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The Fare Hike Mess

by Bruce Schaller, Apr 28, 2003
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During his 1921 reelection campaign, Mayor John F. Hylan declared the five-cent subway fare to be "the cornerstone of the edifice which we call New York City." He won in a landslide and later affirmed, "My policy has been the preservation of democracy and the retention of the nickel fare." Indeed, Hylan attacked the "manipulation" and "chicanery" of the two private companies that then operated the subways, which Hylan charged sought to double-cross the
public in their attempts to raise the fare.

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The nickel fare is long gone, but some things never change.

Last week, reports from State Comptroller Alan Hevesi and City Comptroller William Thompson charged the Metropolitan Transportation Authority with hiding half a billion dollars to create the appearance of a deficit so it could raise subway and bus fares. Hevesi said that in effect the MTA kept two separate financial records -- one public and one secret. In a separate audit, Thompson said the New York City Transit Authority "misled the public" by overstating its expenses by $850 million in 2001. Both officials called on the MTA to rethink the subway and bus fare increase. (Read “The MTA’s Numbers Don’t Add Up”by City Comptroller Thompson and “The MTA’s On The Wrong Track” by Councilmember John Liu, chair of the transportation committee).

THE NEW FARE

Beginning May 4, 2003 the new $2 fare will be deducted from your MetroCard at subway turnstiles and on buses. You will not need to buy a new card.

• A new $10 MetroCard entitles you to six rides.

• The cost of a one-day unlimited pass, rises to $7. You can use your old one-day pass until May 5.

• A seven-day pass will cost $21. You may use passes purchased before the increase until May 13.

• The 30-day card will cost $70. Passes purchased before the increase may be used until June 12.

• Beginning May 4, tokens will no longer be accepted on subways.

• Tokens will continue to be accepted on buses until December 31, but after May 4, you must pay 50 cents in addition to the token.

• Refunds for unused tokens must be made in person at NYC Transit, 370 Jay Street, Brooklyn. Call 718-243-3917 for an appointment.

• The fare for Access-A-Ride paratransit fare also increases to $2. Access-A-Ride will continue to accept tokens, with an additional 50 cents, through December 31.

• Starting May 4, reduced-fare customers will have $1 deducted from their card for each transit trip.

• Students with valid student MetroCards continue to ride for free. Those with the half-fare MetroCards for buses only will pay $1 per ride.

For further information, go to the MTA

MTA chief Peter Kalikow has denied doing anything wrong, called Hevesi's audit in particular "a cynical, political document aimed solely at undermining the MTA's credibility…" and said the MTA would go ahead with the fare increase on May 4. The governor backed him up.

Transit fare increases have never been popular. So sacred was the nickel fare that it held firm for 44 years after the opening of the first subway in 1904 -- with some grave consequences for the transit system. And ever since the nickel-barrier broke in 1948, each hike has been greeted with protests, accusations, and a debate over whether the hike would strengthen or weaken the subways.

But in some important respects, the current fare hike is unique. For one, it spells the death of the subway token after 50 years. (See “NYC Subway Token, 1953-2003” by Michael Markowitz ) The hike from $1.50 to $2 is also the largest absolute increase ever for a single fare, as well as the largest percentage increase since the last major fiscal crisis in 1975 (which helped set off a steep decline in ridership and service). But it is also the first hike since the introduction of the MetroCard and its discount incentives. How riders take advantage of those incentives will help decide what this fare hike will mean to the city.

THE NICKLE FARE FOREVER – AND HOW IT SHAPED THE CITY

When the first subway line opened in 1904 the fare was set at five cents, then the standard for streetcars and elevated trains in New York City and across the country. Subway service was so badly needed in the densely packed districts of lower Manhattan that trains and stations rapidly became severely overcrowded. The new subway, operated by the Interborough Rapid Transit Company (IRT), was immediately popular and profitable.

In 1913, two companies, the IRT and the Brooklyn Rapid Transit Company (which later became the BMT) received contracts to more than double the size of the transit system. The new lines were planned, financed and built to enable the companies to turn a profit with the nickel fare. Each company got a share of the lucrative Manhattan routes and, in return, had to build and operate new lines in the so-called subway suburbs of upper Manhattan, Brooklyn, the Bronx and Queens.

City officials set a uniform fare of five cents regardless of the length of the trip. The effects of this flat nickel fare on the city were profound.

The uniform fare encouraged, and the new subways enabled, many New Yorkers to leave overcrowded Manhattan neighborhoods for decent housing in other boroughs, as subway historian Peter Derrick has observed. The new subways also helped make midtown Manhattan one of the world's largest employment centers.

