Evaluating Transit

This paper presents a model that calculates the social welfare benefits of using additional subsidy to reduce fare levels or improve service levels of public transit in Chicago. The model differentiates between the effects in peak and off-peak periods for both bus and rapid rail service. The potential welfare benefits of transit improvements accrue to several different groups of people: (1) existing transit riders; (2) automobile users who decide to switch to public transit; (3) road users who benefit from reduced road congestion; and (4) people who undertake new trips. These benefits are compared with the welfare cost of the additional sales taxes that are used to fund transit subsidies in Chicago. Results of the analysis are that: • Bus fares should be reduced, especially during off-peak and weekend periods; • Rail fares are "acceptable" in that the marginal benefit of using subsidy to reduce fares is close to the excess burden of raising the subsidy; • Bus service levels are broadly acceptable, except for the peak period where they are too high; and • Rail service levels are too high at all times of the week, but especially in the peaks and on Sundays. In general, it is more advantageous to use subsidy monies to reduce fares than improve service levels. Even if overall subsidy levels were not increased, society would be better off if service levels were reduced, and the money saved channeled into reductions in fares.