Free transit? A thought experiment.

The foremost response to my thought experiment on farebox recovery is that transit should be free. This idea is not new, there is an article on free public transport wikipedia, with some examples.

out-of-order Farecard machine

BART Tickets would all be out-of-order if transit were free.

So why don’t we treat transit like we treat elevators? Functionally they appear very similar, though one operates on the horizontal and the other the vertical.

Several answers:

  1. Sometimes we do charge for elevators, and while this is admittedly rare, the cases are informative.
    • We charge for elevators when the users of the elevators are not paying rent in the building the elevator serves and are not doing business with those who are. Whether we are charging for the elevator or the view is not always obvious.
    • There is an unpopular charge for some elevators in China. The custom is of course that elevators (like parking in most places in the US) is bundled into the rent. The custom is not without reason, charging for elevator riders, like charging tolls on drivers, or fares to riders, is an annoyance. The mechanics are perhaps trickier, if you don’t have anyone collecting the fare, do you have to have a turnstile at the elevator, or just the first person who boards has to pay and everyone else free-rides. Staffing the elevator is unnecessary. The honor system would likely break-down, and proof-of-payment requires an annoying enforcement problem. Also the marginal costs of elevators are approximately zero.
  2. Sometimes we do give away transit, though is rare as well, and the cases are also informative.
    • For instance, we give away transit when there is a patron who views most of the riders as “us” rather than “them”. That is, for instance, the case at the University of Minnesota, where every student pays (implicitly) a tax to ride on the campus transitway, and the University subsidizes the rest from other fees. The only people using the transitway are students, faculty, staff, and others doing business or research at the University.
    • Sometimes we give away transit in a business park. My favorite example is the Emery-Go-Round in Emeryville, California, functionally a business park with a few residents, which is connected by a circulator bus to the nearest BART station. This is an amenity for tenants, and is paid for by a local Transportation Management Association.
    • Sometimes we give away transit in small cities. Apparently the largest US city with free transit is Vero Beach, Florida, with a metropolitan population of 130,000 (though municipal population of only 15,000) which is largely a tourist town.

      According to Wikipedia, the largest city in the world offering free transit is Tallinn, Estonia, at 420,000 people (the metro area is only slightly larger at 543,000 people), which has only done so this year following a 2012 referendum. Also according to Wikipedia, Tallinn charges for tickets for non-residents. In short, Tallinn residents are part of a largish club. My guess is the community (e.g. Tallinn) identifies the riders as “us” rather than “them”.

A busload of farecards

Farecards: I wouldn’t be needing these were transit free.

We could get into the causality of divisions into “us” and “them”, but I believe this is inherent in human nature. See the example from Muzafer Sherif’s 1954 study of fifth grade boys in Oklahoma:

(1) When individuals having no established relationships are brought together to interact in group activities with common goals, they produce a group structure with hierarchical statuses and roles within it.(2) If two in-groups thus formed are brought into a functional relationship under conditions of competition and group frustration, attitudes and appropriate hostile actions in relation to the out-group and its members will arise and will be standardized and shared in varying degrees by group members.

So maybe buses (or if need be, trains) can be the source of uniting the community rather than a reflection of its divisions. But the evidence of casual empiricism suggests large communities inherently fracture (red states/blue states) unless brought together under crisis (war/tornado, etc.). The problems solved by transit (road congestion, transport for the carless, emissions, the high cost of downtown and University parking) do not seem a strong enough glue to overcome this.

What would be the effect on a transit agency if fares went to zero? Elasticities don’t necessarily hold constant over large ranges, but a 100% reduction in fares at a -0.4 elasticity (which we assumed in the previous post) implies a 40% increase in riders. In most US markets, I think this is too high. (And while the evidence is mixed, Baum estimated -0.1 elasticity). However, with about a 5% work mode share for transit in the Twin Cities now, this would increase transit work mode share to 7%. Assuming these new transit riders were drawn proportionally from the other existing modes (The IIA assumption in modeling jargon.) This would reduce peak commuting auto mode share in the Twin Cities from something like 78.3% to 78.3% – 0.02 * 78.3% = 76.7%. An improvement, but barely noticeable in terms of peak congestion (since some of that gain will be lost to a contraction of peak spreading and induced demand).

The transit agency would need to make up the lost revenue or cut-back service (reducing costs to cover that lost farebox revenue) since its current 31% farebox recovery would go to 0%. Cutting service by 31% while raising ridership by 40% would about double average load factors (if done uniformly). When the bus is half empty, this is not a problem. In peak times this would lead to crushing loads. (Both the service cutbacks and the higher load factor would result in ridership rising by well less than 40% – induced demand works in reverse as well.)

Politically raising taxes for free transit seems difficult, though technically it would be quite simple to raise some tax on something else. For instance, a regressive sales tax on mostly non-transit users has been mooted by the business and transit advocacy community to subsidize transit.

