Eric Jaffe shows the yearly financials on transit, and it’s ugly

So people like Gen Giuliano and I have been saying this for years, but Jaffe is a man, and ostensibly a transit ally (unlike people like me, who wish to destroy it all by noting it costs money and suggesting we should plan for that problem), and since men are the only people who could ever ever understand transit, maybe the transit fanboys will listen this time out.

In either case, Jaffe from Atlantic Cities combs through this report and boils it down for his readers. I’m sort of excited about this entry into the discussion because 1) the DOT seems actually to have taken President Obama’s evidence-based decision-making to heart with things like this report, which is very good and 2) Jaffe does a terrific job of hitting the high points, so I can, in turn, be a fangirl in his general direction.

Except…the “blame labor” question is a big one because I thought the reason we were running around pouring money into trains was to take advantage of economies of scale and save on labor costs. The commenters are circling around the issue, which is higher management salaries do not translate to lower operating costs on the ground. So all those contract managers we have floating around transit agencies are probably expensive relative to what they are producing in terms of revenue.

It’s a lot more than a salary story. First, energy costs are problem for transit agencies as well as motorists (as energy costs are an issue for every industry) so the prices for fuel creeping upwards hits transit agencies right along with everybody else, even if they are using “alternative” fuels, which also probably have a petroleum base. Energy prices tend to move together.

During the time period Jaffe is talking about (00 to 10), there has been a lot of capital investment. Capital budgeting is done separately, but that’s a bad idea. Capital expenditures become debt service, and expanding the system means an increase in both operating costs and revenues in different proportions. In private management decisions, it would be clear: with operating deficits of this magnitude, you shut down. Immediately. You’re losing money every time you send a bus out of the barn. On the rail side, you don’t invest billions of dollars to lose 40 cents on every dollar you spend to operate. Public management requires a more subjective nexus. Is a 50 percent subsidy adequate? Unacceptably high? We have to think about transit a lot like we think about public schools. It’s the same debate, really.

I haven’t gone through and looked at anything rigorously yet, but it’s entirely possible that new expansions are pulling down cost recovery ratios even more because the investment decisions are poor upfront–that is, without the expansion, the existing system gets about 40 percent, but the new service gets 25 percent. And that might be common enough to pull down those numbers as well. The response is always “Those new lines take awhile to build ridership” but then…Metrolink.

There are a couple of key graphics in Jaffe’s discussion that should worry us. The one that really really worries me is this puppy:

Dot chart 3

Wuuuuuuuuuuuut? Yeah, nothing really surprises me here, except the bus and light rail entries. WUUUUUUUUUUUUUUUUUUUT? And people wonder why I am always in such a bad mood. One of the reasons we are supposedly pouring all this money in light rail is that, while it’s more costly upfront to build, it has lower operating costs. This graphic does not suggest that, at all. Now, there are other arguments for light rail (it’s jolly! It’s sweet and wonderful and provides a better ride! Woohoo!) But damn it. The fact that there are no apparent scale economies here suggest that all that public investment in trolleys could be kicking some agencies straight in the financial groin. You spend more to get the same return, and to the degree that there are amenity benefits to the investment, those go to land owners who may or (in California’s case) may not be paying in via local land taxes.

(PS I’m sorry, Atlantic Cities, for lifting your graphic but if you label your figures with numbers I could just refer it rather than lifting it.)

Finally, inevitably, somebody in the comments started in about subsidies to drivers, to which I responded:

I have never understood the transit advocates’ belief that, somehow, operating subsidies to private vehicles are germane to how much operating subsidy transit requires. Is it a fairness or public interest argument? I agree that motorists should pay their full marginal costs, but they already pay via gas taxes, they provide a good deal of their own labor and capital costs privately (owning the car (horrendously expensive), operating it, fueling it, insuring it, etc etc). Buses, bikes, streetcars, and trucks use roads, too, so acting like those are all on car owners is also a bit off. But it’s not like places that charge very high petrol taxes, which for all practical purposes serve as a green tax*, don’t also have to grapple with how much operating subsidy to provide. At some point, there is a basic public management problem here: How much of the operating deficit is a “subsidy” that goes to benefitting patrons, and how much of it is just poor public management, where we really ought to start saying “no” to various add-ons (like new buildings with marble floors, etc, ala the LA Metro building) and expansions that simply put agencies on the hook for operating service they can’t afford to operate.

*I know it’s probably third-best, but see the work of Ken Small and Ian Parry.