June 24, 2011

Critics of the Washington Metropolitan Area Transit Authority (WMATA) would be hard-pressed to dispute one characteristic of its leadership: audacity. Despite headline-grabbing safety violations and accidents, extensive backlogs in rail-car maintenance, stunningly inefficient escalator maintenance, unpopular fare increases and year-after-year deficit spending, Metro is plowing ahead with plans to expand its system. Any way the figures are added up, this will cost tens of billions of dollars. (Just the 23-mile Dulles Metrorail extension will cost more than $5 billion.)

However, dismissing these plans as pipe dreams would be unwise. In fact, under the right financial and operational scenario, Metro’s expansion could make sense and be good for the regional economy. The changes necessary to make these plans reality would be far-reaching, even radical, but they would also re-ground Metro in a way that could make it financially sustainable and a model for managing transit worldwide.

First, Metro must set fares based on consumer demand by applying market-based pricing. Metro is leaving tens of millions of dollars on the rails simply because its fares don’t capture the full higher value that riders are willing to pay at premium travel times. Transit riders, like automobile drivers, value time saved and predictability, and market pricing can be used to manage the system more effectively.

If customers paid more to travel at peak times, for example, Metro could afford to provide more trains to meet rush-hour demand so that customers weren’t standing on platforms and missing trains that were too crowded to enter. This standard is similar to the rule of thumb in traffic management where cars shouldn’t have to sit through more than one cycle of a traffic light.

While a near real-time pricing system might be theoretically preferable, it would be more practical to adjust fares based on the hour or route traveled. This is the strategy used by Southern California’s pioneering toll roads that guarantees 65 mph speeds 24 hours a day. The key is to set fare levels to ensure reliable and high-level service.

This pricing strategy has the advantages of reducing stress on the system by matching equipment with the appropriate levels of demand, generating higher revenue to offset operating costs in the near term, allowing consumers to identify the highest value added along the Metro line and establishing a sustainable revenue stream.

A second necessary policy shift is in the way Metro funds capital improvements. Nearly two-thirds of Metro’s capital funding comes from the federal government, subjecting the agency to political whims and pressures. The key strategic change should be to move toward a “beneficiary pays” principle for financing core infrastructure such as Metro stations and rail replacement and maintenance. Metro could follow the lead of many Asian countries and cities, including China, Japan and Hong Kong, and use value captured from rising land prices to finance this infrastructure. Even in the United States, rail investments often lead to land-price increases of 10 to 30 percent near stations. This value can be captured through special taxing districts, tax increment financing or other mechanisms.

Moreover, private property owners often recognize the value that transit access brings in urban environments such as the District and along heavily traveled corridors such as those in Arlington. Attorney Rick Rybeck, director of Just Economics, notes that property owners voluntarily put up $30 million in funds and land to underwrite a Metro station near New York and Florida avenues (representing 30 percent of the total cost), prompting the creation of a special taxing district. Similar to consumer-driven fare pricing, land-value capture provides the benefit of identifying high-priority projects through market-based signals.

The third critical change in the way Metro does business would be embracing public-private partnerships and private equity for financing and delivering transit services efficiently and effectively. Denver’s Regional Transportation District implemented its $1.7 billion regional rail, bus and highway project, T-Rex, using public-private partnerships. Overall, that system reports reducing costs by 10 to 25 percent on design and construction of the system, 10 to 30 percent savings on operations and maintenance, and completed the project nearly two years ahead of schedule. Such partnerships are also common vehicles for building and operating transit worldwide, particularly in Asia.

These changes, of course, would not come easily. While transit agencies around the world have adopted elements of each of these changes, none has implemented them comprehensively. The multistate configuration of the WMATA rail systems means extensive federal involvement will be essential to make some of these changes happen.

Nevertheless, the long-term benefits are worth the investment in political capital now. If WMATA successfully applied these principles, it would become a national and world leader in pioneering a new paradigm in transit management that would be economically and politically sustainable.

The writer is director of urban growth and land-use policy at the Reason Foundation.