Net tax incidence for urban public transit subsidies in New Zealand

This paper examines the impact of policy changes in the funding of New Zealand public transit modes.These changes, introduced in 1983, are evaluated in terms of the net incidence of public transit subsidy assistance, taking into account its source of funding and the income class of those commuters benefiting from the subsidy. The general conclusion is that the net incidence of subsidy assistance remains progressive (i.e., a transfer from high to low income commuters) following the introduction of shared funding on the predominant public transit modes (rail and bus), sourced from income tax (central government) and property tax (regional/local government). However, because of the predominance of medium to high income commuters on rail vis-a-vis bus and the traditional source of funding on these modes in terms of income tax (a progressive tax source) and property tax (a regressive tax source), the degree of progressivity previously associated with public transit subsidies has now substantially reduced.The analysis and opinions expressed in this paper are the responsibility of the author alone and do not purport to represent the views of the Ministry of Transport.     

The authors in this issue

This paper analyses the impacts on a particular region of a recent policy change regarding public transit subsidy in New Zealand, under which the contributions of local authorities are increased from 0 to 50% of net direct expenditures. The options open to the community are examined and their effects on regional income, future development and social equitability are analysed. It also illustrates the cost effectiveness of a natural monopoly under increased accountability.     

Short-term impact analysis of fuel price policy change on travel demand in Malaysian cities

Abstract

Malaysia is one of the few countries in the world that provides a fuel subsidy to consumers. Due to the recent economic crisis, the Malaysian Government decided to revise its fuel subsidization policy from a fixed price subsidy to a floating price subsidy dependent on global oil demand. Recognizing that the change in fuel subsidization policy can have an impact on travel behavior, this article investigates the short-term impact of the policy change on private and public transportation in the Klang Valley region of Malaysia. Spectral analyses are performed to investigate if the policy change has an impact on private vehicle travel demand, measured in terms of road traffic, and short-term travel demand elasticity with respect to fuel price is estimated. To measure the impact on the public transportation system, the demand cross-elasticity values of rail transit and buses are also estimated. It was found that traffic flow reduces with an increase in fuel price, although elasticity and cross-elasticity values obtained are low. The article finds that there is a potential mode shift from private vehicles to rail transit with increasing fuel price. It is demonstrated that reducing fuel price subsidy can be an effective travel demand management strategy to alleviate congestion.     

Transportation policy in the eighties

Urban transportation policy during the nineteen seventies has been characterized by attempts to deal with four major problems: 1) the minimization of environmental impacts of transport investments, 2) the alleviation of inequities in mobility, and financial burdens imposed upon some groups by earlier investments in capital intensive highway networks, 3) the accommodation of demands for public participation in transport decision-making, and 4) the precipitous rise of public transit operating costs. In this paper examples are given of policies which have been pursued in attempting to solve each of these problems. It is shown that policies designed to solve one of them have often intensified others. Thus, current policy is characterized by reliance upon very small-scale and timid plans and proposals. The eighties may see a return to large-scale and comprehensive transport plans, but these will not be exclusively physical or system plans. Rather, transportation plans in the eighties will include a balance among physical facilities, institutional arrangements, financial plans, and user incentives and disincentives. Several examples of such comprehensive policies are given in this paper.Paper prepared for presentation at the Fourth World Congress of Engineers and Architects in Tel Aviv, Israel, December, 1976.     

Normative framework for transit fare policy-making

This paper presents a normative model for transit fare policy-making. Key elements of the model are: establishing service policy and ridership objectives, developing an overall financial philosophy, making fare level decisions, making structural pricing decisions, and designing implementation strategies. In general, the overall objectives of a transit agency regarding service quality and ridership levels should be the main impetus behind any fare program. Identifying where transit lies on the continuum of being a public versus a private service should frame the overall financial philosophy of a transit agency. From this the specification of farebox recovery targets should follow. Deciding upon structural aspects of a fare program perhaps represents one of the most important and most frequently overlooked steps of the process. Specific cost-based and value-based fare strategies should be considered. Implementation involves making the adopted fare strategy work. Key implementation issues are: fare payment and collection techniques, necessary service changes, marketing and promotional programs, and consensus-building. The model presented calls for feedback among these steps to allow an iterative, yet comprehensive, approach to fare policy-setting.     

