An Alternative Rhetoric on Making Transit Profitable

We should rid ourselves of the notion that “profitability” means paying for a service through user fees alone

Cap’n Transit put out an interesting post this morning arguing that transit profitability is possible if fares are increased, but he acknowledged that transit plays an important social service role and that raising fares would place transportation out of the hands of a lot of the poor. He ended with the following comment:

“My beef is that somebody is being less than honest here, and I think we can ill afford to do that. Transit is critical for lots of reasons, and getting large numbers of people to shift from cars to transit would bring tremendous benefits to society at large. But we can’t do that if we can’t afford to run the buses and trains where and when people want to go. What are we actually trying to do, and how can we accomplish that?”

Cap’n Transit is correct in pointing out that much of the debate on transit funding skirts around the fact that raising fares might actually produce a fully-funded transit system, unreliant on subsidies, especially in his New York City. But I think he doesn’t delve deep enough into the meaning of profitability, nor does he describe what an alternative rhetoric on transit funding might entail. I’m going to take this post to address the question of profitability quickly.

It’s quite clear that transit plays a redistributive role in our society, and that’s a good thing. Public transportation provides mobility for all segments of the population, and that mobility is a right. To think otherwise is to suggest that the poor should not have as much of an ability to get around as do the rich. The consequences of placing charges representing the actual costs of providing a transit service on the riders would, in almost every case outside of the densest cities, place an undue burden on the riders and decrease the ability of much of the poorer segment of the population to transport itself.

Today, in addressing the need for subsidies to transit, most politicians and advocates would suggest that transit simply cannot be profitable. In other words, fares cannot cover operating costs. As Cap’n Transit suggests, this isn’t entirely true – raising the fares exponentially would eventually allow fares to meet operating costs.

But the fact is that it doesn’t matter whether transit is paid for by taxes or by fares, it just matters that the service is provided. Fares in themselves are regressive in that they charge the same for everyone, no matter that person’s income, but they’re low enough in most cases that it doesn’t make too much of a difference. Raising fares makes transit systems more and more regressive and increases the pressure on the poor in our society, something we should not be doing at any time, certainly not during a recession.

Increasing the obligation of paying for transit through taxes, on the other hand, makes a lot of sense, because it takes advantage of our progressive income and property taxes (and semi-regressive* sales taxes), which ask more of the wealthy than they do of the poor. When we’re considering how to pay for an essential service, choosing to do so through progressive means ensures more equality of access to services.

Operating costs do not change whether transit funds comes from taxes or from fares; they simply must be somehow covered. We have developed a collective assumption that profitability means paying for something through user fees: supporting transit through fares.

The overriding point, though, is that the meaning of the word “profitable” itself is subjective. We could argue that getting enough revenue to pay for a transit service is profitable if all the money comes from fares, but we could also argue that a transit service is in the black even if most of its resources come from a devoted tax base, as long as all revenue – fares and devoted taxes – eventually pays for the services a transit system provides. We have made a decision in our society to subsidize transit; what that actually means is that our government takes some general revenue and diverts it to transportation, rather relying only on user fees to cover operation costs.

But the rhetoric of our politicians and advocates rarely takes this truth into account. Because of the lack of a strong left in the United States – because of the lack of a political force that believes strongly in supporting the poor – we often resort to the maxim that “transit can never pay for itself.” An alternative rhetoric, one for which Cap’n Transit seems to pine, would suggest that the funding mechanisms for transit must come from a progressive source for the benefit of society, rather than from a regressive source for the benefit of only those capable of affording the “profitable” service.

*Note: in many jurisdictions, sales taxes are not applied to essentials like food, so they’re not fully regressive.

17 Comments | Leave a Reply »
  • LarryG

    The problem is – when you decide that something is worthy of being subsidized, how do you insure that it is cost effective – especially if you are not going to keep track of how much of the service actually goes for subsidized purposes?

    Why not – make transit self-supporting at the fare-box and give vouchers to those who need them?

  • “It’s quite clear that transit plays a redistributive role in our society, and that’s a good thing.”

