Soundings

Josh Barro
Autonomy
Don’t blame cars for the shortcomings of mass transit.
Spring 2012

Advocates of mass transit like to point out that it isn’t the only form of transportation that gets public subsidies. In particular, road construction and maintenance have benefited from increased taxpayer subsidies over the last decade and a half. “Most drivers still believe that transit eats a huge chunk of transportation funding while roads are self-supporting,” laments Tanya Snyder of Streetsblog. But while it’s true that the government subsidizes all modes of transportation, road subsidies remain a small component of public and private spending on auto travel and are hardly the key factor that is making transit uncompetitive. A fair look at the whole picture shows that government subsidizes mass transit much more heavily than it subsidizes driving and that transit’s problems go far beyond subsidies for cars.

The mass-transit backers say, correctly, that the federal gasoline tax hasn’t been increased since 1993; since then, inflation has reduced its real value by about one-third. The same holds for some states’ gas taxes, though other states index their levies to inflation. The states and the feds, therefore, both have less revenue from gas taxes, meaning that they’re forced to increase the amount of general revenue—which comes from everybody, not just drivers, and thus constitutes a subsidy—dedicated to road construction and maintenance. Smart-growth groups like 1,000 Friends of Wisconsin aren’t wrong, then, when they remind their state’s taxpayers that “between 41 and 55 percent of [Wisconsin’s] road money comes from non-users.” In Wisconsin, Streetsblog notes, “Non-users fork over $779 per household for roads—as opposed to $50 for transit.” In fact, the advocates understate the road subsidy because they don’t account for the fact that in Wisconsin, as in most states, gasoline purchases are subject to an excise tax (which supports projects that benefit drivers) but not to a general sales tax (which benefits all the state’s residents).

But there’s still a big problem with this reasoning: while the road subsidy is larger than the transit subsidy in dollar terms, the transit subsidy is much larger as a percentage of the cost of transportation. Wisconsin residents, like state residents elsewhere, consume far more auto travel than transit travel. For example, 65 percent of the budget of the Milwaukee County Transit System, Wisconsin’s largest, was covered by subsidies from federal, state, and local governments in 2010. Madison’s public-transit system got a whopping 74 percent of its budget from subsidies that year. Those figures are both higher than the 41 to 55 percent of road spending that, according to 1,000 Friends, comes from subsidies.

More important is that the 41-to-55-percent figure is misleading: it refers only to the cost of roads, not to the total cost of driving. That total cost includes not only public spending on roads but also a host of private purchases—of cars themselves, maintenance, gas, and insurance. The total cost of driving also includes public and private expenditures on parking. To get an apples-to-apples comparison with transit, you have to include all these costs. We’ve grown accustomed to a system in which transit agencies buy many items for straphangers that drivers buy for themselves, but that doesn’t mean that you can ignore those items when you’re comparing the total costs of the two modes of transportation.

So what’s the total cost of driving? In 2008, Americans spent $500 billion on motor fuel (not counting the excise tax) and $173 billion on new cars (not counting taxes and fees). Also, according to figures derived from the Bureau of Labor Statistics’ Consumer Expenditure Survey, American households spent $223 billion on vehicle maintenance, repairs, and insurance. (We’re still missing a few categories, such as parking costs, purchases of heavy trucks and other commercial vehicles, and business and government spending on vehicle maintenance and insurance.) As for highway construction and maintenance, governments at all levels spent $181 billion on them, of which nearly $98 billion came from taxes and fees paid by drivers and the remainder, $83 billion, from general revenues.

All told, then, $1.08 trillion was spent on road travel, with government subsidies providing only $83 billion of the total. That’s a subsidy of less than 8 percent. Even if you add the implicit subsidy from excluding gasoline from general sales taxes, you push the percentage to just over 10 percent. No transit system in North America operates on a subsidy that small. So while the transit advocates’ general attitude is right—any subsidy for road travel is too much, and drivers should pay their own way—they overstate the importance of those subsidies in shaping how people get around.

Incentives matter, and if you ended subsidies for roads, people would drive less—but probably not much less. An end to road subsidies would raise gasoline prices by about 50 to 60 cents a gallon. Over the last decade, fuel prices rose much more sharply than that, which led to a modest reduction in vehicle-miles traveled, but there hasn’t been any sea change in our transportation practices.

That’s because the real culprit keeping Americans away from mass transit and inside cars isn’t subsidies; it’s planning and zoning. Cities impose barriers to density that limit the number of housing units and offices that can be located near buses and trains, which reduces mass-transit usage. These barriers also drive up property prices in areas near mass transit, penalizing transit-oriented living and encouraging people to live farther from urban cores, in areas where they have to drive. Meanwhile, cities often require builders to include a minimum number of parking spaces in new developments, depressing the market price of parking and further rewarding drivers.

A better approach would take advantage of the fact that proximity to transit increases property values. Cities should allow dense development, collect the property taxes that are generated, and use them to finance transit. Increased development also means more transit users and more fare revenues. But locals tend to oppose greater housing density; they also often demand parking minimums, since they don’t want to face too much competition for free on-street parking. An ironic result is that the very urban liberals who like to complain about suburban sprawl can end up encouraging it.

Another way to support mass transit is to make it more cost-effective. Costs for rail-transit construction in the United States are egregiously high compared with costs in Europe and Asia. Smart planning decisions, like the ones that Calgary made when planning its C-Train light-rail system, can help lower the cost of building new infrastructure. Many American transit agencies, especially in the Northeast and California, are saddled with uncompetitive compensation structures and work rules that drive up operating costs. And some jurisdictions should consider higher fares to increase revenues.

Transit advocates aren’t incorrect when they grumble about road subsidies. But if they really want American mass transit to work better, they’re missing the key target. A much smarter approach would be three-pronged: reduce subsidies, allow looser urban zoning, and get transit costs down.

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