Home Fare Hikes On the inevitability of fare hikes

On the inevitability of fare hikes

by Benjamin Kabak

As the MTA’s public hearings for the looming fare hike move ever closer, the public comments surrounding the price increases start to sound the same. “How can they do this?” “More money for worse service.” “I’m going to stop taking the train and start driving.” We hear this litany of complaints with increasing frequency, and yet, when the MTA raises the fares, ridership numbers do not decrease. In fact, they’ve gone up over the past decade. Why?

To many, the answer is obvious: Even with subway fare increases, transit remains the cheapest way to get around the city by far, and it’s reasonably efficient too. So far all the bluster, straphangers aren’t about to start shelling out thousands for parking just because the cost of a Metrocard goes up. So the MTA can continue to raise prices forever, especially as other costs increase.

Today at Capital New York, Dana Rubinstein explored this phenomenon of pricing:

Logic tells us that at some point such hikes become unsustainable; excessively high prices deter customers and end up hurting the bottom line, as everyone knows. Except not when it comes to transit. “The answer is, that never happens,” said Jeffrey Zupan, a senior fellow at the Regional Plan Association, in response to a question about the point of diminishing returns for fare hikes. “Obviously if you charged $100 a ride for using the subway, no one would use it and you’d have no revenue. There’d be millionaires on it … if they wanted to use the subway.”

“It’s sort of like talking about the far reaches of the solar system,” said Charles Komanoff, a transport economist. “We are not remotely close to that. You could just as easily say, ‘If people had to swim to get down the staircases to the stations, then they’re not going to ride the trains.’ OK, that’s true, but so what?”

These are people, mind you, who are vigorous advocates of publicly subsidized transit. But with one exception (Robert Paaswell, director of the CUNY Institute for Urban Systems, who said that “if you even mentioned $4, people would panic”) none of the transportation experts I spoke to believed fares could ever realistically get high enough to repel riders in big enough numbers to cost the M.T.A. money. That’s actually the problem, politically: other than the complaints of straphanger advocates, there’s nothing to discourage the M.T.A. (or the governor, who controls the authority) from making up revenue shortfalls with fare hikes. In terms of what the market will bear, the price of a ride can always go up.

Rubinstein gets into some of the economic theory behind elastic and inelastic pricing schemes, but it would take a massive shock to the system to get people to change transportation modes. The real question though concerns the subway system as a public good. It’s not an issue for those who begrudgingly accept fare hikes because they can ultimate afford the additional $96 a year. Rather, it’s for those who can’t, and there’s where government support of transit comes into play.

If the role of a subway system is to move people throughout a wide space efficiently and cheaply (thus encouraging economic growth and easy access to job centers), how much money should governments contribute in order to keep the fares artificially low? That seems to be the underlying issue plaguing Albany, transit advocates and the MTA right now.

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Bobby P October 24, 2012 - 3:44 pm

I guess this speaks to the need to advocate for ourselves as transit riders. They know that we’re going to take the train no matter what but that doesn’t mean that we will support the politicans who push these hikes. If properly organized even a fraction of the people who take the train every day could make a state rep or city councilman think twice before simply raising the fare.

Larry Littlefield October 24, 2012 - 3:45 pm

However, we know that the collapse of service combined with fare hikes can lead to a downward spiral of ridership, because that’s what happened in the 1960s and 1970s. And the MTA might achieve that.

Meanwhile, perhaps when the price per swipe gets up past 1990 levels in inflation-adjusted dollars, there might be a ridership effect.

Tower18 October 24, 2012 - 4:43 pm

The 60s and 70s are a little different because of a wholesale collapse of the city simultaneous with the collapse of the subways. People were fleeing cities all over the country, and not just because of their transit systems. That likely won’t be happening again in the 2010s and 2020s, as people flock TO the cities, causing strain on a system maintained for years with chewing gum and duct tape.

Larry Littlefield October 24, 2012 - 4:52 pm

Well I agree, as there will be nowhere else to flee to.

