Elements Needed to Create High-Ridership Transit Systems: Interim Guidebook (2005)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

TCRP H-32: Interim Guidebook 8-1 8. Fare Collection/Structure Initiatives Introduction A widely used type of strategies, actions and initiatives that can contribute to efforts to increase ridership is fare collection/fare structure initiatives. The types of strategies -- and specific actions/examples -- included this category are shown in Table 8-1. These types of strategies are generally intended to attract and retain riders by improving the quality of transit service or by making the price of transit use more competitive with the costs of using an auto or other modes. Thus, each strategy should address one or more of the following mode choice parameters: • Convenience • Cost of using transit • Perceived “image” of the system Guidance on the development of appropriate fare- related strategies is provided below. This is followed by a section describing each type of strategy, including agency examples. Table 8-1: Types of Fare Collection/Fare Structure Initiatives Type of Strategy Specific Actions/Examples Fare collection improvements Improved payment convenience Automated fare collection, new prepaid fare options, expanded fare media distribution/reload options Regional payment integration Regional smart card program Fare structure changes Fare structure simplification Elimination of fare zones; elimination of express or rail surcharge Fare reduction Deeply discounted options; reduced base fare; free transfers, free fare zone

TCRP H-32: Interim Guidebook 8-2 Design/Implementation Guidelines The basic planning activities and types of considerations for fare-related initiatives are described below. Table 8-2 presents a checklist of the recommended steps an agency should consider in identifying and developing strategies within this category. Applicable Settings As indicated in Table 8-3, most fare collection/structure strategies are potentially applicable within any type of mode or service environment. One strategy, regional payment integration, will not be applicable in all locations (i.e., if the agency does not directly interface with any other agencies), and may not prove cost-effective in most rural areas. Moreover, smaller agencies may not find it cost-effective to provide expanded fare media distribution/reload options. As with other types of strategies, each specific action must be designed to reflect the agency’s particular needs and constraints. Planning Activities In identifying possible fare collection and fare structure changes, an agency must separately consider each of these areas (as indicated in Table 8-2), but it is also useful to consider the interrelationships between the two: the nature of the fare structure can affect decisions regarding a particular type of fare collection technology, and conversely, the selection of automated fare payment facilitates consideration of a range of new types of payment options. Ideally, policy goals and constraints should guide decisions in both areas, and planning for changes should be an iterative process. Realistically, though, the most common approach is to make decisions on fare collection and fare structure independent of each other. Typically, an agency procures a new fare collection system, and then reevaluates the fare structure and types of payment options offered. The key review/design processes an agency might follow in each area are summarized below. Table 8-3: Applicable Modes/Settings for Types of Fare Collection/Structure Initiatives Mode Service Environment Type of Strategy Bus Rail Large Urban Medium Urban Small Urban Rural Suburb CBD Improved payment convenience + + + + + o + + Regional payment integration + + + + + o + + Fare structure simplification + + + + + + + + Fare reduction + + + + + + + + Key: – = not applicable or inappropriate; o = applicable, but may not be cost-effective; + = applicable and appropriate

TCRP H-32: Interim Guidebook 8-3 Table 8-2: Checklist – Developing and Implementing Fare-Related Initiatives Key Steps/Activities Fare Collection System Design Process Conduct needs assessment of fare collection system Identify goals, issues and constraints Conduct peer agency review Identify problem areas and opportunities for improvement Identify/evaluate fare collection options Identify payment/collection options (e.g., proof-of-payment, off-board payment) Identify technology options (e.g., magnetic farecard and. smart card) Identify fare media distribution/reload options (e.g., autoload) Evaluate options Selection of strategy Develop conceptual design Identify costs of new/upgraded system Develop implementation plan Implement selected strategy Procure new equipment Hire additional personnel (if necessary) or train existing personnel Develop informational/marketing materials regarding strategy(ies) Fare Structure Development Process Evaluate current fare structure Identify goals, issues and constraints Identify ridership and revenue trends Conduct peer agency review Identify problem areas and opportunities for improvement Identify fare structure options Identify fare strategy options (e.g., elimination of zones or surcharges) Identify pricing options (e.g., reduction of base fare, free fare area, free transfers, discounts) Conduct market research/public outreach Conduct survey of current riders (e.g., on-board/in-station) Conduct survey of non-riders or infrequent riders (e.g., telephone) Conduct focus groups of riders and non-riders Meet with stakeholder groups (e.g., civic, government, business, institutional interest groups) Conduct public meetings or open house sessions Evaluate fare structure scenarios Develop fare ridership/revenue model Develop & evaluate alternative fare structure scenarios Select fare policy/structure modifications Develop implementation plan Implement selected strategy Procure new equipment or materials (if any) Hire additional personnel (if necessary) or train existing personnel Develop informational/marketing materials regarding strategy(ies) Monitor performance of strategy Identify actual ridership impact Make any necessary operational adjustments

TCRP H-32: Interim Guidebook 8-4 Fare Collection System Design Process The following process is often used by transit agencies in selecting a new fare collection technology and developing a conceptual design for a new/modified fare collection system (This list represents an expansion of the fare collection aspects of the checklist shown in Table 8-2): • Identify agency goals, issues and constraints -- Gather input through review of any policy statements and working memoranda, as well as interviews with management/staff representing various agency functions (including, administration, operations, finance, revenue management/accounting, planning, analysis, marketing/communications, customer service, maintenance), and possibly with key Board members. • Conduct peer agency review – Review experiences of selected other transit agencies that have previously implemented various technologies and methods that might be considered here. • Identify problem areas and opportunities for improvement – Conduct an assessment of the current fare system, and based on the findings of the above tasks, identify potential areas of improvement. • Identify and evaluate payment/collection, technology and equipment options (including fare media distribution/reload options) – Develop screening criteria and conduct a review/assessment of the alternative types of payment methods, technologies (e.g., paper media, magnetic farecards, smart cards) and equipment (e.g., fareboxes, ticket vending machines, faregates) the agency could consider. • Develop conceptual design – Based on the above tasks, develop a conceptual design for a new system that addresses the agency’s needs and goals. This should include a comparison of the benefits/costs of purchasing a totally new system vs. upgrading the existing system (e.g., replacing outmoded components and perhaps adding automated technology capabilities). The conceptual design should address such issues as data requirements, software/communications requirements and labor/organizational implications of the new system. • Identify costs of new/upgraded system – Develop detailed estimates of the operating & maintenance and capital costs of the new system; this should include annualized and life cycle costs for both the upgrade and new purchase options. • Develop implementation plan – Identify the steps needed for procurement and installation of the new/upgraded system, including final design, specifications, selection and award, installation, marketing, and training. Once the agency has decided on a particular strategy, it can proceed with procurement and implementation.

