Reforming transit Why smaller public transport subsidy is better Francesco Ramella, Ph.D. June 24-26, 2005 Bloomington, Minnesota

Why subsidize transit? Social purpose: to provide mobility for those who can not afford private travel; Economic and environmental reasons: to achieve producer and user economies of scale; to lower congestion and pollution (second-best pricing).

But: is it true? An “European” answer Which benefits from subsidization of local public transport in some European countries (Great Britain, France, Germany and Italy)? …and which costs?

Framework for local public transport Italy and Germany: regulated, publicly owned monopoly. Limited competition is going to be adopted France: limited competition (network level) Great Britain: London: limited competition (route level); outside London: deregulation + “social” services competitively tendered.

How much subsidy? [million Euros] Great BritainGermanyFranceItaly Expenditure on local public transport (subsidies + indebtedness)* * investments for infrastructures and railway services (except those in the Paris area) are not included 1 € = 1,23 $

What happened in GB since deregulation? Supply (bus km) has increased: + 24% (-22% between ‘70 and ‘86). Accessibility: little change. % of households within 6 minutes of a bus stop: metropolitan areas: 91% in ‘86 and 92% in ‘98; rural areas: 74% in ‘86 and 77% in ‘98. Frequency has increased; % of households with: at least one service every 15 minutes: 28% in ‘86 and 34% in ‘98 less frequent than one service every 60 minutes: 14% in ‘86 and 10% in ‘98

Subsidies for concessionary fares have slightly decreased (-13%) 97% of local authorities have a concessionary scheme for elderly people 48% of local authorities have a concessionary scheme for student Discount fare schemes are also widely run on a commercial basis What happened since deregulation in GB?

Conclusions (1) The deregulated system still satisfies the mobility needs of captive users. The increase of frequencies (with decreasing costs and subsidies) shows the empirical weakness of the argument for subsidization of public transport in order to achieve user economies of scales and seems to confirm the theory of “leakage” from subsidy to cost.

Local public transport in Britain metropolitan areas* before and after deregulation passenger journeys:- 30% bus-km:- 15% cost per bus-km:+ 26% cost per passenger journey: + 52% receipts per passenger journey:+ 14% public subsidies (‘78- ‘85):+ 41% concessionary fare reimbursement+ 32% public transport support + 47% * Birmingham, Manchester, Liverpool, Sheffield, Leeds, Newcastle - 42% + 19% - 54% - 5% + 65% - 49% - 1% - 72% ‘70 - ‘85 ‘85 - ‘98

Urban bus transport: Great Britain Vs. continental Europe Comparison among: British metropolitan areas; a sample of medium-large urban areas in Germany and France; all Italian urban areas. Figures have been obtained through power parity exchange rates.

Germany Italy France London GB (excluded London) Index (Great Britan = 100) Cost per bus-km

Index (Great Britan = 100) Cost per passenger-km GB (excluded London) Germany Italy France London

Passenger receipts per passenger-km Index (Great Britain = 100) GB (excluded London) Germany Italy France London

Subsidy (+ indebtedness) per passenger-km Index (Great Britain = 100) GB (excluded London) Germany Italy France London

Urban* bus service in Europe: patronage Index Italy Great Britain Germany France * data for Germany are referred to the whole local public transport sector

Conclusions (2) Urban bus public transport in the Britain metropolitan areas is much more efficient (cost per bus km) and effective (cost per passenger km) than in the other selected European countries. Subsidy per passenger km is about 80% lower than in continental Europe. Subsidy doesn’t seem to be worthwhile on the ground of producer economy of scale Is subsidy desirable as a second-best instrument?

Air quality: a problem in the past not in the future Winter mean concentration of PM 5 in Paris from 1956 to 1998

Air quality is getting better Birmingham Leeds LiverpoolNewcastle Sheffield UE Directive 30/99 ('05) Average decrease per year: -7% [  g/m 3 ] Annual mean concentration of PM 10 in British metropolitan areas

Air quality is getting better BirminghamLeedsLiverpoolNewcastleSheffieldUE Directive 30/99 ('05) Periods with 24 hour mean concentration of PM 10 > 50  g/m 3 in British metropolitan areas between 1992 and 2000

…and in the city the air is better than in the country

An excellent transit and rail system, nevertheless…people drive a lot

Conclusions (3) The leading factor in shaping the air quality has been (and will be) technological improvement Any realistic change of the modal split may have only a minimal impact It seems reasonable to draw a similar conclusion with reference to noise pollution A high-quality collective transport system does not cause any significant reduction of private car utilisation (and of CO 2 emissions)

More traffic and less casualties Mortality rate in Europe: -80% between 1970 and 1996 Mortality rate in the UK: about 50% the rate in Germany, France and Italy Between 1986 and 1998, in the British metropolitan areas: passenger km by private car: +32%  78% passenger journeys by bus: - 40% people killed per passenger km by private car: -61%  72% people killed: -49%  60%

Conclusions (4) Any reduction of road casualties achievable by a modal shift from private cars to public transport would be minuscule if compared to the results achieved as a result of technology improvement and road safety policy Benefits would be almost completely internalised by people changing their mode of transport

More congestion is better? The real aim: not to lessen congestion but to reduce average journey time of people travelling by car and by public transport or to increase average speed (assuming that every person moving had the same value of time). What happened in the British urban areas with a population of more than since deregulation? the average distance of all the journeys (except those longer than 10 miles) has increased from 5.9 to 6.1 km; the average “door to door” travel time decreased from 18.7 to 17.1 minutes.

More congestion and…travelling faster * except those longer than 10 miles '85/'86'93/'95 [minutes] Car Bus Average + 3,6% -2,8% -5,6% Average time (“door to door”) of commuting journeys* in British urban areas with a population of over

Conclusions (5) Subsidisation of public transport in order to increase the average speed of journeys through a modal shift from private car to public transport seems not to be a policy that works. But, since the value of time is not equal among different people, could subsidisation be justified in terms of efficiency? The answer depends upon cross-price elasticity between public and private transport. Hensher (1986) found the cross-price elasticity to be less than 0.1 or lower. Most cases clearly confirm this figure.

CarBusSupertram Cost of Supertram: 450 million Euro DeregulationSupertram +2% The tramway system in Sheffield (“Supertram”) Persons crossing Sheffield central area cordon [thousand]

The subway in Toulouse Cost: 500 million Euro patronage of public transport: + 30% but… … the number of journeys by private cars has not changed by as much; public transport share of motorised journeys: 20% increase of patronage: 6% of the journeys only a quarter of the passengers attracted away from cars road traffic reduction: 1%

Final conclusions Subsidisation of public transport seems not be justified on the ground of economic (and environmental) reasons. Subsidisation could be worthwhile only on social grounds. The aim of satisfying the mobility needs of people without access to a car can be fulfilled with much lower levels of subsidisation than the present ones in Germany, France and Italy…and, probably, the US

Final conclusions Subsidisation of public transport seems not be justified on the ground of economic and environmental reasons. Subsidisation could be worthwhile only on social grounds. The aim of satisfying the mobility needs of people without access to a car can be fulfilled with much lower levels of subsidisation than the present ones in Germany, France and Italy…and, probably, the US