1. Introduction

Public transportation is defined as a shared passenger service with a scheduled timetable and specific route that is available for use by the general public.1) Public transportation modes include , (subway), , , etc. and are distinct from modes such as , or hired buses, which are not shared among strangers without private arrangement. Public transportation between cities is dominated by intercity (express) buses, intercity rail, and .

Is Free Public Transportation Feasible in ?

Public transportation provides the general public the basic mobility services to employment, community resources, medical care, and recreational opportunities in communities. People who do not have access to a private motor vehicle such as young students, the aged, the poor, and people banned from driving use public transportation for their . Some people also choose to use public transportation since it is cheaper than the cost of driving a . services can be operated and managed by profit-driven companies or partially or fully funded by government subsidies. In many Asian countries, public transportation services are predominantly run by privately owned profit-driven companies. In North America, public transportation services are provided by municipal transit authorities. In European countries, public transport operations are often outsourced to private transport operators.2)

1) In some areas, the terms “mass transit”, “public transit”, “public transport” are used for public transportation. 2) Wikipedia, “Public Transport”, http://en.wikipedia.org/wiki/Public_transport (accessed on Jul. 23, 2014).

July / August┃2014┃Vol 19┃No 4 27 Most public transportation services are financed with the farebox revenue from the paying passengers and/or government subsidies via revenues. Public transportation basically depend on the traveled distance or zones. Tickets purchased may be validated either by pay-per-ride systems or proof-of-payment fare-collection systems. A proof-of-payment system allows passengers to ride the vehicles without showing the ticket, but riders may or may not be controlled by ticket inspectors who can levy steep fines when they catch passengers without proper proof of payment. Both fare-collection systems may generate the cost associated with collecting, accounting, and enforcing fare payment that is insufficiently covered by the farebox revenue. Several European cities and some smaller towns around the world have converted their public transportation services, especially networks, to a fare-free system. Fare-free public transportation services are funded fully by heavy government subsidies or commercial sponsorship by businesses. In the past June local elections in Korea, some candidates put forward campaign pledges such as free bus services, which have been questioned much in terms of feasibility. This article aims to discuss the feasibility of providing free public transportation service in Korean cities by overviewing the cases of free public transportation services around the world.

2. Advantages and Disadvantages of

Other than providing basic mobility services to all members of society, public transportation also helps to reduce congestion, , and fuel consumption, which benefits both riders and non-riders alike. Public transportation becomes a location of inter-social encounters across all boundaries of social, ethnic and other types of affiliation. Public transportation enables reducing transport cost per passenger by achieving an economy of scale that may not be achievable through personal transportation modes. Advocates of public transport claim that investing in mass transit will ultimately reduce the total transport cost for the public. The reduction in dwell

28 KIET Industrial Economic Review time helps to reduce travel time, and the travel time saved can also be significant. Fewer on the road can result in less congestion and faster

speeds for remaining vehicles on the road. Transit-oriented development Current Issues (TOD) to maximize access to public transportation can both improve the usefulness and efficiency of the public transportation system, as well as result in increased business for commercial developments. For these reasons, there are many proponents around the world supporting the idea of free public transportation. But there are also arguments against the idea of free public transportation. Nearly all public transport requires government subsidies and/or direct government support in order to provide adequate service. Providing public transportation and any extension or improvement of the public transportation service requires large funding from either the or private investors. As the fare free public transportation ridership increases, the cost of provision may increase as well. Thus, the opponents of the free public

Table 1. Advantages and Disadvantages of Free Public Transport

Advantages Disadvantages Cost of Service - Lower administrative costs - Farebox revenue shortfall - Faster transit vehicle loading and unloading - Ridership increase not from Impact on Transit Service - Significant increase in ridership choice riders - Staff to focus on the quality - Problem riders and effectiveness of service

- Psychological costs in personal Internal - Elimination of fare disputes security Transit - Transit Vehicle Driver’s - Increase in aggregate Environment Satisfaction times

Impact on - Less confusion over transfers - Increase in costs for possible System Quality of and different types of fares expansion/maintenance of Effectiveness Service - Reduction in cost per rider service due to increased ridership

- Breakdown of barriers between Community - Damage on the system’s public the transit-dependent riders Image image because of problem riders and the choice riders Source : Jennifer S. Perone et al. (2002).3)

3) Jennifer S. Perone et al. (2002), “Advantages and Disadvantages of Fare-Free Transit Policy”, National Center for Transportation Research (NCTR-473-133).

