Archive | Transportation Economics

The Economics of Bicycling

We hope you will join us for the next PSU Friday Transportation Seminar.

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Speaker: Dr. Kelly Clifton, PSU

Topic: The Economics of Bicycling

When: Friday February 15, 2013, 12-1 p.m.

Where: PSU Urban Center Building, SW 6th and Mill, Room 204

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Portland State University
Winter 2013 Friday Transportation Seminar Series

The Case for Distance-based Fares

A piece on Streetsblog makes the policy argument for distance-based transit fares.

They actually use Portland’s Fareless Square as part of their argument, apparently unaware of recent history.

I generally support this line of argument, at least from a pure policy policy point of view. TriMet has argued that one of the pragmatic reasons for a flat fare is easier electronic ticketing. That’s certainly a fair point, but I’m still not sure that it’s the right answer in the long run.

And of course I’d argue that the $1 Streetcar fare is in fact a form of distance-based fare policy, given the relatively short distance trips available on the Streetcar.

Would single-payer healthcare help resolve the TriMet labor impasse?

Apologies for going off topic somewhat–healthcare is not a primary topic of this blog. However, the big issue in the dispute between the union and TriMet isn’t pay, but healthcare benefits. Costs for have been growing without bound, and are expected to grow. Health care costs for public employees are taking an ever bigger share of public budgets. And the beneficiaries of this largesse aren’t bus drivers, teachers, cops, or firefighters–who simply want to have access to decent healthcare–but the medical industry (including insurance), which is a continually growing segment of the economy.

The Affordable Care Act (more commonly known as Obamacare), which fully takes effect in 2014, will help somewhat, but a primary focus of the ACA is providing affordable healthcare options for the poor, particularly those who presently don’t qualify for Medicaid, but are priced out of the private insurance market. Obamacare generally doesn’t replace private health insurance for those who have access to group policies for their employer.

The dirty linens of Obamacare

Any government involvement in the healthcare industry seems to annoy conservatives, particularly in today’s polarized climate–such proposals draw comparisons to Soviet gulags and other examples of tyranny. This despite the fact that the ACA is similar to conservative proposals advanced in the 1990s as alternate proposals to Hillarycare (and is also quite similar to Romneycare, the health plan which is law in Massachusetts). But several aspects of the ACA have annoyed liberals as well–chief among them is that it doesn’t drive healthcare costs down sufficiently. It helps in many regards, by providing baseline insurance to the poor and uninsurable, and thus discouraging the common practice of indigent persons showing up at the ER for minor complaints, knowing that they cannot be denied treatment for an inability to pay (and stiffing the hospital, and the rest of us, with the bill). Instead, the poor can have access to preventative care in doctors offices, a far more cost-effective way of practicing medicine. However, it lacks the primary advantage of single-payer systems (including Medicare): by having a government monopsony being the primary purchaser of health care, prices can be driven down. (Which is bad for doctors and pharmaceutical companies, but good for the rest of us). Of course, a public option was DOA on arrival in Washington DC for this reason (among others).

Another interesting aspect of Obamacare is that it largely leaves traditional employer-provided group plans alone. Workplaces, particularly larger ones, provide good risk pools for purchasing insurance, and employers enjoy tax advantages in buying health insurance that individual purchasers do not. A particularly controversial aspect of Obamacare was organized labor’s insistence on no provisions taxing or levying a surcharge on so-called “Cadillac health plans”–high end plans, generally enjoyed by high-value employees (such as executives) and by unionized labor. The health plan enjoyed by TriMet’s workers would undoubtedly be considered a “Cadillac” plan, were that provision included in the ACA.

The provision protecting Cadillac plans was naturally denounced by many conservatives as union pork. However, organized labor (in particular, the AFL-CIO) have long taken the position that they would be willing to abandon “Cadillac” plans in exchange for a public option.

And the saving grace

Given the political constraints and implementation choices of the ACA, it probably isn’t going to help resolve the present TriMet/ATU debate, even when it comes fully online in 2014. While Obamacare will reduce health expenses by ending certain wasteful practices, the lack of cost controls doesn’t attack the primary problem, and the ACA is focused at the low end of the market–those unable to afford (or qualify for) insurance. However, the ACA contains an important escape clause: it makes it easier for states to experiment and set up their own healthcare systems, so long as the levels of coverage provided are as good or better as the national baseline. Oregon has long been an innovator with the Oregon Health Plan, a limited single-payer system which attempts to close the Medicaid gap, and OHP’s champion is once again in the governor’s mansion.

A greater hope lies in California, which is the state which has come closest to implementing single-payer on a state level. Bills to implement single payer have previously passed in both houses, only to be vetoed by the Governator; the current governor, Jerry Brown, has stated an intent to sign such a bill if it passes. A proposal this session failed to pass, when several conservative Democrats turned against it.

The current legislative session is almost over in Salem, and given the 30-30 split in the Oregon House, a single-payer system here would be unthinkable this time around. But if Democrats retake control of the House, and keep or expand their hold on the state Senate, could it happen here? And would a single-payer system, which would presumably obsolete the existing healthcare arrangements between TriMet and its drivers and mechanics, receive the support of organized labor in the state?

(Or as an alternative–would a state government employees health plan, covering all public-sector workers in the state, regardless of union affiliation, be a possible proposal?)

Could the current crisis in public employee healthcare costs be the impetus for the state to do what so far the healthcare industry has resisted? After all, it’s our money that pays for public employee insurance. And the current fight over benefits for bus drivers vs service cuts and fare hikes is not an enjoyable one–instead of arguing about who gets what slice of an ever-shrinking pie, maybe labor, ridership, and TriMet management can come together in support of an arrangement which is mutually beneficial, not just to TriMet employees and customers, but to everyone in the state.

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?