Fares, Finances and Frustration in New York City Transit

* The views expressed are his own and do not necessarily reflect the position of the New York City Administration.

To the question: "why live in the City?" Robert M. Haig, former President of the National Tax Association, once posed the countering question: " why not live in the City? " since it is more convenient to live in the City than anywhere else? His point was that one of the purposes of the City is to minimize transportation friction, the cost of getting together people, and people and goods. Today, thirty years later, we are having second thoughts about the City's function of solving transportation problems. To those who have to get about in big cities-most of us, I presume, -the City seems to be the center of transportation problems. New York City, with which I am here concerned, has a large assortment of transportation frictions, among them the friction of separating the citizens from money needed for better transportation.

Public transportation in the City is provided by the City Transit Authority, which operates the subways and a number of bus lines, and by several private bus companies. Another branch of the City government operates the ferries, which I shall ignore here save to say that they operate at a deficit. The subway is said to be the country's largest passenger railroad, in terms of numbers of passengers carried.

This railroad, together with the private and public bus lines, is crucial to the city to an unusual degree. With public transportation shut down, probably no more than a third of the workers in Manhattan, the heart of the city's economic life, could get to their jobs with the assistance of all the emergency measures that could be devised. The City's economy would abruptly wither; it simply could not operate as an economic organism. I think this is true of no other urban community in the country; most of the major ones have sustained and survived prolonged mass transportation tie-ups.

Despite this dependence, New York City transit, and I am now speaking of the publicly-owned sector, has been losing volume over the past decade. The decline has affected both the City lines and the privately-owned bus lines. Despite this decline, the City has put hundreds of millions of dollars into improving and modernizing its transit system during the decade, and faces a demand for the investment of several hundred million dollars more. The capital funds are all supplied by the City's taxpayers; only the operating expenses are met from the turnstiles and the farebox. There have been years when the fares have not sufficed for current expenditures, the most recent being in the early 1950's. Those deficits were made up by tax money, but the State in 1953 ended that practice by a law requiring the transit system to meet its own current expenses. The fare was raised in 1953, at the expense of considerable loss of traffic, and the system managed to cover operating expenses until the fiscal year ending June 30, 1958.

The City system is now running a deficit of an annual rate of some $20-$25 million a year, and I think it is nobody's secret that the fare will have to be raised again in the near future if the system is to continue meeting its own operating expenses.

That is, the fare will have to be raised unless the State law is amended which requires that the City system pay its own current expenditures, and unless the public is willing to put up tax money to keep the fare at 15 cents. As always, there is much opposition to a fare increase.

Fare increases have been one of the City's hottest political issues in the City for generations; the five-cent fare endured from the inception of the subways, through the inflation of two wars, and finally was abandoned only in 1948, in the face of large and mounting deficits. A change from 10 to 15 cents was made in 19531 under pressure from the State, after nearly $100 million of deficits had been accumulated.

The problems of declining traffic volume, the demand for more capital investment in the face of declining traffic volume, and the pressures for fare increases to meet the costs of current operations which will further reduce traffic volume--these are the elements which produce frustration. I shall now discuss them in more detail.

1 Reference is to the basic fares on the subway; public and private transit bus fares, also controlled by the City, have followed the subway fare but with a lag.

Total volume of passengers reached a pre-World War II peak in 1930, before the addition of the Independent line which increased the track mileage by approximately 30 percent. Traffic fell over by 30 percent between 1930 and 1934, under the impact of the depression. These were the days of the 5-cent fare, and since other prices generally fell, in effect the cost of transportation, measured in terms of purchasing power sacrificed to buy a subway ride, increased by something like 25 percent in the same period. Thereafter traffic volume gradually rose under the impact of recovery, then war, then postwar prosperity coupled with the automobile shortage, and finally reached a new peak in 1947. The 5-cent fare still remained; in terms of purchasing power sacrificed, the price of a subway ride fell by 40 percent between 1934 and 1947.

