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Friday, March 5th, 2010

Replay: Small Cities Should Have Fareless Transit

[ When this post originally ran, one of the principal objections was that homeless people would just hang out on transit. First, I think that is a pretty pathetic basis for making a major public policy decision. Second, I think there are many ways to prevent buses and trains from turning into rolling homeless shelters besides making everyone else pay a fare. ]

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.

14 Comments
Topics: Public Policy, Transportation

14 Responses to “Replay: Small Cities Should Have Fareless Transit”

  1. Mark Arsenal says:

    Of course, all the cost savings you are mentioning would pit this plan fiercely against transit union interests, and my understanding is that even very small markets still have very heavily unionized transit workers.

    Selling this would require pushing the benefits other than cost-savings, I think. Taxpayers who don’t use the system may be a major impeding stakeholder in the no-fare argument, but I think focusing on other stakeholders with other arguments would be more productive than convincing suburbanite drivers of the benefits (few politicians are ever fondly remembered for the money they saved/cut from budgets).

    I say market it to the poor, who will be rescued from an awfully regressive tax. Market it to the transit unions, in the sense that they will no longer feel their jobs are on the line by the ebb and flow of ridership, or that their jobs are guaranteed by dedicated tax dollars.

    Then very very quietly close the accounting office a couple years later.

  2. Elaine says:

    I know of two sections of two different transit systems in my area that are fareless: the “DASH” service in Olympia WA, and the Link light rail in Tacoma.

    Both are trying to get people to stop parking in the core downtown and run from areas with more parking into that core. They both advertise on the convenience factor. Tacoma has the even more astonishing condition of a huge free parking garage at one end of the Link line. (Relatives from out of town LOVE it.)

    Seattle also has (or used to, it’s been a while) a Fare Free Zone that encompasses most of the downtown area.

    My general impression is that downtown boosters & retailers love anything that gets more people into downtowns. It’s a little trickier to imagine supporters for the more workaday routes, though.

  3. Alon Levy says:

    I may be overgeneralizing from New York, but I think the transit unions are dominated by bus (and train) operators and maintenance workers, not white-collar accounting office workers.

    The basic benefit of fare-free transit is that fare collection costs go down to zero. But POP does nearly the same thing without the lost revenue; ticket inspectors don’t cost a lot of money. Many of the other benefits can be realized with reduced off-peak fares, fare-free downtown zones, and large unlimited monthly discounts. These benefits can then be copied to commuter rail if a city ever builds it, which would cost a fraction of the cost of light rail or multi-conductor legacy commuter rail.

    The reason I’m bringing this up is mainly its effect on large transit agencies, where the lost revenue would be significant. But small transit agencies can quickly turn into large agencies given the right investment.

  4. Excellent idea. Tough politically, though. You are asking the tax paying middle class to provide free transportation to the poor.

  5. (left blank) says:

    quote:

    “First, I think that is a pretty pathetic basis for making a major public policy decision.”

    No, the prediction that homeless will loiter in fareless buses is an observation of an unfortunate consequence of this idea.

    The objection to this policy is rooted in the common-sense principle: make something “free” and people will over-use and oversubscribe. Which results in higher costs all around and accompanying limits in service.

    There are abundant examples in today’s world. Here’s one pulled out of the news: employer (or government) provided health insurance which makes employees less price-conscious and so it seems freeish (even with co-pays) and they overuse.

    That is interesting that you mention “fareless” municpal services such as police and fire. I often wonder if we are best served with having _fire_men’s main job as responders to auto accidents. And then having a fire engine accompany an ambulance to simple medical emergencies. Gotta wonder about escalating public sector inefficiencies.

    Some of us still remember quaint things like subscription libraries, pinkertons, turnpikes, saving 20% downpayment on homes…

  6. Alon Levy says:

    Yes, some of us remember quaint things like the poor being locked out of libraries – when they read books, they all turn communist anyway; better keep them illiterate.

    Medical care for pay isn’t really quaint – it’s happening right now in the US. Somehow, the copays and deductibles haven’t prevented the US from having twice the per capita health care expenditure of countries where health care is free or nearly free.

  7. Wad says:

    Craig Hullinger wrote: Excellent idea. Tough politically, though. You are asking the tax paying middle class to provide free transportation to the poor.

    That’s just the middle class cutting off its own nose to spite its face.

    The middle class will have every opportunity to use or not use the system. They won’t be means-tested by the driver.

    The big problem with fare-free transit is that it has to be kept at a scale to ensure that the service won’t be more popular than the service available.

    We have a system in Southern California that illustrates this point. The City of Commerce runs a free bus system that’s fundamentally for its residents but anybody can use it. It’s also, as you would expect, a highly popular service.

    It’s not something that can be scaled, though.

