SOUTHERN KENTUCKY CORRIDOR I-66 : IS IT ECONOMICALLY JUSTIFIED By Karyn Moskowitz, MBA, Economist Prepared for Kentucky Heartwood, August 2000
		Introduction Currently, the Kentucky Department of Transportation and consultants Wilbur Smith and Associates are developing proposed routes for the I-66 Corridor, a new interstate which would transect southern Kentucky from Pikeville to Paducah. Public hearings and several studies have been conducted for this project and a preferred corridor has been selected. In short, the planning process is well underway. This report focuses on the document that gave the green light for project development to proceed-the 1997 Southern Kentucky Corridor I-66 Economic Justification and Financial Feasibility Final Report, produced by the Kentucky Transportation Center. This analysis also mentions the Southern Kentucky Corridor (I-66) Planning Study-Somerset to London, released in July 2000 by Wilbur Smith and Associates and the Kentucky Department of Transportation. These reports found that construction of I-66 in Kentucky was feasible and justifiable. As the following analysis documents, however, the Feasibility and Planning Reports are based on flawed premises and outdated economic models: they fail substantially to demonstrate the need and feasibility of the highway. The Kentucky Transportation Center (the Center) had assistance from the Kentucky Department of Transportation, the University of Kentucky Colleges of Business and Engineering, and Wilbur Smith and Associates in producing the 1997 Feasibility Report. For the purposes of this analysis we will refer to the authors as the Center. Analysis One of the main premises of the Report is that the highway will save people time and money, and reduce accidents, all which translate into increased income. Another argument is that the highway will bring more high paying jobs into this economically-depressed area of the state. This, the Center claims, will translate into an increased quality of life for local people. The Center also assumes, for the purposes of this study, that I-66 nationwide is complete. Many of these arguments are based on false assumptions. In addition, the Center is both exaggerating the benefits and underestimating the costs of the proposed highway. This is because the Center is not taking into account the externalized costs of building a new interstate. Additionally, the Center employs a limited definition of peoples' values and quality of life. A more detailed analysis follows. * Myth: The proposed highway will save people time. * Reality: The proposed highway may not save any time. The Center assumes the new highway will provide easier access to services and provide a time savings for local people. This is a false assumption. The proposed highway is a restricted use highway. Not all communities will have on and off ramps leading to and from the highway. In fact, some people will experience more limited access because they will have to go around the highway to get to their services. The Center also posits that the new highway will lead to less stopping and increased time savings. However, the Center also proposes building toll booths to generate revenue to pay off the bonds needed to finance the project. Toll booths will obviously stop drivers and reduce time savings. Finally, as the Center admits, the state is severely challenged to maintain and preserve its existing transportation infrastructure. Money that would have been spent maintaining existing roads will be allocated to the new road, leaving many older roads without much-needed maintenance. This will ultimately slow people down. Bad secondary roads in southern rural Kentucky often prevent children from getting to school in winter weather, which translates into lost time during make-up days in summer. People who do not own cars, or people who own cars but do not or cannot go highway speeds, such as the elderly, will clearly not accrue any benefits in time savings from I-66. By placing an emphasis on physical access to service, the Center is also ignoring the role of telecommuters, who do not leave their homes to work, and the influence of the world wide web, or internet, where some people now choose to do their shopping. * Myth: The proposed highway will save people money. * Reality: The proposed highway has a high price tag and a short lifetime. The proposed highway will cost taxpayers billions of dollars, but it has a life expectancy of only 50 years. The public has questioned the justification of spending billions of dollars on a new highway when many roads and bridges in Kentucky need repair. The Department of Transportation responds that if the money earmarked for I-66 is not used for the new highway, the money will be returned to the U.S. Treasury and not benefit the people of Kentucky. This is not true. The truth is that money earmarked for new construction actually decreases the amount Kentuckians get from the Federal Treasury's General Fund. This has a negative impact on needed maintenance on existing infrastructure. Returning money back to the United States Treasury would increase the likelihood that funds for more general maintenance would be provided to fix existing roads. In the financial sections of the document, the Center underestimates the benefits as well as the costs of the proposed highway. For example, a portion of the highway will have to be built through the Daniel Boone National Forest, an area known for its abundant natural forests, rare species, recreational opportunities, and caves of national significance. The study presents no cost estimates associated with the deforestation necessary to build through the Daniel Boone. Also missing are calculations of the risks associated with building atop a cave and karst topography, and the probable contamination of drinking water from asphalt, runoff from oil and gas, etc. Other costs that have been ignored include but are not limited to a decrease in the quality of air and increase in noise pollution from the increase in the amount of traffic. The loss of recreational greenspace is likewise not factored into the cost analysis. The Center assumes that the new economic growth that