Sunday, July 29, 2007

Just One More Thing. . . Mandatory Indexed Fares

Steve Jobs is famous for using the line "just one more thing" at the end of a media event to roll out new product surprise.

Our elected State leaders appear to be moving closer to hammering out a budget for the full fiscal year. When their discussion turns to the transit funding and RTA reform package (SB 572) wouldn't it be great if they added one more thing, namely, a requirement that transit fares be adjusted annually and automatically to match the increase in the consumer price index.

There already is talk in the air of relatively modest fare increases being part of the transit deal. Other major transit agencies have recently instituted fare increases or are considering such: LAMTA, SEPTA, NYMTA.

Why not use the current "doomsday" situation as an opportunity to enact legislation that requires annual indexed fare increases. This would allow the service boards to get out of current herky jerky method of fare increases--holding off fare increases as long as possible (and well beyond per the Auditor General) and then instituting big fare increases after a ritual dance of public hearings, political grandstanding, editorial chest thumping, and the like.

The legislation would make fare indexing mandatory so there would be no need for a public hearing on fare increases if the service board's increase matched the rise in the applicable index. Public hearings concerning fare increases would be required only when a service board wanted to increase fares more than that indicated by the index.

Indexing transit fares would be a nice way to signal that area riders, like area taxpayers, are stepping up to provide more resources to this region's public transit system. Limiting the annual fare increases to the rate of inflation should be a relatively easy pill for riders and their elected officials to swallow. Indexed fares should help stabilize the operating funding base for the service boards.

The electronic fare systems at Pace and the CTA make implementation of annual fare adjustments relatively easy. Maybe the requirement of annual indexed fare adjustments could finally prompt the Metra apparatchiks to get a modern fare collection system. Metra appears to view credit cards and electronic fare collection methods with the same furrowed brow suspicion as it once viewed bicycles and Democrats on its trains. But I digress.

The New York MTA, in so many ways the model for how this region could build a "world class" transit system, is considering a series of modest annual fare increases over the next several years. (Board proposal here.) The three annual increases are designed to yield a cumulative 15 percent fare increase by 2009.

It is way too much to ask of our service boards and the RTA to implement a coordinated fare indexing system. Legislative leaders, it is time for one more thing in the transit package and that is a requirement of annual fare increases indexed to inflation. Fare indexing is something both proponents and opponents of transit funding increases can agree on. Proponents see fare indexing as a way to increase transit funding while opponents see fare increases as a way to instill fiscal discipline in the users of public transit. Fare indexing is thus a way to help build the veto-proof super-majority for the transit reform/funding package.

There are transit utopianists who believe that fare indexing will hurt transit because any fare increase will drive away some transit customers. There are two answers to this. First, transit is not a cheap public good. It is fiscally responsible to ration that public good fairly painlessly through fare increases that match inflation. Second, the stronger funding base provided by a system of indexed fares likely will allow the service boards to provide a higher quality of service. Better service quality will win back more customers to transit than will be lost via the small annual fare increases.

Just one more thing. Is it too much to ask?


Anonymous said...

Interesting approach but not very tactile-- same one size fits all basis --common to those omnipresent former political aides/researchers who now constitute the bulk of the policy wonking gene pool in these and most other parts.

How bout an actual measured correction in lieu of an imputed index? Say, by service board, start with an annual published inventory of A) services that are profitable, B) services that require a portioned subsidy as per the RTA Act, and C)services that require a subsidy greater than that which (A)+(B) can support.

So then, how much Publicly Budgeted fare increase must be applied to (A) and (B)in order to sustain politically driven levels of (C)?

Once you've gone micro you'll never go macro again-- unless of course your intent is to blur. But hey- you think them service operators don't know the values for A, B and C? How 'bout flushin 'em with a real trailer bill?

Anonymous said...

Can we do the same analysis for highways?

Anonymous said...

