While it is hard to find any mass transit systems which are 'profitable' on farebox revenues - and those that exist are likely only profitable because they are fed by other systems - one must also face the reality that there are few if any highways which are profitable based on fuel tax revenues - the "fareboxes" of the road system.
The "Farebox Recovery Rate" of the highway system is abysmal, and makes public transit systems a bargain and a model of fiscal responsibility in comparison.
The transit system in Rochester, NY turned a small profit a few years ago, combining efficiency measures (cutting barely-ridden routes and using the busses thus freed up to increase service on the remaining routes), better money management (they have no debt), an increase in state aid, and subsidy agreements with local businesses and school districts (the latter use the public busses as school busses.) Ridership is up, and the gas-price spike boosted ridership even more.
Incidentally, Baltimore MTA's bus ridership has also increased, from 248,000 trips per day (average) in 1999 to 287,000 last year (or 2008, I can't remember which off the top of my head.)
Interesting article on New Dehli's new subway system:
I found you a new motto from a sign hanging on their wall…"Drink coffee: do stupid things faster and with more energy"
An interesting article I came across in The Atlantic:
Want Rail? Let Private Business Build It
Here Comes the Neighborhood
By Christopher B. Leinberger
Conventional suburbs are overbuilt and out of favor. In cities and suburbs alike, walkable neighborhoods linked by train are the future. Here’s how a new network of privately funded rail lines can make that future come to pass more quickly and cheaply—and help reinvigorate housing and the economy.
- Metropolitan voters in recent years have passed roughly two-thirds of all ballot measures calling for tax increases to pay for new or expanded transit. But asking cities and suburban towns, which are now strapped for cash, to shoulder the entire burden of rail-transit investment is not realistic. And in a variety of ways, federal funds have typically privileged road building over public transit. Progress will be slow unless something changes.
- This problem has a solution, one that could be borrowed from U.S. history, and that might help our economy get up more quickly off its knees: What if developers and property owners build the transportation infrastructure themselves?
- In the early 20th century, every town of more than 5,000 people was served by streetcars, even though real household income was one-third what it is today. By 1920, metropolitan Los Angeles had the longest street-railway network in the world. Atlanta’s rail system was accessible to nearly all residents. Until 1950, our grandparents and great-grandparents did not need a car to get around, since they could rely upon various forms of rail transit. A hundred years ago, the average household spent only 5 percent of its income on transportation.
- How did the country afford that extensive rail system? Real-estate developers, sometimes aided by electric utilities, not only built the systems but paid rent to the cities for the rights-of-way.
- These developers included Henry Huntington, who built the Pacific Electric in Los Angeles; Minnesota’s Thomas Lowry, who built Twin City Rapid Transit; and Senator Francis Newlands from Nevada, who built Washington, D.C.’s Rock Creek Railway up Connecticut Avenue from Dupont Circle in the 1890s. When Newlands got into the rail-transit business, he wasn’t drawn by the profit potential of streetcars. He was a real-estate developer, and he owned 1,700 acres between Dupont Circle and suburban Chevy Chase in Maryland, land served by his streetcar line. The Rock Creek Railway did not make any money, but it was essential to attracting buyers to Newlands’s housing developments. In essence, Newlands subsidized the railway with the profits from his land development. He and other developers of the time understood that transportation drives development—and that development has to subsidize transportation.
- After the Second World War, federally funded highways slowly supplanted this system, creating a windfall for a new batch of developers. One Polish-refugee-turned-real-estate-developer, Nathan Shapell, who owned a large tract of land outside Los Angeles, was approached in the 1960s by the California highway department about the possibility of building a freeway through his property. Shapell was delighted at the prospect—and immediately offered as much land as needed, for free. He also offered to pay for an interchange to get customers to his land. The state official said that would not be necessary; the state would buy his land for the road and pay for the interchange. “What a wonderful country!” he recalled thinking, in a conversation I had with him many years later.
- Transit lines, along with other sorts of infrastructure improvements, almost inevitably raise property values—and cities have recently begun to exploit that relationship, funding transportation improvements through the expected increases in property-tax collections. Chicago, under Mayor Richard M. Daley, has extensively used this “tax-increment financing” model of development to rejuvenate itself. In 160 neighborhoods, the city has funded more than $560 million worth of improvements in infrastructure.
