Does Transit Cost-Effectively Help the Poor?

Almost every effort to justify subsidies to urban transit makes similar claims: transit supposedly saves energy, reduces greenhouse gas emissions, promotes economic development, relieves congestion, and helps low-income people. Previous policy briefs have shown that, in all but a handful of urban areas, transit uses more energy and produces more greenhouse gases than the average car; often makes congestion worse; fails to promote economic growth; and hurts the 95 percent of low-income workers who don’t ride transit.

Click image to download a three-page PDF of this policy brief.

But what about the 5 percent of low-income workers who do commute by transit (or, at least, did so before the pandemic)? For some transit advocates, it’s not enough that nearly 80 percent of the costs of transit are subsidized. They argue that, to truly help low-income people, transit should be free. Is transit a cost-effective way of providing mobility needed to thrive in modern cities?

Attempting to answer this question raises several more questions. How do we define “low income”? How many low-income people are dependent on transit? What might be a more cost-effective way of helping low-income transit-dependent workers?

Who Is Low Income?

Poverty rates in the United States are defined by the Department of Health and Human Services (HHS) and are based on income by family size. HHS uses one set of income numbers for all of the contiguous 48 states, regardless of differences in the costs of living. It uses a little higher set of numbers for Hawaii and an even higher one for Alaska. For 2021, the poverty line is $12,880 for a one-person household plus $4,540 for each additional person. Hawaii is 15 percent more while Alaska is 25 percent more.

Since this paper will rely on income and other data from 2019, it will also use the 2019 poverty line which was $12,490 for one person and $4,420 for each additional person. That makes the line $25,750 for a family of four.

The Department of Housing and Urban Development has a different definition for very low-income families, which is basically 50 percent of the median income in a state or metropolitan area. In many cases, regions with higher incomes also have higher costs of living (mainly housing), so a family whose income is $75,000 in San Jose may be struggling just as much as a family whose income is $40,000 in Houston (both of which are about half of 2019 median incomes).

Of course, some areas may be relatively wealthy without having a high cost of living. For example, housing costs in Charlotte, North Carolina are lower than in Bakersfield, California, but Charlotte’s median incomes are about a third greater than Bakersfield’s. Thus, 50 percent of median income overestimates the number of families in Charlotte that may have economic problems relative to Bakersfield.

Another issue is that measures of poverty or low income are generally for households or families while data regarding the incomes of transit commuters are for individuals. If a transit commuter who makes $25,000 a year is the only worker in his or her household of four people, then that household is below the poverty line. But if there are two workers in that household who earn $25,000 a year workers, or the household has only two or three people in it, then it is above the poverty line.

How Many Are Low Income?

According to the 2017 National Household Travel Survey, 70 percent of households with no vehicles, and that are therefore potentially transit dependent, earn less than $25,000 a year. If these households have four or more people, they are below the poverty line. Another 8 percent of households that have no cars earn between $25,000 and $35,000 a year and may lack cars due to economic hardships if they live in expensive communities or have five or more people in their household. Above $35,000 a year, about the same percentage of households in all income classes lack automobiles, so their decision to not own a vehicle is most likely a matter of choice, not poverty.

In all, about 7.0 million households below $25,000 a year and 7.8 million below $35,000 a year lack an automobile. According to table B08141, only about 41 percent of workers in households that have no automobiles took transit to work in 2019. That suggests that about 2.8 million to 3.2 million low-income individuals are transit dependent.

At the same time, American Community Survey table B08119 says that 2.4 million transit commuters earned less than $25,000 a year in 2019 and 3.3 million earned less than $35,000 a year. While some of those transit commuters may have been the only breadwinners in large households, this would be offset by workers who lived in households with other workers, thus bringing their total household incomes above poverty thresholds.

