From the Fairest Creatures We Desire Increase: Notes on MetroTransit’s Fare Raise

On October 1st, Metro Transit will increase fares on all buses and trains by 25 cents.  While that small dollar amount may seem inconsequential, this decision comes as a culmination to a protracted debate.  Transit advocates have argued that the fare increase unfairly and disproportionately affects the poor. Proponents do not necessarily disagree, but argue the increase is necessary as the Motor Vehicle Sales Tax increasingly does not cover operating costs. Policymakers increasing shy away from increasing the gas tax, but yet are fine with increasing transit fares that suffer as a result. From 1988 – 2014, transit fares have increased 4 times more than increases in the gas tax.

Minnesota Center for Environmental Advocacy

Why is this the case?  As I began to ask the question “Where is the money coming from for our transit system?”, a funky sulfurous irony began to bubble to the surface.

The irony is quick to find: Close to half of the operating expenses for Metro Transit come from a MVST.  For those of you that don’t eat and breath transit acronyms, that means “Motor Vehicle Sales Tax.”  Every time someone buys a car in Minnesota, a portion of the sale goes to transit.

Aside for the stunning irony that transit usage is predicated on new auto sales, expensive items are a pesky and unreliable source of civic income.  Even Met Council CFO Mary Bogie said “We knew this was coming. We knew MVST was a very volatile revenue source that relies on consumers to buy big-ticket items even when the economy is in a downturn.”

While Council Chair Adam Duininck supports a half cent sales tax for the metro area to shore up the money, I wanted to figure out if there was a better way to fund transit.  How do other cities do it and what can we do better?

But first: A few words on “Perception”

It’s impossible to discuss transit funding without first mentioning the vast chasm between “How transit is funded” and “How people perceive transit to be funded.”  Although this may not be true within those who read Streets.MN, there are a great deal of people who seem to believe roads for automobiles are free and cost effective to build and maintain.  Conversely, many people seem to believe that transit is egregiously expensive and a financial strain that should have a greater return on investment.  

Even in our local paper, people who are described as experts in their field are quoted as saying that transit should be 100% self funded, a feat rarely accomplished in public transit and comically absurd to expect from automobile infrastructure.  Yet this perception of “cheap” roads and “expensive” transit remains and politically this perception makes transit funding all the more difficult.

So how is transit funded, anyway?

How Transit is Funded, Anyway

2016 Metro Transit Operating Revenue & Expenses

Transit funding can be divided into two global categories: Capital Costs and Operating costs.  Capital costs are the up front funds required to buy new trains, build new stations, and replace aging buses.  Operating costs are for paying drivers, routine maintenance, and paying the bills to keep the lights on.  Although capital costs do attribute to the perception of “expensive” transit because they often time come from state and federal agencies that seem very far away to the average user, for this article I will focus on operating expenses.

Fares

The first form of funding for operating cost comes from fares.  This is the most visible funding source, the easiest to understand, and therefore, the source most discussed by casual transit users.  Essentially, the three bucks I put in the machine funnels directly into helping the train run.

Although fares are the most visible form of income, they are by no means the only source of income and in fact they are usually one of many sources of income.  There’s a transit metric called “Farebox Recovery” which is the percentage of operating costs paid for by fares.

A respectable farebox recovery is in the 30% range and this is generally around where MetroTransit hovers.  San Francisco’s BART system has unusually high farebox recovery at 66%.

The point to keep in mind is that almost all public transit is subsidized in some way. But, so are the roads we drive on and most of the parking spaces where our cars end up at the end of the trip. Subsides are common in transportation – across all modes.

Transit Subsidies

Different areas fund transit in different ways.  Although there are some recurring motifs as to how the funding works, each metro area chooses it’s own transit values and hopefully does so with some congruence to their cultural and political values.

Both the state and the federal government provide transit subsidies, though federal funding tends to be for capital costs.  State governments usually provide subsidies for operating costs.  Different states have different values and thus the way these subsidies are funded can come from a variety of different taxes.

An increasing number of municipalities are becoming “self help” regions by supplementing transportation revenues with voter approved sales tax measures. Local option sales tax measures are increasingly common and hundreds of measures appeared on ballots nationwide in 2016.   Though this requires voters to approve a higher tax, most local voters have been showing strong support for funding transit as it shows an immediate, comprehensible, positive improvement to their lives.

With all these different ways to fund transit, which is the best funding mechanism to choose?  How does that differ from how Minnesota currently funds transit?