TCRP H-32: Interim Guidebook 8-5 Fare Structure Development Process The following process is often used by transit agencies in developing fare policy/structure changes (This list represents an expansion of the fare structure aspects of the checklist shown in Table 8-2): • Identify agency goals, issues and constraints -- Gather input through review of any policy statements and working memoranda, as well as interviews with management/staff representing various agency functions (including, administration, operations, finance, revenue management/accounting, planning, analysis, marketing/communications, customer service), and possibly with key Board members. • Identify ridership and revenue trends – Review data and identify the agency’s ridership and revenue trends over the past several years; also identify the impacts of past fare structure changes. • Conduct peer agency review – Review fare structures of selected other transit agencies with similar operating characteristics. • Identify problem areas and opportunities for improvement – Conduct an assessment of the current fare structure, and based on the findings of the above tasks, identify potential areas of improvement. • Identify fare strategy and pricing options -- Identify options for each fare structure element (base fare, transfers, pass types, multi-ride options, reduced fare options, etc.) and the range of price levels that could be considered for each element. • Conduct market research/public outreach – In order to identify potential reactions of riders (and possibly non-riders) to possible fare changes (e.g., to develop elasticity figures for inclusion in a fare model), it may be useful to conduct surveys. An alternative is to conduct focus groups and/or other types of public outreach (e.g., stakeholder meetings, public meetings or open houses). • Develop fare ridership/revenue model – In order to estimate the ridership and revenue impacts of alternative fare structure scenarios, develop an elasticity-based fare model (development of elasticity figures is discussed below, under Expected Ridership Response). • Develop and evaluate alternative fare structure scenarios -- Develop alternative fare structure scenarios (i.e., combinations of fare strategies, payment methods and pricing levels for each fare structure element). Evaluate the scenarios based on ridership/revenue impacts (from the fare model) and qualitative criteria (based on fare policy goals). • Select fare policy/structure modifications – Based on the above evaluation, select fare structure modifications that best address the agency’s fare policy goals and needs.

TCRP H-32: Interim Guidebook 8-6 • Develop implementation plan -- Identify the steps needed for implementation of the recommended changes, including design/production of new payment options, marketing, and training. Once the agency has decided on a particular strategy, it can proceed with implementation. Cost/Revenue Considerations Fare Collection Changes Fare collection equipment is often a customized product, with many factors influencing cost. Much fare collection equipment is built in response to specific orders, partly because each agency’s requirements impose somewhat different design constraints – even if major modules or subassemblies are the same among several orders. Final configurations of even very similar equipment for different agencies are rarely identical. The price for any type of equipment is therefore sensitive to such factors as: • The equipment specifications for the individual agency, including performance requirements and features; this affects the amount of customization required for a product, and this customization can represent a substantial portion of the overall price; • The quantities of the particular equipment being ordered; • The extent to which the new equipment will have to interface with other types of equipment (e.g., automated passenger counters or automated vehicle location systems); • The nature of the vendor selection and negotiation process (e.g., type of contract: low bid, two step or negotiated); • The timing of the procurement (relative to the procurement of similar equipment by other agencies -- and therefore the extent of refinement of the technology); • Warranty terms: warranties are generally for one year, but this period can be extended based on other clauses associated with equipment performance; • Documentation requirements (i.e., striking a balance between what is offered as manufacturer's "standard" and degree of customization for the agency); • Software requirements: some software customization is expected, but requests for additional functions, features and reports will be considered extra and will increase the cost;

TCRP H-32: Interim Guidebook 8-7 • Vehicle/facility modifications: the cost of modifications to vehicles, bus garages or other facilities also need to be considered; and • Americans with Disabilities Act (ADA) requirements: fare collection equipment must address ADA requirements; these include provision of sufficient room on buses to pass the farebox in a wheelchair, compliance with height requirements for buttons on vending machines, and accommodation of needs of blind riders in purchasing and using fare media While farebox system costs tend to vary much less than systems involving extensive infrastructure modification (e.g., rail systems with faregates and large numbers of TVMs), the above factors can still result in a range of costs. The ultimate cost of a fare collection system change to an agency will also be affected by such issues as the following: • Will there be any additional labor costs associated with the change (e.g., additional maintenance, revenue accounting or customer service personnel)? • Will there be any cost savings associated with the change (e.g., lower overall maintenance costs due to replacement of outmoded equipment, or lower fare media distribution costs)? • Will there be additional revenue due to better revenue accounting and control of fare evasion? Fare Structure Changes While there may be some costs associated with fare structure changes (e.g., designing and printing new fare media), the principal financial impact any agency must be concerned with is the potential loss of revenue. Fare structure strategies designed to produce increased ridership typically result in reduced revenue. However, as explained below, under Fare Reduction, a carefully-designed deep discounting strategy, if paired with a base fare increase, can result in increases in both ridership and revenue. Expected Ridership Response The most widely-used indicator of the expected ridership response to a particular type of fare change is elasticity.1 Chapter 12 (Transit Pricing and Fares) of TCRP Report 95 (Traveler Response to Transportation System Changes) notes that “practically all the known observed values of fare elasticities fall in the range between 0 and -1.0, which, in economic terms, means rider response to fare changes is inelastic. Thus, if a transit system wants to increase total fare revenues, it should increase fare levels, but expect some ridership loss” (p. 12- 7). In fact, while elasticities have been found to display considerable variation in 1 For instance, a fare elasticity of “-0.3” means that a 10% increase in fare would be expected to result in a 3% ridership loss.

