[sustran] comments on profitability, subsidies, and more

[Christopher Zegras]

>Date: Tue, 19 Aug 1997 14:31:23 -0400 (EDT)
>From: Eric Bruun <ebruun at rci.rutgers.edu>
>Subject: Re: [sustran] More comments on profitability and more
>
>Regarding Zegras and Cox' obsession with profits:

Hmmm.... I don't know if my original posting represented an obsession with
profits, but anyway here go a few comments.  

>that is unionized.  But just because it is possible does not mean
>that one should necessarily charge enough to make a profit. 

>From what I understand, *optimal* public transit pricing occurs when the
cost perceived by the user is equal to the total marginal cost.  But, this
optimal price does not cover operating costs (remember, time costs are put
of user's perceived cost), which therefore requires a subsidy per passenger.
Without this subsidy, there is a social welfare loss. Fortunately, in places
like Chile, where transit bus use is so high, this level of welfare loss is
small (due to economies of scale), so the second-best option of prices
covering operating costs is not grave.  As economies of scale are lost due
to lost transit patronage, this welfare loss will grow so subsidies will be
required.  Yet in Chile I don't know if they will ever be politically
feasible given the political climate.    
  
>Usually
>subsidizing transit keeps total expenditures on transportation down and
>makes cities more livable.  

hmm... are u.s. cities with incredibly highly subsidized transit more
livable?  Subsidizing transit does not necessarily keep total transport
expenditures down, although I suppose it really depends on what you mean by
total transport expenditures (household, government, social??)

The big issue i see here is how to offer the subsidies to transit operators
to ensure that they don't result in the massive inefficiencies that plague
many systems with poor subsidy structures.

>That is, people do not drive
>as many cars as often and there are economies of scale in transit
>operations.

Economies of scale in transit can easily occur without subsidies (i.e., Chile). 

>Covering capital costs in addition to operating costs is much rarer, but
>Hong Kong is an example (they own all of the real estate over the
>stations.)  I suspect that Zagres and Cox solution to covering capital
>costs is just not to have many of these; they seem to be advocating
>bus/jitney only systems even in big cities. 

It is important to clarify what we mean by capital and operating costs.  For
example, do we include road infrastructure capital costs in our cost
recovery calculation for bus systems?  Private sector bus owners must cover
their own capital costs (i.e., vehicles), what happens with the road
infrastructure is more a problem of the commons and depends on whether the
government actually maintains its infrastructure.  I think that road systems
should also completely cover their capital, maintenance and related costs
(planning, enforcement, etc.).  Our calculations for Santiago indicate that
the road system currently more than pays its way for annualized capital and
maintenance costs, with cross subsidies between modes.  The bus system
receives some infrastructure subsidies.  I personally think that this is a
pretty good (politically hidden) way of passing onto bus system operators
the subsidy they merit.  

I think it is unreasonable to assume that rail systems will cover their
capital costs, including vehicles.  But, they must still be held to strict
economic analysis, unlike most systems pursued in the United States.  Rail
system infrastructure can typically be justified for the external benefits
that it produces (reduced congestion, air pollution, etc.).  There may be
other less quantifiables that should also be included (improved urban form,
perhaps tourist generation Mr. Bruun) in the benefits analysis.  But, even
with those, there may not be many cases where rail investment can be
justified.  Our recent static, average cost analysis of Santiago transport
in 1994 indicates that with current passenger occupancy levels and including
personal expenditures, travel time and external costs of subsidized
infrastructure, air and noise pollution, land consumption, external
accidents, congestion, suggests that the Metro in Stgo is twice as expensive
as bus (per pkt), but about two thirds of car or taxi.  Of course, these are
city wide averages, in some corridors the Metro is by far the most effective
and these costs per pkt for metro could probably be significantly reduced by
relatively low cost measures to increase capacities (longer trains with
improved traffic mgmt systems).  Further system expansions should occur with
the financial support of the real estate interests that are directly
benefiting from metro accessibility. 

Show me a big city in the
>industrialized world without rail transit that tourists want to see; the
>three biggest metro regions without are all in the US: Houston, Detroit,
>and Seattle. (I am a native of Seattle, and it is now completely
>gridlocked.)

I've only been to Seattle once, but from what I understand it is a pretty
big tourist attraction.  

>
>It is simply not true that increased car use and decreased transit
>use is inevitable with increased prosperity.  

I would have to say that up to a certain income point, increased prosperity,
under our current global industrial system, does bring increased car
ownership and use. Not to say that I personally endorse these trends, but --
without some major state interventions (vehicle ownership or use bans, which
are increasingly unlikely)-- private motor vehicle ownership and use comes
with increased prosperity (as measured by GDP/capita).  Most data I have
seen on the issue presents strong correlation (**NOT** causation) on
cars/capita and GDP/capita.  That ownership translates into some level of
increased use, the main question is at what level can the tradeoff car
use-transit use be held in place, so that we see many more developing
country cities becoming the Munich, Stuttgart, Freiburg, Zurich, Oslo,
Stockholm, etc., and not the Detroits and Houstons.  


>I am not saying that these investments were a waste, because 
>the alternatives would not have been better bus services or
>intracity rail systems inherently more efficient than suburban
>peak-hour peak-direction oriented rail systems. At least these new 
>systems have been attractive enough to get people out of their cars. 

>The real alternatives would have been more freeways and a more decayed 
>central city. 

Not necessarily.  One could argue that the Washington Metro has increased
suburban sprawl and promoted a single-use Washington downtown, which turns
into a desert after dusk.  Not to mention the massive declines in urban bus
support.

>
>What rail transit bashers have failed to explain is why even areas that
>could easily support rail transit do not have it; SF and Seattle have
>corridors with 50,000 bus rides a day, 

Cities in Brazil have corridors with 25,000 bus rides an hour! I don't
consider myself a rail-basher, but below passenger thresholds of 20,000
pax/hr (most studies actually argue higher thresholds), quality bus services
are more cost effective.

>I do agree that the existence of the jitneys in Miami and New York 
>shows that transit is inadequate, but the solution is to integrate
>them, like is now being done in Miami, not throw away the existing system. 
>The jitneys do not serve the same markets as the rail system;
>affluent suburbanites will ride MetroRail, they will not ride a 12
>passenger van.  If anything the Miami experience only supports my
>point that the needs of the low income city dweller have traditionally
>been ignored.

A big problem I see in the bus-rail debate is one of equity, urban bus
services being cutback (i.e., Wash, DC, L.A, Miami) in favor of expensive
rail serving the upper classes with huge subsidies (are those $12.00-a-ride
subsidy rumors for LA rail true?, pay me the twelve bucks and I'll ride my
bike).  In a place like Santiago, the problem is that the rail system (which
operates with an annual surplus) infrastructure is financed from national
coffers, with money that could otherwise go to social development
)particularly in other areas of the country) and with technology and
financing that comes from overseas sources.  Chile is already way to
overcentralized in SAntiago -- a city on a very unsustainable growth path --
so in this case aren't the Metro and other transport investments only
exacerbating the problem by making the city easier to move around in
relative to other Chilean towns?  

Sorry for the extent of this message.  For-profit transit only? Hardly.  But
I would rather see that Chile could maintain their profitable transit as
incomes grow so that we can prove Mr. Thatte (whose original posting started
this rant) wrong.  

Regards, 

CZ
 Christopher Zegras       http://www.iiec.org                 /\   /^\
 Instituto Internacional para la Conservacion de Energia /^\ /_o\ /   \
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