Human Transit

using development charges as a transit funding mechanism

Travis Allan and Cherise Burda over at the Pembina Insitute, a Toronto-based energy think tank, have an interesting post up on the prospects of using real estate development charges as a funding mechanism for transit. Development charges are fees developers pay to municipalities meant to offset the capital costs of extending or improving services like water or sewage systems that are imposed by new construction. However, the manner in which these fees are calculated is not always conducive to the type of development a city may be trying to encourage. Moreover, transit is rarely a serious consideration in assessing the charge. This is particularly important when development occurs in a place or a pattern that is difficult or impossible to provide good transit service to, such as those that violate the "Be on the way" rule. The original post explains some of the problems the authors observe in Ontario's development charge:

The development charge, as currently implemented in most Ontario municipalities, is crudely designed. There is a strong chance that it is subsidizing less-dense, single family homes while making compact, transit-friendly development more expensive. Development charges also likely overcharge some commercial development, and this could be contributing to the flight of office space to the suburbs, in locations underserviced by transit.

In many Ontario municipalities, including Toronto, new development is charged based on who will use it. For example, many municipalities have a per-unit rate for apartment building units, and another rate for detached single-family homes, regardless of where the buildings are located within the municipality, how much land area they occupy and the cost necessary to service them.

No matter the amount of new road or sewer needed to adequately serve a place, the development charge is assessed based on the number of residents or users.  This is obviously perverse.  Actual development impacts on the public purse vary based on location and density than by the number of residents or users.  

If a city like Toronto wants to make it easier to developers to build a certain type of development, changing the fee structure is one way to create an incentive. But what does this mean for transit?

The authors propose to use a portion of this revenue to pay for infrastructure investments needed to provide transit service to new developments. At the same time, the city could make changes to the structure of the development charge to incentivize the construction of transit-supportive development. If it worked, and there were no unforeseen consequences, the effect could be self-reinforcing: development charges encourage the type of development that transit needs to work well, and pay for some of the cost of providing that service. The supply of housing and commercial buildings that are accessible and designed to work with transit increases, more people are able to live and work in them:

 Developers continue to build in sprawling greenfields because it is often cheaper and easier than building developments in walkable, transit-oriented neighbourhoods. Lack of supply means homebuyers are priced out of these locations and are literally “driven” to the urban and suburban fringes, where long and stressful auto commutes are required — and this only leads to more congestion.

Since the vast horizontal distances of greenfields require much more infrastructure person, why should this be as cheap, in development charges, as building compactly??

are free fares realistic? it depends on the alternatives

In response to my post on Tallinn, Estonia's experiment in free transit for all city residents, a freelance reporter asked me:

The idea I'm most interested in exploring from your post is your proposal that smart farecard systems can be used to easily subsidize fares and "opening up a huge range of subsidy possibilities for any entity that sees an advantage in doing so." I'd like to get more of a sense of what you mean by that and whether this is possible even in today's austerity-obsessed environment.  

What I mean is that as long as the transit agency sets a price for an unlimited ride pass -- with appropriate discounts for bulk purchasers -- anyone can buy those passes for anyone.  Universities can buy them for their students, companies for their employees, and as in Tallinn, cities can even buy them for their citizens.  Any other entity can also buy them for any group of people it cares about, yielding possibilities that we can barely envision now.

 

Is this realistic in an age of austerity?  It depends on what the alternatives are.  The alternatives may include building wildly expensive parking, or losing out in a competition for the best people.  

Urban universities with constrained sites often subsidize transit because without it they would need unmanageable amounts of parking.  One common reason that universities get into transit subsidies is that they want to build on their surface parking lots, and the cost of structured parking (and its impacts) turns out to be higher than the cost of buying transit passes for many years.  So it can be a logical business decision.

We're used to the idea that companies leave the cost of commuting to their employees, but companies that are competing for the best talent don't have that luxury.  Witness the huge fleets of shuttles that ferry employees to Silicon Valley giants like Google and Apple from as far away as San Francisco.  Companies that compete for talent can find transit subsidies to be a reasonable part of a total compensation package. And of course, corporate campuses can have expansion crises much like those of universities, where they'd like to build on their parking lots and look for alternatives to expensive structured parking.

City governments are the hardest to imagine financing free fares in the US, if only because of how broke most of them are.  But if it goes well in Tallinn the idea will spread.  One problem in much of America, and notably in California, is that residents are net consumers of government services while employers are net subsidizers of them; this motivates cities to minimize their populations and maximize their employment.  (This explains many odd shapes of city boundaries that seek to include jobs but exclude residents.).  In those distorted tax environments, cities don't want people to live there so much as to work there, so subsidies to residents don't make much sense.  But of course residents are the voters, and wealthy cities that value green credentials may sometimes see merit.  And of course cities aldo benefit if it can reduce their parking requirements, which may increasingly be the nexus that makes fare subsidies make sense.

