The "Fiscal Cliff" Looming for Urban Railroads in the U.S. and Measures Against the Issue

The 159th Transport Policy Colloquium -Washington Report XIX-
※Language : Japanese

Date / Time	Fri, Mar 29,2024 10:00～12:00
Venue	Japan Transport and Tourism Research Institute (JTTRI) 2F （Zoom Online Webinar is also available　※Languages: Japanese only）
Event Number	The 159th
Theme	Lecture and Comment 　Lecturer：　　　OKABE Akito 　　　　　　　　　Research Fellow, Japan International Transport and Tourism Institute, USA （JITTI USA） 　Commentator：　KATO Hironori 　　　　　　　　　Professor, Department of Civil Engineering, The University of Tokyo 　Discussion 　Coordinator：　YAI Tetsuo 　 　　　　　　　　　President for Research, Japan Transport and Tourism Research Institute (JTTRI)

Event Summary

　Since the COVID-19 pandemic, U.S. transit agencies for urban railroads are facing a looming operating budget shortfall or “Fiscal Cliff.” Major media are reporting the issue as an imminent crisis of the railway industry. In the short term, the agencies are expected to maintain their operations with relief funding from respective state governments. However, some states are imposing conditions such as increasing ridership and implementing cost-cutting measures. Transit agencies must now work on achieving greater management improvement.
　This Colloquium reports latest trends concerning the “Fiscal Cliff” and focuses on “private sector partnership” as one of the mid- to long-term solutions for the issue. Today, many of urban railroads in the United States are run by public entities. Would it be helpful to embrace private-sector insight in order to improve their management? The Colloquium has examined this possibility and associated issues, in light of factors including U.S.-specific circumstances.



Main related SDGs

Program of the seminar is as the following

Opening Remarks	Tetsuya Okuda 　President for International affairs, Japan Transport and Tourism Research Institute (JTTRI) 　President, Japan International Transport and Tourism Institute, USA（JITTI） 　President, ASEAN-India Regional Office（AIRO）
Lecture	OKABE Akito 　Research Fellow 　Japan International Transport and Tourism Institute, USA （JITTI USA） file
Comment	KATO Hironori 　Professor, Department of Civil Engineering, The University of Tokyo file
Discussion	Cordinator：YAI Tetsuo 　 　　President for Research, JTTRI

Outline of the seminar

Overview
　Since the COVID-19 pandemic, U.S. transit agencies for urban railroads are facing a looming operating budget shortfall or “Fiscal Cliff.” Major media are reporting the issue as an imminent crisis of the railway industry. In the short term, the agencies are expected to maintain their operations with relief funding from respective state governments. However, some states are imposing conditions such as increasing ridership and implementing cost-cutting measures. Transit agencies must now work on achieving greater management improvement.
　This Colloquium reports latest trends concerning the “Fiscal Cliff” and focuses on “private sector partnership” as one of the mid- to long-term solutions for the issue. Today, many of urban railroads in the United States are run by public entities. Would it be helpful to embrace private-sector insight in order to improve their management? The Colloquium has examined this possibility and associated issues, in light of factors including U.S.-specific circumstances.


Outcome of the Colloquium
Research Fellow Akito Okabe of JITTI USA conducted a presentation titled “The ‘Fiscal Cliff’ Looming for Urban Railroads in the U.S. and Measures Against the Issue.” Its highlights are as follows:

■Introduction
〇Background
・U.S. transit agencies for urban railroads are facing a looming operating budget shortfall or “Fiscal Cliff” since the COVID-19 pandemic. Major media are reporting the severity of the issue.
・In the short term, the agencies are expected to maintain their operations with relief funding from respective state governments. However, some states are imposing conditions such as increasing ridership and implementing cost-cutting measures. Transit agencies must now work on achieving greater management improvement.

〇Perceived issue
・In Japan and Europe, the private sector often takes the lead in running railway operations, making use of the sector’s creative inspirations. In the future, would the United States consider delegating railway operations to the private sector as a way of promoting management reforms?

〇Research questions
1. In the United States, are there any cases whereby the private sector handles urban railway operations? What are mainstream schemes?
2. In the United States, are there any cases whereby private-sector lead in running railway operations have led to improvement in urban railway management? What improvement has been achieved?

