Monday, February 9, 2015

The public investment in transportation

Recently, the Metro in Washington D.C. has some trouble. Their ridership is declining, which is partially caused by the cut in federal transit benefit from $250 per month to $130 in 2014. The loss of customers in Metro leads to the decline of fare revenue. The committees of Metro in D.C. plan to cut the metro service and raise the transit fare to balance their budget. On the other hand, the maximum monthly pre-tax deduction for parking in D.C. area is increased to $250 in 2014. Public investment into roads/bridges is more popular than that of public transit/metro.

Thinking the nature of service, externalities, and social equity, public investment into metro/public transit should be paid more attention to roads/bridges. The service of metro/public transit is closer to public goods (assuming that the gov’t can provide as many buses/subway lines as possible), while the use of roads/bridges is more like common-pool goods (assuming that no toll fee is implemented).  According to the nature of these two services, metro/public transits should be provided by government and the use of roads/bridge should be regulated. 

Furthermore, the externalities of these two services are very different. The increased use of public transit/metro has positive externalities; while the increased use of cars has negative externalities. It is found that increased use of public transit can decrease the emissions of air pollutants and greenhouse gases; while the use of automobiles is one cause of urban air pollution. If the social equity concern is considered, the public transit can benefit more to low-income people. 

From the perspective of government, fiscal return of public investment might be more important. To finance metropolitan infrastructure is a big challenge for local governments now. Both roads/bridges and public transit/metro needs money to maintain and upgrade the system. However, the investment into roads/bridges can encourage the automobile use, which creates more fuel tax revenue. The earmarked fuel taxes are the main revenue source to maintain the transportation system. In comparison, the public transit/metro needs more money from government to support their service. The fiscal return of roads/bridges is bigger than that of public transit/metro.

Linking back to the theory of fiscal federalism, local service is better provided by local government, given the complete information and representative issues. However, in the case of Metro in D.C., it is unknown that the policy made is reflected by the residents or it is from middle-higher class group.


The transit benefit: “The IRS allows private-sector workers to take up to $130 monthly out of their wages, before taxes, to cover public-transit fares. Federal employees who use public transportation can get a subsidy of up to $130 monthly without a pay deduction.”--From Washington Post Feb 7, 2015

Blogs on Metropolitan Infrastructures from Brooking Institute:

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