Subsidies in General and a Foot Ferry Subsidy in Particular

Daniel Appell: Sept. 26, 2011

Let’s assume that subsidies by municipalities are to be avoided. They encourage inefficiency, require skilled administrators, and expose the municipality to a number of liabilities. These are valid arguments, but they don’t altogether rule out the need for subsidies.

Subsidies tend to have a political component that can promote the agenda of either a corrupt and/or incompetent administration. But I do believe there is an argument for subsidies at the planning level, and I think this argument can be applied to the establishment of a permanent ferry service between downtown Nanaimo and downtown Vancouver.

To justify a subsidy three questions must be answered:

Does the community benefit from the service, or what is the value of the service?
Could the service be provided without subsidy?
Does the community have the resources to subsidize the service, or what is the cost of the service?

To answer the first question we have to admit that a dollar figure in terms of benefit is almost impossible to calculate. I certainly don’t have the resources to do it. The best I can do is point out that when we have had this service our economic indicators generally trended to the positive. This is entirely anecdotal and could easily be the result of some other factors. However, we would be making the connection to Vancouver and greater Vancouver easier. This is the financial and intellectual capital of our province, third largest urban economy in Canada, one of the top twenty economic and cultural centres in North America and one of the top one hundred urban centres on the planet. Connections like that, do tend to help.

Who would benefit from such a connection, is another part of the same question. By using very simple planning tools we can make some predictions as to the breadth and depth of the benefits. In general, the breadth of a benefit (how many people benefit from a service) is determined by the efficiency. The more efficient the mode of service, the more people are likely to benefit. The depth of a benefit is determined by comparing the cost of the service and the carrying capacity.

For example, let’s compare two modes of transportation: walking versus travel by car. Walking is an extremely efficient mode of transportation. When we compare distance traveled over resources consumed walking exceeds car travel by far. We find that everyone benefits when someone chooses to walk instead of drive. People who only drive benefit from other people walking. They get less road congestion, they pay less for gas, the air they breath is slightly cleaner and so on. However, the cost associated with walking is almost nothing. The walker might have to pay a little more for footwear and that’s all. So the depth of benefit is shallow.

Cars have a very deep benefit. This is evidenced by the extremely high cost to buy, service and drive a car, and yet almost everybody has a car. The efficiency of a car, however, is so low that the breadth of benefit is limited to the car driver and perhaps the passengers.

So based on these principles, we can predict, to some extent, the breadth and depth of benefits of a foot passenger ferry. We know that this type of transportation is the most efficient mode of ferry service. It is safe to say the number of people benefitting from this service is going to be as high as is possible.

Predicting the depth of the benefit is trickier, but we have had this service before and we know from experience that around $25 a trip generates enough ridership to support the service. This is a little less then twice the value of the same service on BC Ferries and a little less then half the value of the float plane service.

It’s interesting to note that in this instance, subsidies can be used to disperse the benefit. If subsidies where applied to lower the cost of a ride and increase ridership more people benefit. However, the depth of benefit is decreased. If subsidies where adjusted to increase the costs, then the traveler would be less inclined to make frivolous trips that waste capacity and reduce productivity.

Could this service be provided without subsidy? Based on the number of instances the user-pay system failed we can predict that a repeat of this model will fail as well. But based on passed experience, we know we don’t have to fully subsidize the service, and we have a pretty good idea of the cost of this subsidy. We can use subsidies to insure that service encourages productive uses, while maximizing capacity, and guaranteeing steady, continuous service. Beyond that there is a margin that sustains the service provider.

Do we have the resources to subsidize the service? At the moment, I would have to say, ‘no.’ We are facing the prospect of increased costs of all services provided by the city, plus increased utilities costs by other providers. As well, our present council has allocated extra funds for more frivolous uses. So I don’t think we will have the resources to apply an extra subsidy. However, if we took the subsidy we currently apply to the conference centre and applied a portion of that to support the foot ferry I believe the benefit to the community would be far broader and far deeper then the rumoured benefits of a conference centre.

Whereas the conference centre will continually cost the city, I suspect that the foot-passenger service would result in enough of a boost to our economy so as to provide more tax revenue then what we spend on the service.

While this last statement might be a tad difficult to prove, I make it to point out that occasionally there are monetary dividends associated with subsidies. I believe there is the potential for a small dividend to be reaped here. Good planning and clever administration could make that happen. A subsidy for a foot-ferry is very much worth considering.

Advertisements