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Commentary By Charles Hughes

No, Mayor Bowser, Don’t Fund Metro through Ride-Sharing Taxes

Economics Tax & Budget

The 2019 budget proposal from D.C. Mayor Muriel Bowser would increase taxes on ride-hailing services such as Lyft and Uber in order to increase funding for the beleaguered Washington Metro system, among a slate of other tax increases. Metro has struggled with a series of problems, from reduced service to falsified inspection reports to fires on the system.

Under the proposed budget coming up from a vote at the D.C. Council, more than $80 million will be raised for the Metro system through a series of tax increases. Commercial property taxes would be increased slightly by two cents, and the sales tax would rise from 5.75 percent to 6.0 percent.

Most strikingly, the gross receipts tax on for hire vehicles, which includes rides hailed on platforms such as Via or Lyft, would increase from 1.0 percent to 4.75 percent. The budget estimates that this additional tax would generate $17.3 million in FY 2019, rising to $19 million by FY 2022. A $10 ride would have previously incurred a $0.10 surcharge, but this would rise to $0.475 under the new framework.

This new proposal is far from the first time officials have sought to increase funding to the system in an effort to address Metro’s many problems. The tragic accident at Fort Totten brought a stern condemnation in the report from the National Transportation Safety Board, and WMATA embarked on a multi-year, $5 billion capital improvement project. To some extent, these capital investments improved the Metro’s infrastructure.

However, the system continues to be plagued by poor service and disruptive incidents including fires. Sections of the Metro are often closed for extended periods for maintenance, and in some cases every line is adversely affected. Poor performance and lack of reliability have made other transit options more attractive, including but not limited to ride-hailing services.

The proposed tax increase represents a reversal for Mayor Bowser, who last year said "There are a lot of things that are cutting into Metro ridership. I would put first among them the year-long SafeTrack [maintenance] program, and also the cutting back of hours at Metro. So I wouldn't start with Uber, I would start with Metro itself."

None of these other factors affecting WMATA ridership have changed significantly since she offered that response.

It is plausible that the proliferation of ride-hailing services has reduced transit use, but this is far from the only explanation for declining ridership and the other assorted troubles plaguing the Metro. As the figure below indicates, a report from WMATA acknowledged that the effect of ride-hailing companies on ridership was one of the areas that was least understood, and beyond the direct control of the Metro.

Factors Identified as Influencing Ridership

Source: Washington Metropolitan Area Transit Authority, “Understanding Rail and Bus Ridership,” Finance Committee Information Item III-A, October 12, 2017.

Other areas were better understood and more directly under the control of the Metro and the D.C. government. According to the report “at least 30% of rail losses in 2013-2016 were due to decreasing customer on time performance.” Service quality, trackwork, fare policy, and service levels were all estimated to have similar potential adverse effects on ridership as ride-hailing services. Raising the tax from 1.0 percent to 4.75 percent would seek to bring those platforms under tighter control, and use them as an outlet to generate more revenue for the system.

Instead of making people using ride-hailing services pay more, the District government should focus on improving service and reliability. Here the Metro has shown some preliminary signs of improvement, as on-time performance for FY 2018 to date is 90 percent, compared to 77 percent the year before. Even with this improvement, performance is worse during morning and afternoon peak hours, when commuters need to know they will get to work on time, and not face endless delays on the trek home.

Metro and D.C. government officials could steer some funds from personnel-related expenditures to Metro. According to the Metro’s proposed FY2019  budget, personnel costs will account for 71 percent of operating expenses, followed by services at 17 percent. Making ride-hailing customers pay more to finance the Metro system, without taking substantive action to rein in labor costs, is both unfair and doomed to be ineffectual.

District residents would benefit from a Metro system that provides reliable service. A series of problems have made other options, including but not limited to ride-hailing, more attractive. Performance improvements could help Metro staunch ridership declines, and incremental progress is occurring.

Raising taxes on ride-hailing trips is not the way to generate funding for the Metro. It would make a reliable option more expensive, and it would do nothing to address the underlying problems that limit Metro’s effectiveness.

Charles Hughes is a policy analyst at the Manhattan Institute. Follow him on Twitter @CharlesHHughes.

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