Discuss the spending/investment effect on the economy in Kansas and Massachusetts

Description

Recognized as the largest, most complex, and technologically challenging highway project in the history of the United States, the Central Artery/Tunnel Project (known unofficially as the Big Dig) significantly reduced traffic congestion and improved mobility in one of America’s oldest and most congested major cities. The Project replaced Boston’s deteriorating six-lane elevated Central Artery (I-93) with an eight-to-ten lane state-of-the-art underground highway, two new bridges over the Charles River, extended I-90 to Boston’s Logan International Airport, and Route 1A, created more than 300 acres of open land and reconnected downtown Boston to the waterfront. Background: Boston, Massachusetts has a major traffic problem consisting of an outdated Central Artery made up of six lanes running through the center of downtown. It was originally designed to carry 75,000 vehicles per day and today it carries over 200,000 vehicles per day. The traffic is slow, accident rates are high and the problem is escalating making it one of America’s most congested highways. In addition, this elevated highway has segregated the historic North End of the city and waterfront area from the rest of the downtown area limiting their ability to participate in the economic life of the rest of the city. When planning for the CA/T Project began with the preparation of environmental impact documents’ in 1982, transportation experts could not accurately predict the challenges that lay ahead on the long journey to design and construction. Congress approved federal funding and the Project’s basic scope in April 1987. Construction began in September 1991 on a Bypass Road through South Boston to take truck traffic off neighborhood streets and on the third tunnel to cross Boston Harbor. The first major milestone, the opening of the tunnel – dedicated and named after baseball legend Ted Williams. Substantial completion was reached January 13, 2006. Three major milestones opening were reached in 2003. For some experts, the Central Artery/Tunnel project was a shambles. This $2.6 billion (in 1982 dollars) project ended up costing $14.8 billion (2007 dollars), and its development dragged on for almost two decades. The state (a.k.a. the taxpayer) has been left to carry a huge debt without any revenue to service it. In 1989, the Kansas State legislature voted to spend $2.6 billion over the next several years to make long overdue repairs on some 135,000 miles of highway. Everyone knew that spending on that scale would give a big boost to the state’s construction industry. But Kansas were in for a pleasant surprise. Within 3 years, all sorts of industries, including many with no obvious connection to road building, were booming in Kansas. Personal income in the state was growing at twice the national average. And the State‘s unemployment rate was the fourth lowest in the nation. Pedagogical Objectives: The case study is designed to complement this week GDP reading materials. To analyze and assess the effects of transportation project on taxpayers; and, To understand spending/investment effects on the economy. Case Study Questions: Search all available information on both projects (Boston Big Dig, and Kansas Highway 1989). Study, analyze, discuss and explain the following using graphs/charts that you create to support your assertion and justify your response. (a) Assess the effects of Kansas project compare to the Big Dig in Boston using at least two of the economic evaluation tools i.e. opportunity cost, minimum attractive rate of return, the benefit-cost ratio method, the internal rate of return method, sensitivity or uncertainty analysis, time value of money, net present value, costs and benefits of a constructed facility, return on investment, adjusted payback period, price level changes: inflation and deflation, etc. (Hints: The cost of major construction projects are often reported as simply the sum of all expenses, no matter what year the cost was incurred. For projects extending over a lengthy period of time, this practice can combine amounts of considerably different inherent values. A good example is the Boston Central Artery/Tunnel Project, a very large project to construct or re-locate two Interstate highways within the city of Boston.) (b) Did spending on road repair contribute to the boom in other industries? If so, how? (c) Discuss the spending/investment effect on the economy in Kansas and Massachusetts. (d) Draw up your set of recommendations.