Why SEPTA's New Institutional Pass Program is a Sea Change for How Transit Is Funded in Philadelphia

A few weeks ago SEPTA announced a new pilot initiative, SEPTA Key Advantage, that has the potential to seriously transform the transit agency’s business model in exciting ways that could create a lot more stable local transit funding.

If approved as a permanent initiative by SEPTA’s Board in the upcoming fare tariff vote later this spring, Key Advantage could lead to improved service, restored ridership lost during the pandemic, and a popular new employee benefit for tens of thousands of working people in the Philadelphia region. 

The operating idea behind this new initiative is the concept of the “institutional pass.” Institutions will buy passes in bulk from SEPTA, and automatically include them as an employee benefit for everybody who works at that institution. And then because everybody at the institution is included in the deal, SEPTA is able to offer those institutions a bulk price discount. 

The initial pilot will include workers at three large regional employers: Penn Medicine, Drexel University, and Wawa, and all together, about 15,600 workers will be eligible to receive discounted employer-paid monthly Anywhere passes for a six-month trial period starting May 1st.

This is a win-win-win for SEPTA, employers, and the public interest in transit’s success and growth. SEPTA gets some more certainty about the revenues they can plan to receive in the medium-term, and—time will tell—they should see some increased ridership too. Participating institutions get to offer their workers a popular and affordable new benefit at a time when recruiting and retaining talent has become more difficult in a booming economy, and this is also a nice inducement for more of their remote workers to start coming back into the office. Some articipating institutions could also reasonably justify mothballing their aging parking assets in the future, some of which are nearing the end of their useful lives, particularly in University City near Drexel’s campus. 

The broader public wins a more stably-funded transit system with less vulnerability to federal and state political shifts and greater ability to expand service, less traffic congestion on our roads, and hopefully more remote workers coming back to in-person workplaces and supporting the local economy.

The program isn’t yet open to institutions beyond these first three, and is structured as a pilot because the SEPTA General Manager is constrained in her ability to create permanent programs without Board approval. In order for this program to continue past the initial six months, the SEPTA Board will need to approve it in the upcoming fare tariff vote this spring. So far there’s no sign of Board resistance to that, but it means there’s going to be some time before new institutions beyond the first three can sign up, likely in early Fall. 

According to some unnamed sources, there’s apparently been a good amount of interest from companies reaching out to SEPTA since the announcement (and even some companies who were allegedly a little miffed they weren’t asked to be part of the first-round cohort.) Early indications suggest the limiting factor for the program’s growth (at least in the short-term) may be SEPTA’s ability to scale up the necessary administrative capacity to handle all the contracts, rather than tepid interest from potential partner institutions. These are great problems to have, and luckily for us all, SEPTA has a very smart and capable team of staffers on the case. 

One irony of the way things evolved with the institutional pass concept at SEPTA is that while many of the early conversations about this idea from 2013 and 2014 centered around bulk fares for university students, with the goal being to copy the successful and expansive university pass program in Pittsburgh, SEPTA’s initial pilot phase will not include college students even though Drexel University is one of the trio of pilot institutions. 

The unofficial plan at SEPTA is to branch into student passes in a future phase of the program, because as it turned out, new employee benefits were relatively faster and more straightforward to stand up than new student benefits are, and student passes will become part of the mix eventually.

Advocates who have long worked to advance the university pass concept within SEPTA—an effort that I have been closely involved with personally from 2014 through the present day—are largely not disappointed by this outcome, however, and are thrilled with the significant progress that’s been made advancing the institutional pass concept within SEPTA, and with SEPTA’s success in recruiting these large employers for the pilot phase. 

The main supporters of this effort have included the SEPTA Youth Advisory Council, 5th Square, Clean Air Council, and the Transit Forward Philly coalition, who worked with staff allies at SEPTA to overcome the internal resistance and neutralize the various arguments that had kept the concept from advancing for many years.

Transit advocates and transportation environmentalists had gotten turned onto this idea after becoming aware of success stories from Pittsburgh, Seattle, Chicago, Washington D.C., Columbus, OH and many other places. With Greater Philadelphia possessing key ingredients like a more expansive regional public transportation network than many of the other university pass cities, and an even more extensive collection of higher-ed institutions in the region, it seemed clear that applying something like the Everybody-In pass model from Pittsburgh to the Philadelphia region could be even more successful here. 

The potential exists to sign up a truly massive number of potential transit riders by automatically putting a monthly pass into the hands of every college student and university worker, from custodians to administrative staff to professors. According to Campus Philly’s most recent annual report in 2019, enrollment at their partner schools in the greater Philadelphia region was over 278,000 people, just counting students alone, so covering most students and university workers would present a major opportunity for growing transit ridership and revenue.

For various reasons, the student pass idea on its own was not enough to generate much action from SEPTA under the administration of then-General Manager Jeff Kneuppel, and while some good progress was made in socializing and beginning to analyze this idea, it ultimately didn't gain any traction. 

A key moment came in 2020 when advocates were able to secure, with the support of then-brand-new General Manager Leslie Richards and her team, a small grant from the American Public Transportation Association (APTA) to produce original research on applications for institutional transit passes for large employers, university students and workers, City government, and residential apartment buildings. 