But the nickel fare had its drawbacks as well. Unprecedented inflation during and after the First World War combined with higher salaries for transit workers and competition from the publicly run IND subway created huge financial problems for the private subway companies. They were eventually forced to defer the purchase of new subway cars, reduce the frequency of service and cut back on the cleaning of stations, restrooms and cars. The subway became dirty, ill-maintained, a nasty experience.

Eventually, the finances of the two companies deteriorated so badly that they went into receivership. The city bought out both systems in 1940. Merging them into a single system did not make the subway’s financial problems go away. Rather than raise the fare in order to improve service, Mayor Fiorello LaGuardia tried to make a virtue of the unpleasant trips. "They talk about the rush hour and the crash and noise," LaGuardia exclaimed in 1943. "Don't you see that's the proof of our life and vitality?"

This insistence on a five-cent fare resulted in the neglect of other fundamental transit needs as well. One casualty was system expansion. Vast areas of Queens and Brooklyn filled with new housing developments, but few of them received new subway service. After World War II, subway ridership began to drop, partly because of increased automobile usage, which further reduced subway revenues.

FARE HIKES FOREVER

Finally in 1948, the city could no longer postpone the inevitable and the fare rose to 10 cents. Only five short years later, the fare went up again, to 15 cents. There, the fare stayed until 1966 -- but only by deferring maintenance and avoiding needed new additions.

In the wake of the city's fiscal crisis in the mid-1970s, the fare became markedly higher -- even taking inflation into account (see chart) – but this did not reverse the subway system’s deterioration. Ridership dropped 27 percent between 1965 and 1982. Graffiti, track fires and frequent train breakdowns became hallmarks of a once-great transit system. In the early 1980s, though, the system began to turn around.

Earlier this year, the Metropolitan Transportation Authority (MTA) -- which was created by the State of New York in 1968 to run the subways as well as the commuter rail system -- argued it faced the stark choice between a fare hike and deep service cuts. It avoided service cuts altogether, and, responding to public pressure, even decided to close
fewer booths
than it had originally planned. In this sense, the MTA firmly departed from the mid-century practice of protecting the fare but sacrificing service and system maintenance. If the frequency and quality of subway service is not likely to decline as it has in previous generations, there is reason to fear that the fare may spiral upward in coming years.

INSIDE THE TWO DOLLAR FARE

The latest controversy over the MTA’s finances will have both long-term and short-term consequences. One set of issues focuses on the credibility of the MTA’s financial reporting.

In 2001, the MTA reported a $78 million cash surplus. Less than two years later, the MTA said it faced a $952 million deficit and would be forced to raise fares.

Some elected officials and subway advocates questioned whether the MTA had presented an accurate picture of its finances and wondered how the agency could go from a surplus to such a deep deficit so quickly. The comptrollers’ reports last week greatly heightened the general suspicion.

"Our findings question the MTA board's decision to saddle New Yorkers with the largest fare increase in the history of the city," said Comptroller Thompson.

Given the comptrollers’ allegations that the MTA hid money so it could justify a fare hike, the authority may have a harder time convincing riders it is really needed next time.

"The MTA's facing the worst crisis it's had in terms of public confidence in its 35-year history,'' said Gene Russianoff, a lawyer for the riders' watchdog group, the Straphangers Campaign.

The charges of financial mismanagement have also fueled tensions with transit workers. The Transport Workers Union, which renegotiated their contract late last year, said it now wants to revisit the issue of pensions, which was a point of contention during the recent negotiations.

"The bottom line is that the MTA wanted a fare increase and needed to justify it,” said Roger Toussaint, president of the TWU. "So they held our contract hostage in order to accomplish this goal."

The MTA will also be subject to closer scrutiny. Comptroller Hevesi pledged to put forth regulations that will compel the MTA to submit its budget and financial plan “in a manner that is transparent, timely and reasonable,” modeled on financial reporting required of the City of New York. Hevesi says he will also propose state legislation to give the Comptroller authority to formally review the MTA’s budget before future fare and toll increases are adopted. “These proposed reforms will ensure that the true financial status of the MTA will be readily available to the public,” Hevesi declared.

The controversy over the MTA’s financial reporting has somewhat obscured the basic issue of whether the fare hike was necessary. Hevesi himself said that “it may have made sense to raise fares in 2003 to smooth out the budget gaps” and avoid a much larger fare increase in 2004. Other financial analysts made the same point.

