6913G621Q300036 SOW.pdf

Request for Quotation (RFQ) No. 6913G621Q300036 Procurement Request No. V3212017

U.S. Department of Transportation

Volpe National Transportation Center (Volpe Center) Macroeconomic Impacts of Highway Investment

STATEMENT OF WORK (SOW)

Background The transportation system is facing new challenges to deliver and implement passenger and freight system improvements that meet the needs of accessibility, economic sustainability, air quality, livability and state of good repair. Transportation system enhancements are a means of maintaining or improving economic opportunities, output and productivity, and ultimately quality of life. There is a need to develop tools for understanding the economic impacts of alternative levels of transportation investments on the whole national economy. In support the Federal Highway Administration (FHWA) Office of Transportation Policy Studies (HPTS), the Volpe Center seeks the services of a contractor to perform macroeconomic modeling using its own model capable of analyzing the macroeconomic impacts from highway investments in the U.S.

Previous analyses conducted for these purposes have used USAGE-HwyF, a computable general equilibrium (CGE) model of the United States that has been modified to give distinct representation of transportation-related industries.1 The topics of the previous analyses include comparisons of the macroeconomic impacts from:

• Differing levels of highway capital spending as discussed in FHWA’s Conditions and Performance reports relating to 1) sustaining current spending; 2) maintaining current system performance;

and 3) investing in all cost beneficial projects.

• Different funding methods: 1) bonds backed by increases in the gas tax; and 2) pay-as-you-go funding derived from an increase in the gas tax.

• Highway investment occurring during normal economic conditions v. recession conditions.

The Highway Economic Requirements System (HERS) model is used to estimate changes to highway system performance when provided with certain highway investment spending targets. The impacts from additional highway investment are provided in terms of: vehicle operating costs, travel times, maintenance costs, safety in terms of medical costs and fatalities, and fuel use.

This round of analysis will address policy questions of immediate interest to FHWA leadership, including identifying impacts separately for rural and urban areas, and the long-term impacts from highway investment at different stages of an economic downturn and recovery related to the COVID-19 public health emergency.

1 Dixon, P. B., Rimmer, M. T., & Waschik, R. (2017). Linking CGE and specialist models: Deriving the implications of highway policy using USAGE-Hwy. Economic Modelling, 66, 1–18. https://doi.org/10.1016/j.econmod.2017.04.022

Requirements The following are requirements of the model used for this analysis.

1. The model must be founded upon core economic principles related to general equilibrium modeling:

1.1. Price and quantity demanded should be determined endogenously through market clearing forces that involve pricing to match supply and demand;

1.2. Multiple economic agents which seek to optimize their utility or profits should be represented in the markets; and

1.3. The interactions between economic agents should generally be mediated through markets and prices.

2. The model must use an analysis period of at least 30 years.

3. The model used in the analysis must be able to realistically characterize macroeconomic impacts resulting from:

3.1. Tax increases (impacts from changes in gas tax rates or introduction of VMT taxes);

3.2. Changes in spending on highway and bridge construction;

3.3. Changes in productivity for in-house and for-hire trucking sectors and business travel from changes in highway system performance in terms of vehicle operating costs (including fuel) and travel time;

3.4. Changes to consumer welfare due to changes in highway system performance resulting from travel time savings, changes in vehicle operating costs (including fuel) and safety enhancements that reduce medical costs and fatalities;2

3.5. Changes in amount of government borrowing.

4. The model used in the analysis must characterize the macroeconomic impacts in terms of:

4.1. Output/Gross Domestic Product (GDP);

4.2. Output at the individual industry level;

4.3. Productivity;

4.4. Employment levels;

4.5. Wages;

4.6. Welfare that includes non-medical related consumption, changes in travel time, and changes in fatalities valued according to USDOT guidance on value of statistical life;

4.7. Cost of borrowing for various financial instruments including government bonds;

2 One possible approach is that used by the USAGE-HwyF model, which includes as an industry “private road transportation” which is modelled as using inputs of cars, household car repairs, and fuel. Its output is sold to the “Vacation transport” and “Commuter transport” industries. These sales are accompanied by an artificial sales tax that covers the cost of driver time. See Peter B. Dixon, Maureen T. Rimmer, Robert Waschik, Linking CGE and specialist models: Deriving the implications of highway policy using USAGE-Hwy, Economic Modelling, Volume 66, 2017, Pages 1-18, ISSN 0264-9993, https://doi.org/10.1016/j.econmod.2017.04.022.

(https://www.sciencedirect.com/science/article/pii/S0264999317305965)

5. The model used in the analysis must be able to estimate the above economy-wide impacts from highway investment at different stages of an economic downturn and recovery related to the COVID-19 public health emergency.

