Monday, March 08, 2010

The cost of Northstar 

From an email of the Freedom Foundation of Minnesota:
Metro Transit has set a goal of 897,000 riders in 2010. Monthly ridership goals begin at 45,000 in January, climbing to 71,600 in June and ramping up to 102,000 in November. In the first three full months of operation, ridership has averaged around 45,000.

Officials estimate passenger fares will only cover an estimated 21% of Northstar�s $16.8 million 2010 operating budget, requiring taxpayers to subsidize the difference. For every $14 round trip ticket purchased between Big Lake and Minneapolis, taxpayers kick in an operating subsidy of $29.66 per ticket to keep the trains running. Total operating cost per round trip: $43.66, based on Metro Transit�s operating $16.8 million operating budget and projection of 897,000 riders.

Yet the taxpayers� ticket to ride on Northstar is far higher when you take into account the amortized $317 million capital costs - a combination of federal, state, and local funds � that it took to build the line. Using a standard federal government formula, Northstar�s capital costs come to $25.3 million annually.

Thus, the true taxpayer cost of operating Northstar is about $42 million annually: $16.8 million in operating costs and $25.3 million in capital costs.
While I won't quibble the data -- I haven't checked every one of their figures -- let's take it as correct. Let's also assume that some of those 45,000 people are substituting Northstar for their cars. Certainly for some it's greater value than for others, and their benefits should be accounted. And the benefit of less congested roads and less maintenance needed therein should be counted. Do we think this will account for the entire amount? As I often say about cost-benefit analysis: We usually can measure the costs pretty well but we measure the benefits pretty poorly. It will be little more than a SWAG to get the benefits. I do know this press release doesn't get all the benefits written down yet.

I still would argue that if the elasticity of demand for Northstar riding is sufficiently high, we should lower the price of the ticket. Would FFM agree? I'll have to get them on the air some day to find out.

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