Saturday, January 9, 2010

Separating transit from charity

In the past I've talked about the consumer surplus: the fact that there are plenty of people who would be willing to pay a lot more than $2.25 (or $1.84 or whatever it comes out to) for a subway ride. If you ride the #6 train downtown in the morning, you'll be riding with bankers, executives, all kinds of people who make more than $100,000 a year. I don't know how many millionaires there are, but there are plenty who would be happy to pay $5 for a quick ride downtown. If we could get enough people to pay enough money, then the government wouldn't have to spend as much to subsidize the subway system.

The problem, of course, is that along with those bankers and executives are plenty of people who live below the poverty line and are heading downtown to make a very small amount of money. Tripling what they pay for the subway would cut into their income at a time when lots of people are struggling to make ends meet.

This is not a unique problem. We have a similar one for food. Food can be very expensive, especially here in New York, but there are lots of people who can't afford to buy enough food to live. For them, we have food stamps. They get a plastic debit card with a certain amount deposited to it every month, and they can use it to buy food. Grocers can charge what they want, and the government helps people buy it.

So let's do that for transit. The MTA is planning to implement some kind of new payment system. What if we make it at least partially compatible with the EBT cards? We could give everyone with one of those cards two rides a day. Same thing for anyone receiving unemployment benefits.

This has been done in the past. In Curitiba, the municipal government accepted recyclables from residents and paid them in bus tokens. The poorest people had the time to scavenge for recyclables and bring them to the collection centers, so they benefited the most from this policy.

Since these are for the poorest New Yorkers, who can't afford enough food for a healthy diet, the fare should probably be free. With more than a million food stamp recipients in the city, if everyone used the benefit it would come to $2 million a day, or $730 million per year.

But what about those who are not unemployed or poor enough to get food stamps, but who would still have a hard time paying $180 a month to ride the train? For them, I think an expanded TransitChek program would work. The government currently exempts TransitChek purchases from taxes, but it could go beyond that and contribute a percentage.

Of course, with the poorest taken care of, the MTA could raise fares to the market rate for the rest of the population. I don't know what market rate would be for the non-poor, but if it's $1.50 over the current rate, that's an extra $3.75 billion a year, more than enough to pay for the free rides for students, the unemployed and the poor, and probably senior citizens too.

That wouldn't mean that the city and state governments would have no responsibility to the MTA. They should be required to pay back the $34 billion that the MTA has borrowed because of the state aid cuts. Once that's taken care of, then maybe they can see if it would work to stop subsidizing things.

The bottom line is that transit should not be charity. Charity should be charity. If we want the government to offer cheap rides for the poor or the working class, we should subsidize it for just those groups, not hold down fares across the board.


Alon Levy said...

The problem is that specific programs like food stamps, free lunches, and transit vouchers, aren't efficient, not when compared to direct cash benefits like a guaranteed minimum income. Those programs are based on the ideas that the government knows how to spend poor people's money better than poor people themselves, and that the bureaucracy involved in dispensing all those vouchers and stamps is a good use of money.

As a result, in some cases, it's cheaper to subsidize everything, and not just figure out who the poor are and give them vouchers. It also avoids resentment among people who are just above the cutoff for government aid. Health care is one example: single-payer health care costs the government less than a system based on subsidizing just the poor, such as Medicaid. Food is another example, in some areas: New York exempts all groceries from sales tax, regardless of the buyer's income; Israel directly subsidizes bread. Transit should be a third example, as long as the market-clearing price is too high for some people to afford.

Cap'n Transit said...

That's a very nice generality, Alon, but what about the specific problem that I led off with?

Right now there's enough political will in New York to make transit cheap, but not enough to make it convenient, or to fund expansion. If the MTA could charge market rate for fares, there would be no funding crisis.

A guaranteed minimum income that's high enough to afford market prices for the subway and buses would be great, but if it's not going to happen anytime soon, why bring it up?

Rob Pitingolo said...

I think the challenge with a system like this is that it's not clear what the tipping point is at which people will switch from public transit to another form of transportation. In other words, the "market fare" you refer to might not be high enough to justify your calculations.

