Monday, January 4, 2010

Free, Mass Transit

How much of the cost of transit can be seen as a public good? Additionally, how much would you be willing to pay for limitless transit access?

In this blog, Philip Greenspun floats the idea of a complete subsidy for users of mass transit. Reduced road wear and congestion, reduced auto emissions, increased mobility, increased transit utilization, the lists of positives are many. But what of the costs?

I'm a long-time resident of Chicago, and along with the political scandals of recent repute, our fair city and state have a hard time running our public transportation systems without politicization. Fare increases have come with increasing regularity, and state funding comes with increasing numbers of strings attached. Capital projects are hard to come by for the Chicago Transit Authority, even when the changing geography of the city screams out for better connections (Circle Line). This only adds to the malaise of the citizens, and that leaves these significant upgrades without a core constituency.

That was a whole paragraph without an answer to the costs. So here's a wag:

In 2008, the CTA ran up annual operating expenses of nearly $1.2 Billion (or $1.6 Billion when asset depreciation was factored in). The CTA generated just over $500 Million in operating revenue for the same period, Leaving a hole of close to $750 Million that city, state and regional governments had to fill. With 2.1 million Chicago residents above the age of 18, the average annual fare collected per capita was about $230. Currently, a 30-day CTA pass is $86. A one-way cash fare is $2.25, and there are various discounts for special populations. Adult residents over the age of 65 ride for free, as do active duty and disabled military personnel.

I'd guess there's a significantly smaller group that pays significantly higher than this average (12 months*$86/month = $1032, after all), and that there's a decently sized group that does not use CTA at all. I can't find any numbers that attempt to break this down, though with electronic fare cards there should be some means of getting an estimate of this info.

At a price of "free", I assume ridership would rise significantly both in terms of number of trips overall, as well as individuals using the transit system. Operating expenses would increase if service grew to meet the demand, but they could remain flat if an increase in crowding. And there could be a CapEx reduction and some labor decreases as well when you remove the need for fare collection.

But is there a price that could increase ridership and keep revenue where it is? CTA figures show that $220 Million of fare revenue comes from passes. Since they don't really give a break across the non-discount passes, That comes out to an equivalent of 213,000 year-long full price pass riders at a cost of $1032/year. Let's say you bring down the cost of the monthly pass to $40/month, or $360/year. You'd maintain the 213,000 pass passengers for a total of $77-102 Million. You'd probably bring over a decent number of individual fare purchasers into the pass system, since $40 / month is the equivalent of ~18 full fare rides (that's less than two weeks' worth of commuting). I wouldn't be surprised if pass revenue stayed flat-ish, though at the expense of farebox money.

How to make up the rest? If you kept single use fares significantly higher than the price per ride of the pass, it would strongly encourage even marginal riders to go for the pass. Offering further discounts only based on means-testing would be another way to recoup lost revenue. Pulling in cash at the beginning of a user's "year" would allow for modest investment returns on that money. And here's one from left-field: Pull some cash from the McPier tourist taxes and airport fees, and give those tourists a "free" pass on all the city's transit.

None of this touches on the externalities of transit, and whether those can be used as justification for greater subsidies from general funds. I'll try to come back to that at a later date.

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