Applying the MAC Funding Model to Metro Transit

The recent hubbub around operations on a decade old runway at Minneapolis-St Paul International Airport (MSP), operated by the Metropolitan Airports Commission (MAC), have unearthed a few interesting nuggets. I’m not really an airport or airplane operations buff. I mostly just appreciate that we have a fairly nice airport that I use relatively infrequently (though my previous job had me traveling several times a year) located fairly conveniently in our metro area with a light rail line connecting it to our region’s economic engine (more on that light rail later).

MSP Concourse

Compared to many airports I’ve passed through in the US, MSP is modern, clean, well laid-out, and spacious. (Image Source: CBS Local)

Also, the runway in question, 17/35, was completed while I was still in college, with the planning process done over a decade prior to that. I was vaguely aware of the proposal for a new airport in Dakota County from my dad’s ramblings, but any details about the process and outcome were mostly lost on me.

So it was interesting to see this tidbit buried in a MinnPost update on the runway 35 suspension:

Costing about $700 million, it was one of the state’s priciest public works projects when it opened in 2005, roughly as expensive as the Hiawatha light rail line. It’s considered in excellent condition.

This led me to look into the history of the runway as well as the MAC’s governance and finance structure, and how they relate to transit. I have thoughts!

Comparing the Blue Line to Runway 17/35

I’ve played this game before. Here we have a public entity with “Metropolitan” in its name with an annual operating expense in the hundreds of millions. The MAC has the ability to issue debt and even levy property taxes against the entire MSP region (though they don’t). Plane operations at MSP serve almost entirely leisure or business travel – just 3% of departures and arrivals were cargo planes. Honestly, how MSP serves the public good isn’t much different than a transit provider, but the MAC and MSP receive far less scrutiny than the Metropolitan Council and Metro Transit. I have a non-provable theory that most people think expensive infrastructure moving rich people in suits from around the globe is more economically important than moving regular people who can’t afford cars around our metro. Who knows?

Anyway, these two massive capital projects were completed at the same time for roughly the same budget, so they offer a good case study. Let the chart below sink in for a second:

BlueVsMSP_1

The Blue Line has netted a better cost-per-user and has showed consistent growth in annual ridership, while MSP operations and revenue passengers have slid this century. Of course, I don’t necessarily blame MSP and MAC officials, there have been massive changes in the airline industry since 2001, to say nothing of a long economic downturn, things no one could really have predicted in the 1990s when this $700 million runway was concocted.

But, can you imagine the uproar if the Blue Line had seen steadily declining ridership over the same period? Would we have given the Green Line the go-ahead?

Instead, we’re treated to a week-long string of hit pieces on transit fare evasion, a completely overblown “problem,” and the word “choochooboondoggle” uttered just a few times too many. It’s part of a societal double standard towards transit. Many leaders and citizens deride transit for shortcomings in operations or cost recovery, even though the numbers aren’t that different from other transportation modes.

Still, A Worthy Funding Model

I don’t highlight the numbers above to imply the MAC or MSP are poorly run.They’re doing some great things on the sustainability front (if you ignore the climate impacts of flying itself, of course). Despite the challenges our airport has faced in the last decade, budget documents show they are very well run and manage to nearly balance their budgets with very little subsidy from outside sources.

MSP_2014_RevenueSources

Just over a third of MSP’s revenue, which covers both operating expenses as well as capital improvements (and debt repayment for large projects), comes from airline rates and charges. This includes things like landing fees, terminal rental charges for airlines, and other passenger fees that you, the airline passenger, pay through your ticket directly or indirectly. That’s not orders of magnitude different from most transit system fare recovery ratios.

Half of MSP’s revenues come from “concessions,” which include vendor rents along with a percentage of food & beverage and other retail sales, on-site car rental fees, and mostly parking charges. Those giant ramps are huge cash cows for the airport:

MSP_2014_Concessions

Yes, people who park at the airport, rent cars, and buy food at the airport are all users. But those are secondary functions in providing the infrastructure necessary for airlines to transport people to other destinations. However, in the case of MSP, parking really does help keep the lights on, bringing in 30% of all revenues (!!).

How does all this relate to improving Metro Transit’s budget? Right now, the transportation division is funded mainly through these sources:

MetCouncilTranspoRevenues

It’s easy to spot the differences. Mainly, MSP has a captive customer base willing to pay to park or with few other ground transportation options, and a need to eat or shop once they arrive at the airport (or layover). In the case of Metro Transit, they hold very few real estate properties (it’s tough to sell crepes out of a bus shelter) whose value is enhanced by the thousands of daily passengers that board and alight buses and trains each day. Cities and counties get that benefit in the form of property taxes on residential and commercial property, and the great State of Minnesota collects sales taxes on most purchases (both similar to concession revenues). State general funds and unrelated motor vehicle sales tax pick up the slack in Metro Transit’s budget.

