As I wrote last week, things are actually quite different, and a bit more complicated. The rule is actually the Simpson-Curtin, rule, after the Philadelphia planning firm of Simpson and Curtin that came up with it. A 1968 paper by principal John F. Curtin is often cited as providing the basis for the Simpson-Curtin rule, but it is actually concerned with extensions to the rule for various additional factors.
From the 1940s through the 1960s, Simpson and Curtin collected data on transit fares and ridership. After crunching the numbers, they found that when fares were increased, ridership went down. The ratio of the change in ridership to the change in fare is called shrinkage ratio or fare elasticity, and is explained in more detail in this PDF from the VTPI. But briefly, Simpson and Curtin claimed that for every 3% increase in fares, ridership dropped 1%, for a shrinkage ratio of -0.33. The lower the absolute value of the ratio, the less an agency would have to worry about driving riders away with high prices.
So what's wrong with the Simpson-Curtin rule? Well, it represents correlation, but correlation does not imply causation. As I wrote in the previous post, to get causation, we have to come up with an explanation that fits the facts better than any other one. The explanation that Curtin, Olsen and others have made, that raising fares by itself causes reduced ridership, is not the best explanation.
Just a few years after Curtin's paper, in 1973, Michael Kemp published a paper arguing that "transit demand is inelastic with respect to money price." He indicates a number of other factors that affect demand, including level of service ("particularly door-to-door journey time"), trip purpose, distance, transit mode, urban form, and length of measurement period. In particular, since transit riding is a choice, it is dependent on the relative attractiveness of the alternatives. He notes:
One might hypothesize that, given the initial decision to travel, transit riding will be higher when the relative prices of substitute modes are at their highest; and that under such conditions transit fare elasticities will be relatively low. It follows that one would expect ... fare elasticities to be relatively low in very large cities with highly congested central areas, particularly for those modes catering to long-haul commuter traffic.
In other words, people are least likely to abandon the bus when it's hardest to drive ("relative price," here, includes travel time and convenience). The correlation observed by Simpson and Curtin is simply due to a lurking variable that drove down ridership and consequently pushed agencies to raise prices: the massive road-building that went on in the postwar period. Of course people aren't going to stick with their old bus system when the government is building new roads and parking lots for their cars! But if the government doesn't build as many new roads and parking lots, then transit still has a chance.
That brings us back to New Jersey, and what has allowed the bus companies to remain profitable for all these years. Not only do the private Lincoln Tunnel buses have the XBL, but they also have the Port Authority Bus Terminal and a law protecting them from destructive competition from the government.
There are two factors that are even more important. The buses (a) go to Manhattan (b) under the Hudson River. Manhattan is a notoriously unpleasant place to drive a car; despite the best efforts of the New York City DOT up until a year and a half ago, it is and was still incredibly congested. It can take half an hour to go a block, "free" parking is almost always full, and private parking is very expensive.
Still, as you pointed out on Friday, the private bus companies in Brooklyn, Queens failed many years ago, even though they continued on as zombies until recently. What's the difference? I think it's very simple: cordon pricing. You can drive across the East River without paying a toll, but you can't drive across the Hudson for free.
Recently I ran into my boss on the subway here in Queens. He told me that he lives in New Jersey and owns a car, but he takes the bus to the Port Authority and then the subway and another bus to work. He's tried driving in the past, but the tolls were too expensive. Sure that's anecdotal, but it fits with the pattern that Kemp found. If it's too expensive to drive, people will take transit.
During the congestion pricing debate, Aaron Naparstek wrote a post called, It’s the Bus Riders, Stupid. Aaron is actually referring to something different from what I'm talking about (and honestly, I always hated the Clinton quote he's referencing). However, it was - and is - the bus riders: cordon pricing would have eliminated the toll-free option for crossing the East River, and thereby increased ridership on the MTA buses, bringing up revenue. With cordon pricing in place, that revenue would be more stable than the other MTA funding sources, and maybe enough to start paying down the debt.
So there's your magic formula for transit profitability:
1. Give transit its own right-of-way and good terminals
2. Make it hard to use cars
3. Make it expensive to use cars