Archive | Fares and Rider Policies

Could TriMet become a “free” (or nominally-priced) service, Part 2

Last fall, Portland Transport considered the question of whether or not TriMet could become a free (or nominally-priced) service. Right now, the Farebox Recovery Ratio of the TriMet system in aggregate is about 25%, and last fiscal year fares provided nearly $100 million of TriMet’s overall operating budget.

This discussion occurred right after TriMet first announced that it would be having major budget issues for FY2013. Since then, the announced service changes have been ugly, with fares going up, and service going down; and TriMet suggests that more will come next year, even if the economic recovery continues–a state of affairs TriMet blames on its current labor contract.

However, as noted in the open thread, another Oregon transit provider recently switched to providing free service. That agency is the Corvallis Transit System.
About CTS

CTS, as the name suggests, provides public transportation services for the city of Corvallis, OR. Unlike TriMet, which is an independent transit authority organized under ORS 267, with a board appointed by the governor, CTS is a department within the City of Corvallis. While being a municipal department puts CTS at somewhat greater risk of being a political football (it is subject to the whims of Corvallis’ city council), as a department within a city it has a wider array of taxation options at its disposal. Whereas TriMet is statutorily limited to the payroll tax as a source of tax revenue, and it can only change the levy within parameters approved by the Legislature, the City of Corvallis has plenary taxing power. And recently the council voted to end the collection of fares on CTS, converting it to a free service. Transit service is instead funded with a Transit Operations Fee levied on homes and businesses, with the average household paying about $30 per year. Not per month, per year.

Corvallis itself is a college town in the mid-Willamette Valley, with a full-time population of about 55,000 residents, many of which are students at Oregon State University. Not surprisingly for a mid-sized college town, the demographics are dominated by degreed professionals and college students. While OSU has long been regarded as the more conservative of Oregon’s public universities, the city is quite progressive. According to the US Census Bureau, Corvallis has the highest percentage of bicycle commuters in the United States. The city is quite compact and flat (and is a good place to ride), and also offers numerous recreational cycling opportunities in the surrounding area.

CTS operates 12 bus routes, with eight urban circulators, running at hourly or half-hourly frequency, and 4 peak-hour commuter routes. Service on the non-commuter routes is provided for about 13 hours a day, from approximately 7 in the morning to 8 in the evening, with the “Beaver Bus” running evenings on Thursdays to Saturdays to haul drunken students around. :) Service is provided on Monday through Saturday; no service is provided on Sundays. The 8 regular routes run on either hourly or half-hourly frequencies. CTS contracts out operations to First Student, a private bus operations company. (Previously, CTS contracted with Laidlaw, but the latter company was acquired by and merged with First Student several years ago). CTS drivers, like TriMet drivers, are represented by Amalgamated Transit Union local 757, and are having their own fights over health-care benefits.

A more detailed comparison of TriMet and CTS is appropriate. (For those who want to consult the National Transit Database, CTS’s code is 0047, and TriMet’s is 0008.)

TriMet CTS
Service district area (mi2) 570 13.8
Population 1.67M 55k
Density (p/mi2) 2930 3986
Service hours 2.1 million (bus, MAX, WES) 27k
Service hours per capita 1.26 0.49
Boarding rides 100M (FY2011) 884k (FY10/11)
Boarding rides per capita 60 15
Boarding rides per service hour 47.6 36.8
Operating budget $400M (FY2011) $2.8M
Op. Cost/Svc Hour $190 $103
Op. Cost/Population $240 $51
Routes 79 bus, 4 MAX, WES 12
Vehicles ~600 40′ busses, 127 LRT vehicles, 6 WES cars 11 35′ busses, 1 trolley

One of the first figures that jumps out is that CTS’ pays only about 20% of what TriMet spends on operations per capita. The biggest reason for this discrepancy is that TriMet supplies over 2 1/2 times more service hours per capita than does CTS, with numerous frequent service and rapid transit routes. However, even with that taken into account, TriMet’s operating costs per service hour are nearly twice as high. (TriMet publishes a separate calculation of “bus-equivalent” service hours which weights MAX trains by a factor of nearly 5 to account for the capacity difference, giving it an alternate figure of 3.17M service hours, and a cost/svc hour of $126, nearly the same as CTS. We will ignore this figure, however, as the extra capacity of a larger vehicle vs a separate vehicle is only useful at those times when the capacity is needed, whereas two independent vehicles can be run on two different routes, providing twice the coverage.) Whether the operating costs are truly apples-apples comparisons is unclear–as CTS is a city department, things like administrative overhead may not be included in its cost structure.

