Where Transit Could be Self-Supporting and How Politicians Ensure That it is not

Commentary

Where Transit Could be Self-Supporting and How Politicians Ensure That it is not

Operating a transit system in most U.S. cities is a challenging task. Low population density, high fixed costs and political realities limit transit’s farebox revenue. While the most popular lines in many cities, can be 100% funded through farebox revenue, most lines receive some form of subsidy. Many transit lines are lucky to have 40% of their operating and maintenance costs covered by farebox revenue. There are several ways to increase the percentage of farebox revenue that transit systems recover including contracting out service, reducing or eliminating unions, incorporating better management practices and improving cooperation with neighboring transit systems. And while most transit systems could have several lines with a 100% farebox recovery rate, the vast majority of systems will always need some small subsidy.

The challenge of providing quality transit service is based on geography and land use. On a world scale most American metro areas are low-density places spread over a large geographic area. They have post world war II development patterns built around the automobile. Compared to many European and Asian cities with denser, pre world war II development patterns developed around walking, American transit systems have to travel a larger geographic distance to pick up the same number of people and have any hope of breaking even. These distances and other policies lead to the average transit commute being twice as long as the average automobile commute; as a result, most choice riders in the U.S., forgo transit for the automobile.

But there is one metro area in the U.S. that is different: New York City. New York is more like a European city than an American city with extremely high densities and a large transit ridership. That the system has enormous debts that threaten to cripple it in the next ten years is more the result of poor management and the $1 billion cost to build one 2nd Avenue subway station than passenger demand. Because of its poor management and debt load, MTA needs to find the resources for $32 billion worth of improvements. One option not being considered by chairman Thomas Pendergast is raising fares. According to Pendergast:

We (MTA) have never, ever closed the capital program on the backs of the fare payers. That’s unconscionable. That’s not our desire. That’s not what were going to do.¹

Aside from fake angst and a sudden interest in low-income riders, Pendergast must view politics and the world from inside a bubble. Asking everybody but the people taking transit to pay for it lacks Economics 101 and shows a certain level of emotional arrogance not seen outside Wall Street.

There are two major reasons why MTA and Pendergast should raise fares. The first is the very high cost of living/traveling/commuting/doing anything in New York City. The second is that many of the subway’s clientele have incomes well above average and lower income riders already get discounts.

First, let’s examine the high costs of living in New York. Last year MTA increased its fares all the way up to $2.75. While that is more expensive than some transit agencies, it is in line with the $2.50 to ride MARTA in Atlanta, $2.25 for SEPTA in Philadelphia and $2.65 for MBTA in Boston; each of these transit agencies charge far below market rate. It is below the average fares in Washington D.C. and San Francisco which feature distance based pricing.

But when we consider both the high average salary and the costs of living in New York City, those fares suddenly look like a bargain as the chart below shows:

Table 1: Cost of Living New York City Compared to Other Cities

City Comparable Salary Groceries Housing Utilities Health Care
New York City $111,569
Atlanta $50,000 23% less 78% less 34% less 10% less
Boston $69,064 16% less 60% less 1% less 7% more
Chicago $58,551 23% less 69% less 25% less 11% less
Philadelphia $59,909 15% less 69% less 11% less 12% less
Washington DC $71,026 18% less 44% less 29% less 14% less
San Francisco $83,953 8% less 31% less 26% less 6% more

Considering salaries alone, a ride on the New York City subway should cost close to $5.00 one-way. And there are other factors that argue fares should be much higher. Using a category such as housing, where the difference is more pronounced, a one-way subway trip should be $10.00. In fact New York is more expensive than average in most every category including Health Care and Utilities.

New York is also a very expensive place to own a car. Since driving is the most popular alternative to using transit, let’s examine some of the costs of owning and driving a vehicle. How does New York compare to other heavy rail regions? Compared to fourth place Philadelphia, Manhattan transit users save $2,985 per year by choosing transit instead of parking. Assuming 20 workdays per months, the average Manhattan transit user is savings $12.44 per day in parking costs.

Table 2: Cost of Car Ownership

City Average Monthly Parking Cost Average Commute Distance Average Insurance Cost
New York City $562 34.8 minutes $2,712
Atlanta $95 29.3 minutes $2,225
Boston $405 27 minutes $2,681
Chicago $289 28.7 minutes $2,859
Philadelphia $313.25 26.5 minutes $2,931
Washington DC $270 33.9 minutes $2,127
San Francisco $375 29.2 minutes $1,815

New York also has some of the longest car commute times in the country. While most big city centers are hard to access by car, none is at quite the level of New York. According to the census, the average one-way trip travel time in New York is 34.8 minutes, more than 5 minutes above the average and a full minute ahead of second-place DC. New York City is also near the top for car insurance rates, although Chicago and Philadelphia are a little pricier.

The bottom line is that New York’s commute is far exceed those of any other U.S. city. The region also has, by far, the highest paid workforce in the country. Yet its transit fares are in the middle of the pack. With substantial deferred maintenance New York is facing major cuts in service. Asking riders to pay more as they have in Atlanta, Boston, San Francisco, and Washington is appropriate. And higher prices will help solve MTA’s major debt, which is going to become a major issue if it is not addressed. Further, what is actually unconscionable is how working class drivers are now subsidizing wealthy rail riders train trips. I wonder why the MTA never manages to put that in its press releases.

Baruch Feigenbaum is assistant director of transportation Policy at Reason Foundation a non-profit think tank advancing free minds and free markets.