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Posted at 7:22 PM ET, 01/ 8/2010

A $40 million crisis Metro can’t afford to waste

By editors

By Samuel R. Staley

The Washington Metropolitan Area Transit Authority is struggling to close a $40 million budget gap and has asked the public to comment on two equally unappealing options: service cuts and a fare increase.

A fare increase is the better solution but runs the risk of perpetuating a chronic funding crisis if carried out across the board. Done right, however, a fare increase could put Metro on the road to a sustainable pricing system that could serve as a model for the nation.

Fare reform may seem like an unappealing way to solve Metro’s fiscal crisis. Raising fares could be perceived as unduly harmful to low-income riders and the transit-9dependent. Yet, a commitment to fundamental fare reform could improve the agency’s fiscal health while also preserving its broad social mission to provide an accessible transportation system for those who need it.

The key is to charge the right fare, for the right trip, at the right time through demand-based pricing.

There are several good reasons for Metro to choose a fare increase over service cuts. Research suggests that transit riders tend to be about twice as sensitive to changes in service levels as they are to fare changes. Adding minutes between pick-up times at bus and rail stations, reducing hours or changing routes and service levels are more likely to reduce ridership than are fare increases.

Additionally, Metro’s reliance on rail gives it more pricing options than smaller, more narrowly focused systems have. Because nearly a fifth of the region’s employment is concentrated in the District, Metro captures nearly 40 percent of the commuters destined for downtown, according to demographer Wendell Cox. As middle-income and government workers, many of these riders are less sensitive to an increase in fares.

Metro already uses a variable pricing system in a limited way. Fares vary based on distance and whether or not it is rush hour; express buses charge more than local ones. But these measures are not enough to optimize the system’s performance. Much more could be achieved by using the latest technology.

Metro can take pricing to the next level with demand-based fares focused on ensuring peak performance for both rail and bus. The key policy change would be to identify which routes are congested and authorize pricing levels by route and time of day, rather than mode.

The opportunities are particularly ripe for rail, which accounts for two-thirds of system trips and nearly 80 percent of passenger miles. An average 10 percent increase in revenue from the rail side of Metro alone could fill the $40 million gap.

How would this work? The Red Line, for example, is notoriously crowded during the morning rush, between 7:30 and 9 a.m. Prices could be set to rise by small increments of a nickel or dime every 10 minutes beginning at 7 a.m., peaking at 7:30 am, then falling back to off-peak levels once the stations are cleared. Fares could even be charged based on which station riders use to leave the train; lower fares would be used to encourage riders to choose underused stations. Different prices and scales would be set for different lines, so that, say, the Green Line would cost less to ride than the Red Line.

The underlying principle is that fares should be set based on willingness to pay for most travelers. Commuters who value the convenience of traveling at peak times or using the busiest stations would be charged for doing so. Thus, no one is denied access to travel, but variable pricing asks commuters to more rigorously evaluate their options. This is the same principle that many toll roads have begun using to maintain the flow of traffic, raise revenue and spread out travel more efficiently over the course of a day.

And by raising fares in this way, Metro can still keep costs low for targeted groups such as low-income patrons through individual subsidies as well as on important but less-traveled routes.

Metro, of course, is facing a short-term funding crisis, and these immediate needs can’t be ignored. Demand-based pricing is a long-term strategy, and the technology necessary to implement this type of pricing strategy, while it exists, cannot be implemented overnight.
Metro’s $40 million deficit is nevertheless manageable. The real danger would be in adopting service reductions or across-the-board fare increases as stopgap measures instead of integrating them into a long-term strategy for a sustainable transit system. That could alienate riders and do more harm than good to the system’s bottom line.

As was noted so often in 2009, a fiscal crisis can also be an opportunity. Metro should use this one to think outside the box. If it takes the right steps toward demand-based pricing now, it can build toward a financially stable future that is the envy of transit systems across the nation.

The writer is the director of urban and land-use policy at the Reason Foundation.

By editors  | January 8, 2010; 7:22 PM ET
Categories:  HotTopic, Metro  
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I don't know if this makes the most sense. (1) People need predictability, so the idea of raising fares on an incremental basis every 10 minutes is not going to work; (2) Low-income riders use busy metro stops, e.g. Judiciary Square on the Red Line is a super popular exit, there are 2 federal agencies there, plus all the district courthouses. A significant portion of the people going to the courthouse either don't have jobs, or have very low-paying jobs.

Metro should just charge a flat rate the entire day, no matter where people travel. This is not a light rail system, it's a subway system. Yes commuters make up a lot of the travel certain periods during the week. But if Metro would have just priced a fare that applies to all travel across the board, it wouldn't have scared off riders and it would have captured the fare from all those tourists who use the system off-peak hours.

Posted by: echenna | January 9, 2010 11:06 AM | Report abuse

Oh I should also add that charging one flat fare will allow the system to sell passes, as it's much better to have a significant portion of its riders buy say monthly passes and for those less committed weekly passes b/c that's a guaranteed source of revenue. Then metro could always play around with monthly and weekly fares on an as-needed basis.

Posted by: echenna | January 9, 2010 11:08 AM | Report abuse

This might work if a majority of commuters have the discretion to come to work whenever they want to, and leave work whenever they want to. That's just not true. The majority of workers have to work the hours their bosses want, and those hours almost always require commuting between 7:30 am and 9 am. So, you're just imposing costs on people who can't change their behavior in response to the increased costs. Not a smart idea, period.

Posted by: WashingtonDame | January 10, 2010 6:11 PM | Report abuse

Makes perfect sense in the fictional world of economic modeling. Makes no sense in our real world. I don't like the idea of not knowing how much it's going to cost for me to get to work or to go out for a night on the town. I'm fine with paying $.20 more per ride if I know that the service will stay good with similar headways as right now.

Posted by: Cavan9 | January 11, 2010 9:14 AM | Report abuse

This is totally on the money. I don't know how the details/logistics would work. But those morning trains are packed! And those people have no alternatives. There are more waiting even behind them! So, yes, charge more for that set of people. They are also correct regarding the sensitivity of services. Most of these people are making pretty good coin.

For people like me, who have a reverse commute from Arlington to Reston, I'd like to see the fares dropped. Unlike the inbound riders, I have alternatives. Even paying the toll road fee, I don't save money riding the Metro. And those outbound trains/buses are nearly empty. They have to go that way anyways to reload. If you charged 50-75% of current, I'd be extremely tempted to go through the hoopla of a walk/train/bus commute.

Work with the supply and demand of the respective commuting groups and that will give you your answers.

Posted by: toshiro1 | January 12, 2010 12:38 PM | Report abuse

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