Updated October 23: The TTC deferred the Lake Shore Express bus proposal until its November meeting so that it could be considered together with an overall report on express bus policies.
Original October 18 post:
A report in the October TTC agenda on the subject of a Lake Shore West express bus caught my eye. The proposal doesn’t make it past the filters for new services, even with the premium fare, because the additional net revenue doesn’t meet the minimum criterion.
I have written before about the mysteries of the Service Standards, and this is as good a time as any to return to the mythology of financial analysis of new services.
The report proposes a service of five am inbound and four pm outbound trips from downtown. About 380 trips per day would take the service, and if we assume this is equally balanced between the peaks, this gives an average load of 38 in the morning and 48 in the afternoon. Given that trips are never equally balanced, some standees are expected.
The marginal revenue would be $153,000 per year made up mainly of express supplements for existing riders who shift from existing services (340 per day), plus full express fares from net new TTC riders (40 per day). The marginal cost is estimated at $96,000 per year. By extension, the total annual cost would be $249,000. A cost recovery of over 50% doesn’t look too bad, there’s more to the analysis.
The TTC’s standard (about which more below) says that a new service must generate at least .23 new riders per dollar expended. Riders diverted from other routes don’t count because it is assumed that the effect on any of these routes is too small to allow a change in service levels. Given the already tenuous quality of service on the 501 to Long Branch, the last thing I would want the TTC to do is to further trim streetcar service claiming that less was needed thanks to the new express bus.
Looked at this way, the 40 new daily rides (that’s only 20 people, since each counts for 2) would be subsidized at a marginal cost of $4,800 per year per person. Of course, we would also be subsidizing a premium service for the other existing riders, and the question really is whether the net expenditure of $96K on 190 people (half of the 380 trips), or $505 per person, is a justified expenditure in the grand scheme of TTC affairs.
This is not far out of line with the actual per user subsidy for Metropass holders, but of course, they are using the service of an entire network, not just a point-to-point service. (A year of passes on subscription yields the TTC about $1200. If we use an average recovery rate of 75%, this means that the cost of service to a passholder is $1600, and they get an annual subsidy of $400. This assumption is open to challenge on many fronts, and I use it only for illustration. Don’t bombard me with commentaries on alternatives, please.) I will remain silent on the question of the annual subsidy to Sheppard Subway riders, but at least there are more than 190 of them.
Coming back to the “standard”, we get 40 new rides per day, or 10K per year (250 weekdays times 40). the net expenditure is almost $10 per new trip, or to render it into Service Standards lingo, .10 new trip per dollar.
Where did that magic figure of .23 come from, you ask?
Once upon a time, the Service Standards were based on the “maximum permissable subsidy”, a value set at five times the average subsidy per trip. This value is affected both by the then-current fare, operating costs and subsidies, and it varies from year to year. Here are the values when this scheme was in use:
- 1993 (for the 1994 Service Plan): $1.60
- 1994: $1.80
- 1995: $1.80
- 1996: $1.25
- 1997: $1.20
Note the drop by the mid-90s corresponding to the cutback in subsidy funding and the rise in fare revenue relative to costs. If the recovery rate goes up, the subsidy per trip goes down and with it the screenline for the amount of loss a new service is allowed to incur.
In 1998, for the 1999 Service Plan, the calculation was turned on its head and expressed as the number of passengers per dollar expended. The value for that year was, wait for it, .23. The report clearly anticipates adjustment in this value in future years (“This figure is updated every year based on the most current information abot costs and customers’ travel characteristics.”) In fact this has never happened, and .23 has been enshrined as if it were engraved on stone tablets. It is self evident that the cost of a new service in 1998 was considerably lower than in 2008, and therefore the number of dollars needed to pay for a service is higher today. If, for the sake of argument, the inflation factor is 100%, then we need twice as many new riders today to “justify” a service than we did in 1998.
Note also that this analysis says nothing about the quality of the service. Adding a new bus may allow headways to come down to a much more attractive level, or it may do little more than “show the flag” and allow the installation of new transit stops and shelters that see very little use. There is no QOS component even though it is well known that this is the single most important factor in attracting riders to new services or losing them on existing routes.
Finally, .23 new riders per dollar spent implies an allowable subsidy of over $4 per new ride, or $2000 per rider (assuming a round trip) per year! This looks terrible, but by analogy to the Lake Shore Express, the real issue is that additional service makes life better for every affected rider, not just the net new ones.
In modern terms, $4 is slightly more than double the maximum permissable subsidy back in 1994/95. The problem remains, however, that this is a fixed value, and as costs rise, more and more new riders will be needed for proposed services to meet the standard. The entire process of financial evaluation of service needs to be revised to include meaningful, inflation-adjusted figures and quality-of-service considerations.
The Lake Shore Express proposal, like the existing Beach Express, is a reaction to the TTC’s long-term unwillingness to acknowledge service problems on the 501, an issue they are only now addressing. There is supposed to be a report on the subject in the October agenda (the Lake Shore report explicitly states this), but it is not yet (as of Saturday, October 18) on line. I suspect it will be a carry-in, and this will produce the usual difficulty of responding to a major issue for both Commissioners and the public.