How Can We Increase the Farebox Recovery Ratio?

The BART terminus station at San Francisco International Airport. BART makes it easy and fast to go from the airport to downtown San Francisco. Note the red barrier indicating that the middle platform is not currently in use. Christopher MacKechnie

How Can We Increase the Farebox Recovery Ratio?

The farebox recovery ratio is the percentage of the total transit agency operating budget that comes from self-generated revenue.  It usually refers only to fare payment but sometimes includes other sources of income such as advertising, which make up a small amount of overall self-generated revenue so it does not make a big difference in the end result.

  Some jurisdictions, such as California, require transit agencies to achieve a minimum farebox recovery ratio in order to receive funding.

As government subsidies for transit seem to be always on the chopping block, a natural desire for transit agencies is to increase farebox recovery.  Increasing farebox recovery could either be done by increasing fare revenue or by decreasing operating cost.

The most common way to increase the farebox recovery ratio is to increase fare revenue by raising the fare.  Another common way is to lower operating cost, either by reducing service or by contracting out operations to a private operator who is assumed to not be burdened with the same outdated work rules public transit agencies often are and thus can operate the service for a lower subsidy.

Unfortunately, increasing fare revenue or reducing service will not increase the farebox recovery ratio as much as may be expected because of elasticity of demand.

  The elasticity of demand for fares is usually estimated to be about -0.33, which means that every 10% increase in fares will result in a 3.33% decrease in ridership (and the fares those riders would have paid).  The elasticity of demand for service is usually higher, but varies widely.  It would not be surprising if a 10% service reduction resulted in a 6% decline in ridership.

Another way to increase the farebox recovery ratio is to reduce fare evasion.  It has been estimated that fare evasion in Los Angeles has historically ranged from 4 – 26% on rail lines and around 5% on bus lines.  In 2015 Los Angeles Metro, which had been experiencing a ridership loss similar to many other American transit agencies, examined during variables to see which, if any, had an effect on ridership.  Service reductions had little effect and fares, which remained unchanged during most of the study period, likewise had little effect.  The change that had the most impact on ridership was increased fare enforcement through gate latching at Metro stations (patrons have to physically pay to open a gate like most subway systems rather than just walk onto the station platform) and increased fare checks on the Orange Line.  Immediately after the increase in fare enforcement the Orange Line ridership declined dramatically, reaching a 7% decline over the previous quarter in the winter of 2015.  After a slight lag Red Line ridership went down as well by similar amounts.

Although there was a ridership decline, the farebox recovery ratio likely increased because all of the people who stopped riding the system did not pay as the same amount of fare revenue would be collected with fewer passengers.

  As of September 2015 detailed information on any change in the Metro farebox recovery ratio from the historic 26% to the desired 33% was not available.  Cracking down on fare evasion is a good way of increasing the farebox recovery ratio, but the cost of fare enforcement needs to be taken into account.  Of course, it is impossible to quantify paid rider satisfaction when they see people who do not pay get arrested.

Agencies with low farebox recovery ratios likely have low fares and high operating costs.  However, there is also the possibility that fare evasion is high.  Before raising fares or cutting service, transit agencies should focus on reducing fare evasion to foster respect for the agency and because reducing evasion does not negatively affect paying customers.