Unaware of the Laws of Economics, NJ Transit to “Fix” Declining Ridership by Increasing Fares 25% & Cutting Service

Pretend you are on the board of directors of a government owned transit system called NJT.  Times are tough and money is tight.  The board must make some hard decisions that are in the best interest of NJT and the public it serves to deal with the shortage of money.   The governor just reduced NJT’s annual state subsidy of $296 million by $33 million.  The number of people riding on your bus and train systems is down four percent this year.  Which of the following hard choices do you make:

  • reduce the pay of all rank and file employees
  • increase all fares by 25 percent
  • Cut 33 daily trains.
  • Eliminate 3 bus routes
  • increase the amount of time between buses and trains
  • cut 200 jobs
  • reduce contributions to employees’ retirement plans
  • reduce executives’ pay by 5 percent
  • eliminate some discounts and cap other discounts

Faced with the above facts, the New Jersey Transit decided to all of the above except the single one that would have had the biggest affect.  The NJT did not reduce the salary of its rank and file employees.   Are these employees union members?  If so, it would explain why their pay wasn’t reduced, which is what many for profit businesses would do when faced with a huge deficit problem. Instead, the NJT brain power decided to ignore the laws of economics (higher price means reduced sales volume) and give NJT riders the largest fare hike in the history of the NJT.

This reminds me of what the Arizona Diamondbacks did to its fans before the 2009 season.  Up until 2009, I had been a season ticket holder since opening day of the franchise’s first year.  I had four great seats on the bottom level thirteen rows up just beyond first base.  Each seat was $1,743 for the 2008 82 home game season.  For 2009, the Dbacks billed me $2,905, which was just over a 66 percent increase.  Instead of making a small price increase and collecting almost $7,000 from me and my group, we declined to renew the tickets we had held for ten years and the Diamondbacks got nothing from us.  Dbacks attendance was down in 2009 from 2008.  I know probably more than 20 people who were original Diamondback season ticket holders who no longer have season tickets.

Tempe & Valley Metro Train Police to Enforce Light Rail Fares in Tempe

If you ride the Phoenix area light rail, watch out for the train police.  The Phoenix area light rail works on the honor system.  To date, there is no system in place to take tickets or insure that riders have paid or are riding on a pass.  It’s the honor system.  There may not be a free lunch, but for too many there is a free light rail in Phoenix, Tempe and Mesa.  Valley Metro and Tempe are joining forces to try to reduce the number of free-loaders on the light rail.  The light rail police will be stopping riders at random as they exit at selected stops and asking to see proof that the rider purchased a ticket or has a pass.  People that cannot prove they bought a ticket or have a pass will be cited and subject to fines of $70 – $500.  By checking at arrival rather than departure some people who buy tickets may discard their tickets on the train and not be able to produce the ticket after the train departs the arrival stop.

Phoenix Plans to Cut Light Rail Service to Lose More Money

The Arizona Republic has a story today that because the City of Phoenix’ severe money problems, it is considering reducing service during peak hours to “save” money.  The City Council may vote to reduce  light rail service during its busiest times so it can continue service during its least busiest times.  Final say will be up to Valley Metro, which runs the light rail system.  Metro estimates the proposed changes will reduce annual riders by 1.1 million.  You heard it right.  When money is tight, the Phoenix City Council may decide to lose more money so light rail can serve fewer people.

Clearly if the City Council and Metro carry out this plan, everyone responsible needs to be recalled or fired because they do not understand economics or math.  Metro says the  proposed changes will save $653,000  a year in light rail operating costs.  Those “in the know” say that total savings with other administrative cuts in light rail would be $930,000 for the fiscal year starting July 1.  So far so good, but lets’ take a closer look at the math:

$1,375,000 lost rider revenue/year (1,100,000 riders x $1.25 fare)
$930,000 annual savings
($445,000) net lost revenue after adopting the “cost savings” measures

Bottom line:  The proposed changes will not save money, but will actually cause light rail to lose $445,000 more each year than it would if the City of Phoenix did nothing.  I suspect that the reason Metro may support this change is because Metro fudges the estimated number of riders such that a loss of 1,100,000 riders does not really equate to a loss of $1,375,000 of annual revenue.  Metro has no way of estimating the number of riders on light rail.  There are no ticket takers or systems in place to track the actual number of paying riders.  Metro happily estimates the number of riders every month and reports that ridership exceeds expectations, but it never releases the actual monthly revenue collected from paying riders.  Why is that?  Instead of estimating monthly riders, why doesn’t Metro tell us the monthly revenue collected and divide that number by $1.25 (the cost of a one way ticket) to determine the actual number of riders?  Curious!

