I work with the Streamline bus system in Bozeman. We started as a fare free system in 2006, yet we regularly have non-riders asking us to charge fares. They feel that riders should help pay for some of the cost of the system, some believing that the riders should cover the whole cost. We think that the fare free system benefits both riders and non-riders because it leads to increased use of transit and less congestion, fewer parking problems, less air quality problems, and less carbon emissions. We also don’t believe that it would improve our revenue stream.
Larger urban rail systems in the United States range in farebox recovery ratio between 13% and 67%. Smaller communities like ours are lucky to get 10%. These fares are an above-the-line deduction before we get any federal dollars.
If we have a $1 million budget and we get $100,000 in farebox returns, this is deducted before we can run our match ratio, resulting in $900,000 of eligible expenses for federal match. At a 54% federal match rate, this means that we have a net increase in revenue of $46,000 for the $100,000 in fares.
We can also run numbers from another perspective. Montana State University students would continue to ride free because they pay through student fees. Seniors, people with disabilities, and qualified people with low incomes would ride free or at a discounted rate. Assuming MSU students are 50% of our approximate 140,000 rides per day, we have 70,000 non-MSU rides. About 25% of these riders would have a discounted fare of $0.50 and the remainder pay $1, we could collect $61,250. This assumes no loss of ridership. However, this is then deducted from our operating costs, which would mean our Federal match would decrease by about $33,210. Given that, or gross increase would be $61,250 – $33,210 = $28,040. If we have additional costs of more than $28,040 per year, we lose money. When ridership decreases because of a fare, we lose more money.
With fares we have the cost of installing fareboxes, printing and distributing tickets, collecting and counting money, and enforcement. An automated farebox costs around $21,500, while low-tech fareboxes should cost less. Large systems report spending 1% to 20% of the revenue on the cost of collection. A 1994 report on this subject completed for Washington State DOT indicates a cost of 2% to 7% of operating costs for systems in that state. In our hypothetical case, that equates to $20,000-$70,000 operating cost beyond the capital cost. Looking at it from a different perspective, I can’t imagine the effort would be less than 1 full-time equivalent employee at Streamline. This then wipes out our increased revenue. The routes would become less efficient as the drivers take time to collect and explain fares. Only if we weren’t to get full federal match would we make any money from charging fares, and I believe it would be negligible compared to the benefits of a fare free system.
A study by the International Center for Technology Assessment found that after accounting for government subsidies, pollution cleanup and other costs, the real price of gasoline is estimated to be somewhere between $5.60 and $15.37 per gallon. Were gasoline sold within this range of prices, people might voluntarily drive less, choose more fuel-efficient vehicles, and use transit.
Why charge a fare when we are trying to get people out of their cars, where they don’t have to pay a per-use fee? Is it fair to ask transit riders to pay when we don’t ask drivers to pay to park downtown, build a parking garage, or keep our streets plowed? Instead, our property taxes and federal taxes cover these expenses. The gas tax doesn’t cover the whole cost of building and maintaining our highway system either.
As paraphrased from a great series of articles on this subject: Why are passengers forced to fork over handfuls of change every time they board a bus, or to pay escalating costs for transit passes? Other social goods, from schools to health care to the road system, are funded by the broader public through taxes, and daily use is free of charge. Why not the same for public transit, especially since charging for it tends to penalize the poorest in society, and encourage polluting behavior?
From that series by Dave Olson:
Skagit Transit in Washington State recently calculated that it takes in $121,300 from fares but spends $133,385 to collect them. The irony here is that the system started out fare-free and changed to a user-pay system because taxpayers did not want people to have a “free ride.” Now it costs taxpayers more than when it was fare-free.
In 1994, a report by the Washington State Department of Transportation came to the following conclusion:
“The cost of adopting a fare-free policy is minimal. Half of the transit systems in Washington return less than a 10 per cent fare box recovery rate. Our analysis demonstrates that once the costs of collecting fares are deducted (usually from 2 per cent to 7 per cent of operating costs) little, if any, net revenue is generated. We conclude that fare-free policy does make a difference and that smaller communities especially are better served by a fare-free transit policy.”
David Olson’s five-part series is summarized in one article here.
The Victoria Transport Policy Institute calculation of costs and benefits is located here. According to this methodology, the overall estimated cost per vehicle per year is $13,000. $3,700 is the cost taken on by society; the rest is the cost to the individual. If you are interested in these calculations, check out the “Cost Summary and Comparison” section.
