Feb
17

The psychology of the $100 MetroCard

By · Published in 2010

As the MTA acts out its political charade of threatening service cuts and the elimination of the student MetroCard program in the hopes of spurring some politicians to action, fare hikes remain the 800-pound gorilla in the room. The Authority could always attempt to avert cuts by drastically raising fares. When I last posed a fare hike solution, 78 percent of my readers said they preferred paying more to suffering through service cuts.

Yesterday, fare hikes and other more equitable funding solutions for the MTA crept back into the news. In a report for the Drum Major Institute on Public Policy, John Petro studied the potential fare hike that will come as early as 2011 and called upon the city to enact congestion pricing. Although congestion pricing remained Petro’s main focus, his fare numbers are alarming. The MTA could have to raise fares by 15 percent or more next year, leaving us with 30-day Unlimited Ride MetroCards that cost over $100.

For the MTA and for New Yorkers, that $100 mark seems to be a bit of a psychological hurdle. The agency, after all, has always had the fare option on the table, and the powers-that-be could have opted to jack up the prices of a ride years ago. By doing so, they should shift the fare burden onto the backs of their riders to a nearly unprecedented level the world over. Already, New Yorkers pay far more through farebox revenue than their international peers do for what is ostensibly a public good. Why not make the system fully dependent upon fares?

The main problem here is one that gets to the very root of the subway system. Is mass transit in New York City a vital part of city life that the government should support or is it an unnecessary luxury that should fund itself? To become self-sustaining, the MTA would have to raise fares to such a degree that ridership would necessarily decline. Many people simply would not be able to afford paying $100, $125, $150 for a monthly pass, and the per-ride cost would soar past $3. Ridership would decline, and thus, to compensate for that missing revenue, the MTA would have to raise prices even more. It would be a vicious, vicious circle indeed.

If the MTA is a vital part of city life and the state economy — which it is — then the government should be assisting it more than it does. If the MTA makes New York City possible, if the subways allow for people to live far from their offices in affordable neighborhoods in commute in over many miles for just the current swipe of a MetroCard, then the government shouldn’t be allowing the MTA’s services to slide, their fares to creep up too high or the agency’s finances to slide into turmoil.

And so we arrive at the threat of a $100 MetroCard. When the unlimited card was first introduced on July 4, 1998, the card cost $63. Today, it costs $89, and that increase is outpacing inflation by over seven percent. When the MTA breaks that $100 barrier, many people will no longer view the 30-Day as a necessity. Rather, a triple-digit price tag makes it a luxury. Even if the card remains a good deal — and it will because the pay-per-ride price continues to ride — many people will be hard pressed afford that $100 outlay every month.

In the end, as Petro details in his report and urges in a Daily News op-ed, congestion pricing should hold the solution. Implementing congestion pricing to avoid fare hikes and the end of the student MetroCard program would save a family of four $2300 a year while contributing to the overall economic and environmental health of New York City. As those prices creep ever higher and the MTA slides closer to financial disaster, it is time again to consider congestion pricing. That $100 MetroCard may be inevitable, but we can try to push it off for as long as possible.



Categories : MTA Economics

29 Responses to “The psychology of the $100 MetroCard”

  1. Alon Levy says:

    There’s no reason for the fare increase to be the same for all forms of payment. The city should commit to increasing the unlimited monthly and pay-per-ride discounts in order to minimize the number of ticket vending transactions.

    • James D says:

      As we learnt some months ago, the way unlimited metrocards are used means that the average 30-day card-holder is paying less than he did in 1991 in dollar terms. This is just an absurd situation that cannot possibly continue — after all, the MTA’s wage bill hasn’t gone down in the last 19 years. The MTA basically needs to transfer people from unlimiteds to the ordinary pay-per-ride bonus system (just as they did when they applied that massive fare hike to the Fun Pass). Any fare hike has to target unlimiteds in general and the 30-day unlimited in particular to be effective. Unlimiteds should be priced one standard deviation (the one piece of data we don’t have) below the average number of rides for that ticket.