    Gosh, I wonder why suburbanites don’t want to ride any mass transit, could it be because they think of it as a transportation system for the poor, and we encourage this? Taking the subway is, through tireless liberal activism, about as appealing as a trip to the welfare office. Meanwhile, rail is awesome and could serve people at all income levels, if arranged differently. On the roads we have nice busses and crappy busses, but mostly unsustainable private cars sucking up far too much of the GDP. Rail would run circles around that mess if allowed to.

    “Fares in themselves are regressive in that they charge the same for everyone, no matter that person’s income…”

    This overly simplistic thinking helped kill (or delay) congestion pricing. By that infuriating and pointless characterization, *everything* traditionally bought and sold is regressive. Our entire economy. The normal way of charging whoever walks in the door the same price, previously known as fairness, is now regressive, in the framing of American liberalism. But look at western and northern European countries that practice socialism far more openly, heavily, and successfully than we do, and you’ll see that they redistribute income in one place, the tax system, and don’t go around haphazardly breaking markets. Demanding that transit fares be “progressive”, when no other competing transportation option (like buying a car) even tries to be, hamstrings transit. It’s no wonder that the MTA is in such poor shape, with some people demanding that it stand in for the wealth redistribution that properly belongs in the tax code (but our Left is too chicken to fight for it there) and other people demanding that it “compete” while wearing those ridiculous shackles. It’s no wonder I’m riding a bicycle to work now at 16ºF.

  • Doc –
    Just to make a few things clear: in most western and northern European countries, transit fares are reduced for students, the young, and the poor. The idea that they only redistribute through the tax code is incorrect.
    I’ll let readers make up their own minds about the rest of what you wrote.

  • Bob

    This article seems to ignore some of the economics behind transit systems. Now, I’m far from an expert…. I’m studying this stuff right now. But the theory goes like this: transit is subsidized not out of a sense of social justice, but because subsidies are A) necessary to optimize the transportation system as a whole, and B) compensation for positive externalities.

    Drivers cause more cost (pollution and congestion delay to others) than they incur (in operating costs and delay). Partially that’s because we already subsidize driving with free roads, extensive infrastructure, and cheap, plentiful parking. And partially that’s the nature of single-occupant vehicle transportation: no economies of density.

    Transit users provide more benefits to society than just the personal benefits they receive. Transit users cause less pollution & energy usage per user than cars. Transit makes possible land use densities necessary to make interesting & economically powerful places. The length of time of a transit trip imposes an upper bound on the delay that will occur on a parallel auto route. Transit gets cheaper per person when more people use it…. economy of density.

    The transportation network is really concerned with the flow of people, not vehicles. More flow is possible when more people choose the most efficient method. Cars may be efficient for diffuse travel, but to sustain large flows into and out of dense places, especially during peak-periods, transit is needed.

    Subsidizing transit, reducing its user costs, incentivizes the efficient behavior AND compensates transit users for the positive externalities they generate.

    Social justice? Just a great bonus! (Or maybe another positive externality….)

  • Bob

    Just to tack on to my comment.
    When I say drivers cause more costs than they incur, I mean in congested situations.
    And I don’t mean to disparage provision of road infrastructure either… clearly the government (i.e. society) pays for it because it makes possible lots of economic activity. Transit should be viewed in the same way, for urban areas that achieve large enough size and density.

  • Bibi

    From Twelve Anti-Transit Myths by Paul M. Weyrich and William S. Lind

    “Public transit is subsidized. According to the APTA 2000 Public Transportation Fact Book, in 1998, 65.7% of the expense of public transit — operating and capital costs — came from the taxpayer. The rest was from fares and other earnings. In dollars, the taxpayers’ annual contribution was $17.12 billion.

    But what about highways? In 1994, the Office of Technology Assessment (OTA) estimated that total social costs for motor vehicle users range from $2,155 billion to $2,937 billion, with user fees covering $1,716 billion to $1,930 billion. That means highways received an annual subsidy of between $439 billion and $1,007 billion — the latter figure being more than a trillion dollars.

    If we were to make transit and cars compete fairly, each would have to get the same subsidy or no subsidy. In addition, the price paid directly by the automobile driver and the transit rider would have to be paid the same way, so the payer could compare costs. It is not a level playing field if, for example, the fare every Light Rail rider pays on boarding the train includes the capital cost for the train itself, but the car owner only faces a similar capital cost when he buys a new car. Men’s minds working the way they do, the car owner is not likely to remember that capital cost every time he gets the car out of his garage. Driving will seem cheaper than taking transit.

