Muni flunks Econ 101By Tim Redmond
There are lots of problems with the Muni fare hikes, and Paul Hogarth points out some of them. But there's a larger issue here: Is this really going to bring in more revenue?
Every time Muni raises fares, some people stop riding the bus. That's basic economics -- you hike the price of a product, and you sell less of it. And if your raise the price too high, and enough people stop buying your product, you actually lose money.
That's called the price elasticity of demand, and it's a central part of any economics course. It's hard to run a business without some basic understanding of the concept.
If your product isn't necessary for people's lives (and there are available alternatives), the drop-off is faster and sharper -- raise airline tickets high enough and people quickly drop discretionary travel and vacation closer to home. When the product is something everyone absolutely needs, like housing, and there's no substitute, you can raise prices a lot more without losing customers (see: San Francisco rents).
Muni is somewhere in between. For some people, typically poor and working-class people, it's essential -- they don't own cars and need the bus or train to get to work. For others -- those of us who are physically able to ride bikes, or to walk to work or the store, or economically able to afford private cars -- the price elasticity of Muni is much higher.
There are all sorts of studies on this (here, for example, but trust me, unless you're really into economic theory and lots of strange numbers, don't even think about it.)
Suffice to say that in San Francisco, a small city with typically good weather, a fairly wealthy population and a lot of people who enjoy walking and biking, the price elasticity of demand for Muni is relatively high -- that is, when prices go up, people who can will seek other alternatives. Nobody knows exactlyat what the price point Muni starts to lose money -- when fare hikes become counterproductive -- but I suspect we're approaching it. The largest rate hike in half a century is not only regressive, counter to the city's transit-first policy and environmentally stupid -- it may be a financial mistake.
Now contrast that with raising parking prices. For starters, most drivers who park downtown can well afford to pay a couple bucks more for parking. Second, check out the streets -- parking is so hard to find that it seems very likely that demand exceeds supply by enough of a factor that raising prices won't impact use and will bring in more revenue.
And what if some people decide that parking costs too much and stop driving? Isn't that what the city wants to accomplish anyway?
This decision to raise fares more than parking is nuts, on every level.
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Comments (10)
Sadly, Chris, I think you're wrong. I've looked at the historic figures, and every fare hike has led to a drop off in ridership. Typically, the ridership comes back, slowly, but sometimes it doesn't. And in a recession, I think the price elasticity is even higher.
In the early 1980s, in the last deep recession, when Muni fares went from 25 cents to 50 cents and then 60 cents, ridership DID drop off, significantly, and Muni was forced to deal with an unexpected budget deficit caused by the reduction in fare revenue (over what was projected). It cost the city millions.
Remember: San Francisco is a city with many options for getting around town -- and a city where the weather is typically good. Those are factors that influence price elasticity (in the winter in Canada, nobody's walking a mile to save 50 cents on bus fare; here, other than the 15 days when it rains, walking is always an option).
Let me give an example. I live in Bernal Heights, and I often take my kids downtown to see movies or to go to the Zeum, which they love. We typically take BART, which is exactly a mile from my house. I can:
a. Get on Muni at 29th and Mission and ride that mile to the 24th St BART station, or
b. Make my 10-year-old and 7-year-old walk the mile, which is good for them anyway.
I actually like Muni, and my kids like riding the buses and trains. But walking is very much an alternative for me, and as prices go up, it becomes a more attractive alternative. So Muni will probably lose the money it used to get from me on those weekend days when we go downtown.
Also: I hate to say this, but driving downtown on a weekend and parking is actually cheaper than taking two kids and myself on Muni/BART. That's crazy; driving is faster, more reliable in terms of making a movie on time and cheaper -- why would I take Muni?
I do, of course, because I hate to drive and it's much better for all of us if we take public transit -- but when it comes down to dollars and cents in tough times, I think people will start to vote with their wallets.
At the very least, the revenue will go up less than expected, because I don't think Muni is projecting as much ridership falloff as we're going to see.
Posted by tim redmond | May 1, 2009 02:44 PM
Also, Chris, what's wrong with taking an economics lesson from the Guardian? We're usually right about this stuff.
