Should the Public Pay for Unprofitable Transit Routes? - Commute - The Atlantic Cities

| 2 Comments

Eric Jaffe at Atlantic Cities writes: Should the Public Pay for Unprofitable Transit Routes? - Commute (responding to my previous posts).

I am not sure he frames the argument right. In my view is as much about separating the transit agency from the welfare function as about whether unprofitable routes should be dropped. That is, transit agencies don't do well as dual purpose agencies. Organizations, like products perform better with clear missions (Shimmer is a floor wax and a dessert topping) .

It would be much cleaner to give them a single mission: provide these routes and make money/break even. They would make money from customers on profitable routes, and from society at large on welfare routes that society explicitly chooses to subsidize despite their inability to make money. The operating agency should not be making welfare decisions, that is better done through an explicit public policy process.

Some worry about the explicitness, feeling (and I am not disputing) that if the money-losing routes could not be hidden, they are more likely to be cut.

Jaffe notes the public good argument. But 'public goods' are both non-rivalrous and non-excludable. Clearly transit is excludable, you pay a fare to use it. If it is congested, it is also rivalrous. Thus transit is actually a fairly clean form of 'private good' in the economic sense. There is obviously a social service aspect to this, I am suggesting to separate that out.

Jaffe also notes that streets, roads, and highways are subsidized. I don't disagree there is some amount of cross-subsidy in the system (urban interstate travel subsidizes rural roads), but the user fee (i.e. the gas tax now, or even more precisely in the future, a mileage fee) pays for major roads, and could easily be extended to pay for all roads collectively (some might still not generate enough revenue (i.e. VMT) to be worth supporting). This involves raising the gas tax, which is somehow politically difficult in the US (although would be less so if coupled with a decline in the property tax and other taxes that also pay for roads). However were it raised, there would be sufficient funds to pay for the system collectively. That said, roads have benefits beyond auto drivers, everyone uses roads, including transit users, so it is specious to make this comparison. Property taxes are a second best solution, but is loosely associated with non-user benefits of road use given the user fees are too low on local streets.


I suspect no transit fare increase would be enough to pay for the entire fixed route transit system as we know it in the US, i.e. the demand would diminish sufficiently so as to keep the maximum revenue collected below what is necessary for the full transit system. This is why I suggest separating it out. There is a profitable core. We should try to figure out what it is.

2 Comments

I don't think we can or should separate these two functions of public transportation. Instead, it may be that bus service in particular will become the primary transport between outer ring suburban areas and employment centers as gas prices increase. This may be the most needed bus/transit service since urban circulator routes are often expensive from an operations standpoint and there are other (less expensive) travel options within urban areas like biking and walking. I do agree that bus/transit service providers need to determine what their primary mission is, but I don't think it is ever going to be profitability.

David — Thanks for responding to my post; I thought, and hoped, you would. We may not agree on the public good aspect of transit, and while roads can benefit non-auto drivers, I tend to think they also impose costs on them in the form of poor land-use practices. Still I say this as a huge fan of highways, and we do agree on the need to raise the gas tax. Long overdue. Also agree that mileage fee will make more sense as electrics increase in abundance. Keep up the good work.

David Levinson

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This page contains a single entry by David Levinson published on October 3, 2011 4:47 PM.

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