Overview
One of the main challenges for public transport in larger cities is to ensure stable and sufficient revenue flows. An optimal level of service within the public transport system typically presupposes revenue from more sources than the passengers alone. Such funding may take the form of lump sum subsidies, output-based subsidies, or designated contributions from toll rings or road pricing schemes. To obtain political acceptance for such funding arrangements one will have to present the different funding arrangements as a whole.
The Norwegian Ministry of Transport and Communications administers a research programme aimed at financing projects with the purpose of improving the basis for work with national and local transport policy. For many years it has been discussed what will be the best way of financing public transport in urban areas. This can also be related to the question of what service level should be provided.
The objective of the project was to analyse the welfare implications of alternative urban transport funding schemes in the four largest cities in Norway (Oslo, Bergen, Trondheim and Stavanger).
The study involves four reports, covering the following:
- A description of the decision-making processes behind the different transport policy packages in the four largest Norwegian cities, assessing the extent to which the approach taken in each package is a result of the way in which it has been organised.
- A study of the preferences of politicians and decision makers regarding different funding packages for the four cities.
- A study of framework conditions and development trends for the funding of public transport in these cities.
- A study on how an economically optimal public transport service can be developed.
Funding
Results
One of the main conclusions from the study is that the urban environment, like housing density, parking restrictions or road user charging will play an important role as a funding element for urban public transport. However, 'road pricing' will have a mixed effect; the subsidy demand will increase by 7.3 million euro in the short-term and the optimum level will decrease by 24 million euro in the long-term.
Four reports were compiled in this project:
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Report 1 describes the decision-making processes behind the different transport policy packages in the four largest Norwegian cities, assessing the extent to which the approach taken in each package is a result of the way in which it has been organised. It looks at the development of the packages in several phases and on how environmental measures and 'road pricing' have become more central elements in the debate surrounding these packages.
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Report 2 studied what preferences politicians and decision-makers have for different funding packages for the largest cities in Norway. The report looks at general preferences for shared funding of policy packages, at the contents of the packages, and at who should participate in the shared funding.
- Framework conditions and development trends for the funding of public transport in the largest cities have been studied in the third report. The main focus is on how public transport adapts to changes in funding framework conditions and on the demand effects of such adaptations.
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Report 4 studies how an economically optimal public transport service can be developed. Various 'second best' solutions were analysed, revealing the social economic benefits of dissolving some of today's funding constraints.
While the first three reports are descriptive accounts of the development in the four biggest cities and of the choices made by policy makers, the fourth report explores the opportunities available if it were possible to relax some of the framework constraints.
Policy implications
Even though an optimal public transport service presupposes increased subsidies, the converse is not necessarily true. More subsidies do not automatically generate an economically optimal service. The public transport companies will operate according to standard business criteria, maximising their own profit rather than the social economic benefit. Even the authorities will not necessarily recognise how the service should be developed in order to achieve an economic welfare optimum.
The question is therefore whether it is possible to find an optimal funding mechanism for the public transport companies, which reconciles the incentives of the public transport companies with the socio-economic objectives of the authorities.
One example tested in the model shows it will result in 23% more passengers and an economic benefit of around NOK 1.3 billion per annum. An optimal incentive structure must be fine-tuned to a degree which is beyond the scope of this project. These analyses show nonetheless that output based funding for the four largest cities can produce significant economic benefits and increased rider ship, even when we use relatively simple and homogeneous incentives for all the cities.