A Note on Transportation Subsidies

» Why do we subsidize transit? Is skewing the market acceptable?

People are armed with powerful tools that often determine quite directly the future of our society: Their wallets. With the flick of a credit card or the passing over of a wad of cash, an individual aids the society as a whole in determining which products are most desired and which services are most needed. This is an incredible tool of the market economy which — though seriously skewed by the influence of powerful economic interests whose primary goal is increasing personal wealth accumulation — allows for the modern world to be pretty efficient in offering people the things they need to survive.

The market’s power to determine what sorts of things to produce and what sorts of things to discard is an important element of a transportation practitioner’s toolkit, as the value individuals confer on mobility as compared to other aspects of their lives should play a role in deciding how much services to provide and where to do so. It would be nonsensical to promote the construction of busways no one wanted to use or buy trains no one needed to ride in, thus we estimate demand and then alter provision of transport based on use.

If the market can and should be used to determine what transportation offerings to provide, why not charge the full cost to provide those offerings to the person demanding mobility and adjust services to adapt to need, instead of subsidizing trains and buses as we have come to do in almost every city around the world? This, in essence, is the argument transportation economists frequently make and it is one that David Levinson of the University of Minnesota repeated this week. “Maybe you want transit,” Levinson writes. “But maybe you would rather have the cash I am spending to provide you subsidized transit service so you can do something else with it. The only way to know what the best allocation of resources is, is to charge for things what they cost.”

In theory, this seems like a valid line of thought. Here’s an example. You have two choices: Take a ride to your city’s most beautiful park for a fare of $2 on your local bus (with the aid of a $2 subsidy chipped in by your local government), or walk to the nearest, less exciting park and buy an ice cream on the way for $3.00. Thinking about the relative merits of the two possibilities, you might determine that the trip to the better park is actually the best deal (since it is cheaper for you), but for the society at large, it’s more expensive. If you were charged the full $4 cost of providing the bus ride to the park, you might think twice and pick the ice cream option instead — which is cheaper for the society as a whole. But the mobility subsidy is providing an inappropriate incentive to do just the opposite and is causing people, as Levinson writes, “To behave inefficiently.”

But we provide subsidies nonetheless, generally because we believe it is important to provide affordable mobility. This is a political and welfare goal shared by most modern societies. Is this a mistaken policy? Would it make more sense to encourage transit providers to be fiscally independent, so that they do not have to rely on limited allocations of public funds?

The answer comes down to two questions — whether or not the subsidy provided to transit is appropriate considering other transportation offerings; and whether a situation in which there were no subsidies would produce the appropriate social environment from the perspective of social equity.

Jarrett Walker tackled the first issue yesterday, noting that there are significant subsidies provided to highways and local roadways and their users, so eliminating aid to public transportation alone would be poor policy. In addition, he noted that there are significant positive externalities generated by transit — like more efficient land-use patterns, lessened pollution, freer-flowing roads, and decreased traffic fatality rates — that deserve to be compensated by subsidies.

While a surface-level analysis might suggest that the fares for transit should simply equal the cost to provide a ride, a more serious discussion would recognize that moving people away from transit and into automobiles would have negative side effects. This suggests that we either tax the alternatives to transit — the automobile, primarily — at their full cost to society, or we do not have an economic rationale to eliminate subsidies to public transportation. There are few if, ands, or buts around that.

The second question — whether a situation without subsidies would be acceptable — is an ideological one. Levinson describes transit providers as “Transportation organizations first, not welfare organizations. They should be considered public utilities rather than departments of government, which provide a useful service for a price to their users.” Instead of forcing bus and rail operators to run services that are less-than-efficient from a profit-maximizing perspective, politicians should be forced to directly vote and choose to subsidize those services that they consider most important. “This would entirely change public and political perception of transit services,” Levinson writes. “It might also result in fewer bad routes being funded, since it would be crystal clear where the subsidies lay.”

In my mind, this is an appealing solution in some ways, since it would take advantage of the democratic processes we already have to make what are important societal decisions about mobility. If people want better, subsidized transit services, they can vote in politicians who support such offerings in addition to the routes that are profitable.

On the other hand, isn’t that what we have done already? There is a constant battle over funding for transit, and it is because of political differences over whether and how much bus and rail routes should be subsidized. Our current situation — as topsy-turvy as it may be — is reflective of democratic conflict over transportation funding. What is the alternative? Removing transportation from the democratic sphere and simply providing those services that are directly profitable?

This would be disastrous, both for the reasons cited above by Jarrett Walker but also, and even more importantly, because the fundamental logic that underpins Levinson’s argument is flawed. While it might be nice to imagine a world in which every individual has the ability to act as a rational actor in a fair marketplace full of decisions that reflect efficiency and true costs, we do not inhabit it. Whether we like it or not, social inequality in American society has increased significantly over the past forty years, and poverty is a real problem.

Why bring up these issues? Because Levinson describes a situation in which everyone has the option to pay the true cost of transportation services, but in fact many do not. A more efficient approach to ensure that people make the most cost-effective decisions might be one in which everyone got a reasonable amount of money to begin with, but we do not live in a particularly redistribution-inclined society.

So we are left with alternatives along the sidelines. We can crusade for the elimination of transportation services that cannot pay for themselves and in the process eliminate essential mobility for people who need to get around now, all the while hoping that the poor will at some point be handed adequate funds to make economically sound decisions. Or we can recognize reality and admit that transit services are at their core not just transportation organizations but also welfare providers.

This may be a disappointing conclusion, since it provides no insight as to how the state of funding for transit could be improved, but it does suggest that there is no way of getting around the fact that subsidies will continue to be needed in the running of public transportation unless some future technological advance reduces operations costs dramatically. There are plenty of ways to improve the performance and cost effectiveness of transit systems, but we cannot ignore the fact that transit plays an important redistributionist role.

Update, 21 September: David Levinson responds, writing that “I expect that the places that would see service dropped once you went to an appropriate funding model are not the poor inner-city areas, which are (or ought to be with appropriate management/regulation/etc.) profitable given the relatively high densities, but instead the suburban routes.” The problem, in my mind, is that those suburban places are increasingly impoverished themselves. We can no longer associate density with poverty as we have in the past.

