Financial and Cost-Benefit Analysis (Research Proposal Sample)

Mayor of Bloomingdale
Glen Phillipon
Dear Sir,
RE:FINANCIAL AND COST-BENEFIT ANALYSIS OF A BIKESHARE PROGRAM FOR THE CITY OF BLOOMINGDALE
The City of Bloomingdale is presently exploring the feasibility of implementing a city-wide bike-share program for all its residents. In assessing the net benefit of an automated city bicycle-share program, the city, through the office of the city mayor, has requested a fiscal and cost-benefit analysis. If implemented, this non-automobile multi-modal transportation system should reliably serve all the 86,000 households within Bloomingdale. This report concludes that such a system is desirable and has a positive fiscal impact on the city and its residents.
The objectives of this report are as follows:
* Provide a clear recommendation and the case for city bicycle system and
* Provide a summary of the costs, forecasted fiscal performance and additional benefit of a bike-share program.
Results of fiscal impact and performance analysis are presented in the appendix.
As intimated in Table 1, the total fiscal benefit of the program exceeds the total costs of the program over the course of the initial seven years of operation. A one period should be set aside for bicycle and docking station acquisition, in addition to further stakeholder discussion and installation of the supporting infrastructure. The Director of Enterprise Development is of the opinion that Trek Bikes are the preferred vendors and has provided a cost appraisal (Table 4). Trek Bikes provide a seven-year guarantee and this will also be considered as the duration of the first phase of the network. It is anticipated that the bikeshare system will be available to city residents only and is to be operational for 180 days a year, specifically between March and October. Users will be required to purchase daily or yearly memberships. Other sources of revenue are expected to come from corporate sponsorships of bicycles and docking stations as well as state grants.
Additionally, this report contemplates the possibility of expanding the program to city tourists and non-residents in the ensuing years to fill possible budget shortfalls. Furthermore, the 180-day calendar can also be extended in line with estimated future demand. Extension of the bicycle transportation network to low-income areas can yield a higher non-monetary impact. Moreover, the expected average bike trip growth rate of 8.215% (Table 5) may not adequately capture the dynamics of urban growth changes.
Table 2 explores additional benefits of such a transportation system to the city`s residents. Members that use the network are projected to replace vehicle use and the number of walking trips. With a bicycle share system, the city would replace over 180,000 vehicle trips in the seven-year span of the system. Undoubtedly, these vehicle trips would’ve strained the city’s transit infrastructure, not to mention the cost of pollution on the area’s residents and its environment. Moreover, reduced walking trips will save a combined 15 years’ worth of man hours (Table 5).
Consequently, pollution reduction, avoided car operation and maintenance costs and time savings that can be transferred to extra man-hours will have the double effect of reducing pollution-related health costs and increasing payroll. Coupled with the value of actual physical exercise, these benefits are expected to yield a value of up to US$1,973,231.
Downtown businesses are also expected to benefit immensely as the bikeshare program will strengthen local commerce through a combination of shorter transit times and reduced vehicle traffic that negatively affects business operations. Such a network would deliver extra revenue of US$477,877 (Table 5).
Without the bike-sharing network, the city would fail to realize fiscal benefit US$2,024,357.50 (Table 3). This number represents the net present value (NPV) or Net Benefit and would be otherwise unrealizable. The NPV is distinctly different from the fiscal values as it encompasses benefits that are usually not stated in monetary terms. Such benefits include savings in walking trips, which in this case have been assessed in terms of their effect on payroll increase. Other benefits include pollution reduction which, once again, has been quantified and measured against health costs avoided. Another element of cost-benefit analysis that differs markedly from fiscal analysis is the application of a contingent valuation survey. This valuation survey, although a controversial financial assessment instrument, adequately values non-market services, such as an environmentally-friendly bikeshare network.
Taken together, the revenue projections and additional benefits of such a non-automobile system are anticipated to offset the total fixed and variable cost of running a bike-share program over the course of its initial seven-year lifespan.
In conclusion, this author recommends that the mayorship move forward with pursuing and implementing a City-owned and/or managed a public-use bicycle transportation network.
Appendix
Table 1. Fiscal Impact of Bike Share Program (Present Values in 2014 $)



Costs


Purchase of Bicycles

$1,830,475.60

Purchase of Docking Stations

$933,333.33

State Compliance Costs

$102,857.14

Bicycle Maintenance Costs

$607,600.00

Bicycle Storage Costs

$119,833.60

Total

$3,594,099.67



Revenue


Revenue from Membership

$1,041,893.00

Revenue from Sponsorships

$2,253,333.00

One-time State Grant

$350,000.00

Total

$3,645,226.00



Net Fiscal Impact

$51,126.00

Table 2. Additional Benefits of Bike Share Program (Present Values in 2014 $)



Health-related Benefits

$31,852.00

Time Savings- Walkers

$1,456,114.00

Reduced Car Mainten. & Operating

$169,273.00

Pollution Reduction

$58,809.00

Benefits from Bike-sharing Design.

$257,183.00

Total

$1,973,231.00

Table 3. Cost-Benefit Analysis of Bike Share Program (Present Values in 2014 $)

 


Costs


Total Costs

$3,594,099.68



Benefits


Total Revenues

$3,645,226.19

Total Additional Benefits

$1,960,984.67

Total

$5,606,210.86

Net Benefits (Net Present Value)

$2,024,357.50











Table 4. Present Values of Fiscal Costs of Bikeshare Program




Bicycle Costs (Costs are quoted "per bike")

Docking Station Costs

Grant Compliance Cost


Year

Discount Factor

MSRP

Maintenance Costs

Storage Cost

MSRP ("per docking station")

Administrative


0

5%

$2,952.38

-

$24.16

$13,333.33

$25,714.29


1

5%

-

$140.00

$24.16

-

$25,714.29


2

5%

-

$140.00

$24.16

-

$25,714.29


3

5%

-

$140.00

$24.16

-

$25,714.29


4

5%

-

$140.00

$24.16

-

$0.00


5

5%

-

$140.00

$24.16

-

-


6

5%

-

$140.00

$24.16

-

-


7

5%

-

$140.00

$24.16

-

-


Total Costs


1,830,475.60

607,600.00

119,833.60

933,333.33

$102,857.14

$3,594,099.68

Table 5. Forecast Financial Performance, Ridership and Additional Benefits of the City of Bloomingdale Bike Share Program (non-discounted)
Metrics

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Number of Days of Availability in a Calendar Year

180 days

Total Number of Annual Bike Share Trips

100, 500

114, 050

126, 735

138, 610

147, 150

159, 950

168, 575