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Return On Investment Study |
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prepared by: |
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Dr. J. Joseph
Cronin, Jr. |
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The John R. Kerr
Research Chair in Marketing Department of Marketing and Co-Director the
Marketing Institute The College of Business Florida State University |
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with
the assistance of: |
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Jenna Hagerich, MBA
Student The College of |
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Jeff Horton,
Director the Marketing Institute The College of |
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Julie Hotaling,
Research Associate the Marketing Institute The College of |
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(850) 644-2509 |
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Return On Investment Study |
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Table of Contents |
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Executive Summary i Introduction 1 Return on Investment
Methodology 3 Medical Trips 4 Employment Trips 7 Education Trips 9 Nutrition Trips 11 Life-Sustaining
Trips 13 Statewide Summary 15 |
Executive Summary
The “transportation disadvantaged” in the
state of
There are five common types of
transportation disadvantaged programs. These programs provide state government
with both direct and indirect benefits. The results of calculating these
benefits are shown below:
Medical – The primary purpose of medical trips is to
provide preventive medical care to the transportation disadvantaged citizens
who have no other way of receiving these services. Given that nursing home
costs in Florida average approximately $5,000 per month, average hospital stays
are approximately $7,900, and adult day care costs range from $25 to $100 a
day, the benefit that results from providing transportation to preventive
medical care is substantial based on the state’s ability to avoid funding
assisted living costs. Conservative assumptions were used to identify the
return on investment, or payback to the State of
Employment – The purpose of employment trips is
to provide transportation to employment for transportation disadvantaged
citizens. It was estimated that these citizens would work about six hours per
day at minimum wage ($6.79/hour). The payback to the State, based on this
highly conservative estimate, is 571%, or $5.71 for each dollar invested by the
State in this program. The State will also benefit by allowing
transportation disadvantaged residents to work outside their homes. Not only
does this reduce welfare costs, it also provides income that is spent within
the state, thereby providing a direct stream of income to state and local governments
through the state’s six percent sales tax and local taxes.
Education – This type of
mobility funded by the State of
education/training
program requires 30 days (30 trips), the benefits accruing to the State
were estimated on the basis that the rider would work an equal number of days
(30) as the training at minimum wage ($6.79) for six hours daily. However, this most likely underestimates the
program benefits since those receiving job training are likely to work
more than the same number of days as they trained. Thus, the payback to the
State using this highly conservative estimate is 585%, or $5.85 per each dollar
invested by the State in this program. The State will also benefit from
an improvement in mental and physical health of those transportation
disadvantaged citizens participating, as well as a reduction in unemployment
benefits that are funded by the State.
Nutrition – The purpose of nutrition trips is to
provide mobility for transportation disadvantaged citizens to shop for
groceries or otherwise satisfy their nutritional needs. Nutrition-related
purchases are generally not subject to state sales tax, so to generate a return
on investment, it was assumed that 1 out of 100 nutrition trips results in
being able to avoid a hospital stay as a direct result of having access to
these nutritional trips. Thus, the payback to the State is 1252%, or $12.52 per
each dollar invested by the State in this program. The State will also benefit
from increased overall health and well-being for these individuals and a
reduction in the need to fund health care programs such as Medicare/Medicaid to
assist these individuals.
Life-Sustaining/Other – The purpose of
life-sustaining trips is to provide transportation to pay bills and to
fulfill other shopping needs, such as purchasing clothing, medications,
personal services, and other essential goods and services. It was assumed that
each trip generates $20 in incremental spending on taxable items. The payback
to the State is 462%, or $4.62 per each dollar invested by the State. The State
also benefits by a reduction in the need to fund assisted living
facilities, as this service enables these citizens to live independently. The State also benefits from state
sales tax collected during these purchases.
Overall, the State of
Introduction: Defining the Transportation Disadvantaged
The
“transportation disadvantaged” are defined as those individuals who
because of age, disability, or income restraints do not have access to
conventional public transportation options. According to the 2000
Many
of
State
and local agencies provide funding for many of the programs identified in
the 2006 Federal General Accounting Office report, often with the
requirement that 5 to 50 percent of the total cost be from local matching
funds. It was specifically reported that state and local spending on
transportation disadvantaged programs is substantial, probably totaling in the
hundreds of millions of dollars.
Unfortunately,
no attempt has been made yet to assess what state or local governments receive
for their investment in transportation disadvantaged programs. Thus, the
purpose of the current study was to calculate the return generated by funds
invested by the state of
One step in the assessment process is
identifying the benefits that accrue from investments in programs that
support the state’s transportation disadvantaged citizens. While it is generally acknowledged that
public dollars invested in such programs do not directly “generate” revenues or
returns in the traditional sense, there are nevertheless substantial financial
benefits that accrue to the state from its investment.
