Difference between revisions of "Fare pricing and reform"

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[[File:Got-bus-pass.jpeg|right|thumb|300px|A member of the public at a rally for Free/Reduced Student Passes in Oakland,  Photo by J. Moses Ceasar 2005]]
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[[Category:Finance and revenue]]
 
[[Category:Finance and revenue]]
 
[[Category:Market Response]]
 
[[Category:Market Response]]
 
==Introduction==
 
==Introduction==
−
Most transit agencies employ largely flat fare systems, which charge the same price, regardless of time of day, distance or direction traveled, or quality of service. However, they do not reflect the actual costs of providing service, which constantly fluctuate throughout the day. Peak period operation, longer trip routes, and premium service all cost the agency more money to operate, as well as require more capital investments. Additionally, there is the issue of "cross-subsidization"; since flat fares do not distinguish between time, type, or distance of travel, transit users traveling shorter distances, during off-peak hours, and using non-premium services “cross-subsidize” riders on more expensive routes. There is a considerable body of research that argue in favor of flexible, differentiated fares. There are also other fare strategies that transit agencies can consider, such as using smartcard technology, eliminating fares altogether, or providing group fares or other discounts.
+
Most transit agencies employ largely flat fare systems, which charge the same price, regardless of time of day, distance or direction traveled, or quality of service. However, they do not reflect the actual costs of providing service, which constantly fluctuate throughout the day. Peak period operation, longer trip routes, and premium service all cost the agency more money to operate, and require more capital investments. Additionally, there is the issue of "cross-subsidization"; since flat fares do not distinguish between time, type, or distance of travel, transit users traveling shorter distances, during off-peak hours, and using non-premium services “cross-subsidize” riders on more expensive routes. There is a considerable body of research that argue in favor of flexible, differentiated fares. There are also other fare strategies that transit agencies can consider, such as using smartcard technology, eliminating fares altogether, or providing group fares or other discounts.
  
−
===Differentiated Pricing===
+
==Differentiated Pricing==
−
Differentiated fares are considered by many analysts to be more efficient, effective, and equitable. They better reflect the variable costs of transit service, encourage riders to travel when excess capacity is available, and subsidize all types of riders roughly equally. However, differentiated fares would be a radical departure from flat fares and many agencies are wary of potentially harming low-income and/or transit-dependent riders, not to mention wary of potential negative media attention. According to the American Public Transportation Association (APTA) in 2012, 23 percent of transit operators nationwide currently use distance-based pricing, and only 6 percent use time-based pricing. <ref> [http://www.apta.com/resources/statistics/pages/transitstats.aspx "2012 Transit Fact Book"] </ref>
+
Most transit systems have flat fares, but others use differentiated fares based on time (peak vs. off-peak) or distance traveled. Differentiated fares are more efficient because they better reflect the variable costs of transit service, encourage riders to travel when excess capacity is available, and subsidize all types of riders roughly equally. Some transit agencies worry about losing riders after switching to differentiated pricing, but new fare system can incentivize additional short rides by making them cheaper. More research is needed to draw broader conclusions on the effect on ridership of moving from flat to differentiated fares.
  
−
Transit agencies are understandably worried about losing riders if fares were based on distance traveled. However, distance-based fares could also attract new passengers for inexpensively priced short trips, whereas before they may have found $1.50 too much for a four block ride. Ridership gains and losses depend on many factors, and most transit agencies have not conducted market research on customer responses to fare reform; nevertheless, this suggests that there are ample opportunities to gain more information on the likely gains and losses that would accompany differentiated pricing.
+
Any new fare system is going to raise concerns about equity; if low-income riders have longer trips then they will be disproportionately impacted by differentiated pricing. This effect is highly dependent on local settlement patterns. One study in Utah found that a switch to differentiated pricing in a certain part of the Utah Transit Authority's service area would be progressive, reducing fares for low-income and minority riders.<ref>[http://www.sciencedirect.com/science/article/pii/S0965856414001785 Farber, S. et al. (2014). "Assessing social equity in distance based transit fares using a model of travel behavior." Transportation Research Part A.]</ref> This isn't necessarily transferable to other areas, though; agencies looking to make the switch will have to do their own [[Transit and Civil Rights|Title VI analyses]].
  
−
Additionally, recent technology has made it much more feasible to collect differentiated fares. [[Automated fare media]] such as electronic, magnetic stripe contact cards, smart cards, and even cell phones enable differential fare collection in a way that a paper based system cannot. Because automated fare media provide the technological base for more complex fare structures, agencies should consider the possibility of adopting different pricing structures in the future when making capital investments in fareboxes and turnstiles. This may eliminate or reduce expensive barriers to implementing differential pricing.
+
In recent decades [[automated fare media]] has greatly simplified the process of collecting differentiated fares. However, many agencies are still wary of the perceived complexity and unpopularity of time- and distance- based fares, and if anything in recent years more agencies have returned to flat fare systems. <ref>[http://onlinepubs.trb.org/onlinepubs/tcrp/tcrp_rpt_94.pdf Multisystems, Inc., Mundle & Associates, Inc., & Simon & Simon Research Associates, Inc. (2003). "Fare Policies, Structures, and Technologies: Update." Transit Cooperative Research Program.]</ref>
  
