Mass transportation fares typically are set below the level necessary to cover full costs, and the difference is made up by government subsidy intended to create the social benefits produced when people use transit. In the United States, revenues from passenger fares typically pay from 10 to 70 percent of operating costs, the lower number representing lightly used suburban services and the higher number reflecting intensely used downtown corridor services. The other 30 to 90 percent comes from state, regional, and local subsidies. Limited federal operating subsidies were made available beginning in 1974, allocated in proportion to the scale of each city’s transit operations. The federal role in providing operating subsidies has been declining, and state and regional governments, along with transit riders (through increased fares), have made up much of the difference.

Commonly, capital costs for new transit investments in the United States are paid entirely through government subsidies. The federal government has offered capital grants for mass transportation since 1964. Decisions about investments in new fixed-guideway transit services have been made cautiously, and only a few such systems have been supported. Federal capital subsidies can cover up to three-quarters of the cost of the investment.

Service quality and quantity

The amount of service offered, especially the geographic and temporal extent of mass transportation, will determine which trips are served. To meet the needs of captive riders, broad coverage of the region, the day, and the week is desired. Choice riders are more likely to consider transit for work trips to dense employment centres during peak periods.

The most important service quality attribute is travel time from origin to destination. Several factors contribute to travel time. The first is the average speed of the vehicles, determined in part by their rate of acceleration and maximum speed but strongly influenced by the distance between stops and the dwell time at stations. Electric-rail vehicles can accelerate rapidly and may have top speeds of 70 mile/h, but if stations are only one-half mile apart, the average speed may be less than 30 mile/h. While longer distances between stops mean higher speeds and shorter travel times, the time it takes for travelers to get to and from stations will increase. Thus, to the traveler, increasing station spacing may not decrease door-to-door travel time.

Travel time also is affected by the frequency of service, the time interval between vehicles. If transit vehicles depart every five minutes, the travel time experienced by riders will generally be less than if vehicles are dispatched at 15-minute intervals. If the transit service operates reliably on a published schedule, travelers can reduce this waiting time by planning their arrival at the station to coincide with vehicle departures. Services that are slow or unreliable relative to the automobile will primarily attract captive riders, while those offering competitive travel times, usually those operating on exclusive guideways, are appealing to both markets but have the strongest prospects for attracting choice riders.

The price of transit is less important than service quality to choice travelers, because under most circumstances mass transportation fares are lower than auto costs. Because captive riders tend to have lower incomes than choice riders, increasing the price of transit can be a special burden to them; yet their dependence on mass transportation makes them less likely to switch modes in the face of a fare increase than choice riders. Even captive riders find price to be less important in mode-choice decisions than service quality factors such as travel time and reliability. Field experiments show that improving other service factors, such as comfort, safety from crime, and cleanliness of vehicles and stations, contributes less to ridership increases than improvements to the basic service attributes of travel time, frequency, and reliability.