SEPTA brought even more funding to the table for this, and Econsult was contracted to create a financial model to explore the possibilities with more rigor. This was a key step because up until that point, the financial viability had been a sticking point for advancing such a program, and this financial analysis was able to clear away some of the internal barriers that were getting in the way of SEPTA actually putting forth a concrete proposal. The pandemic situation also played a catalytic role in increasing SEPTA management’s interest in the institutional pass idea because it quickly emerged as one of the ideas best suited to winning back both some revenue and ridership in larger quantities.

Another important piece of context has been the very fluid situation around federal emergency support for transit, and a soon-to-be-volatile state transit funding picture where scheduled changes to the state revenue stream for PA transit agencies have the potential to make state funding—SEPTA’s largest revenue source—less predictable starting this year in 2022. So the desirability of a new stable local revenue source that can be used in flexible ways increased greatly in the eyes of decision-makers during the pandemic. 

Now that there’s a framework for institutional passes in place, the sky’s the limit for where this concept can go next. 

Large and medium-sized employers are the tip of the spear, but bulk-fare boosters have a vision of covering many more populations too, like university students, the municipal and School District workforces, and residents of multifamily residential buildings. We can have a city where most people have their transit costs covered in a way that is invisible to them, through their job or their place of residence, making transit feel free to the pass-holders and encouraging more use of the region’s transit network.

In that future, with SEPTA receiving a larger and more predictable amount of local revenue in big chunks from all these different sources, the agency would also be in a better position to increase service frequency, or expand service to more places, or support targeted fare cuts like fare-capping, additional free transfers, or fare parity between regional rail and transit fares within city limits. 

There are complementary changes very much worth pursuing too, like introducing a new free or discounted low-income transit pass, ideally paid for by state government for transit agencies across Pennsylvania, or by making the school pass for public school students aged 12-18 universal for everyone rather than limiting it only to students who live farther than 1.5 miles from school. 

These changes, combined with the existing free transit pass that seniors 65 and over receive, and the recent policy change making transit free for kids under 12 in the company of a fare-paying adult, would complete the safety net for transit, ensuring that someone’s ability to pay isn’t an obstacle for accessing public transportation. 

The news about the institutional pass pilot, which was described in the press as a “free” pass for the three companies’ workers in many of the headlines, led some observers to question why we shouldn’t just make transit free for everybody and pay for it with state or city tax dollars instead. Free transit as an idea has an alluring simplicity to it that resonates more deeply with some than the vision of bulk fares everywhere. But there's a fundamental disconnect with this premise in that bulk fare deals create new money for SEPTA, while making transit free at point-of-use for everyone costs money—a lot of money. 

It's worthy saying, there are important ways that fare-free transit would undeniably have positive benefits, perhaps most in terms of operational efficiency. As just one example, even though a bus has two doors where people could board, it’s agency practice to have everybody line up and board only through the front door of the vehicle for fare-collection reasons, slowing everything down. There’s a cost to administering the fare system, and there are also time costs and efficiency costs involved in prioritizing fare collection over ease of use.

But free transit supporters, though their hearts may be in the right place, are operating with too rosy a picture of the political lift that would be involved in replacing all the revenue from fares for a large system like SEPTA. Before the pandemic, fares brought in around $500 million a year. SEPTA's new FY 23 Operating Budget proposal now projects that over the next 6 years, fare revenue will bring in $1.86 billion, or around $310 million a year.

For context, the amount of state transit funding that’s currently at risk for the entire state is around $450 million a year, of which SEPTA receives about three-quarters. Keeping just that existing state funding intact is going to be a very heavy political organizing lift, but roughly doubling the amount of revenue that SEPTA would need from Harrisburg expressly for the purpose of going fare-free sounds next to impossible even under the most ideal circumstances.

But there’s also a bigger question about whether this is even a good goal to aspire to, even if it were possible for a brilliant organizing campaign to win full replacement of all the fare revenue with state tax money from Harrisburg. SEPTA has a lot of ambitious service improvement projects and infrastructure plans in the works, but the question of how frequently they can run the trains and buses really comes down to the size of the agency’s operating budget, and a large portion of the operating budget now comes from fares. Operating funds are the hardest funds to come by, so the problem isn't just that free fares would forfeit a lot of revenue, but specifically that they would forfeit a very valuable kind of revenue that is not easily replaceable the way state and federal funding buckets are set up today.

Under the circumstances, there’s arguably an even more compelling equity rationale for a strategy of protecting what fare revenue we do have, while also trying to increase the amount of fare revenue that SEPTA collects in order to provide better and more reliable service to transit riders across the region who rely on transit to connect them to jobs and opportunity. 

Thanks to the new SEPTA Key Advantage program, getting more fare revenue doesn’t have to mean raising base fares on the backs of riders. The agency can collect it by effectively making the sale to thousands of different institutional partners across the city and region, growing the total pie of revenue while also giving the agency more cushion to make more targeted fare cuts for the people who can least afford to pay. 

Whether it all works out exactly like supporters envision, only time will tell, but for the moment it is worth taking a pause to celebrate the sea change at SEPTA, and appreciate the potential of the opportunity that’s been created here. 

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  • Jon Geeting
    published this page in Blog 2022-04-22 16:01:40 -0400