CTAR

FRANÇAIS  
<< PREVIOUS CHAPTER | TABLE OF CONTENTS | NEXT CHAPTER >>

Chapter 12

The National Interest in Urban Transportation

The Panel's terms of reference mention urban public transport only obliquely, in directing the Panel to consider "the advisability of specific measures designed to preserve urban rail corridors for future mass transit use in the rail line abandonment process".

The Panel sees urban areas as a source of major transportation problems and urban transit as a key component of a comprehensive multi-modal transport policy. The research program therefore included consideration of transit operations, management and financing and its value as an alternative to private car use, along with an assessment of urban rail corridor preservation. The latter issue is discussed in Chapter 13; this chapter considers the status and future of urban transit.

Roads and the automobile are the primary means of urban transportation, and motor carrier (vans and trucks) is the principal method of freight delivery in urban areas. The dominance of motor transport is not likely to change. Road use may be restrained somewhat in response to environmental and congestion concerns — and especially in response to pricing strategies — but it will remain the dominant mode.

With the goal of moving people and goods efficiently, moving cars and trucks is a major part of urban life — and how well they move affects the economic and social well-being of cities. The federal government does have an interest in the economic health and functioning of Canada's urban engines of growth. There are policies and investments to manage vehicle flow; these are mainly the responsibility of urban and regional governments and the choices made by their residents. The proposed roads and transport funding agencies, discussed in Chapter 10, would play a key role here. There are also some opportunities for direct federal involvement in urban motor transport: conducting or sponsoring research and development with relevance to all urban regions, such as intelligent transportation systems, and promoting harmonization of technologies such as those for road pricing. The federal government also has environmental and safety responsibilities that directly affect urban vehicles. For the most part, however, this chapter concentrates on urban transit and possible roles for the federal government with regard to this mode. This reflects submissions to the Panel and the terms of reference.

The most pressing policy concern appears to be future funding. As with several other transport issues, however, the Panel sees important underlying questions about how urban transit should be integrated with the rest of urban transport in its delivery, pricing and investment.

Urban transit's vital role in major cities is threatened by several factors. Planning and infrastructure policies that serve car travel, along with stringency in public funding for transit, certainly pose a threat. In addition, some well intentioned transit support policies and inertia in transit management have also been factors.

Transit has become an anomaly in transport policy. Governments at all levels have generally sought to liberalize entry to transport markets, reduce price regulation, and inject a measure of enterprise in publicly owned carriers and infrastructure, yet urban transit is still delivered almost exclusively by municipal agencies. Further, while governments have tried in other transport modes, and in other fields, to make users responsible for the cost of services, urban transit is still funded mainly through direct subsidies.

Transit service levels, fares, and subsidy amounts are decided by local or provincial elected officials. If transit services across the country are considered together as a separate mode, they receive by far the largest direct transport subsidy of any mode. Subsidies have grown quickly in recent decades and must continue to do so if the plans of cities and their transit agencies are to be met.

Clearly these decisions are not made lightly — and they are usually made with a commendable degree of consultation with transit users and taxpayers. The current status of urban transit reflects a mutual agreement that transit is a necessary exception to general policies of user pay, that services are essential and worth their large subsidies, and that their delivery by government is appropriate. At issue for the Panel was how the principles of an integrated national transport policy could be extended to guide future transit decisions and what their implications might be.

TOP OF PAGE

Trends and Current Status

Travel by public transit has recently totalled an estimated 14 billion passenger-kilometres a year, or about 2.5% of total national passenger travel and about 5% of urban passenger travel.1 The latter figure obviously shows an overwhelming preference for car use, which provides the other 95% of urban passenger-kilometres. But it also reflects the fact that transit is by no means available to all Canadians — less than 60% live in communities served by transit — and that only a much smaller proportion of all trips could be taken by transit instead of private car.

At the same time, the figure conceals the much greater importance of transit in larger city centres and during peak times. Transit carries an average of about 4 million passengers daily, including more than 1 million in Toronto, close to 1 million in Montreal, about 400,000 in Vancouver and 200,000 in Ottawa and Calgary. As those are mostly trips to and from city centres, they represent major reductions in what would otherwise be needed by way of urban arterials and expressways, with their associated infrastructure costs, congestion and environmental impact.

