Costs and trends of transit funding

There are several ways of looking at the costs of public transit.

From one perspective, public transit should aim to cover as much of its costs through its own revenues as possible; thereby decreasing its reliance on government subsidies. Transit agencies can achieve this goal by reducing costs through efficiency measures and ensuring their transit system encourages high ridership and therefore, higher revenue. Achieving this depends on a number of factors, including land use patterns and policies that make transit use more appealing to potential riders than driving. Some transit systems have been successful in recovering a large portion of their costs through revenues. Freiburg, Germany, recovers 90 percent of its costs through revenues. Read their story.

Worldwide, the ratio of fares to operating costs is highest in places with high urban population densities, such as Hong Kong, Taipei and Singapore where the transit systems even generate a profit. In Canada, Toronto has the highest fare recovery ratio with Go Transit (82.2 percent) and the Toronto Transit Commission (71.3 percent), followed by Montreal with 57 percent and Vancouver at 52 percent. In the United States, there are three systems with a 60-65 percent fare box recovery ratio: San Francisco, Washington, DC and Philadelphia/New Jersey.

Another perspective on transit costs is that as travel shifts from cars to transit, the increase in transit use can reduce both direct (building and maintaining the infrastructure) and indirect (costs of land needed for parking, road congestion or traffic safety) costs associated with highway and road infrastructure.

Transit can stimulate economic benefits as well. It is labour intensive and therefore transit expenditures tend to stimulate more jobs and local business activity than most other transportation investments. Research suggests that a typical transit investments creates 19 percent more jobs than the same amount spent on a typical set of road and bridge projects.

Another source of potential financial payoffs from transit investment can be found in the correlation between some of the world’s most affluent city-regions and their well developed public transit systems. This relationship exists at several levels of urban scale from mega cities such as Singapore, Hong Kong and Tokyo to smaller cities such as Zurich, Geneva, and Copenhagen.

Therefore, if all of the direct and indirect costs and benefits of transit as compared with road investments are taken into account, the calculation would likely favour transit in a way that means transit investments would eventually pay for themselves.

In 2007, when the government was preparing the Provincial Transit Plan, it developed several possible scenarios for the future of transit, with a focus on Greater Victoria as the system with the greatest potential for transit increase. One scenario was simply to maintain the existing transit market share (also referred to as “transit mode share”). The second scenario was to increase transit’s market share in Victoria by approximately 5 percent, and the third scenario was to increase it by 8 percent. The Ministry of Transportation and Infrastructure developed projections for how much it would cost to achieve each of these three scenarios. When the Provincial Transit Plan was produced in 2008, the targets from Scenario 2 and 3 were not used. Instead, the goal set for increased market share was 2.5 percent for Victoria and 1 percent for the rest of B.C. (see Figure 3). There was no estimate for total costs required to achieve this goal for BC Transit, as the total costs for the Provincial Transit Plan were provided only at the province-wide level, putting together the costs for TransLink and BC Transit to meet their goals. Nonetheless, we can get a sense for the costs of this transit expansion because the market share targets set were half way between the targets in Scenarios 1 and 2. Therefore, the costs associated with achieving these targets could be expected to be approximately half way between Scenario 1 and 2. Although transit costs are not normally linear, for simplicity, we have assumed the costs associated with achieving these targets would be approximately half way between Scenario 1 and 2.

Figure 11 - Projected costs of transit expansion (Ministry of Transportation and Infrastructure projections, 2007) (click image to enlarge)

These figures show that just to maintain transit’s existing market share was projected to require $2,411 million from 2007 to 2020. To increase transit’s market share in Victoria by five percent and then eight percent would require an additional 14 percent and 39 percent increase in expenditure respectively. To achieve the Provincial Transit Plan target, which was half way between Scenarios 1 and 2, the projected cost would be approximately $2,678 million.

By the end of the 2012/13 fiscal year, approximately five years had passed since the announcement of the Provincial Transit Plan. The PTP targets were to be achieved by 2020, which means that this period represents just over one-third of the total. Therefore, a basic expectation would be that the provincial government would have spent approximately 33.3 percent of the projected budget for the Provincial Transit Plan. However, it should be noted that expenditures often do not follow a smooth growth pattern, and therefore, this estimate is very approximate. It is used to give a basic sense of where things are at by this point in time in relation to the overall expectations for the plan’s implementation.

Capital funding

Figure 13-a - Projected versus actual fleet expenditures to 2012/13 (click image to enlarge)

The above chart shows that the number of buses purchased to the end of the 2012/13 fiscal year was 93 percent of the projected Provincial Transit Plan total for BC Transit, while the cost of the bus purchases was 42 percent of the anticipated total. This suggests that the cost for bus replacement and expansion has been lower per bus than was expected.

*In addition to the amounts in the table, the provincial government has contributed over $151 million toward asset replacement for BC Transit, largely to replace obsolete buses.

Source: OAG calculations from Ministry of Transportation and Infrastructure and BC Transit information

The above table suggests that total capital expenditure towards the Provincial Transit Plan goals has been lower than the 33.3 percent that would expected by the end of 2012/13, if a third of the money were to be spent by this point. However, the expectation was that the expenditures would not be distributed evenly across the period of implementing the plan. Instead, 13 percent was to be spent in the first four years, and 53 percent in the final four years. Two of the largest rapid transit projects within TransLink’s area of operation were not expected to begin until after 2015/16.

Municipal and federal governments also contribute to capital expenditures (municipal governments make their contribution through debt service payment). $47.63 million was the total capital expenditure for BC Transit for 2012/13. The amounts contributed by the different parties are determined on a project by project basis. Therefore, each year, the provincial and local government proportions would be different. In 2012/13, the proportions contributed by each partner are shown in the pie chart below.

 Figure 13-b - Share of capital expenditures 2012/13 (click image to enlarge)

Operating Funding

There was no specific commitment in the Provincial Transit Plan with respect to operating funding costs to support the anticipated expansion of transit services. It is possible to compare, however, the projections for operating costs by the Ministry of Transportation and Infrastructure in the scenarios it developed in 2007/08, and the projections set by BC Transit in its service plans, with the actual operation expenditures annually since 2007/08.

 Figure 13-c - Projected versus actual operating funding (click image to enlarge)

Transit service hours are considered by BC Transit to be the key factor influencing ridership. The more hours of buses on the road, the greater capacity to carry riders. This works by providing transit where it did not exist previously as well as increasing the frequency. Research suggests these two factors are key in enabling people to rely on transit as a regular mode of travel.

From BC Transit’s projections in 2007/08, service hours would need to increase annually by 4.8 percent to reach the target for 2020. The Ministry of Transportation and Infrastructure projections were slightly lower; they projected service hours for BC Transit would need to increase by 3.8 percent annually to achieve a 2.5 percent growth in transit mode share by 2020 (with a focus on Victoria, but also increasing transit in the rest of the province).

The actual average annual increase in service hours from 2007/08 to 2012/13 was 3.3 percent.

Operating costs per service hour increased on average 4 percent annually, from 2007/08 to 2012/13, which is approximately 2 percent above the average inflation rate over the same period. This increase in costs is connected with a range of factors, such as fuel prices, wages, parts and maintenance, etc.

Figure 14 - Increase in cost of transit service provision (click image to enlarge)