TCRP H-32: Interim Guidebook 8-8 different locations and for different market groups, general fare elasticity “exhibits relative consistency when expressed as averages. The effect of bus fare increases and decreases equates on average to an arc fare elasticity about - 0.40. The effect of heavy rail transit fare changes is typically much less: short-run HRT fare elasticities average about -0.17 to -0.18, or about half the bus fare elasticities in the same cities” (p. 12-6). While many agencies use systemwide elasticity figures, others use a different elasticity for each mode, or even different figures for individual submarkets. Elasticities can be estimated from several sources, and using different types of formulas. The key types of sources include: • Times series analysis of an agency’s historical ridership data; this often includes a regression analysis to isolate the effects of fare changes from other factors such as service changes, employment levels, or fuel prices • Before-after (“shrinkage”) analysis for a particular fare change • Use of a demand function often on the basis of the results of stated preference surveys • Review of industry experience, particularly for agencies of similar size and with similar characteristics The most common types of elasticity formulas are those known as point elasticity, shrinkage ratio, midpoint arc elasticity and constant arc elasticity. For small fare changes (i.e., less than 10%), each formula should produce roughly the same elasticity. However, where larger changes are involved – or where there may be a decrease in the fare level – the midpoint or constant arc elasticity formulas are generally preferable. As mentioned above, elasticity is a key element of a fare ridership/revenue model. The different types of fare-related strategies, actions and initiatives are described on the following pages.

TCRP H-32: Interim Guidebook 8-9 Fare Collection Improvements As transit agencies increasingly adopt automated fare payment technologies, they are recognizing the potential to attract – and retain – riders by improving fare payment convenience, offering a broader range of payment options and facilitating seamless travel within the region; the major types of improvements that agencies have deployed are: • Improved payment convenience (e.g., automated fare collection, new/expanded prepaid fare options, and expanded fare media distribution/reload options) • Regional payment integration (e.g., regional smart card program) These types of actions and initiatives are described below, including agency examples of each. Exhibit 8-1: Go Ventura Smart Card Improved Payment Convenience As the fare system is the means by which a rider gains access to any transit service, it is important to make fare payment as convenient as possible. There are several aspects to fare payment convenience, including the types of available payment options, the methods for purchasing and reloading these payment options, and the ease of use of the fare collection system. This section discusses the types and capabilities of automated fare collection technologies (i.e., magnetic farecards and “smart cards”) and the various types of fare media distribution/reload options. (Exhibit 8-1 shows the Go Ventura smart card from Ventura County, CA) Automated fare collection – An increasing number of transit agencies are implementing automated fare collection (AFC) systems based on magnetic farecard and/or smart card technologies. The technologies can be described as follows: • A magnetic farecard carries a magnetic stripe, although there are two different types of magnetic media: read-only swipe cards and read-write stored-value cards. The read-only technology is similar to that used for credit or debit cards, and allows the automatic determination of the validity of an unlimited-ride pass. In contrast, read-write technology, used with a ticket processing unit (TPU) or bus ticket validator (BTV), can accommodate stored value and other automated payment options. A TPU can process an existing farecard, and some bus TPUs can be configured to issue some types of fare media (e.g., a transfer or a one-day pass, or even stored value). (The remainder of this discussion focuses on read- write technologies.)

TCRP H-32: Interim Guidebook 8-10 • A smart card carries a small computer chip, and is thus capable of storing and processing a considerable amount of information. While there are two basic types of smart cards, contact and contactless, only the latter is considered appropriate for use in transit settings; contactless cards need not be inserted into a reader, but rather need only be held in close proximity – within an inch or so. Like the magnetic read-write technology, smart cards can accommodate stored value and other automated payment options. Both technologies can accommodate a wide range of payment options (discussed below). There are differences, however, in a number of parameters, including the cost of the cards themselves (magnetic media are much less expensive on a unit basis, although the cost of smart cards continues to drop), the cost of the card processing equipment (magnetic units tend to be more expensive to purchase and to maintain), data capacity and processing capability (considerably greater in the smart card), ease of vending (magnetic media can be dispensed more readily, as discussed below), and ease of use (smart cards are particularly easy to use, especially for individuals with fine motor problems). Exhibit 8-2: WMATA SmarTrip Card An agency considering implementing AFC should evaluate the relative advantages and disadvantages of the two technologies.2 Most agencies opt for magnetics, although an increasing number of agencies are deciding to also include smart card capabilities when they purchase new equipment. A few agencies have made the decision to forego magnetics when they implement new AFC systems. For instance, MARTA (Atlanta) will be implementing an all-smart card system; WMATA, which accepts both technologies on its rail system, has installed new fareboxes on its buses that read smart cards only; Exhibit 8-2 shows the WMATA SmarTrip card). New/expanded prepaid fare options -- The use of AFC in general has influenced fare policy and has facilitated the introduction of a range of new payment options, as well as the opportunity for establishment of new types of fare media distribution methods; the latter are discussed below. Some agencies have used electronic media to essentially automate their existing options, while others have totally revamped their fare structures with the installation of electronic technology. The CTA, for example, took the former approach, replacing its discounted tokens with stored value (with a purchase bonus) and converting its passes from fixed calendar periods to a “rolling” (i.e., activate on first use) basis. The NYMTA represents the most graphic example of the latter approach, as it moved from the most basic fare structure in the industry -- 2 For additional discussion of the relative advantages and disadvantages of the technologies, as well as case studies of agencies that have adopted different types of systems, the reader is directed to TCRP Reports 32 and 94.

