Wednesday, August 20, 2014

How Much Money Do You Really Save Switching to Transit?

The American Public Transportation Association released their August transit savings report, which means my social media feeds are swamped with claims that people can save large sums of money every year if they just switched to transit from owning a car. These reports are issued regularly, and I'm always surprised that they get some people so excited each time they are released. Could it be true that the average individual will save $10,064 per year if they just get rid of their car and switch to transit? That's the claim this month.

There are three ways to look at the $10,064 per year difference. First, people are really dumb and don't realize that they are just throwing that amount of money away each year. Second, the value that people get from owning a car is worth more than $10,064 more than transit annually so they are happy to pay it. Third, the APTA numbers are wrong. I don't think the first explanation is true. If it is, then what does it mean for transit policy that $10,000 per year in cash isn't enough to get people to switch? The second is plausible but will have strong income effects. The third option is probably the best one.

APTA uses the AAA guidelines for estimating auto costs. The key aspects of the AAA estimates that distort the APTA calculations are that AAA assumes a purchase of a new car for financing and depreciation, with five year terms for loan repayment and depreciation, and that the driver averages 15,000 miles per year. These are not realistic assumptions.

If you drive 15,000 miles per year you are covering a lot of ground and almost certainly doing most of it on highways. Average annual VMT in the US is now about 9,300 and has been declining since the mid-2000s. Just as a matter of practicality, it is nearly impossible to substitute a lifestyle with 15,000 annual miles driven with one where transit is used for all trips. To do so would require relocating home, work, shopping, etc. Someone who can switch from driving to transit is someone who doesn't drive much. Let's say that if you average 6,000 miles per year (estimate based on 2/3 of US average, and the average local transit trip being under five miles) you are a good candidate for getting rid of your car. Then assume (using data from page 6 of this report) that AAA's per mile operating costs of 16.3 cents the operating costs are $978 per year. Add the cost of a brand new sedan of $4,516 per year and the cost of a new car, including financing and depreciation, is $5,494, or about $460 per month. This is still higher than transit by quite a bit, but it is a lot lower than APTA claims.

It is certainly possible to own and operate a car for less than $5,500 per year, but even if that is the baseline number. For local transit you will spend $75-115 per month on an unlimited pass. If the pass is $90, then cash savings per month are $370, or $4,440 per year. This is still substantial even if still overstated. But it is far less than $10,000. It is not unreasonable to think that people value the speed and accessibility autos provide at more than $4,440 per year. They may even want more transit options but at present are acting completely rationally by not using transit.

So bully for APTA for getting people excited about transit savings with their reports, and these are advocacy reports that should be treated as such. I just wish they would no longer be reported as matters of fact. If we are to believe APTA's numbers we should ask what is so terrible about transit that people are willing to pay so much to avoid it. Transit is, of course, mostly not terrible. We know that if transit represents good value people will take it. For most people most of the time it does not represent better value than driving, however.

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