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: 

3218634597_6489a80a9f_1.jpgPhoto 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 this enlightening video about "The Plight of the North American Biped."

  • Public transit is a public investment that benefits everyone regardless of whether they directly use it or not. If this is not true, then why is a transit strike always an emergency? And does the suburban 401k not benefit from the urban bus-riding wage-earner? We don’t use the word “subsidy” for public schools, and should not use it for public transit. If government investment has to turn a profit, then close the schools.

    Paying for oil wars, climate disruption, 40% of road costs, collision costs, parking, drainage problems, congestion costs…etc, etc… these are costs absorbed by society as a direct result of a system from which auto and fossil-fuel companies realize a private profit. That is a subsidy. And that subsidy was very large before the “stimulus” began. They are going to rush the stimulus through with billions for roads and cars and the U.S. will be committed on the wrong path for a time-period longer than the life of the biosphere. The U.S. will have to resort to having surrogates use nuclear weapons to control crude oil and natural gas sources and pipeline routes. Anyone with a public school education should be able to see this.

  • How much profit do we get out of freeways?

  • Wad

    I’ve had this discussion with Adron Hall, a pro-transit libertarian who writes about Portland (Ore.) TriMet at http://adronbhall.com/blogs/my_transportation_obsession/ .

    He would like to see all modes pay for themselves and allow for a return of investment on operations and capital. I pointed out that it was not so easy.

    Transportation, particularly anything carrying people, does not lend itself to being commoditized. Throughout the world, public transportation follows down one of two paths: subsidy or subsistence.

    Wealthier nations who can afford to subsidize transportation tend to do so. It can be directly subsidized by the government, or it can be run privately but require subsidies from other more profitable operations (such as land holdings, as is common in Asia).

    Poorer nations who cannot afford to subsidize transportation leave it as an economic activity for the margins of society. This is the libertarian dream of jitneys for all. This is the free market at its best … or is it? The drivers and riders are both engaging in subsistence economic activity, exerting time, money and energy to move in place. There is money to be made, but not wealth.

  • I have a libertarian friend and we talk about this kind of thing occasionally. The general argument I get from him is that public services should not be operating “at a loss”. Basically means that those utilizing the service should be providing the funding for that service. For instance, a bridge may require a bond in order to front the cash to get it built, but then toll collections from bridge users should eventually cover the cost to pay it back. Hence fares on public transit should be covering most of the cost of operating the public transit, and gasoline taxes should be covering most of the cost for maintaining freeways. If people are unwilling to pay those high fares for public transit, then that shows there’s not enough of a market for it and it shouldn’t be built.

    I don’t see a problem with the logic, but I frankly just don’t have as much faith in the free market. Greed and the desire to make a profit is what drives the free market, not the desire to provide a benefit to society. Government action and funding is often required to provide societal benefits that the free market would not produce on its own.

  • “How much profit do we get out of freeways?” -Umberto Brayj

    My thoughts exactly every time I encounter one of the transit systems must be profitable, or Amtrak isn’t profitable types. If these people want transit fare that covers operating cost, then lets start putting toll booths on the freeway or jacking up the taxes on driving, it’s only fair.

  • Wad

    David Galvan wrote:

    I don’t see a problem with the logic, but I frankly just don’t have as much faith in the free market. Greed and the desire to make a profit is what drives the free market, not the desire to provide a benefit to society.

    You are right on these points, David. But if you want a way to respond to libertarian logic, you have to keep in mind there’s a fundamental flaw of the ideology. Libertarians tend to read too deeply into economics, and much of what they do read, they get a lot of it wrong.

    A “kosher for market” transit system would not only need to make a profit, it must produce secular growth, meaning that it must show a growth in revenue or profits every future quarter and year.

    Virtually no public transit system can do this, and in a lot of cases, it may never have. Back when transit service was a for-profit enterprise, stand-alone systems often were protected with monopolies or franchise permits. That, or it was part of a land developer or utility (L.A’s streetcars were vectors for land speculation).

    Most of Pacific Electric’s services were loss-leaders, where fares covered a nominal part of the operating budget but the rest was funded through an endowment of sorts through land deals. It worked until the automobile came along, and the existing network was aging and needed capital.

    So even the mighty PERy needed a subsidy, because there are too many variables involved to effectively collect at least 100% in fares from every paying rider.

  • I’m not 100% Libertarian WAD. Just closely from a moral standpoint. I’m not an advocate of wealth redistribution etc. I don’t like the whole steal from one group and give to another. We aren’t a land of kings and queens and Robin Hoods…

    but I digress…

    Transit, automobiles, all of those things, if setup to cover their cost at minimum would incur more thought and intelligence in city zoning, design, and the way we live. It would reduce our waste and incessant traveling. The core issue is, out of all systems, one that covered its costs would give us ALL of those things.

    In the end we’d have the market – i.e. what people want to buy and buy within their means, and we’d have a reduction in excessive travel. Pollution decreases, taxes decrease, etc. In the end we all win. Heavy subsidies give us systems of bridges to nowhere, transit that is barely used, autos that are overused, mileage that is insanely high, and overuse of fossil fuels like mad.

    Why is this possible?

    Subsidies. If people paid cost, which is often only about 1.x-2x what many pay now, we’d see massive changes for the better.

    So yeah, that would provide us a free market – but it would also provide us all the things the left purports to want. If we keep attempting to get “policy” past though we’ll all just stay stuck spinning our wheels, or maybe I should say we won’t be able to get on track? …puns intended? :)

  • Spokker

    A free market cannot handle negative externalities like pollution. Driving would still need to be taxed the equivalent of the damage they do to the environment. The free market also cannot handle positive externalities such as when someone decides to cram into a bus with 50 other people, thus taking their car off the road and reducing the risk of killing another driver or pedestrian. Therefore, a subsidy is required to internalize the externality.

    That, my friend, brings us back to square one :)

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