    Things you must know about the Commerce bus system:
    1. There are five routes, but all of them are designed to make only one trip type possible: going to and from the Commerce Center shopping center. Most of the ridership is mothers and their children.
    2. All but one route only serves the residences of Commerce. Commerce’s residential uses are only 30% of the land use in the city limits. The rest is industrial, with limited retail.
    3. Buses only run once an hour, and the system shuts down at noon so the drivers can have lunch. Coincidentally, the trips immediately before and after the break are the busiest.

    It’s good for what it is, but can’t be anything more.

  8. Benjamin Lukoff says:

    Elaine, Seattle does indeed still have the Ride Free Area. Battery in the north, Jackson in the south, 6th in the east, and the waterfront in the west. Only covers buses, though, not the new light rail system or the Seattle Center Monorail.

  9. free transit says:

    Welcome, urbanophile, you surprise us.

  10. Eric says:

    You’re are dead on about the fairness of asking people to pay for things without the money to operate it.

    I believe one potential added benefit for introducing fareless lines is that folks in that city will begin to regard the service “as a right”, and their envious neighbors will begin to demand it.

    We need to be more expressive and outspoken, as planners and designers, about stressing the convenience and quality of life amenity of transit. This is what drove the expansion of streetcar lines in the old days. People directly tied their notions about quality of life to the availability of transit. Today they think about the car in those terms…But this need not be! You just need to get them to see the value of the alternative.

    Today’s new multi-generational lifestyle centers represent for us a tremendous opportunity. I believe that where we have the most latent capacity to change the thinking around transit among Americans is by creating more of these family oriented TOD’s…Which create an option that induces envy among the exurb and separated use populations. One of the finalist teams for the ULI/Hines competition this year (from NCSU) is proposing “Family Oriented Development” as a model to spur market demand by collocating uses that families associate with a higher quality of environment for their kids. Free transit could be part of that package of consolidated choices which promote broader changes in capital markets, such as the way the health care industry today is slowly but surely turning its attention to lifestyle centers. If the health care service provider can change their thinking about how they approach real estate decisions, just think about the broad implications! How will grocery stores respond? How will Pharmacies??

  11. Travis says:

    I hate how people assume that the middle class would be paying for a service to the lower income people. I have ridden both train and bus in Chicago and it is obvious all classes take advantage of these systems.
    I find the thought about reducing downtown parking to be interesting. If you can replace large parking garages with more residential/commercial space downtown then you are allowing your downtown to be more walkable and to bring in more tax dollars through higher density. I do not believe large parking lots should be moved outward along rail stops like on Chicago’s Metra. There is great opportunity for mixed use development at every stop.
    One last point that I cannot believe was not brought up is the large impact a free and convenient transportation system could have on reducing traffic density and therefore slowing the rate that we have to expand existing roads. If an interstate still maintains to increase its use then tolling can be used to help convince more people to use mass transit or collect funds for both the road and the cities public transit.
    Now that we are a generation that can get work done by riding a bus or train to work rather than driving this type system is much more valuable and should be taken advantage of. I don’t believe Indy is looking at doing this but the city has been looking for something that can set them apart from their competition.

  12. JW says:

    I’m in a small city considering a high-frequency circulator, inspired partly by the Chattanooga model. Early on when I consulted with the administrator, he told me that when they considered whether to make it free or charge a fare, they looked at two commmunities whose circulators had been free and then started charging a nominal fee. They lost 2/3 of their ridership. Sounds extreme, but that’s what he said. I think a lot of it is having to worry about exact change or whether the farebox will make change. Then, it’s like, why bother. Fareless is the only way to go.

  13. Paul Foer says:

    Two things must be carefully considered:

    1. What is the public and political goal for transit in the first place? If there is a pro-transit ethic that sees it as an economic engine despite being a financial drain, then go for it. And you can find ways for businesses and business partnerships to buy-in and support, so public subsidies (investment?) could be lowered.

    2. Knowing how woefully inefficient transit is in the first place, if farebox recovery is already really low, as it often is, why not reduce losses by discarding all money and fare collection services and costs?

    If you create a fare-free zone, but not a totally fare-free system, it can increase ridership and revenue, even with the loss of fares in some areas, usually the downtown core of course. By introducing many to the transit system, it can boost public support. Eliminating fares can also speed up the system and reduce “dwell time”. I still believe the best way to do this is with buy-in from businesses who can financially support such a system so the public subsidy does not rise.

    Thank you Paul Foer
    http://www.annapoliscapitalpunishment.blogspot.com

  14. glenn gaven says:

    in austin, we have been pushing for fare free transit with little success despite being a place where it has been successfully tested in 1989-90 city wide, and a medium scale example of a fare free system, the “UT shuttle,” has operated for over 35 years. the problem is the transit authority considers us a big city, and conventional wisdom is that fare-free is only feasible in small places like commerce city and logan, ut. if the definition of “big city” is narrowed, for a discussion of transit, to acknowledge per capita subsidy, i suspect we would be regarded as a small city and the discussion could then move forward. better yet would be an expansion of the feasibilty parameters by credentialed people like renn which would expedite inclusion of fare free transit into big city decision makers’ arenas.

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