Transportation Research Record 761 l The Runaround: User-Side Subsidies for Fixed-Route Transit in Danville, Illinois

PAMELA BLOOMFIELD, DAVID KOFFMAN, AND LARRY A. BRUNO

A two-year Urban Mass Transportation Administration Service and Methods to a particular vehicle or service type can be Demonstration (SMDI project in Danville, Illinois, tested the first application minimized. In addition, selective application of of the concept of the user-side subsidy to fixed-route transit for the general the subsidy by type of person (e.g., elderly, population. The Transportation Systems Center was responsible for evaluat­ handicapped, low-income, and so forth), by mode, by ing the demonstration and contracted with Crain and Associates for this type of trip, or by time of day or day of week is purpose. Service was provided by private contractors, who were selected possible. Most applications to date have been for on a competitive basis every four months. Payment to providers, which was based on the number of prepurchased tickets used by passengers to pay for taxi service for the elderly and the handicapped rides and then turned over to the city, was intended to create an incentive (that the user-side mechanism appears acceptable as for designing and providing good, efficient service tailored to the existing a means to subsidize taxi service is another of its demand. The system, called the Runaround, proved workable but adminis­ attractive features) • tratively expensive. Only two providers participated, which indicated a lack 2 of effective competition, although on most routes good service appears to Danville, which covers 13 miles , is a city of have been supplied at a reasonable cost. The major provider adopted a very 43 000 located in east central Illinois, about 4 conservative negotiating position; the result was that payment was effectively miles from the Indiana border. In 1970, voters in on a fixed-price rather than per-passenger basis. Although unproductive ser­ Danville rejected a 3-cent sales tax to subsidize a vice was dropped under the user-side subsidy arrangement, a full test of the bus service that had become unprofitable for the concept's effectiveness has yet to be considered. private operator the year before. From then until late 1977, Danville was virtually without regular In August 1977, the city of Danville in Illinois was fixed-route public transportation. awarded a two-year grant, under an amendment to a This demonstration was phase 2 of a project; in Service and Methods Demonstration (SMD) grant from phase 1, also a two-year demonstration, the the Urban Mass Transportation Administration, to user-side subsidy concept was applied to taxi test a user-side subsidy scheme for supporting services for the elderly and the handicapped in fixed-route transit to be provided by private Danville (!l . Phase 2 of the Danville demonstration, the focus of this paper, was designed transportation companies. to be the first a pplication of a us er-side subsidy The distinguishing feature of a user-side subsidy to fixed-route t ransit for the ge neral population is that providers of a service receive the subsidy (_~) • Federal funds allocated to phase 2 totaled only in amounts proportional to the number of people approximately $982 787; the city of Danville who use the service. In its purest form, potential contributed in-kind services. The transit system, patrons, or users, would receive the subsidy to be named the Runaround, began operations in November spent on transportation of any type, as is the case 1977. with food stamps or rent supplements. The mechanisms usually employed are (a) tickets sold at PROJECT a reduced price and then redeemed by the provider for the subsidy after they are used and (b) vouchers The original design of phase 2 of the project signed by patrons and redeemed by the provider. incorporated the following features. Transportation Simple passenger or revenue counts can also be used providers were selected on the basis of a as a basis for subsidy payments, but this type of competitive bidding process, repeated every four statistic may be subject to fraud. months. This short contract period was chosen, User-side subsidies are attracting national despite obvious disadvantages, to protect the city interest as an alternative to more-traditional forms from the consequences of unrealistically low of transit subsidy (provider-side subsidies) in ridership predictions and to protect the providers which an operator receives a systemwide subsidy to from the consequences of unrealistically high provide a certain of transit service. The ridership predictions. In addition, the short most-conunon application to date has been in the provision of discounted taxi rides for the elderly contract period allowed several opportunities for change over the course of the two-year demonstration. and the handicapped. However, user-side subsidies can also be used to support more-conventional The city established certain minimum standards transit for the general population, as is the case (for example, air-conditioned vehicles); however, in Danville. Under a user-side subsidy scheme, the within those standards, bidders were free to propose revenues earned by the transit operator are not any level or type of service they desired. In predetermined; rather, they depend on his or her principle, multiple providers could have contracts ability to serve the needs of individual passengers, that simultaneously operated different routes or the who, in effect, hold the power of the subsidy. same routes at different times. It is important to There are, at least in theory, several strong note, however, that all transportation providers were responsible for furnishing, garaging, and advantages to a user-side subsidy arrangement: maintaining the vehicles for operation of the service, as well as for hiring and training drivers. 1. By assuming that there is some form of Before each contract period, prospective marketlike competition or threat of competition, providers submitted proposals, which included fares, providers have an incentive to of fer service that is a per-ticket reimbursement rate, and a complete as efficient as possible and tailored to the travel service plan (or several alternative plans) that demands of the user population in order to maximize their profits. showed routes, schedules, hours of operation, and 2. r.ocalities are afforded a degree of fares. The city was not required to choose the flexibility not offered by most traditional funding lowest bidder or to implement the exact service plan contained in any of the proposals. Since Danville arrangements. For example, the need for commitment 2 Transportation Research Record 761

