Do transit pass incentive programs work?

The latest federal budget announced the end of the federal transit pass credit as of July this year. Since 2006, Canadians could reduce their tax bills by 15 per cent of the cost of their monthly transit pass purchases for the year. So, if you bought a year’s worth of Halifax Transit regular adult passes for $936 and saved your receipts, you could get about $140 off your taxes.

The tax credit was a 2006 Harper Conservative invention, presented as a way to increase transit use, and thereby reduce traffic congestion and greenhouse gas emissions. About 1.8 million people claimed the tax credit in 2014, saving themselves (and costing federal coffers) about $180 million. This year that number was predicted to come in around $200 million.

So did it work?

“As it is, the people who got the money will miss it,” writes David Reevely in the Ottawa Citizen, “but the rest of the country won’t much notice.” That’s because, as the research into the effectiveness of the tax credit shows, it didn’t cause a significant uptake in transit ridership, and what’s worse, it exacerbated income inequality.

The credit was “used disproportionately by taxfilers in wealthy households relative to those in lower-income households,” writes economist Vincent Chandler in Canadian Tax Policy in 2015.

The circuitous subsidy-via-tax-credit policy tends to exclude “certain groups that lack the skills to claim such a benefit,” writes Chandler. (Imagine the difference in uptake between a coupon redeemable in-store versus a complicated mail-in rebate available annually.) And “since the tax credit is non-refundable, only taxfilers who owe income tax can actually receive a transfer. The tax credit is therefore worthless to low-income individuals.“

(Please note, Chandler is referring to people with low incomes, low enough to fit in the zero per cent tax bracket, meaning you make so little income that your basic deductions clear you from paying income tax.)

The apparent failure of the federal transit tax credit got me wondering about some of the transit incentive programs that are being run closer to home, right at the municipal level. All these programs have the advantage of happening “at source,” and all seem like far surer bets at increasing ridership than the federal transit tax credit.

Unfortunately, these programs are not necessarily evaluated by the same criteria, depending on their original goal.

The U-Pass

The U-Pass is the result of a remarkable partnership between the city’s student unions and Halifax Transit. Halifax Transit offers the unions massive discounts (67 per cent on top of pre-existing student discounts) on the bulk purchase of eight-month passes. On the students’ side, they agree to mandatory purchase, which guarantees the number of passes sold. On Halifax Transit’s side, it commits to increased service on university routes, even introducing an extra route (41 Dartmouth–Dalhousie) to run during the standard university school year.

As amazing as the U-Pass program is, Halifax Transit doesn’t do much number crunching into its cost or its effectiveness at increasing ridership.
Other Canadian jurisdictions have noted dramatic increases in student ridership after U-pass programs came online. Recently, the Regina Leader-Post reported that ridership nearly doubled among students of the University of Regina shortly after its U-Pass program started in the fall of 2016.

The E-pass

This lesser-known Halifax program incentivizes employers to subsidize their employees’ transit pass purchases. In brief: employees can get a year-long transit pass at a 25 per cent discount. Employers cover 12.5 per cent ($117 a year on a regular pass), and Halifax Transit eats the other 12.5 per cent.

But only employers who are part of the larger SmartTrip program can partake, and SmartTrip has its own membership fees, which council has just agreed to drastically lower in an effort to attract more companies to the program. Although participation in this program is pretty paltry so far (only 803 annual E-passes sold in 2017), it could grow significantly.

One drawback that remains is the annual nature of the pass, which excludes seasonal transit users.

As for its effects on ridership, Halifax is currently conducting a 2017 survey of E-pass users. On the last survey, in 2013, users reported an expected increase in transit trips as a result of their E-pass membership, but at the same time, many were already spending close to the cost of the E-pass on transit annually.

The Low Income Transit Pass

This is a very new program for Halifax Transit, but one that has great potential to increase access to and use of transit.

To qualify, people must submit an application with their current tax assessments to the city, and if their income is below $31,000, they can purchase half-price monthly passes for the next year. (Next round of applications accepted starting in May, for the July 2017-June 2018 program.)

Unfortunately, the low income transit pass program is evaluated by staff and council as a social service, and not as a potential ridership growth program. You can see this in how staff report on the program and in the way it’s constructed.

First of all, the program refuses discounted passes to anyone receiving a transportation subsidy from the province via income assistance. So it automatically excludes a portion of the population that is extremely prone to need transit, and one that has the most trouble affording it. Therefore, it rules out the part of the population with the most potential for a discount program to increase ridership.

Then there is the participation cap. Unlike the E-pass program, where the sky is the limit on uptake, the Low Income Transit Pass program has a cap of 1,000 participants.

The thinking behind the cap is likely tied to the difference in the way each program is evaluated.

Reports on the Low Income Transit Pass program are framed in terms of lost revenue to Halifax Transit. The cost-benefit analysis doesn’t even consider increased ridership (though half of the participants surveyed did say they used transit more.) But when I asked HRM communications about the costs of the E-pass subsidy, I heard, “we can’t say exactly how the program has impacted our revenue.”

It’s almost as if in one program we are considering only costs, and in another only benefits. I understand, of course, that the mandate of a program must impact how it’s evaluated. But that shouldn’t stop us from rationally evaluating all the costs and benefits of each program equally.

Of course, as much of the research into transit incentives points out, no amount of discount can incentivize transit use where service is poor. You can’t even afford to take a free bus if it doesn’t get you where you need to go. While some types of discount incentives have and will continue to increase access (and therefore ridership) especially in low income communities that have good transit, most research shows the best incentive for ridership is better service.

CORRECTION: The following paragraph originally quoted incorrect numbers and has now been corrected.

In 2008, 18,773 Nova Scotians claimed the federal public transit tax credit, with an average savings on their taxes of $72.45. That’s upwards of $1.3 million in one year, or enough for more than 12,000 in-service bus hours at Halifax Transit, according to recent budget figures. By that accounting, it certainly seems like that money could be better spent.