What was said about the bill (and is in Amendment 2 to SB 572 as posted) is that there would be a decreasing exemption to the recovery ratio, which would have to get back to the statutory 50% (a phony number, as the Auditor General says the actual recovery ratio is about 33%) at some point, meaning fare increases. This isn't an automatic index. But...
1. Transit has a big welfare lobby, claiming that any increase in fares (especially for paratransit) hurts the poor. You previously mentioned that Tollway increases were accepted, but there is no similar constituency claiming that they can't afford the tolls.
2. What index would you use? The transit authorities always claim that fuel, employment costs, and capital costs outstrip inflation. Since sales taxes go up when sales do (either increased sales or increased prices), all the complaints that the sales tax is inadequate just show that transit spending has outstripped inflation, and needs to be controlled.
3. With regard to Metra, Jeff Ladd claimed that it did institute regular 5% fare increases, to keep from imposing more draconian ones. With Ladd gone, and Metra hopping on the "Moving Beyond Congestion" bandwagon, the 2007 budget contained pronouncements that a 5% fare increase would generate only $11 million, and that wouldn't make a difference. In the contingency plan, Metra said it could impose 10% increases per year, but that wouldn't erase the deficit. Also, Metra tickets don't have face amounts; they just say A to D, for example. Thus, the lack of an automated fare system has nothing to do with whether Metra can raise fares. It would have to change the prices on the Metra Electric ticket vending machines, but that would be about it. And it also proves that indexing to the rate of inflation wouldn't satisfy the claimed need.

Anonymous said...

Also, what hearings would be avoided? The service boards have to hold hearings on their budgets, whether fares are increased or not. The point is that there is a turnout only if a fare increase is recommended. The transit authorities this year decided to mobilize the attendees to fight service cuts by "contacting their legislators" instead of taking the brunt of the discontent themselves by raising fares. However, Pace, facing a 10% recovery ratio mandate for paratransit, had no choice but to raise those fares in Chicago, although, under federal law, it could have raised them to double the standard fare, but did not.

The argument needs stronger premises than what you have provided here.

JDAntos said...

Portland TriMet reviews fares every year as part of its operating budget. They recently raised fares by a nickel - not enough to cause outrage, but better than nothing to counter inflation.

Anonymous said...

Is it true that sales tax revenues have kept up with inflation? My impression is that they have not, mostly due to losses in internet sales? And I thought it was a fairly significant loss? Does anyone know that actual figures?

JDAntos said...

HealthyCity - you're right, overall sales tax receipts in the 6 counties have remained very slightly less than the rate of inflation (2.8%/yr, as opposed to inflation of 3.0%/yr, avg. growth rate 1985-2005). The larger problem, however, is the distribution of the receipts: since the majority of revenue growth has occurred in the suburbs, and the 1983 RTA formula returns sales tax transit subsidies to their originating counties, Metra's funding has grown well above inflation (4.2%/yr), while the CTA's funding has grown well below inflation (2.1%/yr).

Beyond its inadequacy due to internet sales and an economy no longer based on manufacturing, what frustrates me about sales taxes for transit is that they are regressive and bear little rational connection to the costs and benefits of public transportation. In my view, the property tax proposal is a better idea.

Anonymous said...

Healthy City: Don't have that figure. However, the Auditor General says that revenues, including taxes, have gone up 2% per year, while CTA's expenses have gone up 6% and Metra's 4%. The Bureau of Labor Statistics, Midwest Urban Statistics has 2.4% inflation for 2006, 3.1% for 2005, 2.4% for 2004 (if you do the math). The Chicago Metro only numbers are 2.0%, 3.0%, and 2.2%, respectively. Hence, the expense growth is outstripping inflation, by approximately 2.5 times in CTA's case. As conceded, fuel costs affect this, but expenses have to be controlled. It is not a sustainable situation to have 2% growth in revenues and 6% growth in expenses.

JDAntos said...

Sorry... source: slide 11 of 25 here.

Anonymous said...

justin: No, even assuming your sales tax numbers, CTA's has not grown much less than inflation (except in 2005, when it was relieved of its responsibility for paratransit, saving it $54 million).

As noted, unless spending is curbed, you need a revenue source that grows 6% per year, while incomes are surely not growing at that rate (and Moderator, by incorporating the CPI, would raise fares only by about 2.5%, or a nickel on the CTA base fare, a year). Also, Daley and Stroger said yesterday that it looks like they will be raising taxes next year, too. The state budget is still in limbo, and some are relying on gambling (the tax on the stupid) to pay for a capital plan. There are too many proposals for "piling on taxes" to support that level of spending. The riders will have to pay more too, whether it is increasing Metra weekend fares (which is somewhat less than a Zone C round trip), higher costs for CTA passes, whatever. Doing away with cash bus transfers was probably only the first step.

Anonymous said...

justin: I guess the difference is that you are going back 22 years. However, the numbers for the past three years do not support the kind of "funding" crisis we allegedly currently face (according to the CTA and RTA). CTA went from a $55 million deficit with paratransit in 2005 to a $110 million one without paratransit in 2007 (minus $12 million Huberman said he cut). Metra went from claiming that it could apply fare money to capital in 2005 to saying that it has a $60 million deficit in 2007. I submit that those numbers are more representative of the current trend.