−
*'''Los Angeles MTA Study'''
+
=== Types of Differentiated Pricing Schemes ===
 +
Automated fare payment technologies can allow agencies (or groups of agencies) to implement novel fare policies, many of which would not be possible through traditional fare media (e.g. cash, tickets, tokens). These types of fare policies can be grouped into the three categories, including loyalty programs, distance-based fares, and differential pricing <ref name=":2">Metropolitan Transit System and North County Transit District, “San Diego Fare Collection Technology Concept of Operations,” rep., Sep. 2017.</ref>. Loyalty programs aim to reward customers for frequent transit use, and primarily include either discounted fares or bonus rides<ref name=":2" />. Distance-based pricing involves charging customers based on how far they travel, while differential pricing sets fees according to where or how customers ride transit. These categories include the fare policies listed below<ref name=":2" />:
 +
* '''Loyalty Programs'''
 +
** ''Calendar Passes'': unlimited-ride passes valid during a set period of time
 +
** ''Rolling Passes'': unlimited-ride passes during a period of days after activation
 +
** ''Joint Bus/Rail Passes'': passes which allow transfers across transit mode
 +
** ''Mode-Specific Passes'': unlimited rides on a particular mode
 +
** ''Bonus Fares'': free trips are provided for frequent transit use
 +
** ''Fare Capping'': trips are free after a given amount is paid within a given time period
 +
* '''Distance-Based'''
 +
** ''Mileage-Based'': fare is charged based on distance traveled
 +
** ''Zone-Based'': fare is charged based on number of geographical “zones” traversed
 +
** ''Flat Fare'': a constant fare is charged regardless of distance traveled
 +
* '''Differential Pricing'''
 +
** ''Fare Differential'': variation in fare according to which payment media is used
 +
** ''Location-Based'': variation in fare according to origin or destination location
 +
** ''Service-Based'': variation in fare according to mode of travel (e.g. subway, bus, streetcar)
 +
** ''Peak/Off-Peak'': variation in fare according to time period of travel
 +
** ''Event-Based'': fare products targeted to attendees of special events
 +
 
 +
=== '''Los Angeles MTA Study''' ===
 
:In 2010, Los Angeles Metro looked at the potential for time and distance-based fares for the MTA bus and rail system<ref>[http://media.metro.net/board/Items/2010/09_september/20100915OPItem10.pdf Evaluation of Time and Distance-Based Fare Policies]</ref>.
 
:In 2010, Los Angeles Metro looked at the potential for time and distance-based fares for the MTA bus and rail system<ref>[http://media.metro.net/board/Items/2010/09_september/20100915OPItem10.pdf Evaluation of Time and Distance-Based Fare Policies]</ref>.
  
 
:The time-based system would give riders a window of time during which subsequent boardings would not require payment. Transfer fees would be eliminated during that time period. A simple way to implement this would be to use the TAP cards, although the agency would have to look into additional hardware to vend receipts if it wanted to accommodate cash-paying riders as well. One important implication is this system would encourage riders to use the fastest services available, since they would be granted a narrow time window of free transfers. Base fares may have to be increased, since transfer fare revenues will be lost.
 
:The time-based system would give riders a window of time during which subsequent boardings would not require payment. Transfer fees would be eliminated during that time period. A simple way to implement this would be to use the TAP cards, although the agency would have to look into additional hardware to vend receipts if it wanted to accommodate cash-paying riders as well. One important implication is this system would encourage riders to use the fastest services available, since they would be granted a narrow time window of free transfers. Base fares may have to be increased, since transfer fare revenues will be lost.
  
−
:The distance-based system could apply to Rapid and Express buses, to heavy fail, or to all rail lines. Fares would be based on increments of distance, with corresponding fare zone boundaries identified for each route. While existing hardware and fare media could be used, the agency might have to install fare gates or hire additional people for fare enforcement. An overall concern with a distance-based system is some riders may choose slower, cheaper parallel services because they cannot afford to pay a premium fare.
+
:The distance-based system could apply to Rapid and Express buses, to heavy rail, or to all rail lines. Fares would be based on increments of distance, with corresponding fare zone boundaries identified for each route. While existing hardware and fare media could be used, the agency might have to install fare gates or hire additional people for fare enforcement. An overall concern with a distance-based system is some riders may choose slower, cheaper parallel services because they cannot afford to pay a premium fare.
 +
 
 +
==Group Fares==
 +
 
 +
Transit agencies can offer [[Deep Discount Group Pass|deep discount group passes]] to employers and universities. In a 2004 dissertation, Cornelius Nuworsoo explores the benefits of discounted fare programs for groups and summarizes the outcomes of unlimited-ride pass programs in Berkeley and Denver.<ref>[http://www.its.berkeley.edu/publications/UCB/2004/DS/UCB-ITS-DS-2004-2.pdf "Deep Discount Group Pass Programs as Instruments for Increasing Transit Revenue and Ridership."] </ref>  There is an associated Access Magazine article that can be found on the Access website at http://www.accessmagazine.org
 +
 
 +
==Fare Integration==
 +
 
 +
Another key component of modern fare reform is fare integration. This is particular equity concern as city housing prices rise, pushing people further away from the center. This poses an extra burden on low-income commuters who often have to pay multiple different agencies' fares for their commute.  
  
