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Curious City

Fare Game: When do CTA Buses Break Even?

The midnight ride started it. Actually, it was about half past midnight. That’s when Fred Pineda, who moved to the city seven years ago to attend the University of Chicago, would climb aboard the #6 bus to take him back to Hyde Park once he was done partying downtown. Fred says he made the trip often and “usually there would only be about four or five of us on that bus, especially during weekdays. I was thinking, ‘There’s no way the CTA is making money off this route.’”

Fred has since moved to the North Side, and hasn’t taken that trip in a while. But a question from those days has stuck with him, the same question he’s posed to Curious City:

How many fares does it take for a bus to get to the break even point?

The “break even point” is that sweet spot where the amount of cash coming into the farebox on a given bus line matches what is going out to cover the bus’s operating costs.

This is a big question for the second-largest public transit system in the country. Just in the first half of this year, about 869,000 weekday trips were taken on CTA buses. The agency spends $764 million to maintain that service, with a good chunk of that amount coming from public funds.

Technically, the CTA could break even —  at least on paper. To get at exactly how, we ran a two-part thought experiment. The first looks at what the break even point actually is, while the second investigates what the CTA would have to change in service, pricing, and access in order for bus operations to pay for themselves.

In laying out the serious financial gymnastics required to create a wholly self-sufficient CTA bus service, we realize this story is more complex than finding a magic price point: There’s often an impulse to make people who use a service pay its full cost, but when it comes to public transit, even some fiscal watchdogs agree that the goal of “breaking even” is not all it’s cracked up to be.

Breaking even

To answer Fred’s question, we have to determine what CTA buses earn, and compare that to what it costs to run the system. Most of the CTA’s expenses fall into one of two categories: 1) overall costs (fuel, driver salaries, maintenance, and administration); and 2) capital costs (the price tags for new buses). According to transportation figures which the agency reports to the federal National Transit Database, the CTA lines up fare collection data against its overall operating costs and excludes capital costs, since operating costs are where the bulk of the annual budget is directed.

The CTA’s overall bus costs added up to $764,280,757 in 2013 — the latest year for which data are available.

In that same year, CTA buses earned $298,824,494 just in fares, or 39 percent of what it spent on its overall costs. The remaining 61 percent was mainly paid for with state and city subsidies deriving from sales taxes and Chicago’s real estate transfer tax.

Although the CTA prefers not to look at its bus service through the “break even” lens, some of its buses do cross that threshold in certain circumstances, according to Yonah Freemark, a city planner who specializes in transportation and development policy for the Metropolitan Planning Council.

Freemark bases his calculations on RTA data, as well as figures from the National Transit Database. He says it costs about $132 per hour for the CTA to operate a bus. Therefore, Freemark figures, in order to cover the full cost of its operations over a single hour, one bus would have to earn $132 per hour at the farebox. That covers costs for the driver, gas, administration, and maintenance. (Again, it leaves out capital costs, such as the bus itself.)

With a full fare set at $2 per person (or $2.25 if you pay cash) a CTA bus would seemingly need just 66 passengers to come aboard during that hour in order for that bus to break even. But in 2013, the average rider only paid about a dollar per trip. This is because, in compliance with state and federal regulations, the CTA offers a large number of riders free or reduced fares, including students, seniors, people in the military, and disabled passengers. There are also unlimited ride passes, and multiple rides taken via transfers.

“Given the fact that the average passenger on a bus is only paying about $1 per trip,” says Freemark, a bus needs about 132 riders over the course of an hour in order to cover its costs.

With 128 bus routes operating throughout Chicago and 35 suburbs, it seems that if you add up all of the service hours throughout the entire CTA bus system (math that the CTA has been reluctant to do or share, citing considerations of staff time), you are likely to find that (a) most buses most of the time do not break even, and (b) breaking even is most prone to occur during peak hours, and not on every line.

The cost of breaking even

The CTA has not announced plans to raise fares any time soon, and actually, a thought experiment may help understand why: What if the CTA wanted to break even? That is, what if the agency paid for all of its bus operating costs solely with what it earns from bus passengers?

According to Freemark, the fare price would have to skyrocket. “You would need to increase the fare to $5.12 per trip,” he says. “That’s an increase of 156 percent.”

That new $5.12 figure would be the equivalent of today’s “full fare” price of $2.00. Under this scenario, reduced fares for veterans, seniors, and children would also rise proportionately, and Freemark’s math accounts for the effects of free transfers and monthly passes. The bottom line, though, is that higher sticker price would fetch enough bus fares to cover the bus system’s operating costs.

Freemark’s take on this: “Doing that would immediately result in a significant decline in the number of people taking the buses.”

Freemark points to the concept of price elasticity. As the price of something goes up — a candy bar, or a gallon of gas — the number of people willing to pay goes down. Transit elasticity, he says, has a formula that’s about -0.4, meaning every time fares increase by 10 percent, the number of riders drops by 4 percent. A full fare of $5.12 would equate to a price hike of 156 percent; Freemark expects CTA bus ridership would fall by 62.4 percent.

