Tuesday, November 14, 2006

Brookings Scholar and Berkeley Economist on Rail Transit in America

Continuing "Rail Week" at Houston Strategies, today I want to pass along a piece from Bob Poole's Surface Transportation Innovations at Reason.

Brookings Scholar on Rail Transit in America

Rail transit projects in most U.S. urban areas arouse controversy. Many taxpayer advocates argue against them, contending that they produce very small benefits in exchange for very large taxpayer costs. But transit advocates justify the projects as essential to reduce congestion and improve air quality, by “getting people out of their cars.”

Brookings Institution’s transportation scholar Cliff Winston has taken a quantitative look at this issue. His new paper is titled “On the Social Desirability of Urban Rail Systems,” co-authored with Vikram Maheshri, an economist at the University of California at Berkeley. It appears in the Journal of Urban Economics and is available online at www.sciencedirect.com.

The purpose of the paper is to estimate the contribution of U.S. urban rail systems to social welfare. The authors define the net benefit of a rail transit system as the difference between its benefits, broadly measured, and its net cost to taxpayers. If this difference is positive, it means that the dollar value of the rail system’s benefits is greater than its net cost to taxpayers (i.e., the difference between what the rail system’s customers pay as fares and the total cost to build, operate, and maintain the rail system).

On average, rail transit systems cover about 40% of their operating costs from farebox revenues and none of their capital costs, according to figures in the National Transit Database. That means their net taxpayer subsidy is large, given the high capital costs of rail.

Winston and Maheshri construct an elaborate econometric model to estimate the “consumer surplus” of 25 rail transit systems. This is economists’ term for the benefits to users, over and above the fares they pay. The large systems (New York, Washington, DC, San Francisco’s BART, etc.) all produce significant consumer surpluses. But most of the smaller ones do not; those with “negligible” consumer surpluses are Miami, St. Louis, Sacramento, San Jose, Pittsburgh, Denver, Buffalo, and Newark. Most of these are relatively new light rail systems.

Next, the authors compare the consumer surplus of each system with its net taxpayer cost. On this measure, every single one of the 25 systems has negative net benefits—i.e., the annual value of the benefits to users is less (usually much less) than the annual cost to taxpayers. Surprisingly, this is true even for the massive New York City rail transit system, which by itself accounts for two-thirds of the nation’s rail transit passenger miles.

But what about larger benefits to the metro area? Rail systems are advocated not just to benefit their riders, but because they are expected to reduce traffic congestion, reduce air pollution, save energy, etc. So the final step in Winston and Maheshri’s analysis was to estimate the value of these “externality” benefits. They first conclude that the only one of these purported benefits large enough to make any difference is congestion relief. Given rail transit’s low load factor (less than 20% during all the hours of the day these systems operate, generating costs), neither the energy savings nor the emission reductions are significant.

They do quantify the congestion reductions, which are significant because the rail systems attract riders during rush hours, when marginal reductions in cars on the road can make a meaningful difference in the level of congestion. Adding the congestion savings to road users to the consumer surplus gives the total benefits of rail transit. When this total is compared with the net taxpayer costs, only San Francisco’s BART produces net social benefits (though the Chicago Transit Authority system comes close).

All 23 other U.S. rail transit systems are net losers. The net social cost of some of these systems is as follows:

Miami-Dade Transit: $141 million/year

St. Louis light rail: $171 million/year

Dallas DART light rail: $457 million/year (ouch!)

Sacramento light rail: $106 million/year

San Jose light rail: $210 million/year

Pittsburgh light rail: $135 million/year

Denver light rail: $279 million/year

(I checked the whole paper - no Houston)

This means each of those urban areas is poorer by that amount each year.

Winston and Maheshri anticipate that some rail advocates will protest that these systems offer other benefits that are not accounted for in their calculations. For example, rail stimulates some development around rail stations. “But case studies have yet to show that after their construction transit systems have had a significant effect on employment or land use close to stations and that such benefits greatly exceed the benefits from commercial development that would have occurred elsewhere in the absence of rail construction.”