−
===Fare-Free Transit===
+
This has been a particularly pressing issue for the Bay Area where there are 27 transit operators with " a dizzying array of fare structures". <ref name=":1">Roger Rudick, San Francisco Streetsblog, "Breakthrough on Fare Integration",
−
Fare-free transit is a topic has recently been receiving more media attention. There are many advocates for fare-free transit, who argue that eliminating fares would lead to faster loading and unloading times, less confusion over fares, and lower administrative costs. People would also feel more motivated to use public transit. However, there are also many disadvantages to consider. Fareboxes can cover a considerable percentage of agencies' operating costs, which is especially true for larger agencies, and removing fareboxes would require some agencies to look for other funding. Past experiments with fare-free transit saw operating costs skyrocket as demand exceeded capacity, creating even larger revenue shortfalls. Additionally, some of the fare-free demonstrations experienced increases in vandalism and "hooliganism", which drove away many regular bus commuters. <ref name="Perone">[http://www.dot.state.fl.us/research-center/Completed_Proj/Summary_PTO/FDOT_BC137_38_FF_rpt.pdf Advantages and Disadvantages of Fare-Free Transit Policy] </ref>
 
  
 +
https://sf.streetsblog.org/2019/09/17/breakthrough-on-fare-integration/
 +
</ref> In September 2019 the Clipper Executive Board, representing major transit operators in the Area,  approved funds to study the possibility of fare coordination. <ref name=":1" />
  
−
Overall, the advantages of fare-free transit seem to be greater for smaller agencies or for limited portions of service. Smaller systems have a low farebox recovery, which might be canceled out by the cost of collection. For example, the transit system in Commerce, California is the oldest fare-free system, operating since 1962. They serve fewer than one million riders a year, and generally do not experience problem riders. <ref name="Perone"> </ref> Chapel Hill Transit, which has been fare-free since 2002, also had a low farebox recovery rate, at about 10 percent. The agency managed to cover the revenue gap with extra funding from the university and taxpayers of Chapel Hill and Carrboro. <ref>[http://www.theatlanticcities.com/commute/2013/03/how-free-transit-works-united-states/4887/ How Fare-Free Transit Works in the United States] </ref> Other important issues to consider when going fare-free are maintaining service quality, providing paratransit, and security.  
+
=== Impacts of Fare Integration on Transit Ridership ===
 +
Academic literature has demonstrated links between fare integration and transit ridership. A positive impact has been shown in numerous contexts, as explored by Sharaby and Shiftan through a case study in Haifa, Israel and a review of similar policy implementation throughout Europe and the United States <ref name=":3">N. Sharaby and Y. Shiftan, “The impact of fare integration on travel behavior and transit ridership,” ''Transport Policy'', vol. 21, pp. 63–70, 2012.[https://ideas.repec.org/a/eee/trapol/v21y2012icp63-70.html]</ref>. The impacts of various fare integration programs are shown in the table below. In many cases, these programs successfully reversed a trend of ridership decrease and encouraged sustained ridership growth for extended periods after implementation.  
 +
{| class="wikitable"
 +
|+Sample fare integration programs and ridership impact <ref name=":3" />
 +
|'''Region'''
 +
|'''Year of Implementation'''
 +
|'''Ridership Increase'''
 +
|-
 +
|'''Greater Manchester,  England'''
 +
|1999-2001
 +
|4%
 +
|-
 +
|'''New York, USA'''
 +
|1994-1999
 +
|12% (subway), 40% (bus)
 +
|-
 +
|'''Vienna, Austria'''
 +
|1988-2001
 +
|24%
 +
|-
 +
|'''Madrid, Spain'''
 +
|1987
 +
|15%
 +
|-
 +
|'''Paris, France'''
 +
|1975
 +
|33%
 +
|-
 +
|'''Stockholm, Sweden'''
 +
|1973
 +
|25%
 +
|-
 +
|'''Hamburg, Germany'''
 +
|1967
 +
|19%
 +
|}
 +
A variety of different models have been employed to estimate the impact on transit ridership in response to fare integration or a change in fare policy. Direct elasticities between the number of trips demanded and the price of a trip are commonly used, including log-arc elasticity (most common), midpoint arc elasticity, and shrinkage ratio <ref>K. C. Taylor and E. C. Jones, “Fair Fare Policies: Pricing Policies that Benefit Transit-Dependent Riders,” ''Community-Based Operations Research International Series in Operations Research & Management Science'', pp. 251–272, 2011.</ref>. However, Chin et al. argued that simple elasticities are insufficient predictors of transit ridership demand<ref name=":4">A. Chin, A. Lai, and J. Y. J. Chow, “Nonadditive Public Transit Fare Pricing Under Congestion with Policy Lessons from a Case Study in Toronto, Ontario, Canada,” ''Transportation Research Record: Journal of the Transportation Research Board'', vol. 2544, pp. 28–37, 2016.</ref>. A variety of different models have been developed, including some which account for congestion and can be effectively used to predict ridership changes under introduction of complex fare policies (as enabled by smart card technologies)<ref name=":4" />. Chin et al. used a congested network model to evaluate the effectiveness of a distance-based fare policy for use by the Toronto Transit Commission. They concluded that a distance-based fare policy may be Pareto-improving, and called for more sophisticated fare pricing in Toronto (such as distance-based or zone-based pricing)<ref name=":4" />.  
  
