Tuesday, March 03, 2009

User Fees and Transit Finance

A while back on the Bacon's Rebellion blog, reporter Jim Bacon noted some cognitive dissonance he was experiencing in advocating free markets, user fees, and subsidized public transit all at the same time. I share Jim's enthusiasm for these policy ideals and have also been troubled when they come into conflict. I wrote several articles for Bacons Rebellion largely supportive of market-based user fees for single occupancy vehicles to subsidize transit. I have also personally advocated this approach to some leaders in green thinking such as Tim Beatley and Peter Newman.

How is it that I do not explode in a burst of hypocrisy?

1. Free markets. Markets work based on a body of laws and agreements on what markets are and how they should function. In general, economic theory suggests that markets are the most effective tool where clever thinking can introduce them, rather than rules and restrictions, which tend to promote waste, lawsuits, and criminality as an unintended consequence of pursuing whatever goal that they pursue.

2. User fees. User fees are a way of introducing markets by requiring users of public services to pay for them. The prices can either be fixed to the public cost of providing that service to that individual or to the market value of that service. Where the use of a public service improves the overall well-being of the community, however, like with transit use, health care, or education, these fees make less sense.

3. Subsidies. Subsidies are a way for policy makers to encourage a beneficial activity, most obviously by writing a check, but also by cutting red tape, reducing regulatory, service, or tax costs, and so on. Unfortunately, these are famous for promoting waste and corruption by creating dedicated interest groups who lobby for the preservation and expansion of their subsidies and distorting market choices. The excellent book Perverse Subsidies goes into this in great detail. The dominance of dysfunctional development patterns can to a large extent be attributed to perverse subsidies for transportation and land use.

So why advocate subsidies for transit? Transit offers some essential benefits to the community. Transit:
-allows more efficient urban land use, moving more people around better without sacrificing access and dispersing uses.
-uses less energy per person for transport and creates economies of scale for investments in efficiency and green energy
-encourages interaction and community

With benefits like those, it's no surprise that advocates for a bright green future would support transit. But subsidize it? Won't the free market provide it if people want it?

Actually, yes, it will, if demand is sufficient to overcome the advantage given to auto travel by road, parking, and pollution subsidies, or if those subsidies are removed. I reported a little over a year ago on a number of private transit services operating in Northern Virginia. This profusion of private innovation appears to be the result of high demand for travel to Washington, D.C. combined with heavy traffic and the provision of free HOV lanes, which give buses an advantage. The high cost of parking and walkability in historic DC areas is likely also a contributor.

Places like Washington, D.C., New York City, and San Francisco, where private transit can be profitable, are relatively unusual in America as most places require ample free parking, provide enough new roads to manage complaints about congestion, do not offer High Occupancy Vehicles an advantage, and have spread out attractive destinations to make space for the car and make walking unpleasant.

A Hybrid Approach

In most places that have adopted caps on how intensely land can be used, imposed minimum free parking requirements, offered no special treatment for transit, failed to charge market prices for on-street parking, and paid to pave more roads to slow down congestion, transit is not very successful. In these places, people use transit because they cannot drive, or because they believe the benefits to society are worth the inconvenience. In these situations, where the scales are grossly tipped towards automobile dependency and away from a bright green landscape, I believe that a limited short-term public investment in transit infrastructure is valuable to promote balance while the community transitions to brighter policies that support the lifestyle they want for themselves and their children. Users ought to pay a little bit during this transition if waste becomes an issue, but otherwise not. The social benefits of this transaction appear to exceed the costs when looking at the whole picture.