Semisequicentennial Transportation Conference Proceedings
May 1996, Iowa State University, Ames, Iowa

Road Improvements to Promote Local Economic Development: An Iowa Case Study

James Hunt

Recognizing the relationship between transportation infrastructure and economic vitality, the state of Iowa authorized the "Revitalize Iowa's Sound Economy Program" (RISE) in 1985. RISE allows cities and counties to apply for funds through the Iowa Department of Transportation (DOT) for projects that promote economic development. Between 1986 and 1993, the Iowa DOT approved 160 RISE Local Development projects. These are projects intended to improve access to sites having long-term development potential. This paper discusses findings from research conducted to evaluate the extent to which Local Development projects have achieved their expectations and to identify attributes associated with successful projects. Common themes observed in administrating the Local Development program are highlighted and strategies to minimize risk are recommended. The research suggests that given adequate project ranking criteria, small-scale roadway improvements can be used to achieve development targets (such as the number of new jobs). Program administrators must remember, however, that projects could satisfy development goals and still be economically inefficient. The study's principal beneficiaries are small- and medium-size areas considering the use of roadway investments to promote economic development.


The potential economic impacts stemming from highway investments have traditionally been central elements of evaluation frameworks used by states and localities to compare highway improvement alternatives. Until recently, however, economic considerations have been limited mainly to those quantifiable user savings resulting from highway investments, such as travel time, operating, and safety efficiencies. In contrast, the economic development implications have typically been given less attention in the evaluation process. The lack of emphasis placed on economic development is mainly due to the difficulty in projecting changes in economic development indicators such as regional employment, personal income, and business sales resulting from highway improvements.

One of the most explicit attempts to promote economic development through improved roadways is the "Revitalize Iowa's Sound Economy" (RISE) program, administered by the Iowa Department of Transportation (DOT). The RISE program, which began in 1985 largely in response to the agricultural recession confronting the Midwest at that time, is aimed at assisting businesses in expanding, relocating, or remaining in Iowa. RISE continues to be an integral part of the state's transportation program.

RISE projects are funded through one of three categories. Projects intended to provide access to sites having long-term development potential are funded through the Local Development category. This paper summarizes research conducted to assess the effectiveness of Local Development projects in promoting economic development. Specific objectives were to:

The effectiveness of Local Development projects was determined by performing an overall analysis of approved projects using available data and by conducting in-depth case studies of seven selected projects. The case studies relied upon data collected by surveying businesses and local officials familiar with and/or affected by RISE improvements. The study's principal beneficiaries are small- and medium-size areas considering the use of highway investments to promote local economic development.

METHODOLOGY

An overall assessment of the RISE Local Development program was achieved by performing a desk audit of the 160 projects funded between 1986 and 1993. RISE summary sheets maintained by the Iowa DOT were reviewed to depict characteristics of the "typical" project and to obtain a sense of the program success rate. This broad program review was complimented with detailed investigations of seven previously funded projects. These seven projects were selected for case study analysis because they were representative of the variety of Local Development projects funded. Three sources of information used to analyze the case study projects were (1) interviews with local government officials familiar with economic development and the RISE program, (2) mail surveys of businesses affected by the road improvements, and (3) the project files maintained by the Iowa DOT for all Local Development projects. Insights from the desk audit were combined with the case study findings to determine the effectiveness of the program and to develop recommendations.

FINDINGS

Review of the summary sheets for all 160 projects funded through 1993 and detailed examinations of the seven case studies provided insights into the characteristics of the "typical" RISE project, project success rates, and recurring themes in administering the program.

The typical RISE project involved paving a small segment of an existing gravel road to improve access to business facilities. Nineteen (12 percent) of the projects were funded to achieve economic development via growth in specific recreational/tourism facilities. The average length of road improvement was 0.8 miles and the median RISE funds expended/awarded per project was $156,000.