TCRP H-32: Interim Guidebook 8-11 featuring no multi-ride discounts, prepaid passes, or discounted transfers -- to an automated system that includes stored value (with a purchase bonus), several types of rolling passes, and free intermodal transfers. The basic payment options possible with electronic fare media and their purchase parameters can be summarized as follows: • Value-based or trip-based options – These can be either user-encoded or pre-encoded (with a fixed amount). Agencies vary in their requirements for a minimum initial payment for user-encoded cards. • Time-based options – These can either allow unlimited-rides (during the specified period) or be capped at a certain number of rides (during the specified period). The key pass development related to automated payment has been the conversion of fixed time period passes (e.g., “September” or “September 16-30”) to rolling passes good for a specified number of days (e.g., “31 days” or “14 days”), or perhaps even a certain number of hours (e.g., “24 hours” or “4 hours”); an example of a rolling pass is shown in Exhibit 8-3. Such passes are activated the first time they are used. This increases the rider’s flexibility considerably; for example, a rider can buy 4 weeks worth of 7-day passes, rather than a single 30-day pass if he/she will be on vacation for a week during the month. The use of rolling passes can also reduce the administrative burden on the agency, since pass purchases no longer occur solely within a short time period (e.g., at the end of a month, or during the first few days of the next month). Agencies are increasingly utilizing this approach as they introduce electronic payment. Exhibit 8-3: Rolling Pass (CT TRANSIT) • Combined value and time-based options – Automated payment media are capable of carrying both stored-value and pass options. This may be in the form of stored value for use on one mode or operator’s service, along with a time-based pass that can be used on another mode or service in the region. In an integrated regional payment system, a rider could have a farecard that has stored value for occasional use on all participating agencies’ services, as well as a period pass specifically for the service he/she uses on a regular basis. • An automated payment system can also automatically facilitate a fare differential (by time of day, mode or distance) or a transfer discount that would otherwise have to be handled using a separate paper transfer. The other key parameter for farecards is the type and level of discount or bonus provided as an incentive to purchase and use the card (and to use transit in

TCRP H-32: Interim Guidebook 8-12 general). The basic types of discount/bonus options that might be considered are as follows: • Initial purchase bonus – the most common form of stored value bonus, as described above • Frequency-based per-ride discount (above a threshold number) – a reduced fare is charged for each ride above a certain minimum number of rides taken with a particular farecard • Fare card discount relative to use of cash – a farecard can carry a lower per trip fare than if paying cash While the above strategies can be used with any type of electronic payment, the greater memory and processing capabilities of smart cards – coupled with the fact that they are intended to be used for a much longer period -- make it possible to consider additional pricing innovations that would be infeasible with magnetic media; these include: • Guaranteed last ride (or negative balance) – In this option, a ride is guaranteed, regardless of the remaining value on the farecard. In other words, if a rider boards a bus or enters a faregate and the farecard is revealed to have insufficient value for that trip, a “negative balance” (up to the value of a single ride) is permitted. The next time the cardholder adds value to the card, the amount of that ride is deducted from the total value added. This strategy, being considered in a number of other programs, is attractive to riders in that it addresses concerns about running out of farecard value where it may be inconvenient to add value (i.e., on most bus routes). • Guaranteed lowest fare – This option is a variation on the frequency- based per-ride discount mentioned above. It can take various forms, but the basic approach is to assure riders that they will automatically be charged the lowest fare for which they are eligible (i.e., based on their extent of usage of their farecards). A counter on the card would keep track of each card’s use within a certain time period, and the fare system would be programmed so that the rider pays the lowest possible fare, based on his/her usage. For instance, once a cardholder has taken a certain minimum number of rides during a day, his/her card would automatically become treated like an unlimited use day pass, and all subsequent rides that day would become free. Even at this point, however, rides would continue to be tracked; thus, if the cardholder used the card a sufficient number of times in a 7-day period, the card would become treated like a weekly pass (and subsequently a two-week pass, and ultimately a monthly pass – assuming these are offered by the agency). Such an approach has yet to be tried in the US; it is now being tested in London.

TCRP H-32: Interim Guidebook 8-13 • A variation on this basic strategy is to use it in conjunction with post payment (i.e., in an account-based system; this is described below). Such an approach has not been tried in the US; it is in place in Groningen, Netherlands and is being tested in the Frankfurt region of Germany. All of these strategies are intended to provide incentives to purchase and/or use a farecard – as opposed to paying with cash or using a token or paper ticket. With any of the strategies, the impacts on both revenue and ridership will ultimately depend on the exact nature of the bonus or discount relative to the full fare – and compared to the discount offered by other prepaid options (if any). A guaranteed lowest fare option in particular must be evaluated carefully, as it has the potential to result in some revenue loss: it converts rides that would otherwise have been paid for to free rides. An agency will thus have to balance the possible revenue loss against the likely gain in ridership – and general marketing benefit – associated with the strategy. A more straightforward frequency-based per-ride discount would presumably have a smaller revenue impact – since it charges for each ride – although it may not offer an agency quite as compelling a marketing angle. Other types of prepaid fare media an agency might consider include short-term passes (i.e., good for 1 or more days, but less than a week) and multi-month or annual passes. The use of short-term passes, particularly day passes, is growing, and they are increasingly being targeted to both regular riders and tourists. Such passes have traditionally been provided primarily for out-of-town visitors, as many agencies have sold/distributed them only through hotels, convention centers, and other off-site locations. However, as discussed further under Fare Structure Changes, below, agencies are beginning to view day passes as alternatives to low-priced transfers, and several are now selling them on-board buses and in rail stations. With the growth of electronic payment, we can expect to see an increase in the types of passes offered to riders. Finally, multi-month or even annual passes are offered by a number of agencies, typically in conjunction with employers and universities. Such programs are discussed in Chapter 6, Partnerships/Coordination Initiatives. Chicago Transit Authority (CTA) Visitor Pass Program large urbanized (over 1,000,000) The Chicago Transit Authority started a Visitor Pass program in 1997. Prior to this time, visitors had to pay the full base fare for any ride on CTA. The new program allows visitors to buy unlimited ride passes, valid for 1, 2, 3, or 5 days. While overall system ridership has slightly declined, Visitor Pass usage has grown significantly since its inception.

