Should The T Keep a Commuter Subsidy?

In order to close next year’s budget gap, Boston’s MBTA transit system is planning to raise fares and cut service. This will be the first time since 2007 fares have been changed.

A detailed analysis released by the Central Transportation Planning Staff (CTPS) last week considered two scenarios with sharp increases. (The report, along with other materials and a listing of planned public meetings is available at http://mbta.com/jointhediscussion) This analysis includes the specific bus routes considered for elimination, a topic I won’t discuss here but one which deserves close scrutiny.

Under Scenario 1, which contains fewer service cuts, the regular Charliecard fare would increase from $1.70 to $2.40 (paying by cash would be slightly more expensive, as now). Under Scenario 2, with more service cuts, the fare would increase only to $2.25. Although large increases in percentage terms, these fares are reasonable when compared with other major U.S. subway systems. The combination of fare increases and service cuts will help the agency keep pace with the agency’s skyrocketing costs of employee health insurance, energy, and system maintenance. Of course, additional revenues from the state government is always a possibility.

However a large number of riders don’t pay the cash fare. Instead, they purchase the unlimited local bus and subway “LinkPass” that was introduced in 2007. The price of this pass will increase also, from $59 per monthly currently to $80 for Scenario 1 and $78 in Scenario 2. The overall logic of the fare structure was only subtly modified, and CTPS notes in their study that “the cash-fare equivalent would decrease or remain virtually the same in both scenarios” for all types of passes — including the LinkPass.

The cost of the current pass is worth about 34.7 single trips on local buses or subway lines. Since the typical month has about 20 work days (40 trips), taking into account a few weeks of vacation, holidays, and personal days, averaging about 34.7 trips per month seems like a reasonable point to incentivize buying a pass for most riders. Put it other terms, current pass holders pay about 87% of the full cash fare for a month of commuting (40 trips). This would stay the same for Scenario 2, but drop to 83% for Scenario 1.

There’s only one problem with this analysis — LinkPass riders use their passes much more than that. With the introduction of the new fares in 2007 the MBTA introduced an “Automated Fare Collection” system, which means raw data about ridership patterns are available. In an analysis I completed last spring with CTSP-provided data, I found that in that year each LinkPass sold resulted in 52.13 subway trips and 12.79 bus trips per month that year. This means the effective price per trip is significantly lower than the “regular” cash fares. The average rider is getting a $26.62 discount per month on the subway alone, paying roughly $1.13 per trip. Of course, many are paying much less — or much more.

Having such a low-cost unlimited pass is unusual. Washington, D.C.’s system charges time- and distance-based fares for each trip, only offering limited passes. New York City’s pass is $104, and Atlanta’s is $95.

Of course, such an inexpensive monthly pass can be justified on several grounds. It could be interpreted as a liberal concession to the city’s large transit-dependent population. However if it is, it is an inefficient one indeed, since LinkPasses are also owned by a large number of well paid professionals. Political logic may also suggest avoiding a detailed analysis of the complete fare structure. Perhaps an across-the-board increase is conceptually simpler to discuss in the 20 public meetings that are planned. However, since increases happen so infrequently and the trouble of 20 public meetings are planned, shouldn’t all aspects of the system’s fares and operations be up for negotiation?

This issue is only one that will be discussed in the coming months. Others include which routes should be changed or eliminated, what additional reforms are possible to reduce the MBTA’s expenses, and what other sources of revenue are possible including a plan for more regular fare increases. Hopefully the process will result in a plan to put the MBTA on a more sustainable financial footing, with sensible trade-offs among the multiple public objectives involved.

More resources:
> See my previous post “Raising Fares on Boston’s Subway for Safety and Reliability”
> See supplementary information at www.mbta.com/jointhediscussion

Raising Fares on Boston’s Subway for Safety and Reliability

Boston’s subway plays a critical role for the city. Despite a fare increase in 2007 and receiving a dedicated portion of the state’s sales tax, in recent years the agency’s tight budget (driven partly by labor, health care, and energy costs) has prevented needed maintenance and upgrades. With many of the system’s cars nearing the end of their operating lives, it is only a matter of time before service reliability and safety are impacted even more. For these reasons, the MBTA is expected to begin the process of raising fares in January.

In my view, political unwillingness to raise fares has resulted in a situation where the safety, comfort, and convenience of riders are threatened. Fares should be raised, and the additional revenue used for maintenance and upgrades to tracks and train cars. Many of the T’s riders are middle and upper class — and can afford fares that are closer to the true cost of the service. However, I also support creating discounted fares and passes for low-income residents.

To be clear, this is a second-best solution to creating new broad-based taxes that are less sensitive to economic cycles than the sales tax (such as those used in Paris). However the political resistance to raising or increasing any taxes, as well as a widespread “user pay” principle in U.S. transportation means fares will remain a significant source of revenue. As described below, my analysis suggests increasing fares in Boston may reduce ridership slightly, but not result in a “death spiral” of declining ridership and revenue sometimes seen in other cities.

A common objection to raising fares is that it will encourage more people to drive to work. According to an analysis I completed for a class project last spring, the system’s relatively low price elasticity means this effect will be muted for most of the core subway system. This low elasticity is probably due to the high cost of parking in most of Boston and the low existing fares (compared to the price of other transportation options).

In a class paper, I investigated what the effect of increasing the MBTA fare to a new flat rate of either $2.00 or $2.25, or implementing the distance-based or peak fare structure used by Washington, D.C.’s WMATA Metrorail. Below are links to a presentation summary and the original paper.

To do the study, I applied elasticities estimated by the state’s Central Transportation Planning Staff (CTPS) after a 2007 fare restructuring. Using the Automated Fare Collection system data, I made assumptions about where passengers traveled to using the pattern of morning and evening boardings. I found current riders pay different prices based on the fare type:

• CharlieCard fare: $1.70
• Monthly LinkPass average: $1.13
• Systemwide average: $1.26

An important finding is the very low average price being paid by owners of the LinkPass for each trip. Because of the relatively low elasticity for subway trips and popularity of passes resulting in low effective fares, increasing fares would generate substantial additional revenue but also possibly decrease ridership. Note I assume all riders would pay the new fare, if there remains a subsidy for pass holders the magnitudes would be smaller.

I did consider equity considerations in the paper, however it is difficult to analyze without rider-level data. Distance-based fares would result in dramatic increases in total fares for outlying stations.

For comparison, I completed a quick survey of the cash fare for large, center-city subway and light rail systems (as of August 2011). The results are uniformly higher than the average price paid by MBTA riders, and all except Los Angeles are higher than the $1.70 paid by most per-trip riders in Boston.

• New York City – $2.25
• Chicago – $2.25
• Salt Lake City (LR) – $2.25
• Denver (LR) – $2.25 – $5
• Miami – $2
• Philadelphia – $2.00
• Washington, D.C. – $1.95 – $5
• Dallas (LR) – $1.75 – $5
• Los Angeles – $1.50

Interestingly I may have been too conservative in my analysis, as some of the flat fares discussed here are even higher than those I tested. I hope the results of the analysis mentioned in this article are made public, and compromise options such as low-income subsidies are put on the table for consideration.

Resources:

• Read the complete paper: Analysis of Alternative Fare Structures for Boston’s Subway (PDF)
• See my post describing transit finance in Boston: Why the T is Broke
• See posts on the Washington, D.C. fare structure: Metro’s Fares Analyzed, D.C.’s Metrorail Fares in Context
• See Yonah Freemark’s interesting post on transit finance comparing New York and Paris