P.S.  I hope I am missing some important information.  Perhaps Metro’s total loss from doing nothing would exceed $445,000 a year, which would mean that by making the proposed change, Metro’s net loss would be less than $445,000 a year.

This reminds me of two jokes I remember from my days flying the F-4 Phantom in the United States Air Force:

  • A pilot has a side business of selling apples outside the front gate to the Air Force base.  He buys the apples for thirty-five cents and sells them two for sixty cents.  After a careful analysis of why he isn’t making any money, he concludes that the solution is to increase sales volume.
  • A pilot tells his buddy that he wants to become an astronaut and be the first man to go to the sun.  The friend says you can’t do that because you would burn up from the sun’s heat.  The pilot says, no he won’t because he is going to go at night.

Phoenix Has a $244 Million Deficit & Owes $300 Million for New Convention Center So Mayor Gordon Plans to Build $1 Billion Rail to the Airport without Federal Funds

The Phoenix rail huggers lead by Mayor Phil Gordon desperately want to extend the light rail system to the number one most visited site in Arizona, which site was some how overlooked by the nit-wits who planned the initial 20 mile long $1.4 billion Phoenix-Tempe-Mesa light rail system.  Today the federal government laid the bad news on the Phoenix area rail huggers – the federal government will give the discredited community organizer Acorn almost $4 billion, instead of funding any portion of the estimated cost of $1 billion to extend the Phoenix light rail to Sky Harbor airport.

The Department of Transportation announced today that Phoenix will not get any of the $1.5 billion of federal stimulus money going to state and regional transit and transportation projects.  With their heads completely in the sand so they could ignore Phoenix’ $244 million deficit, the layoffs of hundreds of police and fire personnel, closing and reducing of services and the $300 million owed on the new convention center money pit, Phoenix officials responded that they were not going to let a little thing like lack of money stop (it’s now being built) the construction of the $1 billion people mover to the airport.  You gotta love their spunk.

How is it that Acorn gets almost $4 billion and Phoenix and needy states and cities get the shaft?  Democrat mayor Phil Gordon of Phoenix lobbied the federal government for money for the people mover, but was not successful.  Maybe he could pull some strings with his homies in the the party and get Phoenix some of that Acorn money.

Didn’t Congress pass legislation last year removing Acorn from the public dole?  The following is from an editorial in the Investor’s Business Daily:

You’d think a group implicated in dozens of electoral fraud cases, theft of funds and, most recently, helping criminals interested in bringing child prostitutes to the U.S. would have been ruled ineligible for federal aid long ago.  But think again, because these aid rats are experts at survival.  FrontPage magazine reports that federal Judge Nina Gershon ruled that Acorn is eligible for the Obama administration’s proposed $4 billion in Housing and Urban Development grants within the $3.83 trillion federal budget proposal for 2011.  That cancels the ban Congress placed on Acorn funding late last year after at least five of the group’s offices willingly aided undercover reporters posing as a pimp and prostitute to get federal funding for a brothel and cheat on their taxes.

See the story in the Arizona Republic called “Phoenix misses out on stimulus transit money.”  The story says:

The first leg of the system, connecting light rail, the east economy parking lot and the heavily used Terminal 4, is scheduled to carry its first riders in 2013.  The second phase would extend the train to the rest of the airport terminals and the rental-car center by 2020.The stimulus money would have accelerated project construction, connecting all three terminals to light rail and the parking lot by 2013.