had been withollt reglllar transit service for seven contracts and the start of the new service averaged years, estimates of ridership levels were abollt a month and was sometimes shorter. very llncertain. Therefore, to minimize risk and At the outset of the demonstration, before the avoid discollraging potential bidders, providers were first contract period, 10 firms requested RFPs; guaranteed a minimllm payment based on vehicle however, only 2 Sllbmitted bids. One of them, St. mileage for the first two follr-month contract LOllis-based American Transit corporation (ATC), was periods; providers wollld receive the mileage payment well known to the city of Danville and its if initial ridership estimates were not realized. residents: The blls service that operated in Thereafter, the user-side Sllbsidy wollld take Danville until 1970 was operated by the Bee Line effect: Providers wollld be reimbursed on a Transit company, a division of ATC. Bee Line per-passenger basis, regardless of vehicle mileage. continlled to operate Danville's school bus service Prepaid tickets constitllted the primary method of llntil the Sllmmer of 1979 by using a large fleet of fare payment as well as the determinant of the bllses based at Bee Line's extensive maintenance amount of Sllbsidy. The city was responsible for facility in Danville. The other bidder was selling the tickets to the public at the annollnced unfamiliar to the city and owned no facilities near fare. On a weekly basis, the provider wollld redeem Danville. the used tickets for an agreed-on per-ticket price. Althollgh the llnit and total costs proposed by ATC Elderly and handicapped riders as well as students were considerably higher than those contained in the llnder lB years of age collld purchase special tickets other firm's bid, the latter took exception to many at a 50 percent discollnt; the providers received details of the RFP--specifically, the concept of full reimbursement for sllch tickets. cash fare mllltiple providers, the llSe of prepaid tickets, and payments were allowed; however, the city paid no the city's role in marketing the tickets and subsidy on SllCh fares. Thus, providers were pllblicizing the transit system. The bid was encollraged to set the cash fare at a level therefore determined to be unresponsive to the RFP; Sllbstantially higher than the cost of tickets in a single contract was awarded to ATC, which offered order to encourage use of tickets and to compensate the advantages of an established reputation and a for the absence of subsidy on cash fares. In the large existing facility in Danville. original request for proposal (RFP) isslled by the Prior to the second contract period, the city city, prior to the first contract period, bidders again attempted to indllce prospective operators to had a fair amount of leeway in designing the fare bid on the Runaround service; however, only the same structure: For example, zone fares, peak and two firms Sllbmitted bids. The possibility of having off-peak fares, and transfer charges were the other firm provide small-bus service on lightly permissible llnder the terms of the RFP. patronized rolltes was closely examined. However, The city of Danville was responsible for after an investigation into this firm's past marketing the Runaround system in order to give the performance, the contract was again awarded to ATC. system a llniform image even in the event of multiple The other firm Sllbmitted no fllrther bids. or changing providers. Also, in order to control Throughout the remainder of the demonstration, the subsidy mechanism, the city had to assllme which consisted of three more contract periods, ATC responsibility for marketing the tickets, which were had virtllally no competition, althollgh Red Top Cab, sold by 32 local businesses on a voluntary basis and a local company, did provide service on rolltes that by the project off ice at City Hall. Other marketing ATC could not serve at a reasonable price after the responsibilities delegated to the city inclllded user-side Sllbsidy arrangement came into force in the designing, printing, and distribllting tickets, maps, third contract period. Considerable effort was -and schedllles; painting of (and possible removal of spent encollraging Red Top to bid. Although 25 firms paint from) transit vehicles; designing and placing were sent copies of the RFP to provide service for route markers, bus-stop signs, benches, or shelters; the third contract period under the llser-side and condllcting advertising and promotional sllbsidy arrangement, only ATC and Red Top Cab activities to publicize the Rllnarollnd system. It submitted bids. Red Top Cab had lB licensed was hoped that the user-side sllbsidy arrangement vehicles in early 1978. Dllring phase l of the would create an incentive for the private operators Danville demonstration, Red Top Cab had provided the to conduct their promotional activities (with review majority of Sllbsidized taxi trips to elderly and and approval by the city). However, the costs of handicapped persons registered with the project. provider-initiated marketing efforts were not to be Thlls, the cab company was well known to the federal considered in the negotiations of the mileage or monitors as well as to the city and community of per-ticket payments received by the providers. Danville. Contracts for the third period were This paper examines the implementation of these awarded to both ATC and Red Top; the latter was to five features of the experimental design over the operate a 21-passenger minibus along two routes that course of the five four-month contract periods collld not be profitably served by ATC's large dllring which the demonstration was conducted. 45-passenger buses, as well as a demand-responsive, f ixed-rollte taxi service along two other low-volllme COMPETITIVE BIDDING PROCESS rolltes. This arrangement remained essentially llnchanged throughout the two final contract Prior to each contract period, the city placed periods: ATC and Red Top Cab were the sole bidders; notices and advertisements that annollnced the RFP in both were awarded contracts. Clearly, then, the national transportation jollrnals and in newspapers competitive environment envisioned in the in Chicago, Indianapolis, and Danville. Bidders experimental design of the project never were given one month to respond. With each bid materialized. package sent to prospective bidders, the city At the end of the demonstration, a mail-back enclosed a copy of the Transit Development Plan Sllrvey of nonbidding firms was condllcted. The (TDP). (Thus, while bidders were technically free majority of the 15 firms that responded indicated to design any type of service, it was perhaps that the follr-month contract period constituted the predictable that bidders wollld draw heavily on the primary obstacle to bidding. In addition, several TDP.) After the provider or providers had been respondents wrote in comments abollt ATC; one wrote, selected, contract negotiations between the city and "Incllmbent or local operator has an llnrealistic the provider (or providers) were conducted. The advantage dlle to short [lead] time and size of time that remained between the signing of the system; the cost to an olltside firm to set llP and Transportation Research Record 761 3

