Wednesday, April 1st, 2009

Small Cities Should Have Fareless Transit

Following on from my transit award, I thought I’d turn from Chicago to smaller cities and look at ways they can design better transit systems. I think one of the best ways to do this is to simply build fareless systems.

Why have a fare in the first place? It is odd that we pay per use on transit. We don’t pay to check books out of a library. We don’t pay to visit most city parks. We don’t pay when the police or fire department come to our house for a legitimate emergency. Most non-utility municipal services are provided for free to users and funded by taxes. So why is transit different? I suspect it is rooted in the origins of public transit systems when they were private, for-profit companies. But they aren’t that today so why adopt those legacy practices?

It seems to me that there are two basic reasons you would charge for a government service. One is to recover the costs associated with it from users. Two is to ration usage.

For the first, think of something like getting a building permit. The city can charge a fee for this that more or less covers the cost of administering the permitting and inspection process. And only the people who are building something need to pay. Sounds like a fair system, as it were. Toll roads also fall into this camp. Of course, the question immediately proceeds to, if you can recover the full cost from users, why is the government providing the service in the first place instead of the market? A good question that should be seriously considered.

As for the second, one can again think of toll roads and using variable pricing as a way to reduce traffic congestion. There are several practical examples of this in actual operation around the world.

Does transit fit this model? No, especially in smaller cities. It is true that only a segment of the community rides transit and so it might seem logical to make them pay for it. But by itself this seems insufficient to justify it. There are lots of services that are not consumed by everyone, but nevertheless are paid for by everyone. As someone who doesn’t have kids but has a rather large property tax bill, schools immediately come to mind. This argument has seldom held water by itself.

Can we recover the cost of transit from riders? Not even close. Large city systems like the Chicago CTA can recover a significant percentage from fares, but nothing close to the cost of operations. The CTA’s farebox recovery is about 50%. And that’s just for the operating budget. It does not include, due to the vagaries of government accounting (not the CTA’s fault), depreciation, which is a huge expense in a capital intensive business like transit.

The Indianapolis IndyGo system recovers less than 20% of its operating costs from fares. IndyGo charges $2 per ride to collect $10 million a year in user fees (i.e., taxes), largely from the poorest segment of the community. But this is only a fraction of the $55 million operating budget. There are already $45 million in taxes going into IndyGo, just for operations. Despite the illusion of fares, the Indianapolis bus system is almost entirely tax supported today.

Again, if you look at a large city like Chicago you can find overcrowded routes where pricing can help regulate congestion. But in smaller cities, this is usually the least of concerns. The real problem is trying to figure out how to convince discretionary riders to use the system.

Add it up, and just generally transit in smaller cities seems like a bad fit for fares based solely on the inability to recover a meaningful percentage of the cost and the lack of any over-crowding problems.

On the other side, there are big benefits to going fareless.

1. Reduced capital expenses. No fares == no fare collection equipment. You don’t need to kit out buses with fareboxes, rail stations with turnstiles or ticketing equipment, etc.

2. Reduced operating expenses. Collecting fares means you need an entire cash management apparatus. Handling money requires care, proper processes, accounting, security, etc. Get rid of all that and you are saving money. Plus, you don’t have to worry about enforcement. Even on POP systems you’ve got the labor of people auditing tickets. Why bother? And you don’t need to pay repair technicians to service this equipment because it will never break down because it doesn’t exist. That also means no spare parts, which can mean less storage requirements, etc. And with less personnel you probably need a smaller office. The list of savings goes on and on.

3. Improved operations. How long does it take for everybody to board at a bus stop as one person after another swipes a pass or fumbles for change? No fare collection means boarding is quicker. You can even board through every door, not just the front. This means less time spent idling, lower fuel consumption, and faster journey times (a big point in getting people into transit).

4. Better ROI. You are building a transit system so that people will ride it. Fares discourage ridership, especially off peak, non-commute trips. That ain’t good. A transit system is a more or less fixed cost network like an airline. Every seat that goes empty goes to waste. We’re paying to run the buses or trains whether or not anyone is on them. The marginal cost of an additional passenger, up until the point where capacity is maxed, is very low. So why not make sure those seats don’t expire worthless?

