Saturday, March 16, 2013

Let’s Get the Price Right

Way back in June 2008 I wrote about a report that had just come out written by Trent University Professor Harry Kitchen.

This report was called Financing Public Transit and Transportation in the Greater Toronto Area and Hamilton: Future Initiatives.
We need an effective and efficient public transit and transportation system for economic and environmental reasons. An important aspect of what must be done is setting correct prices.

Kitchen’s argument was this:

“A more efficient and effective transportation system can only be achieved if users (businesses, individuals and governments) pay for the infrastructure and operational cost of services it provides – building, maintenance and repairs plus environmental damages."
He set out some principles.
For example, those who benefit from local infrastructure and the services it provides should pay for it. (This is called the benefits based model.)

According to Kitchen, services such as public transit and highways “have a mix of private and public good characteristics” and, therefore, financing should be based on the theory of “second best.”

Principles of efficiency and fairness would suggest that car and truck drivers pay a charge that reflects the full cost (capital, operating plus congestion and environmental costs).

But car and truck drivers pay nothing to local governments for each trip taken while transit users are charged when they travel.

This logic justifies some subsidization of public transit but also provides rationale for the implementation of road charges that are designed to control road use.

So while subsidizing public transit makes sense Kitchen says that determining the exact subsidy (and what you’ll pay at the farebox) is a “tricky business” that really has more to do with politics than actual costs.

But it shouldn’t be that way.

If there was a level playing field “public transit might not require a subsidy to be competitive: certainly it is unlikely that it would require the size of subsidy it often gets.”

 In the report Kitchen explored seven different ways to help fund the restructured GTAH transit and transportation system.

1. Dedicated Municipal Fuel Tax
2. Tolls and Congestion Charges

3. Tax on Non residential Parking Spaces
4. Vehicle Registration Charges

5. Drivers License Charges

6. High Occupancy Toll Lanes

Apparently HOV lanes in the U.S. are not meeting their objectives. So in some cases these lanes are being turned into High Occupancy Toll Lanes where you can pay for the pleasure of getting a faster ride

 7. Value Capture Levies
If a property’s value is enhanced through spending on public infrastructure and zoning decisions it could be appropriate to capture some of the gains that the private sector has realized.

A sequel to this report came out earlier this year.  You can find it at

Tomorrow I’ll come back to the proposed Burlington fare increase.