Stephen Rees's blog

Thoughts about the relationships between transport and the urban area it serves

SFU Gondola: Great BCR, Shame about the Business Case

with 11 comments

Translink released the CH2M Hill Burnaby Mountain Business Case report (dated October 2011) yesterday. And the story got picked up quickly by Atlantic Cities.

It seems to me to illustrate what has been going wrong with public investment decisions in recent years. In terms of its Benefit Cost Ratio this project ought to rise high in any comparative analysis of potential transportation projects. There is always a long list of projects that could be done, but not all of them will turn out to be positive. Often the local environmental impact of a major transportation project – or the the cost of its mitigation – will outweigh the benefits – usually travel time savings, especially if all the costs and benefits are measured objectively. In this case, while local residents have objected loudly object the anticipated impact on them, the overall benefits are significantly higher than the costs.

  • 1.5 million hours of saved travel time for current riders and an estimated 500,000 of auto travel time savings as commuters switch to the more efficient service;
  • Fewer transit service interruptions due to snowy conditions on the winding roads up to SFU;
  • Over 26 million in fewer vehicle kilometres traveled annually, which translates into savings on gas, collisions and an overall reduction in greenhouse gas emissions of about 7,000 tons annually.

“The total value of these benefits, over the 25-year life-cycle, totaled more than $500 million, creating a benefit-cost ratio (BCR) of 3.6,” the report notes, adding that a BCR of greater than 1.0 indicates that benefits surpass costs.

In a world where governments are concerned about such things, even though there may not be enough revenue to cover the costs, a BCR of 3.6 would be significant enough to make a case for public sector (taxpayer) support. Social benefits – or what economists call an overall welfare benefit – are worth paying for, even if the market does not have a mechanism to produce that. But these days governments in general have abandoned ideas of social welfare, and espoused the notion that somehow government is just another business and it is only the financial case that matters. Government expenditure is held to be necessarily wasteful and inefficient – unless it is spent on projects like huge weapons or prisons (which have no discernible  benefits at all, just high private sector profits).

Translink currently cannot finance any new projects beyond the Evergreen Line, since its financial resources are restricted by the province. So there is no way to cover the projected $120m in capital costs or the $10m extra in operating costs. Buses are cheaper. And cheapness, it seems, when it comes to public service, is all that matters. Travel time savings, lower emissions (local pollutants and greenhouse gases) and greater reliability are not worth paying for. Well, not when you have already shot billions on highway projects that will not achieve any of those benefits. Of course, in the case of BC, the assessment process ensured that the highway project would be built anyway and the case for it would never be effectively questioned. Its environmental costs would be ignored, and the case would be based on time savings that ignore induced travel that will quickly overwhelm the short term travel time savings.

I cannot say I like the Atlantic’s use of stock photography. Here is another of my Peak2Peak gondola shots – since that was a favoured technology for SFU at one time

Peak2Peak centre span

Peak2Peak centre span - my photo on flickr

Written by Stephen Rees

January 12, 2012 at 11:26 am

11 Responses

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  1. It is indeed sad to see a project with such a high benefit cost ratio shelved as too expensive when the total cost is a mere drop in the bucket compared to certain other projects in the region. In a province where the bus drivers union is portrayed as a cancer and driverless operation is touted as some sort of transit miracle drug I expected Christy Clark to jump on a stage to promote this as a great way to increase system reliability. Even over at the normally supportive Georgia Strait people are suggesting that TransLink could balance its budget by cutting driver wages. You’d think with that much hate coming from both left and right that our politicians would be jumping at the chance to replace dozens of human beings with a machine.

    Stephen has hit the nail on the head when he says that governments are no longer interested in providing social benefits. This despite the fact that the fundamental reason for government to exist in the first place is to provide social benefits.

    These days government seems to exist primarily to decide which private enterprises have to operate on a level playing field and which ones don’t. Transit isn’t a private enterprise so it doesn’t rate any attention.

    David

    January 12, 2012 at 3:30 pm

  2. The study is conservative in its analysis – e.g. arbitrarily assuming that after 25 years the value of the capital investment in the gondola would be 0, even though it is conservatively projected to have a life of 30 years before the cars will need replacement. The sensitivity analysis shows that the project would break even relative to business as usual at year 28 from a purely financial point of view for TransLink, and that is even excluding the fact that the system would be frickin’ sweet.