Transit has been fighting a losing battle with population dispersal and motorization for a long time. Figure 12.1 illustrates relative trends in population, transit passengers and passengers per capita from 1954 to 1999. The number of transit passengers was falling at the start of that period, then grew by 50% from 1960 to 1990, and has subsequently declined again, though with some growth since 1996. In 1999, the total was about 16% higher than in 1954. However, during those 45 years, the population doubled, growing steadily throughout. Trips per capita consequently fell substantially overall, by more than 40% over the period, though there was actually an increase of about 25% from the mid-1970s to mid-'80s. In 1999, the number of annual transit trips per capita was about 47, less than one trip per person per week.

Fig 12-1

Fig 12-2

Figure 12.2 shows a radically different trend. As measured by vehicle-kilometres, total transit service remained roughly unchanged until the mid-1960s, but then doubled by 1981 and continued to rise through the 1980s, to a level nearly two and a half times that of the early '60s. This illustrates municipal and provincial policies of extending transit services to residents of new suburbs and their serious attempt to win passengers from private cars to transit during the '70s and '80s — just how serious can be judged by the increase in subsidies, from less than $100 million annually in the early '70s to more than $1.5 billion in 1989 (in constant 1998 dollars).

From 1989 to 1999, service (vehicle-kilometres) remained roughly constant, but trips per capita declined by about 15%. Transit companies have been heartened by the slight growth since 1996, but this was a period of rapid employment growth, and transit has been shown to be very sensitive to employment cycles in the past. The growth also appears to have been mostly in the fast-growing western cities, particularly Calgary and Vancouver, while ridership in Toronto, Montreal and Ottawa remains ominously below the levels of a decade ago.

Annual subsidies also continued to increase through most of the 1990s, reaching $2.4 billion in 1998 before declining slightly to $2.2 billion in 1999. Fare-box revenues through the 1990s met about half of operating expenses nationally and a smaller proportion when capital expenses are included.2 Transit agencies claim, justifiably, that this is greater than the norm in the U.S. — where transit is losing the fight against motorization to an even greater extent — and greater even than in some European countries, where transit plays a larger role. The figure for the country's largest transit system — the Toronto Transit Commission — is an impressive 80% of operating costs, while that for GO Transit exceeds 90%.3

Long-term trends in transit costs and productivity raise some serious concerns, however. While unit costs of most transport carriers have declined over time with productivity improvement and increased load factors, transit operating costs (excluding capital purchases) per vehicle-kilometre have doubled (in constant dollars) since 1975, as shown in Figure 12.3. The attempt to retain and expand ridership through improved service involved more expensive buses, trains and track with higher operating costs (including dedicated light rail and busways). Figure 12.4 shows the trend in costs per passenger, which increased even faster, nearly quadrupling over the period (again in constant dollars) as the number of riders per vehicle fell with expanded service frequency and coverage — such as lower-density suburbs. Labour cost increases also played a role throughout the period.

Fig 12-3

Fig 12-4

The situation began to change substantially in the most recent years. Fiscal stringency in provincial and municipal governments included reductions in transit subsidies — and notably the Ontario government's transfer of funding responsibility to regional and local governments. National financial accounts to demonstrate the reductions are not yet available, but submissions to the Panel suggest that nationally, total subsidies fell in 1999 and subsequently.

Figures 12.3 and 12.4 show sharp declines in costs per vehicle-km and per passenger since 1996. This no doubt reflects some improvement in operational efficiency, but a caution must be added: transit agencies (through the Canadian Urban Transit Association) estimate that capital replacement of $3.2 billion has been deferred and is needed immediately to maintain service levels. They also estimate that a further $1 billion in excess of current funding levels will be needed over five years to meet anticipated demand.

Transit operators and advocates told the Panel they are confident that ridership can be increased through expanded service, particularly investment in light rail or dedicated busways. They argue for lower fares, through increased subsidies, specifically proposing a federal tax exemption for employer-provided transit passes, to match the treatment of employer-provided parking (which is technically a taxable benefit, but usually not enforced as such).

They also advocate direct federal participation in transit funding. The government has provided no such funding in recent years, though Transport Canada managed a small-scale Urban Capital Assistance Program during part of the 1970s and '80s and has provided some minor funding for transit vehicles using alternative fuels and larger amounts intermittently from special funds. Transit infrastructure could be eligible for funding under the present Canada Infrastructure Program, though its announced priorities are for water systems and energy efficiency (under which, curiously, transit does not qualify4).

