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A Fairer Fare Hike

February 9, 2012

Last week we posted on how the T found itself in its present fiscal mess.  This week, we start thinking about how to get out of it. If you missed it, or if you're more a visual learner, you can check out this interview about the T which we taped this week:

"A Better City" on MBTA Fare, Service Plans from Chris Lovett on Vimeo.

 The consensus emerging from the the public hearings on the T's two proposals is that fare hikes, while still unpopular, are more palatable than the very severe service cuts that have been proposed. It seems that people are somewhat willing to pay more, but they're less willing to pay more for less. How much more they are willing to pay, and how that increase is structured, is a more complicated issue.

Comparing T Fares to Other Transit Systems

As part of its efforts around the current hearings, The T has compared its current and proposed fares to those of other major transit systems:

There is some daylight between the current T fares and other systems, all of which have raised fares over the past 5 years. The lower of two proposed fare hikes, Scenario 2, would bring the T's bus fares in line with the lower fares charged in other cities; the subway fares would end up somewhere in the middle of the range. But of course, even Scenario 2 is a big jump up from current fares -- 35% on average. That may be too much for riders to stomach, especially since, according to the T's own financial projections, the current proposals are a one-year fix at best. It's one thing to ask riders to pay a third more if it will fix the problem; it's quite another when riders will have a pay another third more a year from now.

Revenue Recovery Ratio: Paying a Fair Fare

One way to think about fares is to ask, what percentage of the true cost of the T should riders be asked to pay? In policy-wonk speak, the percentage of a transit agency's expenses (minus debt) that are covered by the revenues it brings in (fares, advertising, etc), is called its "revenue recovery ratio", or RRR. In 2007, the state's Transportation Finance Commission recommended that the T adopt a policy of maintaining a 50% RRR. At the time, the TFC predicted that the T would need to raise fares by 10% every 3 years to keep pace with rising expenses. If we'd followed that recommendation, a subway fare would have gone from $1.70 to $1.85 in 2010 and up to $2.05 in 2013. Of course, that's not what happened, and it's been more than 5 years since the T last raised fares. As a result, the T's current RRR is estimated to be only 39%.  It would be a lot to ask riders to make up such a large gap in one year, but the T might consider setting a 50% RRR as a target, to be achieved over time through a series of scheduled fare increases. And even though debt payments are excluded when calculating this statistic, there's no getting around the real-life effect that the T's massive debt load has on its budget. Roughly 30 cents of every dollar the T spends goes to paying its debt; pretty much every dollar that goes into the farebox goes right back out the door to pay the T's creditors. Until we fix this problem, the T's revenue recovery ratio is little more than a statistic. One final word on RRRs: some may wonder, why not ask riders to pay 100% of the cost of transit? The fact is, no transit agency in America turns a profit; all of them are subsidized, and most have RRRs in the 40- or 50-percent range. The true value of a transit system isn't measured by whether it can turn a profit but whether it can make the rest of the economy run more efficiently. The same goes for other modes of transportation. In theory, our national highway system is funded by tolls and the federal gas tax, but in practice, Congress has had to supplement those revenues with general funds the past several years. This situation will likely get worse as the bulk of our highway infrastructure, which was built in the 1950s, approaches the end of its useful life. Many policy experts would prefer if we set these "user fees" -- fares, tolls, gas taxes, or some new charges based on mileage -- so that they better reflect the true cost of our transportation choices. But for now, we choose to subsidize transportation -- driving and transit -- because it is a public good that enables economic growth and development. (For more on the relationship between transportation investment and the economic, check out our white papers on the subject on our publications page.)

Taking the Long View

Ultimately, the T needs to adopt a smart fare policy that schedules a series of smaller, regular increases that keep fares in line with the agency's expenses. That's what the transit agency in Oakland, California, voted to do last year, adopting a 10-year plan of 25-cent increases every 5 years. Unfortunately, the immediate problem the T faces is so severe that, absent some outside help from the legislature or the administration, there's no time to implement a longer-term fare strategy. And even with some outside help, the immediate fare increase may still have to be larger than desired, so as to get the T into a position where smaller hikes can keep pace with costs. A smart fare policy would also address problems like fare evasion and to try to minimize ridership loss. The T is already tackling fare evasion by proposing to do away with the 12-ride tickets for the commuter rail. While these tickets are convenient for occasional-but-not-daily riders, they can often become 14- or 15-ride tickets when conductors mispunch the ticket, or forget to punch it at all. The T can also deal with this problem by encouraging monthly pass use. The T already has a higher percentage of monthly pass usage than most transit systems. Monthly passes mean guaranteed income for the T, and they should be encouraged by working with businesses and institutions to enroll their employees.

Distance x Time...

One idea that won't work for the T is to charge riders varying amounts depending on how far they are traveling. (Washington, D.C., is a prime example.) That sort of scheme doesn't work with monthly passes, where riders have already paid a flat rate for their use of the system. Also, the T would have to reconfigure the station gates to make riders "tap out" when they exit, which would be expensive in its own right. On the other hand, the T does have the ability to change the times when passes are valid and to charge more for certain periods, like on weekends. The downside is that this would complicate life for monthly pass holders and would likely mean the T would have to charge less for its monthly passes. After all, a pass is worth a lot less if you can't use it anytime you like. Ultimately, though, fares are only one side of the equation. Next week, we'll take a deeper look at some of the cuts the T has proposed and parse out which ones, if any, truly make sense. After that, we'll look at how the T can work with businesses and groups like our Transportation Management Association mitigate the impacts of whatever service cuts and fare hikes end up being enacted.        

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