News Story

Public Bus Fares Cover Less Than 20 Percent of Costs

It's the story of a public transit system in Michigan: the more successful it is as it keeps fares low to lure passengers, the more money it appears to lose.

In Lansing, the city's bus system has seen its ridership jump to record numbers from 9.3 million in 2005 to 11.3 million in 2008. Yet its losses have also jumped from $28.6 million to $33.3 million during the same span.

State Rep. Dave Agema, R-Grandville, has introduced House Bill 4185 that would require bus transits to have fares cover 20 percent of their operating costs. Agema said his bill has been stuck in committee since it was introduced a year ago.

Transit was a big beneficiary of the federal stimulus. According to the state, Michigan has received nearly $100 million in federal stimulus funds to be spent on transit authorities.

"I'm not asking them to be profitable," Agema said. "Right now, there is no incentive to be efficient. It's, 'Let's just keep the monster going and lose more money.' "

For Lansing's Capital Area Transportation Authority, fares cover 15 percent of the total operating costs, according to CATA Spokeswoman Debbie Alexander.

Needing more money to sustain operations, CATA asked for an increase in its millage in 2008. It was approved for a 0.787-mill tax increase for five years ending in 2012. For a home valued at $100,000, it meant about an extra $39 in taxes per year.

In Lansing, fares are normally $1.25 a ride, but students ride for 60 cents.

Mackinac Center analyst Jack McHugh said the current public transit model is broken and that reforms are available that will benefit both users and taxpayers.

"By eliminating protectionist regulations that restrict alternatives," McHugh said, "empty buses driven by public employee union members can be replaced by private sector innovations like jitneys, commercial van pools, 'call-and-ride' services, car-sharing and more. This will improve service for transit users at a much lower cost."

Alexander said increasing fares risk cutting off service to the low income riders.

"You could only drive fares up so far before you are unable to serve the population that uses the bus," she said. "Nowhere in the world is any public transportation fully supported by fares. I think there is a fine line between making it valuable and marketable and overpricing it and making it an elite service."

Agema said he's not asking fares pay for the entire cost of operations.

“They say, ‘Well, we might lose ridership,’” Agema said. "I don't think it is unreasonable to ask riders to pay just 20 percent of the operating cost."

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.