5. Marketing. It’s a lot easier to sell something that costs nothing. And any city that did this would get major kudos.

The federal rules around transit are beyond byzantine, so I don’t know if this would be legal or not. If not, we need to change the law. But regardless, here’s my thought process. With so little federal New Start funds available, most cities that want to build say a new rail line or BRT system or significantly beefed up city bus network are going to be paying for most of the capex out of their own pocket anyway. This often means a referrendum to approve a tax. If you’re asking for hundreds of millions if not billions in tax dollars to build something, why not also ask for the taxes to run it? Frankly, it’s unfair to ask someone to vote for a tax to build something if the money to operate isn’t going to be in the bank. That’s why our transit systems seem to be in a state of perpetual funding crisis. If you are going to build something, you need to build the opex and long term maintenance into the deal up front. It strikes me that asking for a whole lot of money plus a bit more for operations isn’t that must different from just plain asking for a whole lot of money. And you are doing your citizens a service long term by avoiding the downstream crises. And if you have to pay for the whole thing yourself anyway, you can probably avoid many of the rules that might get in your way.

For America’s smaller cities looking to implement significantly improved transit systems, fareless is definitely the way go.

21 Comments
Topics: Public Policy, Transportation

21 Responses to “Small Cities Should Have Fareless Transit”

  1. downtown-creator.net says:

    When you have a multi-zone fare system (i.e. the swiss “mobilis” http://www.mobilis-vaud.ch), should all the system be fareless (including suburbs and exurbs), or just intra-downtown trips?

  2. Ahow says:

    For those not familar with Seattle, all bus trips in the downtown core are free. This was a great benefit. Their bording procedures were pretty well put together as well: Pay getting on when boarding in the outlying areas, pay getting off when boarding downtown. Most of the mass entry and exit happens in the downtown area, but nobody pays at that point in the ride.

  3. John says:

    Seems to me that this is a simple problem of the fare not varying to match the demand. It doesn’t make sense that the low demand routes cost the same as the high-demand routes. It doesn’t make sense that peak hour travel costs the same as off-peak travel. It doesn’t make sense that it costs $2 no matter how far you go. Economics should be used to match the fare to the demand for the particular route at the particular time. And I’d like to see some fare zones too. Some places actually do this to some extent. For example, DC’s Metro costs more during peak hours and fares vary by origin-destination station pair.

    So a free fare would make sense in many ways, but I’m sure Indianapolis has at least a few bus routes that are over-crowded during the peak hours. In these cases, it makes sense to ration the service with fares as you stated. However, outside of the peak hour, maybe the fare should be lower – or free. Maybe there should be free rides on weekends. Maybe the fare should be different on different routes?

  4. Lynn Stevens says:

    I was impressed by Steamboat Springs, CO, that does offer free transit, albeit on old school buses (I haven’t been in a while and perhaps they’ve upgraded). It makes perfect sense for the town: fewer cars and traffic along what’s essentially one main road, ease of transport (and therefore spending dollars) between town and the mountain.

    What’s often missed in the fare as cost recovery is the benefit received by drivers who are spared the car traffic that transit riders would add if not for transit.

    Also agree with John, that in addition to free, perhaps some routes merit a fare to manage use, but only if there’s another way to get from A to B via transit.

  5. JG says:

    If it is true INDYGO only recovers 20% of their operating costs from fairs, making poorer residents who make up a majority of riders is nearly cruel. The “real cost” to ones livelihood at $4 a day round-trip for transportation gets higher exponentially the less you make. For people making just over minimum wage this is completely cruel. It starts to push $1000 a year or around 5% of your income for those in very low pay work.

    Fortunately URBANO cited some cost benefits for this idea which still stand if the moral arguement doesn’t move enough residents.

    JOHN: Different fares on different routes depending on demand is not a bad idea; however it could negate the benefit of reducing time spent at stops and the cost to collect fairs. Still this might be a FIRST step in moving in the direction of a free system.

    LYNN: The additional benefit to reducing traffic congestion would be great. I guess we would have to see if how many MORE people use the system if it is free. I imagine INDYGO would need to plan on realignments within a year or two of implementing such a plan to better meet demand and resultingly futher reduce congestion.

