The Future of Transit Funding: Are You Ready?

In May of 2015, the U.S. Transportation Department warned they would no longer authorize payments for new transit projects.

With a bill expiring at the end of the same month, the debate heated up in Congress about the future of funding for public transit. The warnings proved true as dramatic cuts occurred. Programs funded through appropriations by the Department of Transportation would reach the lowest levels in 14 years, causing many agencies to think strategically about their operations.

We all feel the crunch of business decisions. Funding and budgets impact so many areas and can wreck havoc on future strategies. Staffing, technology, and infrastructure march their way towards the chopping block. It’s financial survival of the fittest–what items can you live without and what has to adapt to deal with less.

Reduced budgets have impacted transit agencies for some time. Yet, demand for better mobility services increases.

How then should agencies think about how dollars are used? What makes the biggest impact? By and large, the conclusion was expansion. Expand infrastructure. More bus stops. More miles of rail.

However, new data suggests the answer lies in emerging technology and making a concerted effort towards improving the farebox experience versus large capital outlays for increased infrastructure.

A recent study from the University of Toronto shows that subway expansion isn’t the best way for agencies to use funding. By analyzing transit operations in cities around the world, there was no clear impact of expansion projects on population growth or increased ridership.

To read the full report, click here.

The study concluded that if agencies want to make the biggest impact, they should focus on mobility demands and farebox revenue. These two items can provide the greatest impact and return on the money provided.

Let’s take a closer look at these items:

Mobility Demands

On-demand mobility services will dictate the future of transportation and it’s more than just Uber and Lyft. It’s also more than just consumer-oriented services. It impacts the way goods are transported through cities. It is the dynamic connectivity of how people are routed in coordination with importing and exporting resources necessary to sustain a city.

The proliferation of service based companies that operate in the mobile space has brought about great opportunities but added complexity and lots of questions.

Services like the on-demand app Postmates allow users to request food or other items to be delivered to their work or home. Amazon plans to drop packages with drones out of the sky ordered via desktop or mobile. They are even making it simple to order laundry detergent with the click of a button.

Gift subscription boxes. Beer. Pet Supplies. All of these items are now delivered via mobile apps. How can government agencies work with these companies to condense the amount of traffic on the road and deliver efficient goods? How can companies like FedEx take advantage of consumer trips offered by Lyft? How can everyone work together to provide a better experience for all? Should there even be coordination? With many factors at play, who owns the responsibility of delivering ‘smart’ services to a city?

Another large question is how are these services disrupting public transit? Rather than ride to the store or restaurant, we can simply have it delivered via an app request. Need your laundry dry cleaned? There are apps now that will leave your shirts pressed and packaged through a quick mobile payment. These are not technically eliminating a road trip–just a potential transit trip. All of these on-demand generation apps are popping up rapidly and can either further fragment our connectivity, or if leveraged responsibly, can usher in a whole new era of cohesion.

Navigating through the new on-demand mobile economy might take years–even decades–to figure out how to leverage all the moving parts into one cohesive ecosystem. The dream of a truly smart city might not be achieved in our lifetimes. But, we can impact public transportation today. Agencies can leverage business models and technology of private firms that are solving how to get people from A to B and how to get goods from manufacturer to consumer. Everyone is doubling down on the improved mobile experience and consumers will gravitate to the prettiest path of least resistance.

It boils down to utility and usability. Will the experience be utilized…does it provide value? Does the service make it easier to use the system? Focusing funds on improving the mobile experience for riders can go a long way into improving ridership numbers and gaining incredible data and feedback into the system. In a recent survey conducted by Passport, of the most preferred method of payment to ride transit, nearly 73% chose a smartphone as the preferred method to pay for transit fare. This was compared to 23% via a smart card and only 4% for a kiosk. Think about that. Only 4% of those polled preferred a kiosk. Kiosks and other hardware can cost up to 4x more than mobile software implementations.

It might be time to reevaluate those expensive hardware investments and redeploy those funds on the technology of the future–the technology your riders want to use.

How can you meet increased mobility demands? Simple. With a laser focus on mobile technology.

Farebox Revenue

Like any business, whether private or public, revenue must be earned to cover expenses. While public transit is largely subsidized, agencies still rely on revenue from fare purchases. The more riders, the more income, the greater the opportunity to turn a profit. Increasing ridership can be broken into two main categories:

1) Increase the number of rides for existing commuters on public transit. If a regular rider takes 5 public transit trips a week, try to get them to take 6.

2) Introducing new riders to the system. How can those who never take transit be properly introduced or incentivized to add a trip to their routine?

As the study from the University Toronto suggests, adding more transit infrastructure won’t necessarily solve either of these two categories. It isn’t just a case of “build it and they will ride”.

In order to make the farebox more valuable, agencies can either make it easier for riders to purchase fare or reduce the expenses involved in the sale of fare.

It’s a known problem that when lines are long or kiosks malfunction, it’s likely that riders use the system without any fare purchase. To combat both of these issues, mobile ticketing applications can be used. With a mobile app, riders can skip the line altogether and also avoid broken machines. More uptime of technology leads to more fare purchases.

In addition, if you increase the utility of technology to riders, it can lead to more public transit experiences. If riders can plan their trips, accurately track their options, and ultimately pay for their fare in one experience, it can lead to greater loyalty and repeat purchases–making further improvements at the farebox.

Finally, the cost of operating mobile ticketing can be far less than maintenance and management of hardware. If you can reduce the expenses related to revenue, you can drive up profits and potentially mitigate reductions in federal funding.

It’s unclear if public transit agencies will see an increase in their budgets in the future, so maximizing federal funding is of the utmost importance.

Centering your strategy around on-demand mobility services and focusing in on the farebox will help you stretch every dollar and ultimately improve ridership and the rider experience.

About Passport

Passport is North America’s leading mobile technology company specializing in enterprise business applications and payments for the public and private sector. Passport's product lines--parking payments, transit payments, enforcement and permit management--collectively serve to deliver dynamic tools for agencies to better connect with their communities. Its services have been adopted by over 20 of the top 50 cities in North America and over 2,000 locations including Chicago, Toronto, Boston, and Portland. Passport’s mission is to reduce operational complexity and deliver intelligent data to improve decision making for its clients.

Headquartered in Charlotte, NC, Passport is backed by a highly respected group of investors, including Grotech Ventures, Relevance Capital, and MK Capital. For more information, please visitwww.passportinc.com.