To test this thought experiment, we run our hypothetical price hike by Chicagoan Quinn Naughton, a regular bus rider who says — thought experiment or not — the CTA should never consider such a dramatic increase in fares.

“People should protest, people should actually revolt,” he says, adding that under our scenario, he would have to move — probably out of Chicago.

If the CTA wants to break even, Freemark says, the agency has a couple of other options, like increasing ridership. But, he warns “if we more than doubled the number of people riding the bus everyday, you’d need many, many more buses, so you’d dramatically increase the cost of operations of the bus system.”

Translation: You’ll just end up spending more than you recover in fares. Freemark says faster buses with dedicated lanes and traffic signal priority would certainly boost ridership, and may bring the buses closer to breaking even. But that scenario would require political changes as well as new capital funds to adapt infrastructure.

Fending for itself

So far, our experiment’s gone into the mechanics of what policy-makers and transit planners call the “farebox recovery ratio,” which compares the money collected from transit riders and operating costs. Again, CTA’s recovery rate for its bus system was close to 39 percent in 2013. Why doesn’t the agency try to break even?

Some of the answer has to do with the consequences Freemark laid out: If CTA hiked bus fares, it might actually lose riders. But another part of the answer is that the agency’s not required to break even. The state of Illinois requires agencies under the Regional Transportation Authority — including CTA (bus and rail combined), Metra, and Pace — to collectively meet a 50 percent farebox recovery ratio, meaning that those agencies earn at least about half of their operating costs just through fares.

The farebox recovery ratio was originally established to prevent transit agencies from building more train and bus lines than the public would use.

Laurence Msall, President of the Chicago Civic Federation, a nonpartisan research group that studies fiscal sustainability, says the recovery ratio mandate also ensured that the CTA, along with the other agencies, “wasn’t running significant deficits, that it was collecting as much as it could in terms of the farebox, and that we weren’t giving away the system.”

In recent years, the region has consistently met or surpassed the state-mandated minimum, but on occasion there are calls for CTA to adopt plans to boost recovery rates. (Just one example: During the transit funding crisis of 2007, representative Dave Winters of Rockford argued for fare increases and higher recovery rates in Chicago-area transit agencies: “The users of those services need to carry their own weight.”)

As for the CTA’s own take on the “break even” idea, agency spokeswoman Tammy Chase says “that’s not a calculation that we ever make or would. It’s moot for us.” She says the agency regards public transportation as a public service, “not just providing customers service from Point A to Point B. It’s broader than that; there’s a broader economic good, for all of the public. It’s more than a ride to us.”

Still, the agency does pay attention to basic laws of economics. For example, Chase says CTA determines bus routes based on the projected needs of riders: “We pay attention to ridership demand, where the most riders are.”

That translates into a metric the agency calls “productivity,” or the average number of passengers on a bus during one hour. “You want to be ideally between 35 and 55 customers on a bus,” Chase says. The CTA’s most common buses seat around 35 passengers. “If you’re getting to above 50 riders, some are standing. It’s still a comfortable experience. If you’re getting to around 70 people, that’s a crowded bus.”

Chase says CTA adjusts schedules, the number of buses and even the size of buses to hit a standard for normal service hours. The overarching goal, she says, is to have no passenger in the city wait more than 30 minutes before the next scheduled bus arrives. (Disruptions in these routes can often lead to "bus bunching," which is tough to tackle.)

Adjustments only go so far, though, and the agency does keep run some low-productivity lines. Chase says those examples exemplify how the CTA emphasizes public service over bottom line considerations like breaking even. Several buses provide essential transportation, if only to relatively few people: say, to those who might have no alternative for getting to school, to work, a pharmacy or grocery store.

Interestingly, even the Civic Federation’s Laurence Msall says the break even idea is “not a reasonable expectation,” and the government needs to subsidize public transit in some form.

“There is a very strong argument to be made that if Chicago, if the State of Illinois was in better financial shape, that it should be investing more in the public transportation system,” he says. “We basically should be reducing even more the cost of riding the CTA to attract more riders or to expand the system.”

Msall says the CTA has struggled with inefficiencies in the past, but right now, he thinks, the system can’t get cheaper. It just costs too much to operate. It’s worth the price, because CTA buses earn their keep everyday by cutting rush hour traffic and improving air quality.

Chicagoan Sarah Erwin, who relies almost solely on the CTA system to get around, agrees.

“If you could have really great public transportation, you wouldn’t have to have as many cars,” she says. “We don’t own a car. We specifically chose Lakeview where we can walk or get public transit or a Zipcar to where we need to go. So, it’s vital to us.”

More about our questioner

(Photo courtesy Fred Pineda)

Fred Pineda got his doctorate at the University of Chicago in medical physics. Now he works at the university developing MRI technology. It makes sense that a science guy would ask such a numbers-heavy question. But Pineda, a native of Mexico City, also regularly rides the CTA, where he spends about two hours on his daily commute.  

Christopher Johnson is an independent producer and reporter based in Chicago.

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