I think farelessness would make transit in the US more vulnerable to cutbacks, as it would not have its own revenue source and unless it were to gain massive ridership (and 7% work mode share does not count in my book as massive) it would still not have the political buy-in for most people to see transit as serving “us” rather than “them”. The reason we have “free” rather than tolled roads is that almost everyone identifies as a road user. To get the American driving public to see mass transit in the same light requires a major perception change.

As we have said before, transit is a private good, it is rivalrous, it is excludable. Further it can in many markets be competitive, at least in terms of competitive tendering for franchises, if not the full chaos of the market without property rights in stops, which even libertarians have identified as problematic. Funding at zero fares like a club good is plausible if you can clearly define an appropriate funding club (a small municipality, a business park, a university). Funding it at zero marginal fares when members pay a fixed seasonal or annual pass is more promising.

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16 Responses to Free transit? A thought experiment.

  1. David June 6, 2013 at 10:57 am #

    Please stop calling a sales tax dedicated to transit “regressive.” A general sales tax is regressive, yes, but a sales tax dedicated to a service that disproportionally serves low-income people is not in the same category. I would even consider such a tax pretty darn progressive.

    To me, the regressivity of a tax is not only related to its collection. It also matters where that money goes. That may not be the strict economics 101 definition but it seems to make more sense.

  2. Ross Williams June 6, 2013 at 11:12 am #

    There is a problem with this “thought experiment”, there have been serious attempts at free public transit systems. Austin Texas briefly experimented with it. Portland Oregon Mayor Vera Katz proposed free transit for the city of Portland. Farebox was a relatively small issue, since the costs associated with collecting fares ate up much of the revenue. But it didn’t happen in Portland because of two problems that were not resolvable to everyone’s satisfaction.

    The first was security. Throwing someone who is disruptive off the bus works, if they have to pay to get back on. If they can simply get on the next bus, you have very little leverage to prevent any kind of misbehavior. Portland struggled with this problem in its limited “Fareless Square” in the downtown areaand there was little stomach for extending those problems throughout the system

    The second problem was the increased cost of providing relatively low value transit. With a fareless system, people tend to use transit to replace short walking trips of even a block or two. To serve those trips, transit vehicles have to stop to pick people up and drop them off at every block. That is not a huge problem downtown where heavy use means buses are stopping at almost every stop anyway. But it can slow the system to a crawl where there are a lot of rarely used stops. That can double the number of buses to maintain the same schedule. You are spending a lot of money to save people a block long walk. Its a classic tragedy of the commons problem.

    • Bill Lindeke
      Bill Lindeke June 6, 2013 at 1:19 pm #

      Just a quibble, but having free transit wouldn’t lock-in design details. If you wanted free and fast transit, for example, you’d spread out the stops, give them dedicated lanes. There’s no law saying you have to stop every block.

      • Ross Williams June 6, 2013 at 10:17 pm #

        If you want faster transit, you can spread out the stops and give buses dedicated lanes. You can do that, whether it is free or not. It will still be slower with lots of people using it for short trips because its free. But you are right, another option is to discourage that by making the service less convenient to use. But if the purpose of making it free is to encourage transit use, then that solution is self-defeating.

  3. Ross Williams June 6, 2013 at 11:16 am #

    “A general sales tax is regressive, yes, but a sales tax dedicated to a service that disproportionally serves low-income ”

    Transit should not be designed to serve low-income people. It should be designed to serve everyone. And expansion of the transit system does not usually disproportionately serve low income people. Low income people do benefit from better service, but its the choice riders who get most of the benefit.

  4. helsinki June 6, 2013 at 12:08 pm #

    The “public transit is a private good” argument seems a bit tenuous.

    The contention is that transit is a private good because it is ‘excludable’ and ‘rivalrous’. This seems a bit forced:

    1. Excludable. The argument that transit is excludable is, essentially, that becaue you have to pay for it, the owner (the government) can exclude you from using it. There is a logic to this, of course. But when the owner is itself the public, the logic becomes a bit circuitous.

    2. Rivalrous. The argument is that transit is ‘rivalrous’ (the good is scarce and only one person can use it at a time) because it becomes congested. I suppose the bus can get so full that you can’t get on, but for the vast majority of users most of the time, this won’t be the case.

    I tend to think completely free transit (unlike very cheap transit) is not a good idea because whenever we sever the link between the funding source for a service and the users of that service, the service itself becomes distorted. But I wanted to push back on placing transit in the “private good” quadrant, because it seems like a misleading designation that should not be taken as self-evident.

    • Bill Lindeke
      Bill Lindeke June 6, 2013 at 1:21 pm #

      Very cheap transit is a better idea. My thought experiment is:

      #1 dedicated lanes for buses
      #2 $1 standard fare, more for longer (suburban) trips
      #3 raise parking rates to market values

      Mix well and serve immediately.

