February 15, 2007
By Robert W. Poole Jr.
The Brookings Institution is America’s oldest public policy think tank. Based in Washington, DC, it is well-respected and generally considered to be moderate-liberal in orientation. As American Enterprise Institute is informally considered a place for Republican office-holders to reside when out of power, so Brookings is regarded for Democratic icons.
One of Brookings Institution’s leading transportation policy experts is Clifford Winston, a well-respected economist and author of numerous books and papers dealing with transportation issues. His most recent paper is “On the Social Desirability of Urban Rail Systems,” co-authored with Vikram Maheshri, an economist at the University of California at Berkeley. It appears in the Journal of Urban Economics and is available online at www.sciencedirect.com.
The purpose of the paper is to estimate the contribution of U.S. urban rail systems to social welfare. The authors define the net benefit of a rail transit system as the difference between its benefits, broadly measured, and its net cost to taxpayers. If this difference is positive, it means that the dollar value of the rail system’s benefits is greater than its net cost to taxpayers (i.e., the difference between what the rail system’s customers pay as fares and the total cost to build, operate, and maintain the rail system).
On average, rail transit systems cover about 40 percent of their operating costs from farebox revenues and none of their capital costs, according to figures in the National Transit Database. That means their net taxpayer subsidy is large.
Winston and Maheshri construct an elaborate econometric model to estimate the “consumer surplus” of 25 rail transit systems. This is economists’ term for the benefits to users, over and above the fares they pay. The large systems (New York, Washington, DC, San Francisco’s BART, etc.) all produce significant consumer surpluses. But most of the smaller ones do not.
Next, the authors compare the consumer surplus of each system with its net taxpayer cost. On this measure, every single one of the 25 systems has negative net benefits—i.e., the annual value of the benefits to users is much less than the annual cost to taxpayers. Surprisingly, this is true even for the massive New York City rail transit system, which by itself accounts for two-thirds of the nation’s rail transit passenger miles.
But what about larger benefits to the metro area? Rail systems are advocated not just to benefit their riders, but because they are expected to reduce traffic congestion, reduce air pollution, save energy, etc. So the final step in Winston and Maheshri’s analysis was to estimate the value of these “externality” benefits. They first conclude that the only one of these purported benefits large enough to make any difference is congestion relief. Adding the congestion savings to road users to the consumer surplus gives the total benefits of rail transit. When this total is compared with the net taxpayer costs, only San Francisco’s BART produces net social benefits. Each year the system improves social welfare by an estimated $36 million. All 23 other U.S. rail transit systems are net losers. This means that each of those urban areas is made poorer by many millions of dollars each year.
Winston and Maheshri anticipate that some advocates of rail transit will protest that these systems offer other benefits that are not accounted for in their calculations. For example, rail supposedly stimulates development around rail stations: “But case studies have yet to show that after their construction transit systems have had a significant effect on employment or land use close to stations and that such benefits greatly exceed the benefits from commercial development that would have occurred elsewhere in the absence of rail construction.”
And there is also the claim that rail systems increase the mobility of low-income residents. But the authors point out that the median annual income of rail users in 2001 exceeded $50,000, which was greater than the median income of the general population in that year. So rail’s primary market is not the poor (unlike bus transit).
Overall, then, the authors conclude that rail transit is erroneously believed by the public to be socially desirable, because “supporters have sold [rail systems] as an antidote to the social costs associated with automobile travel, in spite of strong evidence to the contrary.” They conclude that, in fact, rail transit is “an increasing drain on social welfare.”