operate the system under the program is too high. SUBSIDY MECHANISM AND PROJECT RIDERSHIP It is an ideal arrangement for keeping outsiders out. 11 As discussed earlier, providers were guaranteed a minimum payment based on vehicle mileage for the first two contract periods. Thus, ATC received a per-mile reimbursement of $1. 35 for the first The route structure proposed in ATC' s initial bid contract period; this figure was renegotiated and (submitted prior to the first contract period) lowered to $1. 26 for the second contract period to conformed closely to the TDP developed for Danville compensate for the addition of 1167 vehicle miles of by De Leuw Cather and Company in 1976 and also to service. In addition, ATC was reimbursed for the routes served by Bee Line Transit (operated by start-up activities: These included training and ATC) prior to 1970. ATC proposed a flat $0.40 relocating transit employees, repainting ATC's ticket fare and a $1.00 cash fare; transfers were to vehicles, and installing two-way radios in the be fre e. In respons e to this f are structure, the vehicles. city decided to s ell tickets in books of 5 and 20 For both initial contract periods, the contracts full-fare tickets and 10 half- fare tickets. ATC' s negotiated with ATC specified that ATC would receive initial bid also proposed three alternative levels either the per-mile reimbursement or $1.20/ticket of transit service; the city chose to implement the collected, whichever amount proved higher. For the highest of the three service levels. Thus, in latter, in which the user-side subsidy payment was December 1977, having had no public transit service to exceed the mileage payment, ridership on the at all for seve n years, the Danville community Runaround would have had to exceed 1327 /day during suddenly had serv i ce 12 h/ day, 6 days/week, that the first contract period and 1415/day during the consisted of 11 routes, 5 of which operated on second contract period. In fact, ridership did not 30-min headways. The rest operated on 60-min reach either level at any time during the headways. These routes were served by seven regular demonstration. Figure 1 shows average daily project 45-passenger buses and two spares; each bus served ridership by month and the levels at which the at least two routes. In hindsight, this level of user-side subsidy would equal the mileage guarantee service proved to be unnecessarily and unmanag eably payment. high . The need f o r r erouting , unfore seen delays i n By the eighth month of the project, it had become obtaining two- way radi os, and other reliab ility clear that initial forecasts of rapid ridership problems all contributed to uneven serv ice quality increases had been unr eal i stic. Thus, in in t he i nitia l mo nths of servi ce. negotiating t he per- passenge r (or user- side subsidy) A number of schedule and level- of-service c hanges payment to be i nstitut ed at t he start of the third were i nstituted du ring the second contrac t period. contract period, ATC took a very conservative The schedules were a l tered to pe·rmit "pulsing " of stance, but, since the city received no other bids the buses at the centra l downtown transfer zo ne , and to p r ovide servi c e on most rout es, ATC wa s in a ve ry weekday service headways were decreased to 30 min on favorable bargaining pos i tion. The resulting all but two routes, which thus raised the weekly c ontrac t with ATC spec ified a s ubsidy of vehicle mileage from 6923 to 8090. Note that the $2 . 00/ticket collec ted ; Red Top rec eived user-side subsidy arrangement had not yet been $1 . 50/ticket. To compensate f or the high per - t i cket implemented; the mileage guarantee was still in payment , t he cont racts also s pecified a max i mum effect. The decision to increase service was made payment to each c ont r a c tor ; trips provided beyond by the city, not by ATC, in response to the specified limit we r e not reimbursed. The disappointingly low ridership. City officials felt p e r-ticket o.r us er-side s ubsidy payme nt received by strongly that only by increasing system c.overage eac h oper a t or was desi g ned to cove r the cost of could the Runaround receive a fair test. providing servi c e and t o f ucnish a reasonable p ro f it As stated earlier, the remaining three contract t o eac h operator ; t hus , t he c ontract max imum wa s periods incorporated two major changes to existing designed to allow f or t he po ssibil i ty that the arrangements: The guaranteed per-mile reimbursement pcovi ders ' pr ofits would be far hi gher t han was dropped, and service on four low-demand routes anticipated . I n t heory, the max imum paymen t should was contracted to Red Top Cab due to the be very high and t hu s almost i mpossible to attain at prohibitively high per-passenger cost of having ATC p roj ected ridership levels a nd a projected operator continue to serve those routes. A plan was devised p rofit of , for e xample, 10-15 perce nt. Thus , by which a van or minibus would serve two of the o n t he one ha nd , t he hi gh max imum s houl d s e rve as a n unproductive routes and taxis would serve the other i.nce nti ve f or t he ope rat o r t o increase ride r ship by two. Red Top Cab purchased a 21-passenger minibus, f u rnishi ng efficient high-quality s e rvice, and , on which operated for the duration of the project. t he other ha nd , it i s desi g ned to f unc t ion as a In summary, the implementation of the user-sfde safety · mechani sm i n t hat i t limits t he city' s subsidy appears to have had two beneficial impacts liabil.ity i n case of unusual rider s h ip g rowt h. It on the design of the Runaround: It created an also offers potential adva nt ages to the c1ty i n incentive for ATC to eliminate unproductive service conduc t i ng cont r act nego tiations wi th t ransit and, by focusing attention on the per-passenger cost providers: If an ope r a tor f ur ni shes a conservati ve of serving various routes, it provided the city with ride rship e stima t e a nd thus negot iates a high justification for service cutbacks. Without this p e r - ticket pa yment, the c i ty can l ower the maximum justification, the city might have been more payment, which thus reduces potential profits to the susceptible to fair-share arguments against service operator. The reve r se may also hold: The c ity may cutbacks. The decision to serve the unproductive off e r to inc rease t he maximum i n order 'to negotia te routes with minibus and taxi service was not a a l ower per-ticket payme nt. Fina.ll y , mos t public product of free-market forces at work, however. bodies (whi ch i nclude the federal gove rnment ) cannot Rather, the multiple-provider arrangement was legally ente r into open-ended c ontra cts ; the maximum devised by the federal monitors and the city; payment was therefore an administrative necessity. intense negotiations with all parties were required The per-ticket payment and maximum payment to design an arrangement that was workable and received by ATC we r e renegot iated pri or to the satisfactory to both ATC and Red Top. fourth and fifth contract periods; the city's financial arrangement with Red Top sHd not change 4 Transportation Research Record 761