93 Comments | Leave a Reply »
  • EngineerScotty

    A big problem with Levinson’s argument is that he confuses average cost (the cost of the service divided by number of users) with marginal cost (the additional cost of an additional user), as do many transit critics. For the automobile, they are reasonably close; as each additional car on the road produces incrementally more pollution, more wear and tear on the road surface. Congestion is a higher-order polynomial function of traffic–negligible at load loads, but super-linear at high volumes.

    For transit, however, the marginal cost of an additional rider is pretty close to zero. The suggestion that an additional rider on a bus costs the hypothetical transit agency $4 is utter nonsense–it costs them next to nothing, unless the route in question is at capacity and additional service needs to be provided. The social service lines which Levinson criticizes, almost by definition, do not have that particular problem.

    • Marcella D.

      Your argument has a failure: it ignores price sensitivity. Experience has shown that, despite very high gas taxes (4 times as high as in US), European richer countries have high car usage. Cars are more efficient, but ownership and miles/year/car are not much lower than in US (around 33% and 19% respectively).

      Transporting it to transit: it might be the case that those riding buses don’t have cars to begin with for many reasons (DUI ban, disability, abject poverty) than mere option, and as they need to move somehow sometimes, doubling the fare would not make them not take those trips.

      Take younger students: unable to drive, they either get their parents to drive them around or ride transit. Especially in mid-day appointments, if school buses were not free most parents would have to pay anyway – even if that brings economic hardship to the family, because kids age 12-13 can’t drive anyway.

      As for the marginal cost argument: it’s only valid within a narrowly defined usage margin – especially in regard of buses. You can’t have 200 passengers on a bus and, indeed, one could argue that less than 50% seat occupancy starts to reduce comfort (it’s better to travel with a 2-row seat for you than having somebody touching your body with theirs seating side-by-side, let alone standing.

      Cars also have marginally low costs for the same household: extra 150 pounds will not increase much your fuel consumption.

      • As for the marginal cost argument: it’s only valid within a narrowly defined usage margin – especially in regard of buses

        And as EngineerScotty already noted, the vast majority of “social service” bus routes that Levinson is talking about fall into that “narrowly defined usage margin”.

        A bus route that has load factors averaging anywhere close to 50% in off-peak hours is going to be in much better financial shape than a social service bus route will be.

      • Chad

        “Your argument has a failure: it ignores price sensitivity”

        This is a question of timescales. In the short term, your commute is your commute, the grocery store is where it is, and you still have to go home and see grandma on Thanksgiving. A few people will cut out a few marginal trips, but there is not much you can do.

        The big fuel savings that follow sustained price increases unfold over years, as people buy new cars and choose to live in places that require them to use less fuel.

  • EngineerScotty

    BTW, Professor Levinson responds to Jarrett Walker here.

    • Nathanael

      As noted in the article, Levison imagines that poverty is all in the inner-city. Ridiculous. Poverty is greatest in rural areas, and nowadays (thank you high gas prices) outer suburbs are turning into the poverty-stricken zones. The inner city is becoming the realm of the rich, once more.

  • David

    Wow. What a way to go. Narrow your argument down to JUST the factors that support your conclusion. “Incentive to behave innefficiently”???? How about “Incentive to NOT be inefficient”. Sure, the bus vs. walking argument holds water. But the author IGNORES the bus vs. private car argument. Or the pollution, or the costs of widening roads, or the difference between needing a car ever 3 years due to overuse or being able to buy one every 7-10 years because you’re not driving it into the ground.

  • Don

    There are standard schemes for counting the value of the “externalities”. It is not really hard to come up with good overall net present value benefit/cost ratios for transportation projects. These are required for transit projects, but the next one I see for a highway project will be the first!

  • Don

    “…unless some future technological advance reduces operations costs dramatically.”

    This is the problem I have with most transit agencies. They tend to trail the innovation curve given they have very little incentive to find and implement cost saving solutions of any kind. There is no benefit to any individual or the agency as a whole for reducing costs. Any change is all risk and no reward, so why bother?

    Example: MARTA implemented a new fare card system 4 years ago. Only recently, did they fully turn up reloading fare cards on line. Only recently did they finally figure out how to do away with paper transfers from regional commuter buses, and they still haven’t figured out how to implement zoned fares – which could boost ridership and revenue.

  • Buckeyeman

    Skewing the marketplace? I would have to say that history shows that the marketplace was skewed against passenger trains when Uncle Sam and state and local governments built amd imporved airports and highweays. the more improved roads and airports, along with the plane tracking,got, the more they attracted people off the rails. The same goes for freight to a certain extent. It also applies to local transit as well.

    • Tom West

      What started the great decline of passenger rail in the US was an unfunded mandate form Congress in the 1950s that passengers trains could only operate over a certain speed with some form of automatic protection system in place. The rail companies dropped the speeds rather than spend the money.

      • FG

        That and the lingering hate of big railroads among certain sectors of society (which I suspect bled out to local transit as well).

      • Don

        Hmmm… The PRR, which had a nice chunk of it’s network cab signal equipped, had a max authorized speed of 80 mph. The ACL, which was largely equipped with ATS, had MAS of 100 mph in many places. Similarly, the NYC was ATS equipped and had some stretches of 90 mph. They both dropped the speed AND the equipment.

        I don’t think the train-stop equipment requirement started the decline…. It was economics. You could never run the Broadway or 20th Century fast enough to beat a DC5 from NY to Chicago, ATS or not.

        • Buckeyeman

          I’m not going to try to debate anybody else’s opinions on what caused the decline of the passenger train, As I said, against the airplane, ity’s a no-brainer but against the car, I offer one excellent present day exakple between Harrisburg and Pittsburgh. It takes 5 and a half hours by train and anywhere from 2 and a half to 3 hours door to door by car so even though trains have had an obvious competitive disadvantage against planes, Interstate highways still inflicted plenty of damage that could’ve been avoided had the railroads never dropped the ATS equipment or never required to in the first place. In any train or rail transit ride I’ve ever taken in my life, if there’s anything I’ve hated it’s watching adjacent car traffic going faster than whatever train or rail transit I was riding. Any kind of rail transportation should be faster than by car.