Transit operators, supported by the Transportation Association of Canada in its Vision for Urban Transport, now argue for a much larger federal commitment, solely to transit. They suggest the government should share routinely in funding transit capital, by dedicating revenues from road fuel taxes. U.S. federal assistance provides a model, they suggest: US$6-7 billion a year (20% of revenues from fuel taxes and vehicle fees dedicated to the Highway Trust Fund), is being allocated to transit capital investments. Canadian operators propose a range of 2 to 4 cents per litre, which at current fuel consumption rates would raise revenues of about $1-2 billion annually.

TOP OF PAGE

Current Subsidy Policies

Subsidy policy varies substantially among jurisdictions.5 Five provinces (Newfoundland and Labrador, Prince Edward Island, New Brunswick, Nova Scotia, Saskatchewan) and all three territories do not provide routine capital or operating subsidies directly for transit, so all subsidies are municipal.

Further, the province of Ontario announced cessation of any new provincial funding of capital or operations in 1999, passing the full responsibility to regional and municipal governments. In that year, total regional or municipal subsidies in Ontario amounted to $1.1 billion.

In the other three provinces with major transit systems — Quebec, Alberta and British Columbia — although municipalities continue to provide half the subsidy or more, the provincial government has recently adopted innovative approaches to transit funding for cities, described in the next few pages.

Quebec — Montreal

The province dedicates a surcharge of 1.5¢/litre of fuel sold within the territory and $30/vehicle registered to a provincial authority, the Agence métropolitaine des transports (AMT), to fund regional transit agencies. AMT also has authority to levy a surcharge on parking but has not yet done so.

Quebec — 6 other cities

The province transfers revenues from a $30/vehicle surcharge in each city's region for transit use.

British Columbia — Vancouver

The new regional transport agency, TransLink, has authority to operate and fund transit and most roads in the region (except provincial highways) and receives from the province 8¢/litre of fuel sold in the region (rising to 10¢ by 2005). TransLink also has the power to levy direct charges on motorists in the form of annual vehicle fees, parking surcharges, or road tolls, but has not yet done so. Its recent proposal for annual vehicle fees ($40-120 for cars and an average of $190 for commercial vehicles) has been rejected by the province (which would have had to collect them).

British Columbia — Victoria

The province transfers to the transit agency 2.5¢/litre of fuel sold in the city.

Alberta — Edmonton and Calgary

The cities receive grants from the province calculated on the basis of 5¢/litre of fuel sold within their territory.

The novel features that particularly interest the Panel in its search for an integrated strategy include the following:

TOP OF PAGE

Benefits from Transit

The effects of transit in avoiding car use can be converted into dollar values by estimating the alternative amount of car traffic and comparing its total social costs to those of the transit traffic. As described in Chapter 10, the social costs include the cost of the resources used plus a value for external costs — congestion, accidents and environmental damage. Establishing dollar values for external costs is naturally contentious and uncertain, but research supplies plausible ranges that are used by many countries and agencies in official evaluations of transport investment projects.6

Analysis undertaken for the Panel suggests that the current extent of annual transit use brings benefits in social costs avoided of about $5 to $6 billion.7 This suggests that current subsidies — in the range of $2.2 billion nationally — are producing a substantial net benefit. The analysis also compared this to evidence of the returns provided by urban highway investment projects, concluding that the transit subsidies produced greater benefits.

The analysts were careful to point out, however, that still greater benefits would be realized simply by charging all road users for the full social costs they impose, including both external costs and the cost of resources consumed. In fact, for greatest efficiency, this would be the only remedy needed. Transit subsidies become a solution only because direct road charges are not imposed.

This of course reinforces the Panel's arguments in Chapter 10 for a policy of charging for roads, with the implication that transit subsidies could then be reduced.

TOP OF PAGE

Measures to Increase Transit Use

Evidence of benefits from transit capital investments varies substantially. Researchers suggest that much of the capital-intensive investment in transit in the United States has been of doubtful value.8 The availability of federal capital subsidies there, and the attempt to induce shifts away from cars with high-quality transit services, is judged to have encouraged capital-intensive projects. Further, ridership projections have often proved overly optimistic, so that the cost per new rider has been high.