Figure 1. Average daily ridership.

1400 --- USER-SIDE SUBSIDY = MILEAGE GUARANTEE

1300

1200 1st Contract Period 2nd Contract Period 3rd Contract Period 4th 5th Contract Period I

1100

1000

"'a: 900 Total Riders ew ...a: BOO 0 .-·, _.,..,.., a: 700 w / m . ·...... ,,,,,,,...- :i z~ 600 .-...... ··""•-./ -·-· 500 _,-· -·-·- Total Half-t-are,.'\. Tickets

400 ~-·-·/· - /'...... ______-...... ______.-- ,,-----'--Total Full-FareI Tickets 300 J 200 -,...... _;/ ---.... ------Total Cesh Fares 100

N D F M A M A s 0 N D F M A M A s 1977 1978 1979

Table 1. Subsidy arrangements. mechanism of reimbursement in practice had little relevance to ATC, which received (in effect) a fixed Maximum amount of money to furnish service during each Contract Payment contract period. The other provider, Red Top, never Period Contractor Subsidy ($) reached the contract maximum and thus operated under the user-side subsidy arrangement for three contract 175 000 1 ATC $1.35/mile" periods. However, due to many factors, the service 2 ATC $1.26/mile" 172 000 3 ATC $2.00/ticket 130 000 furnished by Red Top was of inferior quality to that Red Top $1.50/ticket 25 000 of ATC, and ridership on the routes served by Red 4 ATC $1.85 /ticket 138 000 Top remained low throughout the demonstration. Red Top $1.50/ticket 25 500 As noted earlier, the user-side subsidy ATC $1.65 /llckct 142 000 $1.15/cash fareb arrangement did cause unproductive service to be Red Top $1.50/lickct 25 500 dropped before the third contract period. Indeed, $1.00/cash fareb the flexibility to change levels of service and Post­ ATC $1.65/rickct 486 000 providers is considered to be a major advantage of demon­ $1.15 /cash fareb stration Red Top $1.65/lioket 14 000 the user-side subsidy concept. In the Danville $1.15/,..sh fareb case, however, an additional, unresolved issue is whether maj·or changes in service levels, routes, 8 Qr $1.20/ticket collected, whichever amount proved higher. During schedules, and providers depressed ridership levels. bo\h contract periods, ATC received the mi h!Dgll' pftymonls. b Prcviders retained the S0 .50 cash fare; thus, the 101111 Pl.l"/ment PROJECT COSTS (fare plus subsidy) was the same as that for tickets. The costs of operating and administering the Runaround system, exclusive of federal evaluation for the duration of the project. Table 1 lists the survey and data collection costs, totaled subsidy arrangements negotiated with ATC and Red Top approximately $550 000 for one year under the for each contract period. In general, ATC user-side subsidy arrangement. Table 2 shows the negotiated high per-ticket payments for the three breakdown by the total cost, cost per revenue mile, contract periods during which the user-side subsidy and cost per revenue passenger. arrangement was in effect. correspondingly, the The most striking feature of Danville's cost city set the maximum payments at levels that were in breakdown concerns the figures for administrative fact attainable. Figure 2 shows · ATC ridership by expenses. In particular, salaries and wages appear month and the ridership levels that corresponded to to be very high. ATC was able to negotiate very the maximum payments for the last three contract favorable contracts with the transit drivers during periods. Note that for the last three contract both years of the demonstration; thus, the wages periods, ATC' s ridership was more than that needed received by ATC drivers are low compared with those to reach the contract maximum. Thus, due to the of other transit systems. Therefore, the figure for difficulty of accurately predicting ridership levels salaries and wages shown reflects high of the new transit system, the user-side subsidy administrative costs rather than high operating Transportation Research Record 761 5

Figure 2. Average daily subsidized trips 1000 ~--~--~--~--~--~--~---~--~--~--~--~--__, provided by A TC (contract periods 3, 4, and 5). 900

800 ,------____J """"-- Average daily subsidized ~ 700 I ~ trips required to meet a: ______J contract maximum t- payment o ~ 600 i5 iii ID :::> ., 500 > ...J

