The “Light-Rail will Save Money” Myth

Light-rail advocates claim that light-rail is economically more efficient than providing roads for automobiles. This claim is false on multiple levels because:

1. Light-rail fares never come close to even covering the operating costs. The nationwide average is that fares cover only 30% of operating costs; tax payers cover the remaining 70%.
2. Light-rail is economically inferior to bus service
3. It would be more economical to use Light-rail's subsidies to purchase a hybrids for poor commuters
4. Light-rail rail frequently under-performs the projections used to sell it to the voters.

Light-rail fares never come close to even covering the operating costs.

The reason why all light-rail systems in the country need to be subsidized is because none of them come close to covering their operation costs, never mind their total cost. ¹ Specifically, average light-rail fares cover less than 30 percent of operating costs. Which implies that Hillsborough tax payers can expect to pay the other 70% of their “investment's” operating costs. There also is no revenue stream for replacing light-rail system at the end of 25-30 lifespan because operation costs consume more money than the fares provide.

Light-rail is economically inferior to bus service

The economics of light-rail systems do not compare well to bus systems to light-rail systems after the capital costs are considered. Randal O'Toole analyzed both the operating and capital costs of bus systems and various types of rail systems and concluded:

no automated guideway, heavy-rail, light-rail, or streetcar line is more efficient than buses offering equivalent service. Many of these lines do not even offer any operational savings to offset rail’s greater capital costs. ²

So the Obama administration scrapped the rules requiring that rail show at least a modicum of economic sense before they would be eligible for federal subsidiaries. Here is Randal O'Toole:

In January 2010, rail supporters cheered when Transportation Secretary Ray LaHood announced he was abolishing cost effectiveness rules and would instead judge projects based on whether they promote “livability,” a concept that is impossible to quantify. The rules LaHood was eliminating had been written under the previous transportation secretary, Mary Peters. In 2005, Peters required that, to be eligible for federal funding, new rail transit projects must cost less than $24 per hour of savings to transportation users. This test failed to discriminate between projects that cost only $1 per hour and projects that cost $23 per hour, but at least projects that cost more than $24 were eliminated, including many rail proposals. Under Peters, the Federal Transit Administration also required that cities applying for funds for streetcar projects demonstrate that streetcars were more cost-efficient than buses. As a result, almost all of the cities that had been preparing to apply for federal grants for streetcars gave up those plans. In deciding to repeal these rules, LaHood was saying, in effect, that the FTA would be willing to fund rail transit projects no matter how much money they waste relative to alternatives. This makes many more rail projects eligible for federal funding. ³

If proposed rail systems could survive economic scrutiny then they could stand on their own economic merits. Since they cannot the Obama administration moved the goalposts. Poor economics is the reason why light-rail is so heavily subsidized. So how expensive are the subsidies? I'm glad you asked! Consider the case of the St Louis Metro Light-rail. The Federal Reserve Bank of St Louis observed the following regarding St Louis' Metro Link light-rail subsidies, at least with respect to providing transit for the poor:

Another justification for expenditures on light-rail systems is that they provide transportation to thousands of low-income individuals who otherwise would find their mobility quite limited. While providing public transit to the poor does produce tangible economic benefits, the following example suggests that light rail is not an efficient means of providing transportation to the poor. Specifically, the example shown in the table demonstrates that the money spent on MetroLink in St. Louis can be used to much better effect. Based solely on dollar cost, the annual light-rail subsidies could instead be used to buy an environmentally friendly hybrid Toyota Prius every five years for each poor rider and even to pay annual maintenance costs of $6,000. Increases in pollution would be minimal with the hybrid vehicle, and 7,700 new vehicles on the roadway would result in only a 0.5 percent increase in traffic congestion.3 And there would still be funds left over—about $49 million per year. These funds could be given to all other MetroLink riders (amounting to roughly $1,045 per person per year) and be used for cab fare, bus fare, etc. ⁴ [emphasis added]