Remember, though, that massive fare subsidies don't just require the replacement revenue for the fares but also the revenue needed to add service to handle the crowding that the free fares will generate.  I will be interested to see how this plays out in Tallinn.  This has been the barrier to free transit in big cities that have studied it, and the main reason that only small towns -- especially university towns -- have made large scale fare subsidies work.

what if a city wants more transit than its neighbors, but they're all in one transit agency?

Large North American transit agencies generally have some revenue raising authority over an enormous and diverse urban area, and feel obliged to serve the same enormous area with something that can be justified as an "equitable" distribution of service.  (As I explain in detail in Chapter 10 of my book Human Transit, there's no objective definition of "equitable," but that's another story.)

Most agencies rely on their voters to approve their basic revenue raising authority.  So what happens if the voters over the whole agency area give transit a resounding "no," but parts of the area -- a core city for example -- does value transit and is willing to pay for it?  And what should happen in the many urban regions where the whole region will pay for a low level of service but certain communities within it -- usually including the core city -- want to pay for a higher level of service?

In many areas, it's legally impossible for a transit agency to impose a higher rate of taxation of part of its service area and deliver a higher level of service in response.  But why not?  The ability to respond to local needs and desires is the core of what we usually think of as successful local government. 

This, for example, is the current situation of Pierce Transit in the Tacoma, Washington area, which covers an urban county south of Seattle.  Voters over the whole service area have refused to support new sales tax revenues that would present a truly devastating service cut.  The agency has already shrunk its boundaries to remove some communities who did not value transit service and that were especially expensive to serve.  Now, conversation is turning to an "Enhanced Transit Zone," which would allow parts of the region that value transit more to tax themselves more at higher rates for better transit service.

But this story is not about one agency, because it goes to why core cities whose people would value more transit are often prevented from getting it.  The default approach of regional transit agencies has been for the agency to impose one level of taxation everywhere, and then to have endless arguments about how to distribute that resource over vastly dissimilar communities where some think of transit as critical and others don't.  The result is almost always a special problem for older core cities, because as I argue in Chapter 10, core cities need more service per capita than newer suburbs.  Because regional transit boards are often dominated by suburban interests that have trouble voting for what they see as disproportionate investment in the core city, it's mathematically inevitable that under big regional agencies, core cities will be underserved relative to their values and demand.  The result is typically lots of empty buses running in outer suburbs while core city buses are overcrowded and turning people away.

The only solution I see to this problem is for core cities to be ready to start subsidizing transit service directly, over and above the level that their regional government can fund, to ensure that they get their fair share.  (In theory they could also rebel and secede from the regional agency, but good networks are so fused across multiple cities that it's very hard to take them apart at city limits without massive losses in efficiency and usefulness.)

Funding of enhanced transit by core city governments is starting to happen, if in some half-concealed ways.  The City of Portland, for example, directly subsidizes half of the operations of the Portland Streetcar, effectively creating an overlay of additional transit with its own operating funds.  The next step will be for core cities to find ways to fund growth in the overall level of service in their networks beyond what the regional transit agency can afford.

Sure, most transit agencies and city goverments face budget crises right now, but budget crises are as good a time as any to make hard choices about what a fare distribution of service will ultimately be.  One key idea is that state governments should quit prohibiting people from raising their taxes to pay for better transit service, if that is what they want to vote for.

 

fare-free transit spreading in europe? can cities do this on their own?

It's too soon to say, but Tallinn, Estonia (pop. 425,000) is now by far the largest city to offer fare-freefree public transit -- not just in Europe but anywhere in the world as near as I can tell.  Most other free-transit communities are either university-dominated small cities (like Chapel Hill, North Carolina and Hasselt, Belgium) or rural networks where ridership is so low that fares don't pay for the costs of fare collection technology, let alone contribute toward operating cost.

Tallinn -- along with Hasselt and the small city of Aubagne, France -- are also forming the Free Public Transport European Network, to spread the idea and disseminate experience about it.

As the city's webpage explains, Tallinn citizens must still buy a farecard, which will allow them to ride free. This allows the transit network to continue to collect fares from tourists and people living in other cities.

This raises the interesting possibility that any city, inside a bigger metro area with a regional transit system, could elect to subsidize transit fares for its own residents, by simply buying fares in bulk and giving them away to its own residents -- just as some universities and employers already do for their own students or staff.  Indeed, smart farecards make it possible for anyone to subsidize fares without much complexity, opening up a huge range of subsidy possibilities for any entity that sees an advantage in doing so.  Yet another reason that city governments are not as helpless about transit as they often think, even if they don't control their transit system.