Specifically, these programs benefit the state of
Calculating Return on Investment: The Methodology
To
identify the ROI, or payback, generated by investment in a program it is
necessary to identify the relevant benefits and costs. Whereas the cost
to the state of transportation disadvantaged programs is well documented, the
benefits are less obvious. In the sections below, the relevant
benefits and costs are identified and discussed. Once each is
identified, the calculation of the ROI and Payback from the programs is
straightforward.
Costs
The
first step in determining the ROI and payback of transportation
disadvantaged programs in the state of
Benefits
The
benefits associated with transportation disadvantaged programs are not
provided in state records. They also are not easily identifiable. In the
section below, the method used to estimate these benefits is
identified for each type of trip associated with the state of
Initially,
the benefits were identified for each of the five types of
transportation disadvantaged programs funded by the State of
In
the calculation of the program benefits for the state as a whole, mean,
median, and weight average estimations were pursued. Because the mean
benefit produced the most conservative estimate of program benefits
(i.e. the mean benefit produced a smaller estimate of total program
benefits), it was used in this report.
However, readers should be advised that the
weighted average approach most likely produces a more realistic (and higher)
estimate in the return on investment (ROI) for transportation disadvantaged
programs. This is because the weighted average approach determines
benefits and program ROI, based on the relevative size of these programs
in each of
Return on
Investment: Medical Trips
One
of the primary purposes of transportation disadvantaged funding efforts is to
support preventative medical care.
Preventative medical care trips assist in keeping low income, elderly,
and disabled
In
addition to the benefits associated with avoiding nursing home stays,
conversations with program coordinators suggest that many of the medical trips
supported by transportation disadvantaged programs support health care for
pregnant women. It was suggested that when trips are cancelled, or cannot be
scheduled due to a lack of funding, these women simply do not receive prenatal
care. Given that the goal of prenatal care is to monitor the progress of
pregnancies and to identify potential problems before they become serious for
either mothers or their children, women who do not receive this care face a
substantially increased probability of a problem pregnancy or infant health
care issues. Specifically, these mothers are more likely to deliver
prematurely and are more likely to have serious pregnancy-related problems.
Moreover, children that do not receive adequate prenatal health care are
reported to be “three times more likely to be born at low birth weight . . .
than those whose mother received prenatal care.”[3] Thus, the preventative
care made available by transportation disadvantaged programs benefits the
state by reducing the expected medical costs of both mothers and their babies.
Moreover, healthier babies are more likely to do better in school and are less
likely to require additional public support throughout their lives.
Unfortunately,
there is no preexisting information to aid in the determination of the economic
benefits that accrue from making health care available to transportation
disadvantaged
For
example, there are many transportation disadvantaged clients who rely on these
medical trips to receive dialysis treatments at the hospital. Using an
extremely conservative estimate that one out of every one hundred trips (i.e.
1%) prevents a one-day stay in a hospital, results in a total benefit of
$1,425,907,024 (number of trips x .1 x average cost of one day hospital stay
in Florida), or a return on state funds of 1108% (total statewide
program benefits divided by total statewide program costs).
Once
more, in order to produce a conservative estimate of the state’s return on
their investment, it was assumed that the total program costs were funded by
the State of
Not
surprisingly, there are substantial variations between counties and these
differences are not reliant on a county’s designation as either urban or rural.
For example, MiamiDade’s return on medical trip investments is $16.82 per $1
invested, far exceeding the statewide estimated return.
Once
again, it was must be stressed that a conservative estimate of 1% of trips
diverting a hospital stay or other catastrophic treatment was used in the
calculation of the program ROI. If further studies indicate that the diversion
rate is greater, the return is much more significant. In Table 1 below,
the calculation is shown for
Table 1
Medical ROI with Varying Diversion
Rates for
|
Total Trips |
Use |
Hospital Cost |
Total Benefit |
Program Cost |
ROI |
Payback |
|
108,514 |
0.10 |
$7,900 |
$85,726,060 |
$873,779 |
9811% |
$98.11 |
|
108,514 |
0.05 |
$7,900 |
$42,863,030 |
$873,779 |
4905% |
$49.05 |
|
108,514 |
0.01 |
$7,900 |
$8,572,606 |
$873,779 |
981% |
$9.81 |
Return on
Investment: Employment Trips
A second purpose
of transportation disadvantaged funding efforts in the State of
In order to
determine their economic impact, we first identified their cost.