    If there were a practical way to create a level playing field between transit and automobiles, we’d be all for doing so and letting the best mode win. But so far no one has found the magical mechanism — magical because it would have to be retroactive, all the way back to the early 1920s, to make up for all those years when government subsidized highways were destroying privately owned rail transit systems. In the world as it is, with automobiles receiving heavy subsidies in a myriad of ways, transit, to compete, will have to be subsidized as well.”

  • dr_doodle

    Bibi, the analysis that you’re citing compares the direct budgetary cost of transit to the full social cost of automobiles … not a fair comparison.

  • Doc, rich people in New York seem to have no problem taking the subway.

  • Bibli:

    The relevant measure in determining whether transit or roads are more heavily subsidized is subsidy _per passenger-mile_. The figures you cite–total dollars–ignore the fact that roads carry many more people to many more destinations–so of course we should expect that they get more money! Suppose the government were to offer citizens a $100 discount off the purchase of a unicycles and $.50 of the purchase of bicycles. Chances are, because many more people are interested in bicycles than unicycles, the government would end up spending far more money in total helping people by bicycles than they would helping people buy unicycles. But if we were trying to figure out which product “was more heavily subsidized” in the sense of “for which product did the government’s subsidy cause the levels of consumption change more dramatically from what they would have been, without the subsidy”–the answer would clearly be unicycles. The relevant statistic is the subsidy per good consumed. And in the case of mobility, the good is passenger-miles.

    Also, dr_doodle is totally correct in pointing out that the figures cited also compare only total social cost of cars to operating cost of buses.

  • Bob

    Regarding Dr_Doodle’s point, the full social cost of transit usage could be considered if you really want to. Of course, the social cost of transit usage is a benefit, not a cost, so that would just make Weyrich & Lind’s point stronger.

    At any rate, while I agree with what Bibi has quoted, I think there is a case to be made that transit users deserve even more subsidy than auto users. And it’s precisely because of those societal benefits.

    It all comes down to this: If you want to maximize passenger flows (not vehicle flows), presumably because you’re running up against congestion, then you have to give people reason to choose the more efficient, non-single-occupancy option. Decreasing the congestion and allowing more potential employees to get to work is a societal benefit.

  • Bibi

    Yep, it’s complicated and not everything is what it seems.

    The last paragraph of the quote goes to a crucial point. The subsidies of the last decades enabled relatively cheap car travel and therefore subsequent land use and settlement decisions that have locked us into a situation where it is that much more difficult (decreased density, different settlement patterns) for transit to make money. Private streetcar companies used to be profitable before mass motorization. New roads and highways came along, and a new transportation mode with its unique advantages and downsides took over.

    But once you get to a certain density you need to build transit no matter what, since with transit (at least with rails) you get the requisite speed and capacity (but not a lot of flexibility). With cars you get speed and flexibility but not a lot of capacity which in turn doesn’t help with speed. The investment in transit can at first seemingly be avoided when your cities spread out like Houston. But that of course will bite you later on.

    So how to compare costs/subsidies per passenger mile between travel modes? What counts and what not?

    Direct subsidies to car travel are the construction / maintenance / policing of roads which are paid for by tax money. Other indirect subsidies include the cost of parking where every parking spot (land value + construction) on average reaches $10,000 or more.

    There are positive externalities such as making our industrial economy as we know it possible; flexibility and speed i.e. huge gains of productivity; ‘driving force’ in some technological progress.

    There are negative externalities such as air quality, 4-5 million accidents, 40,000 deaths every year and resulting health care costs, congestion i.e. loss of productivity, ever higher costs and crazier stunts in foreign affairs to secure access to oil, contribution to negative trade balance, dependence, a lot less disposable income for families etc.

    It’s a complicated picture and I haven’t heard of someone who has put all the factors for every mode together. Maybe it’s a moot point because, in total: We need everything – so we subsidize everything (car travel / transit / rail / air transport / ships).
    With shrinking energy sources the balance of subsidies will probably shift towards the modes with more capacity and efficiency. But don’t count on it. Denial is one of the strongest human forces.

    Anyway, please excuse my musings.