<0 w 400 Cl <( a: w ~ 300

200 3rd Contract ParlDCI~ ...,____4th Contract Period__.... "4--5th Contract Por iod--

100

0 L----'---...L..---'----'----'-----'----''----L----'-----'----'--- -' A s 0 N D F M A M 1978 1979

Table 2. Breakdown of Runaround costs for one year under user-side subsidy. contract period, in which the user-side subsidy was first implemented, their estimated profit margin was Costs($} close to 13 percent; however, this dropped to 9.8 percent for the fourth period and to 7.7 percent for Per Per the fifth period. Revenue Revenue When the revenue mileage and ridership for the Total Mile Passenger Category third through fifth contract periods were compared, Transit services the project costs were as follows: Vehicles 68 700 0.21 0.23 Drivers' wages 111 457 0.34 0.38 Contract Period Maintenance (wages and other) 57 573 0.18 0.20 cost catego ry Third Fourth Fifth Other (including fuel) 53 317 0.16 0.18 Per revenue mile ($) 1.61 1. 70 1.71 Administration Per revenue passenger · ($) 2.00 1.84 1. 74 Salaries and wages 95 141 0.29 0.32 Other (tickets, maps, office supplies, etc.) 19 622 0.06 0.07 The high cost per revenue passenger is corroborated Garage and office rent 18 410 0.06 0.06 by the low productivity statistics for those periods: Marketing 13 194 0.04 0.04 Insurance and bonding 23 060 0.07 0.08 Contract Period ATC back-up service on Red Producti vit:r: cate9.or:t Third Fourth Fifth Top routes 4 and 7 1 190 0.00 0.00 ATC pront• 37 659 0.11 0.13 Passengers per revenue Red Top costs and profitb 51 884 0.16 0.18 mile 0.78 0.93 0.99 Passengers per revenue Subtotal 551 207 1.68 1.87 11.46 14.44 14.53 Less hour Cash fares 11 411 0.03 0.04 overall, project ridership was disappointingly Ticket revenues 71 207 0.22 0.24 low. Although the costs of ATC's operations appear Total subsidy costs 468 589 1.43 1.59 to have been reasonable and the total project costs do not appear to have been extraordinarily high, the ~Bat.ed on cD!tJ rapo rtud by ATC. low ridership levels did call into question A lull cost brealc:dOwn for Red Top Cab is not available. Danville's ability to support a fixed-route transit system.

