Transportation costs may be low relative to benefits, but those costs are significant and growing. The full cost of transportation in the Twin Cities region was approximately $27 billion in 1998 ($9,000 per person)—and will grow to almost $42 billion ($11,250 per person) by 2020, say the authors of The Full Cost of Transportation in the Twin Cities Region, the fifth report in a series of the Transportation and Regional Growth Study. This recently published report by research associate David Anderson and associate professor Gerard McCullough, both of the Department of Applied Economics, estimates the full costs of transportation for the years 1998 and 2020 in a 19-county region comprising the Twin Cities and adjoining areas.

For this report's purposes, the researchers explain that "costs" refer to the "opportunity costs" of a particular activity, which is the value of the next best alternative that was forgone to undertake the activity. They examined three types of costs: governmental, internal, and external. Governmental costs are those paid by federal, state, and local governments to support transportation through such means as road construction and maintenance, law enforcement, and transit subsidies. Internal costs are those borne directly by the person who causes them, such as the cost of a vehicle, transit fares, most travel time, private parking, and garages. External costs are those not borne by the person who causes them. Congestion, crashes, air pollution, and petroleum consumption make up about 98 percent of these costs.

On a typical day in the Twin Cities region in 1998, motor vehicles traveled over 71 million miles, and autos accounted for 94 percent of the person-trips in motor vehicles. Because the researchers expect the population to increase significantly in the next two decades, so too will auto use and ownership, time spent traveling, and vehicle-hours and vehicle-miles traveled.

Anderson and McCullough contend that the large amount of travel reflects both the tremendous benefits people get from transportation and the relatively low direct costs of transportation. Since the benefits of transportation most likely outweigh the costs, the researchers' goal is to provide information to help others identify policies that will hold down costs while maintaining those benefits and accommodating growth. It would be a mistake, the researchers say, to narrowly focus on reducing the amount or cost of travel.

Although the full costs of transportation are high, the costs that usually cause the greatest policy concern--governmental costs and external costs--account for a relatively small share (16 percent) of total costs, while the remaining 84 percent of costs are internal. Governmental and external costs are large, however, in absolute terms: $4.5 billion in 1998 and a projected $6.9 billion in 2020. Anderson and McCullough say that reducing these costs through the use of new technologies or through incentives to encourage travelers to avoid activities that impose high costs could lead to large social gains without greatly reducing the benefits people derive from transportation.

Many transportation costs are nonmonetary, and as such, the researchers found estimating them problematic. For example, while they estimated the 1998 costs of air pollution (most of which are nonmonetary) at $1 billion, air pollution may have imposed costs four or five times higher. Nonmonetary costs were found to account for approximately 40 percent of the full costs of transportation. While hard to estimate, nonmonetary costs should not be ignored when making public policy decisions, Anderson and McCullough emphasize.

Time costs are also particularly important. Most time costs are nonmonetary and account for a large share of both internal and external costs--approximately 33 percent of the full costs of transportation. In addition, the costs of traffic congestion are expected to triple between 1998 and 2020, and, unlike air pollution and crashes, no technological solutions to reduce congestion costs have been successful.

Overall, the full cost of transportation is growing only slightly faster than the value of the region's total output. This means that, while the real costs of transportation are increasing significantly, the region will not have to devote a much larger share of its resources to transportation. Anderson and McCullough predict that governmental costs will fall slightly as a share of the full costs, primarily due to efficiency gains in constructing and maintaining roads. Internal costs are expected to rise in proportion with regional income and external costs will rise slightly as a share of the full costs largely due to increased congestion costs.