What is in little dispute is that the MTA is more and more relying on the revenue from the fare to underwrite its operations. Hevesi’s report documents that the MTA’s current program for purchasing subway cars and buses, renovating stations and other capital costs is becoming increasingly reliant on borrowing. Debt service costs will nearly triple between 2003 and the end of the decade. Ballooning debt payments will put additional pressure on the fare.

In addition, Mayor Michael Bloomberg has proposed cutting $100 million in direct city subsides to the MTA. This could also increase the likelihood of further fare hikes. Already, the authority has warned against assuming that the new $2 fare will last past the end of 2004. Some transit advocates predict that the cuts in city funding could lead to a fare hike in 2005.

CHOICES FOR RIDERS

In the days of the token, transit officials could more accurately predict riders' response to fare increases. As with any product or service, increasing the cost produces a drop in patronage.

But this year's fare increase creates many other options for riders and encourages customers to “buy up” - to switch from the base fare to unlimited-ride passes. "Buying up" reduces the number of sales transactions, thus saving the MTA money on token clerk salaries and costs related to maintaining MetroCard vending machines.

People who now pay their fares one ride at a time will be socked with a 33 percent fare increase ($1.50 to $2 base fare). This will particularly affect the occasional riders, elderly, and lower-income New Yorkers, who cannot afford to pay out larger sums of money at one time.

On the other hand, the riders who currently use tokens or buy one trip at a time could be induced to “buy up” to the bonus MetroCard, especially since the threshold for getting the bonus is dropping from ten trips to five trips and the size of the bonus is doubling. Those who switch from the base fare to bonus MetroCards will benefit considerably. The fare they will pay for a single trip will rise from $1.50 to $1.67 (six trips for a $10 MetroCard), an increase of only 11 percent.

Subway riders who depend on $4 one-day unlimited ride passes will see the greatest increase. The cost of the single day pass, which some officials thought was previously underpriced will jump to $7 -- an increase of 75 percent.

Size of fare increase for riders continuing with the same fare payment
Old New Increase
Base Fare $1.50 $2.00 33%
Bonus MetroCard (price per trip) $1.36 $1.67 22%
7-day pass $17.00 $21.00 24%
30-day pass $63.00 $70.00 11%
1-day pass $4.00 $7.00 75%

Riders who buy seven-day passes also face a choice with wide-ranging implications. The seven-day pass is by far the most popular of the passes and rivals the regular MetroCard in overall popularity. Anyone who buys a seven-day pass every week could completely wipe out the fare increase by switching to the 30-day pass, because the new price for the 30-day pass ($70) is actually a little less than the old price of the equivalent number of seven-day passes. (To put this as an equation: 4 1/2 x 17 > 1 x 70.)

The choice that these riders make will help determine whether ridership dives or only dips after the fare increase. Riders who “buy up” to 30-day passes are likely to use the pass for additional trips they would not otherwise have made. For this group, the fare increase could have the surprising effect of increasing transit ridership rather than decreasing ridership.

The decisions riders make about which cards to purchase will also affect how much money the fare hike will produce for the MTA, and how soon the MTA will need another increase in fares.

As in the past, this fare hike will have far-reaching effects on revenues for the transit system, ridership and service, whether for good or ill. How the city and its residents react will make the difference.

RELATED ARTICLES:

The MTA’s Numbers Don’t Add Up by New York City Comptroller William C. Thompson Jr.
The MTA’s On The Wrong Track by Councilmember John Liu, chair of the transportation committee.

LINKS:

NYC fare change information from the MTA

Bridge toll and commuter rail fare change information from the MTA

New York's Subway Suckers' Pass into History Along with the Token (Raleigh
News, NC)

NYC Subway Token Gone Forever (BBC News)

The Two Dollar Fare (Gotham Gazette, 3/2003))

Options For The Fare Increase (Gotham Gazette, 2/2003)

New Fare Discounts for Transit Riders in New York City (Schaller Consulting
2002 report on fare issues)

History of the Subway Token (New York City Subway Resources site)

N.Y. Fares Raised in Crisis (The Third Rail, July-Sept 1975)

Books:

Tunneling to the Future: The Story of the Great Subway Expansion That Saved New York
by Peter Derrick (New York University Press, 2002. 442 pp.)

722 Miles: The Building of the Subways and How They Transformed New York
by Clifton Hood (The Johns Hopkins University Press,
1993. 335 pp.)

See a complete book list on the Transporation Topic page. Suggest a Transportation book.




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