−
*'''San Francisco Muni Study'''
+
=== '''Toronto Case Study''' ===
−
:In 2008, San Francisco Muni conducted a study on the cost-effectiveness of a fare-free system. The study concluded that Muni would see increased operating expenses and capital investments, even though the costs of fare collection would be eliminated. Muni would need an additional $184 million a year for operations, as well as an additional $519 million to procure the vehicles, facilities, and infrastructure needed to accommodate the ridership increase.
+
As of 2018, Toronto and surrounding municipalities signed into a number of fare integration agreements, leading to discounted transfers from the Go System ( commuter rail) and TTC (Toronto subway)  and free transfers between key municipal operators outside Toronto. This was largely facilitated via the use of Presto Cards, a payment card that works across numerous transit agencies Ontario. <ref>Metrolinx Fare Integration,
  
−
===Fares Based on Ability to Pay===
+
http://www.metrolinx.com/en/regionalplanning/fareintegration/default.aspx
−
The SFMTA is currently conducting a study on developing a fare system that takes into account passengers' ability to pay, rather than simply on their ages. The SFMTA does have a Lifeline pass program, which provides a 50 percent discount on the monthly pass for residents whose incomes are below 200% of the federal poverty level. However, fewer than 20,000 people use the Lifeline system, since it is burdensome and requires a lot of paperwork for all parties. <ref> [http://www.planetizen.com/node/59552 Bay Area Considers Basing Transit Fares on Need] </ref> The proposed fare system would ideally cut down on red tape and provide discounts for those in financial need.
+
</ref>
 +
 
 +
==Fares Based on Ability to Pay==
 +
The SFMTA is currently conducting a study on developing a fare system that takes into account passengers' ability to pay, rather than simply on their ages. The SFMTA does have a Lifeline pass program, which provides a 50 percent discount on the monthly pass for residents whose incomes are below 200% of the federal poverty level. However, fewer than 20,000 people use the Lifeline system, since it is burdensome and requires a lot of paperwork for all parties. <ref>[http://www.planetizen.com/node/59552 Bay Area Considers Basing Transit Fares on Need] </ref> The proposed fare system would ideally cut down on red tape and provide discounts for those in financial need.
 +
 
 +
==Fare-Free Transit==
 +
Cities provide a variety of services, such as parks and libraries, to everyone with no direct fee. Proponents of fare-free transit argue that public transportation should be provided in the same way.<ref>[http://www.trb.org/Publications/Blurbs/167498.aspx Volinski, J. (2012). "Implementation and Outcomes of Fare-Free Transit Systems." Transit Cooperative Research Program.]</ref> Fare-free transit would be beneficial to low-income riders, especially to people of color who are more likely to be stopped for farebeating. Fare-free transit is also seen by supporters as a way to reduce dwell times, lower administrative costs, and grow transit ridership. Opponents of of fare-free transit argue that the lost revenue, when coupled with additional demand, would stretch agency resources too thin and harm service quality. There are also concerns about loitering and vandalism, though the extent to which this is a serious problem is a matter of debate.
 +
 
 +
The practicality of fare-free transit seems to be tied in part to the size of the system. There are multiple possible reasons for this, but farebox recovery ratios play a role. Large transit systems like those in New York City or the San Francisco Bay can have farebox recovery ratios of more than 40%, meaning that switching to fare-free service would represent a huge loss in revenue.<ref>[http://www.njspotlight.com/stories/15/07/05/the-list-the-10-u-s-transit-agencies-that-rely-most-on-fare-revenues/ Rinde, Meir. (2015). "The List: The 10 U.S. Transit Agencies that Rely Most on Fare Revenues." NJ Spotlight.]</ref>  On the other hand, for small systems that number might be less than 10%. Given the cost of collecting fares (fareboxes, payment processing systems, increased dwell time), it's possible that moving fare-free could actually improve system finances. Successful fare-free system are typically in small areas dominated by either universities or resorts.
 +
 