    The study assumes a 6% discount rate. But I don’t know what this means (e.g. is it expected returns on the capital if it were not invested in the project from the get go?). 6% seems high to me even just for borrowing costs in the present fiscal environment.

    slantendicular

    January 12, 2012 at 4:02 pm

  3. Stephen:

    I read a quote attributed to you in the Straight today and it prompted me to write a post. I’m curious what your response to it might be. http://www.robchipman.com/2012/01/translink-and-taxes/

    Rob

    January 12, 2012 at 9:03 pm

  4. And I have answered it there. I don’t expect you to like it.

    And, by the way, I am not the only person who thinks like this. My friend Arzeena puts it very nicely in her column in the Richmond Review. “Thank your lucky stars for taxes”

    Stephen Rees

    January 12, 2012 at 10:04 pm

  5. On pure financial terms, the [gondola] is more expensive to operate than the bus service.” Atlantic Cities.

    In terms of its Benefit Cost Ratio this project ought to rise high in any comparative analysis of potential transportation projects.” Stephen.

    Well, strictly from a lay point of view I would have thought Stephen has a better local take on this than some glossy at the other side of the continent.

    Surely taking everything into account, gradient winter roads, student time better spent studying, equipment maintenance, emission fumes and pleasant ride (does amenity count among you hard nosed TX econos?) ida thought this was a no brainer!

    The foolish Bennett decision to site SFU on the top of a mountain is even more ridiculous than UBC “Great Trekking” to the other end of town.

    Integrate and incremental are two of my favourite words when it comes to planning.

    Cynic that I am I suspect reason goes out the window when real estate cronies and money coincide!

    Roger Kemble

    January 13, 2012 at 6:46 am

  6. Portland had a gondola at the (south?)end of the streetcar line and it is well used. At least every time we go there (not a scientific survey obviously but totally random spot checking has some value too).

    Red frog

    January 13, 2012 at 2:04 pm

  7. The $ difference between buses and the gondola doesn’t justify choosing buses as we know they have trouble in winter..snow anyone?
    Obviously it was a decision made by someone that has never been on SFU Mountain.
    A friend of mine told me that her son–then a novice driver–laughed at her when she told him not to drive to SFU on a snowy winter day. Hours later he phoned her “MOM! I don’t think I can drive down…”

    Red frog

    January 14, 2012 at 8:04 am

  8. […] Firstly, that the construction of the system would provide enormous benefits to transit riders, Translink and Simon Fraser University. After attaching a dollar figure to those benefits, the benefits could be valued at roughly half a billion dollars (all figures NPV 2011, CAD) over 25 years. (For a quick rundown of this aspect of the project, check out Stephen Rees blog post about it.) […]

  9. I personally think SFU and its real estate corp should take it on. Some great ideas just get off to a slow start.

    Jeffrey Patterson

    January 19, 2012 at 8:33 pm

  10. […] Rees provides an insightful analysis and commentary on the recent Burnaby Gondola business case AKPC_IDS += […]

  11. Look the other side : Bus service

    The report says : “The SFU Burnaby campus and the growing community of UniverCity constitute a major
    regional transit destination, accounting for more than four million trips per year. As early as
    2021, forecast growth of SFU and UniverCity, as well as a shift of mode share, could double
    the current daily transit ridership (25,000 trips) and exceed the capacity of frequent bus
    service. ”

    But the “Business as Usual” calculation used for shelving the Gondola tells that only $25 m. are planned for bus substitions (over 25 years!) thats make NO PLACE for any improvement on the Bus service * , plus, any rise in fuel , consumables and maintenance (diesel is same price of 1987 ? isnt’it?) will dent substantially the budget.

    * The report write about increase in numbers in normal and articulated bus , but evidently they get them for free…

    So we could tell that is true that : Translink will spend (burn) AT LEAST $144 in 25 years for a service that will be SEVERELY insufficient respect the request .

    Make it sense?

    george the fifth

    January 20, 2012 at 9:19 am


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