costs. The user-side subsidy arrangement does in PREPAID TICKETS fact require a large administrative effort to handle the ticket program, prepare RFPs, conduct contract On the whole, the system of selling books of prepaid negotiations, monitor the subsidy arrangement, and half-fare and full-fare tickets worked well. When publicize changes in service features. the bus service began, 32 local businesses · Although ATC adopted a very conservative posture enthusiastically agreed to sell the ticket books on in each round of contract negotiations, analysis of a volunteer basis, despite the staff. time required the estimated costs submitted by ATC with each to order consignments from the city, sell the proposal does not indicate that their overall profit tickets, and maintain records of all transactions. margin was unreasonably high. For the third Full-fare tickets were sold in books of 5 for $2. 00 6 Transportation Research Record 761 and 20 for $8. 00; half-fare tickets were sold in induce large numbers of first-time riders to books of 10 for $2.00. Elderly persons 65 years or substitute the Runaround for their transportation older, handicapped persons, and students aged 18 or needs. less qualified for half-fare tickets on presentation In theory, the user-side subsidy arrangement of appropriate identification. In addition, parents creates an incentive to the provider to finance could purchase half-fare ticket books for their independent promotional activities in order to children. attract new ridership and thus increase profits. In April 1978, in response to complaints from the Under the terms of the contracts between the city of press and the community about the steep $1. 00 cash Danville and the two transit operators, ATC and Red fare, the city introduced a $0.50 coupon to be Top Cab, these providers received no reimbursement distributed to all riders that paid the cash fare. for promotional activities. Nevertheless, ATC did The coupon entitled the bearer to a $0. 50 discount conduct a number of low-cost transit events to on a book of half- or full-fare tickets. Thus, the publicize the Runaround service; these included sales outlets were also responsible for accepting distributing balloons and candy on the anniversary the coupons as partial payment for the ticket of the Runaround, distributing prizes and flowers on books. The coupons were distributed on the ATC board the buses on special days, and outfitting the buses and the minibus through March 19 79, at which drivers in Santa Claus costumes on the free-ride time the cash fare was lowered from $1. 00 to $0. 50 Saturday before Christmas. Thus, although ATC's net and the coup0ns were discontinued. During the out-of-pocket expenditures on Runaround publicity one-year period from April 1978 through March 1979, totaled less than about $1000, the company did 3999 coupons were redeemed by Runaround passengers. devote a certain amount of staff time and resources In March 1979, at the outset of the fifth and to planning and coordinating promotional activities final contract period, the cash fare was lowered in conjunction with the city of Danville. Red TOp from $1.00 to $0.50. Under the terms of the new Cab was included i n a few such activities, but the contracts, ATC and Red Top received subsidies of cab company did not initiate or finance any $1.15 and $1. 00, respectively, for each cash fare publicity for the system. received (i.e., the difference between the cash fare and the negotiated per-ticket reimbursement). The LESSONS OF THE DEMONSTRATION ensuing rapid rise in cash-fare ridership, which included a disproportionate number of new transit A full test of the user-side subsidy for fixed-route riders, offers some evidence in support of the transit service has yet to be conducted. The hypothesis that the prepaid ticket system may have lessons of phase 2 in Danville carry a number of discouraged ridership during the f irst four contract implications with regard to the optimal location and periods. . set of circumstances in which to implement a Although the sales outlets performed the various user-side subsidy arrangement. Specifically, they functions associated with selling the tickets at no are as follows. charge to the city, the ticket system proved quite time consuming (and thus costly) to admini ster. 1. The bidding environment should favor open During the first year or so of operations, two entry of transportation providers. This implies the project staff members spent at least eight person existence of no single, well-entrenched local days per month on ticket-related activities, e.g., operator who would impair the bidding proces s, as in resupplying the outlets with tickets, taking Danville. The user-side subsidy scheme assumes some inventory and counting cash at each location, and form of marketlike competition or threat of keeping detailed records of all