July / August┃2014┃Vol 19┃No 4 29 transportation idea say that user-pays systems are fair and lead to a more efficient allocation of scarce resources. Free public transportation may encourage people to use it more than needed and may lead to some disruptive passengers. Consequently, opponents of the free public transport argue that fares can be used to moderate demand and lead to more effective use of limited resources. In areas of higher potential demand, increased ridership from fare-free public transportation might result in the need for additional equipment and maintenance. Table 1 summarizes the advantages and disadvantages of free public transportation in terms of cost of service, impact on transit service and on quality of service.

3. Cases of Free Public Transportation

There are several mid-size European cities and many smaller towns around the world that provide city-wide public transportation system for free.4) Free shuttles for local inner-city areas, university campuses, or are far more common than city-wide systems. Free shuttles are often operated as part of the services by the local government, university campus, or other public facility.

(1) , Korea

In the late 1990s, major department stores and discount stores offered free and regular shuttle services with several routes to attract more customers. Rising gas prices due to the depreciation of the won against the U.S. dollar in the aftermath of the IMF bailout funds have encouraged day time shoppers, mostly housewives, to use the free shuttle bus services run by the cultural centers of major department stores and discount stores. Altogether there were

4) List of towns and cities with area-wide free public transportation can be found at Wikipedia webpage of “Free public transport”, http://en.wikipedia.org/wiki/Free_public_transport (accessed on Jul. 23, 2014).

30 KIET Industrial Economic Review aged over19years(Young peopleunder19yearsstilltravelforfree). operation companies,Hasseltendedfare-free busesas of2013forthepeople million eurosin2007.Becauseoftheincreasing burden of thesubsidiesforbus in1997to3.4 from967,000 transportation inHasseltalsoskyrocketed across the country, and they experienced increases insales. across thecountry,andtheyexperiencedincreases over 2,500shuttlebusesoperatedby303departmentanddiscountstores about 12,600passengersperdayinaverage. 1996, whichincreasedasmuch13timeshigherto over4.6millionin2006, According tothecity’sofficialrecord,ridership was 360,000passengersin travelers inadditiontothenumberofroutes andbuseshasincreased withtime. in 1997.ThetransportnetworkHasseltismainlybybus.numberof The cityofHasseltinBelgiumbegantooffer city-widefreepublictransportation boost tourismforlocalfestivals. free shuttlebusservicesbetweenSeoulandthecitiesaspartofaninitiativeto areas withinthecity.LocalcitiessuchasBusan,Jeonju,andGangneungrun major hotelsalsoofferafreeshuttleservicebetweentheirlocationandcertain campus withsubwaystationsfortheconvenienceofitsstudents.Some University, forexample,provides shuttlebusesconnectingthe freeoff-campus services operatedbyuniversitiesorlocalgovernments.SeoulNational routes withfixedtimeschedules.Nowadaysthere arestillseveralfreeshuttle companies, itcanbecategorizedaspublictransportationsincerunsfixed suspended inthelawsuitbypublictransportationcompanies2001. lawsuit requestingtheunfairpracticetostop.Free shuttlebusserviceswere transportation companiesasthreatening theirbusinessesandresulted ina tothepublic growing popularityofshuttlebusesbecameaneyesore (2) , 6) Wikipedia, “Hasselt”,Passenger growthtablefrom1996to2006(accessedonJul.23,2014). 5) Korea Herald,“Department,discountstorestohaltshuttlebusservices”, 2001.6.30. Though shuttle buses are notoperatedbyprofit-driventransportation Though shuttlebusesare 6) The operationcostoffree public July /August 5) However, the ┃ 2014 ┃ Vol 19 ┃ No 4 31 Current Issues (3) , Estonia7)

