(This article was originally published in 2008 and referenced 2007 House Bill 4928, an earlier version of the proposal that Rep. Agema has re-introduced as 2009 House Bill 4185. See related article: "Public Fares Don't Cover Costs.")

Michigan State Rep. David Agema, R-Grandville, has introduced legislation that would require local bus systems subsidized by state road tax dollars to generate at least 20 percent of their operating expenses from fares paid by riders. Given that few taxpayers know much about the finances of Michigan's public bus systems, most might consider this proposal, House Bill 4928, to be a paltry and superfluous requirement. "Surely," they may think, "Michigan's public transit users pay that much and more of their own way, right?"

Wrong.

As of 2005, the latest year that reports are available from the Federal Transit Administration for Michigan's largest urban bus systems, not one of them raised as much as 20 percent of their operating expenses from fare revenues. The largest systems, those responsible for carrying the majority of Michigan's public bus passengers, fell well short.

For example, fares as a share of operating expenses for SMART, the system for the Detroit suburbs, and DDOT, the city of Detroit's system, were less than 12 percent. The figure for the Lansing area's Capital Area Transportation Authority was less than 15 percent. "The Rapid," serving Grand Rapids, was less than 15 percent; the Flint Mass Transportation Authority was less than 16 percent; and the Ann Arbor Transportation Authority was less than 14 percent.

If riders pay less than 20 percent of the operating costs, then who pays the rest?

Ahem — got a mirror?

About one-third of these total public bus operating expenses came from the state's Comprehensive Transportation Fund — a mass transit subsidy carved out of the state's annual road budget. Like the rest of this budget, nearly all CTF funding comes from federal and state motor fuel taxes and state vehicle registration fees. The money for the CTF that's taken from this pool of transportation dollars is a redistribution of wealth from the state's car and truck drivers to its transit agencies. Vehicle owners and drivers pay substantially more for rides they may never take on public buses than do the riders themselves.

The state constitution caps this diversion at no more than 10 percent, meaning that at least 90 percent of annual transportation revenues must be spent on roads. But even with this restriction, Michigan lawmakers in Fiscal Year 2005 allocated more than $161 million for local bus operating subsidies, $16.3 million for bus capital improvements, $7.2 million for passenger train subsidies, and more for various other public bus and transportation-related spending.

It is also noteworthy that FTA reports indicate that virtually all of the fare revenue for Michigan's largest fixed route bus systems is dedicated for operating expenses only. The overwhelming majority of the operating costs, and virtually all of the capital costs, come from a combination of the CTF revenue diversion, local tax revenue and federal grants. (The requirements of House Bill 4928 and the calculations above apply only to fixed-route bus systems and not dial-a-ride or other "on demand" public transit service.)

Notwithstanding the figures cited above, the 20 percent requirement of HB 4928 is not beyond the reach of public bus agencies. DDOT, by far the state's largest public transit service, covered more than 20 percent of its fixed-route operating costs with fares as recently as 1999. Elsewhere, in New York City's massive bus system, operating costs were 42.4 percent fare-supported in 2005; Chicago riders covered 34.2 percent; Toledo's paid 20.7 percent; and Indianapolis patrons contributed 22.2 percent. It's neither unreasonable nor unprecedented to expect the people using the service to pay more of the cost.

Yet testifying in favor of more taxpayer support, the executive director of The Rapid in 2007 told state legislators that his system covered only 18 percent of its 2006 operating costs with fares. He said increasing fares would mean a loss of customers. His remark reveals a skewed perception in the collective mind of Michigan's mass transit chiefs: The people forking over the vast majority of the money are not considered the real customers, while those considered the customers are expected to pay very little of the cost.

House Bill 4928 represents a helpful turn toward clearing up this confusion.

It's the story of a public transit system in Michigan: the more successful it is as it keeps fares low to lure passengers, the more money it appears to lose.

In Lansing, the city's bus system has seen its ridership jump to record numbers from 9.3 million in 2005 to 11.3 million in 2008. Yet its losses have also jumped from $28.6 million to $33.3 million during the same span.

State Rep. Dave Agema, R-Grandville, has introduced House Bill 4185 that would require bus transits to have fares cover 20 percent of their operating costs. Agema said his bill has been stuck in committee since it was introduced a year ago.

Transit was a big beneficiary of the federal stimulus. According to the state, Michigan has received nearly $100 million in federal stimulus funds to be spent on transit authorities.

"I'm not asking them to be profitable," Agema said. "Right now, there is no incentive to be efficient. It's, 'Let's just keep the monster going and lose more money.' "

For Lansing's Capital Area Transportation Authority, fares cover 15 percent of the total operating costs, according to CATA Spokeswoman Debbie Alexander.

Needing more money to sustain operations, CATA asked for an increase in its millage in 2008. It was approved for a 0.787-mill tax increase for five years ending in 2012. For a home valued at $100,000, it meant about an extra $39 in taxes per year.

In Lansing, fares are normally $1.25 a ride, but students ride for 60 cents.

Mackinac Center analyst Jack McHugh said the current public transit model is broken and that reforms are available that will benefit both users and taxpayers.

"By eliminating protectionist regulations that restrict alternatives," McHugh said, "empty buses driven by public employee union members can be replaced by private sector innovations like jitneys, commercial van pools, 'call-and-ride' services, car-sharing and more. This will improve service for transit users at a much lower cost."

Alexander said increasing fares risk cutting off service to the low income riders.

"You could only drive fares up so far before you are unable to serve the population that uses the bus," she said. "Nowhere in the world is any public transportation fully supported by fares. I think there is a fine line between making it valuable and marketable and overpricing it and making it an elite service."

Agema said he's not asking fares pay for the entire cost of operations.

"They say, 'Well, we might lose ridership,'" Agema said. "I don't think it is unreasonable to ask riders to pay just 20 percent of the operating cost." 

The earlier version of this article appears at www.MichCapCon.com/12151.