Current Funding and Different Possible Revenue Sources for MetroTransit

MetroTransit’s current operating model of funding from the Motor Vehicle Sales Tax is clumsy for a number of reasons.

  1. The sale of motorized vehicles has very little to do with riding the bus or the train.  .  One is a private property that can move the user around on demand and the other is a public service.  One operates on a fixed track and the other operates on a grid of expensive asphalt that fulfills individual users individual choice.  There’s a natural cognitive dissonance that comes with funding transit this way.  It frankly comes across like a sin tax for drivers paid to public transit not unlike cigarette taxes being paid to a stadium.  I think this creates more than a little bit of bad blood between private auto drivers and public transit users as it implies a moral superiority transit users don’t necessarily possess.
  2. A motor vehicle sales tax is unstable and unpredictable.  If the economy drags, then transit loses funding right as transit needs to have more funding to provide service to riders pinched by economics.  In an economic downturn, people drive less and require cheaper ways to move around.
  3. The motor vehicle sales tax is implemented statewide and public transit is an inherently urban issue.  This  issue exacerbates the rural-urban disconnect that has grown to define our state politics.  

So full knowing that there is great room for improvement, what other ways can we use to fund transit?

As David Bazaan once said,  “It’s Good to Have Options”

Regional Sales Tax

One of the most popular ways to fund transit is with a voter supported sales tax increase.  Like we talked about earlier, this is what has been publicly supported by Chairman Duininck.  It would require a vote, but it could shore up operating costs and keep transit affordable for the long term. Or at the very least, it would provide a reasonable projection for future revenues to bond against.

Yet with a sales tax comes the possibility of taxing people that are not residents of the Metro Area.  This is a both a good and a bad thing.  Visitors to the area can benefit from transit and therefore arguably should be paying for it.  Yet these visitors did not get a vote in whether or not they were being taxed to provide a service and although it is minimal and barely consequential, it’s arguably taxation without representation.

Years ago, the city of Seattle tried for a regional measure that failed because it was still susceptible to issues of geographic equity.  After that failure, the City of Seattle got permission to raise the tax in the city alone.   Following that, the multi-county region went up for a successful regional measure. There is something to be said for a city going towards these measures first and then trying to get support from the wider region.  A technique such as this may work well here in Minnesota as well.  

Regardless, Minneapolis arguably does already have a “regressive” sales tax in order to pay for the Vikings stadium.  A further sales tax to fund transit would likely sit poorly with voters as Minneapolis already has the highest downtown sales tax on restaurant meals in the nation.  I think it may be worth looking into other revenue sources for the sake of fiscal diversity.  

Gas Tax

How the MN State Gas Tax is Spent. (League of MN Cities)

Initially, raising the state gas tax seems quite equitable as the state gas tax has increased once in the time that fares have increased ten times.

However, gas taxes cannot be used to fund transit is because said usage is prohibited in our state constitution.  The last time anyone attempted to change this rule was 42 years ago.  Even if the gas tax could be used to fund transit, the political will required to do so would be substantial.  When California raised their gas tax with SB1 to cover needed road and bridge repair Gov. Brown faced significant backlash.  

To make matters worse, states have been increasingly crunched to raise gas taxes to rectify the shortage in federal bridge and road funding that has been growing since the 50s.  To use a gas tax to cover operational costs for transit would put operational costs in competition with necessary capital improvements for scarce resources.  

It may be best then to consider gas taxes as a necessary device for funding roads and bridges rather than a sustainable way to fund transit.  As a side point, this funding may be a necessary step towards better road and bridge funding revenues such as VMT fees, but currently using the gas tax for transit is legally and arguably politically impossible.  

Property Tax

A less frequently used option popular with our neighbors to the north is to raise taxes in order to fund transit.  For many Canadians, this has been a way to fund transit while also targeting taxes towards the demographic that is most likely to benefit from transit every day.  

Yet it is not perfect, as places like Vancouver are in a very similar situation to Minneapolis/Saint Paul in that they have rapidly increasing costs of housing.  Taxing said housing which is already increasing in cost without providing more services seems like a bum deal to for many people.  

Income Tax

Recent Indianapolis Rapid Bus Improvements due to Income Tax

With all these drawbacks politically and otherwise to funding transit, I started searching for examples in unusual places that might provide both feasible and unexpected funding sources.  To my great surprise, I found one of these in the Hoosier state: Indiana.