6. The model must use the most current data available to characterize the US economy, including the most recent version of the Transportation Satellite Accounts produced by the Bureau of Transportation Statistics. See https://explore.dot.gov/views/TSA_All/TSA_Main?:iid=1&:isGuestRedirectFromVizportal=y&:embed =y

7. The model used in the analysis must be able to incorporate highway spending that is focused on rural highways or urban highways and highway performance metrics that differ by urban or rural highways.

8. The model must accurately capture cross-elasticities of demand between transportation modes:

highway, air, water, and rail. Each of these industries must be represented separately in the model.

The in-house components of each of these industries must also be represented.

The research products that will be produced using the model meeting the above requirements are described below.

Government Furnished Information (GFI)

HERS Model Outputs

The Volpe Center will provide the contractor with a spreadsheet of HERS model outputs for all analytical scenarios relative to this analysis. The information from HERS will be presented for each year for 30 years. In order to incorporate distinctions between rural and urban highways, Volpe will provide scenarios that specify the spending on rural v. urban highways and the impacts on the highway performance indicators. The contractor will determine the best way to incorporate those distinctions in its model to measure macroeconomic impacts separately.

Key HERS output categories and the methods HERS uses to monetize the corresponding impacts are described below. Note that HERS covers just 85 percent of vehicle-miles travelled in the United States, so the HERS outputs must be adjusted to national level accordingly before being included in the macroeconomic model:

• Travel time cost savings are monetized using estimates of the values of time which is based on prevailing wage rates and time costs for goods being held in inventory on trucks. The Volpe Center will provide travel time benefits measured in person-hours and dollars. After receiving the HERS model results, the Volpe Center will factor these time savings benefits to show how these benefits are divided between passenger vehicles and trucks and urban and rural system performance.

• Vehicle Operating Costs Savings represent the changes in fuel use and other variable costs that would result from improving the conditions of the highway for existing users. The Volpe Center https://explore.dot.gov/views/TSA_All/TSA_Main?:iid=1&:isGuestRedirectFromVizportal=y&:embed=y https://explore.dot.gov/views/TSA_All/TSA_Main?:iid=1&:isGuestRedirectFromVizportal=y&:embed=y will provide estimates of the fuel savings measured in gallons, along with assumed values for fuel prices and taxes, and estimates of monetized impacts on total vehicle operating costs.

These costs are estimated using engineering relationships between pavement condition and geometry and vehicle operating costs. This category of benefits will be factored to show how these benefits are divided between passenger vehicles and trucks and urban and rural system

• Incremental travel expenditures represent expenditures for fuel and auto service for VMT above baseline levels (or reductions in expenditures for VMT below baseline levels). The Volpe Center will provide estimates of vehicle operating costs for incremental travel, along with incremental fuel use in gallons. This category of benefits will be factored to show how these benefits are divided between passenger vehicles and trucks and urban and rural system

• Safety cost savings is the value of injuries and fatalities avoided from projects that improve safety. This value is based on estimated willingness to pay (WTP) to avoid injuries and fatalities that in turn is based on DOT value of statistical life. This WTP includes avoided medical costs and property damage costs and lost wages from lost working time due to injuries. The Volpe Center will provide an estimate of changes in fatalities and total safety-related costs.

• Highway maintenance costs savings are savings to the agencies responsible for maintaining highways. Rebuilt highways experience reduce maintenance costs. The Volpe Center will provide an estimate of changes in expenditures on highway maintenance; this value is generally small.

• Emissions reductions. Reducing fuel burned also reduces emissions. The benefits of emissions reductions are estimated by willingness to pay to avoid respiratory illness associated with air quality problems resulting from vehicle emissions. The Volpe Center will provide estimates of the monetized impact of vehicle emissions.

Literature Review Findings

In order to incorporate recent research on the elasticities between different transportation modes, Volpe will provide the findings of a literature review on the topic to the Contractor. The Contractor will modify its macroeconomic model to include an updated understanding of the elasticities between different freight modes for domestic freight movements.

Tasks The contractor shall: (1) develop or expand its current macroeconomic model to meet the requirements listed above; and (2) conduct and report on new model simulations addressing high-priority research questions to be identified by the Volpe Center, with a focus on examining the impacts of high-priority highway investment scenarios involving factors such as alternative investment timing and investment levels.

The contractor shall: (a) review the output from HERS (to be provided by Volpe as GFI) and identify any concerns regarding anomalous data to the Volpe Center; (b) incorporate the model refinements to meet the requirements listed above; (c) run sets of scenarios using the refined model based on the finalized set of output from HERS; (d) provide a summary of the model input files and model summary output files; and (e) provide a written report describing important features of how the scenarios were modeled, including the effects of the model refinements and industry level impacts. The written report shall contain analysis and explanation suitable to be included in a policy briefing for a non-technical audience, but with sufficient technical detail to persuade the reader of credibility of the methodology and results.