Fares were raised from five to ten cents in 1948 and from ten to fifteen cents in 1953. Between 1948 and 1958, traffic volume declined by more than 35 percent, or by more than 700 million passengers. The decline in rush-hour traffic over the decade was 20 percent while the decline in non-rush hour, week-day traffic was 33 percent and in weed-end holiday travel, 50 percent.

How much of the decrease in traffic volume was due to the fare in-creases? Assuming that in the absence of fare increases, the overall decline would have been 3 percent per year, the cumulative decline over the 10-year period would have been approximately 26 percent-535 million passengers, as opposed to the actual loss of more than 700 million.

My own guess is that the decline would not have exceeded two percent per annum, which would amount to 18 percent over the decade, or 370 million passengers, as opposed to more than 700 million.

The transit system by 1948 had gone past the end of the road with the 5-cent fare and in that year ran an operating deficit of some $21 million. The increase of the basic subway fare from a nickel to a dime pulled the system out of the red for only a year, and by 1953, it had accumulated operating deficits of some $100 million, which were finally paid by the real estate taxpayers. The system had better luck with the

15-cent fare, which produced modest operating surpluses for four years; but in 1958, largely due to a substantial wage increase, the system skidded back into red ink.

I will cite a few more figures on unit cost changes to add further perspective. The costs per revenue passenger rose by 156 percent in the period 1948-1958. Costs per vehicle mile, another measure of unit costs, increased by 104 percent. The difference in the two reflects the fact that passengers per vehicle mile fell off by something like 20 percent.

This increase in unit costs is far greater than has occurred in most other industries. For instance, manufacturing unit costs, as measured by the wholesale commodity price index, have increased by about 35 percent in the same period.

The rise in operating costs is of course

partly attributable to the fact that overhead expenses, such as central administration, maintenance, and the like, are spread over fewer units.

These costs do not decrease commensurately with the drop in revenue passengers (35 percent) or the drop in vehicle miles operated (18 percent). Also, more pronounced peaking means that average operating costs are higher, since many employees who draw full pay work effectively only at the peaks.

As I have said, the prospective deficit is something like $25 million or more for fiscal 1959, and we face again the old question of where the money is coming from. There is much to be said for following the instincts of our best politicians and not raising fares. In the past, increases have led to abrupt declines in traffic, particularly non rush and weekend and holiday traffic, of a magnitude which leaves no doubt that the demand for transit service is elastic. The marginal or differential cost of running trains at non-rush hours is very low, so that the non-rush hour riders could be carried at reduced fares. Also, it is easy to demonstrate that the community incurs a social loss by reason of the loss of traffic, due to higher fares, which can be carried for low marginal costs.

Nevertheless, the principle of reduced rates for off-peak service has never found acceptance on the mass transportation systems, as it has on the long-distance rails and airlines, the electric power industry, the telephone, and so on. In fact, in the case of the commuter railroads, the practice has been to encourage peak travel by reduced fare commuter tickets which are used almost exclusively for journeys to work.

When fare reductions for off-peak travel have been suggested for the New York subway, the idea has been hooted down by the noneconomist politicians (approximately 99-44/100 percent of the total) as well as by the practical operators.

The politicians and much of the community oppose the idea of reducing prices for off-hour rides because they say it discriminates against the workers who have no choice but to ride the system during-rush hours.

The operators oppose the idea because of the alleged difficulties of installing the machinery for a differential fare. Besides, they have another potent economic argument in their favor. This is the fact that although the off-hour travel is more elastic than rush-hour travel, the elasticity so far found has been considerably less than unity. If lower fares were charged for the off-hour rider, the traffic gain would not compensate for the lower price, so lowering fares to encourage off-hour traffic generally means lower total revenues. Since nearly all transit systems are expected to pay their own way, at least as to operating expenses, their operators naturally do not take warmly to any proposal which cuts into receipts, even if it provides additional service to the community.

The loss of traffic which inevitably accompanies a fare increase will either result in less travel, or substitution for transit of alternative forms of travel, with all the consequences of increased motor traffic congestion, changed habits of shopping and recreation, and so on. In New York City, some of the downtown merchants have gone so far as to advocate abolishing the subway fare for the sake of preserving the downtown area.