      • Lindsay B. June 11, 2013 at 5:32 pm #

        I love this idea, there are so many places with high parking demand and underpriced parking. Here in Chicago, we have commuter train stations with parking permit “waiting lists” that are over 10 YEARS long! It’s ridiculous and they can’t build more structures because they don’t charge enough to finance new construction…but clearly people would be willing to pay more.

        • Ross Williams June 11, 2013 at 7:04 pm #

          A downtown Portland Businessman, John Russell (he was also an Oregon Transportation Commission member and chair of the Portland Development Commission) was advocating a tax on parking spaces as a source of revenue. Another prominent business person said “There is a huge gap between what people are willing to pay for parking and the amount it costs. Someone is going to get that money eventually, why not use it for public services?”

          A tax on parking spaces to pay for transportation investments would certainly be appropriate. Although you could eventually find yourself in the gas tax dilemma, higher costs leading to less parking spaces leading to less revenue. But there is no doubt that raising the cost of parking near destinations with high quality transit service would increase the use of transit.

  5. David Levinson
    David Levinson June 6, 2013 at 1:13 pm #

    @Ross, Yes, those are both excellent points. The need to exclude riders who are disruptive is aided by fare collection. And short trips will increase with free transit, which will increase delays for everyone else, especially on local buses. However possession of a season pass will circumvent both of the advantages of pay-as-you-go for reducing unruly passengers (who may still possess a pass) and the walking-averse.

    @Helsinki. I sort of agree. It is a private good sometimes, and a club good at other times. In neither of these cases though is it a public good. That is, I think it is always excludable (able to be excluded) if we want to (either before or as you board or via random inspections and proof-of-payment), and sometimes rivalrous.

    The definition of the club, and the distinction of “the club” from “the general public” are important points, which need a lot of practical attention and are very contingent on local conditions.

  6. Mike Hicks June 6, 2013 at 10:33 pm #

    I’m not sure if 40% is too high of a bar with making public transit free, especially if it is combined with some sensible stop consolidation like Bill suggested in his post. The University of Minnesota shuttles tend to stop farther apart than Metro Transit buses (even ignoring the intercampus transitway and the Washington Avenue Bridge over the Mississippi River), and also have an “express” route which skips about half of the stops (that’d be a “limited stop” route in Metro Transit nomenclature).

    Now consider the idea of re-implementing a fare system on the UMN shuttles (which I’m told used to be paid for on each trip — I’m not sure when that ended). I have to think that would decimate ridership numbers due to increases in delays from people having to file through to pay, and fumbling around in their pockets and bags in the process. There would be some pluses — some students are far too opportunistic in their use of buses, taking them when it might have been just as fast or faster to walk or bike instead. Implementing fares would help weed out the riders who are only on board for a single hop. I’m still not sure I’d want to be around on the day that started — it’d be a mess.

    Also, I think it’d be worthwhile to focus in on Minneapolis to show how a 40% transit mode share increase would work there versus the metro area at large. Transit mode share would increase from 14% or so to about 20%, and I suspect the change could have a significant impact on the number of people who walk to work (currently around 6%) and those who bicycle (2 or 3%). The percentage of people driving alone to work could drop from about 61% to 55% with the transit shift, and perhaps another couple of points with side effects from people selling off cars and/or moving to places that have better transit access.

    Making transit free also dramatically simplifies the math that goes on in people’s heads. I know that many places have pushed to have fares like what we have in the Twin Cities — a simple fare that has free transfers for a long period of time. It’s a bit difficult to explain to a transit newbie that yes, the rush-hour fare is $2.25, but you can take as many trips as you want in a 2-1/2 hour window — oh, and that Go-To cards give an additional discount. I’ve adjusted to the fare structure, but a lot of people balk at the fare prices even as they sip from their $5 lattes.

    Now, I think the point about making it easy to continually degrade the service is potentially quite valid. I think making the transit system free would entice a lot more people to try it and would make it much more popular, possibly enhancing political support, but it’d definitely be an easy target for some. So in my mind, I think it would be best to have government subsidies be set up as an amplifier mechanism — set up a 3:1 or 4:1 matching program. The government support for each year would be set up to be a multiple of the amount collected in fares the year before. Hopefully that would incentivize efforts to increase revenue and ridership. It could be on a sliding scale so that the support would slowly stop rising — the percentage of government support should slowly go down, though in dollar amounts it should probably continually increase at lower and lower rates, possibly flattening out at some point.

  7. BB June 6, 2013 at 11:19 pm #

    Why not provide a volunteer card.

    Volunteer said number of hours a month and get a free bus card.