That experience cannot be transferred directly to Canadian conditions, where transit is a much more accepted means of travel, and major investments have been made more to respond to increasing demand than to stimulate new demand. But the experience of recent decades — where rapid increases in transit delivery costs failed to arrest the long-term decline in trips per capita — raises questions about relying on service improvements alone to induce people to switch from cars to transit. Observers suggest that here too, the availability of capital subsidies has allowed transit agencies to adopt capital-intensive solutions, without supporting them with more cost-effective operational solutions — such as unpalatable restrictions on car use.9

Research and analysis conducted for the Panel came to the following interrelated conclusions:

These findings lead the Panel to conclude that transit service improvement without deterrents to private vehicle use are unlikely to be successful. Policies should therefore encourage the governments involved to seek the most cost-effective solutions, which clearly means solutions that deal with both transit and urban car use.

An innovation just introduced in New Zealand (November 2000) is the transit 'Patronage Fund', which pays transit authorities for the additional patrons they attract.10 The amounts paid per patron are based on estimates of the social cost savings in travel time, safety and environmental damage, compared to car use. Amounts vary by city and time of day, ranging from NZ$0.90/trip to $3.00/trip at peak times and $0.70/trip at off-peak times. The approach certainly appears innovative — in that it pays only for results, not for intentions, and payment occurs after the fact, not in advance.

TOP OF PAGE

Possibilities for Efficiencies in Service Delivery

The trend toward commercialization of transport carriers, so entrenched world-wide, has hardly touched transit services in Canada — or in the U.S., otherwise in the forefront of transport deregulation (at least for domestic services). Transit commercialization is under way in many other developed countries, as well as some less developed countries. It has occurred most extensively in the UK, through tendering for exclusive services (to bidders requiring the lowest subsidy), some tendering for competing services, and some outright privatization. It appears from evidence to date that costs have certainly been reduced, including through reduction or elimination of less lucrative services and fare increases.11 Most if not all services are still subsidized, so even commercialization of this magnitude has not allowed overall service levels — and effectively fares as well — to escape being political decisions.

In Canadian conditions, it seems possible that deregulation (permitting entrants to compete with what are currently monopoly transit agencies) and commercialization could encourage innovative and less costly services, such as small buses or shared taxis from less-dense suburbs to interconnections with transit trunk routes. But those possibilities are probably quite limited. More extensive commercialization is constrained by labour agreements, cultural factors (people's attachment to their cars), and the fact that urban infrastructure tends to favour private automobile use over transit.

TOP OF PAGE

Considerations and Recommendations

The Panel is concerned that despite some encouraging developments in cost efficiencies in very recent years, the cost of transit is a serious obstacle to its expansion, particularly to less dense suburbs. The Panel's research shows that cost-effective improvements — such as measures to give transit priority, including restrictions on where cars can park and turn — offer more promise. Such measures can be inexpensive to implement, though they may be unpopular when used in support of conventional transit plans. The first recommendation therefore addresses cost-effective service improvements.

Recommendation 12.1
The Panel recommends that transit operating agencies and their funders seek the most cost-effective ways of improving their services.

A key feature of transit is its continued delivery almost exclusively by government agencies, which means that costs have not been subjected to market tests to the same extent as those of recently privatized or commercialized infrastructure and services. This is a sensitive policy and political issue for transit agencies and the governments that fund them, particularly because of the nature of labour relations. But the obligation to spend public money wisely requires a hard look at these issues.

Recommendation 12.2
The Panel recommends that experimentation with innovative forms of service (smaller vehicles, shared taxis) be encouraged.

This might include municipal governments tendering for services or certain components of them, such as feeder services from more remote suburbs or surrounding rural areas. Existing transit agencies should of course be encouraged to bid in competition with private providers.

On the key question of whether the federal government should have a funding role, the Panel's proposed solution would involve unprecedented federal action and funding. In an ideal world, there would be no need for subsidies, because urban transport networks are quite capable of providing all the funds necessary for their self-sufficiency — and that would be the most efficient solution. The Panel is convinced that the principal justification for subsidizing transit is to achieve the benefits of reduced road congestion; the more effective means of achieving that, however, is charging directly for road use, according to the amount of congestion. Taken to the logical limit — at the point where road charges incorporated all the social costs — the need for transit subsidies would disappear. But intermediate solutions — with charges covering only a portion of social costs — could certainly generate revenues more than sufficient to subsidize transit. The Panel believes arrangements now in place in Greater Vancouver and Montreal show initial practical steps toward this goal.