      • Alon Levy says:

        Remember that 15 cents of every dollar collected in fare revenue goes to fare collection mechanisms. So moving people to unlimited cards means less money spent on fare collection.

  2. Nowooski says:

    I’m not sure I agree that $100 is a breaking point for fares. Sure it is a big psychological hurdle, but I don’t think it will lead to a sizable drop in ridership. After all, at $100/month, New Yorkers would still be spending only a fractions as much on transportation as the average American.

    According to the census, in 2007 the average American household (2.6 people) spent $8,758/year on transportation (17 percent of total expenses). That is over $721/month–while the same sized household in New York would pay $260 (assuming all 2.6 people bought unlimited cards). That is a steal.

    And it is even a steal when compared to peer transit systems like Paris or London, where a full-system (they are zoned) monthly pass runs 109 Euro (approx $150) or 189 Pounds (approx $300) respectively.

    • Alon Levy says:

      Paris unlimited passes don’t cost 109 Euros, unless you want an all-zone pass for the commuter rail system. A Métro pass costs 55 Euros a month, which is less than a New York unlimited monthly.

  3. JPN says:

    In these times when people are resigned to inflation, I cannot fully understand why $100 should cause an uproar. Two reasonable arguments (not that I necessarily support them): an expectation to get what you pay for, and the continued recovery from the current economic crisis. But for sure, if people believe public transportation is a “luxury” after exceeding a price point, that will definitely turn people off, and that cutoff is different for each individual.

    Why can’t more people learn about the history of transportation in NYC circa 1904 to realize how grateful we should be to have the system today? What amazes me is that one person, August Belmont, Jr., provided much of the financing of the IRT. He could have built a plain utilitarian system, but he ended up building what was said to be the finest and most efficient upon its opening. (Whether he should have planned for additional capacity is a separate debate.) He probably didn’t have the foresight to provide a continual fund or trust for its upkeep, a major weakness, so the [political] treatment of the subway in 2010 compared to a century ago has to be a slap in the face. As a pioneer, Belmont saw the subway as an investment to the city that could have failed; to me he made a big sacrifice that few people appreciate.

    The point I want to make is, no financier would follow Belmont’s lead in this post-Robert Moses era, and that is a shame. And could they, with much more governmental oversight now versus then? Small private investment {which the MTA has been seeking but rarely makes news} is one thing, but a large-scale investment by one or a few individuals is another. Will there and can there be an August Belmont, Jr. in New York City for the 21st century?

    • This is something of a nitpick, but Belmont didn’t end up using that much of his own money. He used some of his money, some of the city’s money, and he used a great deal of money loaned from the banks with the potential fare revenue as collateral for the loan. The financing is far more complicated than that, but if you’re interested, check out this 1905 McClure’s article. You could also argue that the way he financed the initial construction and the way the Rapid Transit Board kept fares low left the IRT in a state of constant near-bankruptcy until the city took it over in 1940. Even then, it’s never really been a fully funded entity.

  4. Andrew says:

    I agree with Petro entirely.

    But the introduction of MetroCard came with a huge fare decrease. Why is that being used as the baseline? Of course the price has outstripped inflation – it was artificially low in the late 90’s.

  5. Marc Shepherd says:

    The point about $100 is that it is merely the latest psychological hurdle. If you go back far enough, the ten-cent fare was a psychological hurdle, and so was the first one-dollar fare.

  6. MichaelB says:

    I cannot agree with this notion that if the MTA is vital, the city “should” pay more. All this discussion of “should” is a distraction from the much more important “will”. The city and state are broke, and already have fairly high taxes. Political resistance to both tax increases and spending cuts that are likely to be necessary in both cases is already high. They are not very likely to pony up more money, no matter what they “should” do.

    If the MTA is vital, one way or another it should receive enough funding to operate adequately. As a practical matter, going cap in hand to the city and state to get that funding has been a fools game for decades now. Raising fares at least has the benefit of solving the problem – something that seems unlikely on the sufferance of Albany or city hall.

