Examining The Performance Impacts of Transit Operating Subsidies

Abstract

Transit operating subsidies have recently come under fire on the grounds that they've been largely responsible for the declines in the U.S. transit industry's productivity over the past decade. Surprisingly, until recently, there has been little statistical analysis to demonstrate the effects of subsidies on productivity, cost trends and ridership. The empirical evidence on operating subsidies impacts are reviewed. Results from a recent investigation of the impacts of operating subsidies in California are also presented. Evidence strongly suggests that subsidies have indeed had a degrading effect on transit performance over time, in particular contributing to higher unit costs and lower labor productivity. There's also some indication that operating subsidies might even have more perverse impacts when they are dedicated specifically for transit purposes. Although subsidies have also served to increase U.S. transit ridership, evidence suggests the costs incurred in winning over these additional passengers have been excessive. A combination of user‐side subsidies and providerside subsidies which are distributed on the basis of performance criteria might offer a better approach to underwriting transit expenses.