          • The requirement for it was demonstrated by the accidents that occurred without it. But when similar requirements are demonstrated by accidents on roads, its not the private owners of the road rights of way that have to address those needs ~ because we’ve largely organized our road infrastructure to be publicly owned for private use.

          • Don

            Bad example. Harrisburg – Pittsburgh has had ATS (Cab signal) since before the turnpike was built. It didn’t help (or hurt) the cause.

            • Buckeyeman

              Don, you mean Harrisburgh-Pittsburgh STILL has ATS? Either way, the fact remains that still takes longer to go by train between these two cities than by car and this obviously needs to change and I hope that somehow the Commonwealth of Pennsylvani can be persuaded to take some kind of action on this.

              • Ocean Railroader

                The Pennsyvinia Railroad had videos made during the 1950’s that showed how their trains had many cool safy systems to stop the trains if they went too fast or if the railroader fell asleep or if it sensed something was wrong.

                It was very cool how the Pennsyvinia Railroad had some very state of the art commacations systems using openwire lines and 1930’s singals that could at the time handle trains going over 110 miles on hour.

              • Adirondacker12800

                There’s not much you can do about the line between Harrisburg and Pittsburgh without spending lots of money. It opened in 1854. They were less concerned about speed back then and didn’t think anything of curves that are too tight for high speeds.

              • Don

                Yes. It still has cab signal with ATS. In fact, the cab signalling was extended by Conrail from Pittsburgh to Cleveland. The problem with the line is curvature. There are very few long stretches where you can run >70 mph.

      • Marcella D.

        That was a measure taken to avoid accidents after a series of them greatly affected public perception of trains. The argument trains are safer than cars anyway doesn’t hold: air travel, the statistically safest mode of all (by orders of magnitude over anything else), is still subject to great scrutiny and improvement mandates that raises costs and, indirectly one might argue, produce more road deaths (from people driving instead of flying due to higher costs of the latter) than it saves by reducing air accidents.

        The mandates for ATS and in-cab signaling for certain trains is sound on rail safety basis. Or at least is was considering the state-of-the-art or railway signaling back then.

        • Not really. Speed limits are just a stunt, in lieu of better infrastructure and maintenance. The ICC’s 79 mph speed limit was intended to harass the railroads into installing PTC.

          • But a poorly chosen one, given that the core freight market that the railroads could hold onto in the face of road freight competition did not require the trains to go all that fast.

            If you want to force someone to do action A by saying “or else you have to do B”, make sure to pick a B so that that they actually do prefer A.

            • That wasn’t for lack of trying. The D&RG tried to run freight trains fast, right until it was swallowed by SP (financially it bought SP, but organizationally it assimilated into SP’s culture). Santa Fe tried to do the same, but the Super C’s speed premium over the slower freight trains was so small shippers didn’t want to pay the higher rates.

              The issue is that people perceive risks they don’t directly participate in (involuntary risks) as much higher than risks they do participate in (voluntary risks). That’s why airlines and railroads have to constantly reassure travelers of their safety when their death rate per passenger-km is 1.5-2.5 orders of magnitude less than that of cars.

          • Don

            Don’t confuse PTC and ATS/Cab signal train control. Two different animals. The former is predictive and the latter reactive. The ICC mandated train control on the busiest divisions of each class 1 that had passenger service back in the day and the roads had to petition to remove it long after the trains were gone.

            Conrail expanded it’s use of cab signalling during ABS to TCS/CTC upgrades because it was cheaper than replacing intermediate block signals. There was no FRA harassment.

            In fact, the Chase MD wreck might have been prevented if the FRA had required Conrail to have speed control on the diesels they were running under the wire. The electrics had it, but when Conrail was fundamentally chased off the NEC, there was no requirement for speed control on the freight trains. (There has been since the Chase wreck)

  • Progressive Capitalist

    Sorry, but society’s largest skewing of the market is free parking. More than transit subsidies, “free” parking causes much more inefficient behavior. If the driver would have to pay more to park at their destination, many would instead opt to pay the full cost of their transit trips.

    The greatest advantage to transit is not in the competitiveness of the trip itself (that requires rapid technologies, such as subway in congested places). Rather, transit is most competitive in empowering one’s human-powered mobility at either end of such trips. Of course, a built environment focused on parking can easily degrade the experience. Still, walking remains the greatest mobility benefit of taking transit.

    And so, if you really want to run transit authorities more like utilities, then allow them to raise parking rates, as well as transit fares. What the agency would charge in parking could subsidize transit. But ideally, user-fee pricing would better match market demand to end subsidies for both parking and transit.

    • Adirondacker12800

      Meh, expensive parking just makes parking a status symbol. Make parking difficult and you shift more people. Throw in some congestion that the mass transit isn’t subject to and you get vibrant walkable CBDs.

      • Progressive Capitalist

        Paying for parking makes parking more difficult (to consciously choose). Congestion is a byproduct of vibrancy, not its cause.

      • Making parking expensive only serves to make it a status symbol if there are some people who do not park as a result of the expense. Unless there is some exclusivity, there’s no status symbol benefit.

        And if there is some exclusivity, it’s working.

    • Equity Trader

      I completely agree that the absolutely massive — and totally masked — subsidies that provide free parking MORE SIGNIFICANTLY skew transit decisions than the more transparent subsidies for public transit. And EVERY CITY in the country (barring 1 or 2 progressive outliers) REQUIRES parking for all development. Where is the planning requirement of all new development that equally supports transit or pedestrians? When this lopsided discrepancy is corrected, maybe then we can have a discussion about true market pricing…

      • Marcella D.

        Nowadays, construction of free parking is pretty much self-sustainable. We’d not see free parking everywhere if a mandate didn’t exist, but subsidized (by the building/retailer/movie theater) parking would still be around as it is in many cities outside US.

        The logic is that if parking is not easy, and expensive, but your costumers drive, lack of affordable/easy parking might take costumers away.

        This holds more to business that are not patronized by chance (“I was passing and saw that McDonalds arch and stopped”) as they are by previous choice (“I looked after a nice restaurant on Zagat to take my girlfriend with me”).

