Development of an intermodal freight terminal at the Pilgrim site would be a major investment for the public sector, the terminal operator, and the rail and motor carriers serving the terminal. The project must generate a profit for the carriers and operators. It must reduce transportation costs and improve service for shippers, receivers and third-party logistics brokers. It must meet the economic development plans and investment budgets of state and local agencies; and it must deliver broad public benefits, such as improved freight productivity, lower traffic congestion, reduced air pollution and lower consumer prices. We performed a formal benefit-cost analysis to determine if the facility would meet these requirements and to support decision making for the Pilgrim State intermodal site.

Benefit-Cost Comparative Analyses

We conducted comparative analyses for each of three investment scenarios to determine the incremental improvements in benefit-cost results as higher levels of market demand are accommodated with increased levels of investment. Increased investment is of two types:

• Direct investments required to equip and operate the Pilgrim intermodal terminal itself
  
  
• The much greater joint investments required for greater railway clearances on the Long Island Rail Road (LIRR) and the rail freight lines along the Hudson River, improvements to trans-Hudson float operations and, ultimately, construction of the proposed tunnel across the New York Harbor.

• Scenario 1: LIRR and Hudson with TOFC/COFC; TOFC/COFC Float. Prior to 2010, the intermodal terminal would operate initially as a bulk terminal. LIRR and Hudson Line capacity improvements would be made by 2010 to accommodate TOFC/COFC. Containers would be moved across the Hudson River via an enhanced float operation and via Selkirk, the only existing trans-Hudson rail crossing south of Albany. To accommodate the containers, increased capital investments at the Pilgrim intermodal terminal would be required just before or during 2010.
  
  
• Scenario 2: LIRR, Hudson with DST; TOFC/COFC Float. Same as Scenario 1 but with additional improvements after 2010 to accommodate DST. Containers would continue to move across the Hudson River via an enhanced float operation and via Selkirk.
  
  
• Scenario 3: LIRR, Hudson with DST; DST Tunnel. Same as Scenario 2 but with additional improvements by 2020 to accommodate containers moving across the Hudson River via a newly constructed cross-harbor tunnel. This scenario represents the maximum, and possibly optimal, expansion path for movement of containers to and from Long Island via the Pilgrim intermodal terminal.

• Diverting long-haul truck trips to rail. This market includes commodity types that are currently moving into and out of central Long Island by truck, but with origins and destinations that are sufficiently distant from central Long Island to make it economically and operationally attractive for a shipper to use rail if such service were available.
  
  
• Converting "indirect" rail trips (cargo arrives in northern New Jersey by rail and is drayed to central Long Island, and vice-versa) to direct rail trips (cargo arrives and departs by rail to and from central Long Island with only a very short dray).

Input to the Model. We used the Federal Highway Administration's Surface Transportation Efficiency Analysis Model (STEAM) to analyze highway-related benefits of the proposed transportation investments at Pilgrim. The total commodity flows to and from central Long Island for various years were estimated, as were the amount of these flows that could be shifted from truck to rail as a result of the Pilgrim project. These effects were "translated" into travel outputs, such as changes in vehicle miles and hours of travel, which, in turn, serve as inputs to the STEAM model.

Table 1: Annual Benefits ($000)

Calculating Benefits. Benefits were calculated for both "users" and "non-users" of the highway network. User benefit categories include changes in vehicle miles traveled (VMT), trips, travel time, vehicle emissions and fuel costs. For this analysis, user benefits were segmented into two components: truck and auto. These two components were analyzed separately due to the differences in travel time values and operating costs between commercial and passenger vehicles. About 90 percent of user benefits are experienced on the auto side rather than the truck side because reductions in highway congestion "spill over" to automobile users. Truck transport cost savings comprised about 10 percent of the user benefits for each scenario.

Non-user benefits represent benefits that accrue to the region as a whole, rather than directly to highway network users. These include reductions in emissions, global warming, noise impacts, other mileage-based costs (such as construction-related neighborhood impacts), and revenue transfers (e.g., loss/gain of gas tax revenues). STEAM also calculates user and non-user benefits associated with changes in accident rates, which are a function of VMT, speed and congestion.

The results of the STEAM model runs are summarized in Table 1. All scenarios show positive benefits. Given the much larger scale of investment and utilization of Scenario 3, however, it is not surprising that this scenario would ultimately produce the highest total gross benefits and efficiency benefits.

Benefit-Cost Analysis Results

Using year-by-year estimated benefit streams from the STEAM analysis and project cost estimates, we conducted a formal economic benefit-cost analysis. This analysis compared the discounted stream of project benefits and costs extended over a 20-year period at seven percent interest per year, beginning one year prior to 2005, when initial capital investments would be made. The results of the analysis are the project net present value (NPV) and the benefit/cost (B/C) ratio. The NPV is the difference between the present value of project benefits and project costs, including capital and annual operations and maintenance costs. The B/C ratio is of the discounted stream of benefits divided by the discounted stream of costs.

Table 2: Benefit-Cost Results

Separate analyses were conducted for each of three investment scenarios to determine the incremental improvements in benefit-cost results as higher levels of market demand are accommodated with increased levels of investment. Both measures are useful. The NPV typically takes precedence when maximizing overall project performance, while the B/C ratio is more useful for comparing across competing projects within a fixed budgetary constraint.

The benefit-cost analysis presented here does not include costs for any of the "upstream" or off-site railroad system improvements mentioned above. While these improvements are necessary for increasing cargo throughput at the Pilgrim intermodal terminal in Scenarios 1, 2 and 3, we assumed for purposes of this analysis that the decision to implement (or not implement) those improvements would be made independent of the Pilgrim project. Thus, those "joint" costs may be regarded as "exogenous" to the benefit-cost analysis from the perspective of the cost side, and no portion of them was allocated to the Pilgrim site itself. The results of the formal benefit-cost analysis are summarized in Table 2.

All three scenarios generate a positive NPV and a B/C ratio greater than 1.0. The extent of benefits increases from Scenario 1 to Scenario 3 as "upstream" rail improvements, allow more intensive use of the Pilgrim facility for container handling. The B/C ratios reflect the benefit and cost of the Pilgrim facility itself, and not the benefit and cost of regional rail access improvements, such as TOFC/COFC clearances, double-stack clearances, or a cross harbor rail freight tunnel. These rail access improvements would benefit all traffic east of the Hudson River, not just central Long Island, and the net benefits associated with those investments would be considerably greater than those shown from the more limited analysis used here.

Generalized Business and Employment Benefits

The formal benefit-cost analysis represents an important but still incomplete technique for assessing the potential economic benefits of an investment. A supplementary approach would be to consider the potential benefits to industry and consumers on Long Island if the Pilgrim intermodal terminal comes into operation. This analysis, unlike a "static" benefit cost analysis, would take into account the potential economic multiplier effects if substantial transportation cost savings can be realized for targeted growth industries on Long Island. These potential impacts include industry clusters on Long Island, potential cost savings for goods production activities on Long Island, and potential consumer benefits.

While space constraints do not permit a detailed discussion of how the potential economic benefits are assessed, any reader who is interested in additional information can contact me at hirschman@pbworld.com