The theory of second best in urban mass transit: Management in the public sector as a proforma exercise

This paper focuses on four issues. The first is the case of one-sided investments in mass transit in metropolitan areas of developing countries. It is pointed out that in many cases in which the conditions for optimum investment policies (Pareto's Optimum) are not maintained, excessive investments on mass transit, including large annual operating subsidies, usually lead to substantial sub-optimizations and waste of scarce financial resources. This problem is then reviewed under the light of the “Theory of Second Best” as articulated for all investment options within Welfare Economic Theory. The second issue examined is the matter of recently discovered important diseconomies of scale of large metro transit systems in developing and developed countries, and the need to retain production of transport services within small-scale production units that are well coordinated and controlled. The third issue discussed is the problem of mismanagement of most public sector transit companies and agencies. The notion that most such systems are simply administered, not managed, is being brought up and the requirements for proper management are amplified. Finally, the case of public vs. private ownership of mass transit is being discussed with a distinction between public policies of providing mass transit services and the actual production process of these services. Provision of services represents a public responsibility that belongs to the public sector. However, production of service is a techno-economic process that requires different talents and circumstances. The paper concludes with a strong suggestion for major reorientation of urban mass transit in the metro areas of developing countries towards more efficiency and higher productivity.     

A survey of the Swiss public transport system and policy

This paper surveys Swiss public transport structure and policy. The regulatory regime is explained with the division between the two operators working under federal monopoly — the State railways (SBB) and the postbuses (PTT) — and the rest of the system. The rather complicated Swiss subsidy arrangements are described. The federal government's emphasis on introducing cheap public transport fares on environmental grounds through the federal transport measures (BTM) and the use of cheap fares in urban areas are discussed. The paper notes the Swiss people's rejection by a referendum of a federal commission's proposal for an integrated transport policy, though some of the solutions were introduced in their own right: the division of SBB into two parts, and the creation of the concept Rail 2000, later developed into Rail + Bus 2000. Finally, the paper reviews problems of the Swiss policy, including the future of cheap fares, making some comparisons with developments in Scandinavia.     

The best of times and the worst of times: A new best–worst measure of attitudes toward public transport experiences

Attitudes play an important role in determining individual transit behaviour and the measurement of attitudes is relied on by public transit authorities’ world over. Given their role in behaviour and policy making, the accurate measurement of attitudes is of critical importance. Traditional satisfaction scales are prone to bias and on their own they are only a partial measure of attitudes. Given that satisfaction scales have been used to assist with large scale transport infrastructure investment decisions, to aid policy makers examining reactions to alternative policy changes and reform, and to measure the success of new initiatives, deriving robust satisfaction scales should be of critical importance. This paper introduces a dual version of best–worst scaling as an alternative measure of satisfaction. Best–worst scaling is free of the biases inherent in traditional response scales and is ideal for handling the comparative evaluation of large amount of attributes, particularly those which are inherently qualitative. The paper makes a further innovative contribution by proposing a model structure for the joint estimation of satisfaction and importance. Our model shows a better delineation between the attributes used to measure attitudes towards bus use and a more detailed understanding of the relationship between importance and satisfaction; enabling transport operators to better understand what counts most and assess their performance.     

The taxi's role in urban America: Today and tomorrow

Changes in the economic and demographic characteristics of US cities over the past two decades have modified but have not diminished the need for extensive public transportation service in these areas. The vast bulk of trips to work, to shop, and for most other purposes within large American cities are still made by residents of those cities, a significant portion of whom do not own or have access to an automobile. Expensive and far-ranging programs to enhance surburban commutation to the central city by means of rail rapid transit do little to meet the needs of those who still must rely upon local, extensive service within the city.One form of public transport — the taxicab — offers the quality and flexibility of service which even those of limited means find well worth the price. As a consequence, fleet taxicabs serve almost 40 percent more passengers than all US rapid transit systems and about 60 percent as many passengers as all bus transit systems. Removal of archaic and restrictive regulations governing the number and use of taxicabs in major US cities would promote more effective and widespread use of this, the only form of public transit that still operates — at a profit — without public subsidy.     

Transit performance evaluation in the U.S.A.

Performance of transit agencies in the United States improved during the 1980s. At the beginning of the decade, Americans had become disenchanted with transit; legislation was passed that required agencies to report performance and accept regular audits. Theory underlying these policies is examined in four components: dimensions for policy objectives, indicators, information systems and incentives. Three programs are examined: federal triennial reviews that monitor compliance with planning and grant requirements, California performance audits that analyze goals and track performance on five indicators and the Los Angeles program that encourages improvement by offering incentive payments for better-than-average performance. The California audits have been the most successful.     

