4.3. SR 06-16-2003 - Laserfiche WebLink

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Review of Benefit-Cost Analysis of Northstar Commuter Rail 4 if most of those people would otherwise be driving single-occupancy vehicles, then the Northstar rail will reduce driving in the region by about 200,000 miles, or 0.3 percent of the total. If that amount of driving produces $33.4 million worth of air pollution, then the air pollution generated by all driving in the region must cost the region nearly $11 billion a year. This is extremely unlikely. Parking cost savings-Anton, Lubov estimates that people who ride commuter rail will save a total of $58.9 million in parking costs, which is more than twice the savings estimated by MnDOT. The difference is that MnDOT estimated that cost of building new parking, while Anton, Lubov estimated the cost of parking to individuals. The difference between the cost of providing parking and the cost to individuals is profit. Since profit is a benefit, not a cost, Anton, Lubov is incorrect in counting this as a cost. MnDOT's methodology is superior, which means that parking benefits should be reduced by at least $34.6 million, which is the difference between MnDOT's and Anton, Lubov's estimates. Future value of depreciated capital stock-MnDOT estimates that the capital cost of the Northstar commuter rail equipment will be $277.9 million and that, after fifteen years, the depreciated value of this equipment will be $134 million. By counting this depreciated value as a benefit, MnDOT effectively only counted the difference-$143.9 million--as the cost of the commuter rail project. Anton, Lubov retained these numbers. This depreciated value is highly questionable. If MnDOT plans to shut down the commuter rail program in 2022 and thinks it can find a buyer who will pay $134 million, then it could credit this $134 million to the project. But it is more likely that MnDOT plans to continue running the rail line after 2022. In this case, any future value is purely imaginary, especially since the rail operations are expected to require continued subsidies forever. In fact, everitually all equipment will need to be replaced, at which time a huge cost would have to be added to the system. Even if this depreciated value made sense, there are some flaws in MnDOT's (or Anton, Lubov's) calculations of the value. At a 4.5 percent discount rate (the rate used by MnDOT), a capital good would have to be worth $309 million in 2022 for its present value to be $134 million. This is 111 percent of the original capital cost, suggesting that MnDOT thinks that it will appreciate, not depreciate, over the next nineteen years. Anyone who has ridden on fifteen-year-old train cars knows that they do not appreciate over time. Confusingly, Anton, Lubov's analysis refers to the $134 million as the "future value of depreciated capital stock in 2002.' The term future value means the value