Wednesday, August 8, 2007

Doomsday Is Looking Better Every Day


Revised CTA Budget


The CTA Board has adopted a revised doomsday budget that will go into effect in mid-September if the State does not come through with a public transit funding package that will deliver more operating subsidies to the RTA and the service boards. (Stories here, here and here and full CTA details accessible through here.)

From a rider's perspective the revised CTA plan is a definite improvement over the doomsday plan from May. (May plan accessible here.) Fare increases are under 15% for Chicago Card holders and roughly the same for pass holders. There will be no fare increase for the disabled, elderly and students holding discounted fare cards. Cash payers would be the hardest hits, with the base bus and train fares going up 25% and the rush hour train fare going up 50%.

Fewer bus routes are slated for elimination (39), down from the 63 routes targeted for elimination in the earlier plan. The Skokie Swift and the Evanston Express are both spared extinction. The overall service reduction would be 8% rather than 13% under the earlier plan. The estimated loss in ridership is 100,000 per day (6.3%), down from a projected loss of 260,000 riders (16.3%) in the earlier plan.

Reading The Reaction

What is striking about the CTA Board's action is the lack of public outcry over the prospect of significant service reductions and fare increases that will occur in a little more than a month. The Tribune story on the doomsday budget was not on the lists of the most read or the most emailed stories. As of 8 p.m. there was all of one comment on Monifa Thomas' "The Ride" blog for the Sun-Times. The CTA Tattler sticks the news of the adoption of the doomsday budget in its list of news links. There is not even a separate blog entry on the subject.

The issue of public transit funding obviously has not struck a nerve, especially in the less affluent neighborhoods whose residents presumably will bear the brunt of these changes. Compare the ho hum response in these neighborhoods to the strong response to several recent instances of alleged police brutality.

The business community does not seem up in arms by the prospect of an 8% scaling back of the CTA's system. As far as I know no politician or community organizer has been channeling the spirit of Saul Alinsky and working to get folks all charged up on the transit funding issue. A video of the CTA Board meeting (available here) shows a room full of well behaved and well dressed people, a good number of whom work for the CTA. Jesse Jackson and Al Sharpton are nowhere to be seen. Nor does it appear that there was even a desultory protest by community members.

Putting The Natural Monopoly To Rest

What does this muted reaction to public transit "doomsday" tell us about that system? The lesson may be that transit no longer fits into the category of an essential public service, a role it might have played 60 years ago when the CTA was first organized. At that time, the percentage of the population that was transit dependent was much higher than it is today. People on the whole were less affluent so cars were out of the question for many. A larger portion of the population traveled by "mass" transit, which made transit a much more vital underpinning of the local economy.

In that environment, the "natural monopoly" model that viewed public transit as a sort of public utility made some sense. For a country coming off of its second world war, the top-down, one size fits all approach to transportation that the CTA delivered and continues to embody today made practical and cultural sense.

Now, however, most of the CTA's ridership is comprised of "choice" riders who have alternative forms of transportation. The social justice dimension of mainline public transit is much less compelling now that the population is more affluent on the whole and the disabled community is served by its own paratransit system.

The breakdown of the old mass transit/natural monopoly/social service model is a slow and painful process, as evidenced by the steady shrinkage of the CTA bus system over the past few decades through a wrenching series of service cuts.

At the same time, to the extent the CTA no longer is defined by the old mass transit/natural monpoly/social service model it has more opportunity for market innovation and creativity. For example, if the CTA can shut down 39 bus lines in one whack it can shut down and/or realign individual bus routes to respond to demographic changes without the fear of triggering huge community outcries. Fare increases at about the rate of inflation will be possible without the controversies of the past, allowing a greater degree of financial stability. The CTA can focus on improving the quality of its service rather than just putting out as much service as possible.

Rhetoric

The fact that the latest doomsday budget has aroused no great controversy indicates that the rhetoric used by the Moving Beyond Congestion proponents was too deeply rooted in the natural monopoly/public service model of the past. That rhetoric of "devastating cuts" and "massive increases" and "doomsday budgets" simply didn't inspire people, who now live in an environment where there are ready alternatives to public transit--the private automobile for the most part, but also walking and biking--that are at least as attractive as public transit.

It is a different world. Maybe folks are willing to take the pain of an 8 percent service cut and a 15 percent fare increase if the slow zones go away, the buses and trains are relatively clean, they can get accurate bus/train arrival times on their computers and cellphones, and their taxes don't increase.

We may not agree with that outcome or the general public's sense of priorities. But surely after the many months of the Moving Beyond Congestion publicity effort and the many editorials supporting more funding for public transit, we can't claim that the public lacked information about what was and is at stake if the CTA and Pace shrink and their fares increase.