occurs along I-66 will save people money. However, an abundance of evidence suggests that the opposite effect may result. New chain stores that are often attracted to this type of development practice cannibalistic and monopolistic styles of business. Many will move into an area and underprice local businesses with the clear intent of putting them out of business. Soon after, stores will raise prices and perhaps even vacate the area, leaving locals very little choice and selection (see for example, Hamberg, Laura, "Locked up in Chains: Mega-stores are Allowing Americans to Pay Less and Get More. And it's Costing Us Dearly," San Francisco Chronicle, December 12, 1999). For example, a recent study of WalMarts in nine counties in Iowa found that 84 percent of their business came from pre-existing local shops. Jobs and revenues were transferred rather than created. Moreover, high value jobs were replaced by minimum wage jobs (The Main Street Center National Trust for Historic Preservation: (202) 588-6000, www.mainst.org). * Myth: The new highway will bring jobs and income to a depressed economy. * Truth: The new highway is no guarantee of new jobs or increased income. The Center found that counties receiving the new highway were significantly more likely to attract new manufacturing industries such as transportation equipment and plastic/wood products. In fact, the Center uses this finding as one of the main justifications for developing the new highway. There are many problems with this finding. The Center's main role as an agency is to develop sound transportation policy. They are not experts in economic development, and may not understand the irreversible long-term consequences associated with unsound development. Citizens may be better served if economic development strategies were left to the actual residents of the counties affected by the highway. Manufacturing plants are more dependent on the global labor market than new highway access. Many plants in Kentucky, like the ones that already exist along Highway 80, are shutting down, laying off workers, and moving to Mexico and Central America to take advantage of lower labor costs. In the past ten years, the Fruit of the Loom plant in Russell County laid off 2100 workers. The Fruit of the Loom plant in Taylor County recently closed and 3300 jobs were lost; the plant in Franklin County laid off 280 people earlier this year. In 1999 alone, nearly 2200 jobs were lost due to manufacturing plants closing in Kentucky. Attracting unstable and declining industries to the area may not be a model for sustainable economic development. Manufacturing, especially heavy manufacturing, has been declining in importance. Since 1969 the share of U.S. jobs and income provided by manufacturing has dropped 30 to 40 percent. Those communities that rely on manufacturers have to be concerned about their long-term reliability as sources of income, given the declining role of manufacturing in the overall economy, the instability associated with international competition, and the trend of manufacturers shifting locations in the pursuit of lower costs. The wood products industry is one example of an industry that has seen a recent pattern of downsizing. Service jobs, however, are increasing, and provide longer job tenure. Economic diversification of locally-oriented businesses provide a much more sustainable model of economic development than a focus on unstable, dying industries (see for example, Power, Thomas Michael. 1996. Lost Landscapes and Failed Economies, The Search for a Value of Place. Washington DC : Island Press, p. 145). The more self-sufficient or dependent on locally-oriented economic activities an economy is, as opposed to export-oriented activities like out-of-state owned manufacturing plants, retail outlets, and extractive industries like wood products or mining-the longer injected income circulates within the community and the larger the overall "multiplier" impact. These type of economies leak fewer dollars and therefore generate more jobs and income. Statistics show that the area already relies on services over manufacturing. Employment in two counties in the study area for the London to Somerset priority link derive from service industries like health care and retirees who depend on these services. Services is the number one source of wage income in Pulaski County, accounting for 26 percent of earnings, while manufacturing accounts for 23 percent, and retail trade accounts for 15 percent. Health services account for 55 percent of service income. Retirees account for 26 percent of total personal income, which includes wage and nonwage income. In Pulaski County, manufacturing ranks third behind services and retail trade in providing employment to area residents. This is in contrast to the 1992 statistics presented by the Center, which ranks manufacturing as the second largest employer in the county, and totally ignores the role of retirees in the local economy (Bureau of Economic Analysis, REIS data, 1997). In Laurel County, retirees account for 19.4 percent of total personal income, Services account for 21 percent, while manufacturing and retail trade account for 20 and 19 percent, respectively, of wage income. Health services account for 33 percent of total services. Retail trade is the number one source of employment in the county, followed by services and manufacturing. Retirees are more likely to care about local services and natural amenities and less likely to care about driving faster on new highways and new manufacturing plants. Finally, much of the new economic activity that the Center is hypothesizing will be attracted to the new highway may not be new at all. Much of it may actually be drawn from corridors that already exist, such as I-70, I-64, I-40, and possibly I-68, which runs parallel to I-64 and I-70 and is already underused. Therefore, the new highway may only drain other established areas, leaving those communities with the burden of abandoned real estate and lost jobs. In 1990, Ralph Widner, the first Executive Director of the Appalachian Regional Commission, found that counties which experienced job growth from new highways were primarily