When raising transit fares makes sense

Operating a U.S. transit system is challenging. Low population density and high fixed costs limit transit’s revenue. While there are several ways to increase the farebox recovery rate — the percentage of transit’s overall costs that are covered by fares —such as contracting out service, incorporating better management practices and improving cooperation with neighboring transit systems, most systems are going to lose money and will need some subsidy.

The challenge of providing quality transit service is due, in large part, to geography and land use. Most American cities are sprawling, low-density places with post-World War II development patterns centered around the automobile. Compared to European and Asian cities with denser, pre-World War II development patterns, American systems have to be larger to serve the same number of people. This makes U.S. transit systems expensive and slow.

If any U.S. system could and should break even financially, it is New York City’s Metropolitan Transportation Authority’s (MTA) subway. Due to poor management, however, the system has enormous debts and needs $32 billion worth of system improvements. Yet, MTA Chairman Thomas Pendergast is not considering raising fares.

There are a couple of reasons why MTA’s fares should be increased: the above-average income of the system’s riders, the high costs of alternatives — especially, driving in New York City — as well as existing discounts to lower-income riders.

While it is expensive to live in New York City, it is a bargain to use the subway. Last year, MTA increased its fares to $2.75 per ride. The price is in line with subsidized rail around the country, including $2.50 to ride MARTA in Atlanta, and $2.25 in Philadelphia and $2.65 in Boston for similar systems. It is below the average fares in Washington D.C. ($3.30 per ride) and San Francisco ($4.45 per ride).

When considering the average salary and costs to live in New York City, those $2.75 fares are a bargain.

Considering the region’s typical salary, a ride on the New York City subway should cost close to $5.00 one-way. If subway prices were in line with the city’s housing costs, a one-way subway trip would cost around $10.00.

New York is also a very expensive place to own a car. The average cost to park a car in the city is $562 a month. Assuming 20 workdays per months, the average Manhattan transit user is saving $23.35 per day by riding the subway instead of parking a car.

Providing service for low-income riders is not an issue as they could continue to use the $1.35 reduced fare.

Atlanta’s MARTA faces many of these same challenges as New York’s MTA. Thankfully, with CEO Keith Parker’s leadership, the agency’s financial health is improving. Yet more changes are needed.

MARTA continues to undercharge for its rail service. Based on IRS figures, the cost to drive the one-way 16.0-mile distance from the North Springs MARTA station to the Georgia Capital is $9.20. The average cost to drive one-way from Decatur to Hartsfield-Jackson Atlanta airport is $10.18, yet MARTA customers can make either trip for $2.50.

Charging higher fares, while retaining discounts for low-income riders, will do more than improve MARTA’s budget. It will also allow the agency to decrease its headways, the time between buses or trains on the same route, to appeal to its target demographic — choice riders, customers not dependent on transit. One of the reasons these commuters choose to drive is speed. The waits between trains, which can be up to 20 minutes, are too long. The agency should use is financial health to add more trains to its lines.

Transit agencies may not be able to turn profits, but they need to charge more for their services. New York should double or triple its price to help decrease its debt; even at $8.25 the system would be a bargain. MARTA should increase fares to riders traveling longer distances and use the revenue to decrease headways and entice choice riders. While price increases, may cause a small initial decrease in customers, additional service will cause a bigger bump in new customers.

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