If the General Assembly comes through with more money and the CTA and Pace rescind their service cuts and fare increases, there will be a short time for celebration in some quarters. But the funding crises will be back soon enough unless the RTA and the service boards deal with the fact that for the most part public transit is no longer a vital public service akin to water treatment or public hospitals. The riding public has more options and on the whole more money than the riding public of 60 years ago. Rolling out the same old rhetoric about devastating cuts and doomsday budgets just won't cut it anymore.

Outside Innovation

Maybe the shrinkage of the CTA (and Pace) will embolden private entities to offer transit-like service. There may be a market niche waiting to be filled for services such as jitney cabs, subscription van service, and the like, that are less pricey than taxis or private autos but better than the large CTA bus. This is especially so if the price of parking in Chicago goes up significantly faster than the rate of inflation.

The coverage of the CTA's tentative agreement with its labor unions makes no mention whether the CTA will now be able to contract for such alternative transportation services on its own. We must assume that the CTA cannot.

If the CTA cannot provide such transportation services, it would be curious to see how the City of Chicago would respond to private sector initiatives. After all, the exclusive public transit franchise agreement between the City and the CTA is a relic from the natural monopoly era. If the City can run trolley service in competition with the CTA maybe it will be willing to let other entities run competing services as well. The City might find this to be a more palatable alternative to ever greater municipal subsidization of the CTA. Real estate transfer tax today, what tomorrow?

Maybe the SB 572 tax increase or the poor saps who gamble in a Chicago casino will prop up the status quo for awhile longer. But mining Springfield for increased subsidies for public transit is likely to get tougher before it gets easier.

29 comments:

Anonymous said...

Nice description of the beginning of the end for the Behavioralist Theory of Transit.

Anonymous said...

The alternative to mass transit will be less attractive if oil prices continue on their present trajectory.

Anonymous said...

Mike, just because you live in the burbs now and transit doesn't serve you that well doesn't mean that it's not important to many.

Anonymous said...

i have to partially disagree with your assessment of the lack of public outcry. this crisis has been drawn out for months (and years if you count every other cycle) with various supposed peak moments of crisis. i'm not sure the public even knows when the most appropriate time to cry out is any more. the general public just can't keep up that kind of energy for this long. earlier in the crisis though, i think there was a lot more energy from the public (my rep. told me she received hundreds of messages about transit), but the lack of a focus point is a problem. there was the crisis when the 3-tracking started, the crisis when the cta proposed its doomsday plan, the crises during the public meetings, the crisis when the legislative session was ending with no action, the crisis when the legislative session was extended (now with still no action), and now the crisis of an approved doomsday plan. and now there might be the crisis when legislators come home empty-handed and we wait for the veto session.

i think it should be the job of the earlier-referenced transportation team to provide a focus for public outcry. too many lobby days and too many calls for action just spread all of the voices thin and don't resonate with the same impact as if all of the thousands of voices cried out in unison. we need a little bit of unity. i was hoping the "transit riders alliance" or "transit future" would provide that, but it doesn't seem to be happening.

that said, it is true that people in the chicago region are very complacent and have very low expectations. come on, people! you deserve better! demand it! i'm not sure chicagoans really believe they deserve better though, and that's a problem.

transit may not have the monopoly it used to have, but we do still need it for the economic health of our region. we cannot afford for everyone to drive, our city cannot fit that many cars, our environment can't handle that much pollution, and it would change the face of chicago as we know it. come on -- this should be at least as powerful as calls to build more highways.

Anonymous said...

9:31:00 sets forth a perfect example of the Behavioralist Theory of Transit. The Market Theory as the airlines learned, assumes none of the societal benefits bagage and it strives for a Competitive Alternative whereby transit competes on economic terms...you know, safe, reliable AND efficient.

This has already begun thanks to Mr. Huberman and the indirect consequences of a dysfunctional legislature. Hopefully now, noncompetitive services will be restricted to no more than those that can be sustained by the competitive ones, by choice.

Also, perhaps we will come to understand that:

1) transit should not be expected to cure congestion...that is a highway problem;

2) where supplied, it will be superior to the ubiquitous automobile if it takes people where they want to go;

3) people shouldn't be enticed to use transit through guilt, lifestyle association or freebies, it should be the best deal period; and

4) it should never be a development instrument for ambitious politicians, rather, those politicians should be leading their communities to insist that development occur where transit already exists.

That is the short version.

Anonymous said...

9:56, you ignore that transit has ALWAYS been a development instrument. You think that Yerkes or Huntington or Widener made money off the straphangers? Ha ha! They made money off real estate speculation and securities fraud.

