Part 1. David Levinson’s CityLab discussion on transit: Regulated public utility model

It’s taken me awhile to get around to discussing David Levinson’s very nice contribution to the discussion of transit funding over at CityLab: How to Make Public Transit Sustainable Once and For All. There is a lot of solid good sense here, even if I don’t necessarily think all points are equally important or as straightforward as we might hope.

That said, he’s right. It’s time to stop talking about the transit funding crisis, like this is a momentary problem, and stabilize the financial structure of the service, for the good of the service and the people who need it.

I’m going to be discussing his ideas in a series of blog posts as I have too many things to say for just one.

Levinson argues for changing the institutional structure of transit agencies from what most regional providers are now–quangos–to a utility model, and that suggestion is, hands down, probably the most important suggestion Levinson makes. There is a lot recommend this idea. First of all, even though quangos are somewhat insulated from voters and politics, they still have play with budgetary politics, and those games are where lots of stupid enters into transit provision.

What does a utility get for us? Well, we have good exemplars of public utilities that do a pretty good job (some aren’t so good, but we can talk about why) matching capital investments to their markets. In transit, suburban districts get more transit than they probably should because they (usually) have disproportionate representation on county boards of supervisors (as in LA) or on metro boards. So all somebody like Gloria Molina (LA County Supervisor) needs to do to get her massively expensive rail project is trade her chits, and make alliances that threaten to block other projects (Measure R votes) to get things for her own districts. And boom! There we go, flinging transit money at projects that make no sense financially or operationally but all sorts of sense politically.

The utility model stops that to some degree. If the good folks, for example, in bedroom community R want transit service, they can contract with the utility provider for it. If other jurisdictions see a benefit to having service out there, they can contribute to the contract. Rather than demanding gold-plated service and getting everybody else to pay for it, the jurisdiction pays for what it wants. If it wants a $930 million train, then it pays for that level of service. Jurisdictions do that sort of thing all the time with things like sanitation services. Some places in Los Angeles have garbage and multiple types of recycling and compost, others just offer garbage collection, and all of them manage their own rates because they are billing the customers and handling the contracts.

That way, if a jurisdiction wants supply to a place where the market for it can’t support the service, the jurisdiction gets a bill from the utility so we can see just how much it costs to provide access via transit rather than other means. Levinson is a little too facile with his dismissal about equity concerns. I, too, was raised on the economists’ (very sensible) supposition that if we are worried about poor people we should give them money. But in the real world of American poverty, that isn’t how things go, and the question becomes, if we roll back public subsidies for services aimed at helping poor people get what they need AND exist in universe where Republicans won’t let us give them money, poor people just end up getting priced out of service.

That said, public utilities are way better at dealing with lifeline pricing than just about anybody else. No, it’s not perfect; many people do not know they can send a pay stub to their local utility and get lifeline pricing, but most utilities do allow it, and that matters. It’s a way of metering usage and sending a price signal, but within the context of a family’s real scope of affordability. So the utility can charge whatever rates it can to cover its capital and operations, and taxpayers can redistribute via lifeline prices so that the Dr. Levinsons and Dr. Schweitzers and Donald Trumps of this world can pay market rates, which we can easily do, and impoverished riders also get a price signal but still have access.

So where are the problems? Well, first, utilities have been most robust for services that are relevant to just about every household. It would be nice if that were true for transit, but it is not. Just about everybody in cities uses water, sewer, and electricity. Those utilities can bank on steady customer payments and long-term service even as households move in and out. Transit companies in most markets of the US can not. So as a potential utility investor, I’m not even considering investing in most transit markets; just give me a handful of lines in NYC, DC, Boston, etc., and I’m keeping my money for other, much less risky endeavors than transit where capital costs are high and I might end up with capital stock I can’t really pay for. It’s not clear to me that transit is an industry where, by virtue of the structure of the industry, there are real returns to scale (more on this in future posts). Levinson’s utility model here is most easily translatable for places where the voter-customer dichotomy in transit is already less of an issue.

The second problem concerns jurisdictions who want to opt out and their effect on other jurisdictions. This doesn’t happen with electricity or water except at the aggregate level (see San Diego and water wholesalers). So Beverly Hills decides it does not want transit service. But Beverly Hills is smack-dab in the middle of a region, and if it refuses service, what does that mean for transit service to the thousands of job destinations *in Bevery Hills*? For electricity or water, the consequence for employers there are immediate and severe. For transit, well, darn, let’s just all keep driving. I suppose we could put the rest of us in the position of paying Beverly Hillians to allow us to have transit there, but…oye.

Finally, service question differences in transit are a big deal, but they are not in other types of services once you reach a particular threshold. Americans who do not think that government works should go enjoy the electricity in many other parts of the world where you get electricity for only part of the day, etc. So I do not mean to suggest that there are no differences in electricity or water provision. But it seems to me you top out at service levels readily and you don’t really see a lot of innovation in the capital investment side once a basic level of service is reached. Americans are used to being able to drink their water from the tap and they are used to plugging in. And it’s not like my plug-ins or my volts are less nice than those delivered to somebody making 50x what I do.

Transit is not like that; many levels of service are possible, and relying on contracting by jurisdiction strikes me as a fast way to recreate the dramas, failures, inequalities and potentials of fiscal equalization across districts that we already see in education policy. The problems stay the same but shift around a little bit, with more incentive to invest in personnel rather than buildings. Rich districts have tons of options; poor districts don’t, and thus residents in poor districts get the short end of the stick. But it’s not like they don’t now. Wealthy areas with lots of voters get; impoverished areas with fewer voters (and lots of riders) get less, and they sometimes win based on ridership figures and appeals to social justice. All of those factors come back into play under contracting by district. Again, this problem is not necessarily a bug; allowing service differentiation and price discrimination across consumers could be a major innovation for transit at the same time it sets up some places for good access and other places for….not good access. Which we already have, so you can’t blame the suggestion for it.