Change the Metrorail formula to change incentives

The current Metrorail subsidy formula does not reward jurisdictions for increasing ridership at their stations. Revenues from increased ridership get spread out across the system, while costs are concentrated.

By changing how we calculate each jurisdiction’s share, we can change the incentives. That will encourage jurisdictions to better use the land around their stations, and to start innovative programs to encourage transit ridership.

The current Metrorail subsidy formula takes the cost of operating the system, subtracts all Metrorail revenues from various sources, then divides the remaining subsidy into three pieces.

For one of those pieces, jurisdictions pay according to their population, adjusted by their density. Arlington, Montgomery, Falls Church, Alexandria, and the District pay more than their raw share of population, while Prince George’s and Fairfax Counties and Fairfax City pay less.

For the second piece, jurisdictions pay according to the number of stations. Some stations count as shared, like Capitol Heights, Van Dorn Street, Friendship Heights, and Southern Avenue.

For the third piece, jurisdictions pay according to average weekday ridership. For example, DC had about 30% of the ridership, while Arlington had about 11% of ridership in 2005.

The first important thing to note from the subsidy formula is that the revenues are subtracted first, before subsidy is divided. The second thing is that increasing ridership increases a jurisdiction’s costs, even as the increased ridership helps WMATA’s bottom line.

Let’s take an example of Arlington County. The county sponsors and operates Arlington County Commuter Services, which encourages people to take other modes for travel, including transit service. Arlington pays county employees to operate this service, which increases ridership on Metrorail.

These additional Metrorail passengers pay fares into the WMATA budget, which then get subtracted from the common subsidy pool. Some of the benefits of increased ridership are therefore shared with jurisdictions that are not paying for commuter services.

Additionally, since the commuter services have increased Arlington’s ridership, when it comes time to allocate the remaining subsidy, Arlington’s share gets bigger, not smaller. This is a backward incentive, causing jurisdictions that encourage ridership to pay more, and having the benefits of high ridership shared with jurisdictions that are cutting back on commuter assistance services.

Let’s change the formula around. The costs of the system before subtracting revenues should be divided using the formula, then the revenues should be allocated to the jurisdictions. In that case, a jurisdiction like Arlington would benefit from the increase in their riders’ fares even while paying more under the cost formula because of increased ridership.

For rail, parking and station advertising revenues would be allocated to the jurisdiction that owns the station. Advertising in railcars could be subtracted from the system costs as a whole. Fare revenues could be allocated base on the origin station, the destination station, or split 50/50 between the two.

With this new formula, a jurisdiction with a large parking lot near its stations would have a big incentive to redevelop the area, provide feeder bus service or otherwise encourage ridership, because they get to subtract the fare revenues from their assistance to WMATA.

The funding formula made sense when the system was just getting started. Practically all jurisdictions had low-density development around their stations, and ridership and cost recovery were low. Now that Metrorail cost recovery is high and could get higher, we should increase the incentive for jurisdictions to encourage ridership, not reduce it.