Nonetheless, TriMet is more successful from a ridership perspective. Due to the differences in city size, it is difficult to meaningfully compare the two systems. Corvallis is a very walkable city, with minimal traffic and only a few miles from edge to opposite edge. There is significant residential density around the university, with lots of mid-rise (6 stories or so) dormitories and apartments, fraternity and sorority houses, and other compact student housing, but the rest of the city is dominated by single-family homes. Demand for transit is intrinsically less in a smaller city. CTS performs well compared to other systems of similar size.

Do the numbers work for TriMet?

In considering whether such a scheme would work here, we’ll consider several cases. The amount of revenue generated by the residential portion of the CTS transit fee is approximately $670k, or about 1/4 of CTS’s budget. We assume a similar ratio would apply to the Portland metro area. Assuming an average household size of 2.5, the same fee structure in Portland ($30/household/year) would produce revenue of about $20 million, only 5% of TriMet’s current operational budget. If businesses contributed $60 million, that would provide $80 million, only a fifth of what would be needed. For this sort of fee to replace both the payroll tax and fares, a per-household fee of $150/year would be necessary, with a correspondingly higher levy on businesses.

Another option would be to only levy the fee as needed to replace fares; in which case a slightly higher fee on households (averaging about $37.5/household/year) and businesses would suffice to replace fare revenue.

This analysis ignores one significant cost savings from free service–the cost of fare collection. According to the recent white paper on electronic fare collection, about 10% of the fares TriMet currently collects goes to pay for collection and enforcement, so the net revenue from fare collection is only about $90M, not $100M.

A few issues with this:

  • First and foremost, TriMet lacks statutory authority to levy such a fee. For a scheme like CTS’s transit service fee to work, the law would need changing.
  • It’s not clear that there would be political support in the wider metro area. Corvallis is a very liberal city, and the proposal had no problem passing. However, one could expect widespread opposition from the suburbs.
  • One other issue is the CTS fee is regressive–it is essentially a head tax on households. At a price of $30/year or thereabouts, this is tolerable; after all, motorists pay more to license and register their cars. However, were the fee to get into the hundreds, it would become increasingly a burden on the poor.

A few other options: A city within the metro area, most likely Portland, could elect to “buy” free fares for boardings within its jurisdiction, much as downtown Portland merchants at one point subsidized Fareless Square. It then could use its plenary taxing powers to enact a scheme similar to CTS. (Such a proposal is more likely to be politically tractable in Portland, as well). I don’t have data about what percentage of service hours and boardings occur within Portland– a fair price for such a thing would depend on these. Also, having a partial free-fare zone would still require TriMet to provide fare collection infrastructure for those locations and persons outside, reducing the benefit of completely fareless service.

Discussion

So far, this article has focused on the mechanics and logistics of free-fare service; however broader policy implications should be considered as well.

  • A common objection is that by making transit service free, one will encourage overconsumption. The first article in the series also discussed the possibility of nominal fares (say, fifty cents per ride) to discourage activities like camping on the bus. Even ignoring that issue, many will complain that a free service is economically inefficient.
  • A related issue is that if a service has a farebox recovery ratio of zero, this removes both the incentive to provide better quality service, and reduces the ability of TriMet to scale service to meet future demand.
  • On the other hand, the primary competition of transit (the automobile) is also quite heavily subsidized, and has a cost structure that encourages people who own cars to prefer them to transit. Given the economic externalities associated with transit and driving, encouraging people to use transit is arguably wise public policy even if offends the economic sensibilities of some.
  • There are plenty of other public services that we, as a society, choose to provide for free (meaning financed by general taxes, as opposed to by consumption or usage charges). And while transit (like most services) can be overconsumed, it cannot be hoarded. Were TriMet to provide taxpayer-funded free beer, I’d bring a tanker truck to the tap (and so would everybody else), but I can’t ride more than one bus at a time, nor take the seats home and put them in my garage and prevent others from using them..