        I agree that parking mandates should be drastically abolished, leaving developers to figure the situation out. The most likely result is that parking is moved underground, with massive structures that do not take floor space – a sensible result.

        • The mandates restrict the benefit of pooled parking to shopping malls ~ free-standing developments cannot pool parking with neighbors, as they each have to cater to their maximum possible parking demand, even if collectively they don’t all experience their maximum at the same time of day.

          And of course, mandates for Auto Uber Alles access without corresponding mandates for common carrier transport, pedestrian and cycle access are part of mode lock ~ go ahead and mandate parking spaces but also mandate that the closest pedestrian and public transport access must be as close or closer than the closest parking space, to reduce the access costs imposed on other means of transport by the parking spaces. Or else, pay a charge for each parking space that is closer than the closest pedestrian and public transport access.

        • I really doubt parking reform is going to increase the amount of underground parking. For one, underground parking is already legal. Parking minimums don’t specify that the parking must be in above-ground open-air lots; businesses choose striped parking because when land is cheap, it’s cheaper than podium or underground parking.

          • Yes, it would have to be something that discriminates against open parking lots to encourage under building parking ~ eg, an explicit tax on open parking spaces, or a mandate that prohibits parking spaces interfering with public transport and pedestrian access.

            • Or just high land prices. It may be legal to build striped parking in Monaco for all I know, but when land values make Manhattan look cheap, people don’t need regulations telling them to put parking below buildings rather than around them.

            • Marcella D.

              To provide access through a parking lot via a covered walkway or marked bike lane is easy, cheap and doesn’t take considerable space after all.

              If you don’t have parking mandates, it becomes easier to build larger underground facilities, usually offering paid parking, that is (or not) vouched by nearby stores/offices.

              Underground parking is legal as from now, but to be economically efficient, they need a larger scale than the average surface parking lot. They also provide greater turnover in areas that have distinct daytime-night time uses like a CBD which is also an entertainment district at night.

    • FG

      But parking isn’t really free. It’s just paid for indirectly – for instance, surface lots (whether required or not) are paid for by say the grocery store (either directly or via their rent/landlord arrangements) hence customers pay for it. I’ve noticed a lot of garages in Chicago in new retail developments being “paid” lots but leaving gates open or validating for any customer who used the facility. I don’t know if they also provide free parking for employees.

      I understand that LA has lots of pay lots (haven’t been there in many years), which always surprises us in Chicago. Funnily enough, I used to work for a company that listed “free parking” in our benefits package, which always seemed moot since our lot didn’t have any means to charge. When we opened an office “downtown” we didn’t get free parking and they never bothered to change that handbook to my knowledge…. Those of us who were there were just happy to skip driving and be able to take the train, bike or whatever to work…

  • Ocean Railroader

    This idea here can’t be put into use in that we all ready have many thosands of miles of major freeways that are free no tolls that where built and blasted though some very expennsive mountain passes. Not mention all the handouts along the way for the trucking and other companies that come with these major road projects. Amtrak has to play catch up to all of this in that they really don’t have tracks of their own and that the NEC is a under funded dump.

    The only places that are highway related which I think things are more fair are on places such as the New Jersey Turnpike and the Pennsyvinia Turnpike in that the New Jersey Turnpike is under taking a 2 billion dollar widening projec which will widen the turnpike from 6 to 12 lanes and the Pennsyvinia Turnpike is widening sections of their highway form four lanes to six lanes in some sections all funded with toll only money.

    Recently they proposed putting in $2.00 tolls at the mouth of Interstate 95 in the state to raise 50 million to 60 million a year and they plan on spending that new funding on working on existing sections Interstate 95 to widen and replace bridges. That would be a very good thing in that the state for the last 20 years has spend several billons of dollars building major bridge and widening projects on the highway.

    • Marcella D.

      Mountain passes, tunnels and bridges are easy spots to collect tolls, because alternative routing is longer, restricted (to trucks), or non-existent.

      Almost all highways can have, once built, their operational, depreciation and maintenance costs all paid by tolls, if you don’t factor financing costs.

  • Note that there is a sleight of hand in the Levinson’s argument:

    “Transportation organizations first, not welfare organizations. They should be considered public utilities rather than departments of government, which provide a useful service for a price to their users.”

    If they are considered a public utility, they should be considered to provide a useful service to their beneficiaries. To run a common carrier transport system entirely off of the payments of passengers is to allow all the other beneficiaries to free ride off the passengers.

    That is, fire departments and water departments are public utilities rather than private utilities because of the substantial public good element of the services the provide. My neighbor in a town or city having access to a water supply is quite certainly a service to my neighbor, but if I do not wish to catch cholera, its also a service to me. My neighbor having the fire engine and truck arrive in response to a fire is certainly a service to my neighbor, but if I do not wish my house to catch fire, its also a service to me.

    The public utility character of transport is not as dramatic as that, but, for example, even if we resolve our crisis in cyclical unemployment, if substantial numbers of potential workers cannot access the jobs that they might fill due to limited mobility, that ensures structural unemployment, which unnecessarily increases demand-pull inflation associated with a given level of unemployment.

    • Marcella D.

      I put public transportation in the same tier of regular health care in regard of a classification of public services.

      On a 1st tier, public services with diffuse but essential benefits for everyone, like national security, defense, a society based on law-and-order, firefighting, policing, pandemic outbreak vigilance, the court system etc.

      On a 2nd tier, public services that are delivered on an individual basis, but whose benefits to society are clear and certain, like education, public registries of births, marriages and deaths, patent offices, depositor insurance, street and parking maintenance and cleaning, water, electricity etc

      On a 3rd tier, services that benefits most the individual, without a clear link of whether they will always benefit society, like regular health care, transportation, state patronage of arts, child services agencies, unemployment insurance etc.

      • You should move some public health functions to the 2nd tier, on the basis of preventing epidemics.

      • Nathanael

        You should move electricity and deposit insurance to the third tier; the benefits to society are vague and uncertain. Society did fine without electricity, and still does in some places. Deposit insurance protects the individual, while the *system* as a whole is mostly protected by quite different bank regulations (which aren’t fully functional right now thanks to regulatory capture, but that’s another matter).