With the help of Transportation Innovation Academy, a local grassroots effort, and now Vice President Mike Pence, Marion county voted to increase local income taxes to provide better and more frequent bus service on IndyGo.

To me this in interesting, as not only did the public vote in the face of tea party opposition to increase income taxes, but they did it with an irrefutable 59% of the vote.  

The other thing I find that I find particularly clever is that the income tax is a flat rate .25%.  This means that if it is compared with average income, the wealthy pay a significantly smaller portion than the poor.  That said, the wealthy are more likely to utilize private transit whereas the poor have a need for transit.  

The way advocates pitches the referendum is especially important, as they made it into a real world narrative by saying the benefit of transit costs “just 25 cents for every $100 of taxable income – less than $10 a month for the average local family.”  The result of this referendum is better services for people who need it: Americans in Indiana.  

Conclusion

The transit fare hike is now a reality but this shouldn’t close the discussion on how to better fund our transportation system. Many of the current funding mechanisms are clumsy, blunt instruments that are loosely tied to the consumption of transportation services. The rise of technology-enabled mobility services like Uber and Lyft (and with autonomous vehicles on the horizon), we have a policy window to discuss policies to steer transportation policy towards desired mobility and societal outcomes.

We cannot keep having the same discussions around declining revenues, force the new revenues to come on the backs of disproportionately low income people and expect the problem to go away. Doing the same thing and expecting a different result is the definition of insanity.

With all that said, the future is bright in regards to the cacophony of options that exist to fund our transit.  LA has recently been studying distance based fares like Washington, DC has in order to see if smaller fees for shorter rides would increase both funding for operating costs while keeping transit affordable for users that need it.  The City of Angels has also started to look at parking as a revenue source for transit.  

It is imperative for the future of our metro area that we start discussing changes in our transit funding now.  While the fare increase stops the bleeding for now, studying the creative solutions currently being utilized in other cities can empower our citizens to have a fair shot at the American Dream.  

This article would not have been possible without the generous editing, suggestions, and contributions of Madeline Brozen.  Madeline is the Program Manager, UCLA Complete Streets Initiative and the Associate Director for External Relations of the Lewis Center for Regional Policy Studies and the Institute of Transportation Studies.  

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4 Responses to From the Fairest Creatures We Desire Increase: Notes on MetroTransit’s Fare Raise

  1. Aaron Isaacs
    Aaron Isaacs August 12, 2017 at 9:55 pm #

    Good informative article. To add a little historic context, property taxes were the funding mechanism from 1970 until the state switched to MVST during the Ventura administration. The tax rates were graduated into two tiers based on service levels, basically all day service versus peak only. There is still a vestige of the property tax to support capital funding.

    The big problem with property taxes was that some communities paid in more than they received in service and vice-versa. This led to a revolt that produced the suburban opt-out transit authorities.

    • John Charles Wilson August 13, 2017 at 2:02 pm #

      This could have been prevented with a more flexible property tax regime. If MTC had been authorized to provide “appropriate” levels of service to each municipality based on usage, then to set tax rates just high enough to cover the cost of such “appropriate” service in each municipality, the opt out revolution could have been prevented. There would have been 10 or more tax rates, and I’m not sure if that would be constitutional, but it would have been an ideal solution.

  2. John Charles Wilson August 13, 2017 at 2:12 pm #

    The MVST is ironic: if more people gave up cars and used transit, the funding for said transit would go *down*. Not good.

    The graphic comparing 1988 and 2014 fares ignores the fact that zones (distance fares) existed in 1988. Off-peak local fares ranged from 60 cents to $1.00, with a 10 cent express tax and a 15 cent rush hour tax. Many of the peak express rides back then were as high as $1.25. (Maybe it was in the fine print that is hard to read on screen.)

    The income tax in Indianapolis has been mistakenly identified as a property tax at least twice in this article. Please correct.

    IMHO, property tax makes the most sense to fund transit. However, income or sales tax is also OK. But the MVST has to go.

  3. GlowBoy August 16, 2017 at 6:44 pm #

    In the Portland area, TriMet is mostly funded by a 0.75% payroll tax on all employers (including self-employed) in the metro area. The other major transit agency in the state, Lane Transit District (Eugene area), has a similar mechanism, though a different rate.

    I think this is a more stable mechanism, since much transit use is employment-related, by tying transit funding to employment. Like all funding sources, it is impacted when the economy slumps, but (unlike sales taxes) only proportionate to the overall change in employment. It may also provide a modest incentive for employers to locate nearer transit since they’re paying for it anyway.

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