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.
This post original ran on April 1, 2009.