| || ||Vijay Gill |
Construction of the Union Pearson (UP) Express—the express rail link between Union Station in downtown Toronto and Toronto’s Pearson Airport—is near completion, and there is now a growing debate about how much people should pay to use it.
Should it be run like the Heathrow Express in London, U.K., providing a premium service for air travellers, with high frequencies and fast and reliable travel times? Or should it be seen as just another urban transit route, priced low to maximize ridership—for airport employees as much as travellers?
There are merits to both sides of the argument. But lost in the debate is the fact that the price and fare structure (how much the price varies by time of day and rider) should have been determined a long time ago.
In fact, estimating price and fare structure is essential to evaluating whether a project like this is viable from the start. Typically, when conducting benefit-cost analyses on potential new transportation investments, we would estimate the benefits both to users and to others. Users generally benefit most from the time they save by using the new service. Non-user benefits can include less congestion on nearby roads and less pollution.
Users ought to be willing to pay directly for the benefits they receive. For example, if you tell a potential rider that he will save 15 minutes of travel time and he values his time at $20/hour, he should be willing to pay $5 for those savings. He may also take into account savings on gas and wear and tear for his car and the fact that train schedules are more predictable than traffic jams.
On the other hand, users generally don’t want to pay for benefits to others. If what users pay willingly will not cover the full cost of a new service, the value of non-user benefits provides a way to assess the justification for any public subsidy. The total value of user and non-user benefits relative to costs then helps to determine both the viability of a proposed project and how high a priority it deserves relative to other potential investments.
This requires the price and fare structure to be determined first, since revenues from users are a function of the price and the number of riders. Higher prices imply higher revenue per rider, but also a lower number of riders (since higher prices will persuade some potential riders to stick with cars). There is no way to arrive at a base estimate of daily ridership and displaced car trips without making some assumption about price and fare structure.
At close to half a billion dollars in capital costs and likely tens of millions of dollars in annual operating costs, the UP Express represents a significant public investment. Upfront and explicit evaluations of how large projects like this will be priced would both help to determine which projects are of greatest potential benefit and ensure that debates over pricing happen at the right time.
Large infrastructure investments at the municipal level typically require financial support from the provincial government and often the federal government as well. It is incumbent upon governments as investors to ensure that planned pricing is addressed in a detailed and consistent manner, and at the beginning of the process rather than the end. With the federal government currently in the process of reviewing transportation policy through the Canada Transportation Act Review, it is an opportune time for it to review its guidance on this issue as well as others related to the federal funding of urban transportation infrastructure.
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