Trains, Lanes and Automobiles : The Effect of COVID-19 on the Future of Public Transit

COVID-19 has fundamentally changed lives across Canada. This change may be most pronounced in Canada’s major cities and for public transit operators. Public transit is the essential component that enables the benefits of people coming together. These wider economic benefits – what economists call agglomeration – are a key element of why cities exist in the first place. As more people can connect in person, the higher their incomes.Canadian governments are systematically undervaluing transportation investments – both in terms of annual operating value, and the returns on new investments – if they ignore how transit is a key ingredient of what makes cities vibrant. This paper estimates the annual economic value of the Toronto Transit Commission (TTC) as an example of how to understand the wider economic benefits of public transit. This single transit system enables billions of dollars in wider economic benefits. We estimate an economic loss of $1.7 billion for the Toronto region of reduced agglomeration benefits due to low travel levels mid-pandemic from reduced TTC ridership. These economic costs are more likely in the range of $1.2 to $1.4 billion based on reasonable assumptions about how much people still travelled but switched to using cars during the pandemic. Future service enhancements – ranging from simple investments like dedicated lanes for buses to new train lines – might enable broader urban agglomeration economies. We estimate the agglomeration-related economic benefits of the TTC’s 5-year service plan improvements to be $377 million per year, which would add on to the agglomeration benefits of the existing system. Transit authorities in Canada rely on farebox revenues from paying passengers as their largest source of revenue. As costs rise, such as the need to increase staff wages, transit operators must decide between increasing fares, finding efficiencies, or seeking a greater subsidy from governments. Fare increases have the effect of discouraging some users from travelling and create a wider economic cost. The economic costs of people choosing not to travel because of higher fares – not going to a new restaurant, or not taking on a new and better job – can be substantial. However, governments should weigh the alternative of the economic harm of raising taxes to pay for subsidies. Depending on the kind of tax a government relies on, the economic harm of higher taxes may be worse than the economic cost of fewer fare-price-sensitive travellers. How does incorporating wider economic benefits into the economics of transit affect all public transit operators looking beyond the pandemic to a new normal of work and commuting? A return to a partial (one or two days a week) work-from-home model for many workers once the pandemic subsides is a likely outcome. The ability to partially work from home will likely recapture most of the lost agglomeration benefits we have seen the last year. However, such reduced travel leaves a fare revenue gap that transit operators will need to fill to maintain service levels. Senior governments that collect income tax revenues – and see a bottom-line income tax benefit from wider economic benefits – can temporarily provide operating subsidies to transit operators. Such operating subsidies should only last until transit networks can re-orient their services to permanent post-pandemic demand trends