Public Transport Makes Economic Sense

Too often public transport advocates lose arguments about transport policy on economic matters. The environmental benefits of well-used public transport are fairly well accepted, and the social benefits can be argued – but often it’s on economic matters where we lose out. All it takes is for a politician to go “but look at all those subsidies” and you often find PT advocates floundering, or resorting to accurate, but rather hard to understand claims about hidden subsidies relating to parking provision, CO2 emissions and the like. That’s not to disparage the hidden subsidies matter, as it is extremely important to understand and recognise when looking at how sensible transport policies are or are not, but rather to say that actually, fundamentally, public transport makes economic sense.

Transport academic Todd Litman, who is the executive director of the excellent Victoria Transport Institute, has put together a very interesting research paper called Raise My Taxes, Please! Evaluating Household Savings From High Quality Public Transit Service. The basic argument of the paper is that public transport subsidies are well worth it, because each person who doesn’t have to drive as often saves an enormous amount of money for them. Here’s the abstract: The argument is fairly easy to make sense out of. Each person driving around in a single vehicle takes up a lot of road space (both to drive the car and to park it) and uses a lot of energy and resources to drive themselves around (both in terms of getting the car in the first place and shifting it around all the time). Road and parking space is expensive, as is owning and running a car. So having an auto-dependent city is very expensive, just generally the costs are borne individually (cost of owning a car) or hidden (parking costs).

Litman focuses on the term “high quality public transit” as being something of such a quality that people will actually choose it over and above driving for logical reasons. As I talked about a few days ago, most people don’t choose to use public transport because it’s not the mode of transport which works best for them – not because of some great cultural aversion. So what is necessary to get people to change modes from driving to using public transport is getting that public transport to a sufficient quality that makes it better than driving. This is certainly possible – evident in Auckland probably most obviously with the Northern Express service. Here’s what Litman says is necessary to constitute “high quality public transit”: Cities are classified by Litman into those that have “high quality public transit” and those that don’t. Perhaps one of the most interesting findings from Litman’s research is that even though cities with high-quality public transport certainly do spend more per capita on public transport subsidies, because of the higher patronage the system encourages, these cities have better “farebox recovery ratios’ than cities that only offer a ‘basic’ service. Someone should tell NZTA the best way to raise farebox recovery ratios appears to be by improving public transport services and making the system more attractive. Oh, and also point out to them that the farebox recovery ratios in New Zealand (Auckland’s around 45%) are actually pretty damn high by international standards. While the subsidies per capita in High Quality Transit cities are around two and a half times greater than those with basic transit only, fares (and therefore one would assume patronage) increase six-fold.

So Litman asks the question of whether that extra money spent on subsidies, to go from “basic transit” to “high quality transit” is worth it.

Is this expensive? Are such investments justified? Such funding represents a major increase in transit spending but is small compared with total transportation expenditures. U.S. households currently spend about $3,500 annually per capita on vehicles and fuel. Urban households, businesses and governments spend an estimated $2,000 annually per capita for parking facilities (residential garages, parking lots and on-street parking). Governments spend about $600 annual per capita on roadway facilities and traffic services, of which about $300 is from user fees (special fuel taxes, vehicle registration fees and tolls). In addition, households also pay about $100 annually to subsidize public transit services and $50 in transit fares.

That all adds up to around $5,950 per person per year for transportation expenditure. So $120 is a pretty small percentage of that. Especially so if it can make a big difference to what people need to personally pay for transportation.

But does it make a difference? We’ve learned above that investing in higher quality public transit makes the systems have better farebox recovery ratios, but what are the benefits for the people living in these cities from spending that extra money? Litman answers this question in the analysis that leads to the graph below:As is explained, it seems that generally cities with higher quality public transit end up spending a lower portion of their household expenditure on transport than cities with medium or low quality transit. In other words, the extra money spent on subsidies necessary for high-quality public transport are more than paid back by the savings that people make on their own transportation spending. This is further detailed in the table below:

This is a very interesting table, in that basically it details that for every dollar spent on increasing public transport subsidies to create a “high quality transit” system, the people living in that city save $4 of transportation costs. So there is roughly a 4:1 payback on this investment.

But that’s just looking at things from an individualistic point of view. Litman’s research indicates that there also seem to be wider economic benefits of having high quality transit- clear in an alignment between the higher GDP per capita and better quality transit. This correlation is shown in the graph below, and is likely to be a at least somewhat related to the individual savings outlined in the table above: Litman concludes his analysis by saying the following, which I think sums the matter up nicely:

Providing high quality public transit service typically requires about $268 in annual subsidies and $108 in additional fares per capita, but reduces total transportation expenditures about 20%. For an average household this totals about $775 annually in additional public transit expenses, offset by $2,350 in vehicle, parking and roadway savings, providing $1,575 in overall net savings.
Transportation costs are seldom evaluated in this way. Conventional transport project economic evaluation compares transit investments with just roadway costs; vehicle and parking costs are generally ignored although a vehicle and parking space is required for each road trip. High quality public transport and transit oriented development provide other often undervalued benefits including congestion reduction, road and parking cost savings, improved safety, improved accessibility for non-drivers, increased affordability, energy conservation, emission reductions, economic development, more efficient land use, and improved public fitness and health. As a result, conventional analysis underestimates the full savings and benefits provided by public transit investments.
Improving public transit service quality is therefore a win-win solution: most people benefit overall, including those who currently rely on alternative modes, those who switch from driving to alternative modes in response, and those who continue to drive who enjoy reduced traffic and parking congestion, reduced accident risk, reduced need to chauffeur non-drivers, and various indirect savings and benefits…
…Transportation planning often asks, “How much should we spend on public transit?” but in many situations it is legitimate to ask, “How much should we save?” since high quality transit allows households to spend less overall, even taking into account additional taxes. When all impacts are considered, consumers have every reason to demand, Raise my taxes! to create high quality public transportation in their communities.

As you can see, there is a very rational economic argument for improving public transport. Investment in public transport makes good sense. Money spent on public transport subsidies is not money that goes down the toilet, but instead seems to pay itself back four times over in terms of transportation savings per capita. The key issues for these benefits to happen though, is that the public transport system created must be high quality. There’s no point having a million slow buses running empty all the time because everyone still chooses to drive. The money must go into creating a public transport system good enough to attract people away from driving – to reduce their auto-dependency.