Is fare-free a fair go?

It’s been a while since I posted anything so I thought I’d step in while Josh is away to help keep things ticking over, my apoligies for the length and wordiness of this one!

The outcome of last Sunday’s motorway closure in Newmarket left me with some sense of vindication as a public transport advocate. After coming out with predictions of mass gridlock while the Newmarket viaduct was closed, NZTA developed strategy of scaring people away from travelling anywhere at all (much to the chagrin of the Newmarket Business Association!). To me that seemed a bit draconian with the distinct flavour of the old ‘auto-apocalypse’ line of thinking. Would the city really grind to a halt with one motorway out of action? Did they really think that the only way to manage a motorway closure was to stop people going anywhere at all? Is Auckland really so dependent on it’s motorways that there is no other conceivable transport management strategy than a virtual curfew on leaving the house?

Luckily ARTA saw what was going on and came to the party by providing free trains and a more frequent timetable all day long. Certainly many people took advantage of that offer and patronage counts of 30,000 were reported, six times those of a normal Sunday . At the end of the day there was no car-mageddon, Auckland didn’t have a fatal heart attack because one if it’s arteries was pinched.

Now of course we don’t really know how much of this was due to people shifting to trains for the day and how much was due to people taking the advice of NZTA and not going anywhere at all… although Mike Lee of the ARC suggests that over 80% of train trips last Sunday (25,000 journeys) were due to drivers shifting to the train for the day. I have to question that figure myself: it seems he’s attributing everything above normal Sunday patronage to car drivers making the switch which seems a little too simplistic to me. However at the end of the day the massive increase in train patronage and the lack of gridlock does suggest one thing: that a combination of public transport ‘carrot’ and road ‘stick’ will get some people to shift their mode of travel, if only temporarily.

So this outcome got me thinking again about one of the great debates of public transport, should we make public transport free all the time? If one-off free trains sextupled the average Sunday patronage should we look at doing it every day?

Suggested benefits of fare free public transport

With this in mind I went off to revisit some of the websites around that promote free public transport, and at first glance they make a compelling argument. They talk about greater mobility, better transport efficiency, social justice, clean air and people friendly streets. For example, Fare Free NZ list the following as the benefits of free public transport:

• Drastic decrease in emission of exhaust gases
• Less noise
• Less traffic jams
• Better traffic safety
• Enormous savings in energy and raw materials
• Creation of new jobs
• Ascent of efficient economical development
• Considerably lower public and personal expenses
• Empowering of social justice
• Higher cultural dialogue
• Creation of friendlier urban environment

Assumptions around going fare free

Now this all sounds fantastic, but if you think about it this isn’t a list of the outcomes of free public transport, this is simply a list of the benefits of people driving less and using public transport more. None of this necessarily has anything to do with fares and I guess my number one issue with the fare free concept is this assumption. Advocates seem to automatically assume that getting rid of the personal cost of public transport will mean that people will ignore any other problem they have with it and all of a sudden the system becomes efficient and very well patronised. So at this point we have to examine a few assumptions in turn:

Is the cost of public transport the main reason most people don’t use it, or even a major reason?

I guess the argument is that the cost of travel is a major barrier to use, or perhaps that if there wasn’t any cost people would overlook the other barriers. If you look at the results of surveys or comments on forums and in the papers cost does come into it but there is plenty else going on too. The main issues seem to be about service levels and accessibility, things like “the bus doesn’t go anywhere near my work”, “I live miles from a train station”, “the bus only comes once an hour”, “the last train is half an hour before I’m finished”, “it takes just too long, two hours by bus for a twenty minute drive”. Now it is obvious that going fare free isn’t going to change any of these nuts and bolts problems about timetabling, routing and speed, although in cases of minor inconvenience we might trade off a little time and effort to save money. My view is there are much bigger problems holding people back from public transport than the price of a ticket, and addressing those first would reap bigger gains. There is only so far people will go out of their way to save money.

Would free public transport mean people shift from driving, or would they simply keep driving the same amount but also increase their public transport usage?

Classic economics tells us that consumption and price are interlinked. Basically the cheaper something is the more we use it, and that usage doesn’t always have much to do with our needs. So, subject to those function constraints outlined above, making it free should result in more use. Perhaps the biggest issue is that those routes that work well already might be swamped, while those that don’t work well wouldn’t see much gain.

