Why fully integrating transit fares requires governance reform
Creating a simple, unified transit fare structure for the Bay Area -- where a rider pays one easy-to-calculate fare based on the distance they travel, regardless of how many transit agencies or vehicles they use -- would transform how many people use transit. It would increase transit use, support reducing driving, and help correct inequities in our existing system that force many low income people to take slower transit options or drive. Seamless Bay Area’s Integrated Fare Vision offers one concept of what fare integration would look like -- with fare caps, free transfers, mode-neutral fares, and discounts for low-income households.
But implementing such a rider-focused fare system is not possible without fundamental changes to Bay Area’s transit governance and funding structures. It requires establishing a central regional authority - a “Network Manager” - with the ability to set the region’s fare policy, and collect and distribute fare revenue fairly to agencies.
Why can’t this happen now? While the Metropolitan Transportation Commission (MTC), the Bay Area’s regional transportation entity, runs the region’s fare card (Clipper), MTC has no control over setting fares, which is done separately by 27 transit agency boards. MTC does not have the authority to be a Network Manager for the Bay Area, and it wouldn’t be able to perform such a function without significant changes to its responsibilities -- and the responsibilities of the 27 agencies that run transit.
Lack of centralized fare collection makes more fare-dependent agencies wary of integration
To explain why, consider how fares are currently set and collected. Today riders pay fares, whether by cash or using Clipper, directly to each transit agency. Transit agencies have come to rely on a certain portion of their budget coming from fares, and each transit agency regularly adjusts fares in connection to their annual budgeting process.
Due to various historical factors and varying operating costs between transit agencies, fares make up a different portion of each transit agency’s total budget. This unequal reliance on fares affects each agency’s willingness to coordinate with other agencies on fare policy. For example in 2018, fares covered approximately 80% of Caltrain’s operating expenses and over 65% of BART’s, whereas fares only covered approximately 15% of AC Transit’s or County Connection’s budget.
The Bay Area’s 7 largest transit operators, which provide over 95% of all transit trips, have very different relationships to fares, which affects how important they view coordination. (Source: MTC Fare Integration Task Force)
This structure helps explain why, in the absence of a regionally integrated fare system, transfer discounts are approached cautiously by agencies, and vary widely across the region. With regard to transfer discounts, each transit agency does its own calculus of the “value” of a transferring customer from any other agency. A small-bus based system like County Connection, whose network depends heavily on people coming and going from BART stations, and for which fares don’t make up a large portion of revenues to begin with, can easily justify giving a significant transfer credit of $1.00 (50% off) to passengers coming from BART to incentivize people to use their buses.
Historically, BART has been reluctant to offer any reciprocal discount to passengers transferring from a bus under the assumption that these riders will continue to take BART regardless of whether they provide a transfer credit. Any fare discount BART provides comes directly out of BART’s largest source of revenue.
Across the whole region, this dynamic results in various confusing fare discount policies where travel in one direction - typically, from BART or Caltrain to a bus - is discounted, whereas travel in the other direction is not; and the rate of discount is different for each agency. To the customer, this makes no sense, and adds uncertainty; see AC Transit’s 18-row inter-agency fare discount table for a good example of how confusing these policies can be. Yet to the agencies it makes perfectly logical sense.
A Network Manager is needed to pool the risks and benefits of fare integration
Now, consider the difficulty of implementing a common fare structure among all transit operators without centralizing fare collection and revenue distribution via a Network Manager to share in the risks and benefits of integrated fares. The costs and benefits could be highly uneven, with some agencies likely to experience a major windfall of revenue, and others a loss.
To use the same example as before, if BART, which currently provides almost no discounts for people transferring from other transit agencies, were required to give a fare credit of $2.00 to each passenger transferring from a local bus system in the Bay Area - about 8% of their riders - the costs could be significant. Using 2018 data, we estimate such a discount would cost roughly $20 million per year for BART, or just over 3% of its annual operating expenses of $644m.
By contrast, free transfers have a relatively lower financial impact on many small bus operators. Approximately 12% of County Connection Riders transfer from BART; and those riders already get a 50% discount. We roughly estimate free transfers from BART could cost County Connection up to $250,000 per year, amounting to only about 0.8% of County Connections’ annual operating expenses - a relatively smaller gap to fill.
Both BART and County Connection would have to experience ridership increases of 4-6% to offset the cost of free transfers. While overall ridership increases of 4-33% have been seen in other regions that have integrated fares - it’s by no means guaranteed that BART and County Connection, and every other transit agency in the Bay Area, would experience increases in ridership that fully offset lost revenue. It’s far more likely that some agencies would experience bigger increases, and others smaller increases.
A Network Manager entity that collects all fare revenues centrally, “pooling” the risk that agencies will lose revenue, is therefore fundamental to achieving fully integrated fares. The Bay Area essentially needs all transit agencies to enter into a “co-op” with all other agencies, sharing risk and resources, and agreeing to common reimbursement rules that fairly compensate agencies.
In other sectors, like well-known successful agricultural distribution partnerships, co-ops can happen organically and voluntarily, with multiple parties coming together, agreeing to give up some amount of power and influence in exchange for common rules, economies of scale, and greater long term financial stability. In practice, establishing transit Network Managers in other parts of the world has involved passing some kind of state legislation to make participation mandatory, and to help enable swift and decisive decisionmaking. A purely voluntary arrangement on coordinated fares among 27 stakeholders, not backed by legislation, would not only be extremely difficult to negotiate, but it would perennially suffer from protracted, slow decision-making, and would always be vulnerable to unravelling when any agency faces pressures and wants to change terms.
We should embrace fare integration solutions that will bring the most riders to transit - and prioritize institutional reforms needed to make them happen
With the devastating ridership declines due to COVID, transit agencies are in a dire financial position. This should not be a reason to delay introducing governance reforms that can support integrated fares. In fact, with fare revenues already depressed, state and federal governments are already filling agency budget holes far larger than any worse-case scenario that could result from fare integration. As riders begin to return, now is the best time to require transit agencies agree to a new fare-revenue sharing agreement that provides stability for the region’s transit agencies to continue operating; and which will bind transit agencies together to collaborate on further integration as they all try to re-grow ridership, working together to attract passengers to the transit system as a whole.
The ongoing Fare Integration and Coordination Study being co-led by MTC and the major transit agencies will assess different options for fare integration in early 2021 and recommend a preferred approach sometime in late 2021. A critical question the Task Force must consider is whether to recommend a more ambitious, comprehensive Fare Integration option that will require establishing a Network Manager and other changes to transit governance; or whether to recommend a less comprehensive version of fare integration, based on incremental transfer policies, that can be implemented with transit governance that looks like what we have right now - but which won’t provide the full ridership and equity benefits of complete regional fare integration. The following slide from the December 7th Fare Integration Task Force meeting summarizes the key institutional and fare structure choices before the region.
With the urgency of our climate and affordability crisis, now is the time to be bold. To transform Bay Area transit ridership and create a seamless, equitable system, Seamless Bay Area believes the region urgently needs a Network Manager that can support ambitious, comprehensive fare integration. The Fare Integration and Coordination Study must develop and assess options for fare integration that enable a comprehensive, regionally integrated system . We mustn’t shy away from solutions that involve institutional change - rather, we should embrace and prioritize governance reforms that are in the best interest of transit riders.