The effects of public transport subsidies on demand and supply

The results of statistical analysis of cross-sectional and longitudinal public transport operating statistics from 16 countries aimed at identifying the relationships between subsidy, on the one hand, and fares, service, passengers, unit costs and output per employee on the other, are reported. This study updates earlier work carried out in 1979 for the European Conference of Ministers of Transport, and uses a greatly expanded data set covering 117 individual cities in 11 countries, and aggregate national data from 16 countries, over the period 1965–1982. The statistical correlations identified between year-on-year changes in subsidy and changes in a wide range of operating indicators show that the subsidy has reduced fares and increased the amount of service operated, and each extra 1% of cost covered by subsidy probably attracts a 0.2 to 0.4% increase in passengers. However, the study also finds highly significant relationships between increases in subsidy, on the one hand, and increases in unit costs and wages and reductions in output per employee, on the other. It seems that as much as one half of subsidy has been consumed by higher costs and time-lagged regressions suggest that, in part, the increases in unit cost tend to follow subsidy rather than precede it, giving some cause for concern that the uses of subsidy are not being controlled as tightly as they might.     

Management objectives and the causes of mass transit deficits

Based on data for the period from 1948 to 1997, exogenous decreases in demand and increases in costs are estimated to have reduced the annual profitability of the Chicago Transit Authority (CTA) by $1 billion. Half of this decline was recouped by reductions in service, increased fares and increased productivity. Even more would have been recouped had the CTA not given away earlier productivity gains during the 1970s. This was during a period when subsidies were increasing rapidly, and seemingly without constraint. When faced with financial challenges, management has preferred to increase fares rather than reduce service levels to the detriment of social welfare.     

Future use of stage bus services

The reasons underlying the decline of stage bus services in the U.K. over the past 30 years seem to be well understood, and the probable future trends have been projected using a quantitative forecasting model. The model considers U.K. bus services at a very aggregate level, but it breaks the demand into specific user groups: work trips, children's travel, travel by the elderly, and all other travel, and separately for households with and without a private car. Forecasts depend very sensitively on the level of economic growth assumed, since this governs the two major factors which determine public transport use — car ownership and the cost of operating the services. If the economy could recover its historic growth rates, a further substantial decline in bus use seems inevitable under most realistic assumptions. However, with the present economic outlook, a lower growth rate seems likely to persist for some time, and in this case public transport use will become much more stable in the 1990's; a tendency which would be helped if there were large increases in fuel prices. Many of the Metropolitan Counties have adopted policies of strongly restraining future rises in fares, in some cases to the extent of freezing fares in monetary terms. The effects of such policies on both patronage and subsidies are considered here, and although much of the current political attention is focussed on controlling fares, the question of balance between fares and service levels is also discussed. Lastly, it must be admitted that these predictions are based on knowledge which is largely restricted to the short-term effects of transport policies. The nature of our uncertainty about longer-term effects, and the possible size of them, is considered in terms of sensitivity-testing of the prediction model.     

Consequences of public ownership and subsidies for mass transit: Evidence from case studies and regression analysis

The trend toward public ownership, public regulation, and public subsidization of the U.S. transit industry has recently come under attack. Many argue that the result has been reduced productivity, increased costs, and very little real benefit. This article examines the impacts of subsidies and public ownership in four large transit systems that cover a range of transit system types and financing arrangements. Evidence from the case studies is compared to the results of both time-series and cross-section regression analysis of operating and financial statistics for large samples of bus systems. Although the case studies and the regressions rely on different datasets and different techniques, they support the same conclusions. Increased subsidies and public ownership have kept down fares and permitted service expansion, but have also encouraged wasteful cost escalation. Thus, transit riders unquestionably have benefited from public takeovers of transit systems and burgeoning subsidies, but not nearly as much as they would have benefited if costs had not skyrocketed at the same time.     

Urban passenger transport in the United States and Europe: a comparative analysis of public policies

This is the second part of a two‐part series that examines recent developments in urban passenger transport in the United States and Europe, focusing on the roles and impacts of the public sector as these have varied by country and over time. The first part of the series described public policies for roadway systems and private car use, whereas this second part concentrates on public transport. After a review of demand and supply trends, the article evaluates government policies in terms of public vs private ownership and operation, public regulation, financing responsibility by government level, types and amounts of subsidy, and impacts of ownership, regulation, and financing arrangements on costs and productivity. This second part concludes with an overall comparison between Europe and the United States, and considers how Europeans and Americans might learn from each other's successes and mistakes in order to improve transport policies.     

The demand for public transport. part II. supply and demand factors of public transport

Abstract

This two‐part article, concerned with the way public transport ridership is affected by the various relevant factors, is based on the Executive Summary of The Demand for Public Transport (Webster and Bly 1980), the report of the TRRL‐sponsored International Collaborative Study on Factors Affecting Public Transport Patronage. Part I of the article, which was concerned with the social and economic conditions in which public transport operates, showed the importance of the background factors such as income, car ownership and land use on public transport usage: it also indicated how the longer‐term impacts of the more direct demand factors (fares, service levels) often show themselves in changes in car ownership levels, activity patterns (i.e. where people live, work, shop, socialize, etc) and land‐use development.