Unless you still believe that low taxes and deregulation are good for the economy :)
Posted by tim redmond | May 1, 2009 02:52 PM
These fare hikes are unconscionable and it will again fall on the backs of the poor. Many senior and disabled folks have no choice and cannot decide to walk that mile. They are planning an unheard of 50% hike for senior and disabled passes!!!!
BART also hits senior and disabled folks with a double whammy - they raise the price of those cards, but each trip cost is higher as well.
MUNI used to be so wonderful until we started hiring the likes of Michael Burns. They were happy to see him go in Philly, and then we hired him!?!?! And now Santa Clara has hired him with his record? SC deserves what they get.
But the poor in SF should not have to cover the City's mismanagement, no way!!!!!
Posted by Terrrie Frye | May 1, 2009 03:54 PM
This budget fails on every level; the BOS must reject it
Posted by JoshB | May 1, 2009 04:12 PM
I refuse to take an economics lesson from SFGB.
I fully understand Price Elasticity, as proof that MUNI is inelastic look at the numbers; MUNI has not experienced a lasting drop in ridership with previous rate increases. I suspect it would take a very large increase to cause a drop in ridership.
It is pretty cynical and disingenuous to link to a Canadian study when San Francisco is very unique in its transportation opportunities. Look to London Transport and its pricing policies.
There are many arguments to keep fairs low, like environmental issues but using a simple economic principle without accounting for all the variables is not one.
Posted by Chris P | May 1, 2009 04:24 PM
so after the fare hike, it will be cheaper (and faster) for 3 people traveling together to take a taxi between almost any 2 points in SF than for them to take MUNI... basic math = MUNI fail.
Posted by zariat | May 1, 2009 05:58 PM
Let 'em walk. Poor people are usually fat-asses anyway - walking will do them some good. Lower the expenses of Medicaid for having to pay for all their medications for obesity-related diseases like diabetes.
Posted by Lucretia Snapples | May 1, 2009 10:36 PM
Donuts for cops?
How much did Prop A bring in? Do you think Newsom's handlers actually planned to use it to pay for cop overtime and remove the dream of a medallion from everyday cabbies? If Ford (yeah, sure, he's an idependent out-of-towner ... except for the fact that he worked for Dick Blum's URS long before he went to Atlanta) ... if Ford hadn't allowed Newsom to charge the costs of his run for governor and POA largesse against the MUNI budget no fare raises would be necessary. Was it only 2 years ago we were all talking about free MUNI?
h.
Posted by hbrown | May 2, 2009 09:20 AM
MUNI MISNOMER.
All discussion of Muni, and BART, is flawed if you start from the premise that it is Public Transportation. The primary beneficiaries of the system are downtown corporations and business. Muni is a means to transport their worforce to and from their places of business. The frequency of service is highest during the morning and evening commute hours. I dont crunch numbers but I am told that the majority of profits generated by these entities do not remain in and benefit the city.
During the rest of the day when folks are going about their personal business waits can be interminable. It is even worse on the weekends when most folks have time off to recreate,enjoy the city, or just goof off.
I have been a regular Muni rider and bicyclist for 40 years, never owned a car. It has gotten steadily worse for the past 10 - 15 years. Let's begin by acknowledging the primary function of Muni, worker transportation. The needs of the people, except to earn their paycheck, purchase consumer goods and pay taxes are an afterthought and an inconvenience.
The financial solution is simple and has been proposed for decades. A small tax based on % of profits levied against those who benefit the most from the system. Yeah, that's right, make "Downtown" pay its fair share.
Another wacko rant from a red raving loony tunes.
Posted by Patrick Monk. RN. | May 2, 2009 05:40 PM
Hey 'lucretia'
I give you the benefit of the doubt and assume you are being ironic and humorous. Being a brit I can appreciate dry obscure and obtuse wit even when most cant. On the other hand however, just in case those are your true feelings, I feel totally justified in using an 'n' word that i dont use; you are a miserable cunt, eat shit and die you facist, racist pig.
Posted by Patrick Monk. RN. | May 2, 2009 09:50 PM