Transit actually is a natural monopoly -- how many south siders wish they could use their transfers on the Electric? -- and the eternally bloody state of the airline industry is hardly an advertisement for the alternative.

Anonymous said...

12:09:00 That all changed when it went public. Did you notice? It is a Brave New World. Get used to it.

Anonymous said...

9:56, do you seriously believe highways can cure congestion?

one of the problems you seem to ignore in your theory of competition and "best deal" is that there needs to be a relatively level playing field for fair competition -- transit riders need the same subsidies drivers get. car currently have the monopoly, but not because they out-competed in a fair market.

transit isn't going to be the best deal for each individual if the government is paying for their driving habit through free roads, free parking and cheap gas. but if the government and taxpayers as a whole were looking for the best deal, it's transit -- we can't afford to keep paying for a bad habit.

jackonthebus said...

Looking over the maps, it still appears that while the suspensions are not as dumb as the May proposal (employer subsidized routes are back, they weren't going to tell the federal government to cut off federal funding by abandoning the Skokie Swift, and some rush hour routes are back), the CTA, by not analyzing route segments, still maintains duplicative service with Pace on routes 22 and 90. One would think that if necessity were the goal, that wouldn't happen.

As far as the lack of outcry, ennui with this do nothing legislature has set in. We are now being overwhelmed with cries about state workers not being paid, even though we were told an interim budget was not needed for August because the legislature was ready to pass a full year one, transit going to hell, schools not getting their allotments, property taxes going up, the Gov sitting on the electricity bill, etc. While I like the people at chicagobus.org, we are far past the point where pleas to use Coppoletta's automated "contact your legislator" system, included on its home page (and the CTA's too), while becoming more desperate, will have any effect on this group of legislators. Maybe Hines has to foment a crisis.

As far as comparing transit use to that in the streetcar days, Krambles and Peterson, CTA at 45, page 36 reports that from 1947 to 1970, when the subsidized approach first started, originating fares went down from 888 million to 296 million on the surface lines and 146 million to 106 million on the rapid transit. Now CTA only measures unlinked trips, not originating fares (a transfer still counts as an unlinked trip, even though the fare is 25 cents for the first and free for the second if you have a card). Extrapolating from the April ridership reports, there are about 310 million annual boardings on the bus and 154 million on rail, but due to the change in the measuring stick, the latter numbers probably have to be divided by 2 or 2.5.Thus, the CTA might be holding onto its 1970 ridership, but not by much.

All the proposals for congestion pricing wouldn't be necessary if transit offered a safe and convenient alternative to driving (especially since downtown parking rates are going up). While transit is undoubtedly essential to a certain part of the population, it is becoming, as noted before, a welfare program, instead of a natural monopoly. I had previously advocated for reducing regulation on taxis.

jackonthebus said...

Forget my last comment that "Thus, the CTA might be holding onto its 1970 ridership, but not by much." The proper analysis would be that while CTA's statistics may look about the same as 1970, it has maybe one half of the originating fares.

Anonymous said...

7:33. You seem to forget that drivers pay gasoline tax, which is supposed to fund road construction. Also, license and city sticker fees. Transit riders pay about 33% of the operating cost, and virtually none of the capital cost.

Anonymous said...

8:46: See Iraq war, energy security, desperate attempts to contain gas price increases.

sabrina d. said...

I agree with Anonymous at 9:31:00, and jackonthebus, that the lack of outcry has got to be at least partly due to fatigue and confusion, from the so very many !!OMG CTA CRISIS!! instances we're faced with. The boy may not in fact be crying wolf without reason, but we're still sick of listening to him every other week. There's seriously only so much bad shit you can keep track of at any one time.

On a different note -- why is this blog so plagued with anonymous comments? What is it about this particular CTA blog that makes people not want to even bother making up a fake name? It'd sure be a lot easier to follow the threads if not everybody was Anonymous.

Brian said...

Moderator, Jack, I take issue with the use of the term "natural monopoly." I don't like the term at all. But if you have to use it, I would say it applies to industries in which firms cannot make at least normal profits without a monopoly. Therfore with or without government intervention, such industries tend to reach an equilbirum in which there is one firm.

In all of history, mass transit has only briefly made any profits. Even when it was privately operated, it was largely employed as a loss-leader by land developers to get their real estate projects jump started. And today in places today where the private sector is involved in providing transit services, they either do so on a subsidized contract basis (UK, parts of Europe), or with at least publicly-funded infrasturcture (Japan).

Transit, like roads and police protection, is a public good. It can probably never be profitable.

