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.