University of California Transportation Center

Starting in the mid-1960's, US government policy encouraged the public takeover and subsidy of what had been a self-supporting, privately owned transit industry. The combination of public ownership and subsidy halted the long-term decline in ridership, but it also led to the growth of an enormous financial deficit.

Using individual data from 62 transit properties to measure the change in productivity (output per dollar of input) over the period 1950-1985, this paper examines the relationship between productivity and government subsidies.

The magnitude of the productivity decline surprising: indeed, if productivity had merely remained constant since 1964, the year the subsidy program began, total operating expenses would be more than 40% lower. To put that figure in perspective, this is enough cost reduction to erase most of the current operating deficit -- without raising fares.