Tallinn, the capital of , started providing free public transportation to its 400,000 residents on January 1st, 2013. The free public transportation policy aims to provide equal mobility opportunities to all residents and to safeguard social cohesion within the local community. Non-residents still have to pay the fare to use the city’s public transportation modes: buses, trams or trolleys. The mode share before introducing the fare-free public transportation (FFPT) was: public transport (40%), walking (30%), and private vehicle (26%). The was 33%, a relatively low rate because the residents in Tallinn already got a 40% discount for public transportation fares with 36% of the passengers exempted from paying public transport fares based on their socio-economic or occupational profiles. The fare-free public transportation policy proposal by the city of Tallinn was supported by 75% of the voters with a participation rate of 20%. Before the FFPT policy was enacted, several service improvement measures such as extension of the dedicated public transport lanes network and frequency changes were also implemented. Cats et al. (2013) investigated the impacts of FFPT policy on service performance, passenger demand and accessibility for various travelers groups. The empirical evaluation of FFPT impacts are based on the “before-and-after” analysis of automatic vehicle location (AVL) and automatic passenger counts (APC) data provided by the city of Tallinn. The results of a before-after comparison of the total number of boarding passengers show an increase of 3% in passenger demand. The central district of the city, which is the most populous and dense district and characterized by higher unemployment rates, experienced the highest increase in demand. The results suggest that areas with higher shares of the aged or unemployed residents and with lower shares of car ownership increased their demand more compared with other areas, while controlling other factors equally. Cats et al. argue that the pure

7) Oded Cats et al. (2013), “Public Transport Pricing Policy - Empirical Evidence from a Fare-Free Scheme in Tallinn, Estonia”, Paper submitted for presentation at the 93rd Annual Meeting of the Transportation Research Board, Washington, D.C., January 2014.

32 KIET Industrial Economic Review Source :JoelVolinski(2012). than 100innumberofbuses.Somecommunitiesprovide fare-freepublictransit public transportationarelessthan220thousandinpopulationandnomore and university-dominatedcommunities.Allthecommunitiesproviding free communities thatcarrysignificantnumbersofpassengersduringtouristseasons, modestorlowridership,resort urban orlarge withrelatively ruralareas fare-free publictransitservicescanbecategorizedintothefollowing:small The communitiesproviding campus transitservices,andlocalcirculators. transit, notincludingthefree transitservicesindowntowndistricts,university More thanthreedozencommunitiesintheUnitedStatesprovide fare-freepublic service frequency. extensions ofthenetworkpublictransportprioritylanesandincreased which isarelativelysmalleffect,andtheremainingincreaseattributedto increase indemandfromtheFFPTmeasureis1.2%passengerdemand, Table 2.DescriptiveStatisticsofCommunitieswithFare Number ofVehicles (person/year) Annual Ridership (person) Population providing FFPT Number ofcommunities (4) U.S.Cities 8) Joel Volinski(2012),“Implementation andOutcomesofFare-FreeTransitSystems”, Cooperative ResearchProgram(TCRP) Synthesis101,TransportationResearchBoard. 8) max avg. min max avg. min max avg. min Transit ServicesintheU.S. Communities Small Urban/ 1,300,000 469,625 218,000 Rural 26,000 65,847 17 2,500 56 22 2 Communities Dominated 7,500,000 2,232,500 University 250,000 110,000 15,000 63,105 8 - 10 98 32 Free Public July /August Communities 3,200,000 1,091,076 Resort 121,000 ┃ 35,000 19,507 14 3,000 2014 37 17 4 ┃ Vol 19 ┃ No 4 33 Current Issues services since the agencies can receive more state/federal financial assistance determined by formulas including total ridership. Descriptive statistics in terms of area population, annual ridership, and number of vehicles are shown in Table 2.

4. Factors to Consider Before Implementing Free Public Transportation

Based on the cases of free public transportation above, a fare-free public transportation policy might be appropriate for small urban communities with smaller public transportation systems. Considering the characteristics of urban structure and public transportation system, free public transportation might not be a good idea in most Korean cities for the following reasons.