Another point against increases in New York transit fares is that fare increases are considerably more regressive than any tax which might be imposed to make up the subway deficit.? However, on the point of imposing taxes to make up operating deficits, it must be shown that making up transit deficits out of general funds promotes community welfare better than alternative uses of the same funds.

If the choice lies between raising transit fares and making up the same amount by raising some other not-too-bad tax, it is not hard to make a good theoretical case for imposing the tax. But if the choice is between diverting public funds from some other purpose, in order to subsidize the subway, the case is not so clear. In the case of New York City, the demands upon its revenue sources are so great and the obstacles to getting more revenue are so formidable, that there is some reason to think that tax funds to help meet transit system operating expenses would in fact represent a diversion from some other type of public expenditure.

So much for fares and finances. I will now discuss some of the other elements of frustration in the picture.

To begin with, although the annual traffic volume on the subway has fallen off by more than 700 million riders in the past decade, there are heavy demands for additional facilities. Anyone who has ridden on the subway during rush hours, particularly along the routes east of Fifth Avenue leading into Grand Central Station, will have no diff-culty understanding why. These have always been jammed, and with the bountiful crop of big new office buildings springing up in the area, they are more jammed than ever. One of the plans for alleviating this condition was to build another north-south line along Second Avenue in Manhattan, and the City sought and obtained a special exemption from its constitutional debt limit of $500 million for this purpose. By the time the money was available, estimated costs of the line had risen to the neighborhood of a billion dollars, and the Second Avenue Line was never built. Instead, the funds have been used for other capital improvements, including the replacement of ancient rolling stock.

2 See Robert M. Haig and Carl Shoup, The Financial Problem of the City of New York, New York City Mayor's Committee on Management Survey (New York: 1952), pp. 402-409.

Some of the improvements, including those for station widening, have made it possible to ease congestion, as by running longer trains.

But these improvements have by no means abated the condition of desperate crowding into areas of concentrated and increasing employ-ment, especially in the Grand Central area.

Forecasts thus far are that employment in Manhattan may fall somewhat over the next two decades, and we can confidently expect that transit riding will fall with it. Any decline will not affect the concentrations of employment in the areas where congestion is worst, however, in the foreseeable future.

What is being demanded of the City, therefore, is an enormous further expenditure, not to take care of future growth or to stimulate expansion, but merely to improve the condition of the hapless rush-hour sardines.

The transit system needs more volume for economical operation, but not volume which would add to peaks which are already causing trouble. Most of all, it needs more traffic during non-rush hours, when capacity can be provided for very little additional cost. However, it seems highly improbable that the trends in shopping and recreation patterns which produced the traffic losses of the past will be reversed, even by offering lower fares and better service. And, even if it could be reversed, the measures required would be costly, and would divert a good many million dollars from other uses. I must confess, however, that I have an intense curiosity about what would happen if fares were eliminated altogether for everyone who entered the system between, say, 10 a.m. and 4 p.m. on weekdays.

The City's public and private transit system mainly serves city residents. In addition, there are some 370,000 non-residents who commute to the city each day, about 190,000 of whom come in by train.

However, while total commuting increased slightly during the 1950's, rail commuting has fallen off somewhat. The commuter railroads, faced with rising costs and declining traffic volumes, have cut service and raised fares, but still claim to lose large amounts on their commuter operations.

Between 1950 and 1955, commuter traffic across the Hudson to New York City declined by 12 percent. But commuter railroad passengers declined by 27 percent and Hudson Tube passengers by 36 percent, while bus and auto passengers were increasing by 36 percent.

Now we have a proposal from the Metropolitan Rapid Transit Commission for a new rail loop, with one north-south branch in Manhattan from the Battery to 59th Street, and another parallel branch in New Jersey, connected at each end by Hudson River crossings. The Jersey side of the loop would collect passengers from the commuter railroads which now stop at the west bank of the Hudson, plus passengers carried to loop stations by other means.

The capital cost of this project is estimated, optimistically, I think, at some half billion dollars.