In short, whether from a household point of view or a transit commuter point of view, it appears that at most about 3.3 million people or households were transit-dependent in 2019 due to having low incomes rather than personal choice. Transit subsidies in 2019 totaled about $58.9 billion, or at least $17,750 per transit-dependent commuter.
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In 2019, there were a lot of cars that could be purchased new for under $17,750. These included the Nissan Versa at $13,255; the Chevrolet Spark at $14,095; Ford Fiesta at $15,135; and Toyota Yaris at $16,370. Several of these remain below $17,750 in 2021. While I don’t advocate buying cars for low-income transit-dependent people, this shows that the cost of using transit to provide low-income people with mobility is high.

Subsidy advocates will argue that transit provides other benefits, though I find those benefits dubious. The point is that, to the extent that the purpose of transit subsidies is to provide mobility for low-income people, then there are likely better ways of achieving that goal.

Comparing Urban Areas

Both transit subsidies and median incomes vary tremendously among urban areas. The table below shows 2019 transit subsidies in each urban area divided by the number of transit commuters who earned under $25,000 per year, $35,000 per year, and 50 percent of each urban area’s median income (the latter being calculated by interpolating numbers in the Census Bureau’s income classes). Transit for some urban areas, such as Bridgeport-Stamford, Concord, Mission Viejo, and Ogden, is partly or entirely provided by transit agencies headquartered in other urban areas (respectively New York, San Francisco, Los Angeles, and Salt Lake City), so I combined these for calculating subsidies per low-income worker.

Subsidies Per Low-Income Transit Commuter

At nearly $152,000 per year, San Jose had the highest median family income of any major urban area in the country. It might be expected that a large number of people would be included in the 50 percent of median income group, thus pushing down the subsidy per person. But this didn’t happen, partly because San Jose’s high housing prices have pushed low-income people out of the region and partly because San Jose has a particularly inefficient transit system. In general, the lowest transit subsidies per low-income commuter were in areas that mainly have bus systems, which tend to be less costly than rail.

Just counting commuting, which means about 480 transit trips per year (assuming people commute five days a week except for holidays and two weeks of vacation), it would cost far less to subsidize people’s taxi, Uber, or Lyft rides than to subsidize transit. Of course, low-income transit-dependent people use transit for more than just commuting, but for the cost of current transit subsidies most urban areas could provide low-income people with a subsidy of $15 per trip for 1,000 trips a year. Also, in most urban areas, the annual subsidy per low-income transit commuter—no matter how that number of commuters is counted—is more than the price of a new car in 2019.

Real Help for Low-Income People

In many places today, urban transit has become an amusement for high-income people. A few years ago, the median income of transit commuters was well below the median income of other American workers. Today, it is higher than that of any other commuters. In New York, Chicago, Washington, Boston, San Francisco, Seattle, San Jose, and many other urban areas, transit commuters have higher median incomes than almost anyone except people who work at home.

Rather than demand more transit subsidies, low-income advocates would do better seeking support that targets low-income people, not a specific mode of travel. Photo by David Meyer.

These high-income commuters are getting most of the benefits of subsidies to transit. If our real goal is to help low-income people, any subsidies need to be targeted to them so they won’t be captured by people who don’t need or deserve such subsidies.

As described in a previous policy brief, the best way to help many low-income people out of poverty (as opposed to enabling them to remain poor, which most welfare programs do) is to give them low- or zero-interest loans to buy a car. Programs that have done this have found that recipients of such loans are more likely to get better and higher paying jobs, reduce their dependence on various welfare programs, and afford better housing. Since most loans would be repaid, the cost of such a program would be low.

Such programs may not work for everyone. An alternative idea is to give transportation vouchers, similar to food stamps or housing vouchers, to low-income people. They could use these vouchers for any common carrier, such as transit, taxis, ride hailing, Amtrak, airlines, and possibly even buying a car or gasoline for their car. If we truly believe in helping low-income people, and are not just using it as an excuse for more federal spending, then targeted programs such as low-interest auto loans or transportation vouchers are more cost-effective than subsidies to transit.