Nevertheless, a practical national transportation strategy would also resolve the issue of federal fuel taxes. The Panel has proposed that federal fuel tax revenues be transferred to provinces and territories on condition that they deposit them in newly established roads and transport funds. The Panel also suggested that the agencies administering the funds should receive proposals for alternative projects in other modes.

Recommendation 12.3
The Panel recommends that urban transit be permitted to qualify for funding from road user charges.

The intention is that initially transit projects should be permitted to compete with roads for fuel tax revenues. In the longer term, they should qualify for funding from the proposed provincial and territorial roads and transport funds — or urban regional transport funds on the Greater Vancouver and Montreal models, with wider responsibilities and greater user involvement in decisions. There is no reason in principle to limit funding to capital projects — especially in view of criticisms that past funding favouring capital projects has led to less cost-effective solutions.

The Panel accepts the research finding that any transit service expansion is likely to be successful only if accompanied by disincentives to car use. Without those, it is unlikely that the long-term decline in transit use per capita can be reversed. The proposed roads and transport funds would provide the disincentives very directly, in charging for road use, including congestion and emission surcharges. Municipalities must also be prepared to adopt the unpalatable restrictions on car use needed to give transit priority in traffic flow.

The Panel does not believe it is necessary or appropriate for the federal government, or governments of the provinces and territories, to specify what measures should be adopted in order to qualify for funding. Instead the Panel suggests that agencies simply be given performance-based incentives.

Recommendation 12.4
The Panel recommends that payments to transit authorities be made on the basis of their actual performance in inducing shifts from private automobile use to transit.

The Panel suggests a payment per trip, based on mode shift from car (with verification from ridership counts and periodic surveys of new riders to determine alternative modes).

The Panel emphasizes that, over the longer term, as road charges are adopted, the need for transit subsidization can be expected to diminish. When both roads and transit are assessed, including their external costs, travellers should be able to compare the price for using their cars against the price for using transit as a basis for deciding which mode to use. Transit agencies must be prepared to face this competition and the challenge it presents — a challenge similar to the one that will face road funding agencies — to manage their costs and seek the network size and extent of services that are most efficient.

The Panel wants transit to succeed over the long term — and to make its appropriate contribution to urban transport. These proposals will allow it to do so.

TOP OF PAGE

Notes

1 Total passenger-kilometres as estimated for the National Climate Change Strategy, Transportation Table, Options Paper, for 1997, with an updated estimate for transit based on the increase in total passengers between 1997 and 1999.

2 Total costs including capital are not available from national statistics (Statistics Canada Cat. No. 53-216), but annual subsidies for current capital expenditures are reported, averaging $500 million from 1989 to 1998, when operating costs averaged about $3 billion annually.

3 Figures quoted in R. Soberman, "Public Transportation in Canadian Municipalities: Implications for the Canada Transportation Act and the Federal Role in Transit", paper prepared for CTAR, March 2001.

4 Although conversion of transit vehicles to alternative fuels does qualify.

5 As described in Soberman, "Public Transportation in Canadian Municipalities".

6 For summaries of such work, see European Conference of Ministers of Transport, Efficient Transportation for Europe: Policies for the Internalisation of External Costs (Paris: OECD, 1998); D.L. Greene, D.W. Jones and M.A. Delucchi, ed., Measuring the Full Social Costs and Benefits of Transportation, Heidelberg, Germany. Springer-Verlag, 1997.

7 HLB Decision Economics Ltd., "The Value Proposition For Transit Investment, Subsidy and Federal Involvement", paper prepared for CTAR, April 2001.

8 For a particularly critical assessment of U.S. policy, see C. Winston, "Government Failure in Urban Transportation", AEI-Brookings Joint Center for Regulatory Studies, Working Paper 00-8, Washington, D.C., Brookings Institution, November 2000.

9 This summary of research findings is also based on Soberman, "Public Transportation in Canadian Municipalities".

10 "Transfund New Zealand: Interim Patronage Funding Procedures", Version 1, October 2000; payment rates are posted at www.transfund.govt.nz.

11 For a summary of international experience, see Halcrow Fox, "Review of Urban Public Transport Competition", report to the UK Department for International Development, May 2000.

<< PREVIOUS CHAPTER | TABLE OF CONTENTS | NEXT CHAPTER >>