Friday, February 8, 2013

Transport Finance without the Feds: The Canadian Model

Transport planning and policy in the United States is dominated by the federal gas tax. Currently 18.6 cents per gallon of gas and 24.6 cents per gallon of diesel, federal gas taxes are used to guide preferred transport investment across the country. For the past forty or so years, the federal gas tax has, in the words of Lisa Schweitzer, been buying everyone’s lunch. Yet all is not well. The federal gas tax hasn’t increased in 20 years, reducing the absolute and relative buying power of the revenue. Increased federal regulations and interest groups limit what the gas tax can be used for, and a steady stream of other people’s money (federal dollars) creates incentives to spend on transport projects that offer few benefits. At an extreme, transportation projects are developed and financed by federal monies withouteven bothering to claim any transportation benefits.

The declining share of federal money for transport finance has many people worried that transportation policy and finance will devolve to the states. Such devolution of authority is viewed as a necessarily lousy outcome, especially by progressives. (Richard Florida even wants a cabinet position for a Department of Cities. We didn't get urban renewal right the first time, so let’s try again, but with even more authority.) From my perspective, the status quo for transport policy and finance cannot be objectively defended as a success. Looking at the period of about 1971 (the year Amtrak was formed is a good marker of the beginning of the current era of federal policy, but just about any year between 1964-1974 works) to present US transport systems declined in nearly all measures of productivity, economic performance, social welfare, or just about anything else you care to measure. For whatever occasional successes US policy has had, the nation has received an extremely poor return on investments made. We can do better.

An experiment devolving transport policy and finance to the states is likely to improve overall performance of all aspects of transport. For evidence we can look to out chilly northern neighbors in Canada, which does not have anything equivalent to the U.S. Department of Transportation. Transport policy is the responsibility of the provinces, and transit policy is the responsibility of the cities. So how do Canadian cities compare?
The table below is drawn from Paul Mees’ work. The city regions are sorted by transit mode share. Every major Canadian region has higher transit mode share than US cities except New York, Chicago and San Francisco. The simple correlation between density and transit share is .48, so density does not adequately explain the differences. (Paul Mees wrote the book on this issue.) Canadian transit systems also have much higher farebox recovery ratios than in the US. The Toronto system has to maintain greater than 70% farebox recovery is order to receive subsidy for the balance.

Last week a new report on Toronto area transport finance was published that explains the financing structures in place there and potential future monies. Here is a link to the report. The authors promote many taxes and fees, all of which are economically sound and focus on raising money for transport by charging those who benefit from a well-functioning transport system. Essentially, if the Greater Toronto Hamilton Area needs new transport investment to maintain and improve economic competitiveness then they can and should raise the money locally.

 Local control can also lead to service innovations. David Levinson highlighted TransLink in Vancouver. Here is how he described the agency’s service:
TransLink is the multi-modal transportation organization for Greater Vancouver, BC, and it is unlike what we see in the States. It is in fact, closer to the idea described in Enterprising Roads, a transportation utility with autonomy constrained by oversight.One of the key points to consider is that metropolitan Vancouver has a transit mode share of 21%, comparable with much larger Toronto and Montreal (though behind metro New York's 30%, it is well ahead of Seattle's 9%), despite ranking 34th in population. Some of that has to do with institutional factors and governance.

In addition to service innovation and the ambitious expansion plans in Toronto, British Columbia instituted a carbon tax a few years ago, though this may not survive a scheduled vote in May. There are certainly problems with the decentralized system. Some Canadians want a national transit agency. Fragmented governance in regions makes coordination difficult, and perhaps a stronger regional agency is needed. Most difficult, perhaps, is that many cities forego transit service all together.* However, eliminating unproductive transit so that resources can be used elsewhere is actually good policy. But by nearly every measure Canadian transport policy outcomes are superior to US outcomes. Whether US transport finance and policy devolves to the states remains to be seen, but it certainly isn’t something that should be dismissed as inferior to what we have now. It may well be better.

*This sentence was removed as it is incorrect (I had bad info on this case, but the larger point remains):"The city of Guelph, for instance, has 120,000 people but no bus service. "


Yonah Freemark said...


You make a reasonable argument, but neglect to mention the fact that Canadian cities do in fact receive a significant portion of their transportation construction funds from the national government.

Four recent examples:
Vancouver's Canada Line: 26% of costs paid by feds;
Toronto's Spadina Subway Extension: 33% of costs paid by feds;
Ottawa's Confederation Light Rail Line: 38% of costs paid by feds;
Montreal Champlain Bridge Replacement: Entirely federally funded.

Compare this to the US FTA's biggest projects:
New York East Side Access: 35% of costs paid by feds;
New York Second Avenue Subway: 27% of costs paid by feds;
Honolulu Rail Transit: 30% of costs paid by feds;
Los Angeles Westside Subway: 42% of costs paid by feds;
Seattle University Link: 42% of costs paid by feds;
Silicon Valley BART: 39% of costs paid by feds.