 +
===Fare-Free Case Studies===
 +
''United States''
 +
* '''Corvallis Transit System''' - CTS serves a Corvallis, OR, a city of 55,000 people (including 20,000 Oregon State University students). In 2011 CTS made the decision to go fare-free as a way to reduce car dependency. Funding, which had previous come from fares and student fees at OSU, was replaced with a $2.75 a month charge to Corvallis Utility customers. The program has been seen as a success; ridership grew nearly 38% in the first year and schedule performance improved. The program is relatively new, but seems to be performing well.
 +
* '''Breckenridge Free Ride''' - Breckenridge, CO is a ski resort town with a population of just a couple thousand people, but 50,000 visitors a weekend during peak season. The city set up a fare-free transit system to ease tourist congestion and help residents get around. Free Ride had 670,000 riders in 2009. Operational expenses come out of the town's general fund. This has worked so far but is susceptible to economic downtown, so the town is looking for new funding mechanisms. Ridership is steadily growing, and strict anti-loitering rules keep the buses moving smoothly.
 +
* '''Link Transit''' - Washington State's Link Transit is a larger rural system serving 105,000 people over and area of 3,500 miles. It currently operates 55 buses and 22 paratransit vehicles with a budget of $11 million per year. It was established in 1989 and had no problems operating fare-free for the next decade. However, in 1999 voters eliminated the motor vehicle excise tax that had provided Link Transit with most of its funding. The agency lost 45% of its operating revenue and was forced to charge fares. The conservative area had never fully embraced the fare-free system. The current fares account for 6% of operating expenses and disproportionately effect minorities and the elderly.
 +
* '''San Francisco Municipal Railway''' - In 2008, San Francisco Muni conducted a study on the cost-effectiveness of a fare-free system. The study concluded that Muni would see increased operating expenses and capital investments, even though the costs of fare collection would be eliminated. Muni would need an additional $184 million a year for operations, as well as an additional $519 million to procure the vehicles, facilities, and infrastructure needed to accommodate the ridership increase. The city abandoned its fare-free plan after seeing the results of the study.<ref>[http://www.sfgate.com/bayarea/article/Free-ride-Fat-chance-Muni-fares-will-stay-3229342.php Gordon, R. (2008). "Free Ride? Fat Chance: Muni Fares Will Stay." SFGate.]</ref>
 +
* '''Kansas City''' - In 2019, city officials announced that bus service will be free starting in 2020. The City Council has required that the City government make up the $9 million estimated will be lost due to the elimination of fares.<ref>[https://usa.streetsblog.org/2019/12/09/kansas-city-moves-ahead-with-free-buses/ Short, Aaron. (2019). "Kansas City Moves Ahead With Free Buses." Streetsblog USA.]</ref>
 +
''Globally''
 +
* '''Tallinn, Estonia''' - Tallinn eliminated all fares for transit taken by registered city residents in 2013. Although this fee elimination did not significantly impact congestion, research suggests that mobility may have particularly improved for lower-income residents (measured in terms of the number of trips), although not necessarily leading to greater access to employment.<ref>Oded Cats, Yusak O. Susilo, and Triin Reimal, “The prospects of fare-free public transport: evidence from Tallinn,” ''Transportation'' 44, no. 5 (2017): 1083–104.</ref> There is some evidence that the introduction of fare-free transit caused a reduction in average trip length (of roughly 10%), which could suggest that riders are replacing trips previously made by walking or biking with transit.<ref name=":0">[https://www.bbc.com/worklife/article/20190128-the-cost-of-luxembourgs-free-public-transport-plan Auxenfants, Marc. (2019). "The cost of Luxembourg's free public transport plan." BBC.]</ref>
 +
* '''Luxembourg''' - The nation of Luxembourg will make all public transit free starting as of March, 2020. Fares currently represent a small part of the overall operating costs of the system, totaling 41 million Euros, or less than 10% of the 491 million Euro operating costs. Although the nation does expect some benefits with respect to reduced congestion and emissions, the Minister for Mobility and Public Works, François Bausch, has said that the initiative, "is primarily a social measure...the objective is to stop the deepening gap between rich and poor. For people on low wages, transport expenses matter. Therefore it is easier to make it free for everyone."<ref name=":0" />
  
 
==References==
 
==References==
−
<references/>
+
<references />
  
 
==Additional Reading==
 
==Additional Reading==
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: Cervero explores the efficiency and equity of different pricing structure by comparing transit fares and the cost to provide service.  He finds that flat fare structures generally result in short-distance, off-peak riders subsidizing long-distance, peak hour customers.  A subscription is required to access this article.
 
: Cervero explores the efficiency and equity of different pricing structure by comparing transit fares and the cost to provide service.  He finds that flat fare structures generally result in short-distance, off-peak riders subsidizing long-distance, peak hour customers.  A subscription is required to access this article.
  
−
Transit Cooperative Research Program. [http://www.trb.org/publications/tcrp/tcrp_rpt-94.pdf|"Fare Policies, Structures, and Technologies: Update."]  2003.  
+
Transit Cooperative Research Program. [http://onlinepubs.trb.org/onlinepubs/tcrp/tcrp_rpt_94.pdf| "Fare Policies, Structures, and Technologies: Update."]  2003.  
 
:The Federal Transit Administration commissioned this report to identify and evaluate different approaches to fare policy, structure, and collection technologies, with special consideration given to the customer benefits and challenges and equity concerns of each approach.
 
:The Federal Transit Administration commissioned this report to identify and evaluate different approaches to fare policy, structure, and collection technologies, with special consideration given to the customer benefits and challenges and equity concerns of each approach.
  
−
Transit Cooperative Research Program. [http://www.trb.org/publications/tcrp/tcrp_rpt_95c12.pdf|"Transit Pricing and Fares: Traveler Response to Transportation System Changes."] 2004.
+
Transit Cooperative Research Program. [http://www.trb.org/publications/tcrp/tcrp_rpt_95c12.pdf| "Transit Pricing and Fares: Traveler Response to Transportation System Changes."] 2004.
−
: This document, a chapter in "TCRP Report 95: Traveler Response to Transportation System Changes," summarizes literature on ridership changes in response to different fare adjustments, including the introduction of variable fares and differentiating peak and off-peak fares. Few studies explore the relationship between transitioning to differential pricing and ridership levels.
+
: This document summarizes literature on ridership changes in response to different fare adjustments, including the introduction of variable fares and differentiating peak and off-peak fares. Few studies explore the relationship between transitioning to differential pricing and ridership levels.
−
 
 
−
Nuworsoo, C. [http://www.uctc.net/access/26/Access%2026%20-%2005%20-%20Discounting%20Transit%20Passes.pdf|"Discounting Transit Passes."]2005.
 
−
: This Access magazine article explores the benefits of discounted fare programs for groups and summarizes the outcomes of unlimited-ride pass programs in Berkeley and Denver.
 

