MnDOT Measures of Financial Effectiveness 2019 EVALUATION REPORT Program Evaluation Division Office of the Legislative Auditor State of Minnesota Program Evaluation Division Evaluation Staff The Program Evaluation Division was created within James Nobles, Legislative Auditor the Office of the Legislative Auditor (OLA) in 1975. Judy Randall, Deputy Legislative Auditor The division’s mission, as set forth in law, is to determine the degree to which state agencies and Joel Alter programs are accomplishing their goals and Caitlin Badger objectives and utilizing resources efficiently. Sarah Delacueva Andrew Duncan Topics for evaluations are approved by the Scott Fusco Legislative Audit Commission (LAC), which has Will Harrison equal representation from the House and Senate and Jody Hauer the two major political parties. However, evaluations David Kirchner by the office are independently researched by the Carrie Meyerhoff Legislative Auditor’s professional staff, and reports Ryan Moltz are issued without prior review by the commission or Jodi Munson Rodriguez any other legislators. Findings, conclusions, and Laura Schwartz recommendations do not necessarily reflect the views Katherine Theisen of the LAC or any of its members. Caitlin Zanoni Zoey Yue Zou OLA also has a Financial Audit Division that annually audits the financial statements of the State To obtain reports in electronic ASCII text, Braille, of Minnesota and, on a rotating schedule, audits state large print, or audio, call 651-296-4708. People with agencies and various other entities. Financial audits hearing or speech disabilities may call through of local units of government are the responsibility of Minnesota Relay by dialing 7-1-1 or 1-800-627-3529. the State Auditor, an elected office established in the Minnesota Constitution. To offer comments about our work or suggest an audit, investigation, or evaluation, call 651-296-4708 OLA also conducts special reviews in response to or e-mail [email protected]. allegations and other concerns brought to the attention of the Legislative Auditor. The Legislative Auditor conducts a preliminary assessment in Printed on Recycled Paper response to each request for a special review and decides what additional action will be taken by OLA. For more information about OLA and to access its reports, go to: www.auditor.leg.state.mn.us. Photo provided by the Minnesota Department of Administration with recolorization done by OLA. (https://www.flickr.com/photos/139366343@N07/25811929076/in/album-72157663671520964/) Creative Commons License: https://creativecommons.org/licenses/by/2.0/legalcode OFFICE OF THE LEGISLATIVE AUDITOR O L A STATE OF MINNESOTA • James Nobles, Legislative Auditor March 2019 Members of the Legislative Audit Commission: The Minnesota Department of Transportation spends large amounts of public money every year to manage, maintain, and improve our state’s highways and other transportation infrastructure. For some decisions, there is little evidence that the department systematically analyzes the financial consequences of its actions. For others, the department has implemented or is implementing useful policies and procedures to assess its planned actions, some of which have led to significant cost savings. We present several recommendations for the department to improve its measurement of cost-effectiveness. Our evaluation was conducted by David Kirchner (project manager) and Jessica Obidike, with assistance from Madeline Welter. The Minnesota Department of Transportation cooperated fully with our evaluation, and we thank them for their assistance. Sincerely, James Nobles Judy Randall Legislative Auditor Deputy Legislative Auditor Room 140 Centennial Building, 658 Cedar Street, St. Paul, Minnesota 55155-1603 • Phone: 651-296-4708 • Fax: 651-296-4712 E-mail: [email protected] • Website: www.auditor.leg.state.mn.us • Minnesota Relay: 1-800-627-3529 or 7-1-1 Summary Key Facts and Findings: However, MnDOT is developing a new database of infrastructure Financial effectiveness in components and their conditions that transportation decision making is could improve maintenance decision intrinsically difficult to measure. making. (pp. 55-56) (p. 7) A law requiring MnDOT to report on Formal benefit-cost analysis can financial “efficiencies” is not useful provide important information to for assessing the department’s decision makers, but also has financial effectiveness. (pp. 10-11) MnDOT’s significant drawbacks. (pp. 12-18) assessments of The Minnesota Department of Key Recommendations: its financial Transportation (MnDOT) rarely uses To optimize financial effectiveness, effectiveness are benefit-cost analysis at the project MnDOT decision makers should inconsistent. level; when it is used, it