There is no doubt in my mind that Canada has been more successful than the US in encouraging transit ridership. But to argue that this results from a lack of national-level aid in Canada does not seem to be reflective of reality.

Moreover, while the Canadians may not have an equivalent to the US DOT, the policy-making influence of the US DOT on transportation projects is quite exaggerated. US cities, which are expected to fund half or more of the costs of their transit lines, play by far the most important role in determining what should be built.

Most importantly, perhaps, the major criticism of decentralizing transportation funding in the US is that, unlike Canada's provinces, our states have shown themselves to be quite reluctant in funding non-automobile transportation and quite gung-ho about spending plenty of their own money on new, highly inefficient and environmentally damaging highways.

The problem with US transport planning, to me, is primarily an ideological issue, not a structural one.

Yonah Freemark

Alon said...

Canada has a couple of advantages over the US. The biggest one is that it traditionally lagged US trends; in particular, by the time it got around to demolishing city neighborhoods to build freeways, the freeway revolt movement had already matured and could stop most urban freeway construction. Vancouver's only freeway within city limits skirts the edge of the city to connect two suburbs; Toronto has more freeways but still much less of that infrastructure than New York or Chicago or Washington or San Francisco.

This meant that the postwar reduction in transit use in Canada was much smaller than than the one in the US. It's lack of federally funded roads more than local funding of transit that made the difference.

More recently there has also been a divergence with quality of investment - Canadian construction costs are much lower than American ones and the projects funded tend to be more optimal for each city. This can't really be attributed to federal funding, though, since the biggest duds are usually supported locally by suburban honchos. For example, BART to San Jose got a Not Recommended rating from the FTA, but is moving forward anyway because both BART and San Jose want it. In Vancouver there's also another factor, which is better zoning; this again not a federal funding question but entirely one of local priorities and willingness to upzone aggressively near train stations.

David King said...

I'm not arguing that the Canadian decentralized model directly caused better transit ridership outcomes. I don't have evidence supporting causal claims (yet, anyway, as I may pursue research along these lines). I am saying that 1) the US model has produced poor results relative to investment, and 2) the decentralized approach as employed in Canada features outcomes (at least ones that I care about) that are better than similar measures in the US.

I don't say that devolved finance and policy means that the feds won't spend any money on transport. I don't believe that is the case, even if the gas tax goes away completely. As for cities and regions not spending money on non-auto transit, the incentives to do so will change if policy and finance are devolved. Of course, the details of how this happens and the speed it is implemented matter quite a bit. It may be that a devolved policy apparatus is not better than what we have. But a smaller federal role isn't obviously something to fear, either.

David King said...

These are all good points. Canadian cities also took over private transit earlier than in the US, so the services were still financially viable.

The lack of federally funded roads is absolutely an advantage of the decentralized system, as well.

Bureaucromancer said...

Where are you getting the idea that Guelph doesn't have a transit system?

Stephen Smith said...

Yonah – there are ways for the federal government to influence policy that don't involve straight subsidies. One way is through the forced creation of the Bay Area the regionalism has manifested in the MTC's bias towards shitty suburban extension.

It's also possible (though I have no idea how true) that the Canadian federal government just hands over the money for whatever projects the local governments want, whereas in the US the federal government is more involved in steering the process. For example, the feds eventually changed their minds about BART to San Jose Flea Market after VTA added, among other things, more parking at the protestation of local planners, who wanted TOD closer to the station. If they had just handed over the money, BART to the Flea Market still would have been a shitty project, but Milpitas might have gotten marginally more TOD.

Also, fun fact: the feds are paying for about two-thirds of the Central Subway.

Susan Pantell said...

"Every major Canadian region has higher transit mode share than US cities of New York, Chicago and San Francisco."

Actually, N.Y. has higher transit share according to your table.

What is the source(s) for the table?

Susan Pantell said...

"Every major Canadian region has higher transit mode share than US cities of New York, Chicago and San Francisco."

Actually, N.Y. has higher transit share according to your table.

What is the source(s) for the table?

David King said...

Typo fixed. The data is from Paul Mees' work, as cited in the post. The data is posted on his website.

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moishale said...

Other major factors to consider here are Canada's higher gas taxes, which studies have shown to have reduced sprawl in Canadian Metro areas, as well as our lack of the home mortgage tax deduction. All of these policies have supported higher transit ridership.

In response to Yonah and Stephen's comments, Canadian federal funding has been on a one-off basis and I am not aware of them playing a major role at all in shaping projects to meet their needs. All of the recent examples Yonah highlights have back stories and should be seen as the exception and not the rule.

Vancouver's Canada Line was a P3 partnership, a model the feds wanted to advance, and the line connected to an airport (federal) and was the flagship project for the 2010 Olympics.

Many people would argue the reason why Ottawa got so much money for their LRT line was because that's where the Feds are -- in Ottawa.

Toronto's subway extension is a little different because one of the main impetuses for federal involvement was that this was the first subway line to cross a municipal border and that it would be a demonstration of a 33%-33%-33% split between local-provincial-federal funding.

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