TCRP H-32: Interim Guidebook 8-14 Expanded fare media distribution/reload options – A key to maximizing usage of prepaid fare media of any type – and thus maximizing their ridership potential – is to provide convenient card distribution and reload options. This is not a major issue for rail systems, as riders can conveniently obtain and reload farecards at ticket vending machines in stations. Other channels used by agencies for distribution of fixed value or pre-encoded fare media (e.g., monthly passes, packages of tokens, multi-ride ticket books or pre-valued stored-value farecards) include the following: • Purchasing at agency customer service centers or “ride stores” • Purchasing at third party sales outlets such as grocery stores • Ordering via mail or telephone • Ordering via the Internet (i.e., from the agency’s website) • Distribution by employers, educational institutions or social service agencies • Purchasing on-board buses Sale – and facilitating reloading of – automated payment media is more complicated than simply distributing fixed value or pre-encoded payment options. Any third-party location would have to be equipped with a special card initialization and reloading device, and all employees who might have to operate the device would have to be trained. Many such outlets would likely resist adding another card-processing device on or near the counter, and training would be problematic, given the often high turnover rate at many retail outlets. Thus, this is not likely to be a viable option for most agencies. On-board dispensing (i.e., of magnetic stored-value farecards, day passes or transfers) and/or reloading requires that an agency’s vehicles have the requisite processing capabilities (e.g., fareboxes equipped with some type of ticket processing unit). Santa Clarita Transit (SCT) Online Pass Sales large urbanized (over 1,000,000) Santa Clarita Transit, in the LA region, has an online pass purchas- ing program. Riders can create an online account, and use a credit card to purchase monthly passes. The passes are mailed to the purchaser at his or her home. Customers also have the option of receiving online notification (via e-mail) when it is time to purchase the next month’s pass. The Frequent Rider program allows the customer to receive one monthly pass for free after purchas- ing eleven monthly passes online. Participation in the program has increased 37% over the last five years.

TCRP H-32: Interim Guidebook 8-15 Employers, schools and social service agencies, on the other hand, could be more willing to accommodate such functions. An employer, for instance, could directly issue a farecard to its employees who use transit. Alternatively, employees could be directed to obtain a farecard through another channel, and the employer would revalue its employees’ cards; this would require the employer being equipped with a card sales/revaluing device. Alternatively, an agency could establish an ”autoload” program that facilitates automatic downloading of passes or value to a smart card. In this approach, currently used by WMATA (Washington, DC) in its “SmartBenefits” program, the employer provides the agency with a list of employees to be provided passes. This list is downloaded into the fare collection system such that when the employee tags any smart card reader (in a rail station or on a bus) with his/her smart card near when the current pass is to expire, the next month’s pass is automatically loaded onto the smart card. At WMATA, the employee accounts are maintained via a special Internet site. Thus, the employer authorizes employee participation via the site; reauthorization can be required each month. Or, once an employee’s information has been entered, the employer might only be required to enter any changes to an employee’s account (e.g., to indicate that the employee is no longer employed or no longer eligible to receive a transit benefit.) An alternative approach to offering prepaid passes to employees (or students) would be to implement a post payment program whereby employers or schools would register employees for smart cards and be billed by the agency based on actual system usage. In other words, if an employee made only 10 commute trips in a month, the employer would pay only for those trips – rather than the cost of a full month’s pass. A similar approach could be utilized for individuals (rather than employers/institutions) who establish a credit/debit card-based account with the agency. In an account-based system, a customer pre-authorizes the agency to initiate a credit or debit card transaction whenever the smart card’s stored value (or value in the active transit “account”) falls below a designated threshold (e.g., $10 or $20). The value on the card or in the active account is then automatically replenished – or a specified period pass is activated -- the next time the customer touches the smart card to a smart card reader (i.e., similar to many electronic toll payment systems). The account-based/autoload approach represents the ultimate convenience for customers (i.e., once they have established accounts and acquired the smart cards), since they subsequently do not have to worry about reloading their cards or obtaining new cards. Of course, this approach requires that an updated list of active card accounts be downloaded to every farebox on a daily basis. The CTA has instituted the first individual account-based transit payment system in the US: the Chicago Card Plus program (See Exhibit 8-4). Exhibit 8-4: Chicago Card Plus

TCRP H-32: Interim Guidebook 8-16 Regional Payment Integration With travel patterns increasingly requiring transferring between adjoining transit agencies’ services, there has been a growing emphasis on the development of multi-agency agreements and integrated regional payment arrangements. As discussed in Chapter 6, agencies are increasingly moving from simple inter- agency transfer agreements to more comprehensive integrated regional payment systems. The emergence of electronic payment options, particularly smart cards, has facilitated the increasing focus on integrated multi-agency payment systems – i.e., introducing a regional farecard that is accepted at any participating agency. The objective is to facilitate seamless travel within a region. True regional fare integration entails all agencies adopting a common fare policy, based on regional passes along with free or discounted inter-operator transfers. However, the use of electronic fare media effectively permits each agency to retain its own fare structure (i.e., passes, base fare levels, discounts) while agreeing to accept a common fare medium. A rider can thus pay for rides on multiple systems with value from a common e-purse. In a smart card system, the rider typically would also have the option to load individual payment instruments (e.g., a pass) from one or more agencies onto the same card. Of course, a smart card can readily support a regional pass as well; the card would track the use of the pass on the different services, permitting allocation of revenue from pass sales among the participating agencies. Finally, with regard to inter-operator transfers, a regional smart card can facilitate linked- trip discounts for such transfers; the previous trip transaction record stored on a card would automatically indicate that the rider should receive this discount when he/she boards the second vehicle. Of course, establishing a regional payment system is a complicated undertaking. As explained in the FTA’s National Guidelines and Technical Specifications for Electronic Payment Systems, “Implementing a regional multiple agency payment system will require fundamental changes from the way each individual agency operates on its own. The integration of card/revenue management functions from several agencies can be challenging. Complex partnership agreements must be developed to address responsibilities, ownership, and allocation of costs and revenues. A clearinghouse or payment settlement process can be established to manage these processes, but all participating agencies must come to agreement on revenue management policies and procedures.”3 3 USDOT/Volpe Center and Multisystems, Inc. National Guidelines and Technical Specifications for Electronic Payment Systems – Regional Fare Integration Requirements ( Summary), August 2000, p. 2

