[Archived] Question # 26: What would be the fiscal impact of fare elimination for all day and off peak hours on DASH bus service and ridership for FY 2022?

Question:

What would be the fiscal impact of  full elimination of fare collection DASH bus service at the budgeted ridership level and also calculate the impact for peak time fare elimination for FY 2022? What would be the estimated ridership impact of such a change? What intergovernmental revenues may be available to support such an effort?  (City Manager Jinks, Mayor Wilson)

Response:

This response, which was originally published on March 25, 2021, is being revised on April 6, 2021 to clarify that the ten-month cost to eliminate DASH fares of $1,470,000 referenced in the original response below assumed no increase in the amount of overall service. DASH has applied for and is expected to receive two State grants which will provide for a significant increase in DASH service corresponding with the planned September 2021 implementation of the New DASH Network. The grants would support only the net cost of the service enhancements after accounting for a projected $670,000 of new fare revenue resulting from significantly improved service and anticipated increased ridership. If the grants are approved and DASH fares are eliminated, other funding sources will need to be identified to replace the $670,000 in programmed revenues. The Northern Virginia Transportation Authority (NVTA) has estimated the City’s share of increased 30% revenue resulting from the State passage of HB 1414 to be $840,000. This was not included in the City’s proposed budget as the bill had not yet passed the General Assembly and the amount of the City’s potential share was unknown at that time. A portion of that additional revenue could be used to replace the planned new fare revenue. (Alternatively, the monies could be used to reduce the City General Fund support of DASH or to expand DASH service). Additionally, the City proposed FY 2022 – 2031 Capital Improvement Program (CIP) includes a DASH Electronic Fare Payment project to upgrade DASH fareboxes. Assuming DASH fare collection is permanently eliminated, this project would no longer be needed and the allocated $1.1 million in federal RSTP funds could be repurposed for other uses. 

These budget questions are well-timed in that the City and DASH staff have been working for several months on a consultant-led study of options to partially or fully reduce fares on both DASH and WMATA service in Alexandria.  While the full report will not be ready for several weeks, preliminary numbers from this study are included in this response. It should be noted that due to one time use of $2.9 million in one time federal relief funding in FY 2022, the City support of the DASH budget will need to increase by approximately $0.9 million in FY 2023, assuming the projected return of passenger revenue. This increase does not include current services adjustments or any supplementals that may be approved. Therefore, any fare reduction initiative will add to that subsidy increase. 

New DASH Network Launch
Due to the planned launch of the New DASH Network in September 2021, staff recommend that any major fare reduction or elimination programs should coincide with the launch of the new network.  Introducing free fares prior to the launch of the new network could attract new users to a bus network that would soon become obsolete.  Conversely, reduced or eliminated fares starting in September could further incentivize usage of the New DASH Network.  As a result, the cost estimates provided for the following scenarios are provided as both an annualized amount and as a pro-rated amount if they were to be implemented on September 5, 2021. 

Scenario 1 - Full DASH Fare Elimination

Since DASH passenger revenue is budgeted at $2,032,000 for FY 2022, the simplest response is that the City’s subsidy contribution would need to rise by this amount to fully eliminate fare collection on DASH service for all of FY 2022.  This increase is based on conservative ridership assumptions with only 50 percent of pre-COVID ridership levels.  Net of annual fare collection operating costs of $274,000, the net subsidy increase comes to $1,758,000.  To implement on September 5, 2021, the ten-month subsidy increase is $1,470,000.  The study indicates that full DASH fare elimination would increase annual ridership by over 23 percent.   

It is critical to note that the FY22 fiscal impact is this low only due to reduced ridership during the COVID-19 pandemic.  In future fiscal years, the cost of foregone fare revenue will rise significantly, especially with the expected growth in ridership due to the New DASH Network and further enhancements expected to be implemented in FY23 and beyond.

Scenario 2 - Off-Peak DASH Fare Elimination
In this scenario, DASH is assumed to collect fares on weekdays from 6:00 to 9:00 AM and 3:00 to 6:00 PM but fare collection would be eliminated at all other times on weekdays, and at all times on weekends.

The primary benefit to fare elimination during off-peak periods – not peak periods - is that such a reduction benefits individuals riding transit for purposes other than “9 to 5” commuting, including seniors, transit-dependent residents, and shift and wage workers, who disproportionately tend to be lower-income residents or essential workers. The “9 to 5” commuter demand tends to be inelastic to fares, and many “9 to 5” commuters benefit from employer transit subsidies. The estimated annualized cost of implementing free off-peak fares would be approximately $1.22 million.  The pro-rated FY 2022 cost of implementing free off-peak fares in early September would be roughly $1.02 million.  Staff estimate that this program would increase overall DASH ridership by roughly 11 percent over current ridership levels.  

Staff note that case studies of off-peak fare elimination by other transit systems could not be identified during the study.  This scenario is likely to create confusion among customers unsure of whether they need to pay a fare or even passenger-operator conflict at the threshold times between peak and off-peak periods.  Coupled with the need to properly configure fareboxes to only charge fares during the off-peak period, implementation of this scenario could be challenging but doable.  On the other hand, increasing ridership during off-peak periods has the advantage of utilizing excess capacity at a much lower cost than eliminating fares altogether. 

Scenarios 3 & 4 - Free or Reduced Fares for DASH Low-Income Riders Scenario

The upcoming study includes two additional fare scenarios with targeted benefits for eligible low-income residents: free fares for all low-income DASH riders; and half-price DASH fares and passes for all low-income DASH riders.  Low-income riders could be determined by SNAP eligibility, and DASH would require DCHS assistance in identifying these riders. Arlington County implemented a similar program in the 1980s (since eliminated) which provided transit subsidies to its low-income population who received reduced Metro transit fares. For each of these scenarios, staff and consultants developed cost and ridership estimates that considered both the revenue impact as well as any additional administrative or marketing costs that would be incurred.  The study findings are summarized below.

Potential Intergovernmental Revenue Sources

In 2020, the Virginia General Assembly passed HB 1414 which led to the creation of the Transit Ridership Incentive Program (TRIP), managed by the Department of Rail and Public Transportation (DRPT).  The mandate of TRIP is to improve regional connectivity in urban areas and reduce barriers to transit use by supporting low income and zero fare programming.  $25 million is expected to be distributed to TRIP annually, 25% of which ($6.25 million) will be allocated to low income and zero fare programs.  Actual funding amounts may be lower due to pandemic-related revenue impacts.

The City and DASH responded to DRPT’s Request for Information for potential TRIP projects in December 2020.  The first application cycle is expected to be announced later in the spring or early summer of 2021.  The City may submit an application for a low income or zero fare program at that time, however as with any competitive grant, funding is not assured.  Even if successful, it is not likely that the state funding awarded would fully cover the cost of a DASH full or partial fare elimination.  Staff will continue to closely monitor this opportunity.  At this time, staff are not aware of other regional, state, or federal funding programs dedicated to fare elimination.

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