Financial analysis of the effects of ride-sharing on the San Francisco commuters with repercussions for public transportation
How does city transportation change in the wake of ride-sharing? Read this financial analysis to find out.
It is not a secret that the Bay Area is the worst place to drive in the US, according to Thrillist, with San Francisco and Oakland ranking #4 and #2 on the list of the worsts. The situation only makes sense in light of the recent proliferation of ride hailing (TNC) vehicles, which have significantly exacerbated the city congestion. Meanwhile, the city is estimated to suffer a $22B transportation funding gap over the next 25 years and the system is nearly dysfunctional. This situation only makes sense, since riders opt for Uber and Lyft instead. In fact, a study done by Schaller Consulting in 2018 found that “private ride share vehicles accounted for a 180-percent increase in driving on city streets and that 60 percent of ride share users would have taken public transit or walked or biked if the vehicles weren’t available to them.” Another recent and most thorough study to date, done in conjunction with the San Francisco County Transportation Authority, confirms that “about 2/3 of the [ride-hailing] vehicles that are on the road are new vehicles that otherwise would not have been there,”
How big of a problem is all this creating? According to the same study, “the amount of time it took to get to a place in traffic versus no traffic went up by about 60% between 2010 and 2016…The researchers’ model shows that without the presence of Uber and Lyft, congestion would have increased by a more modest 22%.” In absolute terms, “TNCs comprise an estimated 25% of total vehicle congestion (as measured by vehicle hours of delay) citywide and 36% of delay in the downtown core,” according to San Francisco County Transportation Authority.
So, what is the pecuniary damage done by this extra traffic? Let’s break it down into 4 parts:
1. The cost of extra time on the road
2. The cost of extra gasoline
3. The environmental damage
4. The loss of public transportation revenue
- The cost of extra time on the road
For an average of 32 minutes of commute time in San Francisco, a 25% contribution to traffic delays from ride hailing according to the study above, entails a roughly 8 minute daily commuting difference. Split among the 265,000 workers commuting into the city according to the most recent census (that number should be higher now), the toll comes out to 2.1 million minutes lost per day. Given an average hourly wage of $34.81, the dollar price tag of the extra congestion would equal 2.1M x $34.81 / 60 = $1.2M per day.
2. The cost of extra gasoline and the environmental damage
Given that an idling car uses somewhere between 1/5 to 1/7 gallon of fuel per hour (in reality a slow moving car will use more), an extra 8 minutes split among 265,000 San Francisco commuters, adds up to a daily cost of at least .2 x 8 / 60 x 265,000 x $4= $28,267, given the current gasoline price of $4/gallon. In addition to that, given 8,887g of CO2 emissions from a gallon of gasoline, we’re looking at .2 x 8 / 60 x 265,000 x 8,887g / 907,185(g/US ton) = 69 tons of daily CO2 emissions just for the city of San Francisco.
4. The loss of public transportation revenue
Finally, given 60 percent of rideshare users who could have used public transportation otherwise and 170,000 weekday ride share trips within SF, the revenue loss to public transportation amounts to: 170,000 x .6 x $2.5 = $255,000 in daily revenue from commuters, who’d pay at least $2.5, the price of the cheapest mode of public transportation in the city.
The Total Social Damage
Thus, the total social damage from ride hailing in SF comes out to at least: $1.2M of lost time + $28,267 of extra gasoline costs (yes, gas seems rather cheap in this light) + $255,000 foregone revenue from public transportation and + 69 tons of CO2 from extra congestion = $1.5M + 69 tons of CO2 per day or… hundreds of millions of dollars per year and thousands of tons of extra emissions.
The Prop D Revenue, Broken Down 2 Ways
Now consider a tax on the same economic activity. Incidentally, while writing this piece, San Francisco passed Proposition D, which, Starting with Jan 1, 2020, will enact a tax of “1.5% of total fares on shared rides and rides in zero-emission vehicles and 3.25% of total fares on private rides, with revenue dedicated to improving and maintaining public transportation services and pedestrian and bicycle infrastructure.” The effect of this tax is estimated at $30 to $35 million by the city controller and will be used for the proposed Traffic Congestion Mitigation Fund. But let’s confirm this math: for 170,000 weekday ride share trips within SF, a $15 average price for an Uber ride, and a 3.25% tax per ride, the total will be 170,000 x $15 x .0325 = $82,875 collected on an average weekday. Spread among 52 weeks, the total would come out to $21.5M, so not exactly the promised amount.
If we considered the same tax on a per mile basis, given on an average weekday, the two ride-sharing companies combined drive about 570,000 miles in San Francisco, a 15c/mile tax (which is reasonable given that Uber charges around $2 per mile), the daily total would be: 570,000 x $.15 = $85,500 per day or $22.2M over the course of a year, still not the promised $30 — $35M.
The Final Value Range of An Intervention
If we threw in weekends at the same ridership rate, we’d get $22.2 x 7/5, which is barely over $30M per year. Or, if we assumed a higher price per trip, the revenue could also make it to that level. However, my biggest concern with this calculation is not in how we calculate the tax revenue given the present situation but rather in what it would be after the tax. As any other tax, this tax will effectively raise the price of ride hailing, spurring riders to switch to public transportation, effectively lowering the tax revenue. Given an elastic demand for ride hailing, this tax could potentially wipe out 60% of ride hailing in the city. But this move would also increase the social benefit, potentially up to $1.5M per weekday + lower emissions. Perhaps this should have been the proposed effect of the legislation.
If I had to advise the city government for the future, I’d say don’t miss the next big opportunity: the self-driving cars! By contrast to those, ride hailing is child’s play in terms of the potential detriment to the environment because the low cost of hailing a self-driving vehicle will push up demand beyond what it ever was for ride hailing. Instead, why not put this money toward the already existing autonomous vehicles: the track-bound trains and trolleys, which alleviate the congestion and decrease the environmental toll, creating two positive externalities.
