>Transit Prices – Time to go "all you can eat"?

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When you pay for transportation, whether it’s for driving a private car or taking mass transit, there’s a continuum of payment methods, with "pay-per-use" on one end of the scale, and "unlimited use" on the other.

Does the choice of method matter?  It should.  People make choices about how they get around based on how much the next trip costs them.  With unlimited use, the next trip is free.  With pay per use, the next trip can cost a lot, because not only are you paying the cost of an additional trip, but you’re paying a fraction of the fixed costs.  If we want to encourage transit use and discourage driving (because of externality costs like pollution or congestion, safety and noise), then we should be pricing transit on an unlimited use model, and encouraging pay per use for cars.

Traditionally, cars are almost pure unlimited use pricing.  You buy the car up front (or pay a monthly loan or lease), pay registration, property taxes, etc. regardless of how much you use the car, and parking is usually provided free, whether you are a tenant, employee or customer.  Your only costs per trip are gas and maintenance, and those you don’t even pay at the time you take the trip, but later, when your gas tank is empty or your tires are worn.  When you hop in the car, it’s easy to not even think about these costs.  Psychologically, once you own a car, keep the gas tank filled and maintain it properly, additional trips are "free".

We could change this to price by use:  Charge tolls to drive on roads.  Charge per use for parking.  Daily or hourly parking charges are better for this purpose than monthly contracts.  With a monthly contract, parking is already paid for on day one, so all additional days are "free".  Other methods are less common:  insurance can be priced per mile.  Shared-car services like Zipcar charge by the hour, taxicabs charge per trip and mile.

It’s possible to make some of these changes without changing the overall costs, so it’s not even necessary to get into a cars vs. transit debate.  If someone pays $1000 per year in insurance and drives about 12,000 miles per year, it’s not really charging them more if you charge $200 plus 6.6 cents per mile.  It would encourage people to drive fewer miles, however (for comparison, gasoline including taxes is currently about 8 cents per mile).  Also, if apartments typically rent for $1500 a month and include two parking spaces free, it’s not an increase if the rent drops to $1300 per month and you pay $100 more per month for a parking space.  Parking at work, which used to be unlimited at $120 per month, could be $6 per day against a pre-paid account instead of an unlimited per month charge.

Most people pay per trip for transit in the Washington region.  About 35,000 unlimited weekly bus passes are sold per week, and about an eighth as many rail passes.  We should implement more convenient, reasonably priced monthly or weekly passes.  WMATA’s effort to integrate the existing passes with SmarTrip cards is a good start.  However, the rail pass is still separate from the bus pass, and the rail pass only makes financial sense for those that ride the longest distances. 

The difficulty with rail passes in Washington compared to other systems is distance-based fares.  For other systems, the provider chooses a weekly price, which is typically 9-12 single rides.  For distance-based fares, how should you choose the price to base it on?  If you choose about 10 times the maximum fare, it’s a terrible deal for most and you don’t end up selling many passes (this is almost what we do currently — it’s $39.00 for a pass and the maximum fare is $4.50).  If you choose 10 times the minimum fare, it’s expensive for the transit agency, and there’s a lot of revenue loss compared to regular fares.

Smartrip cards are smart enough to have customizable weekly passes.  You could choose a fare level and pay ten times that amount per week automatically by subscription.  All your rides that are less than that would be free, any fare above that amount is deducted from your account balance.  This would have the effect of "pay for your commute and the rest is free".  This is just like wireless phone service, where you pay for a certain amount of daytime (peak) minutes and get your nights and weekends for free.  Right now WMATA has this policy, but there are only two potential fare levels, at around $26.40 for the cheaper "Short Rail" pass (equivalent to commuting downtown from approximately Bethesda), and $39.00 for the more expensive unlimited rail pass (which would be a good deal for anyone commuting downtown from White Flint or further).  Someone who commutes a short distance isn’t likely to buy one.  Additionally, the passes are inconvenient, requiring purchase of a paper farecard, and for the short rail pass, carrying exitfare to make up the difference for each trip.

Image Courtesy GoBoulderIn addition to having reasonably priced unlimited passes, some transit agencies have taken the idea of unlimited pricing one step further.  For example, the Denver area transit agency, RTD, sells an unlimited pass to an entire employer based on the number of employees and the distance from the city’s downtown and transit centers.  This is a form of insurance that spreads the cost out socially in order to provide a benefit.  In this case, the employer typically gets to reduce the number of required parking spaces, and the employees get free transit.  The transit agency prices the passes to assure revenue neutrality.  For a much lower price per employee thank single pass purchases, everyone gets an unlimited yearly pass.  The price per employee is lower (somewhere between 2 and 30% of the price of an annual pass) because the transit agency assumes some people will not use it.  Transit agencies still get the same amount of revenue, but instead of paying for each trip, the employees don’t pay anything extra.  This program reduced the number of parking spaces needed for Colorado University, and increased the number of employees taking public transit downtown.  Boulder City staff were happy to talk to me about the program, so I’ll be working on a post for the program soon.  From the materials she provided to me, the program is like steroids for transit.  People are many times more likely to use transit, even buses, when they have the pass.  Neighborhoods are allowed to organize and buy passes for everyone on the block.  Even though the price of a ECO pass has risen dramatically (RTD has hiked the prices more than 50% since 2003), so has transit ridership and pass usage.

Unlimited passes are also an interesting idea for sporting or entertainment events.  In that case, the stadium or ballpark would add a fee for every ticket, transferring the revenue to the transit agency.  In exchange, the sporting event tickets would act as a day pass (perhaps after a certain time in the afternoon). 

If you change the way people pay for transit and cars, you can still fund both, but switch the incentives so that more people want to take transit and fewer want to drive.  Because driving involves pollution, congestion, safety risks, and inefficient land use patterns; reducing driving would be good for society as a whole.  Because increased transit use reduces the bad effects of driving, and increases the political will to run more frequent vehicles and expand the network, it’s good for society to increase transit use.  Unlimited pricing is an effective tool for increasing transit use for the same level of funding.

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About perkinsms

I'm an engineer and father interested in transit, parking and economics.
This entry was posted in arlington, bus, cars, economics, gas, government, passes, TOD, transit, WMATA. Bookmark the permalink.

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