Here are some tweaks I’d propose to allow Metro Transit to control its own budget a bit better. Some will sound familiar if you’ve read David Levinson’s transit utility model:

  • Cities and counties chip in more for operations via property taxes. Cities build and maintain streets and bike lanes and parks and do many other things that improve private property. Transit allows denser, less expensive development that yields more per acre with fewer negative external costs than other modes. That’s real value, and local units of government should come to an agreement over how to pay a transit agency for it.
  • Do the same for transit expansion via Value Capture. Minneapolis sees it as a viable path for its streetcar, why not light rail and bus enhancements?
  • Reform and expand CTIB to fund more general bus operations rather than just transitway expansion and operations. Or allow municipalities or counties to implement their own sales taxes to fund transit directly.
  • Charge for parking. Verily I say unto you, people will pay to park their cars. It may not cover 30% of operating costs, but any amount helps.

The MAC model mainly relies on a mix of direct user fees, ongoing value capture via concessions, and parking to cover nearly all its operating and capital expenses. Metro Transit should be able to do the same and lessen the negative stigma of funding shortfall that holds it back in political theater. And yes, Metro Transit should also be doing things like all-door boarding, wider bus stop spacing, pre-payment, and other improvements that speed buses up and lower operating costs.


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10 Responses to Applying the MAC Funding Model to Metro Transit

  1. Matt Steele
    Matt Steele October 23, 2015 at 10:15 am #

    Here’s one way they diverge on the revenue side. You say “People who park at the airport, rent cars, and buy food at the airport are all users.” That’s not true. Except for airside food and concessions, nearly all of those expenses are borne by origin & destination passengers. People who live in the Minneapolis area, or people who are flying to the Minneapolis area.

    Yet plenty of banks, aviation analysts, produce ongoing reports based off reservation and US DOT data suggesting that well over 50% of passengers at MSP are connecting traffic, not O&D. Granted, there’s an indirect local benefit by having all those connecting passengers: More non-stop flights to more destinations (though other large non-hub metros, those less geographically hub-friendly like BOS and SAN, still have plenty of connectivity).

    But there are also indirect local costs borne by having those connecting passengers: Increased overflights, resulting in increased air quality, noise, and other significant environmental concerns that – other than the long-known noise issue – are just starting to be recognized as significant polluters of our metropolitan areas. Recent studies show airport-adjacent populations linked to increased particulate matter, increased rates of some diseases, decreased learning outcomes associated with noise pollution, asthma increases, etc. And these impacts are largely borne by populations less likely to be users of the commercial aviation system.

    But getting back to the finances of O&D vs connecting passengers, it becomes quite clear that MSP O&D travelers (us Minnesotans, our colleagues who fly in to work with us, our friends and relatives who fly into visit us), are highly subsidizing connecting hub operations (primarily Delta) and connecting passengers. There’s a disconnect between the incurred charges and true costs for local passengers vs connecting passengers.

    Bringing this back to the Metro Transit example, I think it shows the need to be careful about *how* we implement market forces for car storage. We can’t have an effective marketplace for car storage when one entity (whose core competency is providing transit, or providing airport services, not parking) is the only entity who can legitimately compete to provide car storage services at a location.

    We need to – at a minimum – associate the true cost of providing parking with the charges borne upon users. I’ve made that point clear for Metro Transit park & rides here on Streets.MN. Clearly MSP Airport is one place where parking demand vastly outstrips supply, and that’s advantageous to an agency that redirects parking revenues to fund other ventures AND an agency which can limit the effectiveness of any competition (primarily through control of the airport site itself).

    In a mature parking market, we wouldn’t necessarily need public agencies providing structured parking. We would have stringent land use compatibility requirements to ensure structured parking had the lowest impact on adjacent land use as possible (first floor uses for humans, traffic generation impact fees, etc). But we need to be careful with where the money goes for private OR public parking in cases where there’s profit/operational surplus.

    This is happening in St. Paul right now with the meter debate. While I fully support the concept of motorists paying for the street space they use to store their personal property, I think we’d get much farther if Coleman proposed two core Shoupian principles: 1) Parking cost is demand priced, for last-space availability. Pricing is not political. 2) Surplus revenues go back to the public realm of the neighborhood, so locals get the benefits to counteract some of the harms associated with on-street car storage.

    Likewise, we have to be careful about how airports and other locations with captive audiences and high parking demand dole out the profits of this parking service. Because suddenly parking becomes the golden goose, to the point where disruptors in the market are shunned. This has played out at many airports in the U.S., most notably at SFO. Think about how ridiculous it is that tens of thousands of Minnesotans pay to park their car in expensive ramps at MSP Airport each week, then thousands of travelers rent cars at MSP Airport which, when not being rented, require significant storage space in expensive ramps as well. It’s ridiculous. At other airports, firms have started “Getaround”-type services where origin travelers can rent out their parked cars to destination travelers who would otherwise rent a car. It makes too much sense. But the same airport operators who see parking and rental car fees as a nine-figure revenue sources also have the legal authority to prevent such market disruptors.

