Sorry, Peak Pricing is Not Market-Pricing for Transit

Blogger David Alpert called my op-ed in the Washington Post arguing for market-based pricing for Washington, D.C.’s subway fares “ignorant,” claiming that Metro has already has this in place because it has instituted Peak-On-Peak pricing. I wish Mr. Alpert had read the op-ed more thoroughly. If he had, he would have realized that peak pricing as Metro has instituted is not the pricing I recommend or the kind of pricing that’s in place right now. I wrote in part:

“While a near real-time pricing system might be theoretically preferable, it would be more practical to adjust fares based on the hour or route traveled. This is the strategy used by Southern California’s pioneering toll roads that guarantees 65 mph speeds 24 hours a day. The key is to set fare levels to ensure reliable and high-level service.

“This pricing strategy has the advantages of reducing stress on the system by matching equipment with the appropriate levels of demand, generating higher revenue to offset operating costs in the near term, allowing consumers to identify the highest value added along the Metro line and establishing a sustainable revenue stream.”

I argue for consumer demand driven pricing both to maximize revenues and manage the system more efficientl. In short, prices (fares) should be set at market-clearing levels.

What does this mean in the context of transit? Prices should be set high enough Metro cars (and routes) are not congested–ever. Anyone who has ridden the Metro recently knows this isn’t the case. I ride Metro frequently, and have missed 2-3 trains during peak morning hours because they were simply too full to pack me in.

But, more to the point, the pricing I recommend is fundamentally about guaranteeing a level of service at a price the market is willing to bear. That’s obviously much higher than the current rate. More importantly, it needs to vary by route and hour of the day. I specifically cite the 91 Express Lanes in Orange County, California, because they set toll rates by the hour to guarantee free flow travel at 65 mph hour, 7 days a weeks, 24 hours a day. This policy implicitly means that the lanes have 48 separate toll rates (24 east bound and 24 west bound) that are set based on travel demand. (In practice, toll rates are the same in several hours, but they are still set seperately to ensure the targeted Level of Service.) That’s not what Metro has in place now. Off Peak, Peak, and Peak-On-Peak fares represent three rates that are largely divorced from level of service and set for the entire system.

This distinction is conceptual, not semantic. Metro still has not embraced the concept of consumer driven pricing–setting prices based on willingness to pay. The Peak-On-Peak price is really still about revenue generation for Metro, not system management. Until this changes, Metro will still be leaving revenues on the rails and its long term financial viability will remain contingent on the generosity of taxpayers and the federal government.

Samuel R. Staley, Ph.D. is a senior research fellow at Reason Foundation and managing director of the DeVoe L. Moore Center at Florida State University in Tallahassee where he teaches graduate and undergraduate courses in urban planning, regulation, and urban economics. Prior to joining Florida State, Staley was director of urban growth and land-use policy for Reason Foundation where he helped establish its urban policy program in 1997.

Staley is the author of several books, most recently co-authoring Mobility First: A New Vision for Transportation in a Globally Competitive 21st Century (Rowman & Littlefield, 2008). Texas Gov. Rick Perry aid Staley and Moore "get it right" and world bank urban planner Alain Bartaud called it "a must read for urban managers of large cities in the United States and around the world."

He is also co-author, with Ted Balaker, of The Road More Traveled: Why The Congestion Crisis Matters More Than You Think, and What We Can Do About It (Rowman and Littlefield, September, 2006). Author Joel Kotkin said, "The Road More Traveled should be required reading not only for planners and their students, but anyone who loves cities and wants them to thrive as real places, not merely as museums, in the 21st Century." Former U.S. Secretary of Transportation Mary Peters said, "Balaker and Staley clearly debunk the myth that there is nothing we can do about congestion."

Staley's previous book, Smarter Growth: Market-based Strategies for Land-use Planning in the 21st Century (Greenwood Press, 2001), was called the "most thorough challenge yet to regional land-use plans" by Planning magazine.

In addition to these books, he is the author of Drug Policy and the Decline of American Cities (Transaction Publishers, 1992) and Planning Rules and Urban Economic Performance: The Case of Hong Kong (Chinese University Press, 1994).

His more than 100 professional articles, studies, and reports have appeared in publications such as The Wall Street Journal, The New York Times, Washington Post, Los Angeles Times, Investor's Business Daily, Journal of the American Planning Association, Planning magazine, Reason magazine, National Review and many others.

Staley's approach to urban development, transportation and public policy blends more than 20 years of experience as an economic development consultant, academic researcher, urban policy analyst, and community leader.

Staley is a former chair for his local planning board in his hometown of Bellbrook, Ohio. He is also a former member of its Board of Zoning Appeals and Property Review Commission, vice chair of his local park district's open space master plan committee, and chair of its Charter Review Commission.

Staley received his B.A. in Economics and Public Policy from Colby College, M.S. in Social and Applied Economics from Wright State University, and Ph.D. in Public Administration, with concentrations in urban planning and public finance from Ohio State University.