Financial Assistance for Transport Integration in Metropolitan Areas

Conclusions were drawn from modelling studies in nine cities: Edinburgh, Eisenstadt, Helsinki, Merseyside, Oslo, Salerno, Torino, Tromso and Vienna. In six of these cities, optimal policies could be funded by road pricing or increased parking charges with no net additional financial support (over a 30-year time horizon), allowing public transport services to be increased or fares decreased.

In the other three cities, the optimal strategy would require greater funding than the do-minimum case. Where cities face constraints on capital investment, private sector finance could be used, with part of the cost being met from public funds and part from user revenues. However, if the private sector requires a higher rate of return than the public sector, the optimal strategy may well be constrained, resulting in lower social benefits. In this case, an alternative is to raise additional finance through value capture (such as taxing land values that benefit from transport infrastructure investment). However, the modelling suggested that value capture is beneficial in only a limited range of city situations.

FATIMA also studied the merits of private sector operation of public transport, whether implemented through deregulation, in which operators are free to determine service levels and fares, or through franchising, where the city authority specifies them. Results indicated that private sector operation reduces the net social benefits of the optimal transport strategy, particularly under deregulation. No convincing evidence was found for a reduction in operating costs, for a given level of service, due to private operation. Moreover, sensitivity tests indicated that such cost savings would have relatively little impact on social benefit.

Policy implications

FATIMA made a series of recommendations for the design of optimal transport strategies, the involvement of the private sector, methodology for strategy optimisation and priorities for further research. These included the following:

• Strategies should be based on combinations of measures, with public transport measures and car user charges as key elements.
• There should be a greater distinction between peak and off-peak charges and fares.
• In many cities it will be possible to identify optimal strategies that can be fully funded from user charges, using the FATIMA methodology.
• If private finance is needed for capital investment, optimisation procedures can identify the appropriate modifications to the strategy to achieve the best performance within the financial constraint. However, such a strategy will usually have smaller social benefits than in the absence of the constraint.
• Value capture may help to raise additional finance in cases where strategies are not self-funding and require private financing.
• If a city authority decides that private operation of public transport is beneficial, it should ideally use a franchising model in which it specifies the objectives and the optimal service levels and fares.
• However, if national law requires deregulation, the city authority should identify which of the possible combinations of fares and frequency (at a given level of profitability) best support public policy objectives.
• Future development of the optimisation procedure should incorporate issues of equity. This means that transport models need to output values for appropriate indicators.
• A comprehensive assessment of the consequences of private sector operation of public transport is required.