Thoughts?

Honored Citizen and youth fares: Are they fair?

A discussion of honored citizen and youth fares, and potential alternatives.
I was going to post this a few days ago until all of this week’s news. But while the discussion after the announcement of TriMet’s budget cutting has focused on service changes, the other component of what’s going on–fares–is still worth considering. The recent announcement, and the tradeoffs between equity and ridership/revenue, leads to an interesting discussion. To what extent should reduced fares for “Honored Citizens”, as TriMet calls them, be provided? A similar question should be asked about youth fares as well. Do these serve a socially beneficial purpose? Are they little more than age discrimination? Assuming there is a useful purpose served, would it be served better by some other, more direct policy?

The nitty-gritty on fare categories

Before we get into the idealized discussion of the whys and wherefores of age-based fares, one important detail must be mentioned up front. The Federal Transit Administration requires that federally-funded transit systems, such as TriMet, charge senior citizens no more than 50% of the full fare during off-peak hours. (I’m not sure if the FTA defines these hours, or gives agencies some leeway to tailor the definition to their local circumstances). During peak hours, the requirement is not in effect. TriMet, however, does not levy peak-hour fares–the same fare is charged all day, for all riders. Also, the discount given to seniors is greater than 50%–an all-zone ticket for adults is $2.40, but for seniors is $1, a discount of 58%. The discount on passes is even greater–a monthly pass would cost me $92 but my mother could have one for $26, less than 30% of the price. Honored citizens living downtown can get a limited bus pass for $10/month. (TriMet’s fare schedule is here).

Seniors, along with the disabled, are grouped into a category TriMet calls Honored Citizens. This category includes the following:

  • Senior citizens 65 and older, who require proof of age when riding.
  • Medicare recipients, who are required to carry a Medicare ID. If one is receiving Medicare prior to 65, it generally means either that the individual is near 65 and has opted for early retirement, or is disabled.
  • Other disabled persons who meet specific requirements, and who are required to carry a TriMet-issued ID stating such.

This article is only concerned with regular transit service; LIFT paratransit is another issue altogether.

TriMet also provides youth fares, for passengers 7-17, and persons 18 or older pursuing a high school diploma or GED. College students are not covered by this program (some colleges provide passes for their student body; however this is a separate program and not discussed here). Children 6 and under ride free with a fare-paying adult. Youth fares are also a substantial discount over adult fares, though not as much (presently $1.50 for a all-zone single-ride ticket, and $27 for a monthly all-zone pass).

TriMet’s stated rationale for the discounts it provides may be found here and here.

Rationale for age-based categories

The senior discount is a longstanding fixture of American business and political culture. Many businesses provide discounts to senior citizens–restaurants, movie theaters, hotels, and transportation companies both public and private. And as noted above, public transit agencies in the US are required to provide them to passengers. In the context of transit, several rationales are frequently offered for this:

  • Seniors live on a fixed income, generally from Social Security or private retirement plans, which may (SS) or may not (most pensions) be indexed to inflation. Most are not in the workforce (and many of those who are still working are doing so due to poverty). Senior citizens also frequently have higher medical expenses associated with geriatric and end-of-life care, though Medicare benefits offset this.
  • Senior citizens are also more likely to have mobility issues than are younger age cohorts, simply due to the biological pathologies of old age.
  • Senior citizens are more likely to be transit-dependent, particularly when driving is no longer an option due to medical issues.
  • Senior citizens, by virtue of being less likely to be in the workforce, are more likely to use transit during off-peak hours, and thus are desirable customers to have.
  • Many in US culture associate advancing age with virtue, and believe that mere survivorship past the working years ought to merit reward. Certain generations are venerated for the hardships their members collectively endured during their youth, and some consider making it to old age to be evidence of wisdom and/or a cleaner lifestyle, assuming that those who engage in chronic pathological behavior are more likely to perish before reaching retirement. Senior discounts are widely viewed as an entitlement–even by wealthy seniors in good health–and the designation of “Honored Citizen” does nothing to counteract that meme. (Could you imagine TriMet–or any government agency–referring to a benefits program targeted towards the poor in such glowing terms? I can’t either; poverty is routinely stigmatized in our political culture, but advancing age is praised).