those near urban centers. Outlying rural areas typically see little or no economic growth result from new highways; they only redistribute jobs from downtowns to interchanges (Appalachian Regional Commission, 1990, Appalachian Development after 25 Years). According to the National Center for Small Communities, most new jobs created in the United States are not being spurred by attracting new business to an area with a newly developed infrastructure. They found that 55 percent of new jobs arise from expansions of existing businesses. Another 44 percent are generated by start-up companies. That leaves only about one percent of the jobs to come from the business relocations trumpeted by highway advocates (Buckeye Forest Council Newsletter, Winter, 1999). The Center also assumes that the new interstate could be beneficial to the economy by increasing each county's tax base. This is not always the case. Many large manufacturing plants around the country, especially in the wood products industry, are given enormous tax abatements by local and state agencies. These plants ultimately become more of a tax burden than a tax benefit (see for example, Bailey, Conner, et al. 1996. Rural Development and Timber Dependency in Alabama's Black Belt, Paper presented at the Rural Sociological Society, Des Moines, Iowa, August 1996). The Center has admitted that communities will have to plan for additional infrastructure and community services needs. While the Center suggests that this work will require additional planning with local and state agencies, it fails to detail in a concrete fashion how this work will be accomplished, including how it will be funded. These are significant costs that are not included in the financial analysis. * Myth: The proposed highway will improve the area's quality of life. * Truth: The proposed highway will risk the rural character of this part of Kentucky. The Center assumes that all of the population will value shorter commuting times on highways above other amenities like rural character, regionalism, undeveloped green space, local businesses and low noise pollution. However, the Center did not even attempt to name these nonmarket values or put a value on any activity other than driving. Ecological economists have worked to capture and quantify peoples' quality of life for many years. Most of them agree that quality of life is a very broad issue, which encompasses natural amenities that have market values-like recreation, clean air, and clean water-and so-called nonmarket values, like undeveloped green space, access to intact natural forests on public lands, self reliance, affordability, local businesses, a sense of community, maintained rural roads, lack of crime, a choice of retail outlets, etc. These amenities may be more difficult to quantify. Some economists have determined that a region's natural amenities are the actual economic base of that area (See Power, Thomas Michael, 1996). This replaces the older, outdated economic model that points to one primary industry, such as manufacturing, and assumes that this industry is the base from which all other industries depend for their survival. In reality, the country's economic base is highly diversified, and becoming more and more so. Today, many different types of service businesses such as health, engineering, retail and wholesale trade, recreation, government, finance, real estate and insurance provide income and a diverse economic base for many rural and urban communities. Since a beautiful natural environment often attracts or holds this income, it is considered a major part of the local economic base. Some examples include small businesses, "lone eagle" telecommuters, retirees, and travelers who come to a place because of its scenic beauty. In fact, results from surveys on business location criteria indicate that scenic amenities, quality of life, and access to recreation are some of the most important reasons, relative to other more traditional economic criteria, for businesses to locate and stay in a rural region (see, for example, Jerry D. Johnson & Raymond Rasker. 1995. The Role of Economic and Quality of Life Values in Rural Business Location. 11 J. Rural Studies 405,406. 412-414). Amenity factors have been deemed particularly important in the location decisions of four types of companies: corporate headquarters, high-technology, research and development, and services. Quality of life also depends on adequate secondary roads, which people rely on for basic services. As I-66 monopolizes available road funds, secondary roads will fall into further disrepair. When rural school children cannot get to school in the winter and miss the hot meals they depend on, quality of life is not enhanced. * Myth: The area needs the proposed highway to attract more people. * Truth: The area is already experiencing a rise in population growth. The state's population increased by 1% between 1980 and 1990. The populations of Pulaski and Laurel Counties, both within the area of the preferred priority route for the highway, have increased by 8 and 11 percent, respectively, over the same time period. In other words, this area's population is on the rise, regardless of I-66. In fact, people may decide to leave the area in search of quieter, more rural areas if this highway is allowed to be built (Forest Service, Environmental Assessment For the Special Habitat Needs and Silviculture Amendment for the Daniel Boone National Forest, May 2000; pp. 69-70). * Myth: I-66 is complete nationwide. * Truth: At this time, I-66 is a proposed interstate highway, and is not close to being complete. The Interstate 66 Feasibility Study implemented by the 1991 Intermodal Surface Transportation Efficiency Act (ISTEA) concluded that a new transportation corridor from the West Coast to East Coast was not economically feasible because the highway construction costs were greater than the travel benefits. However, the Center assumed, for the purposes of the 1997 Feasibility Report that the national I-66 route is complete across the nation. This is not true. This false assumption has again skewed the analysis. What about the Daniel Boone National Forest? If allowed to