TCRP H-32: Interim Guidebook 8-17 The types of issues/requirements that must be considered in developing a regional fare system generally fall under the following categories:4 • Overall Policy and Business Rules: includes establishing the business structure, including the financial and governance framework and system procurement strategy; addressing customer concerns; and setting fare policy for the region • Technical Requirements: includes developing system architecture and technology standards, and identifying effective implementation staging • Administrative and Customer Support Functions: includes establishing revenue settlement and data-sharing procedures, as well as customer service functions Smart card-based regional payment programs are currently being developed and implemented in several regions in the US, including San Francisco Bay Area, Washington-Baltimore area, Central Puget Sound (Seattle) area, Los Angeles, San Diego and Atlanta. A regional system has been in place in Ventura County (CA) for several years (see inset). The potential scope of such programs is demonstrated by the plan to eventually expand the TransLink program in the SF Bay Area to as many as 26 transit agencies in the region. A number of these programs are also pursuing smart card-based partnerships with non-transit entities (e.g., parking authorities, toll operators, financial institutions, universities, employers and social service agencies).5 Ventura Intercity Service Transit Authority (VISTA) Go Ventura Regional Smart Card Program medium urbanized (200,000 - 1,000,000) In 2001, VISTA and five other municipal transit operators in Ventura County (CA) implemented a countywide smart card program that allows residents to travel easily on any of the systems. This follows completion of an earlier regional smart card demonstration, the Smart Passport project. Like the earlier Smart Passport system, the new system includes contact- less cards. The cards are available for purchase and renewal at many sites throughout the county, as well as by mail. Riders can use the Go Ventura card as either a pre-purchased pass or an electronic purse (money added to the card is deducted each time the rider travels). With the e-purse option, a light will flash on the card reader when the amount remaining is below $5. Riders can easily add money to their e-purse smart cards on most buses. System ridership in- creased over 15% between 2003 and 2004. 4 Ibid. (See this document for a description of these requirements. Regional fare system requirements are also discussed in TCRP Report 32, Multipurpose Transit Payment Media, 1998.) 5 For further discussion of such programs, including case studies of the SF, Washington, Ventura County systems, see TCRP Report 94, Fare Policies, Structures and Technologies (Update), 2003.

TCRP H-32: Interim Guidebook 8-18 Fare Structure Changes Transit agencies sometimes use fare structure modifications to increase ridership; the types of changes that can be considered include the following: • Fare structure simplification (e.g., elimination of fare zones, elimination of express or rail surcharge) • Fare reduction (e.g., introduction of deeply discounted options, reduced base fare, free transfers, or free fare zone/area) These types of actions are described below, including agency examples of each. Fare Structure Simplification Basic fare strategies fall into two general categories: flat and differential. In a flat fare structure, riders are charged the same fare, regardless of the length of the trip, time of day, speed or quality of service. Alternatively, fares can be differentiated by one or more of those parameters, resulting in distance-based or zonal fares, time-based (e.g., peak/off-peak) differential, and/or service-based differential (e.g., express surcharge or bus-rail differential). Each of these approaches has certain advantages and disadvantages, mainly related to relative ease of use and administration vs. ridership/revenue impacts; however, the principal arguments in favor of differentiation have focused on issues related to efficiency and equity. In particular, it has been argued that a higher fare should be charged to cover the higher operating costs associated with serving longer trips, operating peak period service and providing “premium” service such as express bus or rail; otherwise, the users of the higher-cost services are effectively cross-subsidized by the users of shorter-distance, off-peak or local bus services. Differentiated fares are also seen as able to generate greater revenues than lower flat fares, since the users of the higher-cost services (e.g., longer distance) have often been found to be less price-sensitive than those using the lower-cost services. The flip side of the argument in favor of differentiation is that a flat fare structure can produce somewhat higher ridership – depending on the relative price levels. In other words, simplifying the fare structure by removing a zonal (or peak or express) surcharge tends to boost ridership. The percentage of agencies using any of the basic types of differentiation is actually relatively low, and has declined in the past decade.6 Thus, despite arguments such as those cited above, most 6 The exception to this trend is light rail systems, which show a slight increase in both zonal pricing and peak/off-peak differential. Moreover, most commuter rail systems continue to use zonal rather than flat fare structures – and this mode also has by far the highest incidence of time of day differentials.

TCRP H-32: Interim Guidebook 8-19 agencies have continued to display a preference for the simplicity of flat fares. In fact, several agencies have sought to simplify their fare structures in recent years typically by eliminating or reducing the number of zones ( e.g., in Baltimore, Norfolk, Raleigh-Durham, several towns in Connecticut, and throughout Delaware, as well as on buses in Washington, DC). The Chicago Transit Authority is an example of an agency that has removed both a peak/off-peak differential (this existed on buses only) and an express bus surcharge in recent years.7 Another type of fare simplification involves transfers. Nearly 90% of US transit agencies offer free or low-priced transfers. However, a number of agencies have in recent years eliminated such transfers (i.e., bus-bus), replacing them with one- day passes sold on-board buses. Agencies that have implemented this strategy include the Nashville MTA (see inset), Maryland MTA (Baltimore), OCTA (Orange County, CA), DART (Dallas), First State Transit (State of Delaware), and SCVTA (San Jose, CA). The day pass is typically priced so that a rider who must transfer pays roughly the equivalent of two to three linked trips per day. In other words, a transferring rider is not penalized with the elimination of transfers – as long as he/she makes a round trip. For riders who do not transfer, their fare payment is unchanged by the elimination of transfers. In Dallas, the full fare is $1 and the day pass $2, while Baltimore’s full fare is $1.35 and the day pass $3 -- or the equivalent of 2.2 trips per day; OCTA’s day pass of $2.50 represents 2.5 full fare ($1) trips. Those agencies that have simplified their fare structures have generally increased ridership. Based on cases studies (covering elimination of zones and/or transfers at Baltimore MTA, CT TRANSIT and OCTA) conducted as part of the TCRP study, Fare Policies, Structures and Technologies (Update), the major impacts on and benefits to the agencies include the following:8 • The elimination of zone charges did not result in a significant loss of fare revenue, as might have been expected. In both Baltimore and Connecticut, the simplification of the fare structure, coupled with introduction of new fare options, attracted new riders and thus offset the loss of zonal surcharge revenue. Revenue in Baltimore actually rose following the fare restructuring, and has continued to grow since that time. • The sale of day passes on-board buses effectively offset the expected loss of ridership – as well as rider complaints – that might be expected with the elimination of free or low-priced transfers. Moreover, these initiatives resulted in significant revenue increases in both Baltimore and Orange County. 7Of course, it should be noted that the CTA has recently proposed a rail/bus differential (using certain types of payment options), in response to a large budget deficit. 8 TCRP Report 94, p. 19