- How would the private funding of public transit work? Most states already have laws in place that allow local groups of voters to create “special-assessment districts,” in which neighborhood property owners can vote to fund an upgrade to infrastructure by charging themselves, say, a onetime assessment, or a higher property-tax rate for some number of years. If a majority of the property owners believe they would benefit from the improvement, all property owners in that district are obligated to help pay for it. These districts can vote to fund new transit as well (potentially, the transportation-financing agency could even receive a minority-ownership stake in the district’s private property in return for building new transit). In the late 1990s, property owners paid for a quarter of the cost of a new Metrorail station in D.C. using this approach; after the station opened, an office developer told me he believed his investment was being returned manyfold.
Wahday brought up an interesting point. Only in municipal (or perhaps regional) transit systems are entities (in this case, government) expected to furnish the costs of both operating the fleet, paying the employees AND operating the infrastructure that the fleet itself runs on. What about a public-private partnership where a private company (or companies) operates transit lines while local, regional, or state government operates the infrastructure (the stations, perhaps the rail lines themselves, etc). I think there's a way to work the private sector into this equation somehow, and I don't think it'd be a bad idea.
My personal feeling is that the level of transit use we have now in this country is very low and it will take a long time to get it up to the levels seen in other developed nations. As with so many massive infrastructure projects, the government is often seen as the only entity that can float a project for 10-20 years at a loss before eventually building enough of a base, infrastructure and popularity to become affordable. Even if you unbundle the services and farm out the operation of the service to a private company, there are still massive investments to be made in salaries, cars, maintenance, and so I have a doubt that very many businesses are in a position to take on something with such massive costs associated with it.
I also wanted to comment on Chris Leinberger who was here in Albuquerque prior to working for the Brookings Institute. I actually don't know very many of the details, but he evidently left here on fairly poor terms with many in the City. He set up a financing approach to development in downtown Albuquerque that he predicted would catapult the City to new heights of activity within 2 years and got the City to sign onto to some long term obligations. Its quite complicated and I found an article saying how great this scheme was going to be (and was shaping up to be at that time). That was around 2002 and since the initial development (some of which - the retail and housing connected to a parking garage mentioned below) STILL remains largely vacant. Not to pin it all on Leinberger, but the momentum he predicted has certainly not come about and while I would hesitate to say it has entirely stagnated, it definitely has crept along at a painful pace since 2005 if not earlier - well in advance of the economic crisis. This time period was also tied up with a lot of talk about the Creative Class and Albuquerque was looking to position itself as a new hub of attraction for such folks. Although we score high on Florida's (the author, not the state) scale of Creative Class-ness, our downtown is still pretty lame and the jib base in innovation, technology, etc. has not materialized.
This is from a larger story about Leinberger and his approach to financing downtown revitalization projects:
Albuquerque - only 60 miles south of Leinberger’s home in Santa Fe – became the first to agree to a large-scale test of Leinberger’s time-tranche financing.
Given the general torpor of Albuquerque’s downtown streets, Christopher Leinberger sounds quixotic indeed when he claims, “We’ll overhaul it in two years.” He’s seeding that overhaul on one block of the six controlled by the Historic District Improvement Company (HDIC). HDIC is a joint venture owned 75% by Leinberger’s Arcadia Land Company and the rest by the Santa Fe arm of the McCune Foundation, a nonprofit funded by “Pittsburgh old steel and oil money,” says Leinberger, that typically funds social services and arts programs throughout New Mexico.
Leinberger’s vision is a $30-million, 266,000-square-foot mixed-use project on five contiguous lots and designed by noted New Urbanist architects. Here’s how the MONEY breaks out: $12 million from the city in the form of land, parking structures, infrastructure improvements and tax abatements as the bulk of the third tranche; $5 million from HDIC; another $1 million in equity from private investors, whom Leinberger identifies as Robert Linton, formerly of Drexel Burnham [former CEO before it blew up] , and real estate syndicator Eddie Gilbert, OF BGK Equities. The remainder is in conventional debt from a consortium of banks let by Wells Fargo and including Bank of America and two local banks.
Leinberger is burying a 14-screen, 47,000-square-foot multiplex theater – the still-solvent Century Theatres HAS signed up - in the center of the project, wrapping it in an additional 43,000 square feet of retail and 26,000 square feet of offices on two upper levels. The theater and most of the retail will be completed by this Thanksgiving. According to Leinberger, 80% of the retail (including the multiplex) is spoken for. In a second phase – also in construction, the city is building a 640-space parking structure wrapped with a 45-foot-deep band of street-level retail and 50,000 square feet of upper-floor live/work loft spaces that will be sold as condominiums. Unlike big-earning condos in major urban centers like New York or Chicago, these are expected to sell for “barely more than break-even,” says Leinberger.
