in the Appalachian Region Commission (ARC), which is a federal-state partnership. The ARC has two programs for the funding of road investment to foster economic development. One is the Appalachian Development Highway System, a system of planned economic development highways that is similar to category D, except that it is a multi-state program. The other is the Local Roads portion of the ARC's Public Works Program, which has requirements for private sector investment similar to category A except that it is a multi-state program. These programs are included in this report because the projects are selected and administered by the states, with partial funding also coming from the states. They differ from all of the preceding programs in that there is also a federal government portion of the total program funding.

Table 5 shows the FY 2001 total funding for projects under these two ARC programs, along with the portion paid by state and local government. The distribution of spending among the states varies from year to year, so some states that showed no spending in FY 2001 may have spending under these programs in other years. Information was also not readily available to further split the state government and local government funding.

Table 5. Multi-State ARC Program

(Appalachian Development Highway System and Appalachian Access Roads Public Works Programs, FY 2001 Obligations)

State	State (& Local) Portion Of Project Funding (A)
	Cumulative: 1965 - 2001	FY 2001
Alabama	645,083,289	$10,711,393
Georgia	227,989,609	*
Kentucky	1,099,292,011	$9,884,686
Maryland	359,053,352	$1,677,102
Mississippi	280,260,918	$187,841
New York	600,121,700	$2,619,329
North Carolina	439,152,649	$8,161,760
Ohio	326,282,543	$1,439,229
Pennsylvania	1,379,002,070	$25,915,168
South Carolina	62,398,549	$525,397
Tennessee	754,841,151	$4,191,418
Virginia	290,080,083	$506,362
West Virginia	1,753,267,295	$17,224,723
Total	8,216,825,217	$82,263,329

*$781,078 debit in FY 2001 due to an eliminated project

(A) predominantly state spending, but also includes an undetermined amount of local spending

1.3 National Summary

Altogether, 23 states have their own formal economic development highway programs. These states spent over $600 million of state funds on these state programs in 2002 -- $150 million for investment in local access roads and $450 million for longer-distance economic development corridors.

Additionally, state co-funding of projects within (1) ARC's Appalachian Development Highway System (ADHS) and (2) ARC's Local Access Roads programs also contributed to economic development in that region. Portions of 13 states have roads and highways covered by these ARC programs. Twoof those states have only the ARC programs to provide economic development highway assistance. Three states have informal set-asides for discretionary economic development related projects. The other eight states have their own formal economic development highway programs to cover other types of projects and other parts of their land and highway systems not covered by the ARC programs.

In FY 2001, approximately $83 million of state and local funding was expended under these two regional ARC programs. In addition, $30 million of state funds were set aside in 2002 for discretionary economic development related transportation projects.

Figure 1 summarizes these results. Counting both stand-alone state programs and state funding within the Appalachian Regional Commission's programs, there are 28 total states that participate in some type of funding for economic development highway programs. Another 11 other states have existing policies recognizing economic development as a factor in project decision-making. The remaining 11 states have no formal funding programs or policies in place regarding economic development highway projects. However, even among them, three are currently considering setting up economic development highway policies.

Figure 1

Number of States Having Economic Development Highway Programs or Policies

A summary of spending among categories of formal funding programs for economic development roads and highways is shown in Table 6. It shows that the formal economic development road and highway programs in 28 states have accounted for approximately $712 million/year of statewide spending.

Table 6. Summary of State Economic Development Highway Programs

Group	Economic Development Road Funding Programs	States	State Spending (A)
A	State Road Funding with Specific Economic Development Requirements	10	$73,700,000
B	State Road Funding for Targeted Areas	4	$21,000,000
C	State Road Funding in Partnership with State Economic Development Agency	6	$55,600,000
D	Planned Economic Development Highway Programs	4	$449,600,000
	Subtotal	23(B)	$599,900,000
E	Multi-State ARC Program (state/local portion) 2	13	$82,200,000(C)
F	State Annual Set-asides for Discretionary Economic Development Projects (D)	3	$30,000,000
	Grand Total	28(B)	$712,100,000

1. Annual spending; FY 2002 when available, otherwise FY 2001.
2. Some states had more than one type of program, so the total was adjusted to count each state only once in the total.
3. Includes state and local spending, but is predominantly state spending.
4. All of these states also participate in ARC's programs.