TCRP H-32: Interim Guidebook 8-20 • These initiatives greatly reduced the extent of transfer abuse and the incidence of rider-operator arguments regarding the validity of transfers. In short, all three of these agencies felt that they have benefited considerably from these fare strategy initiatives. However, it should be kept in mind that, while none of these strategies have any specific technology requirements, the on- board distribution of day passes requires some type of pass-issuing unit if the agency is to avoid having operators be responsible for manual distribution of the passes. Metropolitan Transit Authority (MTA) Fare Restructuring medium urbanized (200,000 - 1,000,000) Following a comprehensive fare study, the Nashville (TN) MTA recently made several significant changes to its fare structure. Beginning in January 2005, the MTA reduced the base fare from $1.45 to $1.10, eliminated the $0.10 transfers, and began to sell 1-day passes ($3.25) on-board buses. The agency had previously installed validating fareboxes capable of dispensing magnetic fare media, making the issuance of 1-day passes feasible. As part of the fare change, paratransit fares were increased from $1.75 to $2.20 and the Downtown $0.25 Zone was eliminated. Pass and stored-value fare- card prices were also modified. The MTA had presented two alternative fare structures to the public, and this one was favored by nearly a 2-to-1 margin (among those expressing an opinion) over a structure featuring an increase in the base fare to $1.60, with retention of the $0.10 trans- fer (and no 1-day pass). The new structure has been readily accepted by MTA’s riders, and two months after implementation ridership (8% higher than in the same period the previous year) and revenue (5% higher) are both up considerably.

TCRP H-32: Interim Guidebook 8-21 Fare Reduction As explained above, under Fare Simplification, some agencies have effectively reduced fares by eliminating surcharges. However, another means of increasing ridership is to simply reduce the base fare or to offer some other form of fare reduction such as making transfers free, increasing the discount associated with prepaid options (i.e., passes and multi-ride options), or introducing a free (or reduced) fare zone or area. These types of strategies are discussed below. Base fare reduction -- Base fare reductions are relatively rare, given the general concern with maximizing revenue. Effective reductions have been widely introduced through prepaid discounts, but these typically accompany cash fare increases. However, several agencies have lowered the base fare in order to increase ridership. For example, Chapel Hill Transit eliminated its fare in 2002 (see inset); as explained in the inset, system ridership has grown considerably as a result, although operating and capital costs have increased as well as a result of the need to accommodate the additional riders. The other examples of base fare reduction within the past decade are also at relatively small agencies (e.g., in Ames, IA; Great Falls, MT; Savannah, GA; LaCrosse, WI; and Huntington, WVA). As explained above, Nashville MTA lowered its base fare late in 2004, but this was accompanied by the elimination of the reduced-price transfer. A few larger agencies earlier experimented with fare reductions, but the fares were subsequently restored to higher levels in these cases; examples include DART (Dallas), which lowered the cash fare from $0.70 to $0.50 in 1984 but subsequently reversed that change (due to excessive revenue loss), and SCRTD (the predecessor agency to LACMTA in Los Angeles), which lowered the cash fare from $0.85 to $0.50 in 1982, and then reversed the reduction in 1985.9 Ridership impacts of these efforts are summarized below. A second approach to reducing the base fare is to do so in conjunction with the elimination of low-prices transfers. Rather than essentially replacing transfers with day passes (see Fare Simplification, above), some agencies have considered the possibility of eliminating transfers in favor of a significantly lower full fare (e.g., reducing the fare from $1.25 to $0.75, but eliminating free transfers). While this will remove the administrative/operational issues with transfers, it can result in a substantial loss of either revenue or ridership (i.e., depending on the specific pricing and the extent of transferring). It can also result in major fare increases for those riders making more than one transfer on each journey. For these reasons, very few, if any, agencies have opted for such an approach to this point. As explained in the inset under Fare Simplification, Nashville MTA reduced its base fare in conjunction with the elimination of transfers, but also opted to introduce an on-board day pass. 9 SCRTD was obligated to offer the $0.50 fare for a period of three years under the terms of the passage of a $0.05 transit sales tax initiative in 1980. Thus, once the three-year period was up, the agency reversed the fare change.