There is no travel required for this project; the contractor may complete all required meetings through regular virtual meetings (Adobe Connect, Zoom, Teams, etc.) without meeting in person.

This SOW also includes “option line items” to perform

1. Additional policy analyses (up to three (3)) under the process described in Task 3 (option CLINs 00400, 00500, 00600) and

2. Additional model runs (up to eight (8)) as described in Task 4 (option CLINs 00700, 00800, 00900, 01000, 01100, 01200, 01300, 01400).

The following tasks are designed to structure a series of communications between the Volpe Center and the contractor to ensure that the final work product meets the Government’s needs. The contractor shall communicate as often as necessary with the Volpe Center to obtain the information needed to complete the project.

The deliverables shall include detailed outputs from the model, including all items listed in item #4 of the model requirements. Results for individual industries of interest shall also be provided, analyzed and discussed by the contractor in the policy briefing(s). Additionally, the technical report shall document assumptions for policy shocks, such as levels and timing of highway investment, and its socioeconomic impacts over time.

Task 1. Kick-off Meeting (CLIN 00100)

Within two weeks of award, the contractor shall participate in a kickoff meeting with the Volpe Center and its FHWA sponsor. The meeting, to be held virtually, will focus on discussion of the specifics of the model and any necessary refinements. During this meeting, the contractor shall present its initial plan for how it will complete the model refinements and new model runs.

Within two weeks of the meeting, the contractor shall provide a summary work plan laying out schedule and deliverables for the model improvements.

The Volpe Center will provide: meeting notes.

The contractor shall provide: presentation of initial plans on how to complete the model refinements and summary work plan.

Task 2. Develop modifications to macroeconomic model (CLIN 00200)

The contractor, with input from the Volpe Center, shall determine the best way to modify its model to meet the requirements listed above. The contractor shall implement the modifications and produce a technical memo describing the revised model, including the original model features, data, relationships, assumptions, etc. and the model refinements implemented under this Task 2. The memo shall contain information, examples, sensitivity analysis or case studies demonstrating how the model meets the requirements listed above and discusses the model’s sensitivity to each of the model features. The memo shall document the impacts of the model updates in output variables, compared with the original model.

Within two weeks of delivery of the technical memo, the contractor shall participate in a meeting with the Volpe Center and its FHWA sponsor to discuss the contents of the technical memo. The meeting will be held via teleconference.

The contractor shall provide: data and other info needed to modify the model, technical memo describing the updated version of the macro model.

Task 3. Conduct Central Analysis using Updated Model (CLIN 00300)

The contractor shall conduct a series of model runs that incorporate all refinements developed under Task 2. The policy runs (approximately three in number) will be discussed relative to a baseline run. The results shall relate to a single policy issue and shall be discussed collectively in a single report. The report will include: (a) a summary of the model inputs, including HERS model outputs; (b) a discussion of key assumptions used to model the baseline economic conditions, including unemployment rate, interest rates, etc.; (c) a thorough discussion of the model results including intuitive explanations for those results; and (d) industry-level model results.

The new model runs will incorporate parameters (i.e., HERS model outputs) from HERS runs. The Volpe Center will provide the contractor with the relevant HERS model outputs for each scenario.

The contractor shall communicate regularly with the Volpe Center to ensure that the baseline assumptions in the macroeconomic runs are consistent with the HERS baseline scenarios for all model runs. The paramount areas to ensure consistency include levels of highway investment and productivity growth associated with road transportation activity. If consistency cannot be achieved, the reasons for the lack of consistency should be discussed in the report described below.

For the model runs under this task, the default specification of macroeconomic should be conducted under an assumption of no sensitivity of labor supply to travel time savings.

In addition to the report, the contractor shall provide a summary file of key model outputs (e.g., effects on GDP, productivity, employment, wages, consumption, tax revenues, and net government debt over time) by year in Microsoft Excel for Volpe and FHWA use (e.g., preparation of outreach materials, subsequent economic analysis).

Within two weeks of delivery of the draft report, the contractor shall participate in a video conference with the Volpe Center and its FHWA sponsor to discuss the report. The contractor shall update the report based on feedback from the Volpe Center.

The Volpe Center will provide: list of primary impacts to include in the report, HERS model data describing scenarios for runs, and feedback on the draft report.

The contractor shall provide: presentation of model results during project meeting, draft and final reports, and model output results by year in a Microsoft Excel file.

Schedule: All Task 3 work shall be completed NLT May 3, 2022.

Note: Option line items 00400, 00500, and 00600, if exercised, require the same tasks and deliverables as Task 3 but for different policy issues. Specific scenario information for the optional analyses under CLINs 00400, 00500, and 00600 will be provided at the time of option funding.

