Tuesday, March 31, 2015

Financial Implications Of The Regional Transit Governance Seminar 2015

I attended today's Regional Transit Governance Seminar at the Commonwealth Club.  The theme of "Empowering Bay Area Transit" would be a whole lot easier to do without so many transit agencies to coordinate in the nine county Bay Area.  The Mineta Transportation Institute (MTI) introduced recent studies from the Eno Center for Transportation and SPUR showing how bass-ackwards our local transit governance has become.

Eno's "Getting to the Route of It" report devotes nine of its 89 pages to the Bay Area's transit governance.  The Bay Area system succeeds in spite of itself.  SF Muni does much of the heavy lifting by regulating multiple modes within its jurisdiction.  SPUR's "Seamless Transit" report notes that riders encounter cost penalties in transferring from one local system to another.  A single fare for a multi-leg trip would reduce rider friction, as would a unified route map.  Read the reports yourselves for the details.

The policy analysts joined the panel of local transit big-shots to entertain plans for fixing the mess.  I was impressed that the top honchos of the major regional transit providers came for this seminar.  I was even more impressed that the often whiny Commonwealth Club members submitted questions that avoided grandstanding on pet projects.  Way to go, San Francisco.  The City is demonstrating adult responsibility.  I like to think that the radiance of my genius in the room has something to do with this maturation.

The panelists noted a few common themes that are very germane to the financial subjects found here on the Alfidi Capital Blog.  Someone claimed that BART fares respond to the Consumer Price Index (CPI) minus 0.5%.  State and federal transit subsidies allow BART the luxury of such a simplistic pricing scheme.  True fares cannot be that simple because they must somehow account for operating costs.  Spikes in electricity demand drive prices up during the day, particularly summer.  BART's financials may shed some light on their costs.

Transit officials know that subsidies from revenue sources other than fares maintain their systems.  In a perfect world, the annual farebox recovery ratio for municipal transit providers would be very close to 100%.  American taxpayers should insist that their transit agencies aim to be as financially efficient as the ones exceeding 100% in Asian metropolises.  The Federal Transit Administration's National Transit Database collates operating costs and farebox recoveries from transit agencies across this great land of ours.  APTA cited that database's 2010 report to show that US rail systems have farebox recovery ratios of 20-40% and operating costs of $200-350/hour.  Slide 21 of that summary shows BART and Muni with costs pretty close together, but BART's farebox recovery ratio is much higher (over 70%) than Muni (over 20%).  Muni has some explaining to do if they haven't improved that ratio since 2010.

It's obvious that technical solutions like the Bay Area's Clipper Card are easier for policymakers to push than political solutions.  The State of California's Strategic Growth Council is supposed to provide guidance for local development that supports statewide infrastructure spending.  Plan Bay Area is this region's answer to the state's sustainability challenge.  The value of these state and local efforts is their preference for development that maximizes mass transit use.  The clear implication for investors is that property values will be permanently higher for high-density development around multimodal transportation nodes.  Property appraisal, municipal bond valuation, and investment decisions will all revolve around this integrated land-use focus for generations.  That's the bottom line for Alfidi Capital.

Here's my own contribution to smart planning.  Bay Area transit systems can't get their farebox recoveries to Asian levels because too many people in this region are still moving around by automobile.  Making passenger care use prohibitively expensive will get more cars off the road.  I say San Francisco should require all passenger car owners to register their cars and pay an annual fee to operate them.  Start it small, say $100 per car, and then raise it every year until the poor and lower middle classes are weaned from car ownership.  People on limited incomes will quickly get rid of their cars and switch to mass transit.  Owning a car is not a human right.  Urban space is at a premium and using it for private transit should carry a premium price.  You have to love these Alfidi Capital solutions.

I cannot solve all of our transit agencies' financial problems with such an elegant move.  The panelists noted that housing development property taxes paid to the state under Prop 13 offer less financial benefit to local transit agencies than commercial developments that pay local sales taxes.  Waving the magic wand over development should tell planning commissions to combine mixed-use development near transit nodes with higher gasoline taxes and parking fees that will be useful subsidies for transit agencies.  I totally grok the panel's point that countercyclical funding sources will stabilize revenue sources vulnerable to recessions, when sales taxes and fares from ridership both drop.

I would very much like to solve the agencies' labor cost problems by decertifying their unions and drastically curtailing expensive work rules.  Alas, labor problems turn bipartisan support for transit programs into partisan food fights over pension benefits and votes.  It was good to hear the panelists express support for private transit options like Google buses.  I doubt those are run by union thugs.

Smart people want local transit to run better.  Transit boards have the technical skill to work around hard political problems.  The politicians supporting them will listen to polls over research data, but they will also listen to financial elites before anyone else.  Finance will lead the way to more valuable land use when investments around transit infrastructure are at stake.  Elites can count on Alfidi Capital to fill in the analytical holes in the road.

Full disclosure:  I take SF Muni to events at the Commonwealth Club.