 

guaranteeing adequate service: developer and city roles

Daniel Feinglos asks:

Hi, Mr. Walker. Question about a way to address concerns about service cuts or reroutings: are you familiar with any examples of a transit provider entering into some kind of contractual arrangement with businesses along a route to guarantee them a certain level of service for a given period of time? If you're not familiar with anything like this, does it sound at all like a workable means of alleviating fears that a route might not be around for the long term?

Developers sometimes make deals with transit agencies to ensure transit to a new development before it would be viable for the transit agency, or even in cases where it might never be viable for the transit agency.  

The sad thing is:  The more useful a transit line is, the more diverse its ridership, and the less likely that any one or two interests will want to pay to preserve it.  The only entity who can do this, frequently, is a city government, and in gradual ways this is starting to happen.  Many of the recent North American streetcar projects, for example, involve operating funds from the city in addition to some from the transit agency.  

If you've read Chapter 10 of my book, you know why this is inevitable.  Transit demand rises exponentially against density up to a certain point, so dense core cities almost always need more service per capita than their regional transit agency is in the position to provide.  The only way this would change is if big regional transit agencies with suburban dominated boards suddenly decided that productivity was more important than each suburb getting is fair share.  Seattle's King County Metro did take a gentle step in this direction a few years ago, dissolving a rigid formula that had required less than 20% of the region's service to go to Seattle even though demand is greatest there.

Another phenomenon that must be understood in the same context is the advent of core city government contributions to the regional transit agency for additional service within the city.  Portland, Seattle, and some other cities contribute operating funds for their streetcars, for example, with the effect that these services don't have to be counted against a broader regionwide accounting of how much service the city "deserves."  City contributions to streetcars must be understood as a toe in the door, which will eventually set a precendent for a broader, more realistic assessment of what core cities must expect to contribute.   Either core cities will pay more, or regional agencies will decide to let core cities have more, or (as in Seattle) a bit of both.  If you have a suburb-dominated regional transit agency in your urban area, watch how this plays out, because the math is inevitable.

shock-shifting to transit, but not back

When some disruption or unusual event causes people to shift from driving to transit, many never shift back.  Ezra Klein  Brad Plumer reviews the evidence in the Washington Post. 

He's talking mostly about shifts caused by gas price shocks, but something similar happens in response to major disruptive events.  For example, the 2010 Olympic Winter Games in Vancouver caused a major burst in ridership -- obviously a mix of Olympic visitors and residents who were trying to avoid Olympic traffic.  But ridership never dropped to pre-games levels, and in fact, 2011 ridership was higher than 2010, despite the huge influx of Olympic visitors in 2010.

Klein goes on to lament that the very fuel price volatility that affects transit ridership also affects transit's funding, since federal funding is based on fuel taxes so they drop when fuel use drops.  Unfortunately, US local operating funding (which is the real crux of the matter) is even more volatile, depending typically on payroll or sales taxes.  Loss of a job equals a drop in payroll taxes, and causes drops in spending shortly afterward.  

I wonder if we'll eventually create something like a property tax surcharge that captures some of the benefits of transit to a location -- possibly based on some future, vastly more objective Transit Score or index of transit access.  Road funding could work the same way, but tending to fall more on the properties that benefit least from transit, since higher road use correlates to lower transit use.  Property taxes (inevitably passed through to renters) are the least volatile funding source around, and if you want your transit agency to work on real service improvement, instead of endless cycles of cuts, adds, and cuts, we'll have to find our way to a more stable funding solution.

should voter-approved transit taxes be spent in transit?

You'd think that once you ask your local voters to approve a tax specifically for transit, you owe it to the voters to spend the money on transit.  Apparently that's not how it works in Houston, as Houston Tomorrow president David Crossley explains.  

Metro receives local money from a 1-cent sales tax that was approved by voters when the agency was created in 1978. In 1987 then-Mayor Bob Lanier [of the City of Houston] began taking 25% of that money away from Metro annually to use as he saw fit. That included funding design work for the so-called “Grand Parkway,” which is now under intense construction in order to pull population away from the City of Houston and all the other towns and cities in the region.

I have some sympathy for these funding diversions.  Sometimes voters haven't approved levies for what is really needed at the moment, and the only way to keep things going is through.  Sometimes, too, these diversions really are "loans" that get paid back.

But when a diversion is used to fund a competing capital project, the obvious question is:  "Why not ask the voters if they want to fund that project?"  That, question, too, may have a valid answer, and I hope Houston readers will explain it in the comments.

UPDATE:  A Houston reader offers a competing narrative.

I'll be doing a public lecture and discussion in Houston on May 14.  See info under my photo -->