■Overview of urban railroads in the United States
・Urban railroads in the United States are used primarily as an environmental measure and also to provide means of transport to the economically disadvantaged who cannot afford a car. Many of them are managed by public corporations, typically set up by state governments. ・Their operations rely on funding from state governments. However, this funding does not have a broad-based support, with opposition led by Republican supporters.

■Current status of the “Fiscal Cliff”
・Transit agencies are facing a serious operational fund shortfall, depicted as the “Fiscal Cliff.”
・State governments are providing additional funding while also mandating ridership increase and introduction of cost reduction measures to transit agencies to full accountability (mainly to the opponents of such funding).
・If their management does not improve, funding may be cut back, potentially causing significant scale-down of urban railroad services.
・Transit agencies are facing a serious phase (change of tide), having to make greater efforts for management improvement and produce results.

■Basic information on urban railroads’ operational schemes (corresponding to Research Question 1)
・As a whole, many urban railroads are run by public entities as they are positioned as “public works projects” and also from the perspective of worker protection.
・At the same time, there are some cases whereby private-sector operators run such services, especially commuter transit systems. Many of them are operated in the “Contract Operation” model, in which public entities bear the responsibility and risks of such operations.

■Management improvement through service operation by the private sector (corresponding to Research Question 2)
・While it is difficult to fully resolve operational fund shortfall with private-sector involvement, the case of Keolis, which has powerful presence in the North American market, shows that their strengths (marketing data analysis, etc.) can be utilized to promote initiatives, achieving improvement in management indicators.
・Additionally, in order to achieve successful management improvement, it appears important to adopt schemes such as securing continuous support, primarily funding, from public entities, and offering the private sector with incentives (to implement new measures).

■Summary
・Urban railroads in the United States are facing a looming operating budget shortfall, dubbed “Fiscal Shortfall,” and must make even greater efforts than before to achieve management improvement.
・This study has focused on “service operation by the private sector” as a means of establishing management improvement, and examined the current status and outcome of private-sector involvement in urban railroad operations in the United States.
・Results have identified cases whereby the use of private-sector insight has achieved improvement in management indicators, albeit only to some extent, even in the United States, which gives railroads a different positioning to other countries.
・In light of America’s unique positioning of urban railroads and the perspective of worker protection, the country is unlikely to rapidly embrace the trend of private-sector involvement. Yet it could become one way of bringing about quantitative improvement results.
・The COVID-19 pandemic brought difficult conditions to urban transit agencies in the United States. This change in business environment has prompted them to work toward building sustainable business operations (that do not rely on public funding too much). More in-depth debates are expected to emerge on topics including a review on operational schemes.

This presentation was followed by comments by Professor Hironori Kato of the Department of Civil Engineering, the University of Tokyo. He quoted existing studies in referring mainly to COVID-19’s impact on cities and the relationship between operational format and performance.

Finally, questions were received from the audience for Q&A and further discussions, as outlined below:

【JTTRI Research President Yai】（Question from the audience）
There are reports of deaths and injuries among passengers and workers of U.S. railroads. Does that point to lack of sufficient safety investment and safety education? Is there anything that should be highlighted in terms of budget?

【Research Fellow Okabe】
Safety is an issue for the entirety of the United States. In the country, daily operational funding is complimented with a separate budget from the federal government, indicating the federal move to ensure safety.

【JTTRI Research President Yai】（Question from the audience）
I believe Japan’s railway technology can bring improvement to the U.S. issue of service quality. Does Japan have a chance in entering the U.S. market as a service operator?

【Research Fellow Okabe】
I do believe we have a chance of market entry as an operator. However, the range of service areas for commuter transit is significantly different between that for New York and those of Japanese private railways. They would have different characteristics even in the same application. Japan may have an opportunity of market entry in terms of the standard of services, but we must pay attention to the scale and positioning of U.S. railroads.

【JTTRI Research President Yai】（Question from the audience）
U.S. cities have the level of population and population density equivalent to those of Japan’s regional cities. Is there any insight that can be applied to regional Japanese railways? Public transport services in regional Japanese cities also cannot sustain their operations without public funding, and similarly face a looming Fiscal Cliff.