    Good topic and rationale, URBANO.

  6. Anonymous says:

    I love this idea. I am a very occasional user of IndyGo – maybe once a year – but I’d be all over it (and my car would be out of everyone’s way) if this scheme actually came to pass. I suspect I’d have a lot of company.

  7. Jason says:

    An interesting idea, Urbanophile, for fareless transit for >>smaller<< locales.

    This is related to the part of your award-winning proposal that I had immediate doubts on.

    And that was: fareless transit in (Chicago) big cities for overnight service.

    Chicago is one of the few cities big enough or with residents lucky enough to have bus transit after midnight.

    What I fear you are going to see with fareless owl service is "Homeless Shelter on Wheels".

    There are people who will (are?) work third shifts and with working hours coordinated with doing business with overseas markets on other time zones who can be a new source of ridership.

    Some of these might be sheltered suburbanites unaccustomed to the more pleasant aspects of city life.

    If bus transit has a hard enough time trying to attract new riders who are turned off by sitting next to smelly people, this will be enough to scare them away permanently.

    You have mentioned that you really wanted to win the competition, and that some things in it weren't your actual preferences. So maybe I can hope that you weren't entirely serious with this aspect of your proposal?

  8. thundermutt says:

    Point of order: IndyGo does have varying fares for different routes. The ICE lines, the Airport Express, and the downtown Red Line all have fares different from the IndyGo base fare. So the concept isn’t foreign.

  9. Crocodileguy says:

    The biggest issue as I see it with IndyGo isn't the fare structure (though it does seem pricey, especially compared to Los Angeles), but more so the route structure. Bus stops every 2-3 blocks on Kessler Bl near Broad Ripple? Really? I do not think that's necessary. Pennsylvania St. has two bus stops in Meridian-Kessler that are 1/4 apart if even that–52nd St. and 49th. Why would anyone want to go and be let off at 52nd & Pennsylvania? It's residential-only in character, and with the 49th St. stop (some commercial/retail) only a 5 min walk away, it just seems unnecessary.

    These too-close stops, especially in purely residential areas (Kessler, especially) do nothing but slow the service. IndyGo should make their routes follow a model with stops at activity nodes, and through residential corridors stops should be placed 1 mile apart. Newer research indicates that the old quarter-mile/5-min walk may not be the most efficient as people ae actually willing to go a half-mile/10-min walk. Placing stops ~1 mile apart means the furthest person from either stop walks 10 min, everyone else a little less. And IndyGo should price their $2 routes at $1. LADOT does the DASH routes at 25c, and those are the express commuter routes.

  10. SpeedBlue47 says:

    Interesting proposal Aaron, but I have to bring up quite a few issues with this, many of which were brought up by Jason above.

    First, I am not sure if selling this is a device of a municipal-level welfare program would appeal to the mainstream ridership that one hopes to attract. If a city uses public funds to build and operate a transit system, it should create a system that equally benefits all segments of the population. Middle to Upper class residents will more than likely be more turned away from using transit services that are provided for free.

    Though, there is a possibility that at first, this might become obvious, and could lead to a short-term explosion in middle class ridership currently being crimped by the recession. It might earn Indy some kudos from national media. But I believe that long-term it will cause a drag on the system and hamper efforts to better service levels and increase ridership(along with improving ridership demographics).

    The “free” highway system, which is actually paid for indirectly by users through the gasoline tax, is a much different animal in that each individual user(or group thereof) are encapsulated in their own private conveyance. It might sound bad, but at the end of the day, if people feel that they are placed in an unsafe situation, but have a choice of a more expensive, but safer situation, they will 95% of the time go the safer route. This is whether a recession is on or not.

    Though it would be interesting to see what sort of true costs there are in the cash management portion of operations. Studying this issue could lead to discovering new and genuinely interesting ways to lowering these costs and bringing the actual cost of the system as a whole down. I’ve often wondered if some sort of prepaid card option available at convenience stores, groceries, etc, would be something that might lower cash management costs as well as improve the image of the system.

    Also, I believe that using a much different fare system would better monetize the system’s assets in a fairer manner than the flat fare system in use. A prepaid system, or “subscription” service, based on mileage traveled as opposed to rides/transfers would not only help those that take the bus for a shorter commute, but would also help tell scheduling managers much more information about true ridership usage.

