Public transit: Must revenues and ridership be at odds?

AACI | Vice President, The Regional Group of Companies Inc.
  • May. 27, 2019

What is the answer to the recurring question of how best to manage a municipal transit system: focus on revenue by charging the highest possible fares most residents will grudgingly tolerate; or focus on user-friendly tweaks that will boost ridership?

Are we already on the wrong track by thinking revenue and ridership are mutually exclusive?

In April, the city council of Victoria opted to bring a motion before the regional transit commission to eliminate public transit fees for everyone (in stages) and also expand bus service, to encourage more ridership and reduce the impact of climate change.

This came shortly before a delegation from the Metro Vancouver Mayors’ Council visited Ottawa and called for federal funding to ease traffic congestion in the region. According to the council, public transit in Metro Vancouver can expect another one million users over the next 20 years.

It wants additional federal funding to proceed with new work on the regional TransLink commuter rail system.

For Victoria, the need to drive transit ridership is a matter of necessity. The municipality simply doesn’t have room to expand roads and parking to handle more private vehicles.

Free fares are not the answer

Few can reasonably deny the problems major urban centres face with trying to cram more private vehicles onto already congested rush-hour roads and figuring out where to park them for the workday.

On the other hand, it’s not surprising critics in Victoria have scoffed at the idea of giving up 10s of millions of dollars in revenue with free fares. They argue instead that the focus needs to be on service improvements.

In particular, one critic raised the point fares should be adjusted so someone who jumps on a bus for just a few blocks downtown doesn’t pay the same as someone who takes an hour-long trip in from the ‘burbs. (Keep this point in mind for later.)

Ottawa has flirted with the idea of free fares as well. Or to be more accurate, some councillors have suggested it, only to be shot down by a majority of their peers, including Mayor Jim Watson.

In Ontario, like B.C., municipal transit gets its funding from a combination of fares, provincial subsidies, fuel taxes and property taxes. We the taxpayer are always footing the bill, even if the bill is split between different envelopes. For Ottawa, fares generate about $200 million of its transit budget – no small sum to just give up.

The City of Ottawa, like any other major Canadian city, must figure out how best to run a solvent transit system that delivers reliable service at a price anyone can afford.

A study publicized earlier in May found that OC Transpo will miss its ridership growth projections through the next decade. Meanwhile, quarterly revenue numbers are falling short of forecasts.

The obvious short-term culprit is the repeatedly delayed opening of Phase 1 of Ottawa’s new Confederation Line LRT. Delays mean the city continues to suffer through service disruptions and poorly received route changes that have proven to be far less “temporary” than expected.

Transit funding is a long-term issue

The LRT delay is no doubt a factor in weak ridership and revenue, but only a short-term one.

Ottawa and other municipalities still haven’t found the funding recipe that strikes the ideal balance between revenue and ridership, even at the best of times.

Private vehicles are still cheaper to run per kilometre if you don’t take the capital cost into account and focus only on the direct costs to the owner/occupant.

The City of Calgary recently set out to prove otherwise, with a new app for residents that crunches various data, including the costs to maintain roads and sidewalks, the cost of insurance and collisions, and the cost of traffic congestion and pollution. 

This app ends up putting the cost per kilometre of travelling by private vehicle at $1.25, versus 67 cents for public transit. However, it’s a hard sell to get the average driver to consider indirect costs against immediate factors such as commute time in a car versus bus, the turn-off of a crowded bus and the convenience of not having to wait for a bus (or train).

We are not taking full advantage of technology

What I believe would make a big difference is that option raised in Victoria – different rates depending on the length of the trip. In addition, I would add different rates depending on time of day.

This would make public transit a much more competitive alternative to a private vehicle and, with modern technology, should be easy to achieve.  

There are also more user-friendly payment systems we could adopt besides the PRESTO card system that has become widespread in Ontario.

I have a nephew who works in London, U.K. All he needs to do is tap his credit card to get on and off transit, and he has an easy-to-access record of his trips for business expense purposes. 

The PRESTO card system, on the other hand, is just too hard to use in terms of what I had to do to register the card on the system here in Ottawa. To qualify for the seniors discount, I had to go and present myself in person at one of the few staffed locations to prove I was the age I said I was. 

Other Ontario cities do have PRESTO loyalty programs where you don’t have to have a monthly pass – after a certain number of uses in a week or month, the rest of the period is free.

We all lose with low ridership

I have long felt the focus on transit revenue at the expense of passenger numbers is a big mistake. 

A transit system is owned by its municipality and the users for the most part are local residents. One way or another, we pay for the system, and if cost is keeping ridership low, we all lose. 

I’m not suggesting free transit, but for short trips the price should be a lot less than the current one-way fare. The technology is surely available to offer time-of-day discounts and other flexible options to ensure buses are full during off-peak times.

That’s how you can improve revenue and ridership.

To discuss this or any valuation topic in the context of your property, please contact me at [email protected]. I am also interested in your feedback and suggestions for future articles.

John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

Read more

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