proceed, the highway will blaze a 390 acre swath through one of Kentucky's most treasured resources, the Daniel Boone National Forest. The Daniel Boone National Forest is one of the most heavily used forests in the South, with over 5 million visitors annually. People visit the Daniel Boone to backpack, camp, picnic, rock climb, boat, hunt, fish, ride and relax. This translates into millions of dollars in benefits to local area businesses, as well as spiritual and other nonmarket values to the people who enjoy their time there. The Center, with the help of the federal natural resource agencies, has identified at least two threatened and endangered and one potentially threatened and endangered species in the preferred alternate corridor. They have decided these species are somehow less important than species existing in the southern alternate corridors. The agencies have also decided that since the northern portion of the forest is already riddled with the effects of heavy resource extraction, that it would not be missed as much as the southern portion of the forest. These decisions have not been based on any quantitative economic data. The Center should do a thorough willingness to pay or other similar analysis before they proceed. Visitors to the Daniel Boone also spend time collecting mushrooms and medicinal plants, both for sale and subsistence. The Center has not analyzed the costs of lost recreation visitor days or commerce from these activities. Nor have they accounted for the ecosystem service values produced by the national forest (such as water filtration, flood control, pest control, and pollination services) that may be lost when the forest is cleared for the road. And while they have qualitatively discussed stream crossings, wetland sites, Wild River crossings and archaeology sites, any true quantitative analysis is missing from the report. Examples of this would be willingness to pay studies, contingent valuation, and other types of economic analyses. While recreation opportunities near roads are common, especially on private lands, the Daniel Boone and other national forests are alone in providing recreation in unroaded areas. The Forest Service has determined that on an individual basis, primitive recreation is three times more valuable than roaded natural recreation. In other words, highways are plentiful in this country, whereas rural areas are becoming more and more scarce. The Center has not taken this scarcity into account in their analysis. Financial Feasibility The Center has proposed a variety of financing options to help cover the costs of the bonds they will have to pay over the next 30 years. These options include taking tax revenue from a theorized increase in property taxes, creating a special fuel tax, transferring coal severance taxes out of the General Fund into the Road Fund, and shifting funding of the State Police out of the Road Fund and into the General Fund in order to free up more road funds. These strategies are unrealistic and pose numerous problems. Targeting property owners to pay for a highway they may never use is unfair and unlikely to occur. Relying on severance taxes from a dying and unsustainable industry, coal mining, is unrealistic. The political process has never been friendly to a rise in gas tax. And the transfer of the State Police into the General Fund will mean less in that fund to pay for other services for the people of Kentucky. In short, the 1997 study fails to provide reasonable rationale that building I-66 in Kentucky is financially feasible. A 1998 study by Wilbur Smith and Associates reports that the Appalachian Regional Corridor system is a money loser. Only four of the eleven corridors built since the system was designed by the government in 1966 have broken even as investments. The other seven Appalachian Corridors have shown a benefit/cost ratio below 1.0. Moreover, in the 2000 Planning Study the Department of Transportation admits that as of July 2000 only $25 million of the proposed $950 million price tag has been contributed to this project. There is also a vague reference that a yearly funding structure could "possibly" be made part of a budget plan and amortized over time. No concrete analysis of how officials will meet these financial goals is provided. In sum, the Center has failed to demonstrate that I-66 in Kentucky is financially feasible. Conclusion The Center wants to build I-66 to help develop the "underutilized natural resources" in Kentucky. However, natural resources do not have to be mined, bulldozed, developed, or extracted to bring in wealth. In fact, these natural resources often form the base for a healthy, thriving economy. Highways and extractive industries like manufacturing do not guarantee high pay or stability to Kentuckians. This state, like many others in Appalachia, has learned this from a history of watching boom and bust cycles come and go, along with promises of jobs and income. Boom and bust cycles have never led poor, rural Kentuckians out of poverty, and it probably never will. If this tactic were successful, many Kentuckians wouldn't be poor today. The 1997 feasibility study and subsequent reports fail to justify the need or feasibility of I-66 in Kentucky. The failure of consultants to use up-to-date economic models, holistic community values, and accurate statistics in determining whether I-66 is in the best interests of Kentuckians should trigger the firing of Wilbur Smith and Associates. All further planning work for I-66 should be suspended until the Department of Transportation can responsibly use tax dollars by first demonstrating that I-66 is financially feasible and economically justifiable.
		About the Authors Karyn Moskowitz is an economist based in Paoli Indiana. Karyn regularly consults with grassroots nonprofit organizations on natural resource and other economic issues. Kentucky Heartwood is a nonprofit organization committed to protecting public lands in the state of Kentucky. For more information about Kentucky Heartwood, please contact their website http://www.kyheartwood.com Or 660 Mt. Vernon Ridge, Frankfort, KY 40601 (606) 768-3805
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