        You should move child services and unemployment insurance to the second tier, since the benefits to society are unambiguous (the benefits of child services are in producing a better next generation, much like the benefits of education, while the benefit of unemployment insurance is in avoiding having starving people littering the streets).

        And you should move the patent office off the list entirely, since the best studies say that the patent system is a net *detriment* to society, but that’s also another matter.

        Anyway, I like your classification.

        • Adirondacker12800

          Most people get their electricity from the private sector. It’s possible to get water from the private sector and millions of people do. In rural areas water is something you provide for yourself.

          • Nathanael

            Clean drinking water, however, *does* have clear societal benefits — in disease prevention. In my town, the water company was bought out by the city government after a giant cholera epidemic. There’s a reason to consider it a public service.

            Electricity? Not so much.

        • Deposit insurance does protect the system, from bank runs. It worked fine between when it was instituted in the 1930s, and when it was bypassed with shadow banking in the 1990s and 2000s. It also encourages individual savers to put their money into banks, which can then invest the money, rather than stuff it under the mattress and keep it out of circulation.

  • DBX

    Land use and zoning from the 1920s on dramatically altered the playing field, much more in the US than in other countries. We subsidized and legally encouraged profligate land use and low-density development especially at the state and local level, and then proceeded at the national level to skew the economy to harm the poor and favor the rich. It’s no wonder transit needs to be subsidized now. The alternative is to neuter a large part of our economy by stranding people who can’t afford to participate in the skewed playing field we have created.

    • Marcella D.

      Not really.

      For once, US was scarcely populated early 20th Century (it still is on a national basis, US is on the lowest quarter of population density among all countries).

      Then, tectonic shifts in agriculture made irrelevant the presence of a farm close the the city. This had most to do with refrigeration and early conservation techniques for produce rather than transportation.

      Moreover, the economy was at least as equally skewed towards the rich before the New Deal reforms as now. I can’t see it otherwise: your only pension was to give birth to a lot of children to sustain you later in life. No matter how people might shun McJobs, I’m absolutely certain working conditions in factories of 1910 were much much worse than any low-paying job of 2011.

      • Nathanael

        Agreed. But I’d like to make a point.

        The main reasons bottom-end jobs are better now than in 1910:
        #1: EPA regulations. You’re less likely to get *poisoned*.
        #2: OSHA regulations. You’re less likely to get *crushed*.
        #3: Minimum wage.
        #4: 40-hour week laws (which unfortunately have loopholes).

        Working conditions have, in areas other than these four absolutely critical areas, gotten really quite appalling recently. Employer micromanagement of employees, treating them like draft animals, is back with a vengeance. We’ve even been seeing (illegal, fire code violation) lock-ins.

  • Profitable services in this case will be best option than to come out of this transit. People who cant afford must support this and bring a good solution.

  • Levinson is right.

    The suburban services (usually suburban express in nature) don’t just burn cash. They INCINERATE cash in large bonfires to get suburbanities to think that the system serves them. These suburban service configurations usually only get 2-3 one way trips a day out of a $400,000 bus. Meanwhile, the regular local system is priced well below what it costs to run, leading to the generation of demand that far exceeds the agency’s capability to service and/or chronic structural financial problems.

    The moral of the story is that transit service costs money. The fairy busmother doesn’t exist. I enjoy using toll bridges when I am in a hurry because I know the free ones are hammered. Likewise, it would be nice to get on a bus where my business is needed instead of being driven by a driver whose union sees me as a hostage come contract time.

  • Andrew

    We subsidize transit because if we didn’t, poorer residents wouldn’t be able to travel to work or elsewhere. Without government subsidies a typical transit fare would have to be about $5 or so, which many poorer people could not afford.

    This is especially true with major infrastructure projects e.g. subway lines. The cost of building a subway is so high that fares would have to extremely high if it were funded solely through user fees. This is basically the same reason that most road projects are funded through taxes not road tolls.

    • Marcella D.

      I don’t see the problem with building infrastructure (tracks, roadbed, tunnels for subways, whatever) as long as, once built and handled debt-free for the agency, the agency can cover its costs of running the system with fares.

      • So the other beneficiaries of the service deserve a free ride on the backs of the passengers because …

        … uhm, because why?

        • Marcella D.

          Because operation of vehicles for passenger transportation should not be subsidized to avoid an excessive increase on the government size and interference.

          We build airport runways, highways and inland waterways mostly for free. We provide them security, maintenance and a basic framework of use. Then private operators run vehicles there.

          Public transit should obey the same logic: the static infrastructure, security of the infrastructure etc. should be done as a public service (whether free of charge or not is other discussion). Running vehicles over that infrastructure shouldn’t be subsidized.

          • Nathanael

            But that’s a thumb on the scales. Possibly an OK one but definitely a thumb on the scales.

            Different modes of transportation have different balances between capital cost and operating cost. Declaring “We will cover capital costs but not operating costs” is a thumb on the scales towards high-capital, low-operating scenarios.

            I can’t complain *too* much, as this would hurt airplanes tremendously (make them pay for their own Air Traffic Control!) and help trains tremendously (capital costs high, operating costs low), but still.

  • AlexB

    Tax cars and gas, give that money to transit, operate transit as effectively/efficiently as possible, and chip in extra money from income taxes as welfare to provide extra subsidized transportation services for the poorest who have no other option (and therefore no other way to participate in the economy).

    I don’t see why this has to be so complicated. We know cars/highways/gas burning/etc have negative externalities (pollution, sprawl, congestion) that we can “capture” economically with taxes, and that transit has positive externalities (basically the opposite of car use’s negative ones) that are not rewarded just by paying a fare. It’s really quite elegant the way the two modes are so easily matched in terms of how many ways there are to tax cars (gas taxes, vehicle taxes, tolls) and how simple it would be to give the money directly to transit.

    I don’t see how these basic ideas can be disputed on rational grounds. On the other hand, people who like to debate these types of issues often do so from deeply held emotional positions (the primacy of the free market, our duty to help the least fortunate among us, etc.) I understand why this has to be rehashed constantly.