Despite the fact that the improvements were generally modest, approximately 70 percent of the projects achieved their development goals. This suggests that development can be promoted with modest road improvements. This success rate is based on Iowa DOT defined development targets and development time frames. In those instances where specific goals were not specified or the allotted time for development had not elapsed, assumptions were made regarding what would constitute a successful project.

The elaborate rating scheme used by Iowa DOT planners to evaluate project applications is effective in promoting program goals. Cities and counties which request funding are compelled to bolster their applications by incorporating additional public and private capital, job guarantees, support from businesses and developers, low project costs, and provisions for other infrastructure needs.

The responses from one question of the business survey confirms the soundness of the Iowa DOT project rating formula. The question asked the business representatives to rate the impact of 13 factors on their firm's competitiveness. "Transportation" received the greatest cumulative number of response points, suggesting that the Iowa DOT applications accurately target funding to those companies that can benefit from transportation improvements.

The research demonstrated that because of the volatility of the current business climate, funding agencies must take steps to minimize risks. Numerous examples were encountered in which expected development activity had not materialized even though painstaking effort was made by Iowa DOT planners during application review to "predict" outcomes. In some cases, businesses fled sites or never began operations as expected, rendering sites useless. In one instance, an improvement was made from an arterial to the driveway of a munitions manufacturer which closed operations shortly after the project was completed because of the downsizing of the defense industry. Since the facility was set up specifically for munitions manufacturing, the city has had difficulty finding a replacement firm willing to relocate at the site.

Other examples were found, however, where development at sites had not progressed as anticipated, yet the results have still been positive. In these examples, some benefits that were unforeseen (or not fully appreciated) that have emerged from the projects include:

Another finding is that Iowa DOT RISE administrators tend to favor projects involving new construction. While 73 percent of funded projects involved new paved roads or extensions of existing roads, only 18 percent involved widening or reconstructing existing roads (Table 1). The emphasis placed on constructing new roads for economic development conflicts with another finding from this research; i.e., that transportation acts more as a facilitator, rather than an initiator, of economic development. Projects were investigated where little or no development had occurred at the site because of factors overlooked by Iowa DOT planners. For example, in one case new roads were constructed to access a site in an old industrial area of Des Moines. However, because this site required numerous predevelopment actions, such as land use rezoning, property acquisition, tenant relocation, building demolition, and environmental approvals, development at the site has not proceeded as expected. This suggests that transportation agencies should support already existent development interests at sites, instead of seeking to direct development through road investments.

TABLE 1 Types of RISE Local Development Projects Funded: 1986–1993
Type of Improvement Number of projects funded / awarded
Pave gravel road 82
New road / road extension 51
Widen / reconstruct existing road 34
Intersection / interchange 13
Bridge 3

Other evidence of the secondary importance of roadway improvements to development was found in case studies in which new development has been lured away from localities where improvements have been made to other jurisdictions offering more attractive incentives, such as lower land costs or business taxes. The implications of these findings are discussed in the next section.

CONCLUSIONS/RECOMMENDATIONS

By examining previously funded projects through the RISE Local Development program, this research provides insight to small- and medium-size regions considering the use of highway investments as a policy instrument in promoting local economic development.

The research revealed that the RISE Local Development program can contribute to economic development by encouraging the attraction of businesses to sites equipped with good access and by improving the travel efficiencies of existing businesses. Based on this research, the following project attributes, if present, seem to increase the likelihood that a project will be successful:

Agencies seeking economic development from roadway improvements need to become more sensitive to the forces that drive economic development. These forces include the relative importance of factors that influence business location decisions and all of the building and environmental approvals required before development can begin. This indicates that transportation agencies need to work more closely with agencies that better understand business climate and development regulations.

These recommendations in conjunction with the five project rating criteria already in use by the Iowa DOT, i.e. development potential, economic impact, local commitment and initiative, transportation need, and area economic need, form the basis of a sound policy for using small-scale roadway improvements to achieve development targets. Notwithstanding the economic development potential identified, further research is needed to evaluate programs such the RISE Local Development program. Research should examine, for example, the cost effectiveness of such programs and the economic benefits foregone by diverting funds for development purposes.

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