Monday, February 23, 2009

Ways to Transit Independence

There are four ways I can think of; the rest of you are welcome to chime in if you know any others.

The first way to financially independent transit is simply the farebox. If you can get passengers to pay for all your operating and maintenance costs, and maybe even some of your capital expansion costs, you're golden. This is why borrowing is a bad idea, though: the more farebox revenue you spend on debt service, the more ongoing subsidies you'll need to ask for. Other challenges include losing passengers to competing modes, and being politically or economically unable to raise fares.
As we saw in the news articles that started this whole discussion, the vast majority of public transit agencies in the US are unable to fund their operating costs - in many cases, even when ridership is high - and depend on subsidies out of general tax revenue.

The second way is to run a side business. The MTA brings in money from advertising and from renting space on its properties for newsstands and other businesses. Ben Kabak of Second Avenue Sagas is a big fan of this revenue source, but it's important to place some value on transit riders' dignity and sanity, and I personally can't stand being bombarded with ads all the time. It also compromises the system's integrity if the managers are chasing ad revenue.

Another strategy is to tax a specific thing and dedicate the revenues to transit; the most salient example of this is the Triboro Bridge and Tunnel Authority, whose bridge revenue goes to fund the New York City Transit Authority. The MTA also gets revenue from the Mortgage Recording Tax, but that's a double-edged sword. First, with hardly anyone taking out mortgages these days, revenues from that are way down. Second, there have been a large number of real estate speculators involved in MTA management recently, and I have to speculate that there was some kind of condition on the continued collection of the mortgage recording tax where they were allowed to have some say in how its proceeds were spent. Since most of the powerful real estate people don't take transit (former MTA chair Peter Kalikow owns a large collection of Ferraris), it's safe to say that they may not always have the best interest of the transit riding public at heart.

The fourth way to independence relates to the first way, and that's to bring down operating costs through investment. This investment can be subsidized by the government, but it often doesn't have to compete quite as fiercely for funds as operating revenues do. The type of investment that contributes the most to financial independence is dedicated, separated right-of-way. This is why the Lincoln Tunnel Exclusive Bus Lane accounts for so many of the profitable private transit operators in the country. It reduces the travel times for the routes that use the tunnel, and thus saves gas and operator wages. There are other ways: before the "private" bus lines in New York City were taken over by the MTA, most of their buses were purchased and owned by the City.

Recently, many people have wondered why the Federal government subsidizes many capital costs of transit systems, but is reluctant to subsidize operating costs. The main reason is that it's a lot easier politically. Give a man a fish and you've fed him for a day. Give him a fishing pole and he probably won't ask for another one for at least a month.

So what can these cash-strapped transit agencies do? One thing is to identify capital improvements that can lead to significantly lower ongoing costs. New buses, garages, signal priority, anything that facilitates operations. Of course the things that facilitate bus operations the most are busways. And the thing that facilitates transit operations the most is rail.


Pantograph Trolleypole said...

Part of 2 and 4 should be real estate. If we allowed transit agencies to have investment arms that bought real estate near transit stations and redevelop them at higher densities such as in Hong Kong or Japan, there would be a bigger revenue source for expansion and operation.

Christopher Parker said...

1. In regards to the first point: People will pay enough to cover (or almost cover) operating expenses when the service you provide is substantially better than the alternatives. Thus the Lincoln Tunnel lines, as you mentioned. Also Acela does quite well financially and high speed rail in France is not only profitable but enough so to yield a sustainable return on investment. It can be so because you can't drive 186 mph and it's so much better than flying.

2. Higher speed is often a way to simultaneously lower costs and increase the price the market will bear.

A train that takes 2 hours instead of 4 needs only half the operating labor and half the equipment and a portion of the track capacity (well, it's not that exact, but you get the idea). This is why Southwest Airlines can make so much out of quick turns at airports.

This is a very compelling argument for upgrading high-traffic regular bus lines into "rapid" BRT services. Not only better service for passengers, but at lower cost.

3. A lot really does come down to labor costs, which are a very significant amount of the expense of transit. When you think about it, that's a serious competitive disadvantage because the perceived labor cost of driving is free.

4. American transit operations are *very* tradition bound. There are ways to reduce labor costs that are routine in Europe and elsewhere. Automatic operation of subways. An "honesty" fare policy that does away with the whole turnstile or conductor punching the tickets system in favor of simple validators and random inspection. This actually has a higher fare compliance rate (because people don't know if they'll be checked).

5. You mostly left out the biggest way transit operations could become financially independent: if the competition (the auto) paid it's real cost of operation. Then we'd see people flocking to transit in short order. We must never forget that the reason transit struggles is because it faces a massively subsidized competition (and remember that the gas tax covers less than 20% of the cost of highways since 60% of local property taxes go to transportation (at least in my state of Vermont). Not to mention the cost of highway enforcement. And that's not even getting into the societal costs of pollution and sprawl and the debt given to our children to pay for a war in the middle east.

BruceMcF said...

@ PT ... however, it needs to be put into capital works ... relying on capital gains from real estate development to subsidize operating costs leads to the transit system going looking hat in hand for subsidy from somewhere else when the development capital gains slow down or stop ... recall the example of interurban lines put in place by developers in the US at the turn of the last century.

BruceMcF said...

Tax all the bloody "free" parking spaces that make the bloody bus route longer.

Cap'n Transit said...

Thanks for writing, Chris. The reason I left out the subsidies to cars is because I've been reading so much about transit services that are cutting service even though they're gaining riders. In other words, they're competing better than they were, but it's not helping them to fund their operations.

Your point #3 about labor costs is very insightful. It echoes something I've been thinking about, and I'll write more about it soon.

Cap'n Transit said...

And good points from Pan and Bruce also.