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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Friday, August 28, 2009

Twinkle, Northstar, price too high 

Last April I noted the nice service provided by the Albuquerque-Santa Fe Rail Runner, which cost me $8 for a round-trip. At that time I said
I'm not a transportation specialist, but I'm willing to speculate that the demand for urban rail is elastic, so higher prices decrease quantity demanded greatly. If so, would the fares being discussed for Northstar be too high?
We'll see shortly, because when they start running the train in November, you'll be paying $7 each way just to get to Big Lake, a much shorter distance than Albuquerque-Santa Fe. Weekends will have a discounted fare. There will now be as well another as-of-yet-undetermined charge for a bus link between St. Cloud and Big Lake.

According to a former public official $7 represents about 20% of the cost of running Northstar based on some assumptions about ridership. Wouldn't you want to price this to maximize total revenue? If so, do we really think $7 a ride does that? (For non-economists, here's a tutorial on the relationship between elasticity, pricing, and total revenue.)

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Thursday, December 13, 2007

She's gotta have it 

Mitch and Andy note Sen. Amy Klobuchar's search for wish fulfillment. The reason the train does not come to St. Cloud is a matter of costs and benefits. You barely have a benefit to cost ratio of .85 to get to Big Lake. Given the cost of adding track and the paucity of additional ridership one is likely to get, it scarcely makes sense to extend the line any time in the foreseeable future.

For the riders that would be interested, there is a plan for bus service from St. Cloud to the Big Lake station, reports Larry Schumacher.

A student of mine has written a report on the Hiawatha LRT and notes that closeness to a station improves your property values, but the effect dissipates fairly quickly. More than 2.5 miles away from a station in Bloomington, for example, the economic impact on one's home price is nil.

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Monday, August 06, 2007

Speaking of cost-benefit... 

Mrs. S has penned her latest, arguing that the cost-benefit analysis for Northstar may have changed enough with shifting demographics to justify its build-out to St. Cloud. I do not necessarily agree with her about this, but the push for another CBA has been made around here recently and will likely come to pass shortly.

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