  • “in most western and northern European countries, transit fares are reduced for students, the young, and the poor”

    To the small extent that those countries practice market-side redistribution, those reduced fares do it with greater precision and less damage than the walmart transit pricing that American liberals routinely advocate. I am left with the impression that middle class people (straphangers campaign, etc.) just don’t want to pay more for their own rides, which is understandable but ethically nil. If you want to make progress, focus on the coming once in a half-century opportunity to fix the tax code that Reagan killed and Bush buried, and secondly on transit discounts for those below the poverty line. But please don’t keep transit crippled by demanding that base fares stay low. Those superficially progressive politics cheapen transit, reduce it to its current state of filth, and ultimately undermine progressive aims.

    “Doc, rich people in New York seem to have no problem taking the subway.”

    I guess you mean some rich people. Those that need to get downtown quickly from the upper east side would be crazy not to take the relatively well run 4/5/6. It’s a rather different experience riding transit in from further out places, largely because the one-zone system makes those routes extreme money losers for the authority. (The socialists in France seem to have forgotten to march in the streets against Paris’s extensive ‘regressive’ fare zones.) Not that outer Queens and Brooklyn would be for it, but zones would eventually make their commutes faster and decidedly less degrading, closer to the (much more expensive) Metro North service. Unfortunately they still think they can drive everywhere, so we have those types defunding transit on the tax side and flimsy progressives defunding it on the fare side. The result is America’s globally embarrassing public transportation.

  • Tom Rubin

    There are some transit systems in the world that are “profitable” in the generally accepted accounting use of that term. In many developing nations, the vast majority of the public transit is private sector, for profit.
    There are certain “governmental” transit operations that are more-or-less “break-even” — which, in this context, means little or no taxpayer support, the operating AND CAPITAL funds are provided through user fees and other operating income. The bus system in Curitiba — one of the finest transit systems in the world — is one such. There are various types of rail systems in developed Eastern nations, such as Hong Kong and Japan, that also operate without direct governmental subsidies, although, for some of these, the calculus can be complicated by prior governmental transfers of land which were used to develop real estate that finances some of the costs of transit.
    In the U.S., there is not a lot of unsubsidized transit left — and most of what does exist is sub rosa. In LA, many of the recent immigrant communities brought the type of transit they were familar with to the U.S., and it still exists, particularly for longer types of trips within the greater LA area and to locations outside of greater LA.
    There is some degree of consensus that the NYC subway system could operate without public subsidies at what would be a “maintenance” level. The fares would increse substantially, the service would be reduced somewhat, the debt service requirements would be met, but it would continue — basically because for very many New Yorkers and very many of the trips, there really isn’t much in the way of altenatives. There was even a debt issuance from MTA back, I believe, in the early 1990’s, where there was a study done to show that the bond debt service could be met, even if the State walked away — I went through the report and found it creditable.
    Outside of NYC, if taxpayer subsidies of transit stopped, there would be huge changes. Most likely, in almost every city, there would still be transit service, but of a very different kind. For a variety of reasons, the existing buses and rail lines would be difficult to operate unless the transit unions agreed to take major cuts in compensation and benefits and agreed to major changes in operating rules, and this is somewhat questionable if it would happen. However, if the CTA’s and the MARTA’s and the LACMTA’s of the world were to close for business tomorrow, never to return, the private sector would step in — but slowly, with fares designed to make money.
    The transition period would be not fondly remembered by anyone.
    LarryG, you have put your finger on the main problem.
    However, the last LACMTA rider survey showed that the median annual household income of bus riders was about $12,000, so, if we are goign to give vouchers to those who need them, it would appear to be the vast majority of the current MTA bus riders.
    Doc Barnett; there are two main problem with your bus service suchs/rail is awesome proposal: 1. Bus service can be of higher quality than rail service if you just spend a little bit more on it. 2. Rail service costs billions to build and, in LA, costs more to operate than bus service, and takes decades to build.
    Let’s do the best we can with our existing rail lines, but, let’s also realize that there is not really a whole lot more we can do with rail service, and what we can do more there will take decades a whole lot of tax money. The big problem with rail, particularly in SoCal, is “the last mile” — the speed of rail really doesn’t do anyone much good if the closest rail station is three miles away, it takes half an hour to get to it, and then the rail service really doesn’t go very many places you want to go to.
    I have seen many studies that proport to show major subsidies for roads and driving as arguments for more transit subsidies, but all have had at least two major flaws: (1) they fail to consider the other modes, include transit and inter-city rail passenger, on a comparable basis in consideration of public subsidies, and (2) they fail to consider public benefits of roads. For example, I agree that that the costs of auto collissions, injuries, and fatalities should be considered, but so should the vastly improved access to health care made possible by the road system, and the ability of paramedics to respond to time-critical medical emergencies.
    Bob, you are correct that the transportation system should not be regarded as the flow of vehicles, but of people — but don’t forget about the flow of goods. The road system handles about 30% of the ton-miles in the U.S., more than any other mode but rail, and is particularly important for time-critical, high-value items — plus almost anything you buy in a store.
    Dr. Doodle and Mr. Stegaier, I agree with your comments — there are fair ways to make comparisions of roads and transit, but a lot of the ones that are now made are not really very useful, except to those who are pushing their agendas.
    Bib, there are many negative externalities of the road system, but we need to consider the positive externalities, as you point out — and you are right, there have been a lot of studies of the external costs, some more valid than others, but not a lot that look at the benefits in the same way.
    For example, even though we have been doing very good work in cleaning up the air over the past five decades, there is still much that still has to be done — BUT, before the auto and truck, do you have any idea of the HUGE public health issues of the predecessor for local transportation, which was primarily animal wastes — including the then very common treatment of what to do with the dead bodies of horses, mules, and oxen, which was to leave them where they fell.