A volatile relationship: The effect of changing gasoline prices on public support for mass transit

The determinants of public opinion toward public transit is a little-researched topic, though a better understanding of what makes consumers willing to support transit may reveal which attributes of transit consumers value most. One determinant of people’s willingness to support investments in mass transit may be the price of fuel for transit’s principal competition, the private automobile. In this paper, I examine the relationship between the cost of gasoline and stated willingness to invest public money in mass transit improvements. I hypothesize that fuel price volatility—in addition to price itself—is a determinant of support for more mass transit funding, controlling for other factors. As the price of gasoline becomes more uncertain, the public should, all else equal, support investment in mass transportation, a form of transportation that may provide some measure of protection from the price of fuel. Results suggest a strong effect of price volatility on consumers’ willingness to support transit expenditures.     

The federal rail transit policy: Rhetoric or reality?

Almost two years ago the U.S. Department of Transportation issued a formal statement of policy on rail transit. The aim of the policy was to articulate more clearly some of the basic principles and philosophy which would guide Federal participation in urban rail transit investment. The paper examines the principal tenets of the policy and assesses its influence on local rail transit development.     

The economic use of subsidies for urban mass transportation

The energy crisis and various urban problems stemming from auto congestion, pollution, and the cost of providing public highways have created enormous interest in revitalizing our urban mass transit systems. Currently much is being said and written regarding the efficacy of granting federal, state and/or local operating subsidies. In this article, the author reviews the transit industry's peak capacity problem, and questions the economic wisdom of providing operating subsidies, as some are now being provided, and how most will probably be administered in the near future. An alternative plan suggests the manner in which subsidies can eventually help the transit industry. The article concludes with an analysis of what research efforts are needed in many urban transit systems and how subsidies can be used to support such research.     

Appropriate mass transit for developing cities

This paper is concerned with the majority of developing nations who lack large resources for public sector projects. It questions the basis of much mass transit planning and attempts to put forward a more efficient way of reaching decisions. It calls extensively on experience of Metro Manila, capital of the Philippines, where an innovative system of metropolitan planning and administration is throwing a new light on ‘appropriate’ investment in such developing cities.

Mass transit systems as currently conceived in such developing cities—fully segregated rail‐based systems—are unlikely to be affordable (at least for many years) and in consequence scarce resources should not be devoted to developing and evaluating them. Rather, the principal objective should be to provide low‐cost, affordable mass transit—affordable to governments and to passengers. This almost certainly points to road‐based systems, or predominantly at‐grade light rail transit (LRT) systems, which are usually regarded as ‘obviously unworkable’ in developing city environments.

This judgement is questioned and it is suggested the potential of LRT to provide appropriate low‐cost mass transit is not being realized. An approach to determining its potential applicability is proposed. If feasible it should be evaluated against road‐based systems before decisions to implement new mass transit systems are taken.

While circumstances vary between countries the central message of this paper—that public sector resources have a very high opportunity cost which make all but the lowest‐cost mass transit systems very difficult to justify—will hold in all but the higher‐income developing economies.     

Demand management in suburban settings

This paper provides findings from a review of employer based demand management strategies for reducing traffic congestion in several areas of the United States. The research was carried out by K.T. Analytics, Inc. in 1989 under a contract with the Federal Department of Transportation, Transportation Systems Center. Relying on a review of employer based programs in 26 sites, as well as selected literature, the paper draws conclusions about the effectiveness of employer based transportation systems management (programs to encourage carpooling, transit, biking, cycling, walking and flextime) and parking management (preferential parking for carpoolers, removal of parking subsidies, and other measures) aimed at reducing solo driving and peak period commuting.Several conclusions are offered for local planners and policy makers. Demand Management programs can be effective in reducing traffic congestion, provided they are targeted to larger employment centers, accompanied by transit development, high occupancy vehicle incentives and parking management strategies, especially pricing. Flextime should not be encouraged without careful evaluation as it may discourage ridesharing. Guaranteed ride home services appear promising and deserve attention. With all strategies, long term vigilance will be necessary as programs are susceptible to change over time. Stringent public policies do not appear necessary for development of effective programs. Ordinances should require plans not specific strategies, as it is difficult estimating the probable effectiveness of particular strategies. Ordinances should contain sanctions for employers not carrying out agreed to plans, and should include fees and financing to support public sector review of plans and on-going monitoring.     

