How Capital Metro is able to offer free rides

Last month, Capital Metro announced that for the month of October, it would waive all bus and train fares as a way to encourage people to use public transit and to ease recent service interruptions.

The decision to waive fees isn’t exactly new for Capital Metro. The agency will provide free rides for things like holiday celebrations, transportation to polling places, and most noteworthy in recent memory, during the early stages of the pandemic last year.

Given that most businesses aren’t usually able to operate while rendering services for free, it’s worth digging into how Capital Metro is able to subsidize rides for its customers.

The key comes down to the transit agency’s relationship with the city of Austin. The agency was created in 1985 not through entrepreneurship, but through a mandate by the Texas transportation code that required the city to operate a transportation system.

This relationship helps explain some major parts of the agency’s structure and operations, like how members of Austin’s City Council sit on the board of directors. It’s also why the majority of Capital Metro’s funding comes not from fares, but through taxes.

Right now, a 1 percent sales tax is implemented in all of its service areas. In Fiscal Year 2020, this amounted to more than $262 million in revenue for Capital Metro. In comparison, revenues from transportation services were more than an order of magnitude less, amounting to around $23 million. The money received from taxes made up 60.7 percent of all revenues.

The agency finished FY2020 with a net position of $735.6 million.

Capital Metro’s ability to remain solvent is tied directly to its sales and commerce in Austin and surrounding areas – and in spite of everything that’s unfolded over the past year and a half, the agency is in strong financial shape.

Not only did sales tax revenue not dip significantly in 2020, it’s also increased a lot in 2021. Capital Metro’s most recent monthly report showed that, by August, money collected from taxes was 17.6 percent higher than was budgeted for year-to-date.

The agency also received $101.9 million in CARES Act funding, an amount that put it $71 million over its revenue projections last year.

Capital Metro estimates that waiving fares in April and May of last year for the pandemic cost an estimated $3.8 million in revenue not collected. A spokesperson for the agency told the Austin Monitor that suspending fares this October will cost about $1 million.

Cap Metro doesn’t have any plans to subsidize this lost revenue – largely because it doesn’t need to.

This financial position allows Capital Metro to view waiving fares not necessarily as an opportunity cost, but an investment in cultivating its customer base.

“The short-term fiscal impact of free fares is worth the long-term gains in ridership and trust from our customers,” Capital Metro spokesperson Tawaun Cole said. “We are confident that our finances will remain balanced and healthy, as they have been consistently for years.”

Looking at Capital Metro’s proposed budget for Fiscal Year 2022, the agency is expecting total revenue to be $658.1 million and its ending balance to be $303 million.

As for how effective waiving fares has been in attracting riders, the answer is still unknown. Compared to September, ridership is up 8.5 percent this month, but it’s not exactly clear that the reason is because of free fares.

“It seems free fares are playing a role in the increase,” Cole acknowledged, “however, there are other factors that could have played a role in the increase as well.”

Photo made available through a Creative Commons license.

The Austin Monitor’s work is made possible by donations from the community. Though our reporting covers donors from time to time, we are careful to keep business and editorial efforts separate while maintaining transparency. A complete list of donors is available here, and our code of ethics is explained here.