    • Marcella D.

      @AlexB, your reasoning has a fatal flaw. The logic of taxing cars and drivers (by whatever means) to subsidize transit only works (ignoring all political and moral considerations of singling out drivers to be punitively taxed) until the point where car use falls and thus the transit agencies lose money more than they earn by new transit users.

      On a local basis, extremely high urban tolls would just drive business next town at variable scales.

      Other caveat of your proposal is that richer people can afford expanded costs of car mobility than poorer people, which reinforces the loop of transit having to be low priced because its riders are much poorer than the average population. After all, the gas pumps and road tolls do not discriminate on whether the car you are driving costs $ 1.000 or $ 1.000.000.

      When you are operating a transit system without operational break even point reached, more passengers results in more expenses.

      • However, a lower mode share for cars implies less costs imposed on the public transport services by cars, so what they lose in cross subsidy, they gain in lower costs per passenger.

      • On the issue of rich people being able to afford congestion charges, that is focusing on the hardest segment to get into common carrier transport, and therefore the least urgent part of the total transport system passenger population to worry about.

        Indeed, for the problem of low quality common carrier transport because only the poor and otherwise disadvantaged are on the common carrier trasnport, it’s sufficient if it is considered normal for middle income passengers to use the common carrier transport ~ attracting a large share of wealthy passengers is simply not required.

        • Adirondacker12800

          Additionally the segment of the population that is rich enough to not consider congestion charges is very very small.

        • Marcella D.

          I’m familiar with this “bring the middle class and the stigma will end” in regard of other public service debate, the one about health care and the once about housing.

          I consider unacceptable to force middle class people, directly or indirectly, to use public health clinics or to live in “diverse-mandated” neighborhoods just for the sake of taking their stigma out. It’s social engineering.

          • Nathanael

            Nobody’s talking about “forcing”. You made that shit up.

            At this point public health clinics in Canada and the UK are more attractive than any private health care affordable by the middle class in the US. I know, I’ve been.

            Make public transportation decent, and stop pouring infinite supplies of money into the rathole of highway widenings, and middle class people will go to public transportation all on their own. It’s been demonstrated most dramatically in LA and the NYC metro area.

      • Nathanael

        The logic of taxing cars and drivers (by whatever means) to subsidize transit only works (ignoring all political and moral considerations of singling out drivers to be punitively taxed) until the point where car use falls

        Fine. What’s the problem? We aren’t at the point where car use falls fast enough to cannibalize the revenue stream.

        Yes, this is plain social engineering, internalizing the externality, taxing the *polluting* mode of transport (gasoline cars) to pay for the *less polluting* one (electric trains). I believe it should only be done for anti-pollution purposes, and accordingly it should work exactly the way I described it….

  • Danny

    I think a major logical argument is being trampled on in the effort to wage a philosophical war. Suburban transit services suck. Hard. I used to depend on them as my only form of mobility beyond my own two feet. And while I was thankful that they existed, the first thing I did with the first $800 I could save up was buy a car…and it was worth it to me, because I could actually get to work on time and go somewhere other than the main road in town.

    Using transit systems as a fix for suburban poverty is about as effective as using tanks and bombs as a fix for Afghan poverty. It just doesn’t work. It is a gigantic, terrible waste of money…some of the most expensive form of welfare that we have. I know because most of the time I was being chouffeured around by an overpaid bus driver all by myself in a super stretch limo…err…city bus. Actually, now that I think about it, a stretch limo would probably have been cheaper to operate.

    The solution to urban poverty lies in measures that are far more effective than providing buses in the burbs. They are simple things like housing vouchers, cash based welfare, and subsidized medical care.

    But it also comes in the form of things that the self-appointed stewards of the poor never seem to approve of…like Chinatown dollar vans, school vouchers, and vastly reduced restrictions on housing as well as commercial development.

    But buses? That is nothing more than petty symbolism for a cause that is already lost. The suburbanization of the poor has already happened…and now they have no choice but to spend their money on cars. Or bikes. Or scooters. or roller skates. A bus? That only takes them to places they don’t need to go at half the speed of a bike.

    • Jon

      Good points Danny. I think any time a paternalistic welfare system is instituted, one should ask “would the target recipients be better off with just cash?” In the case of transit in my view, the answer is a resounding “yes, cash would be better”. Most paternalistic welfare programs benefit a few while hurting most others who use them by depriving them of the choices that cash would provide. We should trust people more and, to put a twist on Willy Brandt’s phrase, “Dare more freedom.”

      • And then, when asking the state or local electorate how much money to hand to people so they can, if they prefer, spend it on booze or playing video games or some such, they’ll say, “little or none”, and then we’ll find that people are homeless and starving, and without access to job opportunities to escape that condition.

        The neoliberal utilitarian orthodoxy you repeat ignores the fact that Basic Needs do exist, and are an objectively higher priority than other wants, no matter how intently someone might want to have a drink or play the latest video game.

        • The average middle-class voter may not realize this, but poor people are pretty good about knowing what they need money for and what they don’t. The “They’re buying $200 cellphones” moral panics tend to grossly overestimate the cost of quote-unquote luxury items and underestimate the cost of food and shelter in a modern developed country.

          At best, food stamps and subsidized housing and other specially-marked welfare schemes are ways to assure the ignorant middle class that welfare is not wasted and guarantee continued support for the programs. Though, judging by hysteria over satellite dishes at housing projects and people buying birthday cakes with food stamps, those programs fail at this political goal, too.

          • Success at the political goal cannot be judged by hysteria stirred up by specific actors in the political fight ~ in this case, it assumes the counterfactual that if there was a pure guaranteed income payment rather than food stamps, there wouldn’t be any hysteria created over it.

            I don’t find that counterfactual very plausible. I reckon that there would be as much hysteria stirred up if not more, by the same political actors and with the same political goals.

            However, we do have a non-counterfactual test, because with the recession of the Panic of 2008, and then the Depression conditions that have followed, extended unemployment payments and food stamps have had a substantially different political history. Extended unemployment payments, which are “unmarked” payments, have been on the chopping block a number of times, including one renewal occurring after they had already expired, and expire totally at 99 months.