TCRP H-32: Interim Guidebook 8-22 Chapel Hill Transit (CHT) Free Fares medium urbanized (200,000 - 1,000,000) Chapel Hill Transit (CHT) operates public transportation ser- vices within the towns of Chapel Hill and Carrboro, NC and on the campus of the University of North Carolina-Chapel Hill. The Town of Carrboro and the University of North Carolina are part- ners with the Town of Chapel Hill in the operation of the transit system. With the primary goal of addressing on-campus park- ing shortages, the University (and its students) pushed to create a free fare policy. Fares prior to the implementation of the free fare initiative were only $0.75, with various discounted fare mechanisms. However, the towns recognized that accessibility to free public transportation would permit easy access to jobs, educational and recreational ventures to students and the public alike. Thus, the three funding partners agreed to make all regular routes fare free as of January 2002. System ridership has increased considerably since the elimination of fares, monthly ridership in the initial year was as much as 50% higher than for the same month the previous year, reaching a high of roughly 400,000 rides in April 2002. However, service was also increased on some routes that were already at carrying capacity, and both capital and oper- ating costs have increased due to the need for additional vehicles and drivers. Transfer price reduction – Lowering the cost of transferring represents another type of fare reduction. As indicated above, most transit agencies already offer at least reduced-price transfers. However, a third of agencies do charge something for transfers to/from vehicles in the same system. A handful of agencies have implemented transfer reductions in recent years, although there has been a greater trend to move in the other direction – i.e., to charge the full fare (see Fare Simplification). Examples of recent transfer reductions include the MBTA (Boston), which introduced free bus-bus transfers in 2000 in response to strong community opposition to a proposed fare increase, and the NYMTA, which introduced free bus-rail transfers in 1997 as part of the roll-out of its MetroCard automated fare system. An agency can thus consider lowering its transfer charge, or making its transfers free if it currently charges something. However, as with any of these approaches, the resulting loss of revenue must be considered carefully. Increased discounting of prepaid options – The use of discounting, particularly “deep discounting” (i.e., offering discounts of 20% or more compared to the base fare) has been shown to increase ridership – or at least minimize the ridership loss that would ordinarily result from an accompanying increase in the base fare. The sale of discounted multi-ride options (e.g., 10-ride tickets or stored value farecards) can also expand commitment to usage of transit by infrequent riders. When done in conjunction with increasing the base fare, raising the discount on multi-ride options or passes (i.e., keeping prepaid price levels the same when the base fare rises) has even been shown in some cases to increase both ridership and revenue.

TCRP H-32: Interim Guidebook 8-23 CityBus of Greater Lafayette Raising Fares and Increasing Ridership small urbanized (50,000 - 200,000) CityBus of Greater Lafayette has successfully used deep dis- counting in pass and multi-ride pricing to simultaneously increase ridership and revenue. CityBus offers a monthly pass discounted by 33% from the daily round trip fare for 21 days. CityBus also offers a 25% discount on tokens purchased in quantities of 10. This program resulted in significant ridership gains for CityBus; over a period of four years, ridership rose 117%. With regard to the level of the discount offered, there is a fairly even distribution of agencies with discounts of less than 10%, 10-19%, and 20% or more. Approximately 33% of US bus systems offer discounts of 10% or less, nearly 40% offer 10-19%, and just under 30% have discounts of 20% or higher. Among heavy rail agencies, the under 10% percentage is the same as for the bus agencies, but 50% have discounts of 20% or more. However, there has been a general shift over the past few years toward lower percentage discounts. While the incidence of discounts in the 10-19% range is virtually unchanged over the past decade, the percentage of agencies with discounts under 10% has nearly doubled -- with the percentage above 20% declining accordingly. In some cases, this shift has occurred as agencies have moved from paper tickets or tokens to stored value farecards – and now to smart cards at several agencies. In Chicago, for instance, the CTA offers a 10% discount (actually a purchase bonus: $11 value for $10) only with its stored value smart card (Chicago Card); the same bonus was formerly available with the magnetic farecard as well, but was discontinued in an effort to shift people to the smart card. Prior to introducing electronic payment, the CTA had sold 10 tokens at a 17% discount; the discount had been as high as 28%, but had been reduced as part of subsequent fare changes. WMATA and NYMTA are other examples of agencies that offer a 10% purchase bonus with stored value, although like CTA, WMATA’s bonus is available only with the SmarTrip smart card. Introduction of free/reduced fare zone or area – Another strategy some agencies have utilized is introduction of free (or reduced) fare zone or area. This is typically a specified downtown area in which all boardings are free (or at a fare considerably lower than the regular base fare). Some agencies have special routes or services serving the reduced fare area. For instance, MDTA (Miami) has eliminated the fare on its Metromover downtown people mover. GCRTA (Cleveland) operates two special low-fare Loop Routes in downtown Cleveland. Such a strategy certainly generates additional ridership, especially if it is free; downtown workers or tourists who might otherwise walk to nearby locations will tend to use the transit system for shorter trips than they might if a full fare were charged. Approximately 60 US transit agencies have reduced-fare downtown

TCRP H-32: Interim Guidebook 8-24 zones; about half of these are free, while the others typically charge on the order of $0.25 or $0.50. There are a number of tradeoffs inherent in such a strategy, besides the lost revenue. In particular, unless there is a separate route/service, fare payment – and enforcement – for travel starting in the zone and ending in a full fare area tends to be an issue: riders boarding a vehicle within the reduced fare zone may not realize that they have to pay if they ride outside the zone, or they may purposely evade the fare in that way. Such concerns have led some agencies to eliminate their reduced fare zones; Nashville MTA, for instance, decided to end its Downtown $0.25 Zone as part of its recent fare restructuring, due to the combination of fare enforcement issues and the need for additional revenue. Reducing fare levels clearly offers the potential to increase ridership. However, the magnitude of the ridership impacts obviously depend largely on the size and nature of the reduction; for instance, is the base fare itself being lowered or is the reduction only for multi-ride prepaid options? Impacts from several fare reduction efforts can be summarized as follows: • In 1984, DART reduced its cash fare from $0.70 to $0.50 and the monthly pass price from $26 to $20, while removing the $0.10 transfer fee (in favor of free transfers). Ridership rose by 16% following this change, and by 1986, the combination of the fare change and a significant service expansion resulted in a ridership gain of nearly 50%. However, the fare reductions – as well as many of the service improvements – were subsequently reversed due to the resulting significant decline in the fare recovery ratio. • In early 1990, the CTA introduced a new fare structure that featured an increase in the cash fare from $1 to $1.25, but a reduction in the unit price of ten tokens from $0.95 to $0.90. This created a multi-ride discount of 28%. By the end of the year revenue had grown (exceeding the target for the change) with no loss of ridership. • As part of the introduction of MetroCard (see Exhibit 8-5), NYMTA introduced free bus-rail fares (only with use of the MetroCard) in 1997; previously, a second full fare was required to transfer. While the agency also subsequently introduced a stored value purchase bonus and unlimited-ride passes, the free transfer was considered to be a major contributor to a 15% ridership increase by 1998. This change was accompanied by a 4% revenue loss, as well as a significant increase in operating and capital costs – as the higher ridership required substantial expansion of the bus fleet. Exhibit 8-5: NYMTA MetroCard