Mass Transit Accounting ?>

Mass Transit Accounting

Before you complain about the cost of a ticket on NJTransit, understand that your ticket covers only a quarter of the cost of providing you the service.  Complain if you will that the train is late or dirty or the bus driver is rude.  The fact is that someone else kicks in three bucks for every dollar you spend.

Businesses account differently for spending on land and factories, things that last a while (capital spending) and on supplies, salaries, and electricity, stuff that is used up this year (operational expenses).  The federal government makes no distinction between the two as it spends money.  Money spend on highways is the same as money spend on salaries for the Department of Transportation.  Whether this is the right way to account for government spending is the topic for another discussion.

In business a capital expense is spread over a few years.  A new factory tool costs $10 million this year.  That’s money out of pocket.  It will last ten years, during which time it might cost $200,000 per year to maintain it.  The company recognizes expenses each year of $1.2 million, $1 million in depreciation and $200,000 in maintenance.  It is to the company’s benefit to maintain the machine.  A well-kept machine might be productive for twenty or thirty years.  It may cost more to maintain a machine in later years.  Each year the company will evaluate whether it is better to spend more on maintenance or to buy a new machine.  You probably do this with your automobile.  When it starts spending too much time in the shop, it’s time to replace it.

When the federal government gives money to local transit agencies, it asks the transit agency to act like a business as it does its accounting.  The transit agency, New Jersey Transit or Amtrak, for example, keeps track of its operational expenses in a form called the profit and loss statement and keeps track of it capital expenses in a balance sheet.  The federal government makes grants to transit agencies in two forms: operating expense subsidies and capital grants for buying new trains and busses and building or renovating tracks.

Getting two checks from the government leads to peculiar behavior.  When you know that every year you will get a check to pay for new track, stations, and trains, you have less incentive to take care of the ones you have.  That’s not to say that you’ll leave your bicycle out in the rain.  It means that you are less likely to replace the tires this year if you know you will get a whole new bike next year.  The 2016 NJTransit capital budget is $2.099 billion, three quarters of which comes from the federal government, and a quarter from the state.  None comes from fares.

NJTransit had 2015  operating costs of $2.116 billion, covering labor ($1.256 billion), fuel and other expenses.  Of that, $1.005 billion was covered by fares.  The rest was subsidies.  Fares pay only 49% of operating costs, not enough even to pay for salaries and benefits.

Yes, in short, your ticket on NJTransit covers less than a quarter of the cost to carry you.  And that’s not unusual for any mass transit system in the United States.

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