            Food stamps, by contrast, have not had the same experience.

            • Of course there’s going to be hysteria. There’s hysteria over it in countries where there are cash benefits. You should listen to Israeli neo-liberals talk about child credit sometime.

              The main issue since about 2009 has not been unemployment benefits. The biggest post-stimulus hysteria is about small instances of government spending on things that are culturally identified with liberals, such as basic science and alternative transportation. The biggest major-ticket item that’s under attack is any aid to state and local governments, since the Walkers and Christies think laying off public-sector workers is a good thing.

              Guaranteed minimum income programs aren’t any politically easier than the hodgepodge of welfare programs currently available in the US. They’re just better for the recipients. They’re less humiliating, for one: no responsible fatherhood classes or mandatory paternity tests, no EBT cards that let every supermarket cashier know you’re on welfare and pass judgment on what you buy, no bureaucracy telling you how much to spend on each item (junk food is okay; cooking utensils and gas aren’t; toilet paper and other high-margin groceries, which would induce more supermarkets to locate in inner cities, aren’t okay either).

              The main risk for poverty-level minimum income programs is that a politician like Moynihan will try to fiddle with the definition of poverty in order to cut benefits. But that already exists for Social Security and for any program that earmarks money for a specific purpose. The current situation isn’t any improvement.

              You need to ask yourself whether the purpose of American liberalism is to preserve the legislation that could get past Congress in the urban renewal era or to propose progressive solutions to new problems.

              • Nathanael

                I’m all for a “guaranteed minimum income”. The psych studies have shown that, in order to keep such a program in place, it has to be a standard check issued to EVERYONE, no means testing. Like the Alaska Permanent Fund dividend.

                It would be worth fighting for an American Permanent Fund which issued a $10K check to every man, woman, and child every year. But it’s considered a radical idea.

              • Nathanael

                As a note, even a guaranteed cash payment would not address the problem of medical care, which is a non-plannable cost which randomly hits some people much harder than others. Ken Arrow’s seminal paper on the topic shows that medical care features practically every market failure known.

                Medical care needs to be single-payer (like Canada or Medicare) or a national health service (like Britain or the VA).

          • And also, there are many more poor people than rich people, so even if the average poor person is reasonably good at making choices with limited resources … there are enough poor people out there to ensure a steady supply of anecdotes of poor people wasting money. And given a steady supply of those anecdotes to frame the discussion, its reasonably easy to distort and misrepresent reasonable choices into additional anecdotes of poor people wasting money.

        • Danny

          Basic needs do exist…of course. But my basic needs are not your basic needs, even if they fall into the same category.

          There is always some inherent waste involved due to abuse in any sort of welfare system. The potential for abuse is indeed much higher with cash-based welfare, but that is to be weighed against its superior ability to lift people out of poverty when it is not abused.

          • If “your basic needs are not the same as my basic needs”, then they are not Basic Needs. Its the fact that they are common to people is part of what makes them Basic Needs.

            And there is always some inherent waste involved in any human activity, whether welfare or “public utility” or “private business” or whatever. The waste in the US military expenditures, for example, certainly swamps the total amount that the US spends on welfare. The wastes connected to the explicit and hidden subsidies and cross-subsidies for cars certainly exceeds the total wasted by public transport, since it exceeds the total public transport subsidy.

            • Danny

              As an unemployed 21 year old with parents living close by, I had a lot of need for a car to get me to work, and help with tuition payments…and very little need for health care, rent assistance, or even laundry money. You would not get the same answer from a disabled Korean War veteran.

              The needs of a poor family living in New York are the same as a poor family living in Houston…except that the New Yorkers will spend twice as much on housing, and the Houstonians will spend twice as much on transportation. Both of them will have to spend twice as much on food as a poor family living on a small farm in the central valley of California.

              By treating all poor people the same, you overspend in some areas, underspend in others, and as a result, you make it very hard for people to solve their problems. I can think of a hundred different ways that my life was subsidized by the government, but the vast majority of the money spent on me didn’t actually help me. Some did…but most of it was a complete waste.

              • You are confusing need and unmet need.

                You need food. You need shelter. You need clothing. And you might not be aware of it, but you need access to medical care ~ the fact that the need is a small likelihood of a massive need rather than a certainty of a daily need doesn’t make it less of a Basic Need, it just makes it easier for you to pretend that you don’t have it.

              • Danny

                But I didn’t say that I didn’t have those needs.

                I’m saying that I was capable of providing some of them on my own, incapable of providing others, and the government wasted a shitload of money on me trying to meet my needs because they thought they were better at spending it than I was.

                That is the prerogative of taxpayers. If they don’t want to give people cash, that is their decision. I was the begger, not the chooser.

                But as a taxpayer now, and a former recipient of government welfare, I would rather my tax dollars be spent on efficiently lifting people out of poverty than inefficiently making sure their “needs”, as defined by you, are met.

              • Given that we deliberately adopt economic policies that ensure a large number of people will be unemployed, we guarantee that a large number of people will have their Basic Needs unsatisfied through earnings from paid employment.

                When comparing someone who is not getting enough food, to the position you describe, their need for food is a higher priority than your need for a car (and the additional hidden freeloading on society that goes with operating a car) or tuition support. When comparing someone without a place to sleep, to the position you describe, their need for shelter is a higher priority than your need for a car or tuition support.

                The only possibly unmet need that you describe that might be on the same level of priority as those is your need for medical care, given that you express the same absurd hyperconfidence that many kids in their early 20’s seem to have as far as “not needing” access to medical care.

                Thanks to political grandstanding, we have a seriously messed up system of helping people in this society, but “just handing out cash” would not fix it. By being even more exposed to political grandstanding than dedicated programs, it would likely end up even farther short of addressing the unmet needs created by our economic policies to generate far less demand for employment than the number of people ready, willing and able to work … and being farther short of the unmet needs, decisions on granting and denying access would end up being even more ad hoc, arbitrary and ultimately irrational than they are at present.

              • Danny

                Of course. My need for a car was merely along the same lines as an urban dweller’s need for a bus. Not necessary to live, but it helps them to escape poverty. CUT IT ALL!