And there is also the claim that rail systems increase the mobility of low-income residents. But the authors point out that the median annual income of rail users in 2001 exceeded $50,000, which was greater than the median income of the general population in that year. So rail’s primary market is not the poor (unlike bus transit).

Overall, then, the authors conclude that rail transit is erroneously believed by the public to be socially desirable, because “supporters have sold [rail systems] as an antidote to the social costs associated with automobile travel, in spite of strong evidence to the contrary.” [emphasis added] They conclude that, in fact, rail transit is “an increasing drain on social welfare.”

Whole paper (pdf)


At 12:59 AM, November 15, 2006, Anonymous Anonymous said...

I will read the paper and comment on their conclusions after I have analyzed how they actually compute some of the externalities that are often difficult to analyze.

But, one comment at the end of the post raises eyebrows. Even assuming $50K is the average income of rail riders (or slightly exceeds $50K), although this is certainly higher than the median “national” income, this does not apply in most dense, rail-dominated, urban cities. In fact, in places like Boston, New York, Chicago, San Francisco, and Washington D.C., I would consider $50,000 barely middle class given the costs of housing in those regions. It is definitely below average. So although not poor, in at least those major rail dominated cities, I would suspect the average user of rail transport is below the median or mean income in the region.

This raises another interesting question: Why are incomes so much higher in dense, rail-dominated cities? Is this another benefit from rail transportation? Another question to ponder…

At 6:50 AM, November 15, 2006, Anonymous Anonymous said...

Thanks for writing about this - I'm looking forward to reading the paper. I am skeptical because of the difficulty of measuring the externalities (as the previous commenter mentioned) but it sounds like an interesting paper.

I am not sure you can make too many assumptions about the income of riders in rail-dominated cities. My anecdotal observation on systems like the Metro in DC or the T in Boston is that everybody uses them - getting on Metro at rush hour, I generally feel under-dressed because I'm surrounded by so many businesspeople! The choice to use rail there seems to depend more on your office location than on your income - it's such a standard, accepted part of the public infrastructure, and the experience so superior to driving for so many trips, that it's moved beyond being the poor man's alternative.

At 9:41 AM, November 15, 2006, Blogger Tory Gattis said...

> Why are incomes so much higher in dense, rail-dominated cities? Is this another benefit from rail transportation?

Big cause and effect question. Most likely is that a dominant industry cluster(s) pays high salaries and draws lots of people, creating density and therefore enabling rail (history also plays a part here, with older cities developing rail before the car got big). If San Antonio built a huge rail network, I don't think they would suddenly attract high paying workers and employers. And there are also plenty of high paying places with limited or no rail: Silicon Valley, Boston's Tech Loop, San Diego, Orange County, and Seattle, to name a few.

At 11:34 AM, November 15, 2006, Anonymous Anonymous said...

Tthe external benefit of getting even a small fraction of people off the roads in a large city like New York must be huge. Especially since it is not layed out to be a car based city. I have driven in the city on a weeknight pretty late(off rush hour)and it was absolutely insane. I am interested to read the report and see how they attempted to measure this externality specifically.

"survey says 95% of people want everyone else to take transit." -The Onion

At 3:08 PM, November 15, 2006, Anonymous Anonymous said...

I haven't read the methodology in the paper yet, but the conclusions are pretty much what I expected, with the exception of New York, where I expected it to be a net social benefit. Perhaps it is a net financial drain because much of it is a 24-hour system (one of the only in the world), at least the subway.

When discussing the net costs/benefits in such broad terms, I think it's only fair to put it into perspective for the entire metropolitan area. Greater Houston, for instance, has a Gross Area Product over $300 billion (http://www.houston.org/blackfenders/02CW001.pdf). I would guess Dallas-Fort Worth's is probably about $375 billion. So, even with DART as the biggest loser on this list, the net loss every year is only about 1/8th of a percent of the area's economy. I'm not condoning this type of waste, but it doesn't seem so horrible when compared to the whole metro area's economy.