Latest revision as of 18:28, 13 December 2019

A member of the public at a rally for Free/Reduced Student Passes in Oakland, Photo by J. Moses Ceasar 2005

Introduction

Most transit agencies employ largely flat fare systems, which charge the same price, regardless of time of day, distance or direction traveled, or quality of service. However, they do not reflect the actual costs of providing service, which constantly fluctuate throughout the day. Peak period operation, longer trip routes, and premium service all cost the agency more money to operate, and require more capital investments. Additionally, there is the issue of "cross-subsidization"; since flat fares do not distinguish between time, type, or distance of travel, transit users traveling shorter distances, during off-peak hours, and using non-premium services “cross-subsidize” riders on more expensive routes. There is a considerable body of research that argue in favor of flexible, differentiated fares. There are also other fare strategies that transit agencies can consider, such as using smartcard technology, eliminating fares altogether, or providing group fares or other discounts.

Differentiated Pricing

Most transit systems have flat fares, but others use differentiated fares based on time (peak vs. off-peak) or distance traveled. Differentiated fares are more efficient because they better reflect the variable costs of transit service, encourage riders to travel when excess capacity is available, and subsidize all types of riders roughly equally. Some transit agencies worry about losing riders after switching to differentiated pricing, but new fare system can incentivize additional short rides by making them cheaper. More research is needed to draw broader conclusions on the effect on ridership of moving from flat to differentiated fares.

Any new fare system is going to raise concerns about equity; if low-income riders have longer trips then they will be disproportionately impacted by differentiated pricing. This effect is highly dependent on local settlement patterns. One study in Utah found that a switch to differentiated pricing in a certain part of the Utah Transit Authority's service area would be progressive, reducing fares for low-income and minority riders.[1] This isn't necessarily transferable to other areas, though; agencies looking to make the switch will have to do their own Title VI analyses.

In recent decades automated fare media has greatly simplified the process of collecting differentiated fares. However, many agencies are still wary of the perceived complexity and unpopularity of time- and distance- based fares, and if anything in recent years more agencies have returned to flat fare systems. [2]

Types of Differentiated Pricing Schemes

Automated fare payment technologies can allow agencies (or groups of agencies) to implement novel fare policies, many of which would not be possible through traditional fare media (e.g. cash, tickets, tokens). These types of fare policies can be grouped into the three categories, including loyalty programs, distance-based fares, and differential pricing [3]. Loyalty programs aim to reward customers for frequent transit use, and primarily include either discounted fares or bonus rides[3]. Distance-based pricing involves charging customers based on how far they travel, while differential pricing sets fees according to where or how customers ride transit. These categories include the fare policies listed below[3]:

  • Loyalty Programs
    • Calendar Passes: unlimited-ride passes valid during a set period of time
    • Rolling Passes: unlimited-ride passes during a period of days after activation
    • Joint Bus/Rail Passes: passes which allow transfers across transit mode
    • Mode-Specific Passes: unlimited rides on a particular mode
    • Bonus Fares: free trips are provided for frequent transit use
    • Fare Capping: trips are free after a given amount is paid within a given time period
  • Distance-Based
    • Mileage-Based: fare is charged based on distance traveled
    • Zone-Based: fare is charged based on number of geographical “zones” traversed
    • Flat Fare: a constant fare is charged regardless of distance traveled
  • Differential Pricing
    • Fare Differential: variation in fare according to which payment media is used
    • Location-Based: variation in fare according to origin or destination location
    • Service-Based: variation in fare according to mode of travel (e.g. subway, bus, streetcar)
    • Peak/Off-Peak: variation in fare according to time period of travel
    • Event-Based: fare products targeted to attendees of special events

Los Angeles MTA Study

In 2010, Los Angeles Metro looked at the potential for time and distance-based fares for the MTA bus and rail system[4].
The time-based system would give riders a window of time during which subsequent boardings would not require payment. Transfer fees would be eliminated during that time period. A simple way to implement this would be to use the TAP cards, although the agency would have to look into additional hardware to vend receipts if it wanted to accommodate cash-paying riders as well. One important implication is this system would encourage riders to use the fastest services available, since they would be granted a narrow time window of free transfers. Base fares may have to be increased, since transfer fare revenues will be lost.
The distance-based system could apply to Rapid and Express buses, to heavy rail, or to all rail lines. Fares would be based on increments of distance, with corresponding fare zone boundaries identified for each route. While existing hardware and fare media could be used, the agency might have to install fare gates or hire additional people for fare enforcement. An overall concern with a distance-based system is some riders may choose slower, cheaper parallel services because they cannot afford to pay a premium fare.

Group Fares

Transit agencies can offer deep discount group passes to employers and universities. In a 2004 dissertation, Cornelius Nuworsoo explores the benefits of discounted fare programs for groups and summarizes the outcomes of unlimited-ride pass programs in Berkeley and Denver.[5] There is an associated Access Magazine article that can be found on the Access website at http://www.accessmagazine.org

Fare Integration

Another key component of modern fare reform is fare integration. This is particular equity concern as city housing prices rise, pushing people further away from the center. This poses an extra burden on low-income commuters who often have to pay multiple different agencies' fares for their commute.

