Should Transit Subsidize Ride Hailing?

A recent report from the Chaddick Institute, which is known to Antiplanner readers for its work on intercity buses, examines a dozen “partnerships” between transit agencies and ride-hailing companies. I put partnerships in quotation marks because I suspect these arrangements could easily prove predatory on one side or the other.

Click image to download a copy of this 37-page report.

The report notes that transit agencies have sought such partnerships for one of three reasons:

1. To provide transit riders with a first or last mile service between transit stops and their actual origins or destinations;
2. As an alternative to regular service in areas with low demand;
3. As an alternative to paratransit services to seniors and/or disabled people.

In some cases (1 above), subsidizing ride hailing is a way for transit agencies to keep their customer base happy (i.e., keep them from defecting to ride hailing altogether). In other cases (2 and 3 above), subsidizing ride hailing is viewed as less expensive than the transit agencies providing the service themselves. Note that these two objectives are contrary to one another: 2 and 3 are supposed to reduce costs to transit agencies but first/last mile subsidies increase them.

The report’s authors approach this trend from a completely different viewpoint than the Antiplanner. They take transit subsidies for granted and imagine that giving subsidies to people using ride-hailing services is just an extension of public transit.

Since I don’t take transit subsidies for granted, I find the whole idea that transit agencies should try to co-opt a competitor by hiring them to be both offensive and tactically questionable. Tactically, the transit agency runs the risk that people will decide that ride hailing is safer and more convenient than transit vehicles and simply stop using transit. At the same time, the ride-hailing companies run the risk that transit agencies will marginalize them into niche markets and then use government tax or regulatory authorities to reduce their competitiveness in other markets.

The offensive part of this, especially as applied to the first/last mile issue, is that no one is applying a means test to the subsidies. At least one transit agency said that it was attempting to provide the first/last mile subsidies mainly in neighborhoods with high percentages of low-income residents, but that doesn’t guarantee that the people who actually use it have low incomes.

In any case, the “takeaways” of the title are all directed at transit agencies. The authors note things like federal funding is available to transit agencies who want to try such partnerships and that transit agencies can use ride-hailing companies as a way of gathering data about their customers. These things aren’t reassuring to members of the public who will have to pay for these programs or who worry about invasions of privacy.
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The report contains remarkably little data about the success of these programs. How many people use them? How much did they cost or save the transit agencies? If they saved money, what did the agencies do with the money they saved?

The few smidgens of data in the report are mostly about Pinellas Suncoast Transit, which is supposed to have been the first to form such a partnership. In this case the partnership aimed to have ride hailing replace bus service in low-use neighborhoods. The project began in 2016, and four years later it was carrying only about 2,500 people a month, or about 80 people per day. The program costs Pinellas Transit about $5 per ride, down from $40 per ride for the buses it replaced.

Saving money sounds like a good thing, but why was Pinellas running bus routes that lose $40 a ride in the first place? (Pinellas Transit loses $5 to $6 a ride on its average bus routes.) There’s really no justification for running transit buses that cost $40 per rider, but is there justification for transit services that cost $5 per rider?

I also wonder how accurate the $5 per trip is for the ride-hailing service. The National Transit Database says that Pinellas has a “demand taxi” service that carried 25,000 trips in 2018. This is supposed to have cost taxpayers $14.47 per trip. It is possible that only some of these were through the ride-hailing service, but if so the FTA should create a new transit category for ride hailing.

In any case, the whole “transit-relieves-congestion” argument is out the window if what amounts to single-occupancy vehicles (the driver doesn’t count) replaces transit buses. Even as single-occupancy vehicles, ride-hailing is greener than Pinellas’ buses, which use twice as much energy and emit twice the greenhouse gases of the average car–but do transit agencies want to advertise that they are protecting the environment by replacing buses with ride hailing?

The research for the Chaddick report was done before the coronavirus, but the report opens with a note from the authors suggesting that more ride-hailing partnerships may emerge after the pandemic. The paper urges agencies to “establish rules that limit the risk of traffic diversion from scheduled” transit services and that agencies need to find “Finding the sweet-spot between being overly generous and overly restrictive.”

The question I have is why is transit needed at all if cars are cheaper and ride hailing is available for those people who can’t drive. Subsidizing ride hailing, especially for first/last mile service, is just going to create a new sense of entitlement, a feeling that people deserve to have free or subsidized transportation. Transportation costs are a fact of life, and making someone else pay those costs only reduces the incentive for people to find the best and most-efficient forms of transportation for them.