A side note on fares and federal policy

Deep in the weeds of the MBTA’s fare revenue there was a golden egg

There is another way that the federal government subsidizes transit and that is through the pre-tax deduction for transit fares (and parking at transit lots). While this benefit primarily goes to individuals who work in higher paying jobs whose employers participate in these types of programs, transit agencies benefit as well.  I only know the details at the MBTA, and it is worth exploring the COVID impacts and thinking about what changes are needed.

Before COVID the MBTA’s corporate pass program was the golden egg of fare revenue. People could only sign up for monthly passes on a reoccurring basis and the cost was subsidized by the pre-tax payment and often by employers. This allowed the MBTA to set higher commuter rail pass prices. It also meant that often high income riders bought passes for which they didn’t take the number of trips required to break-even at the sticker price. The MBTA got revenue from passes without having to provide all of the capacity they could have represented.

This was equity enhancing only because the MBTA has a weekly bus/subway pass that is roughly ¼ of the monthly to maintain pass access for low-income riders not in the corporate program. And because the agency could use the corporate pass revenue to fund service for the bus/subway pass users riding more than the breakeven point. So commuters (really the federal government and employers) were subsidizing everyday riders.

The COVID pandemic likely killed this golden goose for the MBTA. First, many people turned off their transit payroll deductions during the pandemic and will have to be convinced to resign up. And second, it is likely that some continued remote work will make the monthly pass less attractive, even with the pre-tax benefits. It is also possible that large employers will reduce their subsidies for transit (please don’t).

This means even as ridership returns fare revenue could lag behind, thus creating a structural problem if there isn’t a new source of sustainable operating funds.  This new source of funds should also be equity enhancing, not higher fares on the remaining riders.

Clearly the MBTA, and other transit agencies previously reliant on pass revenue, have to rethink their fare structures over the next few years, including different products in their corporate programs (will require technology upgrades). It will also be important to make federal and employer transit benefits more available for lower wage workers in industries where remote work isn’t an option.    

I would be curious to hear from folks with knowledge of other agencies’ fare mix if there are similar or different concerns about how fare revenue will return. Do people have suggestions about how to make sure the federal transit pre-tax policy remains a useful tool for transit agencies?

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