Task 4. Additional Optional Model Runs (CLINs 00700 – 01400)

If exercised, these option line items require the contractor to perform additional model runs either relating to new policy scenarios to be modeled and analyzed or to variations in scenarios related to previously explored policy scenarios. For each of these option line items for modeling runs that are exercised, the Volpe Center will provide the specifics of the additional scenario to be modeled and the contractor shall perform the modeling and provide a short memo describing how the scenario was modeled, the results of the analysis, explanations of those results and industry level impacts. The short memo describing the specification and results of each model run must be suitable for being inserted into the larger report describing the relevant “central analysis” described under Task 3. For Task 4, each scenario will relate to one model run compared to a baseline model run.

Note: Option line items 00700, 00800, 00900, 01000, 01100, 01200, 01300, and 01400, if exercised, will each see specific scenario information for the optional analyses at the time of option funding. The Volpe Center will provide: specifics of scenario(s) to be modeled and associated HERS model data.

The contractor shall provide the following under each optional analysis 00700, 00800, 00900, 01000, 01100, 01200, 01300, and 01400:

• Short memo describing the additional specification and

• Results on the additional scenario.

SOW Deliverables and Timeline

The timeline for deliverables is provided in the table below. All work under this project will conclude by May 5, 2022. All reports and document deliverables shall be provided in Microsoft Word format (documentation) and Microsoft Excel format (data) and shall be submitted to the Volpe Center Technical Point of Contact via email (Catherine.Taylor@dot.gov).

mailto:Catherine.Taylor@dot.gov

Table 1. Funded CLINS under Task 1, Task 2, and Task 3

CLIN Task Deliverable Due Date 00100 1 Kick-off meeting

(CLIN 00100)

Within 2 weeks of award

00100 1 Initial research plan Within 2 weeks of kick-off meeting

00200 2 Technical memo describing model refinements

Within 8 weeks of kick-off meeting

00200 2 Meeting to discuss model updates

Within 2 weeks of receiving Task 2 technical memo

00300

3 Draft report and summary output files

Within 6 weeks of receiving specification of Task 3 scenarios from Volpe

3 Meeting to discuss model results

Within 2 weeks of providing draft report

3 Final report Within 2 weeks of receiving comments, NLT May 3, 2022

Table 2. Optional scenario analyses under Task 3

00400 (option)

3 Specification of Task 3 scenario(s)

To Be Determined

(TBD)

3 Draft report and input and summary files

Within 6 weeks of receiving specification of scenarios

3 Meeting to discuss model results

Within 1 week of providing draft report

3 Final report Within 2 weeks of receiving comments, NLT May 3, 2022

00500 (option)

3 Specification of Task 3 scenario(s)

TBD

3 Draft report and input and summary files

Within 6 weeks of receiving specification of scenarios

3 Meeting to discuss model results Within 1 week of providing draft report

3 Final report Within 2 weeks of receiving comments, NLT May 3, 2022

00600 (option)

3 Specification of Task 3 scenario(s)

TBD

3 Draft report and input and summary files

Within 6 weeks of receiving specification of scenarios

3 Meeting to discuss model results

Within 1 week of providing draft report

3 Final report Within 2 weeks of receiving comments, NLT May 3, 2022

Table 3. Option line items under Task 4

00700 (option) 4 Specification of additional scenario and report on results of additional scenario

Within 2 weeks of option exercise, NLT May 5, 2022

00800 (option) 4 Specification of additional scenario and report on results of additional scenario

Within 2 weeks of option exercise, NLT May 5, 2022

00900 (option) 4 Specification of additional scenario and report on results of additional scenario

Within 2 weeks of option exercise, NLT May 5, 2022

01000 (option) 4 Specification of additional scenario and report on results of additional scenario

Within 2 weeks of option exercise, NLT May 5, 2022

01100 (option) 4 Specification of additional scenario and report on results of additional scenario

Within 2 weeks of option exercise, NLT May 5, 2022

01200 (option) 4 Specification of additional scenario and report on results of additional scenario

Within 2 weeks of option exercise, NLT May 5, 2022

01300 (option) 4 Specification of additional scenario and report on results of additional scenario

Within 2 weeks of option exercise, NLT May 5, 2022

01400 (option) 4 Specification of additional scenario and report on results of additional scenario

Within 2 weeks of option exercise, NLT May 5, 2022

Acceptance Criteria To be accepted, deliverables shall be emailed to the project technical point of contact (POC), Catherine Taylor, at Catherine.Taylor@dot.gov. The deliverables will be reviewed by the Government for compliance with the SOW, timeliness, and format. The technical POC will acknowledge acceptance of each deliverable by email.

mailto:Catherine.Taylor@dot.gov