Indeed, the recent flurry of profitable infrastructure privatization is an illusion. Selling/leasing roads is just another form of financing for governments maxed out on their bond issuance capacity. The equity capital that bought the Skyway is just a substitue for debt capital. Each has a required rate of return, only the structuring is different. Infrastructure investors make GAAP profits just as muni bond holders make GAAP profits on their holding a bond. But the overall economic enterprise of the road is not profitable. This is made evident by continued heavy public involvement and investment post-privatization. So privatization of transportation infrastructure is largely a financing alternative, a Wall Street/Australian gimmick, not an economic alternative. To be sure, it may be that a private operator is more efficient than a public one, but that can probably be achieved through a management contract.

So in my view, the debate isn't whether transit is/isn't an natural monopoly, or should be/shouldn't be a nautral monopoly. It is how much do we value the positive social externalities of transit service, relative to other options and alternatives available to the public purse?

NoName said...

Sabrina, ask the Moderator. He/she/they/MPC set the standard for anonymity.

Anonymous said...

anon 8:46, look to brian for a retort to your arguement. you can argue all you want about who pays for whom, who subsidizes what, how much a certain user is subsidized. the real discussion is a policy one. are there social benefits/costs to a given mode of transportation?

i, and many others, whould argue there are social costs to driving, and social benefits to transit use.

WLS Repost said...

As far as the CTA is concerned, it's no big shock that money wasn't included in the budget for the transit agency.

The legislative leaders are trying to tie the CTA's bailout with a proposed casino in Chicago - which would help fund a multi-billion dollar plan to build and repair roads, bridges, and schools.

But there's no firm agreement on that plan yet, and may not happen for a few weeks.

The uncertainty of the plan is making some lawmakers, like Colvin, nervous.

"I really feel uncomfortable leaving Springfield with a budget in place but not CTA funding in place, because I think the will to do it at that point will wain," said Colvin.

Others, like State Representative Lou Lang (D-Skokie), think a CTA bailout is a big enough issue that it won't get lost in the shuffle.

"I believe, very strongly, that we won't dissapoint the transit riders in the city of Chicago, the county of Cook, or the region," said Lang.

The CTA did set a date yesterday for what is now a "Doomsday Jr." scenario.

The agency found somewhere to cut another 20 million dollars and scaled back the number of proposed service cuts, layoffs, and the amount fares would go up.

jackonthebus said...

Brian:
I qualify the term natural monopoly by the fact that it would be in an industry where duplicative infrastructure needed to compete would not be cost effective. For a related definition, see here. In that sense, the CTA is a natural monopoly, in that no one would spend the capital to recreate it. Electricity turned out not to be competitive (generating may not be a natural monopoly, but distribution is). We still are waiting to see whether the telephone and cable companies will both build completely competitive systems.

There are probably numerous industries where more than one company can't make a profit without a monopoly, such as small town newspapers. In fact, there are some businesses, like slide rule manufacturers, that can't make a profit at all; their products are obsolete. As you mentioned, mass transit never made much of a profit; however it is a natural monopoly. The question then becomes whether public necessity requires subsidizing it, or the market has found substitute goods or services (the car in this case, or the proposed jitneys or whatever), just as in the case of the small town newspaper, the Internet may provide a better alternative.

crash-dev said...

I'm sooooo afraid...

Islamic Fundamentalists
Global Warming
Social Security Crisis
CTA Service Cuts
China Dumping Dollars

brian said...

Jack, I think we're saying esentially the same thing. There are two broad issues that you bring up: The size of the market (your example: small town newspapers) and the cost of infrastructure (your example: electricity distribution). These are esentially the same issue. Both have to do with the amortization of fixed costs over a sufficiently large base. In both cases a sub-100% share of the market is not tenable because of significant fixed costs.

But rememebr I said I don't like the term "natural monopoly." Monopoly depends on how you define the market. Does CTA have a monopoly in Chicago rapid transit service? Yes. Does it have a monopoly in transportation? No way.
That's the trouble with talking about monopolies. (This comes up in the application of antitrist law. Can a post-Wild-Oats-merger Whole Foods be said to have a monopoly? Only if the market is defined as high-end organic foods. But we're talking aboout a grocery chain that would have far fewer stores nationally than Jewel does in Chicagoland.)

The other problem with the term natural monopoly is that it has a normative aspect. That is, businesses with lots of infrastrcture (such as utilities) are given monopolies by legislation with no otcry, because it is supposedly "natural". But I digress.

The Moderator argues that transit is or should be less of a natural monopoly than it was in the past. The real point here is that the transportation market is bigger than the "transit" market, and we have alternatives to taking transit that have diverted customers away. Transit does not have a natural monopoly in this larger market.

