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2007-01-16 SubmittalsRelated Brookings Resources • One Percent for the Kids Isabel V Sawhill, ed. Brookings Institution Press (2003) • Welfare Reform and Beyond: The Future of the Safety Net Isabel V. Sawhill, R. Kent Weaver, Ron Haskins, and Andrea Kane, eds. Brookings Institution Press (2002) • The New World of Welfare Rebecca Blank and Ron Haskins, eds. Brookings Institution Press (2001) • Ending Welfare as We Know It R. Kent Weaver Brookings Institution Press (2000) • For more information on the Center on Children & Families and a full archive of the CCF (formerly WR &B) Policy Brief series go to wwwbrookings.edu/ecf AAA t ;evr:::z uN t.Di :EN ti; The Brookings Institution 1775 Massachusetts Ave. N.W. Washington, DC 20036 Center on Children & Families #35 1 Iigh Cost or High Opportunity Cost? Transportation and Family Economic Success t\iARGY \V.vl✓l.t_R R esearch suggests that having a car is a worthwhile investment tit in better outcomes lour lows- income families. Recent reports quantify., the additional money required to own and operate personal vehicles, as compared to the Tower cost of traveling on public transit. However, this method of accounting fails to consider the fact that poor workers without i car may not be able to search Inr or accept a batter - paying job because public: transit doesn't take them there, causing these workers to lose income or benefits as a result. This report outlines opportunity costs experienced b5 transit - dependent poor house- holds, and concludes that w hen all costs are considered along with benefits of private vehicles, it makes sense to press for more assistance and policies that reduce car ownership costs for poor workers. 'T'he typical parent who leaves welfare for work earns about $8 an hour. Many such parents are eligible for publicly funded work supports like child care, food stamps, Medicaid, and the Earned Income Tax Credit, but few poor families get all the support they are eligible to receive. In addition, as they struggle to meet family needs, poor parents face transportation complications, including lengthy commutes on public transit. For these financially stressed families, the cost of buying and maintaining a car can create difficult financial tradeoffs. Yet, the opportunity cost of going without one weighs heavily on these poor households. THE HIGH COST' OF PUBLIC TRANSIT Making do without a reliable car requires poor households to rely on others or on the local public transit system. Public transit can work well for poor workers in dense urban areas, and its advocates proclaim that transit reduces sprawl and congestion and leads to better air quality. Yet, in 2000, fewer than 5 percent of workers took All Policy Briefs are available on the Brookin Submitted by David Howard at the 01 -16 -07 Council Meeting under Oral Communications POlJ ( iMargy Waller is ea Visiting Fellow at the BP Fol;ings institution. 2 public transportation to work, while nearly 88 percent commuted by car. Despite significant public investment in public transit, usage continues to decline as a percentage of urban travel. Nevertheless, poor workers are more likely to commute by public transit - especialIy bus —than are higher income workers. Transit- dependent low- income households often pay a high price for going without a personal vehicle as transit often fails to meet their needs. The poor represent a higher percentage of bus riders than subway riders, and a higher percentage of subway riders than commuter rail riders. While many new jobs are located in the suburbs, public transit rarely takes central city residents all the way to the door of suburban employers. Consequently, a car or another means of transportation is required to take workers from the rail stop to the suburban job. Fortunately, there are still many jobs for entry - level workers in cities, providing a rationale to invest in public transit for densely populated urban areas with a high concentration of employers and housing. Unfortunately, low- income riders are often underserved by central city transit systems as policymakers cut funds for heavily utilized inner -city bus lines in order to subsidize the more costly suburban commute. In recent years, transit investment has tended to focus on rail services over buses, and suburban commuters over Center on Children & Families #35 city riders. A 1981 study revealed that the per passenger public operating subsidy for co ..muter rail was at least. three times more than for bus service. Since then, much of the public investment for capital expenses has targeted rail transit rather than buses. Unfortunately, extending rail service does little to meet the needs of low - income commuters, while improving frequency of service on heavily traveled inner -city bus and subway routes can do more to meet the needs of transit- dependent low- income workers than increasing reverse - commute options. Thus, it's not surprising that local decisions to invest heavily in rail expansion over improving bus service have created controversy and civil rights objections. In Los Angeles, bus riders successfully challenged the local transit agency's decision to spend 70 percent: of its budget on rail services when 94 percent of its customers were bus riders. Flat fares for public transit present another example of the high transportation. cost of being poor. Low - income transit users travel shorter distances than others and thus pay more per mile than higher - income riders, subsidizing the commute of those with higher incomes. Most transit systems use these flat fares, rather than distance fares that adjust to reflect distance traveled. The General Accounting Office (now the Government Accountability Office) December 