    • AK says:

      I think your realist take is quite reasonable, Michael, but I wonder about the notion that the city and state “have fairly high taxes.” As always, it depends on what metric we use to define “fairly high.” This website:

      http://www.taxfoundation.org/taxdata/show/471.html

      is a useful tool for such analysis. It shows that New Yorkers actually pay less, as a percentage of income, to state/local governments today than they have at any time in the past 30 years save for the halcyon days of 1998-2001. Now, based on the same metric, NY is #1 out of the 50 states in % of income to state/local governments. However, if you dig a little deeper, you realize that the reason NY is #1 on that metric is becuase we have a far more progressive tax system than other states (i.e., we tax the wealthy at more graduated rates). For instance, in the 2010 budget year, the lowest 5 tax brackets were for income < $20,000, which was taxed at a rate between 4-6.85%. However, the state has two additional rates for people earning between 200K and 500K (7.85%) and for people earning more than 500K (8.97%). Compare this to my "liberal" home state of Massachusetts, which has a flat 5.3% tax on federal adjusted gross income. Ugh.

      Increasing those higher tax brackets will affect a very small percentage of NY's population. Of course, Bloomberg and others will claim that doing so will push "talented" (read: rich) people out of the state, but I am very skeptical of that claim, given New York's cultural hegemony. Will rich people try to evade NY taxes? Of course, they always do– see, e.g. Derek Jeter.

    • I’m not saying, Michael, that the city should just pay over money it doesn’t have. As Petro’s report makes clear, avoiding fare hikes is tied in very closely to congestion pricing (or East River Bridge Tools). The city would earn enough revenue from congestion pricing fees to help avoid the worst of the fare hikes. I know it’s a charge on some people and not others, but it’s largely a charge on people who can (a) afford it and (b) are exacting costs in the form of externalities on the city and its residents.

      • MichaelB says:

        Well sure, congestion pricing would solve the problem if setup properly and the money handed over to the MTA. Based on recent events though, it is at best a major challenge to get it done. Transit supporters have fought and lost this fight already, and while it might turn out differently this time, it’s not at all obvious to me that it will. Even if they do win, it does not appear likely that it will happen quickly. It is difficult to imagine an actual scheme being up and running before 2011. Indeed the politics being what they are if it were up and running by the end of 2011, it would be a minor miracle.

        In the meantime, there is a budget gap to close. It will be closed by either service cuts, or fare increases. There have been a series of reports suggesting alternative funding schemes. That’s all fine and good, as a long term solution. But it is not going to happen in time to deal with the immediate funding crises. Rather, Deciding that congesting pricing will solve the problem is in every practical sense a decision to go with the default (service cuts) mechanism to close the budget gap.

  7. AlexB says:

    I’d have to continue buying the monthly metrocard even if it were 110 or 120. If that meant that service weren’t cut and the train weren’t as crowded, that’s two birds with one stone from an individual point of view. Unlike the 70s when the city was less populated and driving was cheaper, I don’t think people will have much of a choice to not take the train if they work in Manhattan. Only people who live and work outside Manhattan will be able to cease buying the metrocard.

  8. Matthew says:

    Congestion pricing didn’t work because its political suicide for pols in the outer boroughs. It’s easily spun into a tax on the middle class. Small business (HVAC, Electric, Catering, Flowers, etc) will suffer the tolls, having trucks going back and forth. I understand the argument would be to take the subway instead of driving. The problem with that is there is often material that is too heavy/difficult to carry onto the subway.

    I would be in the camp of paying more for less cuts, but I can’t stand the notion of me paying more because the unions won a pay raise. It’s not the whole problem, but it’s a nice chunk.

    • The small business argument is a fairly spurious one. First, there can easily be a one-per-day fee for small businesses so that these guys don’t get slammed with numerous charges. Second, those people are in the best position to pass the charges along to their customers. Third, many of them will see increased business because they can reach more customers because the roads are less traveled. Thus, they’d be making more money with congestion pricing than without.