When you talk about people wealthy enough to afford a $5 subway ride, these same people could probably also afford a cab ride. The reason they prefer the subway over a cab is because of the difference between the two fares. Raise fares from $2.25 to $5 for those who can afford it and some will switch to cabs.

The same point applies to cities where driving is a popular alternative. Plenty of people could afford to pay more for public transit, but their cross-price elasticity of demand is very elastic. Charge more for transit and they'll start driving instead.

If public transit had a monopoly on getting around our cities, price discrimination based on need would probably be beneficial. Unfortunately, I imagine big realistic challenges.

Cap'n Transit said...

It's a good point, Rob, but the cost difference between transit and taxis or cars is only one factor. The other factor is the difference in quality.

In New York, there are tons of people on the subway every morning who could afford to take taxis, or even drive and park their own cars. They take the subway because it's quicker and more reliable than either of those. Believe it or not, the subway is not just the cheaper option, but the superior option.

You can see this with the private bus lines that go through the Lincoln Tunnel. Many of them charge enough to make an operating profit, because they offer enough quality.

Obviously, things are different in Cleveland, but through judicious application of the Magic Formula for Transit Profitability.

Jonathan said...

What about being able to use pretax transit benefits while receiving unemployment insurance benefits? That doesn't sound too difficult to accomplish, and would save real money for the unemployed.

Alon Levy said...

Right now there's enough political will in New York to make transit cheap, but not enough to make it convenient, or to fund expansion.

At the cost of subway construction in New York, there wouldn't be enough political will to fund expansion anywhere. Tokyo Metro groans at $500 million per km, and most subway construction in the developed world costs half as much; Second Avenue Subway is now budgeted at $1.7 billion per km.

You can see this with the private bus lines that go through the Lincoln Tunnel. Many of them charge enough to make an operating profit, because they offer enough quality.

Buses don't have to pay for road and ROW maintenance; trains do. This means that train and bus farebox recovery numbers are not comparable. In fact one of the reasons transit operators switched from streetcars to buses in the middle of the 20th century was that streetcars had to pay a disproportionate amount of money for road maintenance whereas buses didn't have to pay anything.

(Buses had and still have to pay gas taxes, but road wear is proportional to the fourth power of axle load, which means a 20-ton city bus causes about 10,000 times as much road damage as a 2-ton sedan. Needless to say, the city bus doesn't pay 10,000 times the gas tax. The national highway system is overall subsidized, but within the system small cars are subsidizing buses and trucks.)

Alon Levy said...

More to the point: a combination of a fare hike plus subsidy for the poor isn't any likelier to happen than a guaranteed minimum income. The problem is that the people just above the cutoff for subsidy get pissed, and then the local politicos stoke their concerns in order to pretend that the US still has a middle class.

The same political issues that make it impossible to have good social democratic policies also make it impossible to have so-so social democratic policies.

Cap'n Transit said...

Good idea, Jonathan! Which politician do you think would be the best champion of this?

Well, you're a wet blanket today, Alon! So you think that decent transit in this country is just impossible?

It's true that buses don't have to pay for ROW maintenance, but the NTD farebox recovery figure includes only operating expenses, meaning neither ROW nor rolling stock. Of course, the MTA budget includes ROW maintenance, but if we got the MTA to the point of making an operating profit it would still be politically beneficial.

Alon Levy said...

No, I think separating transit from welfare is politically impossible. The US is on a transit-building binge - it's usually ill-designed, but it's better than the alternative of building just roads. But this will never be done based on business sense, any more than road building was. Road socialism is being replaced by transit socialism, not by good transit plus socialism.

Yokota Fritz said...

Riffing from Alon's point, I suspect Curituba's trash for tokens program is partially motivated by the belief that the impoverished will irresponsibly spend any free cash on booze, drugs and gambling.

And (for equal time) adding to Cap'ns retort about taxis -- any large move away from transit to taxis will result in suckier taxi service and pressure to increase fares. A train car at $5 per ride can still carry 200x as many people as a cab.