Fare Capping: Balancing Revenue and Equity Impacts (2022)

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1   The purpose of the Transit Cooperative Research Program’s study that was developed from Project SH-21, “Transit Fare Capping: Balancing Revenue and Equity Impacts,” was to document the planning, implementation, and assessment of fare capping in North American transit agencies. Fare capping is a practice in which users “pay as you go” and are charged according to their accumulated rides taken over a defined period of time; a user’s combined fares over multiple rides cannot exceed the amount a rider would have paid if they had purchased the optimal period pass based on their transit usage. This essentially allows an agency to offer its “best value” fare to all customers, opening opportu- nities to those who are unable to access the discounts afforded by transit passes due to their upfront costs. The motivations for offering a fare cap program vary across transit agencies, but most transit systems want to provide more equitable and efficient service, using modern fare payment technologies. Because of these common motivating factors, the transit industry will benefit from improved documentation of fare cap rationales, outcomes, best practices, and challenges. This synthesis captures the many factors to be considered to successfully design, implement, and support a fare cap policy and program. This synthesis report is structured to help transit agency staff, consultants, leadership, and governing boards better understand the benefits and challenges associated with fare capping, and to assist agencies in the preliminary or planning phase with customer outreach and education components, as well as program implementation. The report highlights lessons learned from other agencies that have successfully implemented fare capping or are currently in the process of updating their fare policies, which often is intricately linked to a change to an agency’s fare collection system. Although the focus of this report is on the policy of fare capping, most agencies cannot offer fare capping without major upgrades to their fare program, including capital investment, back-office upgrades, expansion of payment locations, and increased customer support. This report should be helpful to agencies looking to improve upon their current fare collection system, which may present the option of fare capping moving forward. The report includes (1) a review of literature, including the history of fare capping, early global examples, and related research around equity; (2) a survey of 35 North American transit agencies that recently considered, are in the planning stages of, or implemented fare capping; and (3) detailed case examples for five of the agencies that completed detailed surveys that provide insight into the motivations, program design, implementation, and lessons learned for each of the five examples. S U M M A R Y Fare Capping: Balancing Revenue and Equity Impacts

2 Fare Capping: Balancing Revenue and Equity Impacts The literature review, survey, and case examples yielded numerous insights, including the following. • Motivations – The common motivation for fare capping is the opportunity it presents to ensure that all riders are offered a “fair fare” that addresses price disparities among different fare products. Period passes—including daily, weekly, and monthly passes—typically offer the best value but require an upfront purchase. Fare capping allows riders to incre- mentally earn their way toward these passes, and also benefits those who do not reach the cap by not charging them more if they take fewer trips. – Fare capping is often pursued as part of larger fare program changes or service invest- ment. Although some agencies have pursued a mobile app with a fare capping com- ponent and offered this form of payment in addition to existing fare products, many agencies choose to invest in replacement of, or upgrades to, existing fare boxes, instal- lation of validators, expanded retail sales networks, and online and mobile purchasing. – Fare capping also is often part of long-term policy goals to eliminate cash and fare sales transactions aboard vehicles, improve fare pricing and products, and greatly expand the use of technology for the convenience of the customer and the efficiency of the transit agency. Many agencies have built flexibility into their investments to be able to offer open payment systems—including credit/debit card transactions—and integrate with other mobility tools and providers in the future. • Decision-Making Framework – Fare capping is often preceded by a fare planning study and procurement processes that begin with requests for information to learn more about options, as well as required software and hardware installation, including installation of new fare boxes or validators on vehicles. Transit centers and other passenger facilities also may require ticket vending machines (TVMs). Other components may include mobile app agreements, website investments, marketing materials, agency-wide changes to all fare communication, oper- ator training, and customer service training. The process can last for more than 2 years, but the time frame varied across agencies. – Decisions related to fares have agency-wide implications. Many agencies found it helpful to create a project team using a multi-departmental approach, and often the finance department took the lead. Fare capping can lead to additional investments, and can present opportunities to improve the customer experience and agency operations and expand partnerships in the community. Agencies can limit the scope of their efforts to mobile fare capping, or can completely upgrade all onboard fare technology, intro- duce or expand retail sales locations, conduct extensive travel training, and so forth. – The timing of fare policy changes is critical. It may make sense to align fare capping with new service changes that necessitate more transfers, or to include necessary upgrades to fare equipment in the next fleet purchase. Successfully transitioning to a new fare program requires effective internal coordination, and agencies may want to scale their efforts, or phase customers slowly, to successfully execute changes. • Measuring Impacts on Ridership and Revenue – Fare revenue loss is primarily attributed to three anticipated outcomes: cash riders paying less; current period pass holders, particularly those with monthly passes, not reaching the fare cap when rides are counted individually; and transaction fees for mobile, retail, and credit card payments that are not passed on to the rider. A better understanding of how each agency’s unique composition of riders uses the transit system can help anticipate and plan for these financial and ridership impacts. – There is no common metric used to evaluate the impact of fare capping. Traditional performance indicators such as fare box recovery may continue to be monitored; however, tying fare box recovery to service standards may present long-term challenges.