Indeed, it is also likely that there are nontraditional alternatives, such as jitneys, that are being "blocked" by an old-fashioned attachment to traditional transit. But it's my belief that there is an important role for traditional forms of mass transit going forward. The direct environmental and congestion benefits of transit can be debated, but the land use benefits are the most compelling. Mass transit enables and promotes a way of organizing cities and of organizing lives that is efficient, and to many, aesthetically appealing. While a 40-foot transit bus with three people on it is seemingly worse for the environment than three individual cars, maybe that transit bus enables a way of life that on the whole is better for the environment than the car-dependent alternative. Finally, depending on your forecast of energy prices (and the propsects for alternative fuels), this sort of development may become more of an economic necessity.

jackonthebus said...

Brian, having studied antitrust law, I think you are confusing at least three definitions of monopoly: natural monopoly, legal monopoly, and that a monopoly is actionable under the Clayton Act as an antitrust violation if there is a restraint on competition in the relevant market. CTA meets (or at least formerly met) some of the criteria of a natural monopoly. CTA might also benefit in some ways as a legal monopoly, to the extent it is protected by its franchise (the 1945 ordinance) and taxis are regulated. It certainly isn't a market monopolist, and it is undoubtedly not keeping a monopoly to maximize profits.

Notwithstanding these academic and legal distinctions, it does appear that we agree that in view of existing and potential substitutes, transit does not have the hold it once did, and the question is the social utility of subsidizing it in view of the availability of the substitutes.

Brian said...

Jack, Having not studied antitrust law, I defer to you on the technical points, which are only relevant here to the extent that a transit agency is granted exemption from them. My only point about antitrust law was that its application hinges on defining the market. People always talk about "THE market" for something but a student of economics will tell you it's not that easy. My example of the FTC's suit to block the Whole Foods/Wild Oats merger shows that market definitions are often the crux of antitrist debates.

Anonymous said...

Now that we know STC is Mike, I think we should start a blog "Who Is JackOnTheBus". Unless he wants to confess?

A Different Brian said...

Moderator,

I wouldn't confuse a f***'d up state government and a distracted and/or exhausted transit-riding public with a lack of need.

Anonymous said...

I can't believe we're on this blog debating whether transit should be subsidized. Other major U.S. metro areas have recently voted to hike taxes to pay for dramatic transit expansions (Seattle, Denver, etc). The electorate is broadly in support of transit. Lacking proposition/initiative politics, we've left the pols to mess it up.

I think we're all just worn down by this extended fight. We're depressed and discouraged.

Transit funding won't be voted on this week, or probably next. I urge everybody (including Moderator) to take a little break. Sleep in this weekend. Take naps. Go to the beach.

But be ready to come back out of the woodwork. Most all legislators have indicated that transit is important. They're just not sure how to fund it, or are tying this issue to other priorities. So stop convincing yourselves that transit is a lost cause. You're overreacting.

sabrina d. said...

Touche, Anonymous @ 9:21!

pc said...

@2:28: Word. I was thinking I'd stumbled into Cato Institute HQ. What's next, folks? PRT? Hovercraft jitneys? Rotocopters? Segways?

Transit generates huge positive externalities -- a fact the Chicago metropolitan area owes its existence to -- while roads generate significant negative externalities. It's government's job to mediate these sorts of market failures, but unfortunately driving is so damn popular that taxing it is verboten.

Besides, we're talking about raising taxes just to maintain infrastructure (something manifestly unsexy), not a Denver or Phoenix style ribbon cutting.

I just want to move on and talk about how Toronto's attempt at a RE transfer tax bodes ill for a similar effort here. Of course, The Economist editorialized in favor of congestion pricing for both cities...

No longer anonymous,
PC

Justin said...

Brian said...

So in my view, the debate isn't whether transit is/isn't an natural monopoly, or should be/shouldn't be a nautral monopoly. It is how much do we value the positive social externalities of transit service, relative to other options and alternatives available to the public purse?

Couldn't agree more! Well said. Having run the numbers myself, and even with a wide range, however, the valuation of those externalities definitely outweighs the public subsidy.

I too am a bit mystified by the high level of anonymity on this blog, but it does produce some pretty fascinating reading.

pc said...

Just to name one externality, the most recent TTI congestion report estimated that transit saves each rush-hour driver 22 hours of traffic jams each year -- a $1.6B productivity gain to the Chicago region. That's just one second tier externality from transit, and yet it far surpasses the RTA's total annual taxpayer subsidy.

Today, CTA promised a tripling of fares or 75% cut in service in 2008 if there's no money to patch its $250M deficit. This stuff is not funny.