(1) Factors Affecting Public Transportation Demand

Public transportation fare, of course, is an important factor for mode choice but people nowadays are more concerned about speed (travel time) and comfort. People also have increasing concerns about the cost of driving (e.g., gas and parking), safety, frequency and reliability of service, availability and ease of schedule and route information, amenities (e.g., shelters) and driver courtesy etc. As people’s incomes increase, people put more weight on quality of services or travel time than fare level. There is a good example of ITX (Intercity Train Express) Cheongchun, a high-speed train that from in Seoul to Chuncheon Station in Gangwon-do (Province). It began operation in February 2012 and the fares are 6,900won to/from Yongsan and 6,000won to/from Cheongnyangni, which is more than double the urban railway fare of the . In the beginning ITX Cheongchun carried about 6,000 people per day in average and now is carrying more than 15,000 people per day, a 2.5 fold increase. This is because ITX Cheongchun is much faster and comfortable than the regular urban railway, improving commuting time and convenience.

34 KIET Industrial Economic Review (2) Low Price Elasticity of Public Transportation Demand

Numerous studies have analyzed the elasticity and cross-elasticity of fares on Current Issues public transportation demand. It is known that the change of public transportation demand with respect to the change of fare is inelastic. The values reported in the studies of meta-analysis of fare elasticity show variations ranging from -0.009 to -1.32 with a mean value of -0.38.9) As a rule of thumb, it is known that a 10% fare decrease will result in a 3% increase in ridership (denoted as -0.3) while a 10% quality of service increase will result in a 5% increase in ridership (denoted as 0.5).10) The literature review and agencies responding to the survey in Joel Volinski (2012) says that if service quality deteriorates, gains in ridership will be offset by a defection of passengers with other mobility options.

(3) Characteristics of Ridership Increase from Fare-free Public Transportation

A fare-free public transportation policy will definitely result in a significant ridership increase, which can be divided into two types: generated demand and substituted demand. The former refers to trips made by people who would have otherwise, if there was a fare to pay, walked or used a , or would not make the trip, while the latter refers to trips made by people switching from other motorized modes. Reports documenting past fare-free experiments indicate that a relatively small percentage of the additional trips (from 5% to 30%) were made by choice riders switching from private vehicle trips. In the case of Tallinn, considering the shortened average trip length decrease by 10%, the demand increase for free public transportation indicates that most new trips were made by people who would have otherwise walked

9) Elasticities were derived using various methods including stated and revealed preference surveys, before and after studies and time series analysis. See J. Holmgren (2007), “Meta-analysis of public transport demand”, Transportation Research Part A, Vol. 41, pp. 1021-1035. 10) UITP (International Association of Public Transport), “Better public transport fare policy for more resilient funding”, Policy Brief, January 2014.

July / August┃2014┃Vol 19┃No 4 35 or used a bicycle, or would not have made the trip.

(4) Problem of Sustainable Funding Resources

When fares are eliminated, substantial fare revenues are lost. Then the provincial government will have to raise or to cut its spending on other sectors to implement free public transportation services. In case of Tallinn, the lost farebox revenue of 12 million in the first year of fare-free public transportation was mostly covered by the tax revenue of 10 million from the newly registered residents in Tallinn. But if the numbers of newly registered residents are not increasing and if the city cannot find a secure source of funding, the fare free public transportation now may not be sustainable. This implies that “free” public transportation services are never free but must be financed by other funding resources. If alternative funding resources are not found, fare-free public transportation is doomed to come to an end. In case of the Seoul and Gyeonggi , the farebox recovery ratio (the rate of fare revenue to operating expenses) is more than 80% and even 90%, which is a much higher percentage than that of other countries, mostly under 50%. Giving up fare revenues from the public transportation riders, which more than 80% of total operating costs, might not be a good idea to keep the public transportation system running. Therefore, in order for the system to continue to operate, it is necessary to

Table 3. Farebox Revenue Ratios for Seoul and Gyeonggi Metropolitan Area

Unit : 100 million won 2010 2011 2012 Farebox Revenue (A) 11,040 11,229 12,333 Seoul Operation Costs (B) 14,127 14,433 14,798 Farebox Recovery Ratio (A/B) 0.781 0.778 0.833 Farebox Revenue (A) 11,599 12,435 14,198 Gyeonggi Operation Costs (B) 13,507 14,732 15,688 Farebox Recovery Ratio (A/B) 0.858 0.844 0.905 Source : Seoul http://opengov.seoul.go.kr; Division of Construction & Transportation; Gyeonggi Kim et al. (2013), “A study on the Improvement of Financial Assistance for Buses in Gyeonggi-do”(in Korean), Gyeonggi Research Institute.