It seems quite common to assume that any increase in transit patronage is a good thing, but is that necessarily so? In terms of efficiency and environmental impact the first goal should really be to avoid making trips in the first place. Not taking a trip means no energy usage, no emissions, no congestion. I guess the point I’m trying to make is that simply increasing travel for travel sake isn’t a good idea. The goal should be to limit travel in some cases and shift the mode of travel in others, it should be to improve efficiency and meet the mobility needs of the populace. One reason we have such traffic problems is that there isn’t a direct charge for using roads, and road pricing has been suggested as a way to address that. But on transit there is a direct price, and perhaps that is actually a valuable demand management tool that stops people making wasteful or frivoulous trips? At the end of the day if the roads still see just as much traffic but the buses and trains are clogged too have we achieved anything?

Can the system actually handle a major increase?

This is a potential issue when it comes down to the economics of public transport supply. There is only a limited amount of spare capacity in the public transport system at peak times, but perhaps a fair bit more outside of the peaks. So free fares might mean the system gets used more off peak, but it might place a huge amount of strain on it during peak times. To stop service levels degrading too much there would need to be additional investment in new vehicles, new buslanes and the like, so going fare free might just cost a lot more than the lost fare revenue alone.

Direct benefits of fare free public transport

So there are a few things to think about there, if one or a few of these assumptions are actually true then maybe it’s a good idea after all. However if we put the general benefits of increasing public transport usage to one side, there are a few things that we can attribute directly to having no fares:

The big one is that free fares means no fare collection costs. It takes a lot of money to collect money! Lets consider the amount of time bus drivers spend collecting cash and issuing tickets, the number of people employed on trains and service counters whose job is simply to sell tickets, and all the back end work required to count, check and bank the funds. It becomes apparent that collecting fares actually costs a fair amount of money in terms of labour. Right now it’s pretty hard to put a dollar figure on this cost in Auckland due to the fact there are so many separate organisations involved in public transport. However we can get an idea of the costs involved from Melbourne where all the ticketing in handled by a central state run company called the Transport Ticketing Authority. This company employs 103 people just to operate the backend of the ticketing system, let alone actually sell any tickets. Apparently the Transport Ticketing Authority alone costs the state about $50 million a year to run, albeit for a much larger system that Auckland’s. Both Melbourne and Auckland are working to introduce smart card ticketing systems that will hopefully reduce some of these costs, although the initial outcome from Melbourne has been massive budget blowouts. The new Myki ticketing system is costing over a billion dollars to install and run for ten years, that’s a lot of fares covered.

Another big issue zero fares could remove is the amount of time it takes to pay fares. This is particularly obvious on commuter routes leaving the CBD in the evening peak, sometimes it can take ten minutes for everyone to line up and pay the driver in cash as the board. I remember in my uni days of commuting from the Shore it would often take more time to load up the bus at Victoria St that it would for the bus to make it’s way out of the CBD and over the bridge! No fares means people can effectively just hop on and off buses as they please, using whichever door is convenient. Having no fares would almost eliminate boarding time, but there are of course other ways to get rid of the boarding delays. However a smart card system in conjunction with punitive cash fare rates would also slash boarding time, as effectively payment would be done at a ticket machine or over the internet and getting on board would just be a case of swiping the tag post to verify payment. Another option would be to have clippies on buses the way Auckland’s trains do currently, collecting fares after people have boarded. Other options would be fare-paid areas in the city and more ticket machines at bus stops.

A third potential benefit of free fares is that it also means free transfers. Right now if you want to swap trains, buses or ferries you have to pay another full fare regardless of how far you are actually going. Effectively this limits people to travelling in the one direction their local route goes (i.e. toward the CBD and back), despite the fact that you can get just about anywhere in the city by making a connection. Get rid of the ‘transfer penalty’ and all of a sudden you have the entire network available to you, you can hop on and off vehicles to you’re hearts content to make a journey. Creating this penalty free ‘network effect’ would go a long way to replicating the convenience that private cars afford when you need to make a series of small trips. There are of course other ways to avoid the transfer penalty, the obvious one being a time-based fare structure such as Auckland already has with the Northern Pass on the busway system.

