Reforming transitWhy smaller public transport subsidy is

better

Francesco Ramella, Ph.D.francesco.ramella@libero.it

June 24-26, 2005Bloomington, Minnesota

Why subsidize transit?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?But: is it true?An “European” answerAn “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 transportFramework 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?How much subsidy?

921

4.9704.602

3.541

0

1.000

2.000

3.000

4.000

5.000

[million

Eu

ros]

Great Britain Germany France Italy

Expenditure on local public transport (subsidies + indebtedness)* - 1998

* investments for infrastructures and railway services (except those in the Paris area) are not included

1 € = 1,23 $

What happened in GB since deregulation?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?What happened since deregulation in GB?

Conclusions (1)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 Local public transport in Britain metropolitan areas* before and after metropolitan areas* before and after

deregulationderegulation

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. Urban bus transport: Great Britain Vs. continental Europecontinental 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.

0 100 200 300 400 500

Germany

Italy

France

London

GB (excluded London)

Index (Great Britan = 100)

Cost per bus-kmCost per bus-km

0 50 100 150 200 250

Index (Great Britan = 100)

Cost per passenger-kmCost per passenger-km

GB (excluded London)

Germany

Italy

France

London

Passenger receipts per passenger-kmPassenger receipts per passenger-km

0 25 50 75 100 125

Index (Great Britain = 100)

GB (excluded London)

Germany

Italy

France

London

Subsidy (+ indebtedness) per passenger-Subsidy (+ indebtedness) per passenger-kmkm

0 50 100 150 200 250 300

Index (Great Britain = 100)

GB (excluded London)

Germany

Italy

France

London

Urban* bus service in Europe: patronageUrban* bus service in Europe: patronage

50

60

70

80

90

100

110

1986 1988 1990 1992 1994 1996 1998

Ind

ex

Italy

Great Britain

GermanyFrance

* data for Germany are referred to the whole local public transport sector

Conclusions (2)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 pastAir quality: a problem in the pastnot in the futurenot in the future

Winter mean concentration of PM5 in Paris from 1956 to 1998

Air quality is getting better...Air quality is getting better...

0

10

20

30

40

50

1992 1993 1994 1995 1996 1997 1998 1999 2000

Birmingham Leeds Liverpool Newcastle Sheffield UE Directive 30/99 ('05)

Average decrease per year: -7%

[g

/m3]

Annual mean concentration of PM10 in British metropolitan areas

Air quality is getting better...Air quality is getting better...

0

10

20

30

40

50

60

70

1992 1993 1994 1995 1996 1997 1998 1999 2000

Birmingham Leeds Liverpool Newcastle Sheffield UE Directive 30/99 ('05)

Periods with 24 hour mean concentration of PM10 > 50 g/m3 in British metropolitan areas between 1992 and 2000

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

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

10.4549.872 9.506

0

3.000

6.000

9.000

12.000

[km]

EU15 The Netherlands Switzerland

Conclusions (3)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 CO2 emissions)

More traffic and less casualtiesMore 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)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?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 250.000 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 fasterMore congestion and…travelling faster

* except those longer than 10 miles

0

10

20

30

40

'85/'86 '93/'95

[min

ute

s]

17.016.4

Car

30.931.8

Bus

20.121.3

Average

+ 3,6%

-2,8%

-5,6%

Average time (“door to door”) of commuting journeys* in British urban areaswith a population of over 250.000

Conclusions (5)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.

0

100

200

300

400

500

600

700

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998

Car Bus Supertram

Cost of Supertram: 450 million Euro

Deregulation Supertram

+2%

The tramway system in Sheffield The tramway system in Sheffield (“Supertram”)(“Supertram”)

Persons crossing Sheffield central area cordon [thousand]

The subway in ToulouseThe 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 conclusionsFinal 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 conclusionsFinal 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