An Analysis of Price-Subsidy Issues in Public Transportation and Some Suggestions of Practical Importance

About the report:

This report is directed to highway and transportation officials and other state and local government officials faced with questions of public transit subsidies. The questions are very real ones and, in this one's opinion, require well founded answers. By means of this exposition, the author provides the above audience with several conclusions, recommendations and analytical points of view which are of practical importance. First, the author establishes that the great majority of arguments usually offered in support of subsidization are weak and unfounded. Whereas two economically justifiable arguments can be identified, their validity depends upon empirical proof that significant long-run average cost reductions arise through increased ridership. Secondly, the report provides an explicit set of criteria which are useful in judging alternative subsidy mechanisms by their ability to provide the incentives necessary to cause firms to increase their ridership and service levels. Thirdly, an exhibit is presented, based upon Virginia data, which shows the relative real cost to the locality of providing a subsidy under various mechanisms. *One of the of the most recent and poignant examples of the transit subsidy problem in Virginia is exhibited by the front-page story in the February 9, 1975, issue of the Charlottesville Daily Progress: Charlottesville's only bus company, Yellow Transit, has requested an additional subsidy of $40,000 just to remain in operation through July 1, 1975. This amount, if granted, would bring the total for 1975 to $85,000, no part of which is used for capital costs.

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