【Research Fellow Okabe】
Having lived in the United States for three years, I feel the environment surrounding U.S. railroads is similar to that of Japan’s regional railways. There has been discussion in Japan on whether regional railways should be maintained and whether public funding should be provided. The U.S. approach to railway services and funding might be able to give suggestions to regional Japanese railroads.

【JTTRI Research President Yai】（Question from the audience）
May I ask Professor Kato about the scarcity of studies on the improvement of service quality. What evidence (what should be used to measure service quality) do you think will be useful in the future?

【Professor Kato】
Measuring service quality is a difficult task. The presentation by Research Fellow Okabe used “railway security at stations and in cars” as an indicator of customer satisfaction in the United States. Security might be an important indicator in the United States, but it might not be even considered as an indicator in today’s Japan. Factors that indicate service quality could differ from country to country based on underlying cultures and conditions. Identifying service quality factors that are shared among countries and regions will make it possible to compare service quality between different cities. When it becomes possible to directly compare service quality between Japan and the United States, the high quality of Japan’s railway services can be objectively presented to the United States.

【JTTRI Research President Yai】（Question from the audience）
Transit agencies’ direct involvement in the development and value enhancement of wayside communities is expected to bring increase in revenues from train fares and related business operations. What is U.S. view on this? Is there any debate on privatization that goes beyond the scope of Contract Operation?

【Research Fellow Okabe】
Station precinct development must be incorporated in order to fundamentally increase ridership of urban railroads in the United States. The critical factor in U.S. ridership decline is teleworking. It is difficult to simply increase railroad users. Rather, station buildings must be redeveloped to boost the appeal of station precinct as an incentive for magnetizing users. In this aspect, initiatives by Japan’s private railway companies might become useful. Some U.S. transit agencies are already taking this into account, with Washington Metro publicly expressing its intention to focus on transit-oriented development (TOD). Yet, their initiatives appear to be on a smaller scale, such as replacing car parks with apartment blocks. I’d suggest they utilize private-sector resources to take on TOD on even a greater scale.

【Professor Kato】
The spread of telework during COVID times is one of the factors that have caused railroad ridership decline. At the same time, many urban rail users in the United States are middle- to low-income earners. If middle- to low-income earners represent most of current railroad users, would they find any appeal in TOD involving the construction of highly value-added condominium complexes in station precinct? Many TOD projects are underway in Washington DC but I have been told that they are not progressing terribly well. Could Mr. Okabe tell us whether the characteristics of railroad ridership are affecting TOD?

【Research Fellow Okabe】
Yes there is definitely an impact. In the example of Washington Metro I cited about apartment complex development, the apartments they are building are more affordable ones, accessible by low-income earners. The project is linked to the characteristics of U.S. railroad users.

【Professor Kato】
What about commercial facilities? Would the development of commercial facilities in station precinct be an appealing proposition to low- to middle-income earners?

【Research Fellow Okabe】
That would not be very appealing to low-income earners, but should have plenty of appeal to middle-income earners. There are several commercial facilities that fall under this scenario in Virginia, and all of them appear to be flourishing.

【JTTRI Research President Yai】
It is important to talk about TOD. Station precincts of LRT in San Diego lacked vitality and suffered from poor security initially. However, the construction of condominiums atop stations and residential buildings nearby in a TOD redevelopment project have improved security and general living environment around stations.

【JTTRI Research President Yai】
It is sensible to formulate an approach based on the status of urban railroads in the United States. Yet, we must remember that there are unique factors specific to the country. In the United States, many metropolitan areas have long-standing legislations stipulating the development of transport vision and long-term plan.
This system has been reinforced to ensure public transport development as a means of transportation for the economically disadvantaged, based on reflection that past emphasis on highway development left urban areas poorly serviced in terms of transportation. Regional vision, roles of transport modes including railways and busses, and relevant land use are all covered under the long-term plan. Transit authorities also envisage railroad track development and operation with the target year set as 2040 or even 2050. Business considerations must take these factors into account.
（END）