Local opinion: Streetcar benefits offset free fares
In 2015, I wrote that Tucson's streetcar promises to be a leader in achieving desired outcomes (Sept. 29, 2015). The results are in, and they are compelling.
The streetcar connects the University of Arizona medical school to the main campus and then runs along the Sixth Street and Fourth Avenue commercial corridors into downtown, then across the Santa Cruz River into the Mercado redevelopment area and back to the convention center. Transit planners got the route right.
I want to share recent research relating to streetcar outcomes and the wisdom of free transit fares.
Since 2014, the streetcar corridor:
Accounted for about half of the city's population and a third of its household growth.
Attracted about half of all new housing units in the city.
Gained a third of a billion dollars in household income after inflation.
Added hundreds of jobs with a quarter of a billion dollars in new wages.
Saw more than 40% of corridor residents commute to work via something other than the car, compared to 20% citywide.
Increased real estate investment by $2.5 billion.
Boosted the city's annual fiscal revenues by $13 million, or 30%. This is enough to support $400 million in long-term investments, such as the anticipated bus rapid transit system.
In 2020, as COVID-19 was raging, the city council wisely waived transit fares. This has paid off, handsomely.
The pandemic hammered streetcar ridership which plunged from 900,000 in 2019 to just 440,000. After waiving fares, streetcar ridership increased, reaching a record 1.7 million riders in 2023.
How much did the city lose in foregone streetcar fares?
In 2019, fare revenue was about $800,000 adjusted for inflation. Because transit costs are mostly fixed, roughly the same whether ridership drops by half or doubles, this is the figure used for analysis.
How much did the city gain in new streetcar corridor taxes?
Free fares increase ridership, and more riders mean more spending. More riders plus streetcar outcomes noted earlier are associated with $2.3 million more tax revenue in 2023 than in 2019, adjusted for inflation. This excludes all other revenues, which are substantial.
The bottom line is that the $800,000 in waived streetcar fares is associated with $2.3 million in new tax revenue since 2019 for a net gain of $1.5 million.
Put differently, each $1.00 of waived fares is associated with $2.88 in new tax revenue. I wish my 401(k) did as well.
I call this "quiet money" because this new tax revenue slides into the general fund unnoticed. The reason is that no one tracks value added tax and other revenue associated with transit.
That's a problem because if decision-makers don't know the fiscal benefits of transit, they could make unwise decisions.
For instance, if fares are reinstated, research shows that ridership will fall, perhaps back to pre-pandemic levels. Reduced ridership will reduce corridor tax revenues which could wipe out many post-pandemic economic gains, leaving the city worse off.
We also know that transit dependent riders will pay the fares because they have no choice, which is an equity problem. But many of those with choices will shift to cars. That leads to more traffic and pollution.
To help the council make informed decisions, the city should do an analysis that compares the cost of free transit citywide with new taxes, fees and other revenues generated along transit corridors.
The city may find that free fares generate economic benefits that offset costs. Free fares also advance the city's equity and environmental missions.
Nelson is an emeritus professor of urban planning and real estate development at the University of Arizona. He has written more than 20 books and more than 400 other publications.
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