Tuesday, October 27, 2015

The Farebox Recovery Ratio: A Misleading Metric for Los Angeles County

Metro is writing a new comprehensive Long Range Transportation Plan (LRTP).  Under the existing LRTP from 2009, Metro hopes to increase the farebox recovery rate of its bus and rail systems.  Farebox recovery is the percentage of transit operating expenses that are covered by revenues from transit fares.  The current rate is 29%.  Metro hopes to increase the rate to 33%.  Under current circumstances, this probably means raising the price of bus and train tickets.  Here I’d like to explain why I think a different goal is more appropriate for the new LRTP: maximizing ridership.

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What would this kind of breakdown look like for other transportation modes?

Charge More?

But first, you might ask: “What’s wrong with charging a bit more?”  It’s an understandable question.  In order to keep things going, Metro has to match expenditure with revenue. Any organization that keeps running deficits eventually becomes insolvent. So farebox recovery would ideally be 100% and Metro would be in the black, right?  Under this scenario, the subsidies keeping the buses and trains rolling are the problem. Society may begrudgingly pay out of a sense of moral obligation to the poor, but users should pay more so that we can keep this handout as small as possible.

Subsidies are . . . Complicated (and Pay for Drivers too)

The characterization described above is too simple.  The government subsidizes every mode of transportation so thoroughly that singling out the buses and trains in Los Angeles is a mistake, and a misunderstanding of how the Los Angeles region funds its transportation investments.

Transit Riders Pay Twice

First of all, transit users pay twice for public transportation.  Obviously they pay when they swipe their Tap cards on train platforms or when they get on the bus.  Each weekday, Angelenos partake in this activity over 1,350,000 times.  Second, transit users pay in the form of taxes.  Sales taxes, to be precise: under the county-wide referenda Proposition A (1980), Proposition C (1990), and Measure R (2008), transit riders contribute again to Metro’s bottom line via a 1.5 percent sales tax.  Close to 70% of Los Angeles County transportation investments come from these 3 county sales taxes, and a 4th is under consideration for the ballot in November 2016. A large portion of the funds raised under these measures admittedly flows to capital projects, not operating expenses.  Still, the fact remains that transit users pay to ride, whereas drivers are not charged for entry onto the freeway.  

Drivers Get Subsidies Too

The inescapable fact remains that driving (and parking) is hugely subsidized in Los Angeles County.  The freeways may be free to use, but they were certainly not free to build, and they are not free to maintain.  The myth that gas taxes pay for roads has been thoroughly discredited: today, less than half of U.S. highway spending is paid for by user fees such as the gas tax.  Indeed, user fees also fail to cover operating expenses at the airport: under projections for 2014, only 23% of LAX operating revenue came from user fees, while a remarkable 17.2% came from parking (suggesting that Metro is also ignoring a potentially vast revenue stream by generally providing free parking at park and rides).  In addition, the cost of providing parking of all varieties is bundled into land development costs and passed on to tenants in the form of higher rents. In short, everyone pays for highways and parking lots, even if they don’t own a car. Just as the non-transit riding drivers pay for Metro through sales taxes, so to do the transit riding non-drivers pay for the highways via their tax dollars. The incidental benefit conferred on drivers by the bus and rail systems is also enormous. While congestion is already an issue in LA, imagine if the daily 1,350,000 trips taken by bus or rail were made from behind the wheel instead.  Congestion would be significantly worse.  

Are Fares too Low or too High?

So transit users subsidize motorists.  They should still pay more per ride, though, right?  Joseph Stromberg argues this point: “Transit in the US is caught in a vicious cycle,” says [Columbia University Professor of Urban Planning David] King. “We push for low fares for social reasons, but that starves the transit agency, which leads to reduced service.”  Stromberg argues that cities with higher fares have better service, citing London as an example.  It’s  true that London “collects a staggering 91% of its operating costs from its commuters.  But is this a uniform ideal?  Stockholm collects a mere 37% of operating costs from its commuters, but operates at high frequencies and covers a large geographical area.  Is Stockholm doing it wrong?  London charges £4.80 for a cash-purchased one-way tube ticket.  Is that extraordinarily high price a good one?

Higher Price, Lower Demand

Under current circumstances, the likely result of higher transit fares in Los Angeles is reduced ridership. Higher prices reduce demand, particularly when the cost of driving remains low. We’ve seen this in LA already: since the fare hikes took effect in September 2014, bus ridership has declined by 5% and rail ridership by 2.7%.  With the increased revenue from higher fares, declining ridership may not create fiscal pain in the short term.  In the long term, however, fewer riders translates into less revenue, eventually forcing additional fare hikes that further depress ridership. This is not a winning dynamic, but a trap leading to slow decline.

Maximizing Ridership Means Intensifying Land Use

The farebox recovery ratio fixation leads transit into a dangerous conceptual space: fare hikes and service cuts. But there are ideas outside this straightjacket: the pattern of development itself, the exponential power of reliability, and the untapped financial power of land near transit stops.  Metro should focus on incentivizing walkable urban places around train and bus stops and focus on frequency. Funding the ideas and strategies outlined in its 2014 first/last mile strategic plan would go a long way towards realizing these aims (and putting a price on parking might be a first step towards finding the necessary funds).  Achieving these goals will maximize ridership, the only sure way towards securing the financial solvency of the transit system.  The new ballot measure under consideration for 2016 may raise tens of billions of dollars for transportation infrastructure.  It will subsidize trains, buses, and lots of roadway (and highway) projects for cars.  What will the return be on that investment?

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