This has been a particularly pressing issue for the Bay Area where there are 27 transit operators with " a dizzying array of fare structures". [6] In September 2019 the Clipper Executive Board, representing major transit operators in the Area, approved funds to study the possibility of fare coordination. [6]

Impacts of Fare Integration on Transit Ridership

Academic literature has demonstrated links between fare integration and transit ridership. A positive impact has been shown in numerous contexts, as explored by Sharaby and Shiftan through a case study in Haifa, Israel and a review of similar policy implementation throughout Europe and the United States [7]. The impacts of various fare integration programs are shown in the table below. In many cases, these programs successfully reversed a trend of ridership decrease and encouraged sustained ridership growth for extended periods after implementation.

Sample fare integration programs and ridership impact [7]
Region Year of Implementation Ridership Increase
Greater Manchester, England 1999-2001 4%
New York, USA 1994-1999 12% (subway), 40% (bus)
Vienna, Austria 1988-2001 24%
Madrid, Spain 1987 15%
Paris, France 1975 33%
Stockholm, Sweden 1973 25%
Hamburg, Germany 1967 19%

A variety of different models have been employed to estimate the impact on transit ridership in response to fare integration or a change in fare policy. Direct elasticities between the number of trips demanded and the price of a trip are commonly used, including log-arc elasticity (most common), midpoint arc elasticity, and shrinkage ratio [8]. However, Chin et al. argued that simple elasticities are insufficient predictors of transit ridership demand[9]. A variety of different models have been developed, including some which account for congestion and can be effectively used to predict ridership changes under introduction of complex fare policies (as enabled by smart card technologies)[9]. Chin et al. used a congested network model to evaluate the effectiveness of a distance-based fare policy for use by the Toronto Transit Commission. They concluded that a distance-based fare policy may be Pareto-improving, and called for more sophisticated fare pricing in Toronto (such as distance-based or zone-based pricing)[9].

Toronto Case Study

As of 2018, Toronto and surrounding municipalities signed into a number of fare integration agreements, leading to discounted transfers from the Go System ( commuter rail) and TTC (Toronto subway) and free transfers between key municipal operators outside Toronto. This was largely facilitated via the use of Presto Cards, a payment card that works across numerous transit agencies Ontario. [10]

Fares Based on Ability to Pay

The SFMTA is currently conducting a study on developing a fare system that takes into account passengers' ability to pay, rather than simply on their ages. The SFMTA does have a Lifeline pass program, which provides a 50 percent discount on the monthly pass for residents whose incomes are below 200% of the federal poverty level. However, fewer than 20,000 people use the Lifeline system, since it is burdensome and requires a lot of paperwork for all parties. [11] The proposed fare system would ideally cut down on red tape and provide discounts for those in financial need.

Fare-Free Transit

Cities provide a variety of services, such as parks and libraries, to everyone with no direct fee. Proponents of fare-free transit argue that public transportation should be provided in the same way.[12] Fare-free transit would be beneficial to low-income riders, especially to people of color who are more likely to be stopped for farebeating. Fare-free transit is also seen by supporters as a way to reduce dwell times, lower administrative costs, and grow transit ridership. Opponents of of fare-free transit argue that the lost revenue, when coupled with additional demand, would stretch agency resources too thin and harm service quality. There are also concerns about loitering and vandalism, though the extent to which this is a serious problem is a matter of debate.

The practicality of fare-free transit seems to be tied in part to the size of the system. There are multiple possible reasons for this, but farebox recovery ratios play a role. Large transit systems like those in New York City or the San Francisco Bay can have farebox recovery ratios of more than 40%, meaning that switching to fare-free service would represent a huge loss in revenue.[13] On the other hand, for small systems that number might be less than 10%. Given the cost of collecting fares (fareboxes, payment processing systems, increased dwell time), it's possible that moving fare-free could actually improve system finances. Successful fare-free system are typically in small areas dominated by either universities or resorts.

Fare-Free Case Studies

United States

  • Corvallis Transit System - CTS serves a Corvallis, OR, a city of 55,000 people (including 20,000 Oregon State University students). In 2011 CTS made the decision to go fare-free as a way to reduce car dependency. Funding, which had previous come from fares and student fees at OSU, was replaced with a $2.75 a month charge to Corvallis Utility customers. The program has been seen as a success; ridership grew nearly 38% in the first year and schedule performance improved. The program is relatively new, but seems to be performing well.
  • Breckenridge Free Ride - Breckenridge, CO is a ski resort town with a population of just a couple thousand people, but 50,000 visitors a weekend during peak season. The city set up a fare-free transit system to ease tourist congestion and help residents get around. Free Ride had 670,000 riders in 2009. Operational expenses come out of the town's general fund. This has worked so far but is susceptible to economic downtown, so the town is looking for new funding mechanisms. Ridership is steadily growing, and strict anti-loitering rules keep the buses moving smoothly.
  • Link Transit - Washington State's Link Transit is a larger rural system serving 105,000 people over and area of 3,500 miles. It currently operates 55 buses and 22 paratransit vehicles with a budget of $11 million per year. It was established in 1989 and had no problems operating fare-free for the next decade. However, in 1999 voters eliminated the motor vehicle excise tax that had provided Link Transit with most of its funding. The agency lost 45% of its operating revenue and was forced to charge fares. The conservative area had never fully embraced the fare-free system. The current fares account for 6% of operating expenses and disproportionately effect minorities and the elderly.
  • San Francisco Municipal Railway - In 2008, San Francisco Muni conducted a study on the cost-effectiveness of a fare-free system. The study concluded that Muni would see increased operating expenses and capital investments, even though the costs of fare collection would be eliminated. Muni would need an additional $184 million a year for operations, as well as an additional $519 million to procure the vehicles, facilities, and infrastructure needed to accommodate the ridership increase. The city abandoned its fare-free plan after seeing the results of the study.[14]
  • Kansas City - In 2019, city officials announced that bus service will be free starting in 2020. The City Council has required that the City government make up the $9 million estimated will be lost due to the elimination of fares.[15]