      Basically, it was a P.R. battle that pricing foes won even though a majority of New Yorkers supported the measure.

      • Matthew says:

        It’s hard to believe New Yorkers will support congestion pricing until the unions give their share of the burden. Until then, congestion pricing is seen as accepting the status quo on how the MTA is run. You can disagree but I believe alot of New Yorkers share this sentiment.

        • The two shouldn’t be intertwined. There are compelling environmental and economic concerns that should have led us to pass congestion pricing two years ago. The unions also should bear some of the burden. I’m with you on that, but good luck with that battle.

        • Andrew says:

          New Yorkers supported congestion pricing two years ago, as long as it’s used to fund transit.

          And the MTA doesn’t run the unions.

    • Aaron says:

      What you describe is an argument in favor of congestion pricing – a once-daily fee for driving in Manhattan no matter how much driving you do there or how many bridges you cross during the day. A company that spent all day on the road would pay the same charge that a commuter from Islip would pay.

  9. JK says:

    Yes state taxes on the rich will go up. They did last year and they will again. And every cent will go to pay for K-12 education, Medicaid, debt service and public employee pension obligations. There is no way that the MTA is getting a new dime from the state or city. Worse, the MTA will be lucky if its funding from the payroll tax and other dedicated taxes doesn’t get siphoned away to the general fund. It is a certainty that the fare is going to go up a lot. The best transit advocates can hope for is that any new dedicated taxes — potentially including tolls/pricing — will not be plundered to pay for other things. If the city/state step in to support student passes, watch for other areas where they take an equal or greater amount out of the MTA.

    • Rhywun says:

      This is entirely correct. Pensions and health care costs are rising much faster than transit costs, and the government has already shown its willingness to siphon transit money away to pay for these things.

  10. There was a time back in the early 80’s when the 75 cent subway fare was exactly the same as the average Manhattan price for a slice of pizza. Today, the average Manhattan pizza slice seems to be about $2.50 and rising.

  11. AB says:

    I want to take issue with your statement about the fare burden at $100/month being a “nearly unprecedented level the world over.” As someone else mentioned, fares in most other world cities are significantly higher than in New York. Let’s compare the monthly price for unlimited travel for journeys of about 8 miles as the crow flies with one of our closest peers, London (in NYC 8 miles takes you from Times Square to approximately Fordham Plaza, Kings Highway, Brooklyn College, or Kew Gardens, while in London 8 miles roughly takes you from Zone 1 to Zone 4). The London price comes in at $221 (£141.40 + exchange rate) compared to our $89.

    Also, and perhaps more importantly, the fare burden is NOT greater in New York than in other international peers. Generally speaking, every major world city has an as-good or better, some significantly better (particularly Asia), ratio of covering operating expenses from fare revenue. Granted, NYC subway riders in broad strokes pay for more of operating costs than any other US rail system. However, you should consider too that the MTA is also funding the bus system, which has significantly less cost recovery from fares (less than 40%), and the commuter railroads, which despite their seemingly high fares also only recover about 40-something% of their operating costs through fares (perhaps because each train has what I consider to be an outrageous number of high-priced employees on it to pick up pieces of paper – I mean tickets).

    • I said “nearly unprecedented,” and you managed to cite one of the few subway systems with fares that made that “nearly” necessary. I’m not saying it’s the most expensive, but it’s getting up there. Meanwhile, we don’t live in London with its obscenely high cost of living; we’re in New York with it’s slightly less obscenely high cost of living. Compared with the rest of this country, nothing really comes close.

  12. Jordan says:

    Reducing costs…anyone…anyone? Outpacing inflation by over 7% is unacceptable.

    Increasing fares, increasing food prices, increasing everything in a city that is already extremely expensive.

    It’s not sustainable.

    • Andrew says:

      Nobody’s outpacing inflation by over 7%, unless your baseline is the period immediately following a drastic fare reduction.

      Instead of 1998, why not compare to 1995, when the fare was raised to $1.50, with no free transfers from bus to subway, no unlimited cards, and no bulk discounts?

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