    Basically, we need market-based car storage fees. But we need to make sure that parking revenues don’t corrupt decisionmaking and competitiveness either.

    Matt Steele
    Airport nerd, plane spotter, and VP, South Metro Airport Action Council

  2. Wayne October 23, 2015 at 12:59 pm #

    It boggles my mind that metro transit offers free parking at park & rides. It’s such a perversion of what a transit budget should be getting spent on that it really makes me kind of sick.

    Anyone who will stop riding the bus because you expect them to actually pay for the cost (or some small portion of it) of their parking isn’t a transit rider you need to be chasing. By the same token, the price of downtown parking really needs to be higher, and thankfully the removal of so many surface lots recently for development may actually help that happen. If we could tear down a few more of the older eye-sore ramps and price the ABC ramps higher, metro transit could easily charge for P&R parking and it would still be cheaper. We need to stop the ridiculous parking subsidy at every level of government.

    Also, anecdata, but the MBTA in and around Boston charges for their park and rides and they are generally always very full to the point where most run out of available spots pretty early in the day. But downtown parking is scarce and expensive there, like it should be in a real city. We need to work out that side of things.

    • Bill Lindeke
      Bill Lindeke October 23, 2015 at 1:59 pm #

      Truth

    • Keith Morris October 23, 2015 at 6:32 pm #

      On top of that, you have low-income transit users who get refused service for having partial/no fare while suburbanites get their parking gratis. And how much does MBTA charge for parking? It could only be a good boost to improve Metro Transit’s service.

      • Monte Castleman
        Monte Castleman October 23, 2015 at 11:01 pm #

        So a suburbanite wouldn’t be refused service or having partial or no fare? And no one from the city parks for free at the Fort Snelling lot?

        Things could have changed, but back when I took a vacation to Boston in 2008 we stayed at a hotel in the Foxboro area and drove to a park and ride to take the MTBA into the city. I didn’t object for paying for parking as much as it was cash only with no change ($5 IRC), plus the train tickets were cash only. By the time we found cash and figured things out we had missed the train and had to drive to the next station to catch it.

        • Matt Steele October 24, 2015 at 11:12 am #

          I think it’s quite telling that the outbound afternoon express trips are pay-when-you-exit (for obvious operational reasons downtown).

        • Keith Morris October 24, 2015 at 6:20 pm #

          A suburbanite may be refused service, but in either case (s)he didn’t have to pay a dime for that parking space at the park & ride. Suburban transit users get a freebie and urban transit users get…what exactly? Well, if they happen to work out in the suburbs they get to use those enclosed heated shelters in the winter at the suburban transit stations.

          • Wayne October 26, 2015 at 8:55 am #

            Most importantly, I think, is that my inner-city ride is not only cheaper to provide because it’s shorter but also because there was no cost of parking associated with it. And generally the buses are fuller so they’re operating more efficiently on a cost-per-rider basis.

            But the suburban park & rider? The cost of the parking (initial construction spread out over useful lifetime divided by user) + parking lot maintenance (they don’t repave, repaint, or plow themselves) + longer ride on the same or only slightly higher fare + emptier bus = way more expensive to provide that person with transit service. The fact that the quality of their ride is so much better is an extra slap in the face.

  3. Alex Cecchini
    Alex Cecchini October 26, 2015 at 10:10 am #

    I’m glad the comment section didn’t devolve into a complaint department about suburban v urban transit service.

    Here’s the conversation I was hoping to spark: can someone provide a (brief!) history or overview of why the Met Council funds transit (operations only, not including capital) through such high state subsidies (MVST, general fund dollars) while the environmental services division that provides wastewater treatment relies almost entirely on user fees and charges on new development? I’m not necessarily saying that funding transit service from local funds is a better or more equitable solution, but the benefits of transit largely accrue to the cities & counties it serves, and we seem to really struggle by involving statewide legislators who (for the most part!) never ride a bus or understand how transit improves property values or the lives of the people who use it. For example, I don’t know that I’ve ever heard some grandstanding remark from an outstate resident about Met Council’s sewer service.

    To that point, what are the benefits and drawbacks of relying less on state funds?

    • Wayne October 26, 2015 at 10:32 am #

      I think part of the problem is that the state doesn’t allow us to fund things locally because they currently are in charge of the funding. And then, as you said, they are way out of touch with the actual transit needs of the metro. Many of them can’t even admit (in the face of data) that the metro is the economic engine of the state, so expecting them to understand why good transit in the urban core is important is probably unrealistic.

      I wish we could decouple the statewide funding model from local transit. Even if it means we have to pay more locally for it, we can at least finally have more self-determination over what our transit looks like and how well funded it is and not rely on state reps whose constituency is farmers along the Canadian border to make decisions on funding for us when we have the money to pay for it and they won’t let us.