At 4:07 PM, November 15, 2006, Anonymous Anonymous said...

anon3 says

"the net loss every year is only about 1/8th of a percent of the area's economy"

I bet $457 million/year could put a lot of cops on the street or fix up a lot of their schools.

At 4:38 PM, November 15, 2006, Anonymous Anonymous said...

This analysis is a moot point. The question for most people is not whether we are going to spend money on transit. It is whether we should spend money on mass transit or freeways. How about a comparison to the total cost/benefit of freeways. Freeways bring in no direct revenue. It is a stretch to assume that the externalities of a freeway pay for their operating expense and the opportunity cost of capital. We need an analysis comparing the two. Do freeways waste as much money as mass transit?

At 4:54 PM, November 15, 2006, Blogger Tory Gattis said...

I'd be curious to see that comparison too, but I suspect freeways are far more cost effective from the government's point of view, because all we do is put down the concrete and the citizens pay for the actual mobility system (the car). Transit pays for the whole enchilada.

At 12:27 AM, November 16, 2006, Anonymous Anonymous said...

I am so glad the Brookings Institute is here to measure my desire for rail! Maybe next they can measure my desire for parks, for libraries, for athletic stadiums, etc.

Honestly, how do you quantify rail's benefit? I know plenty of people in Houston who will never be in a situation to use rail routinely, and yet are very happy that it's there - how do you quantify that? To me the biggest advantage of rail is not commuting or performing daily errands, but simply having the option of getting around the landmark destinations of your city without having to worry about driving and parking - how do you quantify that? How do you quantify how said ability enhances our city for visitors?

And so on, and so on.

At 6:07 AM, November 16, 2006, Anonymous Anonymous said...


Thus the reason why central planning fails and the market survives. How does the government quantify it's success? Which variables? How many econometricians does it take? Who knows. The free market merely prints the going price in the newspaper.

At 10:01 AM, November 16, 2006, Anonymous Anonymous said...

anonymous said...

How about a comparison to the total cost/benefit of freeways. Freeways bring in no direct revenue.

No freeways do not bring in any direct revenue, but toll ways do. The Citizens Transportation Coalition, a strongly pro-rail / mass transit group, notes on their website that the Harris County toll roads have become a cash cow for Harris County, bringing in a over $300 million+ per year.

Do freeways waste as much money as mass transit? Well, we do know in Houston that the Katy Freeway alone was carrying about 250,000 vehicles per day before the decision was made to expand it. Total spending on roads and road repair by all local municipalities is around $800+ million per year, with Harris County accounting for the bulk of that road building. Meanwhile, Metro's budget has been over $650 million per year in recent years, but they account for only 2-3 percent of all daily trips taken in their service area. Go figure.

I have not yet read the paper and having done a little quantitative work when I was a student, I do realize that questions will always be raised about methodology.

One thing that is notable in reading Tory's post is that if we simply accept the surplus numbers as given, then the cities with very high average population densities (15,000+ per square mile like NYC, San Francisco, etc) are the ones which gain some surplus, while low density cities (like Houston?) are the ones that are social welfare losers.

The anti-rail activist in me strongly concurs that building rail often results in bus service cuts, which hit the poor the hardest. The feds will allow you to feed at the Washington D.C. pig trough to build your rail lines, but finding the money to operate your local public transit system is the largely responsibility of the municipalities themselves. Hence most local agencies end up swiping away their flexible, redeployable bus routes and trimming frequency of bus service along busier routes to keep their unalterable rail lines operational.

As for the higher than average income ridership for rail patronage, the LA bus riders union lawsuits against the LA agency largely revolved around this very issue. The NAACP out there asserted that the agency was effectively discrimating against the poor via building rail lines that better served wealthier areas and neglecting bus service to poorer communities in the process.


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