may not consistently assess both short-term affect decision making. (pp. 35-37) and long-term outcomes, and both state costs and public impacts. (p. 20) MnDOT’s planning and project selection processes inconsistently MnDOT should reexamine how and address cost-effectiveness. (pp. 22- why it uses benefit-cost analyses to 27) inform decision making. (pp. 37-38) MnDOT does not document how it MnDOT should develop guidance on decides among possible alternatives to when and how to assess financial its project scoping decisions, making effectiveness in its planning it difficult to assess their financial processes. (p. 24) effectiveness. (p. 32) MnDOT should consider addressing MnDOT is promoting new, more cost-effectiveness more directly in its financially effective design principles, project scoping documentation. but it is not ensuring its engineers (p. 38) consistently follow the new approaches. (pp. 39-41) MnDOT should develop processes to ensure that district offices follow its Value engineering, a process where a new, more cost-effective design team of outside engineers reviews the principles. (p. 41) design of planned projects, has led to significant cost savings. (pp. 44-46) MnDOT should move forward with efforts to improve the cost- MnDOT does not systematically effectiveness of its maintenance assess the cost-effectiveness of most decisions. (p. 56) maintenance activities, nor has it gathered the performance data it The Legislature should reconsider its would need to do so. (pp. 52-55) requirement that MnDOT report on financial “efficiencies.” (p. 11) S-2 MnDOT Measures of Financial Effectiveness Report Summary A law requiring MnDOT to report on In Fiscal Year 2018, the Minnesota financial “efficiencies” does not Department of Transportation (MnDOT) meaningfully measure MnDOT’s spent just over $2.1 billion constructing, financial effectiveness. reconstructing, repairing, and Each year, MnDOT has reported its maintaining the state’s trunk highway progress implementing “efficiencies,” as system. required by state law. It is important that MnDOT use the As required by the law, MnDOT’s large sums of money it receives as reports only identify decisions that effectively as possible. But determining saved money. The reports have not what constitutes an “effective” use of identified decisions that led to cost financial resources is complicated. overruns or other unanticipated spending. A listing limited solely to Measuring financial effectiveness cost-saving decisions does not provide a requires assessments of long-term complete picture of MnDOT’s overall outcomes and public impacts. performance in pursuing financial effectiveness. However, requiring We interpreted “financial effectiveness” MnDOT to assess all of its decisions to mean that the state gets as much would be infeasible. benefit as it can for each dollar spent. But MnDOT’s spending ideally results The Legislature should reconsider the in public benefits—traffic flow, safety, requirement that MnDOT identify and Measuring access, improvements for business and report on financial “efficiencies,” and financial tourism, and others—that can last for instead require MnDOT to provide more effectiveness in decades and are difficult to quantify. meaningful information. transportation A key approach to measuring financial effectiveness is benefit-cost analysis. MnDOT inconsistently considers spending is financial effectiveness criteria in its difficult. Importantly, benefit-cost analyses address both the short-term and the planning and project selection processes. long-term outcomes of decisions, and consider both state costs and public MnDOT develops—or cooperates with impacts. others to develop—many plans, ranging from statewide plans to local plans that However, such analyses are complex, focus on individual cities or highway reliant on predictions of the future, and corridors. Some of these plans use unable to address some factors that are detailed benefit-cost analyses; some do important to stakeholders. Thus, there not mention costs at all. MnDOT are good reasons to limit their use. should develop guidance on the analysis of cost-effectiveness in planning studies. We do not expect MnDOT to use a benefit-cost analysis for all decisions. An important step in MnDOT’s standard However, to be financially effective, project selection process is the use of MnDOT decisions should use available computer models to develop initial evidence to assess the key components project lists. These initial lists are then of benefit-cost analysis: short-term state modified by MnDOT’s eight district costs, short-term public impacts, long- offices. term state costs, and long-term public impacts. The computer models do not directly account for the long-term public