Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / How Hidden Fees Drain Public Transit Systems
Transcript
- Lucas: Let’s talk about the money you lose when you’re trying to get to work. Not the ticket price itself, but the friction costs buried in the pricing structure. Think about the last time you took public transit in a major city. If you pay per ride, every single trip is a transaction. If you have multiple transfers, you are paying three times. Now contrast that with a flat monthly pass or a cap after five rides. The difference isn't just convenience. It is a fundamental choice about who gets to move freely in the city. Luna: Right, and most people don’t realize that complex tiered pricing actually discourages usage among the lowest income brackets. They see the per-ride cost and assume it’s too expensive, so they stay home or walk further. That’s a self-fulfilling prophecy of exclusion built into the spreadsheet. Lucas: Exactly. And transit agencies know this, but they cling to these complex structures for one reason: perceived fairness. Or rather, the illusion of it. If I take the bus once a month, I shouldn’t pay the same as someone who takes it five days a week. So they build zones, they build peak and off-peak differentials, and they build transfer penalties. But let’s look at the data from London’s Oyster card rollout in the early two thousands. When they moved away from paper tickets to smart cards, ridership didn’t just go up because it was easier to tap. It went up because the pricing became predictable. Luna: Predictability reduces cognitive load. You stop doing the mental math every time you swipe. But doesn’t that predictability hurt the agency’s short term revenue if people are riding more? Lucas: It does, but only temporarily. Once the network effect kicks in, the volume compensates. The real story here is what happens when agencies try to optimize for marginal gains instead of total utility. Look at New York City before they fully phased out the MetroCard. They had a complex web of express bus premiums, subway to bus transfer fees, and peak hour surcharges that varied by line. A rider going from Queens to Manhattan might pay four dollars. A rider going the same distance in Jersey City might pay two point seven five. The inconsistency wasn’t accidental. It was structural. Luna: So the pricing reflects the political pressure of different boroughs rather than actual operational costs? Because the express bus costs more to run, sure, but the fare gap feels arbitrary to the user. Lucas: Arbitrary is the right word. Operational costs for a bus are relatively stable regardless of whether it goes express or local, especially when you factor in traffic congestion. The express bus often moves slower than locals in rush hour. Yet, the fare remains higher. Why? Because the agency needs to capture surplus value from commuters who have no alternative. It’s a classic case of price discrimination based on elasticity of demand. Those with jobs and fixed schedules cannot afford to be late, so they pay the premium. Those without jobs can wait for the local bus. The system extracts maximum revenue from those least able to leave. Luna: That’s a harsh way to put it, but economically accurate. It’s basically a regressive tax on mobility. The poorer you are, the harder it is to navigate the fare maze, and the more likely you are to get fined for errors. Lucas: Precisely. And fines are another hidden layer of this economy. Let’s talk about fare evasion. In many cities, the rate of unpaid rides hovers around ten to fifteen percent. Instead of addressing the root cause—unaffordable pricing—agencies invest millions in enforcement. They hire inspectors, install turnstiles, and sue individuals. But here’s the twist: collecting those fines is incredibly inefficient. The administrative cost of processing a twenty dollar fine often exceeds the fine itself. You end up spending fifty cents to collect thirty cents. It’s a net loss. Luna: So the bureaucracy grows larger to police a problem that the pricing model created in the first place. It’s a vicious cycle. Does any city actually fix this, or is it all just damage control? Lucas: Some do. Paris recently introduced a flat-rate system that caps daily spending. If you’ve ridden enough, the rest of the day is free. Simple. Effective. But implementing that requires a shift in mindset. You have to accept that you might make less money today so you make more tomorrow through increased loyalty and reduced enforcement costs. Most US transit authorities are terrified of that initial dip. They think in quarterly budgets, not generational mobility. Luna: Quarterly budgets are the enemy of long term planning. It’s the same reason we don’t fix potholes until they become craters. Short term pain avoidance leads to long term collapse. Lucas: And speaking of long term costs, let’s look at the infrastructure side. When fares are too high, ridership drops. When ridership drops, subsidies must rise to keep the lights on. We saw this in Detroit in the nineties. Fares were raised to plug budget holes. Ridership plummeted. The subsidy burden skyrocketed. Eventually, the system became so unreliable that only the desperate used it. The middle class left entirely. Now, decades later, Detroit is still playing catch-up to rebuild trust and frequency. Luna: Trust is the currency of transit. Once you lose it, no amount of advertising brings it back. You need consistent service. But how do you fund that consistency without raising taxes, which is politically toxic? Lucas: You don’t raise taxes. You restructure the value capture. Look at congestion pricing in London. They didn’t just charge drivers to enter the city center. They tied the revenue directly to service improvement. Every pound collected went into a ring-fenced fund for bus upgrades. Transparency matters. When riders see that their extra payment results in faster buses, they tolerate the cost. Without that link, it’s just theft. Luna: Ring-fencing is key. People hate general fund contributions because they disappear into overhead. Direct correlation between payment and outcome is the only way to