South-Western College Publishing - Economics  
Cities See the Light (Rail)
Topic Government and the Economy ; Economics and the Environment
Key Words light rail, Portland, subsidy, environment
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Reference ID: A151560955

News Story Portland, Oregon, is in an enviable position: The city is a leader in light rail urban transportation. In fact, its MAX system, begun over 20 years ago, is one of the country's largest systems with about 44 miles of track. Other cities are beginning to look at Portland's success, and are hoping to get on the successful train before it leaves the station.

Light rail systems involve trains running on above-ground tracks using electrical power. Other cities, such as Albuquerque, Louisville and Atlanta, are considering adding light rail to their public transit systems to alleviate ever-increasing highway traffic.

Light rail systems are expensive, though. Portland's MAX system cost over $1.6 billion over 20 years. While the federal government subsidized a significant portion of its costs (50-80%), it's still not cheap. What's more, construction costs have continued to rise over the last 10 years, making sprawling train systems all the more expensive. At the local level, property taxes are usually increased to help pay for it--so locals need to enthusiastically buy in to the need and benefits of such systems. Higher gasoline prices are helping people "see the light" about light rail. Bus travel in Tulsa, Oklahoma, has increased 28% in the last year, and Austin, Texas has seen its bus traffic increase by 14% over the last year. But while bus service can be expanded far more cheaply than implementing a light rail system, cities are loath to do that. Buses have a reputation as being travel for the poor or the drunk. Light rail is seen as a better alternative.

But will middle class Americans give up their love affair with SUVs? Some cities are betting that they will, especially if Americans can surf the web wirelessly on light rail trains. Or if they can use charge cards similar to SmartPasses used on toll roads. Now those are reasons to leave the driving to somebody else!

Discussion Questions:
1. Why is the government willing to partially subsidize installation costs of light rail systems nationwide?
2. If bus service is so much cheaper, why are cities eschewing their public buses in favor of light rail? Use a cost/benefit analysis to frame your answer.
3. Suppose you were given the option of designing a light-rail public transport system for your city or town. What would it look like, and where would it go? Why would you choose those destinations?
Multiple Choice/True False Questions:
1. Congestion is an example of a(n)
  1. External benefit
  2. Normal cost
  3. External cost
  4. Opportunity cost
2. If people are driving less and taking the train more to offset higher gasoline prices, then public transit and cars must be
  1. substitutes
  2. complements
  3. normal goods
  4. luxury goods.
3. In the presence of external benefits, private consumption (e.g., automobile traffic) is , and government may implement a to compensate.
  1. Too low; tax.
  2. Too high; tax.
  3. Too low; subsidy.
  4. Too low; tax.
Source "All Aboard!" The Economist. 31 August 2006.
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