Santa Clara River Trail Final Master Plan - Development Services ...

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Chapter 5: Benefit Cost Analysis Table 6: New Daily Bicycle Commuters, Daily Adult Cyclists, and Daily Pedestrians Attributed to the Pathway Category High Estimate Best Estimate Low Estimate New Bicycle Commuters within 1 mile 1 93 80 67 New Daily Adult Cyclists within 1 mile 1 1,324 318 49 Pedestrians within 1 mile 2 265 64 10 Notes: 1 Per Page 39 of the NCHRP Report 522, the numbers of new bicycle commuters and new daily adult cyclists are estimated to be 1.93, 1.11 and 0.39 times the current values for distances of 400 meters, 800 meters, and 1,600 meters from the pathway, respectively. The sum is presented here. These values are in addition to the existing bicycle commuters. 2 Counts on similar trails indicate pedestrians are 20% of bicycle use. Findings The last row in Table 7 shows the total annual benefits for both bicyclists and pedestrians. The “best estimate” annual benefits are more than $1.8 million. This estimate represents the sum of the estimated mobility, health, recreational, and reduced auto use benefits. Table 7: Benefit-Cost Analysis; Total Annual Benefits for Pedestrian and Bicyclists Category High Estimate Best Estimate Low Estimate Mobility Benefits: Bicycle Only $411,337 $352,928 $294,519 Health Benefits: Bicycle Only $181,414 $50,921 $28,444 Recreation Benefits: Bicycle Only $4,832,772 $1,160,015 $179,647 Reduced Auto Use Benefits: Bicycle Only $18,184 $15,601 $13,019 Total Annual Benefit: Bicycle Only $5,443,706 $1,579,465 $515,629 Total Annual Benefits: Bicycle and Pedestrian Assumes a ratio of 0.02 pedestrians as bicyclists. $6,532,447 $1,895,358 $618,755 In calculating the benefit-cost ratio of a project in which benefits and costs are expected to be distributed over several years, it is important to consider the change in value of money over time. This is commonly done by calculating the net present value (NPV) of a project over the lifetime of that project. If the NPV is positive, then a project will produce benefits over its lifetime. If the NPV is negative, then a project will cost more than the benefits it produces over its lifetime. The NPV is calculated as the sum of the present values (PVs) of the benefits and costs for each year of the project. To calculate the PV for a given year, one sums the benefits and costs for that year and discounts it 68 | Alta Planning + Design
Santa Clara River Trail Plan back to the first year of the project using a discount rate. The discount rate can be defined a variety of ways. For this benefit-cost analysis, it is defined as the opportunity cost of the initial investment, or the interest rate that the capital needed for the project could return if invested in an alternative venture. 2 This benefit-cost analysis also uses a low and a high discount rate to account for the uncertainty in the actual discount rate. A lower discount rate makes it more likely that a project will see a positive net benefit. Table 8 shows the NPV benefit-cost results over the 30-year lifetime of the pathway. The benefit-cost ratio is determined by dividing the estimated benefits of the pathway in dollars by the estimated costs in dollars. A benefit-cost ratio higher than one means the project has more benefits than costs over its lifetime. A benefit-cost ratio of one means benefits and costs are equal. A benefit-cost ratio less than one means the project costs outweigh the benefits. For the 5 percent and 2.5 percent real discount rates, the best estimate benefit-cost ratios are 7.77 and 10.62, respectively. Thus, the environmental, economic, public health, and social benefits the community would experience as a result of the pathway exceed the cost of the pathway by three to four times. The “low” estimates are extremely conservative and greatly underestimate the actual benefits. In this case the benefit-cost ratios for the 5 percent and 2.5 percent discount rates are 2.54 and 3.47, respectively. Under this scenario, the cost of constructing and maintaining the pathway would be very close to the benefits. Using the “high” estimates, the benefit-cost ratios for the 5 percent and 2.5 percent discount rates are 26.77 and 36.62, respectively. Table 8: Net Present Value Benefit-Cost Results Benefit-Cost Analysis Net Present Value of Benefits Net Present Value of Construction and Maintenance Costs Benefits with 5% discount rate High Estimate $185,559,894 $6,932,211 26.77 Best Estimate $53,839,319 $6,932,211 7.77 Low Estimate $17,576,281 $6,932,211 2.54 Benefits with 2.5% discount rate High Estimate $274,760,363 $7,503,761 36.62 Best Estimate $79,720,410 $7,503,761 10.62 Low Estimate $26,025,372 $7,503,761 3.47 Benefit-Cost Ratio The project costs shown in Table 8 include the NPV of annual maintenance and operating costs, as required for benefit-cost analysis. Total project costs are higher for the 2.5 percent discount rate case 2 To give an example of discounting, given a discount rate of 7 percent, $5,000 in be nefits rece ived ten years from now has the same value as $2,542 in benefits received now. In other words, if one was to invest $2,542 now with interest rates at 7 percent, in ten years, that money would be worth $5,000. City of Oxnard | 69
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