Study: Decrease of commuter benefit bad for transit

Posted on November 16, 2010

Mass transit, nationwide — which experienced a three percent ridership decline during the recession — faces further ridership challenges in 2011 as a result of the expiration of an American Recovery & Reinvestment Act tax provision that helps defray the cost of getting to work, according to a new study.

The new economic study was released by TransitCenter Inc., a nonprofit provider of commuter benefit programs that promotes mass transit to improve air quality.

The Federal provision, enacted in 2009 in the stimulus bill, nearly doubled the maximum pretax deduction that workers could apply toward monthly commuting costs from $120/month up to $230/month. This lowered the net cost to get to work for many employees participating in a commuter benefits program and created parity with monthly pretax deductions allowable for parking. The increase in the transit benefit cap to $230/month is set to expire at the end of 2010 and return to its previous level of $120 per month.

This imminent drop in the benefit cap will result in an increase in the cost of commuting of up to 22 percent (assuming a tax rate at the national average of 31.6 percent), according to the report, commissioned by TransitCenter and conducted by management consulting firm Bennett Midland. In turn, this will lead to an estimated 5 percent to 9 percent drop in demand for public transportation among this group — a figure based on Bennett Midland's analysis of previous studies on the impact of price on transit usage (price elasticity).

These studies show that for every 10 percent increase in price there is roughly a corresponding 3 percent to 5 percent decrease in ridership.

The report is based on data gathered from transit systems throughout the U.S. and a range of analyses on changes in ridership to mass transit systems and the impact that the increased transit benefit cap has had on trends related to commuting costs and economic influences on the use of transit services.

Separately, TransitCenter shared a preview of findings from an upcoming employer and employee study that examines the impact of the increased transit cap amount to $230/month. The report indicates that enrollment by employers in commuter benefits programs increased considerably after the monthly cap was raised, especially at medium and large companies:

  • 60 percent of employers with offices in multiple cities reported that employees increased their pre-tax deduction.
  •   29 percent of employers saw higher enrollment in commuter benefits programs.

For a copy of TransitCenter's white paper regarding the impact of the $230 cap, email [email protected].


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