Financial sustainability of mass transit

One of the large challenges on the horizon is how existing and future mass transit in the Philippines can remain financially viable so that services can be placed on a stable footing, and adequate operation and maintenance will be applied. This is of significant concern, especially because there are several major mass transit projects coming on stream over the medium term. The Metro Rail Transit Line 7 (MRT 7) is expected to be operational in the next one to two years. By 2032, the Metro Manila Subway and the North-South Commuter Railway are also expected to be online.

Financial sustainability of public transport operations is a natural challenge for any national agency or local government because of the expectation that fares should be kept affordable. There is likely to be constant political pressure to keep public transport fares as low as possible. For this reason, the revenue from railway fares is unlikely to cover the full cost of delivering the service. This implies that a continuing subsidy will be required so that operations do not suffer even if fare revenues fall below expenditures over a prolonged period.

If a continuing subsidy is required, the subsidy should not be dependent on the annual budget appropriated by Congress, as this could become unreliable and subject to political whim. There is therefore a need to find stable and reliable non-fare revenue sources and to earmark these for mass transit (in the same way that 'sin taxes' on alcohol and tobacco are channeled into funding vital and continuing health services). There are three substantial sources of revenue that can help to fund the possible financial deficits of mass transit operations: parking levies; congestion charging/congestion pricing; and traffic violation fines.

Parking levies: Free or very low-cost nonresidential parking spaces in urban centers are "magnets" for traffic; they attract increased motor vehicle use. In busy urban centers, there is a need to manage the demand for parking spaces as well as to compensate the rest of society for the added road congestion due to the availability of these spaces. There is ample justification for introducing a daily levy or tax on each nonresidential parking space in a crowded urban area, to be collected whether or not the parking space is used.

In Greater Manila, where there are over a million nonresidential parking spaces available, the revenue potential from a parking levy is considerable. A million nonresidential parking spaces, each subject to a daily levy of P100 would generate P100 million per day, enough to subsidize several million public transport trips daily.

Congestion pricing, whereby vehicles are charged a fee (collected like a toll) for entering the center of a city or a busy corridor or district, can help to reduce the demand for private vehicle use while providing a revenue stream that can support public transport development and operations.

The experience of New York City is instructive. In an article (found in www.curbed.com) titled "How Well Is Congestion Pricing Doing? Very," these were the highlights for the first 100 days of congestion pricing: complaints about car honking dropped 70 percent; rush-hour delays at the Holland Tunnel dropped 65 percent and travel time through it fell 48 percent; the number of cars entering Lower Manhattan fell by 6 million compared to a year earlier; traffic-related injuries in the congestion zone dropped by half; Metro-North ridership rose by 8 percent; and visitor counts in business improvement districts increased by 1.5 million year over year.

Clearly, congestion pricing offers an effective mechanism for curbing the demand for use of motor vehicles while providing a steady revenue stream that can support mass transit operations.

Fines and penalties for traffic violations are another rich source of additional revenue that could help keep public transport financially viable while maintaining affordable fares. The key is to bring back the camera-based no-contact apprehension system and fix any remaining legal and technical constraints. Cameras at every busy intersection or street corner will pay for themselves many times over, while altering driver behavior for the better. This mechanism will provide another meaningful stream of funds to support reliable and adequate public transport while keeping driver behavior in check.

Just as important as setting up the infrastructure for modern mass transit schemes is the establishment of funding mechanisms to ensure that public transportation will not be a burden on the national budget. This means, early on, putting in place the additional sources of revenue — parking levies, congestion pricing and fines from traffic violations — that will provide a steady, predictable stream of funding to cover the likely operating deficit.

Source: Manila Times