Race to the Top

Sunday’s New York Times Magazine reported on the Obama administration’s Race-to-the-Top education program and how it is subverting the power of the teachers’ unions. The administration would do well to adopt a similar program for transportation in general and transit in particular.

As the late UC economist Charles Lave noted 16 years ago, there was a “large decline in the transit industry’s productivity” after 1964, when Congress began funding transit with federal dollars. Noting that inflation-adjusting operating costs per unit of output had nearly doubled, Lave commented that, “It’s uncommon to find such a rapid productivity decline in any industry.”

Transit productivity has continued to fall since 1985, when Lave’s data ended. According to historic data published by the American Public Transportation Association (APTA), inflation-adjusted operating expenses have grown by 70 percent since 1985, and the number of operating employees has grown by 48 percent, yet transit ridership has grown by only 17 percent. APTA does not report capital costs before 1992, but since that year capital expenses have grown by 131 percent, yet transit ridership (which was actually lower in 1992 than 1985) has grown by only 24 percent.

FTA Administrator Peter Rogoff should try to reverse this trend by urging Congress to adopt a race-to-the-top transit program. Unlike the New Starts program, which rewards transit agencies for choosing high-cost transit systems, a race-to-the-top program would reward transit agencies for increasing outputs, not inputs.

Which outputs should be favored for increases? The obvious candidates are transit trips, transit passenger miles, and fares. Trips are a poor measure of transportation productivity, since a four-block trip on a Portland streetcar would be equal to a 90-mile trip on the Altamont Commuter Express. Longer trips are worth more because they provide opportunities to access more destinations.

Passenger miles are a more accurate indicator of transportation productivity, but they are not perfect. Smart-growth advocates would argue that higher passenger miles can indicate inefficient urban design, and while I think they exaggerate this, there is still some truth in what they say. Without entirely contradicting the previous paragraph, a short trip in Manhattan could be more valuable to many people than a long trip in, say, the middle of Wyoming. Perhaps more important is the monitoring problem: agencies rewarded for increasing passenger miles would be tempted to overreport such passenger miles, and it would be difficult for the FTA to detect or prove such false reports.

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The problem with rewarding agencies that do the most to increase fare revenues is that many people consider transit to be a charity to low-income people and others who can’t drive, and fare increases would violate that sense of charity. The solution would be to provide that charity in the form of transportation vouchers that would be redeemable on any public conveyance — taxis, airport shuttles, Amtrak, airlines, and so forth. Then the transit agencies would still be in a position of competing for the transit vouchers with service oriented to users, not to employees or rail contractors.

Could the FTA adopt a race-to-the-top program without Congressional approval? Most FTA money is distributed according to Congressional formulas based on such things as population, population density, and transit vehicle revenue miles (which is an input). This leaves the FTA with little room to reward outputs.

Some transit funds are not distributed based on formulas, but are open-bucket grants that transit agencies can apply for based on criteria set by the FTA. It is possible that the FTA could develop criteria based on outputs. But most of the open-bucket funds are oriented to rail capital improvements, so it would be difficult to use those funds to promote more efficient transit.

Curiously, the 2005 transportation law, SAFETEA-LU, specifically included a requirement that the FTA do a “study on incentives in formula programs” (see section 3034(c) on pp. 486-487 of the law). The previous subsection of the law particularly mentioned outputs (“performance categories”) such as trips and passenger miles per capita and per vehicle revenue mile.

Yet the FTA incentives study did nothing to evaluate the incentives created by the existing formulas or how new incentives could improve transit outputs. Instead, it focused solely on “the condition of transit assets” and “improving the transit industry’s ‘state of good repair.'” While a laudable goal, it focuses on inputs, not outputs.

Before Congress takes up a new transportation bill in 2011, Rogoff should order his agency to rewrite the incentives report. The new report should evaluate the incentives that are created by the current formula and open-bucket grants and how a revised system would improve incentives for increasing transit system productivities. If Congress accepts these recommendations, maybe urban transit systems in the 2010s will do more to serve the needs of transit users instead of transit employees and contractors.