Subsidizing Uber for the “Last Mile”? An Orlando Suburb Is Trying It
In a January 2015 paper, the Yale Law professor David Schleicher and Yale Law student Daniel Rauch published a paper on how local governments might regulate “sharing economy” companies, such as Uber, in the future.
Among their more startling predictions, perhaps, was that the very cities that have been battling to regulate startups like Uber — which have been accused of ignoring laws requiring their competitors to, for example, license their drivers or ensure a certain proportion of their fleet is accessible to people with physical disabilities — would soon spend public money subsidizing Uber trips.
Why would they do such a thing?
Well, we might ask the Orlando suburb of Altamonte Springs, which this month became the first US city to fulfill Schleicher and Rauch’s predictions by announcing that it would begin subsidizing Uber trips within its borders. The city will cover 25 percent of the cost of trips that begin or end at the city’s SunRail commuter station, and 20 percent of other trips. The idea is to make help solve the “first/last mile problem” with the rail station, since there are few homes, jobs, or stores close enough to the station to make walking reasonable, and even the city admits that bus service is too spare to be relied on.
The Yale paper makes the case that there are good economic reasons for this kind of subsidy. In particular, they argue that low-cost Uber trips might create a “public goods” surplus by, among other things, allowing residents to make trips — and potentially buy more goods and services, or reach more jobs, or even just visit more people — that they otherwise wouldn’t be able to, ultimately improving on the “agglomeration effects” that are the economic basis of city living to begin with. Subsidizing ride-hailing services might also have a decongesting effect, by allowing a smaller number of vehicles to be used more intensively, and reducing the need for each household to keep one or more cars sitting idle for 23 hours a day. That would also reduce the need for homes, stores, and offices to hold large amounts of land for peak-use parking capacity, which also sits idle outside of work hours, or on low-shopping days.
Finally, they point out that there is a strong redistributive angle to this: Uber as a sort of public transportation. While the Altamonte Springs policy is not explicitly aimed at redistribution, it might conceivably be disproportionately used by lower-income people with limited car access. Other cities might attempt to target their subsidies more carefully, either by directly subsidizing trips for people below a certain income threshold — think of the reduced-fare transit cards that many agencies provide for low-income riders — or by simply requiring that ride-hailing companies provide a certain amount of reduced-fare rides in exchange for permission to operate. Think of it as inclusionary Uber.
But if this is going to become a broader trend, there are still a lot of questions to resolve.
One is simply cost. One of the biggest expenses in public transit is the cost of paying the driver or operator of the train — and if the ratio of drivers to passengers is essentially one to one, that cost skyrockets. The Fortune article about Altamonte Springs’ policy quotes an economist who predicts that the policy will “blow [the city’s] budget out of the water.” And a federal program that does something similar — a Medicaid policy that reimburses “non-emergency transportation” for patients who lack other options to reach a doctor — costs $3 billion a year to cover 3.6 million Americans, or roughly $833 per person, most of whom are presumably not taking subsidy-eligible trips as often as, say, commuters to the SunRail station. According to the GAO, nationally, the average cost of providing a paratransit trip is $29. Meanwhile, the total cost per bus ride in the Orlando area is about $4.07. (Of course, in its first year, SunRail itself apparently cost about $38 per trip, which raises its own set of questions about the cost-effectiveness of commuter rail lines in very low-density metropolitan areas.)
Another is access. Particularly if subsidized ride-hailing services are considered a redistributive measure, it matters if they are only usable by people with smartphones and credit cards — things a substantial portion of low-income people still don’t have.
Third, there’s the question of ownership. Some “sharing” services, most notably bike share systems, are owned by cities or transit agencies themselves. If a local government decides to use ridesharing as a part of its public transportation system, does it make sense to contract that out to a private company — or create “inclusionary” exactions requirements for those companies — or run its own system? For that matter, to what extent does subsidizing rideshare companies like Uber simply replace paratransit, and is that a trade worth making?
Ironically, by making it easier to live in far-flung locations, these subsidies might end up tilting the scale on people’s housing decisions, pushing people further out into the suburbs and ultimately making urban transportation more difficult and costly. As Reid Ewing and his colleagues have shown, some public housing that has low rents has high levels of embedded transportation costs due to the remoteness of workplaces and daily destinations, meaning that on the whole, it’s actually less affordable for the families living there than more central locations with somewhat higher rents.
While there has been a lot of discussion about how ride-hailing services like Uber and Lyft — and, combined with them, driverless vehicles — might affect American cities. But the truth is that the answer depends, just as it does with regular old owner-driven cars, on how cities decide to regulate the built environment, the vehicles themselves, and the prices of using public rights of way. As we begin what might be a wave of new kinds of regulation aimed at subsidizing the use of ridesharing services, it’s important that we ask what we hope to accomplish, and what the best way to do it might be.