Friday, December 26, 2008

Managing Urban Transit Systems - A Case Study

An excellent case study about public transport systems in New York, especially important in view of the times we are living through.

There is an intense debate raging in New York over the decision by the Metropolitan Transport Authority (MTA) of New York to steeply raise base subway and bus fares, bridge and road tolls, and cut subway, bus and commuter rail services, in the face of increasing operating costs and declining revenues. Further, in the recent past, the metro has been the target of stinging public criticism on its poor maintenance of trains and stations.

In order to limit the fare and toll increases and service cuts, the MTA has appealed to the New York state government for a bailout plan. However, the ongoing recession may have tied Albany's hands on any fiscal hand outs. The MTA has therefore also proposed a modest payroll tax on businesses, unions and governments in the New York city area, and imposition of tolls on a couple of hitherto un-tolled bridges.

To summarize the learnings from this case study, especially relevant for many Indian cities which are moving towards modernizing their urban public transit systems:

1. Public transit systems like metros, being expensive, need some form of government subsidy or cross-subsidy with other transport systems. Forget the huge upfront investment required, even its operation & maintenance (O&M) costs are substantial. In the circumstances, it will have to be financed both by large enough user fees and government support.

2. Crucial decisions on bus and rail fares, tolls, etc have to be de-politicised, and taken on professional considerations. If the government so wishes to keep fares and tolls low, inspite of the need to raise them, it can subsidize the commuters by direct cash transfers (either to the operator or by vouchers to specific categories of commuters). Periodic raises in tolls and fares, atleast for the newer systems, should be a built-in feature when these systems are opened for use.

3. Urban private vehicle users, especially in major cities, have to be made aware of the cost of their convenience of using personal vehicles. Private vehicle road usage has a social cost (in terms of space occupation, reduced travel times, increased probability of accidents etc), which has to be internalized by way of user charges or road tolls. Public transit systems should be cross-subsidized with these user charges and tolls. Private vehicle owners can be weaned away to public transit systems like metros only if they are reliable, well-connected, stations have parking facilities and offer quality services.

4. Local public transport policy decisions have to be made from the systemic perspective, rather than as piece-meal solutions, so commonplace in India. The decisions affecting metro/train and bus fares, road and flyover tolls, restrictions on private vehicle entry (congestion charges), parking fees etc have to be taken keeping in mind an integrated perspective of the local urban public transit system. Most of our cities, despite clear directions of the Government of India, do not even have MTAs. Wherever these MTAs are present, their effectiveness and proficiency is questionable.

5. State and local Governments will continue to have a major role to play in the effective functioning of these systems. Appropriate regulatory interventions apart, financial support too will have to be a near permanent feature of the urban transport landscape. Given this context, the red herring of commercial viability raised by the ridiculous bid for the Hyderabad Metrorail Project, should quickly be set aside.

6. As the example of New York shows, structuring the O&M model for public transit systems is a complex challenge. These decisions have to be taken keeping in mind the specific character of the commuter bases, revenue streams from the different sources, availability of service providers in the local market, and the linkages between the different elements of the particular system and different systems.

7. In such weak economic times, the revenues of public utilities take a hit, investments in such public goods gets postponed or even cancelled, and the state government's ability to intervene and assist with bailouts become constrained. Therefore one of the more important fiscal stimulus strategies will be to transfer funds to cash-strapped local governments, who will otherwise cut down on their services, postpone investments, or raise user charges, all of which will affect the local economy even more adversely. The benefit transmission belt from assisting local governments is very obvious and delivers full bang for the buck.

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