Part II reviews the current state of knowledge on the effects of changes in fare levels and quality of service and of the introduction of various traffic and transport measures (traffic restraint, bus priority, etc): it outlines current methodology on costing public transport services and draws the supply and demand sides together in a consideration of particular strategies which are at the disposal of the operator, the planner and the policy maker.     

Reforming the urban public transport bus system in Malta: Approach and acceptance

The islands of Malta have joined the European Union in 2004 and have for the past decade suffered a decline in the patronage of its public transport service. Offered under a monopoly by an Association of individual owner drivers, the public transport service has not changed dramatically since its start in the early 1900s. Instead, an organic growth alongside the main routes linking new areas to the public transport network and a declining level of service pushed even more the local population to switch to private mobility. This has classified the islands amongst the countries in the world with the highest levels of motorisation. In 2008, following a general election and a general strike held by the public transport operators over the Government’s intentions to remove monopolies, the new Minister for Transport published his intentions to reform public transport from its roots. This reform included the removal of the monopolies protecting the incumbents as well as developing a new network of services which cater more effectively to the public’s travelling demands. This paper deals with the public transport reform and through direct observation details the processes involved in the regulation of public transport as well as the design of the new public transport network. The paper concludes with the critical factors which led to implementation of the reform and how this is applicable to cities worldwide.     

Improvements and rationalizations of bus service in rural areas of Denmark

This paper presents an empirical investigation of the effects of marginal changes in public bus transport in rural areas. It is based on a larger study of bus services in rural areas of Denmark (Hansen, 1986). At the beginning of the 1980s, politicians suddenly demanded reductions in public expenditures. Therefore, the Regional Transportation Corporations reduced services and increased fares. However, this article shows that it is possible to meet the demand for reduced subsidy and the passengers' wishes for better service simultaneously. Where the empirical investigations show fare elasticities of about -0.2, the service elasticities seem to be numerically above 1. In the last part of the paper these findings are applied to an alternative saving policy.     

Performance-based quality contracts in bus service provision

Institutional reform of the bus sector is a topical discussion item in a number of countries at present. A specific focus is on ensuring a value for money (VM) regime to identify the benefits to society associated with each dollar of subsidy support from government. This paper promotes the position that a performance-based contracting (PBC) regime offers the best prospects of achieving a system-wide VM outcome. It proposes a reward system for bus operators that combines payment for delivering a minimum level of service (MSL), that meets government community service obligations, plus an incentive regime that rewards operators for patronage increases (above MSL patronage levels). The patronage incentive is based on expected user and external benefits deriving from service improvements and patronage increases. Cost benchmarking at relevant best practice levels is proposed as essential to ensure remuneration is based on efficient cost levels. The paper argues that a PBC approach is consistent with maximising social surplus from public transport provision across a geographic area, for any given budget constraint and regulatory imposed minimum service levels. The main alternative, competitive tendering (CT), is argued to be less attractive than PBCs in terms of securing the maximum social surplus to the community, given the total amount of subsidy support available, although CT is an appropriate non-compliance condition. This paper is a companion to Hensher and Houghton [Hensher, D.A., Houghton, E., Performance-based contracts for the bus sector: delivering social and commercial value for money, Trans. Res. B, in press] that details the economic framework and an application of PBCs.     

Decision Support Systems for Public Transport Management: The Athens Public Transport Authority Project

This article reports on an implementation study of a computerised decision support system for public transport management for the Athens Public Transport Authority (APTA). The study analysed the current situation, specified user requirements, determined system functionality, designed the system architecture, organised the project and, finally, planned dissemination activities. The decision support system covers the main public transport management activities of APTA - transport service provision, economic and financial planning, passenger complaints and suggestions, and personnel management - offering its users the possibility to study the potential effects of their decisions before implementation. To achieve this, the system will consist of a data warehousing system, for the integrated management of a wide variety of data sources, and of online analytical processing tools, for information analysis and scenario testing. The system architecture has been designed to offer robustness, flexibility, rich functionality and open connectivity. The system aims to help APTA reduce operational costs and provide a better transport service, attracting more passengers to public transport and reducing, in the process, congestion and pollution.     

Transit subsidies and regulation: Lessons from the Israeli experience

The Israeli transport sector, like those of many other countries is subject to complete government control with regard to fares, entry into the market, terms of operation and subsidies. It is unique, however, in that the fares charged are remarkably low and that the major transit mode, buses, is operated by privately owned companies. This paper explores what makes this low level of fares possible and in doing so examines the principal characteristics of the sector. It shows that this phenomenon cannot be explained by the amount of subsidy given to the operators but must be attributed to other factors, mainly the efficiency in the production of the services which is motivated by the profit maximization objective of the operators. The paper further argues that government policies regarding subsidy and regulation are generally inefficient as they cause misallocation of resources.     

