How to make transit fares fair for TTC riders

The TTC and Toronto City Council want to make public transit more affordable for low-income residents. They should start by scrapping the flat fare model.

The TTC and officials at Toronto City Hall are looking for ways to make public transportation more affordable for the city’s most financially vulnerable residents.

They can start by using the new Presto electronic system – which the TTC says will “revolutionize” how riders pay to use transit – and scrap the current fare model that applies a one-price-fits-all solution to Toronto’s public transit system.

Implementing peak, off-peak fares and distance-based fares would best serve the city’s low-income residents and ensure that those most able to pay their fair share for using the TTC do so. Under a flat fare model, low-income residents end up subsidising more affluent transit riders.

The TTC’s flat fare system hurts low-income residents by failing to fully charge those riders who use its services in the busiest travel periods. During the busy morning and afternoon commute the TTC must dramatically expand the amount of public transit available – either through more buses, more trains or new lines. Much of that expansion could be curtailed if the TTC charged a higher fare during those busy periods and encouraged flexible commuters to change their travel habits. Additionally, the TTC could offer lower fares during off-peak hours to save on capital costs and spread peak demand.

Many critics argue that either raising fares during busy travel periods – or keeping them at their current level and lowering off-peak fares – would hurt poor transit riders more than their more affluent counterparts. But data from transit systems around the world shows otherwise.

Low-income residents are less likely to travel during peak periods, while the opposite is true of their higher-income counterparts. Because low-income residents are made up disproportionately of part-time workers, the self-employed, retirees and single-income households, they are either more flexible in their travel plans or work in jobs that don’t adhere to the typical 9-to-5 regime. Any discount in fares will be a major benefit to these riders.

High-paying, white-collar jobs, on the other hand, largely stick to traditional work hours. Because most of these workers tend to use the transit system at the same time, they cost the TTC and other transit agencies a significant amount of money in having to expand the travel network to meet high demand – when much of that expansion is under-used in off peak hours.

The current flat fare model means high capital and operating costs needed to build new transit to satisfy periods of high demand are met by raising fares for all customers, including lower income customers who aren’t necessitating the expansion.

Take the proposed Downtown Relief Line (DRL) as an example. This line, which is being proposed to deal with high ridership levels and overcrowding on the Yonge subway line during the morning commute, would run significantly under capacity during rush hour and even more so in off peak hours. The billions of dollars (potentially $8 billion and counting) needed to build and operate the line would come from hiking fares across the board – meaning off-peak (and low-income) riders would be paying for a line built to serve white collar (and high-income) workers travelling to the downtown core.

An analysis by Consumer Policy Institute showed that the TTC would save billions of dollars by simply offering free transit rides in the hours prior to the morning commute – a move that would directly benefit the low-income riders using the TTC in off-peak hours, as well as those workers with a flexible schedule who can shift out of the busy morning commute.

The flat fare system also discriminates against low-income users in that it offers a subsidy from short-distance riders – who tend to have lower incomes – to long-distance riders – who tend to have higher incomes. Research from other transit agencies show that low income riders tend to use transit more frequently throughout the day and over shorter distances.

Because low income households are more likely to not own a vehicle, they will use transit for more trips and for shorter distances – to the grocery store, to daycare and other local journeys. A flat fare that charges them the same amount as a high-income transit rider commuting long distances to and from work – and then uses a vehicle for other trips – is a subsidy from those who transit the most to those who use it simply as a means to commute to work.

The TTC used to have a distance-based fare, which was used to fund expansion and ensure that those riders who travelled longer distances – and cost the TTC more money to service – paid their fair share. It was only pressure from politicians – both in Metro Toronto and at Queens Park – who wanted to curry favour with suburban voters that forced the TTC to scrap the scheme. Queens Park, in fact, refused to give the TTC any money for operating subsidies unless it moved to a flat fare model.

While Toronto’s City Hall wants to offer subsidies to low-income residents, it would wiser to change the entire fare model that discriminates against those same residents.

Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org 

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One thought on “How to make transit fares fair for TTC riders

  1. This discussion about fare policy is very important and instructive. Good points about made about short-distance riders subsidizing long-distance riders and also about off-peak riders subsidizing peak-period riders. While there may be generalizations about the relative incomes of those who make long-distance rides or peak-period rides, the fact remains that people of all income groups make trips of all distances at all times.

    From an efficiency and equity perspective, it makes sense that those who get the most benefit (long-distance riders) and those who cost the system the most money (peak-period riders) should pay more for their trips than short-distance and off-peak riders. In Washington, DC, our rail transit system has a boarding charge that is good for the first few miles. Distance charges are applied after that. Both the initial boarding charge and the distance charges change depending on whether peak or off-peak fares are being charged.

    Metrorail “full fare” fare structure, FY13.
    Peak Off-Peak
    Flat fare for first 3 miles of travel $2.10 $1.70
    Incremental fare for additional miles above 3 and up to 6 $0.316/mile $0.237/mile
    Incremental fare for additional miles above 6 $0.28/mile $0.21/mile
    Maximum fare cap, regardless of distance $5.75 $3.50

    Of course, there is more to an equitable fare structure than merely determining what the riders should pay. Some of transit’s biggest beneficiaries might not ever ride a bus or a train. They might not even live within the transit jurisdiction or service area. These beneficiaries would be the owners of commercial land near downtown transit stations.

    The owners of commercially-zoned downtown land reap an enormous windfall in terms of higher land values from the presence of nearby transit stations. In Washington, DC, the Metrorail system cost about $10 billion to construct. Land-value premiums near transit stations, related solely to the presence of transit, are estimated to exceed $10 billion. I don’t know about Canada, but in the USA, property owners typically pay only between 1% and 2% of value in property tax. Thus, for every $100 of transit-created land value, the owner must pay only $1 or $2 per year. The net present value of these annual property tax payments is about $10 to $20. Thus, the Metrorail transit authority has given away about 80% of the land value that it has created. This has been a pure windfall to the owners of land near the stations. And these landowners tend to be among the most affluent and powerful members of society. This is welfare in reverse – or “wealthfare.”

    If we really want to make transit more affordable for riders, then we need to make sure that nearby landowners are paying their fair share. Some jurisdictions have accomplished this by reducing the property tax rate applied to privately-created building values and increasing the rate applied to publicly-created land values. The lower rate on buildings makes them cheaper to build, improve and maintain. Surprisingly, the higher rate applied to land values helps keep land prices more affordable as well. And, if landowners were paying their fair share for transit infrastructure, fares for all riders could be much lower.

    For more information, see “Using Value Capture to Finance Infrastructure and Encourage Compact Development” at https://www.mwcog.org/uploads/committee-documents/k15fVl1f20080424150651.pdf

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