What Does Profitability Mean for Transit?
Today on the Streetsblog Network, we’re featuring a post from The Transport Politic, in which he takes up a discussion with Cap’n Transit about what constitutes profitability for a transit system:
Photo by network member Rail Life via Flickr.
[T]he meaning of the word "profitable" itself is subjective. We could argue that getting enough revenue to pay for a transit service is profitable if all the money comes from fares, but we could also argue
that a transit service is in the black even if most of its resources come from a devoted tax base, as long as all revenue — fares and devoted taxes — eventually pays for the services a transit system
provides. We have made a decision in our society to subsidize transit; what that actually means is that our government takes some general revenue and diverts it to transportation, rather than relying only on user
fees to cover operation costs. But the rhetoric of our politicians and advocates rarely takes this truth into account.
The question of transit profitability is especially germane given the debate going on over the stimulus bill in the Senate right now. So far, senators have voted to subsidize auto sales via tax breaks, but they won’t move to subsidize operating costs for transit systems that get millions of people to their jobs all around the country.
Also on the network, some good analysis of the hit rail is taking in the stimulus, from California High Speed Rail Blog; and Christof Spieler at the Citizens’ Transportation Coalition in Texas discusses how stimulus abstractions might hit home in his community.
On the lighter side: on his blog, How We Drive, Tom Vanderbilt posted an enlightening video about "The Plight of the North American Biped."
Two comments.
1. If profitability the true measure of a public service? If government services were economically profitable, they’d be provided by the private sector. Most public services seem to be justified on the basis of the free rider problem, externalities, or moral concerns.
2. The biggest problem with transit budgeting is the problem of government budgets in general: separate operating and capital budgets without depreciation being accounted for in the operating budget. In a capital heavy business like transit, depreciation is one of the largest expenses, but maintenance and capital refresh does not appear to be part of the steady state. This leads to all the “negative surprises” we get to the end of life, and a crisis of deferred maintenance. We’ve got to get to “truth in budgeting” for transit where it is funded in a way that not just pays for bus drivers, but also adequately funds the sustainability of the capital base.
Profitable, private transit was viable before the age of essentially free, limitless oil. And it will be viable again afterwards.
I think profitability is a silly measure; economic sustainability is appropriate. If we pool our money for our common good, ie, taxes, then that money gets spent serving the common good. This is not a tough concept; the fact that it’s been so obfuscated, so denigrated, and so loaded up with complicated arguments in the public debate is testimony to the overabundance of capital used against it.
What you said, The Urbanophile. The way I put your second point is that ongoing normal replacement is not a capital expenditure, and should be funded by ongoing revenues, not debt.
Also, the MTA believes its assets equal its liabilities because it does not include an obligation to provide service as a liability. It is run as if it could just shut down some day, and so very well might.
Rather than profitability, the measure is financial sustainability. And we don’t have it.
A second measure is expandability. If transit demand increases, could more service be provided without added subsidies? Fares need to be high enough to make that possible in places where mass transit is a transportation system, not a social service for the few who do not drive.
I would like to see the subway and commuter rail systems break even on an “auto equivalent” basis. Drivers don’t pay for streets; those are funded out of general tax revenues. Stations are community amenities like parks that life property values, the way adjacent parking facilities diminish them.
Drivers to pay for the purchase, maintenance, fuel and operations of their motor vehicles. I’d like to see fares cover the purchase at a normal replacement rate, operation, and maintenance of subway and commuter rail cars — which at NYCT means the Rapid Transit Operations and Car Equipment departments. Let taxes pay for the rights of way and stations.
Larry, wow, those are really persuasive, concrete points about how to structure some financial sustainability, and the comparison of stations to parks is eye-opening too — thanks! Learning a lot here.
Thanks to you, Urbanophile.
You’re welcome, Jennifer.
It’s normal for fares to pay for trains and buses, much like people have to pay for their own cars. However the production of rail and subway lines, along with bus lanes, fall under the business of land improvement much like building roads does. The land administrations have to pay for this, since they will profit back in higher property values.
Mathieu – aren’t you ignoring positive & negative externalities and the government’s role in embedding costs & benefits to properly reflect them?