Las Vegas Monorail’s Failure May Drive Down Nevada’s Credit

There is a segment of the United States (and Europe too) that loves the railroad and cannot get enough of it.  They love light rail, “regular” rail, high speed rail.  Sometimes the rail lovers like monorail, which is true of the voters of Nevada ten years ago when they approved a $650 million industrial development revenue bond to fund the construction of a monorail in downtown Las Vegas.  I call these people “rail huggers.”  They want to spread rail every where like a plague spreads through communities, states and entire countries.  Cost to build a rail system is not a factor.  It’s irrelevant that these government  created, owned and operated rail systems ever produce more than a fraction of operating costs.  The rail huggers’ motto is “profits, we don’t need no stinking profits.”

The Las Vegas monorail is the only privately owned public transportation system in the United States.  The Las Vegas monorail is 3.9-mile in length and runs on an elevated track.  It links casinos and the Las Vegas Convention Center.    The Nevada Taxpayers Association warned the Nevada voters before the bond vote ten years ago that the credit rating of Nevada would suffer if the monorail could not generate enough money to pay the debt and if the State of Nevada did not have the funds to pay.  Now the Las Vegas Monorail Company has filed for bankruptcy because it owes $500 million to $1 billion and cannot pay the debt.  Surprise, surprise, the revenue from the monorail operations is not enough to pay expenses and debt service.  NTA President Carole Vilardo said:

“We were concerned because bonds for light rail and monorail projects historically had been too aggressive in their ridership estimates,” she says. “The ridership never lived up to the estimates.”

The Las Vegas Sun says “The Las Vegas Monorail will never generate enough revenue to pay off its debts, according to the company’s own financial estimates.  And without financial relief, looming bills to replace trains and other equipment cast doubt on the transit system’s ability to continue operating beyond 2019. . . . Last year, the system generated less than $5 million in net cash flow, woefully short of $34 million needed to service its debt.”

Phoenix Deficit $242 Million Not Counting $300 Million Owed for Expansion of $600 Million Convention Center

Phoenix is $242 million in the red, but that number does not include the $300 million it owes on the $600 million new and expanded Phoenix Convention Center.  Arizona Republic:  “City Manager David Cavazos proposed shutting down senior centers, libraries and sports complexes, and laying off hundreds of police officers and firefighters for the first time in decades. . . . Cavazos’ proposal would eliminate 1,379 of the city’s 16,000 positions . . . . The Police Department would lose about 353 sworn positions, from patrol officers to assistant chiefs. The Fire Department would cut 144 sworn jobs.”

In a shocking story in today’s Arizona Republic we learn that Phoenix’ new $600 million convention center is a very expensive money pit.  The Republic story says:

The center has been forced to cut its own operating budget, its revenue is falling and it is soon expected to struggle to make payments on its construction debt. . . . the center is struggling, largely because of the structure of its funding system. It relies mostly on a certain portion of city sales taxes, which includes a part of the hotel bed tax but comes largely from purchases involved in construction. Those tax revenues plummeted amid the economic slump. . . . City taxes provide 80 percent of the convention center’s revenue. Receipts from the taxes that fund the center are falling and are expected to generate $34.8 million this fiscal year, 30 percent less than previous projections. . . . The center is having trouble paying the $14.9 million annual payment on its $300 million city debt.  The city and the state split the original $600 million cost. . . . Just 20 percent of the convention center’s operations budget is funded by income from conventions, such as rental fees.

Yikes!  The center only generates 20% of the money needed to operate it and that number does not include the annual debt service on the $300 million!   The Republic article did not say how much money is needed to operate the convention center each year. What happens if the city cannot make the payments on the construction debt?  Will the near bankrupt State of Arizona pick up the tab?  This is what happens when government spends money it does not have.  Maybe the City of Phoenix should follow the lead of the State of Arizona and sell some of its assets to get the money to pay its deficits and keep the new convention center.  I am sure Phoenix could sell the light rail system that has exceeded rider projections for a lot more than the $1.4 billion cost of the system.  Surely the value of the Phoenix light rail has increased since its completion.

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