Should subsidies to urban passenger transport be increased? A spatial CGE analysis for a German metropolitan area

In many countries passenger transport is significantly subsidized in a variety of ways for various reasons. The objective of this paper is to examine efficiency, distributional, environmental (CO₂ emissions) and spatial effects of increasing different kinds of passenger transport subsidies discriminating between household types, travel purposes and travel modes. The effects are calculated by applying a numerical spatial general equilibrium approach calibrated to an average German metropolitan area. In extension to most studies focusing on only one kind of subsidy, we compare the effects of different transport subsidies within the same unified framework that allows to account for two features not yet considered simultaneously in studies on transport subsidies: endogenous labor supply and location decisions. Furthermore, congestion, travel mode choice, travel related CO₂ emissions and institutional details regarding the tax system in Germany are taken into account. The results suggest that optimal subsidy levels are either small or even zero. While subsidizing public transport is welfare enhancing, subsidies to urban road traffic reduce aggregate urban welfare. Concerning the latter it is shown that making investments in urban road infrastructure capacity or reducing gasoline taxes may even be harmful to residents using predominantly automobile. In contrast, pure commuting subsidies hardly affect aggregate urban welfare, but distributional effects are substantial. All policies cause suburbanization of city residents and (except for subsidizing public transport) contribute to urban sprawl by raising the spatial imbalance of residences and jobs but the effect is relatively small. In addition, the policies induce a very differentiated pattern regarding distributional effects, benefits of landowners and environmental effects.     

An analysis of public bus transit performance in Indian cities

Maintaining and enhancing public transit service in Indian cities is important, to meet rapidly growing mass mobility needs, and curb personal motor vehicle activity and its impacts at low cost. Indian cities rely predominantly on buses for public transport, and are likely to continue to do so for years. However, the public bus transit service is inadequate, and unaffordable for the urban poor. The paper explores the factors that contribute to and affect efforts to improve this situation, based on an analysis of the financial and operational performance of the public bus transit service in the four metropolitan centres and four secondary cities during the 1990s. Overall, there were persistent losses, owing to increasing input costs and declining productivity. The losses occurred despite rapidly increasing fares, and ridership declined. The situation, and the ability to address it, is worse in the secondary cities than the metropolitan centres. We suggest a disaggregated approach based on the needs and motivations of different groups in relation to public transit, along with improved operating conditions and policies to internalize costs of personal motor vehicle use, to address the challenge of providing financially viable and affordable public bus transit service.     

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.     

Consequences of service reduction in municipal transit: San Francisco’s muni

Urban transit in the United States is going through a crisis of rising costs, increasing fares, falling patronage, and concomitant service reductions; typical of the pattern is San Francisco’s Municipal Railway, the agency in charge of all the City’s transit. From a basic fare of 15c in 1969, two increases brought the fare to 25c by 1972, and cut sharply into a previously stable patronage. The “Muni”, in an effort to reduce costs and meet its budgeted deficit, attempted to reduce service by ten to fifteen percent. From an analysis of the data which could be obtained, it appears that neither efficiency not equity in the City would have been served by the proposed cutbacks. The analysis draws from a variety of sources and methods in exploring the interactions within the transportation system and within the city budget.     

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.     

Modeling access to public transport in urban areas

It is important to measure public transport accessibility to help improve the sustainability of transport systems in metropolitan areas. Although many studies have defined different approaches for measuring public transport accessibility, there have been limited methods developed for measuring accessibility levels that incorporate spatial aspects. Population density is an important distributional indicator that has also been ignored in previous methods developed for quantifying accessibility. This paper outlines the research context for measurement of public transport accessibility and then describes a methodology developed as well as an application the Public Transport Accessibility Index in Melbourne area, Australia. Using the Victorian Integrated Survey of Travel and Activity dataset, we applied separate‐ordered logit regression models to examine how the new index performs with a series of predictor variables compared with two existing approaches. Key findings indicate that there is a higher probability of public transport patronage in areas with higher levels of accessibility. Furthermore, it was found using statistical modelling that the new index produces better results compared with previous approaches. Copyright © 2016 John Wiley & Sons, Ltd.     

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.     

Changing patterns of urban travel Part 2. public transport and future patterns of travel

This two‐part paper contains most of a report prepared by TRRL for the European Conference of Ministers of Transport, and presented by one of the authors to the Council of Ministers in November 1984. Part 1, which was published in the January‐March 1986 issue of Transport Reviews, looked at the way cities have been changing over the years and the influence of growing car ownership on trip patterns. This part examines the changes in public transport use in more detail, considers the interactions between the various underlying trends, speculates on future travel patterns by both public and private means and considers the likely impact of land use and transport policies.