People are starting to adjust to the consequences of fiscal irresponsibility. Homeschooling is up as the classroom is cut despite sky-high school spending compared with the past. People are riding bicycles. Hopefully the subway will eventually break even on its operating costs, without deferred maintainence, and get cut loose from the rest of the system.

Someone October 24, 2012 - 5:08 pm

Hopefully, instead of using fare hikes to sustain itself, the MTA can use private companies to operate the city’s subway lines. Seoul has a private operator for its line 9, even though it has actually collected a deficit on the line. However, in NYC, a privatized corporation can actually make money out of operating parts of the system, and each company can afford to expand. Additionally the MTA would not have to be the sole operator of the subway. That way, if there is a strike or other event, the rest of the subway will not be affected.
However, people will have to pay different fares.

al October 25, 2012 - 6:44 pm

Considering the shared trackage and facilities on many trunk lines, privatization could be tricky. The Flushing Line needs the old BMT to reach the Stillwell shops and the IND 8th Ave to reach 207th st yards. Linden Yard is necessary for receiving materials for both divisions.

It might work if NYC subway privatized in the manner British Rail did. The ROW and static infrastructure got one company, while the train operation and maintenance is a separate set of companies with trackage rights. At a minimum it will come to 2 companies with B division plus Flushing Line becoming one company, while the rest of A Division is the other. The Linden Yards can be a shared asset. Trackage rights could allow the Flushing Line to remain with A Division.

mike d. October 25, 2012 - 7:42 pm

Um, trains do not make money…. this is a true statement.

Henry October 25, 2012 - 9:25 pm

Tell that to the MTR ( http://www.mtr.com.hk/eng/homepage/cust_index.html ) in Hong Kong, which is publicly listed on the Hong Kong Stock Exchange and makes a rather hefty profit.

There are other examples in Japan and in Delhi, India.

Justin Samuels October 28, 2012 - 2:38 am

They do make money, not just from fares, but also from renting out real estate assets. The MTA needs to make better use of its real estate portfolio. They could hire more real estate contractors and developers to rent out more space in subway, LIRR, and MNR stations, for starters. Perhaps the city could contribute certain public assets to NYCTA, develop them, and rent them out as well.

With that said, fares would still go up anyway (upgrading the system, servicing the debt) so I think that people will simply ride the system less. More walking and bike riding.

Henry October 25, 2012 - 9:23 pm

…can’t the Flushing Line just use the Corona Yards?

Simon October 26, 2012 - 10:50 am

I don’t believe there are shops there.

Frank McArdle October 24, 2012 - 5:10 pm

While it might seem like heresy to say, transportation is one of several New York City infrastructure support systems,such as the City’s water supply and waste water management systems, power, and communications. They are all essentially network systems. But public transportation is distinguished from the others because there is a substantial lobby that asks that transportation costs be broadly subsidized, a lobby that dates to the days of those who fought the ‘traction interests’.

There is some economic merit to fully charge for the cost of providing a full service and subsiding only those who cannot afford to pay that cost. As you point out, many people grumble, but few will choose to waste the time and money to drive into Manhattan if there is a faster and convenient public transportation option. It might be said that most of those who do drive into Manhattan are doing so for specific business-related or time-related reasons. On the other hand, in the further reaches of the outer boris, it has proved very hard to get people out of their cars if the work destination is not well served by public transit.

In the Bush October 24, 2012 - 6:45 pm

Just wait until President Romney guts federal transit dollars…

Henry October 24, 2012 - 9:10 pm

Those only go to capital projects anyways, and it doesn’t seem like the MTA has anything planned after Phase 2 SAS.

Larry Littlefield October 25, 2012 - 7:04 am

Actually, very little money goes to projects like the SAS. Most of the federal money goes to simple things, because you don’t have the whole federal approval process to buy a new bus.

Alon Levy October 25, 2012 - 9:29 pm

A lot of federal money goes to new-build projects; very little goes to New York-area projects, especially SAS.

peter October 25, 2012 - 12:06 am

It astounds me that we’re debating how much to increase subway fares, but there’s no mention of the huge subsidy the city provides to drivers through free parking throughout the city. Most on-street parking in New York is free: there aren’t even any time limits, except for street cleaning every few days. The lost revenue from this give-away must be huge.

paulb October 25, 2012 - 10:02 am

What does it cost me if someone parks on the street? I don’t mean “external” costs. If no one parked, but nobody wanted to park, how would that change the financial picture?

