8 December 2005
Among the many arguments rail advocates use to promote their cause is the claim that rail transit costs less to operate than buses. The savings, they claim, will soon pay for the cost of rail construction.
Rail supporters point to St. Louis, where the Bi-State transit agency says it spent 29 cents per passenger mile operating light rail but 88 cents per passenger mile on buses in 2003. Since the agency reports that it carried 125 million light-rail passenger miles, this savings amounts to $72 million per year. That would cover the $800 million cost of building light rail in a little more than 11 years. Of course, this does not take into account interest or the difference in inflation between 1992 (which much of St. Louis' light-rail line was built) and 2003.
As pointed out on page 353 of The Vanishing Automobile, a major flaw in this reasoning is that light-rail operating costs are not comparable to bus operating costs. New light-rail lines "skim the cream" of transit riders because they tend to be built in the busiest transit corridors. Since costs per passenger mile depend heavily on ridership, the cost of any transit running in a busy corridor is likely to be less than the cost of a bus roaming through low-density suburbs.
But let's take the operating cost averages for granted for a moment and look at the nation's new light-rail lines to see whether operational savings can ever cover rail's high construction costs. Table one, which is based on the Federal Transit Administration's 2003 National Transit Database, shows how much money light rail saves in operating costs if we believe the average operating costs for buses represent the operating costs of buses in light-rail corridors.
Table One Potential Operating Savings from Light Rail Light Rail LR PM LR $/PM Bus $/PM Savings Baltimore 48,554 0.71 0.72 $386 Boston 173,900 0.60 0.75 25,924 Buffalo 14,444 1.18 1.01 -2,396 Dallas 120,674 0.48 0.97 59,564 Denver 45,495 0.44 0.73 13,145 Hudson-Bergen 12,347 1.29 0.59 -8,687 Los Angeles 225,712 0.38 0.51 28,668 New Orleans 13,475 0.70 0.70 -44 Philadelphia 61,018 0.72 0.81 5,377 Pittsburgh 31,988 1.00 0.77 -7,248 Portland 169,572 0.33 0.72 67,163 Sacramento 47,365 0.64 0.91 12,626 Salt Lake City 91,173 0.36 0.92 30,827 San Diego 159,356 0.24 0.55 48,366 San Francisco 109,941 0.98 0.86 -13,578 San Jose 26,815 1.90 1.39 -13,692 St. Louis 124,973 0.29 0.88 72,798LR passenger miles (PM) and Savings are in thousands. Operating costs are from table 12 of the National Transit Database Passenger miles are from table 19 of the National Transit Database
The table shows that bus and light-rail costs per passenger mile are nearly identical in Baltimore and New Orleans, and buses actually cost less than light rail in Buffalo, New Jersey (Hudson-Bergen), Pittsburgh, San Francisco, and San Jose.
Still, light rail achieves significant annual savings in ten cities. Are these savings sufficient to justify the cost of light-rail construction? It is difficult to answer this question in Boston, New Orleans, Philadelphia, and San Francisco since light-rail lines in these cities are upgrades of older rail transit lines, so we really don't know how much they cost to construct.
The other cities are "new" light-rail cities, meaning they had bus-only transit systems before 1980 and built new rail transit lines since then. Approximate construction costs of light rail in each of these cities were published in a recent paper by Nathan Baum-Snow and Matthew Kahn. The dollar costs in table 1 of Baum-Snow/Kahn's paper are in "current" dollars, meaning dollars in the year they were spent. Baum-Snow & Kahn did not have data for Hudson-Bergen and Salt Lake City, so I used numbers reported by the lightrailnow.org web site for Salt Lake City and newspaper reports for Hudson-Bergen.
I used standard GNP price deflators to convert these costs to 2003 dollars so they are comparable to the 2003 savings shown in table one. Since rail lines take several years to construct, I used the year prior to the opening date of each rail line as the average date that the dollars were spent.
Capital costs are one-time only while operating costs are annual. To convert construction costs to an annual figure, I amortized them over 30 years at 7 percent interest. Thirty years represents the average lifespan of rail hardware: roadbed, tracks, electrical transmission systems, cars, stations, and so forth. I used 7 percent both because it is prescribed by the Federal Transit Administration for amortizing capital costs and because it is likely that a local government with a few hundred million dollars on its hands could find an investment somewhere that would return 7 percent. For comparison, I also used 4 percent.
Table Two Annualized Capital Cost v. Operational Savings Light Rail Cap Cost Amort 7% Amort 4% Op Savings Baltimore $757 $60.4 $43.4 $0.4 Buffalo 1,007 80.4 57.7 -2.4 Dallas 1,540 122.9 88.2 59.6 Denver 413 33.0 23.7 13.1 Hudson-Bergen 1,128 73.6 52.8 -8.7 Los Angeles 2,028 161.9 116.2 28.7 Portland 1,538 122.8 88.2 67.2 Sacramento 302 24.1 17.3 12.6 Salt Lake 451 36.0 25.8 30.8 San Diego 997 79.6 57.1 48.4 San Jose 1,024 81.8 58.7 -13.7 St. Louis 918 73.3 52.6 72.8All numbers in millions.
Table two shows that operational savings on none of the light-rail systems are greater than amortized capital costs at 7 percent, though St. Louis is close. At 4 percent, both St. Louis and Salt Lake cover their capital costs with operational savings.
What makes St. Louis and Salt Lake City special? According to the FTA data, one important factor is the huge difference between the average number of people riding light-rail cars and the number riding buses in those cities. St. Louis and Salt Lake light-rail cars both carry an average of 24 people over the course of a day while St. Louis buses have only 7 and Salt Lake buses average only 5.
Does anyone really think that express or limited buses running in the corridors now served by light rail would average only 5 to 7 riders? In the case of Salt Lake, if buses carried just 20 percent more riders, light-rail's operational savings would be less than annualized construction costs even at 4 percent.
If transit agencies truly want to save money on operating costs, the data point to a much better way than spending hundreds of millions or billions on rail transit. Several transit agencies that have light rail also contract out some of their bus services to private operators. This results in a substantial savings: as shown in table three, private operators are able to operate and maintain buses for about half the costs of government agencies.
Table Three Cost Per Vehicle Revenue Mile Directly Contracted Percent City Operated Out Savings Los Angeles $8.69 $4.45 49% Philadelphia 9.67 2.41 75% Dallas 7.89 3.59 54% New Jersey 7.82 4.36 44% Baltimore 9.74 5.33 45% Denver 7.13 3.83 46% Boston 10.16 2.61 74%
The advantage of contracting out is that transit agencies can use the operational savings to expand service into other areas. This is much more difficult if agencies must spend a large portion of their tax base on paying back the debt incurred to build rail transit.Please feel free to forward or reprint this article with appropriate citation.