Public transit is highly subsidized and in no U.S. city does it come close to covering costs. Yet transit continues to be a vital service that advances the economic, environmental and social goals of cities. Because subsidies are baked into the system, and because farebox collection is often a negligible percentage of revenue, some call for making the service free at point of use. Benefits would include easier boarding, lower dwell times, more access, and higher ridership.

Some cities have followed suit. Kansas City eliminated fares entirely in 2019. Boston is currently pursuing a pilot of free bus service on three local routes. The move is increasingly popular in activist circles, but would it achieve the goal of actually improving transit? The answer is context-sensitive, which we dive into here.

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Where it won’t work: legacy cities

“Legacy cities” are America’s older dense cities, particularly the major Northeastern ones, along with Chicago and San Francisco. This is where U.S. transit use is highest.

Yet despite high use these agencies face significant debt, often owing to their union workforce. The MBTA, for instance, is saddled with obligations from the Big Dig project, and overall was $5 billion in debt as of 2017. Farebox revenue doesn’t cover the full cost of service, or even half of it. Altogether, such revenue covers around 20-30% of costs. But this is not an insignificant sum; by comparison, many transit agencies in sprawling non-legacy cities have farebox recovery in the single digits. If MBTA and other legacy agencies stopped collecting fares, it would be financial suicide considering the mix of lost revenue and current obligations. This would require transit agencies to request tax increases, adding even more burden to residents.

Moreover, funding is limited and there is a conflict between eliminating fares and increasing service. Surveys show that riders primarily value the quality of service—how reliable, frequent, and comfortable service is. If fare revenue disappears because the service becomes free, that will reduce the system’s ability to maintain existing quality, much less expand service. While Boston made one of its busiest bus routes free of charge as part of the aforementioned pilot, it did so by reimbursing the transit agency, a model that can’t easily be replicated system-wide.

Another concern related to free transit provision is that without a payment barrier, crime on transit could increase. Already, this is a growing problem; in New York City, violent crimes on the subway have spiked in recent years, with a 200% increase since around this time last year.

Instead of moving to abolish fares, agencies ought to take steps to increase overall ridership and thus revenue. There are many ways to do this—denser development around stations, cost cutting, etc.—but one of them is to better automate payments. This would reduce the friction costs of using the system, which is part of why activists want transit free to begin with.

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Where it might work: small cities

The picture is somewhat different in smaller metros, where ridership (and thus fare collection) is low. In Olympia, WA, for instance, local operators determined that the expense of procuring fare equipment would be prohibitive compared to just eliminating fares.

The largest city in America to do away with fare collection entirely is Kansas City. The city made transit free at point of use in 2019. Unlike the legacy cities, revenue from fares was only $8-9 million per year, partially motivating the move.

But even here, fare policy hasn’t increased ridership much. According to Census data, transit’s mode share in metro Kansas City is only 3%. If land use isn’t conducive to ridership—the region’s density is 260 people per square mile—then transit will struggle, free or not.

Still, there may be a way to make transit free and better-used, including outsourcing the service. In 2021, we wrote for Catalyst about how Arlington, TX—which did not previously have a system—decided to contract with microbus service Via. The city has seen high customer satisfaction and cost savings compared to other cities with government-run systems. Via charges fares for Arlington users, but there is nothing stopping a small city from hiring Via to provide free service for all riders, with the city giving the concessionaire sufficient funding to cover all expenses. This would eliminate the frequent concern that arises with such pilots regarding fare payment by app, which excludes people without smartphones.

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Private cities

Perhaps the most interesting context is in private cities. Many privately-governed areas, such as theme parks, office parks, airports and universities, have extensive shuttle networks which are free at point of use. Disney World, in fact, operates one of America’s busiest systems, with a larger bus fleet than all of metro Phoenix.

Disney’s system is not “free” in the technical sense—costs are baked into ticket prices. But it’s free at point of use for the same reason elevators are in tall buildings—as a way to enhance the experience of visiting Disney World.

In these cases, transit functions as an amenity which adds value to the overall property. Some Georgists have thus argued that transit should be free and solely financed via a land value tax by revenues from the adjacent benefiting developments.

Some master-planned developments have included private transportation networks of their own on this principle. Culdesac, the planned “car-free” development in Tempe, will run its own bus service. A similar development in Utah that is branding itself as a “15-minute city” anticipates doing the same, connecting to the local bus system.

The best approach with this free transit debate is incremental. Small cities might try it using proven vendors. Larger cities can test it with their public systems on select routes. And of course, there is a brave new world of private city formation that is happening worldwide, and many of them could delve into free transit as a way to add convenience to residents. All these experiments ought to be observed by transit providers.

[This article was originally published by Independent Institute, and was co-authored by Scott Beyer.]