Paying for Public Transport

The issue here is not some woolly concern about buses and trains, or boats and planes. I understand the romantic attachment from the 'golden age of travel', but the issue is all about access - whether by road, rail, sea or air. Access means building infrastructure that will makes travel possible by whichever means we choose.

All of them influence land values profoundly. Putting a road into an undeveloped area will increase land values dramatically. Adding a transit system to an existing residential corridor will see land prices skyrocket along the proposed route. A sea port or airport is a valuable addition to any community.

Because of this direct cost/benefit relationship, the capital cost of the road or rail system and its maintenance should be met by a charge on the enhanced land values. After that time, say, 20 years, when the capital cost has been met, the continuing increases in land rent will generate a cashflow for other such assets, building an inheritance for posterity.

With the capital cost thus covered, there is then scope for user charges to be introduced ie. for private cars, bus fares or cartage charges on the roads; train fares or freight charges on railways; or at least, (in the absence of competition), a return on capital at the current rate of interest.

For both roads and rail, if the capital cost were covered in this way, cheaper fares and freight charges would apply, relieving road congestion.

User Charges cannot cover the cost of both the capital investment and the operating costs. They should be priced to collect only the cost of the marginal user. That is the proper economic method, and will keep fares low, encouraging optimal use. The way to afford the infrastructure, in the first place, is to collect the land rent generated by that community-funded infrastructure to pay for the transport systems we want.

Two useful reference books on this topic are:
Taken for a Ride – Trains, Taxpayers and the Treasury, Don Riley, 2001
Don Riley is a property investor who tells the story of the windfall gains he, and other property owners, received when London Transport built the “Jubilee Line” to South London. The railway (tube) line cost taxpayers $3.5m. Landowners received windfall benefits of $13.5m!

Wheels of Fortune - Self-funding Infrastructure..., Fred Harrison
Harrison argues that a fairer and more efficient means to fund infrastructure projects is to capture and use the increase in land values that they bring.

Associated papers: Public Transport – ABC;
and, PRT – moving people around Hobart