The 93% Subsidy

I wondered today what kind of subsidy a rider on the Phoenix Light Rail system was receiving.  Hillary Foose, the public information officer of Metro light rail, was kind enough to send me a link to this board presentation.   Since the rail system opened mid-fiscal year, I will use their own projections for the 2009/2010 fiscal year.

Public accounting is a pain in the butt for someone used to private finances, because it is all cash accounting rather than accrual and they mix together capital expenditures with operating expenditures.  But the table on page 62 carves out the operating budget for the existing 20-mile line from the development and capital budgets.    Here are the key numbers:

Fare Revenue:  $8,985,159

Operating Expenses:  $33,733,168

So already on an operating basis we have a 73% subsidy.  But we have sunk $1.4 billion of capital money into building the line  (actually this is a little low as Metro has spent tens of millions more this year).  Unfortunately, in government accounting, there is no depreciation or interest charge that shows up.   So I am going to charge them with the payment on a 30-year $1.4 billion 5% note, which would be just over $91 million a year.

Totaling the $91 million with the other operating expenses, we get a 93% subsidy for light rail.  This means the true cost of the $1.75 ticket for a light rail ride is actually $25!  METRO says that light rail riders love the service.  I should think anyone who gets a $25 service for $1.75 should be happy.

Another way to look at the subsidy is on a per rider basis.  So far, METRO has averaged about 17,000 round trip riders per weekday (based on about 34,000 boardings per day).   The $115.8 million annual subsidy (capital+expense minus revenues) works out to just over $6,800 per rider per year that the rest of us (who may not live or work near the line**) pay each current rider.

There are a number of ways in which I have likely understated the subsidy:

  1. I used their June revenue projections, which likely will continue to be revised downwards as ridership continues to slump
  2. I used their own expense projections, and we know how often governmental bodies hit their expense numbers
  3. I assumed no new capital spending necessary over a 30 year life.  Rail experience has shown this to be overly-optimistic.  Rail lines have to be rebuilt every 15-20 years or so.  They take tons of capital maintenance dollars.   When we look back twenty years from now, we'll likely come to the conclusion I grossly understated the capital charge.

**Footnote: Since over a third of the capital to build the line came from the Feds, many of the people subsidizing the METRO riders don't even live in this state.

Update: The other thing I left out is lost parking revenue.  The revenue numbers for fares is in fact overstated.  It should net out lost parking revenues, for example at baseball games.  This is the only time I ride the Metro, because I substitute a $2.75 Metro round trip ticket for a $10 city garage parking expense.  But the city has never acknowledged this cannibalization.

Update #2: I have posted an update here

  • Bob Smith

    Rail lines have to be rebuilt every 15-20 years or so. They take tons of capital maintenance dollars

    Miami's monorail is a real live demonstration of this problem. It's falling apart, and they have no money to renovate or replace either the rails or the cars. They wanted to float a bond/sales tax issue to pay for it, but get this: the repayment period of the bonds was to be greater than the expected lifetime of the cars and rail those funds would buy. I hope Dade's voters aren't stupid enough to vote for this should it make a ballot. I saw the lies Santa Clara Valley's Transit Authority spewed to sucker voters into saying yes to a 30 year 1 cent sales tax for light rail. Now they're pretty much bankrupt, shutting down bus service rather than doing the right thing and shutting down the real budget breaker, light rail, and trying to sucker voters into adding another 1/2 cent sales tax on top of that. They voted no the first time but I doubt their resolution will hold over the long term.

  • JohnF

    You realize that fare revenues of $8,985,159, assuming $1.75 per fare, is 5.1 million fares. If that's a "mid-fiscal year" (i.e., 6-month) figure, then that works out to about 200,000 fares per week, somewhat higher than your quoted figures in the 30K range. What's up?

  • johnnycello

    His previous post indicated less than 30k riders per day, times 7, that should get you to ~200k per week.

  • Allen

    What would it have cost them to turn a similar route into BRT?

  • Bone Crusher

    Don't worry the passengers will no longer need light rail now that they are all driving around in new cars thanks to the cash for clunkers program.

  • K

    w/o going into the specific numbers of Phoenix light rail I say this:

    In the US does anyone still have confidence in any cost projection from government? Doing so is to deny experience.

    On projects such as light rail the multiple levels of government, plus the independent agencies, the cost sharing, the transfers of stranded funding, and the bundling of funding sources, make even the official numbers hard to assemble.

    Who still believes an announced project will be built w/o overruns? Who believes they will be constructed on schedule? Who believes the projected ride figures are honest? Or that the projected operating and maintenance costs will be close? That the laughable estimates of economic benefits to the community will appear? Or that the equipment and facilities will last their expected lifetimes? Or that the future costs of pensions have been revealed and funded?

  • DrTorch

    In fairness I would ask if the city will sell off some of their parking structures. This would generate revenue and stave off some of the cannibalism that you mention.

  • Prof Frink

    Agreed, but what level of subsidy do car commuters receive? How much does the governement collect in gasoline taxes, compared to what they spend building and repairing roads? It would seem only fair to compare apples to apples.

  • Cindy

    One source that I found indicates that the subsidy for automobiles is around 40%. This subsidy is the part of the total ongoing costs which is not covered by tolls and gasoline taxes. However, I have not found reliable statistics for either cars, light rail or heavy rail.

    Regardless of the subsidy, there is still the issue of congestion. It does not seem possible to build enough roads to support the increase in population in cities like Atlanta where I live.

  • Jess

    Ah, the "cost of cars" canard rises again.
    ProfFink, the total tax paid by car (and truck) owners/drivers is vastly underreported by any number of sources that seem to derive their claim(s) from the fact that all road costs are indeed greater than the Federal budget expenditures...
    all the while conveniently forgetting the $.45/gal state & local taxes (national average - AAA) on gasoline, plus the local & state taxes on fuels & oils, sales taxes, etc. collected on car/LD truck/HD truck.

    The only decent estimates I've ever seen point out that such taxes would cover some $100K per mile expenditures for ever single mile of roadway in the entire USA per year & still have several billions "left over" (again, per year).

    Subsidy for automobiles? It's the other way 'round.

  • Prof Frink

    Jess, sorry to be raising canards! It wasn't meant to be a rhetorical question. Could you point me to some of these decent estimates. Thanks!

  • Jess

    Most data can be sourced here: http://tonto.eia.doe.gov/dnav/pet/pet_pub_publist.asp

    Unfortunatly,there is no good single source for the balance - i.e., total tax revenues on oils, grease, and lubricants, nor is there a good nationwide breakout of road expenditures as a portion of transportation budgets.
    As a point of fact, it's rather common for states to use so called "road use taxes" as income to retire transportation bonds - even though little of the total take actually goes to surface road transportation...

    I do get a chuckle out of the DOE's charts - they lump "Profits" w/"Refining" - an odd combination, to say the least.

  • perlhaqr

    Makes me wonder how bad of a boondoggle the local New Mexico rail system is.

  • Ramsey

    What was the per mile cost of this system?

  • MJ

    What was the per mile cost of this system?

    $1.4 billion / 20 miles = $70 million per mile