The right policy tool for the problem

Ideally transit agencies should not have to be in the position of directly alleviating income inequality. They should play a supporting role by getting people to opportunities; federal and state policies like taxes, minimum wage and benefits laws, and guaranteed income programs should be addressing the outrageous inequality and poverty in the US.

If poverty was addressed in other areas of public policy, then transportation policy could focus on using pricing to shift behavior to address congestion and emissions. The US should have high quality transit at a low to no cost to users to make it competitive, and be partially funded by making the cost of driving reflect its true social cost. But unfortunately we are far from this reality, so transit agencies are often in the position of trying to solve multiple policy problems with limited tools.

Means-testing is at the center of progressive public policy- just usually we think about it as income (individual and corporate) taxes. But transit agencies don’t have the power to levy income taxes. So means-tested fares are one of the few tools they have to raise revenue in a progressive manner (value capture is another idea often discussed).

Multi-modal agencies like the MBTA use mode as a proxy for income in their fare policy with lower bus fares and higher commuter rail fares. But this can be a self-fulfilling cycle reinforcing the existing usage of bus by low-income riders and exclusion of low-income people on commuter/regional rail. It has become a greater concern with the suburbanization of poverty. (Addressing housing affordability is critical, but again one that many transit agencies have limited control over.)

Free transit for all and means-tested fares are popular policy ideas for addressing transit affordability, but let’s continue to remember the root cause of the problem is policies that create vast income inequality. How equitable either idea is in part depends on where the lost fare revenue will come from. For example, replacing all fare revenue with sales tax revenue is likely more regressive than means-tested fare system where higher income riders pay fares. All calls for free or means-tested fares should be associated with a funding source that ensures low-income people aren’t just paying in a different form (and additional funding to increase service since people’s time is also a cost!).

The mix of funding sources for every major transit agency in the country is different. In 2019, the MBTA reported a 44.6% farebox recovery ratio to the National Transit Database while the Los Angeles Metro reported 14.6%. The differences are both local funding sources, rider demographics, and types of services offered. LA Metro doesn’t run the regional rail while the MBTA does.

This means that a one-size fits all policy at the transit agency level isn’t possible. From a funding perspective what works in LA, won’t necessarily work or be equitable in Boston. However, the affordability arguments for free fares or means-testing are universal. The farebox recovery ratio is meaningless to a rider trying to make ends meet every day in LA or Boston or anywhere in-between. And whether a person has to ride a bus or a train to get from A to B (and who operates it) also doesn’t matter.

To me this is a clear indication of the need for federal policies to address both income inequality and public transit funding. Transit agencies only survived COVID because the federal government passed three rounds of emergency funding (totaling ~$70 billion). But this was the first major federal funding for transit operations (not capital) since it was cut by President Reagan in the 1980s.  A return to regular federal transit operating assistance, funded by a progressive (and true cost of driving) source, could allow agencies to increase service and either lower fares or implement means-tested fares.  

A weedy postscript on fares and federal tax policy