2005 determined that during the 1990s almost three- fourths of all welfare recipients lived in central cities or rural areas, while in over 100 metropolitan places three - fourths of all jobs were Located in the suburbs. Even when there is bus service, it often does not go to suburban job Locations. When public transit does go from city to suburbs, hours of service do not always match the commuting needs of entry - level workers who are assigned night and weekend shifts. In rural areas, public transportation options are scarce and have limited hours of service. In both cases, public subsidy is relatively high because public trans- portation can rely heavily on rider fares only when there are many paying riders getting on and off at frequent stops. It would be prohibitively expensive to expand public transportation suffi- ciently to meet the needs of all low - income workers. Further, the effect of access to public transit on the likelihood of employment for welfare recipients is mixed at best. One recent study in six metro areas finds that better access to public transit had no effect on employment for welfare recipients. Other research suggests that access to better public transit service has a small effect on employment outcomes for welfare recipients who do not have access to a car. By comparison, people with cars are more likely to work, and car owner- ship is positively associated with higher earnings and more work hours. Improving inner -city transit service would better serve those residents who remain transit dependent. POOR FAMILIES PAY MORE FOK CARS Car purchase and ownership, despite obvious advantages over transit dependency, can be difficult for low - income households. Surveys of welfare recipients find that poor parents often cannot purchase a car, either because they cannot afford the initial investment or because the cost of maintenance and insurance is prohib- itive. While only 8 percent of all urban households do not have a car, 27 percent of households with annual incomes below 820,000 do not. In poor households with at least one car, transportation takes up about 23 percent of total expenditures, just slightly more than higher income households. However, the fact that a household has access to a vehicle does not mean all adults of working age have reliable access to the car. ;Members of poorer households are likely to share a car, while non -poor households tend to have more than one car for each potential driver. In addition, cars used by poor drivers are more likely to be older and in worse condition, requiring expensive repairs within a year of purchase. Nevertheless, most poor households seek access to a car as the sprawling nature of many metropolitan areas, work. places, and residences virtually requires private vehicle transportation. In Center on Children & Families #35 December 2005 addition to reducing commuting time and improving employment and housing options, cars provide flexibility for planning trips that require multiple stops, as well as safety when transit service is limited or at night.. Surveys reveal that poor families are likely to pay a higher purchase price than higher income families buying comparable cars, pay a higher interest rate to finance the purchase, and pay more for insurance. A Brookings Institution report assessing prices paid for necessities by low - income working families in Philadelphia estimates that car buyers from low - income neighborhoods "pay over $500 more for the average car than car buyers from higher - income neighbor- hoods." Furthermore, most households with annual earnings under $30,000 pay a higher interest rate on car loans than the average rate paid by all house - holds. Some low - income workers do not qualify for mainstream financing and pay much higher interest rates because they must use subprime financing companies for a loan. Others purchase from "buy here /pay here" dealers who offer what they describe as an interest - free car deal, but charge as much as 50 to 75 percent above costs, or include a hefty "service fee." Some poor car owners also pay more for insurance when providers use credit ratings to set insurance premiums. Insurance industry officials assert that this practice is justified because drivers with poor credit scores are more likely to file claims. A study by officials in Michigan noted that some drivers facing higher rates had never used credit, and yet companies penalized them for their lack of credit history. People without a banking relationship often pay bills with cash or a money order and `could be charged a higher insurance premium. Drivers whose personal history does not include late payment or default are penalized by this approach. In addition to use of credit. ratings, insurance companies base premiums on location of drivers. Insurance company officials create these "territorial ratings" based on claim experience in the areas. A 2005 review of rating terri- tories in Maryland reveals that the insured's driving record and experience, as well as how the car is driven, have less impact on the insurance premium than where the driver resides. For example, the report finds that on average a driver living in central Baltimore City pays 60 percent more than the same driver would pay living in Baltimore County. The risk of an accident may be higher in a low - income neighborhood, but all drivers are paying for the higher business cost of offering insurance in that neigh- borhood regardless of personal driving records. Furthermore, insurance rates are flat, forcing low - income drivers to pay more per mile for coverage since they travel fewer miles than higher income drivers. Center on Children & Families #35 December 2005 THE OPPORTUNI'T'Y COSTS OF TRANSPORTATION BARRIERS While car ownership