The project planners (the Metropolitan Rapid Transit Commission) hold that it cannot be self-supporting, and propose that the deficits be made up by contributions from the metropolitan counties whose residents are served by the loop. The proportion of the total deficit to be borne by the county would be based on (1) population and (2) value of taxable property. Under this formula, Manhattan would make up about a third of the total deficit, and New Jersey the rest.

This project is primarily to improve the quality of transportation for a declining or stable volume of passengers, not to promote growth. The trends of commuter traffic and the projections of the volume of employment in Manhattan do not afford much basis for thinking that the shape of the metropolitan community would be much affected by the rail loop.

However, if the proposed New York-New Jersey rail loop does promote growth, the growth will most probably take the form of residential development in the areas served by the loop. The new residents probably would be middle-income persons moving from New York City itself. Such residential development might benefit the New Jersey communities, though this is not assured because the new residents would require the usual large amounts of new social capital and expensive governmental services.

But what about the Central city? New York is already worried about the flight of middle-income residents to the suburbs, and is going in for middle-income housing projects to encourage them to stay put. Should it at the same time engage in subsidizing the construction of expensive new transportation facilities to encourage them to move out?

All of these considerations lead me to think that the only clear benefit of the proposed half-billion rail loop would be to the prospective users, and that it should be built only on the presumption that the users will pay the entire bill.

Having reached this tentative conclusion, I am bothered by something else. I am not sure that the logic of things dictates that we should undertake to build and operate brand new and vastly expensive commuter railroads, while the existing commuter railroads are going broke in the same business.

The only justification that I can see for a New York City subsidy to the proposed Jersey-Manhattan rail loop lies in the possibility that it would alleviate traffic congestion on the city's streets. But here again we are without definite answers. Cars taken off the road to the city by the rail loop might merely be replaced by cars from other parts of the metropolitan region, most likely from other mass transportation facili-ties. And in any event, the periods of greatest congestion on the routes connecting New York with the suburbs and exurbs are not on working days. They are on week-ends and holidays. Week-end and holiday traffic, which cannot be taken off the road by bettering mass trans-portation, is coming more and more to control the amount of highway facilities needed, so that we cannot save money on highways by improving mass transportation.

Now to sum up the frustrations:

1. In the city transit system, rising costs in the past decade have outstripped the increased revenues from a 200 percent increase in transit fares. If fares are raised, traffic, which already has fallen 35 percent in the past decade, will certainly fall still further. But if fares are not raised, operating deficits will have to be made up by new taxes, or by diverting tax revenues from other functions.

2. Despite generally falling traffic, congestion continues to increase in certain crucial parts of the system, where capacity can be increased only by enormous capital expenditures.

3. Traffic declines have been greatest in non-rush hours and weekends and holidays, times when the transit system has excess capacity. But lowering fares for such traffic will only reduce total revenues.

4. Rail commuter traffic from across the Hudson has been decreasing, while private automobile and bus traffic has been increasing, at the expense of congestion on Manhattan's already over-crowded streets. But building a better Manhattan-Jersey connection would involve the city in an inconsistency with its middle-income housing program, would not necessarily reduce traffic congestion where it is worse, and would not reduce the need for highways into and out of the city.

From these frustrations, there is no easy salvation, and no salvation at all from some of them. Nevertheless, over the long run they can be eased or worsened, depending upon how they are attacked.

What is most needed is a recognition of the fact that transportation is a region-wide problem and that its various aspects need much closer coordination than has been achieved thus far. The following measures deserve serious consideration:

1. Closer attention to the problem of assigning to the private automobile and to mass transportation their proper roles, and policies for putting on mass transportation as many as possible of those who can use it.

2. Improving transit to make it closely competitive with mid-twentieth century automobiles.

3. A coordinated pricing approach, which will reflect the respective social costs of private automobiles and mass transportation. We must face the hard question of whether to redress the imbalance between automobile use and mass transit use by raising the price of automobile use in congested urban places or lowering further the price of mass transit. I have discussed this question previously before a panel of this Association, in a paper delivered at the 1955 meetings.

4. Coordination of the various agencies charged with handling transportation, and pooling of resources. With proper pricing policies and pooled revenues, I think transportation in the metropolitan area should be able to pay its own way.