Cost and performance impacts of transit subsidy programs

The Reagan Administration's plans to eliminate federal transit operating assistance are based on the belief that subsidies encourage inefficiencies, productivity declines, and lax management. Surprisingly, however, there has been little statistical analysis to date which demonstrates the effects of subsidies on operating performance, cost trends, and ridership. This paper attempts to contribute in this area by examining the historical effects of subsidies on the cost and performance trends of 17 California transit properties. Using a pooled time series analysis, it is found that subsidies have indeed had a degrading effect on transit performance over time, although the impacts have generally been modest. In particular, subsidies appear to have had a stronger influence on transit's cost spiral as opposed to productivity and ridership declines. In addition, the effects of local subsidies are found to be far more onerous than federal and state ones, perhaps exerting twice the impact. It is concluded that probably much of the blame placed on transit subsidies has been excessive, and that there's probably better ground for reducing local aid vis-à-vis federal assistance.