The purpose of life is a life of purpose
Wahday, thanks for the background info. I certainly didn't know who Chris Leinberger was. But to be honest with you, I am more interested in debating the ideas than the people themselves. I echo your sentiments - I too would like to do some research on what happened to these tycoons of industry who funded the streetcar lines of yesteryear in American cities. My hometown had quite a few of them as well, not to mention a big, beautiful train station that served as the hub for the streetcar system that was torn down to make way for an expressway to the suburbs in the 1970s.
Again, I think that the idea of getting the private sector more involved in funding infrastructure and/or transit operations is a good one considering how cash-strapped governments across the country are. Don't get me wrong - I recognize the fact that infrastructure is far too important to be completely sold over to the highest bidder - Interstate 65 should never become Wachovia Interstate 65 or Bank of America Interstate 65 or whatever. But to quote Ronald Reagan (this will probably be the ONLY time you hear me quote Reagan in a positive light) - "the business of America is business." If the private sector can be worked into the equation and it can benefit both them and government, let's sit down and work something out. We've got to be creative. PPPs sound like a good alternative, and I'd like to see what could become of such agreements in the future.
The main issue with private sector is that the systems can be made profitable by "cutting underused routes and route times"... however, it is the underused routes and odd trip times that make or break use of the system. the majority of peoples' trips are routine, high use trips, but people also have need to occasionally run into or out of an odd suburb at midnight for unusual but critically important at the time reasons.
Lisa might use the bus usually to run in and out of town to work However, if one of her co-workers invites her to a party, or she needs to get out to help her sister's family when she's at the hospital or something, it is the unprofitable, empty bus routes she needs to use.
If they aren't there, then the system isn't useful to her in general, and she needs to use something else; in the U.S. that usually means dropping several thousand dollars every year on a car. This is a sunk cost, and once she has been forced to make that massive investment, the transit system will not see Lisa again.
If you ask Lisa, you will get an answer along the lines of "I don't know where all the money goes, what with car paymennts, registration, I just got new tires, and have you seen the price of gas.. and this traffic is just horrible.. but I just love having the freedom to go where I need to go!" This is, in fact, the general agreement I get from people as to their feelings about their car. They dislike driving, they stagger under the weight of the cost to themself, and they are ambivalent at best about the danger involved. But, they are absolutely dependent on their ability to make the occasional quirky, odd time-and-location trips that the profit-minded bus systems are unwilling to provide, and so their hand is forced.
Exactly. Another example is this:
A nurse works 9am-8pm She takes the very popular rush hour route (say, 60 people on that bus) but her 8:15pm return bus only has 7 people, so they cut the frequency to once an hour. Now, the nurse cant rely on the bus to go home, so she buys a car and is also no longer on the morning bus. Those 7 people on the evening bus actually make up 14 trips, and possibly more.
I would hope that advanced fare-paying technologies with smart phones would help make fare schedules more flexible, so that "unprofitable at standard fare" lines can be provided at higher fares. Too bad that the farebox recovery is so low in the first place (<20% here), if the transit user was paying more of the actual cost of the service, then spot changes to the fares would have more impact.
If you want see a big drop in your region's VMT start closing highways and see what happens (I can tell you now, most people will just stop making the trip).
Indeed you can usually tell when the concepts of democracy and citizenship are weakening. There is an increase in the role of charity and in the worship of volunteerism. These represent the élite citizen's imitation of noblesse oblige; that is, of pretending to be aristocrats or oligarchs, as opposed to being citizens.
There are plenty of mass transportation companies in the US that are profitable: Greyhound-Trailways, Fung Wa, Peter Pan, US Shuttle, US Airways, Delta, Southwest, etc.
For better or worse, public entities are beholden to a lot of interests, and making a profit is not the priority.The key word is public. Does anyone know a any public entity that is profitable?
For a local example, I give you BART in the San Francisco Bay Area. It gets about half its funding from fares, and the other half from local sales taxes. This is (unfortunately) pretty good for a US agency. However, it's pretty obvious that it makes a lot of decisions which are economically dubious and driven only by politics. For example, it's planning a multibillion dollar extension to a town of less than 100,000, with optimistic projections of around 10,000 riders, which will clearly never break even. The justification given is to alleviate traffic on the freeway. It could take a page from its Asian counterparts and develop the lots it owns around stations, both to collect rent and to attract riders, but local anti-development interests generally stop that. It has started on such a plan around the Macarthur station, but the first step is a $40m 400-odd space parking garage, demanded by the neighbors, and all the apartments and businesses in the plan will include their own subsidized parking.