maintain legitimacy. Lucas: Before we dig deeper into the mechanics of ring-fencing and how other cities are experimenting with dynamic pricing models, I want to pause for a moment. We deliberately don't run ads on these shows. If you want to support that choice, the link is buy me a coffee dot com slash fexingo. It keeps the research rigorous and the commentary independent. Luna: Yeah, and it lets us spend time on these deep dives instead of chasing clickbait headlines. Thank you for keeping the signal clear. Lucas: Back to the data. Let’s look at a specific number. In New York City, the average commute time for transit users has risen by nearly twelve minutes over the last decade. Meanwhile, operating costs have risen by thirty percent. Where did that money go? Partly to labor agreements, partly to inflation, but significantly to fixing legacy systems that were deferred for years. The farebox recovery ratio—the percentage of operating costs covered by fares—has hovered around forty percent. That means sixty cents of every dollar comes from taxpayers. Luna: So the user pays less than half. Is that better or worse than private sector models? Usually private companies require full cost recovery. Lucas: Private sector models often exclude unprofitable routes entirely. They serve the wealthy suburbs or the dense downtown cores and ignore the periphery. Public transit is a public good. It connects the dots that private capital ignores. But being a public good doesn’t mean being inefficient. It means being accountable to the public, not shareholders. The inefficiency comes from fragmented governance. In many regions, you have five different transit agencies overlapping. Transfers between them trigger double fares. That’s not economics. That’s bureaucratic siloing. Luna: Fragmentation is the silent killer of efficiency. You can’t optimize a network that’s broken into ten pieces. Consolidation sounds boring, but it’s the only way to lower costs. Lucas: Consolidation is hard because of politics. Each agency has its own union, its own board, its own constituency. Merging them threatens power structures. But look at the San Francisco Bay Area. They eventually unified fare collection across BART, Caltrain, and Muni. It didn’t solve everything, but it eliminated the transfer penalty. You pay once, you go anywhere. The complexity dropped. Revenue stability improved. It was a small technical change with massive psychological impact. Luna: Psychological impact. Right, because uncertainty is stressful. Knowing you won’t be penalized for transferring makes the system feel human. It feels designed for you, not against you. Lucas: Exactly. And let’s talk about technology. Smart cards aren’t just about tapping. They generate data. Real-time origin-destination data. Before smart cards, agencies guessed where people were going based on surveys. Surveys are slow and outdated. Smart cards show you exactly where demand spikes. You can adjust frequency dynamically. If you know there’s a surge at six pm in Zone Four, you add a bus. That’s efficiency driven by truth, not guesswork. Luna: But data privacy concerns always push back. Agencies want the data, users worry about surveillance. How do you balance operational intelligence with civil liberties? Lucas: You anonymize it. Aggregated data is valuable. Individual tracking is dangerous. London does this well. They publish heat maps of station usage without linking it to individual identities unless law enforcement requests it under strict warrants. It’s a standard practice in modern data governance. The fear of surveillance is often exaggerated by those who haven’t seen the actual protocols. Anonymization works. Luna: Anonymization is the baseline. Anything less is a creep factor that drives people away. If I feel watched, I stop using the service. That defeats the purpose. Lucas: Agreed. Now, let’s look at the future. Electric buses. They reduce operating costs significantly. No fuel volatility, lower maintenance. But the upfront capital cost is three times higher. Who pays that? Usually federal grants, which are competitive and uncertain. Local agencies are stuck waiting for DC to act while their diesel buses rust out. It’s a classic tragedy of the commons. Everyone benefits from clean air, but no one wants to front the bill. Luna: Federal grants are unreliable. You can’t plan a fleet replacement strategy on lottery tickets. It creates a paralysis where agencies delay purchases until the buses literally break down. Lucas: Which brings us back to the core issue. Fiscal policy is not just about taxes and spending. It’s about timing. It’s about aligning incentives. If we want efficient, equitable transit, we need to stop treating it as a charity case and start treating it as critical infrastructure. Like roads. Like bridges. We fund those reliably. Why not mobility? Luna: Because mobility is invisible to the powerful. Politicians drive cars. They don’t take the bus. Until they do, it will always be an afterthought in the budget. Lucas: Maybe. Or maybe we just need to make the cost of inaction visible. When the hidden fees and inefficiencies are laid bare, the argument for reform becomes undeniable. It’s not about giving handouts. It’s about removing the drag on the entire economy. Stuck workers produce nothing. Efficient transit unlocks productivity. Luna: Unlocking potential. That’s the frame we need. Not charity, but capacity. If you can get people to work efficiently, you boost the whole GDP. It’s basic arithmetic. Lucas: Basic arithmetic with complex politics. But the math holds. The question is whether we have the courage to simplify the system. To drop the zones. To cap the fares. To accept short term revenue dips for long term stability. It’s a test of fiscal maturity. Luna: A test we are currently failing in most major metros. But awareness is the first step. Recognizing that the complexity is costing us money is where the change begins. Lucas: And recognizing that simplicity is a feature, not a bug. Next time you tap your card, think about the architecture behind it. Is it working for you, or against you? That simple question changes everything.