Frank October 25, 2012 - 12:02 pm

Think of the street network as a big parking lot. How would it change Roosevelt Field Mall’s financial picture if they didn’t need parking lots because everybody got there on the train or bus? You can bet they would see to it that that land was rented to the highest bidder.

Basically, the city is letting people park on valuable real estate for free. And the city pays to maintain the pavement, curbs, drainage, etc. If people weren’t parking there, the city could narrow the streets and sell or rent the parking lanes for more productive purposes. That’s why free on-street parking is such a huge cost to the city. So since people are parking there, and imposing real costs on the city, why not charge them for it?

Matthias October 25, 2012 - 12:50 pm

It is an extremely inefficient use of space. Private cars park bumper-to-bumper all around the block, causing delivery vehicles to block traffic. Ideally, a significant amount of space should be dedicated to short-term uses like loading or pickup/drop-off while the rest would be available at market price, which should be equal to or higher than off-street parking (due to the convenience factor). Why should people pay nothing to store their vehicles on some of the most valuable real estate on the planet?

Alon Levy October 25, 2012 - 9:32 pm

It costs you in three ways. First, if you’re driving, scarce street parking spots are allocated by first-come-first-served and not by any price signal. Second, because the city could charge more for parking and fill spots, it’s losing revenue, which means it needs to make up the money from other sources. And third, possessive NIMBYs think that the local preexisting street spots belong to them and oppose new development without off-street parking.

Justin Samuels October 28, 2012 - 2:41 am

What’s really going to happen is people will have to live closer to where they work, experiment with working at home, if feasible, and really only travel when you have to.

Because fares are going to go home AGAIN in just two years time.

Bolwerk October 28, 2012 - 3:36 am

The fact that fares go up is not itself a big problem, at least not if they go up roughly in step with inflation.

The problem is that the fares are going up, and there are things we can do about it that we won’t do because most of those things involve saying no to a privileged groups that influences state government (e.g., unions, suburbanites, etc.).

petey October 26, 2012 - 10:50 am

“free parking throughout the city”

these are taken by residents, the cost of private parking in manhattan being prohibitive. can we all please not forget that most of manhattan is populated with people on working class incomes and even fixed incomes.

Tower18 October 26, 2012 - 12:22 pm

Working-class people with cars in Manhattan? Here we go with that again.

Anyway, I’ll take that bet, I would LOVE if someone would do a study and find out who owns the cars that are parked all over Manhattan. As far as I could tell when I used to live on 92nd St and would watch the daily alternate-side dance, these cars were only moved for street cleaning, never used otherwise, and at least a couple on every block were clearly used for “storage” or hoarding space, with only the driver’s seat open, if that.

John October 25, 2012 - 10:56 am

What is true is that current flat fales are expensive for families on weekends…we drive to Manh on weekends because transit fare there and back for 3 is north of $12, and marginal cost of driving is less than $2.

Time for peak period fares and off-peak discounts!

VLM October 25, 2012 - 10:56 am

You’re really bad at math and economics.

Tower18 October 25, 2012 - 12:43 pm

Like most drivers, you drastically underestimate the costs of your driving. And I’m not even talking about vague “social costs” or externalities. I’m just talking about YOUR costs. There is no chance, zero, that your costs for a roundtrip into the city are under $2.

Chris October 25, 2012 - 4:33 pm

Really? If you enter without tolls and park free, your marginal costs would be pretty low. Basically gas, assuming that you’re saving time which is likely, depending on origin and destination.

Tower18 October 25, 2012 - 7:44 pm

Assuming one is coming from farther than Long Island City, the cost of gas alone is likely more than $2, round trip. It’s not like you’re pulling 30+ MPG while driving down the LIE and then into Manhattan. Also, if we’re assuming free parking in Manhattan, that’s probably gonna require a lot of circling the adjacent blocks, at like 2-3 MPG.