  8. Xan June 13, 2013 at 8:02 am #

    Simplifying fares would be a start. First, simplify cash fares.

    Having a two tiered fare based on time of day for people who pay cash (people who most likely don’t use the bus as often) does not help the passenger, MetroTransit, or boarding the bus in a timely manner. Just average it out to $2 cash – no more digging for change, remembering what hours are what price, etc. $2 = 2 1/2 hours. Easy. $1.75? Who the hell has three quarters in their pocket?

    A discount can be applied to the GoTo card for different times of day. Paying would be just as fast no matter what the cost is if it is electronic. This would also encourage more people to move to the GoTo card. This is what they do in Hong Kong. It is actually really complicated there because they have different fees for different distances and different discounts for different times and different days. But paying is stupid easy – touch, get on – touch, get off, done. Here it would be even easier – touch, get on, ride for 2 1/2 hours.

    Since almost all the express buses are suburban routes that run during rush hour, just make those $3 for cash. The 94 should just be $2 all the time.

    To serve lower incomes, rides or passes can be given out or discounted by MetroTransit at their discretion, much as they do for students. There is no need to find the ‘funding’ for this as they can give away as many rides as they have seats. And, yes, these rides or passes could be earned through ‘volunteering’ (It’s not really volunteering if you get something for it.) – MetroTransit’s Frequent Flyer Miles, but that’s another story. If people abuse it, cancel the card.

    (They could also get more GoTo cards in people’s hands if they could pay for parking ramps and meters with them, but that, too, is another story altogether.)

    As for free fares, if they are to work like elevators, and it is an apt metaphor, one I have been using for years, they would need to be paid for like elevators, with rent. But we do not ‘rent’ land. (See the land value tax entry from a while back.) That is what you would need to make it viable.

    Whatever problems that would arise from short rides and frequent stops could be addressed, as stated above, by more dedicated lanes and less frequent stops. The U buses load and unload so much faster than the regular buses. And when you have a completely dedicated right of way and spaced stops, such as the light rail line, you can see that more riders do not slow the train down a bit, up to the point that the train gets full and people have to wait for the next train or doors cannot close.

    As for parking issues, let us not forget the opportunity costs of parking – 1) the under-utilization of land, and 2) the increased distances that are caused by this use of land. This increases transit costs and transit time while at the same time making short walking trips not as feasible. In some places walking across the street from one shop to the opposite can be 1/4 mile or more. That’s just stupid. Having parking fund transit would be somewhat dangerous. Better to just charge for the value of the land rather than giving land owners a tax discount for stupid uses of valuable land. Proper development levels would benefit transit more than fees or taxes from car storage.

    There was a tram line somewhere in southern France that opened a few years ago that is free. As soon as I can remember where it was I’ll post a link. But it is a reminder that the entire system does not have to be free.

    • Xan June 13, 2013 at 8:04 am #

      Jesus, I didn’t realize how long that was until it all printed out. And I did it all on an ipad.

  9. Alex London June 17, 2013 at 1:56 pm #

    If mass transit was run like a business, then congestion pricing would be one of the best solutions to the financing problem. Basically, during peak use hours the price increases accordingly. This higher price encourages riders to ride earlier or later, which in effect reduces congestion and delays. When transit riders are sparse, such as during regular working hours, the cost of a trip decreases accordingly. At these times the cost of transit could be virtually free.

    The beauty of congestion pricing is that it is socially justice: those who can pay higher prices for transit during convenient hours will do so, and in the process they subsidize those who need mass transit but cannot pay the prices.

    Many transit systems have a version of this, such as Rush Hour Prices (usually $1 more), but this is a very unsophisticated version of congestion pricing — the variance in price is not large enough to encourage a larger spacing of ridership.

    Another point is that if transit were free, this does not mean that more people would use it. The biggest factor in transit use is convenience. Perhaps depending on the individual’s economic status, a person will usually prioritize time-saved and comfort over cost. This is why walkability values are so important when considering mass transit — no one wants to walk from a bus stop then along a large parking lot to get to work everyday. Nor do people want to use a mass-transit system that is loud, smelly, and feels unsafe.

    It is my contention that transit authorities ought to focus on quality of service over extent of service of they want to get the most out of their ridership and keep their funding in check. Plus, transit should be concentrated in areas that are already dense and could feasibly become more urbanized.

    • Xan June 22, 2013 at 10:05 am #

      If mass transit were run like a business, they would do it like they do in Hong Kong. (Hint: most of their revenue comes from real estate, just like the old TCRT)

      If parking lots were run like a business, (I know, many are), they would do what you suggest. But the parking lot in front of Target is free all day long, probably because it’s part of a bigger system (the store). If a transit line were part of a bigger system (a neighbourhood, or real estate development, etc.), it could operate for free, like the U’s buses, or the Disneyland shuttles.

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