increases trans- portation expenditures, and personal vehicles are currently out of reach for some low - income households, a true accounting of costs must also consider the benefits of car ownership and the opportunity costs of going without a car. WORK. In the last century, residential and employment patterns in metropolitan areas have reversed. In the early 1900s, almost all urban residents lived and worked in central cities, but today two - thirds live in suburbs and three- quarters of jobs are located there too. Meanwhile, over half of the metropolitan poor live in central cities and the suburban poor may still live far from work. Bridging this spatial mismatch is difficult. Work requirements and time - limited welfare assistance policies moved a number of scholars to map the location of welfare recipients and the jobs they might fill, as well as public transit options to connect recipients to these increasingly suburban employment opportunities. These maps provide a clear picture of spatial and modal mismatch between workers and jobs, by illustrating the difficulty of using public transit to link them. Employers report that transportation is a major barrier to retaining former welfare recipients, or even hiring them in the first place. Some metropolitan places retain many employment oppor- tunities in the central city. However, unless central city transit systems are well designed and funded, transit. service in dense urban areas can still be unreliable, infrequent, crowded, or require lengthy commutes. TIME. Recent reports reviewing trans- portation expenditure data fail to take the cost of travel time into account. Low - income households put a premium on time and report that they would prefer to pay more for shorter transit trips than to have lower fares. Transit travel generally takes longer than travel by car, even in cities with extensive transit service. Averaged across all households, commuting to work takes over twice as long on public transit as commuting by private vehicle -42 minutes compared to 20. Relying on transit makes it quite difficult to take care of everyday family responsibilities that go well beyond the usual to -work -and -back travel. A single mother may need to take one child to out -of -home care and a second child to school. In addition, most parents go to the grocery store as part of the multi -stop "trip chain" between work, school, and other errands. Transit is not suited to this kind of everyday travel because it takes more time than driving. HOUSING. In her study of Consumer Expenditure Data, Evelyn Blumenberg determined that car ownership is positively related to home ownership, Center on Children & Families #35 December 2005 despite the fact that low- income house- holds with vehicles have higher expen- ditures for transportation. Over 44 percent of low - income households with a car were homeowners, while less than 20 percent of those households without a car owned their home. Furthermore, low - income households with a car spent less on their housing than low- income households without a car. The inter- section between housing choice and car ownership deserves more study, as the cause of lower costs and higher rates of homeownership is not clear from these data. Several reports consider the possi- bility that car ownership provides low - income households with greater housing choice because they can drive to places where land costs are lower and housing is less expensive. Blumenberg finds that low- income car owners are more likely to live in new housing, which she notes may be in suburbs. Other research suggests that the cost of housing near rail transit stations is increasing, pricing low- income house- holds out of that market, and forcing moves to urban areas with less access to transit service. SHOPPING AND SERVICES. Although much of the academic literature focuses on the importance of cars for trans- portation to work, access to a reliable car can also allow poor parents to drive to the cheapest grocery store and take advantage of the suburban proliferation of shopping and service options with better prices. The market is usually not as competitive in urban neighborhoods of higher poverty; in rural areas, there is limited access to any of these stores and services without a car. LOW - INCOME TRANSPORTATION POLICY Many scholars have found strong relationships between access to a car and employment rates, hours worked, and earnings. A number of these researchers have called for investment in car ownership assistance. The federal government recognizes the investment value of an education and subsidizes post - secondary training with Pell Grants, student loans, tax incentives, and more. Federal policy acknowledges the need for child care and health coverage for low - income workers and increased funding for both after welfare law changed. While these investments fail to meet current needs, they signal federal interest in supporting low - income workers with proven and promising services. However, the federal government has taken only small steps toward implementing policy in response to academic research on transportation, car ownership, and employment. In 1997, as part of transportation reauthorization legislation, Congress and the Clinton administration created the job Access and Reverse Commute (JARC) fund for innovative solutions to transportation problems faced by poor workers. JARC requires local officials to develop locally responsive transportation plans, for example, improving fixed -route transit service in dense urban areas and implementing demand- responsive options in less- Center on Children & Families #35 December 2005 dense places. Unfortunately, federal and local agency practice makes it difficult to use the funding for solutions