                Unfortunately for your argument that handing out cash doesn’t fix anything, welfare economics theory that backs cash-based welfare has plenty of empirical evidence on its side, and it keeps growing. Maybe when Esther Duflo wins her well deserved Nobel, people will actually pay attention to it.

            • Only up to a point, really. My basic needs do not include motorized transportation, but they do include Providence city rent (thankfully free by New York standards). If instead I lived in Fall River, my basic needs would include motorized transportation, but they’d be traded off against somewhat lower rents.

              • The basic need there is for shelter. The available places for purchase or rent are means to meet that need. The transport is also means to meet the Basic Needs. If you cannot walk from a place you can find shelter to a place where you can obtain food, you need some other means of transport to meet your need for food.

              • Maybe I’m spoiled and want to be able to transport myself to work and not just to where I obtain food.

                (This is hypothetical, of course; in reality, my route to work is more walkable than my route to the supermarket.)

    • Nathanael

      Danny, you offer no solution for the suburban poor.

      I’m not saying suburban bus services are a solution. They aren’t.

      But you offer no solution. Cars are no solution; they’re too expensive and they use very expensive gas. Motorbikes and scooters… still use ever-more-expensive gas. Electric cars? Expensive. Electric motorcycles? Sufficient batteries don’t fit. Bicycles? Yes, I guess it will be long bicycle commutes on roads with no segregated bike lanes. And if your bike breaks, you walk.

      In the old days, factory owners would build transportation specifically to get the workers from their cheap housing to their jobs. Now we have employers who seem significantly less willing to worry about whether their employees can get to work. Odd that.

  • G-Man (Type E)

    I like and have supported in several posts on this site, the idea of transportation utilities. Perhaps not in exactly the form Levinson is proposing but similar. BruceMcF is right that you can’t just charge users, you need to charge all beneficiaries.

    I think the best solution is a mixed model where there is some general subsidy of hard infrastructure, some specific subsidy to individuals in need (a low income reduced fare pass) and a market component.

    Transportation provides 2 goods – Access and Mobility. Access is a good that is tied to real property (The Location served benefits by being on the network). Mobility is a good that is consumed by an individual needing to navigate between point A and B (The person traveling is benefiting and they benefit more from a fast trip).

    Utilities often charge a base fee for your connection to the system and a usage fee for what you consume. So, my proposed solution is that a transport utility would plan routes and submit them for approval by a property owners or residents group, kind of like a Business Improvement District, who would agree to (or veto) payment for the full operating cost of the line/network. (There is much work to do in figuring out exactly how the charges would be assessed – by value, units, m2, persons, etc…) Call this the base fee. Riders would still be charged a fare (the usage fee) for the mobility that they consume. Then the fares paid on a line would be rebated to those who paid the fee up to the full cost they covered. If any profit was realized (unlikely, but…) it could either be distributed or used for subsidy.

    In such a system, beneficiaries would pay for what they get, rather than an arbitrary financing scheme that generates revenues regardless of service. In this system, beneficiaries would be charged directly for the service that is put on the street that serves them and thier location. The subsidy would be transparent, the incentives would align correctly in that property owners would want to maximize ridership, users would be more likely to get an appropriate level of service and routes would be designed to be efficient economically – meaning that they would have to balance cost and demand at a level acceptable to the community and riders they serve. Cuts or expansions would not be reactive to “declining or rising revenues” they would instead reflect community desires for service and willingness to pay as expressed through a deliberative process.

    Currently my agency relies on sales tax to fund our service. This has absolutely no relation to either the demand for bus service or the cost of providing it. Political laziness is the only reason such an inane and completely opaque financing method drags on. The public does not understand the connection from general sales to our service. They don’t have a clue about what our costs are, how system design and policy impacts cost, how much subsidy is provided, what kinds of service require the most subsidy, what changes impact cost or subsidy, etc. Making these things more transparent can only help IMHO.

    • This system seems susceptible to mode lock, if the votes are first past the post, which is biased toward a one-size-fits-all system, which of course never fits all and always fits many poorly.

      If there is a proportional voting system, it might be more open to the provision of variety in service of a variety of needs.

      • Nathanael

        While we’re on election reform….

        …ballot questions need to be decided by approval voting.
        For instance, Seattle has never once asked
        “Which of these ideas do you approve of?”
        – Deep Bore Tunnel
        – Shallow Tunnel Combined with Seawall
        – Viaduct Rebuild
        – Viaduct Teardown, no Replacement

        Instead, Seattle has had useless first-past-the-post votes with three options. :-P

      • It’s hard to find clean natural experiments for the importance of electoral politics, since countries with single-member district plurality tend to come from a British political tradition and countries with proportional representation tend not to. Worse, sometimes countries choose voting systems in advance based on expected political characteristics: Israel decided on PR rather than SMDP explicitly because of the large number of political factions prior to independence. However, despite a consensus-based electoral system, Israel’s political system is not very consensual – or, rather, not democratically so. It’s based more on a patronage model combined with a very recent elite consensus. So it’s hard to figure out if switching to PR would do much on the consensus front in the US.

  • G-Man (Type E)

    I don’t view the voting procedure as antagonistic. The utility should engage the community in regularly evaluating service levels and developing improvements, pretty much like today except we are clear about what things cost and who is paying for it – based on simple geography. Transit in many places is and probably will continue to be a “one-size-fits-all system, which of course never fits all and always fits many poorly.”
    I’m not expecting to change the nature of what transit is, just the stability of its financing. Revenue should be generated where benefits are generated. It’s also good to have mixed revenue streams to improve resilience against weakness in any particular one.

    • Nathanael

      Look up the different voting systems mentioned by Bruce. He’s not actually criticizing your idea, he’s saying you need an appropriate voting system in order to make it work. I am very much of the opinion that first-past-the-post causes massive distortions. Some form of proportional representation would do that.

  • Steve

    The rationale for transit subsidies is to maximize tax revenue. Real estate companies used to run transit lines as loss leaders to make their real estate holdings along the line more valuable. Governments can approximate that model. The current rationale for using tax money for building and maintaining transit is to encourage more density and more intense uses along the line. This will produce more tax revenue, justifying the subsidy.

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