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Home > Publications > Central Banker > Fall 2004 > The Costs and Benefits of Light Rail

Central Banker | Fall 2004

The Costs and Benefits of Light Rail

Each day, millions of commuters, tourists and students rely on regional rail transit as their primary source of transportation to and from city centers. More than 50 cities in the United States currently provide rail transit as part of their regional public transportation. Nationwide, regional rail systems logged over 900 million vehicle miles and 24 billion passenger miles in 2002. In comparison, bus service amassed 1.8 billion vehicle miles and 19.5 billion passenger miles, and private automobiles logged 1.6 trillion vehicle miles and 2.5 trillion passenger miles.

But light rail is growing.

Over the past several decades, the rapid expansion in city suburbs and a more environmentally conscious public have led city officials to believe that light rail can help alleviate traffic congestion and pollution. In addition, dozens of metropolitan areas across the country also see rail transit as a form of public transportation that can encourage economic development-if light-rail stations are strategically placed and city officials and private developers cooperate with one another.

The four greatest perceived benefits from light rail are:

  • reducing traffic congestion,
  • reducing pollution,
  • increasing property values and fostering economic development, and
  • providing a means of transportation for the poor.

The Cost of Providing Light-Rail Systems

Our research finds that light rail is cost-inefficient compared to using private automobiles. Additionally, the burden for most light-rail costs is placed on America's taxpayers-even those who don't ride light rail.

Construction costs: Most light-rail systems receive federal subsidies that cover a large portion of the construction costs. The remaining construction expenditures are paid through earmarked tax revenues or bond issues-paid by future tax revenues.

Operation expenses: Fare revenues only cover a small portion of operating costs; therefore, most light-rail systems across the country require hundreds of millions of dollars per year in taxpayer subsidies in order to operate. Specifically, fare revenue covered less than 30 percent of light-rail operating costs for three cities: 28.2 percent, St. Louis; 21.4 percent, Buffalo; and 19.4 percent, Baltimore.

Benefits of Light-Rail Transit

Let's look at two familiar issues.

Traffic congestion and pollution: Light rail may only provide a short-run solution to traffic congestion and pollution. In order to permanently alleviate unwanted traffic congestion and pollution, policy-makers must address the root cause of both, the inefficient pricing of roadway usage.

Traffic congestion and pollution exist because the costs of driving automobiles are artificially low. Although car owners must pay to purchase, insure and maintain their cars, they do not pay for the pollution and congestion they impose on others. To permanently reduce traffic congestion and pollution, policies must be enacted-such as, implementing toll roads or increasing gas taxes-that force drivers to bear the full cost of their automobile usage.

However, research also has shown that light rail may provide a more optimal level of traffic congestion by serving as a marginal reducer of traffic congestion during peak hours. This possibility alone would make the congestion reduction from light rail quite significant.

Higher property values: Many academic studies have shown that commercial and residential property values can be higher when the properties are close to a light-rail station. Economic development from light rail doesn't occur for free, however. Millions of tax dollars are used to cover the construction and operating costs of light rail. Bottom line: In order to obtain an accurate assessment of light rail's net economic development benefits, one must subtract the cost of taxes from the total value of any development that occurs.

Should Light Rail Be Abandoned?

Even though it is relatively expensive to implement light rail, we do not suggest that communities abandon this mode of transportation. If a society obtains some intangible benefits from having light rail in its community, then one could justify the costs. The problem for economists and city planners is that it is very difficult to place a dollar value on these intangible benefits. In addition, light rail should certainly be considered if it will reduce congestion and pollution in the local area, as well as create economic growth. A basic cost-benefit analysis requires that we both measure the tangible and intangible benefits and also accurately subtract any subsidies from the economic-development gains.

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