Similar arguments apply to youth fares as well. I covered youth fares (and other issues related to families on transit in this Human Transit guest post).

  • Youth traveling alone are likely to not have much money, and be dependent on parents for funds.
  • Those who travel with children are more than likely to be carless–having kids along often tips the balance from bus/train to car for many trips–if nothing else, bringing along kids in the minivan makes you (legally) a carpool. Also, in many cases the only reason children are brought along on errands is that nobody may be available to watch them at home.
  • Families with small children (particularly those still using strollers) also frequently have mobility issues.
  • Families with children also are often engaged in off-peak travel. (Students using transit to get to and from school generally are peak riders on the way in, and off-peak riders on the way home, unless activities delays their departure from school)

Price discrimination, generally

Age-based fares (for identical trips on transit) are examples of price discrimination, which occurs when the same supplier sells identical goods and services to different customers at different prices. Some sorts of price discrimination are commonplace and generally considered unobjectionable, such as volume discounts (TriMet’s passes can be considered an example of this). Other types may be viewed with skepticism, or may be outright illegal–certainly if you’re the buyer being asked to pay the higher price, you might want to know why. Price discrimination doesn’t include practices like distance-based pricing (different prices are charged for different trips) or off-peak discounts (trips made at different times are generally not substitutable), though sometimes these practices may have a discriminatory effect, and sometimes this is intentional. (Airlines’ common practice of offering lower prices for round-trips involving a Saturday stay are intended to distinguish between tourists and business travelers, and charge a higher price to the latter).

One reason that price discrimination occurs is to permit suppliers to capture as much of the surplus value as possible. When a supplier charges a flat high price for something, volume is lower, as those market participants who are unwilling or unable to pay the high price don’t buy. When a supplier charges a flat low price, then he/she wins the business of those who won’t pay the higher price–but loses money from those customers who were willing to pay the higher price, but instead get a better deal. If the supplier can figure out which customers would be willing to pay a high price and charge those the high price, but make the same product/service available to the more price-sensitive customers at a lower price, the supplier can get more revenue than s/he would from a single set price.

Another reason for price discrimination is equity concerns. The reasons for age discrimination given above are equity-based–TriMet doesn’t give seniors and children lower prices because it thinks it will lose their business otherwise; it does so for perceived social reasons. (And because of the FTA mandate).

One problem, however, is this: Maximizing revenue and maximizing equity frequently call for opposite pricing strategies. A transit agency’s customers are often divided into “choice” and “captive” riders. (The latter term is problematic for many reasons, some of which are revealed by this discussion, but it suffices to illustrate the point). The latter group has a low elasticity of demand (they are stuck with transit, more or less) while the former has a high elasticity of demand (they can easily switch should transit no longer provide sufficient value). The choice riders are generally wealthier than the captive ones are. Were a transit agency to try and maximize social equity by assisting the poor, it would find a way to charge the poor less. On the other hand, were they to try and maximize revenue, the ideal strategy would be to charge the poor more–they’re the dependent riders, after all, and will have less ability to contest the fare increase by switching to another mode.

(This is different than the strategy employed by many retailers, who try to find ways to charge the wealthy more for the same or similar products and services. Gasoline, for example, is generally more expensive in wealthy neighborhoods than in poor ones, despite being the same in both locations).

This is an important point to keep in mind, both for this discussion, and in the broader context of TriMet’s budget woes. When an agency is strapped for cash, it becomes increasingly difficult to maintain a pro-equity pricing and service strategy, and soaking the poor becomes a tempting option.

Should we focus on age?

For the purpose of this section, we’ll focus on senior fares. A similar analysis can be applied to youth fares, but that is left as an exercise for the reader. (Feel free to discuss in the comments!)

Consider the five justifications for senior discounts given above. Only one of them–the desire to venerate senior citizens as a matter of social custom–is directly dependent on the age of the passenger. The other reasons–poverty, disability/mobility issues, off-peak travel, and lack of availability of cars, correlate with age, often strongly, but are not dependent on it. There are plenty of young people who are poor, disabled, have no access to an automobile, or more likely to travel off-peak. So the question is obvious: Why not replace the age-based discounts with discounts based on these other criteria?