But what are the costs and problems of going fare free?

Perhaps the biggest problem with going fare free is the loss of revenue. Again it is hard to tell just how much fare money is collected in Auckland each year due to the mix of operators and the whole issue of some routes being entirely commercial. However, looking at a few figures I think we can make a stab at it. The latest ARTA monthly report states there were 60.6 millon public transport trips made over the last 12 months, and that figure is climbing rapidly. Now a lot of those trips were made on concessions or the gold card scheme, and we have no idea how many stages was paid for each one. But assuming the average fare works out to a couple of dollars then we are looking at annual fare revenue of well over a hundred million bucks. This means it would cost the city over a hundred million dollars a year to go fare free.

Considering that the Auckland Regional Council’s annual rate revenue was $160 million last year, funding free public transport under the existing arrangements would require ARC rates to be more or less doubled, which is of course a political impossibility. While there might be big savings to be had in terms of reduced labour costs and time savings, none of that is going to result in cash payments back to the ARC although in the long term they could probably negotiate better terms of their deals with the operators. So to go fare free would require a new funding arrangements, something like an ongoing grant from the central government, a regional sales taxi or a regional petrol tax (about 7c a litre would cover it from my estimates). So while a hundred million dollars doesn’t sound much compared to some of the capital expenditure on transport infrastructure in Auckland, it is still a hundred million that the city would have to pull out of thin air.  We need to bear in mind that this extra hundred million a year is the cost just to maintain the existing system as it is today, the city would have to find this money before it even started to think about improving the service provision.

Another sticking point of no fares would be the required changes of contracting laws. All buses and ferries are run by commercial operators, they gain their revenue from a combination of fare sales and council subsidies. The train system is a little different, effectively it is entirely subsidised while the council keeps the fare money. The provisions of the Public Transport Management Act  allow the council to do the same with the buses and ferries too, but so far it hasn’t happened and the government looks set to change the law back again. Basically the ideology of past and current governments is that public transport should be run as a commercial business wherever possible and going fare free would obviously prevent this from happening. Therefore free fares would require the support of the central government to change the laws appropriately, and that isn’t likely to happen.

Going fare free would almost certainly mean a much reduced human presence on the PT system. On trains and ferries there would be no need to have staff onboard to sell tickets, and regular interaction with bus drivers would be gone too. There would be little incentive to have staff at stations or stops either… however this is also a potential outcome of a smartcard ticketing system and many paid systems throughout the world have only sporadic security staff as their human presence, so I guess it is moot.

There are all sorts of equity and social issues involved too, things like whether it is desirable to have ‘just anybody’ able to get on board any time they like, and whether things should be user pays or socialised public goods etc. I won’t really go into this here because it is a whole other kettle of fish but they could have a large impact.

My concluding thoughts

There are huge gains to be had by improving public transport patronage and the efficiency of the system in Auckland, but until the cost of public transport fares is the major barrier to PT use I think we should avoid going fare free.

Certainly removing user costs would make public transport more attractive and boost patronage, but there are perhaps much better ways to do that while still recouping some revenue from the users, Indeed patronage has increased in leaps and bounds over the last few years despite the requirement to pay fares, as each bus and train capacity and performance improvement have been met by resulting improvements in use. Zero fares would remove much of the time and delays associated with collecting fares and would remove the transfer penalty, but so would an improved ticketing system based around an integrate fare structure. Furthermore using the provisions of the PTMA act to shift to a totally gross contracted model with a central ticketing agency would gain a lot of the proposed benefits.

Perhaps the only unique benefit of going fare free would money saved by removing the labour and back end costs of fare collection. However as long as these costs are lower than the amount of fares collected and patronage is growing regardless, then the system is better off with that additional revenue stream.

I think free public transport is something for mature, wide reaching transit systems to consider, as much for social and equity reasons and functional ones. However in Auckland’s relatively undeveloped network there are much more pressing needs for spending those millions. At a billion dollars a decade free public transport is anything but free. Personally I’d rather see a city rail tunnel or a couple of busways built with the money that have ten years of fare free transport but no additional improvements. If anything, we should be looking at pricing private car travel, rather than un-pricing public transport.

As always folks feel free to leave your comments. Cheers -Nick R.

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