Unless what was meant was that the cost of driving would be $2/person for a car of 3, which, okay I can agree is getting closer.

I’m no vehement anti-car person…in fact I have a motorcycle and drive often. But as I have a motorcycle, I pull 45-50MPG even in heavy traffic, and can park basically anywhere without having to circle or look for a spot.

Even for me though, the price of gas alone for a 20 mile trip would be about $1.50, give or take.

Bolwerk October 26, 2012 - 1:54 am

You guys are kind of abusing the concept of marginal cost. Adding a unit (let’s say a trip) doesn’t decrease – or even much effect – the total cost of the next trip.

If you’re producing sprockets, making a single sprocket probably takes a lot of work molding and cutting and sodomizing and doing whatever it is sprocket makers do. The cost might be really high, say 50 quatloos of material and labor . But, for roughly the same amount of labor – a variable cost – and a lot more material – another variable cost that increases differently – you can probably produce 100 sprockets and stop, driving your marginal costs way down. This is why marginal cost curves look like the one here. Different inputs tend to have different incremental costs. The cost of, say, metal for your sprocket is probably higher than the cost of polish used to shine it. Eventually, you start making so many sprockets you need a second sprocket maker laboring to make one more sprocket, which again might explain an upward slope.

Car trips over time are pretty straightforward. A trip doesn’t really have that sprocket kind of scale, at least not in a particularly useful way. If each trip costs three quatloos in whatever inputs trips need, then marginal cost of each unit is probably just a constant 3t/t. 1 trip is 3 quatloos, the next trip is three quatloos (3×2/2), and the next (3×3/3), and the next (3×4/4).

Okay, in the real world, marginal cost might include things like inevitably making your car more likely to break down, but that hardly does your marginal cost picture any favors. Or a change in gas prices might make another trip more or less expensive.

Bolwerk October 26, 2012 - 1:56 am

Ob. transit: one of the reasons it has a big economic advantage of automobiles is transit does have a lower marginal cost per ride. If you run a train, another rider costs damn close to nothing and brings in a lot of revenue. Still, this is only true to a point. Eventually, your train is so full and you need another.

Henry October 25, 2012 - 9:22 pm

Well, if you just take a bus and subway, then it’s only $4.50.

It isn’t necessary to take LIRR or Metro-North into the city…

Alon Levy October 25, 2012 - 9:34 pm

You missed the “for 3” part in his comment.

Bolwerk October 26, 2012 - 1:01 am

What do you mean by “marginal cost”? At the least, the absolute incremental cost of driving your car over not driving is gas, tolls, parking, and wear-and-tear on the car. Even if you can avoid the second two and ignore the last, how easy is it to avoid spending $12 on a trip or so when gas is hovering near $4/gallon? You can burn that much idling in traffic around here.

A good case can be made that the risk of getting a parking ticket or into an accident should factor in the cost; certainly on a macro scale it should, and a non-irrational commercial driver should factor it in.

crescent October 25, 2012 - 12:41 pm

Taxi per-mile fares just went up 25%, so don’t try to make a case that people should be running to a non-subway option.

gooch October 25, 2012 - 5:04 pm

There is definitely a point at which fares become unreasonable enough to cause people to drive – I would say that this is exactly what we deal with here in DC with the WMATA fares, especially if two or more people are traveling together.

James C October 25, 2012 - 8:53 pm

Privatization is the only solution. They will keep asking for fare hikes to the point where revenue will start diminishing. Then they can either go into debt or gouge our taxes. Not gonna work.

Tower18 October 26, 2012 - 12:24 pm

What makes you think privatization would prevent fare hikes?

James C October 26, 2012 - 11:23 pm

The point of privatization is that market forces would come into play. The MTA could be privatized in a way that fosters competition. Multiple companies would compete with each other to offer the lowest fares. This would get rid of the MTA’s overpaid, unhelpful, and unproductive workforce.

Competition would be really easy to implement for busses, the city would just have to repeal whatever regulations they have that prevent regular guys from driving busses and picking people up. There is no reason a bus driver should make $80,000 a year and have a lifetime pension.