Summary 3   Agencies may want to expand their metrics to include unlinked trips per passenger (to ascertain how often “caps” are being met or exceeded), sales transactions (to measure third-party costs associated with credit card, mobile, or retail purchases), cash collection, boarding times, operator conflicts, and so forth. Rider surveys can provide information on how the new system impacts users. – Most agencies agree that the impacts on revenue or ridership due to fare capping are unclear. There are too many external factors and, given the recency of implementation by many agencies, as well as the impact of the COVID-19 pandemic on transit agencies, it is difficult to isolate the effects of fare capping. • Impacts to Pass Structure and Pricing – Reloadable smart cards and mobile apps are the two most common methods of fare media to implement capping; these can be offered in parallel with existing media or replace it. For most systems, expanding to card media includes installation of onboard validators or upgrades to existing fare boxes. It also may be an opportunity to streamline fare products, including the elimination of transfers or less utilized fare media. – Fare capping provides the fairest value to all riders, but also requires the ability to load value onto an account. To benefit from fare capping, riders must have alternatives to onboard cash payment, particularly if agencies are looking to retire legacy fare boxes or transition fully to a smart fare system. To extend fare capping benefits to underbanked populations, transit agencies often greatly expand their fare sales locations, including partnerships with retail outlets, investment in TVMs, and expanded community partner- ships. Some agencies also invest in customer service staff, at least initially, to educate and provide travel training to ensure equitable access to the new system. • Implementation – Explaining and promoting fare capping to riders was considered the most important step, and the biggest challenge, by many agencies. Special promotions and targeted campaigns to engage specific audiences and customer markets, including instructional videos, are key. Education, strong on-street customer service presence, and travel trainer programs have helped increase adoption rates, particularly for programs targeted to seniors and those less likely to use an account-based system. – Beyond one-time capital investments—which may include app development, hardware, and software—agencies also should anticipate some new ongoing costs. Agencies have seen an increased need for customer service, at least initially, to help riders transition to the new system. Agencies also saw an increase in their electronic transaction fees, although some have attempted to mitigate this through promotions that incentivize larger and less frequent loading of value. However, investments to enable fare capping often include the expansion of sales outlets and more locations for riders to add value to fare media, resulting in fewer onboard cash transactions, which can lead to faster boarding times and decreased costs related to cash collection and handling. – How an agency implements fare capping can greatly impact adoption rates. If the transition to fare capping is voluntary, riders may be reluctant to change to a new system; if it is mandatory, public education and outreach are critical. Operating two fare systems in the long term can be confusing to riders and operators. If agencies can anticipate and plan for the customer support structures (additional sales locations, public outreach), they can transition more riders and realize the operational benefits (e.g., less cash handling, faster boarding times) from a smart fare program. • Technology and Innovation – The investments in technology that allow agencies to offer fare capping also present new opportunities to expand pass programs with schools, employers, tourism partners, and social service agencies. By expanding the ability for third parties to subsidize and promote transit, more riders will benefit as the cost of fares are mitigated through ease of the new system.