6913G624Q300015 SOW.pdf

Request for Quotation (RFQ) No. 6913G624Q300015 V3212042

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 of the Federal Highway Administration (FHWA) Office of Economic Investment Strategies (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-Hwy, 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.

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 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

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 and

3.5. Changes in amounts 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; and

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

5. 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.

6. The model must use the most current data available to characterize the US economy as of 2022, including the newly released 2017 detailed input-output tables from the Bureau of Economic Analysis and the most recent version of the Transportation Satellite Accounts.

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)

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 versus 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 are 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 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 reduced maintenance costs. The Volpe Center will provide an estimate of changes in expenditures on highway maintenance.

• 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.

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 work; the contractor may complete this work through regular videoconference meetings with the Volpe Center without meeting in person.

This SOW also includes “option line items” (Task 4, Task 5, Task 6, and Task 7).

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 Project Management (CLIN 00100, funded; CLINs 01100 & 01200, options)

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 via videoconference, 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 the schedule and deliverables for the model improvements. The work plan will be updated as needed while the project progresses.

In addition, the contractor will provide ongoing progress reporting.

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

Task 2 Update macroeconomic model to 2022 (CLIN 00200, funded)

The contractor, with input from the Volpe Center, shall determine the best way to modify its model to meet the requirements listed above, including updating the data underlying the model to the most recent available to represent U.S. economy as of 2022. 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. The memo shall contain information, examples, sensitivity analysis or case studies demonstrating how the model meets the requirements listed above. 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: technical memo describing the updated version of the macro model.

Task 3 Conduct Analysis using Updated Model for 2022 (CLIN 00300, funded)

The contractor shall conduct a series of model runs that incorporate all refinements developed under previous model modification tasks. The policy runs (approximately three in number) will be discussed relative to a baseline run representing conditions in 2022. 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 model 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.

Task 4 Modify Model to Represent Distributional Impacts (CLIN 00400, option)

The contractor will modify the model to represent economic impacts for households and workers by race, ethnicity, gender, income levels, and or skill levels to evaluate distributional impacts from alternative highway investment policies. An example of such analysis is “What impact do climate change polices have on Nordic economies, industries, and households,” which analyzes the impact of various polices by household income decile.3

The differing impacts might be related to differential impacts from investment policies on certain occupations.4 The differing impacts might also be related to which commodities different households

3 https://www.diva-portal.org/smash/get/diva2:1800427/FULLTEXT01.pdf 4 See for instance, CoPS Working Paper G-329 “Creating USAGE-OCC: A CGE Model of the U.S. With A Disaggregated Occupational Dimension” (May 2022) at https://www.copsmodels.com/elecpapr/g-329.htm https://www.copsmodels.com/elecpapr/g-329.htm consume. Those consumption patterns are depicted in the US Census Bureau’s Consumer Expenditure Surveys.

The contractor shall provide: technical memo describing the modified version of the macro model.

Task 5 Conduct Analysis using Modified Model (CLIN 00500, option)

The contractor shall conduct a series of model runs that incorporate all refinements developed under previous model modification tasks (Task , Task 4 if exercised). The policy runs (approximately three in number) will be discussed relative to a baseline run representing conditions. 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; (d) industry-level model results, and (e) a thorough discussion of the differential impacts across different groups:

race, ethnicity, gender, income level, and/or skill level. Item (e) is only required if Task 4 (CLIN 00400) is exercised.

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 model 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.

Task 6. Additional Model Runs (CLINs 00600 – 00900, options)

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 analysis delivered under Task 3 or Task 5. For Task 6, each scenario will relate to one model run compared to a baseline model run.

The Volpe Center will provide: specifics of scenario(s) to be modeled and associated HERS model data.

The contractor shall provide: short memo describing specification and results on an additional scenario.

Task 7. Present at Seminar on Input-Output Tables (CLINS 01000, option)

The contractor will provide a 2 hour presentation on topics related to input-output tables. The contractor will provide the presentation via a video conference such as Zoom or Teams. The content of the presentation will be derived from questions posed by attendees in advance of the seminar.

Attendees will include Volpe staff, FHWA staff, and staff from other agencies within the U.S. Department of Transportation.

The Volpe Center will provide: questions from attendees

The contractor will provide: presentation at a seminar schedule for a date and time that is mutually agreed to by Volpe and the contractor, attendance at premeeting with Volpe to discuss content, and attendance at dry run meeting to test technology.

SOW Deliverables and Timeline

The timeline for deliverables is provided in the table below. All work under this project, including funded CLINs and any options that are funded, will conclude by May 5, 2026. All reports and document deliverables shall be provided in Microsoft Word format (documentation) and Microsoft Excel (data) format and shall be submitted to the Volpe Center Technical Point of Contact via email.

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

CLIN Task Deliverable Due Date 00100 (funded) 1 Kick-off meeting Within 2 weeks of award

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

1 Work plan Within 2 weeks of kick-off meeting

1 Progress reporting Monthly through 12/31/2024

00200 2 Technical memo describing model refinements

Within 3 months of award

2 Meeting to discuss model updates

Within 1 week of providing Task 2 memo

00300 3 Draft report and summary output files

Within 6 weeks of receiving specification of Task 3 scenarios from Volpe or finishing Task 2 , whichever is later

3 Meeting to discuss model results

Within 1 week of providing draft Task 3 report

3 Final report Within 2 weeks of receiving comments on draft from Volpe

(NLT 12/31/2024)

Table 2. Option line items under Task 4, Task 5, Task 6, and Task 7

CLIN Task Deliverable Due Date 00400 (option) 4 Technical memo describing model refinements

Within 8 weeks of exercising option

4 Meeting to discuss model updates

Within 1 week of providing Task 4 memo (NLT 12/31/2025)

00500 (option) 5 Draft report and input and summary files

Within 6 weeks of receiving specification of scenarios from Volpe

5 Meeting to discuss model results

Within 1 week of providing draft Task 5 report

5 Final report Within 2 weeks of receiving comments on draft from Volpe

CLIN Task Deliverable Due Date 00600 (option) 6 Specification of additional scenario and report on results of additional scenario

Within 2 weeks of option exercise

00700 (option) 6 Specification of additional scenario and report on results of additional scenario

Within 2 weeks of option exercise

00800 (option) 6 Specification of additional scenario and report on results of additional scenario

Within 2 weeks of option exercise

00900 (option) 6 Specification of additional scenario and report on results of additional scenario

Within 2 weeks of option exercise

01000 (option) 7 Attendance at virtual premeeting

TBD (NLT 5/5/2026)

7 Attendance at virtual dry run

TBD (NLT 5/5/2026)

7 Attendance at virtual presentation and seminar

TBD (NLT 5/5/2026)

01100 (option) 1 Progress reporting Monthly, 1/1/2025 through 12/31/2025

01200 (option) 1 Progress reporting Monthly, 1/1/2026 through 5/5/2026