    At the end of the day, I still believe that transit could and should be self-sufficient. I believe the key to this is finding a way to mobilize or liquidate the system’s current assets in a way that would appeal to the market, as well as make more sense financially. Smaller, better appointed buses with shorter headways on more efficient routes may very well be the solution. There is no reason to have “big rumblers” be the only sort of bus people take seriously, especially when on transit routes studied recently by the Cato Institute, the average number of transit users on a bus – even in well-patronized system – is only 11 at any given time. Combining this information with real average time-on-bus could give programmers the sort of data needed to make decisions that move the system towards financial sustainability.

  11. thundermutt says:

    speedblue, there is a serious problem with planning the capacity of a public good on averages: commuting to work, whether by car or by bus, is an activity subject to “peaking”. Average traffic or ridership means nothing. Peak means everything.

    This is equally true of roads and bus systems.

  12. JG says:

    Speedblue: Your last comment regarding a variable size fleet is right on. The suggestion of collecting ‘real time’ data on ridership would refect peak hours, and the often overlooked late-night, weekend lower demand hours – important for those who work nights and weekends. I am still interested by the idea for a “free system” but pre-paying for mileage is worth considering.

    Thundermutt: True, peak ridership is MOST important, but off-peak does (or should) mean something. It means large buses at 10% capcity (burning fuel, wearing down tires, etc) that increase waste in operating costs. Certainly you didn’t disagree with the suggestion of improving variability in fleet size for INDYGO.

  13. The Urbanophile says:

    downtown, from what I’ve seen, multi-zone cities are either larger or involve only selected mode (esp commuter rail). I think it would be possible to charge fares for one mode, but not for another. Also, places like Seattle use a “fareless square” approach with large fare-free zone in the greater downtown area. So I think there is room to apply the fareless concept on a limited basis. But if you do this, you lose some of the benefits I outlined.

  14. The Urbanophile says:

    Following on from a few different comments, using variable pricing to match supply and demand sounds nice in theory. We are seeing it work well in practice on toll roads. But I’m not really aware of this being practiced much in transit systems, at least in the US. You occasionally see small elements of it (rush hour or express surcharges, or Metra’s $5 weekend pass), but nothing significant I’m aware of. IMO, I would not derail the idea of fareless operation by comparing it against a theoretical idea not used in practice.

  15. The Urbanophile says:

    Jason, the problem of homelessness needs to be addressed directly, not via transit policy. We should not make all transit riders suffer just to kick homeless people off the train or bus. And my experience has been that most homeless people just sleep or otherwise keep to themselves. There are plenty of more obnoxious transit riders who aren’t homeless, that’s for sure.

  16. thundermutt says:

    Urbanophile, the DC Metro has both peak-off peak (variable) pricing and zone (distance) pricing. So does the SEPTA suburban rail system in Philadelphia.

    30 years ago, SEPTA charged different prices for each group of 2-3 stations on a local line. That has since been simplified, but the notion is still in place that you pay more the further you ride. I suspect the TWU has a hand in that…the more complicated the fare and collection system, the more conductors and ticket-sellers are needed.

  17. CoryWilson says:

    Way To Go Aaron…you did it! :)

  18. John says:

    There’s definitely something to be said for the simplicity of a single fare, or of no fare. I guess I think that no fare would cause overcrowding problems in a city the size of Indianapolis though. Maybe it could work better in Bloomington or Terre Haute?

    It would be nice to see an effort made to increase ridership in off-peak periods though. I assume the easiest way to do this is with lower fares. If you could boost ridership enough with lower fares, it just might even be revenue-neutral.

  19. Downtown Indy says:

    Intriguing. Suppose the transit systems were placed under the DOT organizations, either state, federal or both.

    Seems like they might apportion more of their funds towards transit vs highway expansion and over time, build a truly viable transit system instead of ripping out and enlarging sections of the interstate network every 5-10 years.

  20. Levois says:

    Haven’t read this at length although I plan to, but from what I skimmed, this plan is ingenious!

  21. The Urbanophile says:

    Levois, thanks for saying so!

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