  • DBX

    The only way you achieve this through a market approach is with road pricing, as sort of a counterpart to rail fares. That means tolling of all limited access highways at a minimum, and possibly also photo-enforced congestion charging for busy areas e.g. city centers, areas around suburban malls etc. In other words it has to be visible on a fee-for-service basis.

    Once you have this it becomes easier to raise transit fares. Although it would also help if we had good enough transit that people were willing to pay extra in the first place. We certainly have efficient enough transit. Looking at Chicago as an example, our CTA and Metra fares are so far below London it’s almost comical and yet the farebox recovery ratio is actually respectable. If Metra could even charge half London commuter fares, it wouldn’t even need an operating subsidy. Metra BNSF is already close to break-even as it is.

  • LarryG

    re: “…. Gosh, I wonder why suburbanites don’t want to ride any mass transit”

    you mean they won’t go spend hours in traffic and hours waiting to board an airborne cattle car?

    when we say “mass transit” – do we include air travel?

  • AlexN

    About highway subsidies… If I’m not mistaken, most of those come from fuel-related taxes at the federal and state level. So, even though it is a tax, it gets pretty close to a user fee and an arrangement where user pays his way. Whereas transit is a general fund expense that burdens everyone irrespective of usage. Big difference, as far as I’m concerned.

    In addition, everyone seems to overlook toll roads – a great proof that highways can and do pay for themselves. True, at about 8% of total US auto traffic, they are far from setting the tone for surface transportation.

  • Shem

    I believe that public transit can operate without a subsidy and can even be profitable. In fact I lived for two years in a city where it was (Fukuoka, Japan).

    The reason why public transportation requires so much of a subsidy in the US is because we undervalue the cost of all transportation and have heavily subsidized highways, automobiles and low-density single family development for the last 6-7 decades.

    Automobile dependency in the US is not simply a matter of personal transportation preferences; but is the result of policy decisions and public infrastructure spending which have heavily favored the automobile. Auto ownership is essentially mandated through land-use policies which require separation of uses, low densities and high parking ratios – all of which conspire to make traveling by any other mode unreasonable.

    In order for public transportation to be profitable in the US, a city must have relative high density, have a transit mode share north of 30%, and the primary transit system would have to be grade separated and automated.

    Vancouver’s public transportation system (including the elevated and automated Skytrain) has operated in the black for most of the last 12 years.

    Achieving a transit mode share greater than 30% in a US city (outside of Manhattan) is likely not possible without a significant scaling up of carsharing service. Carsharing has gone from having about 2,000 member in the US in 2000 to nearly 500,000 members in 2010 – and it continues to expand quickly.

    US cities should enact policies which enable and support carsharing service and plan their public transportation systems around grade-separated, automated rail with aggressive transit-oriented development planning.

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