Run, Don’t Walk: Rescuing U.S. Public Transit from the Coming Post-Covid Fiscal Cliff

Published in

Kellogg Business Journal

5 min readMar 28, 2024

A radical approach from overseas that American public transit systems could use to generate meaningful incremental revenue.

The US public perception of mass transit’s reliability got a black eye in the depths of COVID, marked by rising health and safety concerns and shifting preferences due to the ‘work-from-home movement’, decimating ridership. While stopgap federal and state funding measures have propped up systems in the short run, 71% of large transit agencies expect to face a fiscal shortfall of 10–30% of operating budgets within the next 5 years according to the American Public Transit Association [1]. As we hurtle towards the fiscal cliff, is it worth simply throwing more public funding at the problem? We might be best served by looking elsewhere for creative inspiration and technocratic leadership to work towards a more stable future for domestic public transit.

Transit agencies in North America and the US struggle with relatively lower operating efficiency, capital planning quirks, and trouble finding alternative revenue streams. Look no further than our country’s largest transit agency, the MTA & New York City Transit, to illustrate these issues.

Despite having the largest ridership and network density nationally, the agency was only able to cover 34% of operating expenses from revenues in 2023 (farebox ratio) [2]. By global standards, New York subway tunneling projects are obscenely expensive, with the 7-line extension and Second Avenue lines coming in at ~$1.5Bn and ~$2.5Bn per mile, respectively. These projects face similar technical challenges as the London Crossrail project, which only cost ~$500MM per mile[3]. Finally, governance and funding for the MTA is byzantine at best, with the agency under the purview of New York State and a Governor appointed board, and large shares of budget sourced from an unstable mix of Federal COVID stimulus, state and local subsidies, farebox revenue, the new congestion pricing scheme and revenue bonds [4].

These issues will place transit administrators in a tenuous position in the coming years, walking a tightrope between implementing unpopular schedule cuts to shave costs and revenue hikes (through fare increases or requesting further temporary infusions from already stretched government budgets to cover shortfalls). At the margins, I argue that there is room for both novel (and simple) improvements that can be made if we borrow and adapt some practices from overseas. Here is a more hypothetical (and radical) approach that New York could use to generate meaningful incremental revenue.

The Rail Plus Property Model

The city where I was born, Hong Kong, has managed to provide one of the most timely, modern, high volume and affordable transit experiences in the world, with average fares for local services averaging approximately $1.03 (USD equivalent) in fiscal year 2022[5]. Amazingly, all of this is orchestrated by the MTR Corporation, a publicly listed, for profit company with positive net income - a feat replicated only by a handful of other systems in the world. While many might argue this is an unfair comparison to New York, given the lower personal vehicle ownership, lower average incomes, differing zoning norms and cultural differences, they are more similar than you think.

For example, both cities are notoriously expensive and command some of the highest property values in the world. While both share high urban density in core areas, Hong Kong has more systematically and tenaciously developed and utilized land for higher-value uses, a philosophy and mentality that flows through to its approach for land use in urban transport infrastructure.

Hong Kong’s government pioneered the ‘Rail Plus Property model’, using high property prices to its advantage to fund the development and operation of transit [6]. In return for developing new transit infrastructure, the MTR Corporation is given development rights for property along and above new routes and stations it develops. Once they’re ready to develop the land (say, into a mall), a land premium will be paid to the government for the right to use the unimproved land along with a development partner. Once the project is completed, the MTR Corporation captures a negotiated share of the profits from the development, which is now much more valuable with a subway line connecting directly to the property.

This system creates a positive feedback loop for transit investment, with existing properties providing a growing annuity on property income as urban density increases, with the proceeds either being reinvested in new infrastructure (leading to further property development rights) or distributed to the government and shareholders as dividends.

How can New York put this idea into practice?

Circling back to inefficient land use, New York has a massive untapped stock of land sitting in Manhattan (no, not Central Park): the roadways. While a staggering 27% of New York is occupied by streets due to its distinctive grid structure [7], a mere ~15% is used in all of Hong Kong when comparing roadway surface area to developed land, including in the suburban fringe [8]. While there would be considerable political and technical challenges in a wholesale redevelopment (emergency vehicle access, air rights zoning, and competition for existing commercial landlords) maybe there is a way to commercialize this land in a less intrusive way.

New York already creatively (and temporarily) appropriates right of way for concerts, markets, biking and cultural events through the ‘Open Streets’ initiative [9]. With some clever planning, maybe there is a way to improve both livability in these corridors with further greenspace and also capture value through land premiums for low density retail or mixed-use space.

Greening initiatives have taken a global hold: in Hong Kong’s Des Voeux Road commercial district of Sai Ying Pun, agencies attempted to appropriate roadway for the creation of greenspace alongside existing transit and pedestrianize the area (with the hope of also improving footfall for local stores), but unfortunately this never came to be [10]. In Paris, we can use the present redevelopment of the Champs -Elysees and its budding retail renaissance as a barometer for potential success and economic impact for urban greening initiatives going forward.

Source: Hong Kong Civic Exchange

While far from an orthodox approach and supposably limited in scalability, the Rail-Plus Property model should be seriously considered both to monetize an underutilized public asset for the benefit of transit and to make further strides in livability for urban residents everywhere.

You can reach Alex, 2Y ’24, on his LinkedIn.

Run, Don’t Walk: Rescuing U.S. Public Transit from the Coming Post-Covid Fiscal Cliff

The Rail Plus Property Model

How can New York put this idea into practice?

Sources:

Written by Alex Snyder