Disability and mobility issues are, in fact, covered by TriMet. As mentioned above, Honored Citizen fares extend to the disabled, in two broad categories. TriMet also provides services to the mobility-impaired via LIFT (at far greater financial cost to the agency). TriMet assists mobility-impaired passengers in other ways besides the farebox as well. The agency’s operations are (as required by law) compliant with the Americans with Disabilities Act. All vehicles are designed to accommodate wheelchairs and other mobility devices. And many routes feature short spacing between stops, in part because the mobility-impaired are adversely affected by longer walks to a transit stop.

TriMet’s does not presently provide benefits to the poor at the farebox–there is no means-testing of fares. Poverty advocates such as OPAL are upset at the loss of return privileges on a single-ride ticket, on the grounds that it will impact the poor adversely. On the other hand, many of TriMet’s routes are social-service routes–routes with consistently low ridership that are expensive to operate, and which are arguably inessential for a comprehensive regional network–operated to provide lifeline service to low-income riders and communities along the line, and with no expectation of good financial performance. (These lines are often the most likely to be cut during a budget crisis). There are, however, a few roadblocks to reduced fares for the poor: For one thing, the poor often don’t have terribly effective advocacy in the corridors of power. Groups like OPAL do a fine job, but other constituencies often bring far more political muscle to the table, muscle that the poor can’t afford to purchase. For another, being perceived as a welfare agency can be damaging to a transit authority’s standing with the broader public–the poor aren’t popular in many quarters, and agencies which carry out a primarily social service mission risk losing popular support and funding.

The third criteria is transit dependence. Defining transit-dependence, and coming up with ways it could be proven to a TriMet ticket agent or fare inspector, is potentially problematic. Some examples might include discounts for those who can prove that they are not licensed to drive and/or do not own an automobile; Giving explicit discounts for this might be difficult, as proving transit dependence isn’t easy. One might be able to supply a DMV ID card or suspension/revocation order to prove one isn’t able to drive easily, but other situations (such as low-car households) may be more difficult to document. I’m not aware of any agency that offers discounts of this sort; and a quick Google search doesn’t reveal anything.

The final alternative–peak-hour surchages (or alternately, off-peak discounts) are something which has been talked about recently. Currently, TriMet has no plans to implement such a thing, but the recent white paper on electronic fare collection mentioned this as a possibility. In addition to having a load-balancing impact, charging a lower fare for off-peak travel also can promote economic equity, as it gives cash-strapped riders an option for journeys which are flexible in time, such as shopping trips or other errands. An alternative to different fares might be different expiration times. For example, TriMet could limit tickets to two hours of one-way travel during rush hour (opening to 9, and 4-7, say), whereas tickets purchased outside the window might be good for longer and/or include round-trip privileges.

One other thing

One other thing to consider: Senior citizens have long enjoyed quite a bit of political power, compared to other age cohorts; this is especially true with the boomers entering into retirement, due to simple demographics. Senior citizens are generally regarded as more reliable voters than are younger groups; there are age-specific lobbies (such as the AARP) which both provide advice to seniors on issues, and lobby the government on their behalf. There’s a good reason that many of the current plans to “reform” Social Security which are being bandied around Washington DC tend to delay the effects of austerity until the next generation (us Xers) reach retirement age: doing otherwise would be political suicide. Any attempt to substantially reform the current pricing structure would probably produce some uncomfortable pushback, even if the net effect for most people is nil.

Thus, a few questions to consider:

  • Do age-based fares (whether for the old or for the young) serve a legitimate and useful purpose?
  • Would other pricing or service strategies be better?
  • What balance between equity (whether based on economic factors, or other parameters) and financial performance (maximizing farebox return) should be struck?

A Peek at the Future of TriMet Fare Collection?

In response to our discussion about the likely recommendation of TriMet’s Fare Task Force, TriMet spokesperson Mary Fetsch passed along a white paper on electronic fare collection (PDF, 581K) that had been prepared at the request of General Manager Neil McFarlane.

