Image credit: Simon Antweiler

Translink sounded the alarm bells that the current funding model for public transit is insufficient. Translink's press release pointed to the risk that the Vancouver region could see half of transit services cut without [a] new funding model in one of the two scenarios they are considering. While these cuts are not immanent, the current funding model is indeed inadequate. The province was compelled to inject funds year after year, in part driven in response to the pandemic. However, this relief funding is set to expire in 2025, and Translink sees a funding gap of $600 million—roughly a quarter of the Translink budget.

Translink's 2024 budget expects revenue of about $2.42 billion, composed of $1.01 billion in taxation, $680 million in transit fares, and $488 million in government transfers. Other revenue sources make up the remainder. With expenses of $2.31 billion, a $51 million operating deficit is projected for 2024. With relief funding set to expire next year, Translink desperately needs a new long-term sustainable funding model. Translink's CEO, Kevin Quinn, is right in raising the alarm.

The starting point for any discussion about public transit must be the realization that everybody benefits from public transit, whether we use it ourselves or not.

Todd Litman of the Victoria Transport Policy Institute has neatly summarized the local funding options for public transportation in a recent report. Anyone interested in exploring this topic further should read his report carefully. Essentially, there is no single policy option that puts a checkmark in all the boxes for what is needed. Balancing market efficiency, low administration costs, and distributional outcomes (quitability) means that no single policy instrument is clearly superior. What is needed is a mix of funding options. The funding options that are the least controversial are unfortunately also those that generate the least revenue. Developing a new funding model will not be a free lunch: someone has to pay the bill. New operational funding must be primarily local, allowing the province to free up resources to invest into the future of public transportation that generates new economic growth. (High on that priority list for is the skytrain extension to UBC.

In my April 2024 blog Will BC need to transition fuel taxes to VKT taxes? I explored the possibility of gradually phasing in a Vehicle Kilometer Travelled (VKT) tax to replace the diminishing revenue from fuel taxes as the vehicle fleet shifts gradually towards electric mobility. However, Translink's issues go beyond the shift towards electric mobility. Public transit generates benefits not only to its immediate users, but it generates environmental benefits to the entire region and it generates beneficial road decongestion effects for motorists. Public transit also facilitates urban densification, which is a benefit to new housing developments. All of that means that the benefits of public transportation are shared widely, and therefore the costs of public transportation should be shared widely too. Some commentators have argued that public transit should operate purely on a cost-recovery user-pays principle. This ignores the fact that the benefits from public transit use accrue not only to public transit users. There is a strong argument to be made to expand local funding of public transportation.

When looking at new funding sources, economists would first turn to any area where private costs and benefits do not align with social costs and benefits—in other words, where there are non-priced externalities. Meanwhile, politicians will first turn to any funding sources that come with a high degree of public acceptance and ease of implementation. Where do these objectives intersect?

Economists will be quick to single out two areas where pricing is inadequate: road congestion and parking. Remedies involve congestion pricing (ideally differentiated by time and location) and parking fees. Both subject areas have been explored rigorously in the economic literature. Congestion pricing has been introduced in cities such as London, Singapore, and Milan, while a planned introduction in New York is on hold. Donald Shoup's influential book "The High Cost of Free Parking" has resolutely criticized existing parking policies and requirements. We should look towards charging the fair market value for curbside parking.

As I discussed in my April 2024 blog, VKT taxes ought to play a significant part of the overall financing model, starting in the Metro Vancouver region. They can be implemented at relatively low cost through annual licensing renewal for motor vehicles, requiring motorists to report their current mileage when renewing. The case for VMT taxes has been made in many places; for a recent discussion see Langer et al. (2017).

Development charges (fees on new developments), station rents (revenues from public-private developments on publicly-owned land in or near transit stations), and transportation impact fees (for financing transport system improvements) are all sensible options, have low implementation costs, but typically yield only a moderate amount of revenue. Still, they should be part of the overall plan.

There can be no doubt that any proposed measure will face stiff opposition from various interests: home owners, motorists, and developers. Nobody wants to pay more, and anyone who doesn't use public transit regularly will likely complain that public transit users should bear the full cost of the service. Caving in to such everybody-else-but-me-should-pay complaints would be economically wrong and politically short-sighted. Politically, the answer must be to spread the burdens widely and avoid singling out one group only. By spreading new burdens widely, politicians can inoculate against playing local or political favoritism to particular constituencies that are dear to them.

In 2021, the Vancouver city council scrapped the idea of introducing overnight parking permits. The proposal was also tied to an annual vehicle pollution charge, which perhaps was not the best idea. However, the proposed parking fee ($45/year) for overnight parking was rather modest, with a special discount for low-income households.

Curbside parking occupies scarce street space. Pricing should reflect the relatively scarcity. Charging drivers directly for parking is fairer than using various indirect approaches. If parking was priced correctly, consumers had a choice of paying more for parking or taking public transit. Pricing parking correctly could also boost transit use.

But what is the correct price of parking? One of the research papers that I have found particularly insightful is van Ommeren et al. (2021), where the authors looked at parking in Melbourne, Australia, where on-street parking fees are far below off-street parking fees. The marginal external cost of parking depends strongly on the occupancy rate; few available spaces increase cruising and road congestion. This in turn depends on time of day and day of week. Optimal parking prices need to reflect heterogeneity in time and space. Sometimes the optimal parking price is indeed close to zero, but oftentimes it can be quite high. While a low flat fee may be sufficient for many low-density neighbourhoods, curbside parking in higher-density areas ought to reflect scarcity and should roughly be in equilibrium with available off-street parking alternatives.

Another question is about the role that senior level of governments should play in funding public transportation. Some of the benefits of urban agglomeration spill over into the economy at large, which could support the recommendation from Metro Vancouver mayors who would like to shift some of the financing burden to the provincial and federal government, as was reported in September 2023. However, senior levels of government look more towards investment in public transit (upgrades and expansions) rather than funding operating expenses.