Globally

  • Tallinn, Estonia - Tallinn eliminated all fares for transit taken by registered city residents in 2013. Although this fee elimination did not significantly impact congestion, research suggests that mobility may have particularly improved for lower-income residents (measured in terms of the number of trips), although not necessarily leading to greater access to employment.[16] There is some evidence that the introduction of fare-free transit caused a reduction in average trip length (of roughly 10%), which could suggest that riders are replacing trips previously made by walking or biking with transit.[17]
  • Luxembourg - The nation of Luxembourg will make all public transit free starting as of March, 2020. Fares currently represent a small part of the overall operating costs of the system, totaling 41 million Euros, or less than 10% of the 491 million Euro operating costs. Although the nation does expect some benefits with respect to reduced congestion and emissions, the Minister for Mobility and Public Works, François Bausch, has said that the initiative, "is primarily a social measure...the objective is to stop the deepening gap between rich and poor. For people on low wages, transport expenses matter. Therefore it is easier to make it free for everyone."[17]

References

  1. ↑ Farber, S. et al. (2014). "Assessing social equity in distance based transit fares using a model of travel behavior." Transportation Research Part A.
  2. ↑ Multisystems, Inc., Mundle & Associates, Inc., & Simon & Simon Research Associates, Inc. (2003). "Fare Policies, Structures, and Technologies: Update." Transit Cooperative Research Program.
  3. ↑ 3.0 3.1 3.2 Metropolitan Transit System and North County Transit District, “San Diego Fare Collection Technology Concept of Operations,” rep., Sep. 2017.
  4. ↑ Evaluation of Time and Distance-Based Fare Policies
  5. ↑ "Deep Discount Group Pass Programs as Instruments for Increasing Transit Revenue and Ridership."
  6. ↑ 6.0 6.1 Roger Rudick, San Francisco Streetsblog, "Breakthrough on Fare Integration", https://sf.streetsblog.org/2019/09/17/breakthrough-on-fare-integration/
  7. ↑ 7.0 7.1 N. Sharaby and Y. Shiftan, “The impact of fare integration on travel behavior and transit ridership,” Transport Policy, vol. 21, pp. 63–70, 2012.[1]
  8. ↑ K. C. Taylor and E. C. Jones, “Fair Fare Policies: Pricing Policies that Benefit Transit-Dependent Riders,” Community-Based Operations Research International Series in Operations Research & Management Science, pp. 251–272, 2011.
  9. ↑ 9.0 9.1 9.2 A. Chin, A. Lai, and J. Y. J. Chow, “Nonadditive Public Transit Fare Pricing Under Congestion with Policy Lessons from a Case Study in Toronto, Ontario, Canada,” Transportation Research Record: Journal of the Transportation Research Board, vol. 2544, pp. 28–37, 2016.
  10. ↑ Metrolinx Fare Integration, http://www.metrolinx.com/en/regionalplanning/fareintegration/default.aspx
  11. ↑ Bay Area Considers Basing Transit Fares on Need
  12. ↑ Volinski, J. (2012). "Implementation and Outcomes of Fare-Free Transit Systems." Transit Cooperative Research Program.
  13. ↑ Rinde, Meir. (2015). "The List: The 10 U.S. Transit Agencies that Rely Most on Fare Revenues." NJ Spotlight.
  14. ↑ Gordon, R. (2008). "Free Ride? Fat Chance: Muni Fares Will Stay." SFGate.
  15. ↑ Short, Aaron. (2019). "Kansas City Moves Ahead With Free Buses." Streetsblog USA.
  16. ↑ Oded Cats, Yusak O. Susilo, and Triin Reimal, “The prospects of fare-free public transport: evidence from Tallinn,” Transportation 44, no. 5 (2017): 1083–104.
  17. ↑ 17.0 17.1 Auxenfants, Marc. (2019). "The cost of Luxembourg's free public transport plan." BBC.

Additional Reading

Cervero, Robert. "Flat versus differentiated pricing: What's a fair fare?" 1981.

Cervero explores the efficiency and equity of different pricing structure by comparing transit fares and the cost to provide service. He finds that flat fare structures generally result in short-distance, off-peak riders subsidizing long-distance, peak hour customers. A subscription is required to access this article.

Transit Cooperative Research Program. "Fare Policies, Structures, and Technologies: Update." 2003.

The Federal Transit Administration commissioned this report to identify and evaluate different approaches to fare policy, structure, and collection technologies, with special consideration given to the customer benefits and challenges and equity concerns of each approach.

Transit Cooperative Research Program. "Transit Pricing and Fares: Traveler Response to Transportation System Changes." 2004.

This document summarizes literature on ridership changes in response to different fare adjustments, including the introduction of variable fares and differentiating peak and off-peak fares. Few studies explore the relationship between transitioning to differential pricing and ridership levels.
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