All’s fare?

Budgets deserve better than farebox recovery revenue

We need to break up with our current fare-based transit model and the pandemic has made this abundantly clear.

Farebox recovery revenues, also called cost recovery revenues, represent the amount of a transit system’s operating costs that are downloaded to the rider and covered by their fares. As government funding for transit systems is clawed back, the reliance on farebox recovery revenues increases. However, this reliance is itself not without impacts. The oft cited Simpson-Curtin rule provides the rough guideline that for every 3% increase in fares, ridership drops 1%. Critics of this rule argue that it is too imprecise to capture the myriad factors that influence ridership. When the Toronto Transit Commission (TTC) increased cash fares by 54% in a single year in 1992,¹ this move contributed to the loss of 15 million riders.² However, it wasn’t the only factor influencing the decline in ridership, which has also been attributed to the recession and reduction in TTC service. The TTC’s attempt to close their fiscal gap by putting increased financial pressure on its ridership exacerbated financial pressure that their riders were already experiencing due to the recession and made taking transit less accessible.

Despite a massive loss in ridership that ought to have served as a warning to other municipalities about the pitfalls of relying on farebox recovery revenues, they remain a central funding stream for Canadian transit systems. The average farebox recovery ratio for Canadian transit systems in 2019 was 51%,³ meaning that right before the pandemic hit, the majority of public transit operating costs were being covered by rider fares. This level of reliance on farebox revenues was rated by Moody's as creating significant financial risk for transit systems.⁴ We don’t have to imagine what that significant financial risk looks like; we’ve seen its effects unfold in real time across Canada over the course of the pandemic.

Perhaps the most notable example of this risk is the Go Transit system, operated by Metrolinx, which serves the Greater Golden Horseshoe region of Ontario. In the 2019-20 fiscal year, Metrolinx reported a cost recovery ratio of 64.3%. After the COVID-19 pandemic hit, the organization’s ratio fell to 10.1%.⁵ Go Transit, Metrolinx rail and bus system, lost 90.2% of its fare revenue in 2020-21, totalling a drop of $517.9 million from the previous year. While not all systems were hit as hard as Metrolinx, many faced significant ridership drop offs following the start of Canada’s pandemic experience and while there have been some improvements in ridership numbers, they have not returned to pre-pandemic levels.

Graph by Katie Sheedy

At the same time, Canada needs to be expanding its public transit systems in order to transition commuters out of their cars and into sustainable modes of travel. Improving transit is not possible when systems rely on fares to operate. Because of their decline in ridership, by 2024 the public transit agencies that serve the greater Montreal area estimate that they will have accumulated a deficit of $716-936 million. In order to address this debt, they intend to cut serve by 2% each year while raising fares 4% each year, meaning that the systems could end up with an even greater farebox revenue ratio than before.⁶  

This doesn’t even take into account the amount of money that we spend collecting fares and policing our transit systems to make sure that people have paid to be there. The privately owned Presto fare card system has cost an estimated $1.2 billion to operate.⁷ The TTC alone reportedly spends about $10 million annually on 110 fare inspectors, and about $15 million on 120 special constables. At some point, we should ask why we are spending this money? If we understand these systems as existing to help move people through cities, to help reduce the greenhouse gas emissions from personal vehicles, to close equity gaps, we can see the people using transit as deserving of service, regardless of ability to pay. If the goal is transit, let’s fund transit.

In order to achieve that goal, we need a different funding model. Without permanent operational funding support, transit systems remain locked in a funding ratio that leaves their budgets open to significant risk and unable to provide the low- to no- barrier access to public transit that allows Canada to reach its climate targets. It’s time for Canadian municipalities to rethink their transit funding models, but they can’t do it without the support of all levels of government.

Layout design by Katie Sheedy

References

¹ http://transitstop.net/Stats/ttc_fares_from_1973_to_present.htm
² https://www.theglobeandmail.com/news/national/ttc-warns-of-50-cent-fare-increase/article25425916/
³ https://cutaactu.ca/wp-content/uploads/2021/06/Issue-Paper-Why-public-transit-needs-extended-operating-support.pdf
⁴ Moody’s Public Sector Europe. (2021, March 29). Structural fall in ridership post pandemic opens substantial funding shortfall. https://www.lagazettedescommunes.com/telechargements/2021/04/sector-in-depth-global-transportation-29mar21.pdf
⁵ https://www.metrolinx.com/en/docs/pdf/board_agenda/20210624/20210624_BoardMtg_2020-2021_Annual_Report.pdf
⁶ https://www.keeptransitmoving.ca/permanent-operational-funding
⁷ https://www.thestar.com/news/gta/2018/09/07/ontarios-presto-costs-soar-to-12-billion.html