For instance, the data in Table 2 indicates 5,601 trips were provided in
Additionally, a
calculation was performed to determine the tax revenue generated by employment
and subsequent expenditures. As such, a tax benefit of $11,637.42 was
identified in Calhoun county. This
was calculated by multiplying the money earned from the employment trips
($228,184.74) by the traditional state economic multiplier (1.7)[4]
and then multiplying by the state sales tax rate (6%) by the assumed portion of
the benefits spent on taxable items (50%). This resulted in an additional
ROI of 15%, or a payback of $0.15. In total,
This
same methodology was used for each of
Table 2
Employment ROI for
|
Program
Cost |
Trips |
Benefit
per Trip |
Annual
Benefit |
ROI |
Payback |
Tax
Benefit |
ROI-Tax |
Tax
Payback |
|
$77,537.24 |
5,601 |
$40.74 |
$228,184.74 |
294% |
$2.94 |
$11,637.42 |
15% |
$0.15 |
Return
on Investment: Education
The objective of
the third type of mobility funded by the State of
To maintain the
consistent conservative estimate approach taken in this study, it was assumed
that upon completion of the education/training, recipients are able to work six
hours daily at minimum wage ($6.79). This places the daily value of each
To assess the annual benefit of the investment made in
this type of program, it was assumed that each day trip would be balanced by a
minimum of one day of work by the individual taking the trip. Thus, if the
education or training program requires 30 days (30 trips), the benefits
accruing to the state were estimated on the basis that the rider would work an
equal number of days (30) at minimum wage ($6.79) for six hours ($40.74).
Realistically, this most likely underestimates the program benefits since
those receiving job training are more likely to work more than the same number
of days as they trained.
Using
Table 3
Education Trip ROI for
|
Trips |
Cost
per Trip |
Program
Cost |
Benefits
per Trip |
Program
Benefits |
ROI |
Payback |
Tax
Benefit |
Tax
ROI |
Tax
Payback |
|
88,167 |
$8.05 |
$709,940.04 |
$40.74 |
$3,591,923.58 |
506% |
$5.06 |
$183,188.10 |
26% |
$0.26 |
Return on Investment: Nutrition
A fourth purpose
of transportation disadvantaged funding efforts in the state of
These efforts
further benefit the state of
In order to
determine the economic impact of these programs, it was assumed that the
benefit of the nutritional trips was the enhancement of the general
well-being of the program participants. It was also assumed that each trip
transported only one program participant and one trip out of one hundred
enabled a program participant to avoid a one-day hospital stay. The ROI and
payback realized for this program were calculated as identified in the
sample calculation demonstrated in Table 4 below for
The data for
Once this methodology is projected across all 67 counties,
the mobility to allow the transportation disadvantaged to satisfy their
nutritional needs have an ROI of 1252% or a payback of $12.52 for each invested
dollar. Calculations for the ROI and payback for nutrition trips in each of
Table 4
Nutritional Trip ROI for
|
County |
Trips |
Cost per Trip |
Program Cost |
Total Benefit – 1% |
ROI |
Payback |
|
|
507 |
$10.44 |
$5,295.61 |
$40,053.00 |
756% |
$7.56 |
Return
on Investment: Life Sustaining/Other
A fifth
purpose of Transportation Disadvantaged funding efforts in the State of
These trips
benefit the state as they contribute to the overall health and well-being
of the individuals needing this assistance. These efforts further benefit
the state of Florida indirectly by reducing the need for health care assistance
and assisted living, as such trips also contribute to the independence and
quality of life for these citizens. Moreover, the state further benefits
from taxes collected as a result of the money these
In order to
determine the economic impact of these programs, it was assumed that $20 was
spent that would not have otherwise been spent or would have been directed out
of state through distance purchases (i.e. online, catalog, or telephone
purchases), by the individuals making each of the trips.
Conversations with program directors suggested that most
trips included taking multiple passengers to malls or other service locations.
Thus, the estimated incremental $20 spent on taxable items per trip is
conservative. Using this information as well as the program costs, annual
direct economic benefits (spending by those on these trips) is estimated
$163,591,080 (8,179,554 x $20). Applying the conservative estimator of
1.7,
it is estimated that these funds resulted in $278,104,836
being spent on taxable items by
Statewide Summary of
Benefits
The ROI and
payback for each of the five types of transportation disadvantaged
programs funded by the State of
While using
highly conservative estimates for this report, it appears that nutrition trips
represent the most efficient of the state’s transportation disadvantaged
programs with an estimated ROI of 1252%, or a payback of $12.52. Medical Trips
are the next most efficient with an estimated ROI of 1108%, or a payback of $11.08.
Education trips generated an estimate ROI of 585%, or a payback of $5.85. The
estimated ROI for Employment trips is 571%, or a payback of $5.71. Life
Sustaining/Other trips represent an ROI of 462% percent, or a payback of $4.62.
Based on
these figures, it seems fair to conclude that the estimated
benefits of transportation disadvantaged programs far outweigh their
costs. It must be restated that these ROI figures are generated using
highly conservative assumptions.
Realistically, the actual ROI would probably be much greater, and more
accurate, if they considered the number of clients who actually avoid
hospitals, nursing homes, and assisted living facilites by utilizing these
transportation disadvantaged programs. Therefore the ROI for medical trips
could potentially represent the most cost-effective method for diverting more
expensive hospital stays. One can safely conclude that the data presented
confirms that for the State of
Table 5
Statewide Summary