Before commenting on the very interesting contents of the document, I want to provide a couple of disclaimers:

  1. I don’t know if Mary has sent this to other media outlets. If not, it’s an interesting choice to release it through Portland Transport. I’m tempted to take it as a compliment that it’s likely to get a thorough airing here. But I’m also conscious that it could be a calculation to release it in a venue where it might get more favorable treatment – readers can be the judge.
  2. We’re straying into an area where I have a conflict of interest. A couple of years ago my employer, Xerox Corp., purchased ACS Inc., a computer services firm that among its many business units has a transportation systems group that includes fare systems among its offerings. Indeed, Xerox/ACS just installed a contactless payment system for the transit system in Philadelphia. While I don’t work directly with the transportation systems group (I’m in a corporate web marketing group) as ACS is integrated into Xerox I am beginning to become more aware of and in communication with that business unit. Readers should be aware of that as they read my comments.

With that out of the way, some observations on the document:

  • It’s quite detailed and includes an implementation plan that has some very near term steps. This is to be taken seriously.
  • The flat-fare/limited-transfer recommendation of the fare task force is entirely consistent with the discussion in the document.
  • It contains a very interesting breakdown of the cost of collecting fares based on where they are purchased (those ticket vending machines we all complain about are by far the most expensive channel). There appears to be some hope that this could be financed based on savings in fare collection costs.
  • My personal fare-instrument-of-choice, the book of ten tickets, would appear to be going the way of the dodo bird. But given that I purchase these (I don’t use enough to justify a monthly pass – I do have an annual Streetcar pass) mainly to avoid the need for exact change, any kind of electronic system will meet my need.
  • It would appear that we’ll have many options for payment instruments: a stored value card, bank credit cards that contain smart chips, or ‘contactless’ systems like the NFC (near field communication) technology now beginning to be seen in phones.
  • My policy preference, a distance-based fare system, is possible but more complex (you need tap-on, tap-off, not just tap-on).
  • The technology makes peak-period fare premiums a possibility.
  • The draft schedules seem to suggest that this would not be implemented with the opening of PMLR, but perhaps within a year or so after the opening.
  • TriMet is apparently leaving the door open to use open source software for some aspects of the system.

Read and discuss!

TriMet: Simplification or Fare Increase?

Joe Rose at the Oregonian is reporting that a TriMet fare task force may will recommend doing away with zones, and prohibiting using transfers for return trips (transfers would only work in one direction).

While I’m a big proponent of keeping things simple, this proposal does not excite me. Beyond potential equity issues (I honestly don’t know if this is better or worse for transit-dependent folks, but OPAL is already objecting) which should get a very thorough analysis, I generally prefer some relationship between distances and fares. Tying trip cost to distance is important to encourage compact land use patterns.

I suspect this is just the beginning of what will be a very intense conversation this Spring.

Could TriMet become a “free” (or nominally-priced) service?

There’s been discussion lately about the fare structure of Portland’s transit agencies–both the Streetcar and TriMet itself. Much focuses on the current disconnect between Streetcar pricing (currently a sweetheart deal, especially for Streetcar users who don’t use TriMet-badged services) and the rest of the system. TriMet’s fares are currently above the national average.

So here’s a hypothetical.

What about making the entire system free–or drastically reducing fares to a nominal level–less than 50c a ride or so (sufficient to discourage camping on busses), with annual passes costing no more than a couple hundred, rather than the $1000 you’ll pay today? TriMet’s farebox recovery ratio is about 25%, so this isn’t quite as far-fetched of an idea as it might seem. It would require other new revenue sources of about $100M/year (minus what passenger revenue remains under the new scheme) to keep service at the same level, but such a gesture might make other monies available.

  • How much would this boost ridership, particularly encouraging a shift from cars? For those who have a car in the garage, it takes about a 15-mile round trip to work and back (not counting tolls and parking, but counting things like fuel and maintenance) for a bus pass to be cheaper than driving; a dirt-cheap service would vastly alter this equation.
  • Would a combination of reduced fares and a higher payroll tax to plug the hole, be a politically saleable proposition?
  • What level of fares should be targeted in such a scenario?
  • How much would this increase demand for new services (crowding on existing routes, calls for new routes)?

Again, this is a hypothetical proposal, but one which seems interesting to discuss.