Transit in Crisis: Who Should Pay for Upgrades – Riders, or Taxpayers?

Transit in Crisis: Who Should Pay for Upgrades – Riders, or Taxpayers?

August 09, 2017  | Alice Grossman

August 9, 2017

New York Governor Andrew Cuomo and Mayor Bill De Blasio have spent the past three years of playing the blame game on who should fund essential upgrades to the New York City subway system (MTA). Now that the state of the infrastructure can’t be ignored, one of them has stepped up to answer MTA Chairman Joe Lhota’s call for $800 million in emergency funding.

Mayor De Blasio answered the question of where (more than) the City’s share of the $800 million will come from on Sunday: he is calling on New York City’s wealthiest residents to ante up to pay for both the capital and operating funds requested by Lhota, and fare subsidies for low income riders. The Mayor’s proposal increases the city income tax rate by one half a percentage point for individuals earning more than $500 thousand per year and joint filers earning over $1 million, which would add an estimated $800 million per year to New York City general funds. Two thirds of the funds would be allotted to MTA maintenance and one third to providing half-priced metro cards to people whose incomes fall below the national poverty line.

De Blasio estimates that the tax increase would hit 32,000 people but that the reduced-price fare cards could benefit 800,000 people and the benefits of more reliable subway service would benefit everyone in the city.

Others believe that the system users should be responsible for funding necessary maintenance upgrades. David Levinson, a professor at the University of Sydney School of Engineering, made the case for treating transit as a utility and taking steps to balance the budget through competitive tendering, across the board increases in fares, encouraging monthly passes, paring down routes, employing land value capture, accruing private equity, and encouraging local funding. If transit is a utility, and not a public good, then each user should be paying for their own consumption, leading to higher fares across the board and less reliance on general funds.

“In principle,” say Levinson in a recent report, “a public good is something that people cannot be prevented from using, and that does not get worse the more people it serves. In reality, transit is more like a club good, since we charge users all the time. In fact, it would be technically fairly easy to charge users more.”

Levinson also supports subsidizing transit fares for low-income riders, but in general supports shifting higher fares towards suburban users: “Since the routes serving low-income travelers are often profitable (fares cover operating costs), it is that long-distance, inefficient suburban routes are very heavily subsidized by profitable or near-profitable urban routes.”

New York City Transit carries approximately 2.6 billion trips each year. To raise the $800 million from users only, MTA would need to increase subway fares by more than 30 cents per trip, on average. While that might not sound like much, MTA has increased fares several times in the past few years, up to $2.75 per ride in 2017 from $2.00 in 2008. A new 30 cent fare increase for someone who commutes twice daily would add up to more than $200 in additional costs over a year. New York already has one of the fastest growing costs of living, making such a move politically unpopular.

Regardless of the city, mass transit rarely pulls a profit. In the second half of the twentieth century, private streetcar agencies (often subsidized by land developers or electric utilities) folded in cities across the country, and mass transit was taken on by the public sector. The theory behind publicly provided transportation lies in the assumption that transportation is a societal necessity to connect people to jobs, schools, and goods.

Whether a transit agency fills its budget gap through general taxation or through increased user fees depends on whether public transit is viewed as a utility or a public good. Levinson’s theory would suggest that taxes are not the answer to reducing debt, but rather privatizing lines, or cutting them completely if the profit margins are just too low could help solve the problem. Service cuts are highly rational when the service is not seen as a public good from the beginning, but cut off access for entire segments of the population.

On the other hand, using general revenues (whether through the de Blasio proposal or some broader tax proposal) makes more sense if public transit is seen as a public good. The majority of New Yorkers and tourists who ride the subway would not see a change in their transit fare. Instead, taxes from the wealthy would fill the budget gap as needed to perform necessary overdue maintenance and upgrades and to continue to provide affordable transit for low-wealth riders. Even if the wealthiest New Yorkers aren’t riding the system, they depend on it to provide safe, affordable, and clean transit for the masses that run the backbone of the regional economy.

In fact, many industries rely on public subsidies to support national markets. The federal government then provides food assistance to people with low incomes through the Supplemental Nutrition Assistance Program and subsidizes home heating bills through the LIHEAP program.

Other transit agencies are using general revenues to support transit budgets and provide discounts to the lowest income earners. The San Francisco Municipal Transportation Agency (SFMTA) rolled out their Lifeline program after multiple years of fare increases. The Lifeline program costs close to $8 million and reaches about 39,000 people a year. Since then, King County Metro has launched a similar program called Orca Lift in the Seattle Region. Though the programs cost money and time, both the SFMTA and King County Metro plan to continue to provide the services.

A single person making above $12,060 is still considered above the national poverty level (except in Alaska or Hawaii). In order to provide transportation as a public good to people of all income levels, keeping fares reasonable while contributing to costs associated with public transportation from general funds can create cities that prosper socially, economically, and culturally.

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