Subsidizing and pricing private toll roads with noncontractible service quality: A relational contract approach

In private toll roads, some elements of the private operator’s performance are noncontractible. As a result, the government cannot motivate the private operator to improve them through a formal contract but through a self-enforcing contract that both parties are unwilling to deviate unilaterally. In this paper, we use noncontractible service quality to capture these performance elements. By employing a relational contract approach, we aim to investigate the optimal subsidy plan to provide incentives for quality improvement. We show that government subsidy is feasible in quality improvement when the discount factor is sufficiently high and marginal cost of public funds is sufficiently small. Under feasible government subsidy, we have demonstrated the optimal subsidy plans in different scenarios. Moreover, some comparative statics are presented. Based on the derived subsidy plans, we further investigate the optimal toll price. We find that the optimal toll price generates zero surplus for the private operator and positive surplus for consumers. We then make two extensions of our model to re-investigate the government’s optimal decisions on subsidy plan and toll price when her decision sequence is changed and when government compensation is present upon termination of the relationship. Some implications for practice have been derived from our model results.     

Optimal transit subsidy policy

The basic justification for transit subsidy is that such a subsidy is necessary, given substantial economies of scale, in order to permit fares to be set at a level which will result in reasonably efficient use of the service. Efficiency is not, however, merely a matter of the level of the fares but even more of the fare structure and pattern. Major changes in fare patterns are needed to permit reasonable efficiency of utilization to be attained, and full advantage derived from subsidy. Differentiation according to time and direction, as well as the distance of travel, is required. Ideally, competing modes such as the private automobile should be priced at marginal cost, differentially by time and place, and the subsidy should be derived from taxes on land values in the areas where such values are enhanced by the presence of transit service at low fares. In the absence of such conditions, fares should differ from marginal cost in ways that take into account the impacts of transit fare variations on auto traffic and congestion, and on the subsidy requirements and the adverse impacts of the taxes imposed to finance the subsidy.In addition to these economic efficiency considerations there may be added considerations of distributional impact and political acceptability, which may modify the optimal solution somewhat but should not greatly change the main outlines of the patterns to be recommended.     

Book Review: Airline Marketing and Management

Abstract

Public transport policy in the Madrid Metropolitan Area is often deemed as a success. In 1985, an important reform was carried out in order to create a new administrative authority to coordinate all public transport modes and establish a single fare for all of them. This reform prompted a huge growth in public transport usage, even though it reduced the funding coverage ratio of the transport system. Since then, Madrid’s public transport system has been undergoing an increasing level of subsidization, which might jeopardize the financial viability of the city public transport system in the future. In this paper, we present a detailed analysis of the evolution of the public transport funding policy in Madrid in recent years. We found that the increasing level of subsidy can hardly be explained on the basis of equity issues. Moreover, we claim that there is still room for a funding policy that makes the efficiency of the system compatible with its financial sustainability.     

Heuristic policy analysis of regional land use,transit, and travel pricing scenarios using two urban models

To address some of the uncertainties inherent in large-scale models, two very different urban models, an advanced travel demand model and an integrated land use and transportation model, are applied to evaluate land use, transit, and auto pricing policies in the Sacramento, CA (US), region. The empirical and modeling literature is reviewed to identify effective land use, transit, and pricing policies and optimal combinations of those policies and to provide a comparative context for the results of the simulation. The study illustrates several advantages of this approach for addressing uncertainty in large-scale models. First, as Alonso [Predicting the best with imperfect data, AIP Journal (1968)] asserts, the intersection of two uncertain models produces more robust results than one grand model. Second, the process of operationalizing policy sets exemplifies the theoretical and structural differences in the models. Third, a comparison of the results from multiple models illustrates the implications of the respective models' strengths and weaknesses and may provide some insights into heuristic policy strategies. Some of the key findings in this study are (1) land use and transit policies may reduce vehicle miles traveled (VMT) and emissions by about 5–7%, and the addition of modest auto pricing policies may increase the reduction by about 4–6% compared to a future Base Case scenario for a 20-year time horizon; (2) development taxes and land subsidy policies may not be sufficient to generate effective transit-oriented land uses without strict growth controls elsewhere in the region; and (3) parking pricing should not be imposed in areas served by light rail lines and in areas in which increased densities are promoted with land subsidy policies.