Should the Public Pay for Unprofitable Transit Routes? - Commute - The Atlantic Cities

Eric Jaffe at Atlantic Cities writes: Should the Public Pay for Unprofitable Transit Routes? - Commute (responding to my previous posts).

I am not sure he frames the argument right. In my view is as much about separating the transit agency from the welfare function as about whether unprofitable routes should be dropped. That is, transit agencies don't do well as dual purpose agencies. Organizations, like products perform better with clear missions (Shimmer is a floor wax and a dessert topping) .

It would be much cleaner to give them a single mission: provide these routes and make money/break even. They would make money from customers on profitable routes, and from society at large on welfare routes that society explicitly chooses to subsidize despite their inability to make money. The operating agency should not be making welfare decisions, that is better done through an explicit public policy process.

Some worry about the explicitness, feeling (and I am not disputing) that if the money-losing routes could not be hidden, they are more likely to be cut.

Jaffe notes the public good argument. But 'public goods' are both non-rivalrous and non-excludable. Clearly transit is excludable, you pay a fare to use it. If it is congested, it is also rivalrous. Thus transit is actually a fairly clean form of 'private good' in the economic sense. There is obviously a social service aspect to this, I am suggesting to separate that out.

Jaffe also notes that streets, roads, and highways are subsidized. I don't disagree there is some amount of cross-subsidy in the system (urban interstate travel subsidizes rural roads), but the user fee (i.e. the gas tax now, or even more precisely in the future, a mileage fee) pays for major roads, and could easily be extended to pay for all roads collectively (some might still not generate enough revenue (i.e. VMT) to be worth supporting). This involves raising the gas tax, which is somehow politically difficult in the US (although would be less so if coupled with a decline in the property tax and other taxes that also pay for roads). However were it raised, there would be sufficient funds to pay for the system collectively. That said, roads have benefits beyond auto drivers, everyone uses roads, including transit users, so it is specious to make this comparison. Property taxes are a second best solution, but is loosely associated with non-user benefits of road use given the user fees are too low on local streets.

I suspect no transit fare increase would be enough to pay for the entire fixed route transit system as we know it in the US, i.e. the demand would diminish sufficiently so as to keep the maximum revenue collected below what is necessary for the full transit system. This is why I suggest separating it out. There is a profitable core. We should try to figure out what it is.