The subway system would be harder to privatize. It started as private, but if the infrastructure was sold to multiple companies, they could form a cartel and fix prices. Cartels are broken by competition. Since digging new subway tunnels is not feasible, private bus companies could serve as competition to keep subway fares down.

Whatever you think about fare hikes, it doesn’t really matter because we all know the system is unsustainable. The MTA can only be bailed out so many times by fare hikes, taxes, and debt before there is no money left.

Bolwerk October 27, 2012 - 3:50 pm

I can’t say every single function of the MTA can’t be privatized, but most of those proposals range from impractical to delusional.

You don’t want “regular guys” driving buses. You want people selected for a solid attention span, conscientiousness, the ability to deal well with multiple stressors, and to keep cool in an emergency. And, no, a private company doesn’t want the liability of anything else either.

And just how do you propose a bus compete with a subway? The tortoise winning the tortoise-hare race is a fable for a reason.

Whatever you think about fare hikes, it doesn’t really matter because we all know the system is unsustainable. The MTA can only be bailed out so many times by fare hikes, taxes, and debt before there is no money left.

It can be tweaked into sustainability. It doesn’t need to be bludgeoned into non-existence to fix.

Henry October 27, 2012 - 12:45 pm

Bus privatization has to be tightly regulated, though – in places where private companies are allowed to do whatever they want, usually the end result is lots of congestion and very little, if any, service information for maps. We could do what Asia and London do and contract out route operations, but then we’d need something like TfL to organize a broader route map. There’s also the issue that some routes will just never, ever make money (express buses, anyone?) and they’re still going to need massive subsidies.

New York City’s experience with subway privatization wasn’t so great – now we have a bunch of lines with stations that are really close together but offer no transfer connections, and these subway lines are concentrated in small areas. Capital construction is the one thing I could see a privatized subway could bring down costs in, but that’s only because they’re working from such a ridiculously high base (SAS is the most expensive subway project in the United States per-mile, and possibly most expensive ever).

Also, keep in mind that any privatized company is going to have to deal with the existing debt burden and the “militant” TWU (their words, not mine). I guess a private company could drag the subway through bankruptcy, but we’d lose a lot of outer-borough bus routes in the process, and ridership is hard to win back after it’s lost.

The railroads and express buses should really be privatized, though, if only because they are a disproportionate money-suck in terms of per-rider cost.

Bolwerk October 27, 2012 - 4:03 pm

Privatization by itself doesn’t do jack to lower costs. If anything, it likely makes them higher – government agencies can finance at interest rates private companies can’t achieve.

James C October 27, 2012 - 2:40 pm

I don’t believe you can haphazardly privatize because to the extent that we allow the government to regulate, they will be able to pick winners and losers. This stifles competition and drives up prices. As for congestion, the market will choose how many companies can be in operation. People will vote confidence in the companies with the lowest prices and best service. As for service information, it would be in a company’s best interest to offer that information.

I’m not familiar with the legal aspects that privatization would present, but if it is a bankruptcy that would allow them to shed their debt and TWU, then they should do that.

I’m kinda embarrassed that people here focus so much on the revenue side of things. Increases on parking costs, increases on tolls, tax increases, and fair increases. Also any toll increase or parking increase is adding a tax on business. Business don’t absorb those costs – they pass them on consumers. We already pay way too much to live in NYC, we have to start looking at cutting costs instead of just feeding waste.

Bolwerk October 27, 2012 - 4:01 pm

As for congestion, the market will choose how many companies can be in operation.

The current system makes allowances for use across almost any route possible, which I’m pretty sure any sane betting man wouldn’t want to wager on “the market” (the actual hu-mans who use the system) wanting to change.

Also any toll increase or parking increase is adding a tax on business. Business don’t absorb those costs – they pass them on consumers.

Not when those “taxes” are more than offset by savings. Loading something? You want room to park, and a sufficiently high price on a parking space can make it likely you’ll get that. Feel like getting where you want to go? Any sensible commercial driver should prefer tolls and CP to sitting in traffic wasting gas and billable time.


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