36 KIET Industrial Economic Review Table 4. Financial Aid for Buses in the Seoul Capital Area

Unit : Million won

2010 2011 2012 2013 Current Issues Seoul 190,000 222,400 265,400 234,300 Incheon 43,153 45,646 58,700 35,783 Gyeonggi-do 317,386 290,483 286,962 286,627* Total 550,539 558,529 611,062 556,710 Source : Seoul http://opengov.seoul.go.kr; Incheon Division of Construction & Transportation; Gyeonggi Kim et al. (2013), “A study on the Improvement of Financial Assistance for Buses in Gyeonggi-do”(in Korean), Gyeonggi Research Institute. Note : Figure for Gyonggi-do 2013 is based on the budget. stabilize the bus transport industry and secure financial support in a stable manner. State-level guidelines need to be devised regarding management evaluation, estimation of transport costs, and securing of financial support. It is necessary to develop an institutional mechanism to prevent local governments from failing to secure a proper level of budget needed for the system. Such a mechanism would also be necessary to prevent the possibility of local governments suffering from the financial burden caused by subsidies carried over from one year to another. To make bus rides free of charge, the provincial government will have to compensate for the deficits of private bus companies, effectively converting them into public enterprises. Table 4 presents the financial aid amount from local governments to bus companies in the Seoul, Incheon, and Gyeonggi regions.

(5) Exporting the Advanced Public Transportation Card System

The Intelligent Transport System (ITS) was introduced in the 1990s and has been developed greatly in Korea. Seoul introduced an integrated transit fare system, corresponding to the reform of the urban bus system 2004. Before the integrated transit fare system was introduced, public transportation users had to pay the fare separately whenever they got on the different modes of public transit mode, either bus or urban railways. The integrated fare system was designed to allow passengers to enjoy free transfers or discount benefits when

July / August┃2014┃Vol 19┃No 4 37 using a transportation card. Transfer users were relieved of their fare burden under this public transportation card fare system. The electronic fare card system with an automatic fare collection (AFC) can enhance the service quality of public transportation in terms of the speed of operation and user convenience in transferring between transit modes. Seoul’s public transportation card system has drawn attention from many cities internationally, and Seoul exported the transportation card system to overseas cities expressing interest in implementing the system in their communities. Examples of exporting Seoul’s Intelligent Transportation System include establishment of the Seoul “Smart Card” system (cashless transit ticketing system) in , (2006), Almaty, Kazakhstan (2007), Wellington and Auckland, New Zealand (2008, 2010), a bus management and fare settlement system for , (2010) and so on. In 2012, Seoul also began to offer consulting services on the integrated transit-fare card system to the city government of , Thailand. If the public transportation goes free there is no use of the transportation card system, which may prevent the companies whose business model is based on the commission from transit card use from growing.

(6) Effective Transportation Demand Management Policy

Transportation economists have stated that pricing is the best policy option theoretically in managing transportation demand. Congestion charging, for example, is a more effective policy to reduce and social costs of air pollution, accidents, noise, and climate change. Likewise, pricing is also a good way of demand management in public transportation since fares can be used to moderate demand. Different fare levels at peak and off-peak times will allow people with more flexibility to have an incentive to travel at off-peak times. An effective way to increase choice ridership in larger systems like in the Seoul and Gyeonggi metropolitan area would be to offer incentives such as reduced fares to captive users or to introduce various public transport passes

38 KIET Industrial Economic Review such as day, weekly, and monthly passes. In conclusion, fare-free public transportation policy makes sense when the

farebox recovery ratio is quite low. If the capital costs of fareboxes and the Current Issues cost associated with collecting and accounting for fares are close to, or exceeds the amount of fare revenue, it might be better to go with the fare free system. Most of all, thorough cost-benefit analysis should be conducted first to figure out net benefit or cost before implementing fare free public transportation.

Chun Kon Kim Research Fellow Service Industry Research Division [email protected]

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