that involve car purchase. In early 2000, President Bill Clinton proposed a package of initiatives to address transportation barriers. His administration increased the appropri- ation for JARC grants and adopted rules making it easier for states to ensure that having a car did not prevent eligible families from receiving food stamps. Clinton also proposed making federal funding available to match savings of low- income working families who need a car. Congress did not take up the savings proposal until after the Clinton administration ended and has not yet passed bills containing the provision. In his first term, President George W. Bush proposed to eliminate the vehicle asset test in the food stamp program to ensure that owning a car was not a barrier to eligibility. However, Congress did not pass that proposal and the administration has not renewed it. Left to manage the transportation dilemma with limited federal support, many state and local governments have supported creation of car ownership programs. There are now at least 160 programs supporting car ownership for low - income households. Some programs use donated cars repaired by welfare recipients newly trained as mechanics; others purchase cars at auction or assist welfare recipients with purchase decisions while subsidizing Center on Children & Families #35 auto loans. These are all small programs, generally requiring a financial contribution from partici- pating families. Local entrepreneurs who create these programs are a long way from meeting existing need for automobiles. State and local budget decisions threaten funding for car programs. In recent years, programs in Arizona, Georgia, and New York lost all or most of their funding in budget cutbacks. Perhaps because these programs are relatively new and small, to date there is no experimental research using control groups and random assignment to assess the impact of car ownership programs. However, in a recent evalu- ation of a subsidized car ownership program in Vermont, Marilyn Lucas and Charles F. Nicholson used models to control for other factors and found that the Vermont program led to statis- tically significant increases in both employment and income. Earned income increased by about $220 per month, approximately two -and -a -half times higher than earnings prior to receipt of the car. Even after controlling for other effects, the researchers determined the impact of car ownership was between $124 and $127 per month, while individuals were 19 percent more likely to have earned income after getting a car. The researchers found that the cost of the car to the program is made up within a few months, as earnings replace welfare cash assistance. December 2005 1)0L. l?'I7'It0 RIM C= t. NT1NUr D) )ng 1a Al. ?t)0 . "(.ar )ownership and Lell4e >to- \Vork." +asrrz to" Poitei %tnaltisisund araagenaent 21: 239 -252 F'ucher, John, Chris Ifendiriclson, =abed Sue M eil. Sociot(Onoinic haractertstics or'1'ransit Riders: fla Recent. Evidence." Ju4fie txrrterly 35, no 3: 461 -483. Pitcher, John and John Renne. 2003. "Socioeconomics of Urban Travel: 1 vidence from the 2001 \1 ITS." Transpiniatiou Ouarterly 57, no. 3: 49-77 Sanchez, Thomas, t ling Shen, and /hong -Ren Peng. 2004. `Ii ansit lMohilit,. Jabs Access and Cum - income Labour artic ration in US Metropolitan' as." Urban Studies 41: 1:313 X1331. U,S. Genert) Accounting ()Bice. 1998. 'Welfare Re[orn: Inplernenting 0011 :a css to Jobs Program" AAC:3/RCE - 99 -36. atdron . 'fum. January 2005. ttnada! Discrimination: City Residents Pa} up to 1984 More for Car Insurance than County Residents" F3altimare, iti117; hr>Il Foundaticua. Z�erll \larg:t aril llarkAlan Hu Res. August 1999. " Gilorl ing ar I�rgm 1ltuota: Transportation i-elf re Reform in the len #ig'atatcs. Washington: IPP1. Other researchers, such as Paul M. Ong, have controlled for the fact that the relationship between car ownership and positive employment outcomes could result from another factor; after implementing these controls, these researchers find that the relationship persists. More formal evaluations would provide valuable information about effectiveness of the public investment in car - ownership assistance on employment and measures of family well- being, in addition to assessing the effectiveness of particular approaches. New public investment would highlight transportation barriers and evaluate programmatic responses. A bipartisan Senate proposal would allow Congress to appropriate up to $25 million for each of the next five years to fund a national competition for grants to run programs that "improve access to dependable automobiles" for low- income families. A similar stand -alone hill in the House of Representatives would authorize up to $50 million per year and expand options for state and local providers to match Individual Development Account savings for car purchases. Both bills require an evalu- ation of funded programs. Congress should pass these bills to provide state and local governments and providers with resources for experimen- tation and evaluation. Still, many low - income workers will remain transit dependent. Policymakers should support investment and policy that is equitable for low - income transit riders by encouraging use of distance fares and improved service in dense urban areas. Finally, increased funding for JARC should be made available so that other local transportation strategies to increase opportunities for low- income workers can be developed and tested. J Tell us what you think of. this Policy Brief. E -mail your comments to feedback@brookings.edu. The Brookings Institution 1775 Massachusetts Ave., NW Washington, DC 20036 NONPROFIT ORG. U.S. POSTAGE PAID FREDERICK, MD PERMIT NO. 225 Center on Children & Families #35 December 2005