transactions. competition in order to create an incentive to the various procedural changes designed to reduce the existing provider or providers to offer efficient burden on city staff were introduced midway through service tailored to the travel demands of the user the demonstration; for example, outlets were asked population. to order larger ticket consignments less frequently 2. New transit service should be introduced and to pay by check rather than cash for tickets gradually. Not only did the initially high level of sold. However, the ticket system continued to service implemented in Danville prove costly and absorb a relatively large amount of staff unmanageable, but it also served to discourage small time--about five person days per month. providers from bidding on the service, due to the high start-up and capital costs involved. In view MARKETING of the scheduling and reliability problems experienced by any new service in its early stages, The city of Danville conducted a number of a better strategy might have been to start transit advertising campaigns and promotional activities operations with only a few routes and to add service designed to publicize the Runaround over the course gradually as start-up problems were ironed out and of the demonstration. These included radio and ridership increased. newspaper advertisements, displays at various 3. The contract period should exceed four months locations in Danville that showed the bus schedule in order to attract prospective bidders. Long and listed the ticket sales outlets, discount contract periods do entail the disadvantages of coupons in the newspaper good toward the purchase of restricting entry of new providers and possibly ticket books, distribution of free Runaround tickets locking the city, the provi der, or both i nto an at special events, and free-ride days on which untenable financial position. One ·compromise Danville residents could ride the bus all day at no arrangement, which took effect in Danville after the charge. The payment received by ATC was based on an demonstration, is a o ne-year contract tha.t permits average of normal ridership levels; Red TOP Cab's either party to reopen the negoti ations at specified payment was based on actual ridership on the intervals. (In the Da nville c a s e , this interval was free-ride days. The first two free-ride days were three mon t hs.) Such a contract could also specify held on two consecutive Saturdays just before the that new proposals could be entertained at any time, Christmas holidays in December 1978; ridership which allows a reasonable termination notice before skyrocketed to four times the average Saturday another provider could take over operation of the ridership. The third free-ride day was held on a service. Monday in late May 1979; 2500 riders took advantage 4. Prospective bidders may require some of the event. However, these days did not seem to assistance from the city or other public body that Transportation Research Record 761 7 contracts for service. In particular, small demonstration concept and design and provided paratransit operators generally lack the resources valuable comments on the evaluation. The Danville and experience necessary to prepare detailed Planning Department staff--Michael Federman, Dan proposals or negotiate service contracts. Bolton, Rose Hutchins, and Margaret Henderson--were Therefore, a willingness on the part of the city to responsible for providing most of the raw data and offer such assistance may be desirable in order to for keeping us informed on developments. The staffs encourage operators to bid and thus increase the of Bee Line Transit and Red TOp Cab were always competition among bidders to provide the service. helpful in explaining their operations and providing s. Administrative costs of user-side subsidy data. Cindy Campbell was untiring in her role as arrangements are likely to be higher than average, project research assistant. due to the need to monitor the ticket system, conduct contract negotiations, and oversee REFERENCES reimbursement procedures. 6. The system for prepurchasing tickets is 1 . P. G. Fi tzGerald. user-Side Subsidies for Shared costly to administer and may discourage ridership; Ride Taxi Service in Danville, Illinois: Phase however, such a system may be a necessary safeguard I. Crain and Associates, UMTA/TSC Project Eval­ against fraud. uation Series, Rept. UMTA-IL-06-0034-77-1, June 7. The user-side subsidy arrangement does appear 1977. to create an incentive for providers to eliminate 2 . R.F. Kirby and F.L. TOlson. Supporting Mass unproductive service, although the providers Transportation in Small Urban Areas Through generally did not initiate any major service user-Side Subsidies: A Demonstration in Dan­ revisions during this project. ville, Illinois. Urban Institute, Washington, DC, working Paper 1409-3-1, Dec. 1979. ACKNOWLEDGMENT

Ronald Kirby and Francine TOlson of the urban Publication of this paper sponsored by C:Ommittee on Public Transportation Institute were responsible for many parts of the Planning and Development.

Elasticity Measures of Behavioral Response to Off-Peak Free-Fare Transit

LAWRENCE B. DOXSEY

Changes in transit ridership behavior in response to the elimination of off.peak shown to be sensitive to the particular elasticity transit fares are examined. Empirically, the analysis is based on data collected definition chosen, the functional form of the demand for a one-year free-fare demonstration sponsored by the Urban Mass Trans­ curve, the initial conditions against which changes portation Administration in Trenton, New Jersey. Fare elasticity of demand are measured, the estimation technique applied, and is used as the measure of behavioral response. Important to the analysis is the the data used. clarification of distinctions among different measures of fare elasticity. In The first part of this paper reviews the concept order to both illustrate the differences among types of elasticity and demon­ of demand elasticity as a measure of responsiveness strate the separate impact attributable to the choice of estimating technique, several techniques are applied and their results compared. It is concluded to fare change. A discussion of alternative that the demand response to fare elimination is inelastic and that variations measures of elasticity is presented. among individuals in the extent of response cannot be associated with dif­ The second part of the paper presents the results ferences in socioeconomic characteristics. Free fare is therefore judged of estimating elasticities from data collected in not to be a direct means of fulfilling the transportation needs of socio­ Trenton. Elasticity estimates are obtained by four economically defined population groups. different procedures.

Between March 1, 1978, and February 28, 1979, the ELASTICITY MEASURES Office of Service and Methods Demonstration of the In many studies of fare-change response, there has Urban Mass Transportation Administration (UMTA) and the New Jersey Department of Transportation been inadequate recognition that there are a number of related (though nonequivalent) measures of demand sponsored the elimination of the existing 15-cent elasticity. Failure to distinguish among elasticity off-peak bus fare in Trenton, New Jersey, and measures. results in two kinds of error. First, surrounding Mercer County. The peak fare was inferences appropriate to one type of elasticity unchanged until December 1978, when it was increased to 40 cents. have been drawn from estimates of another type. Second, there is a tendency for elasticities of The major objective of this study was the examination of changes in transit use behavior by different types to be compared directly and for the Trenton area population in response to the conclusions to be drawn· from differences or elimination of bus fares during off-peak periods. similarities in their values. Two major conclusions result. There was an inelastic response to the fare elimination, and Elementary Properties of Demand Curves little of the variation in responsiveness among individuals could be explained by socioeconomic To clarify the differences among alternative differences. Furthermore, elasticity estimates are elasticity measures, several underlying properties