Editorials| Public Goods

The Financing Of RapidKL Bus Services Needs A Major Rethink

Lower ridership during CMCO has led to bus route cuts in the Klang Valley. Can the current funding model keep buses running and prioritise the interests of the public? We argue for a fundamental review.

By Aziff Azuddin | 8 January 2021


Since November 2020, RapidKL has terminated 13 bus routes throughout the Klang Valley, to general outcry from public transport users. Low ridership was stated as the main factor, driving RapidKL to restructure existing routes in order to optimise resources and assets. An outcome of this restructuring so far has been the scaling down of several bus routes in Shah Alam, Kajang and central KL.

The COVID-19 pandemic has undoubtedly been bad for public transport ridership, with the implementation of social distancing SOPs, a workforce that is increasingly working from home, and the general fear of being in public spaces. To some extent, the government’s introduction of the temporary MY30 monthly pass in June 2020 – extended to this year in Budget 2021 – can be seen as a way to mitigate the low ridership problem. Ridership however remains low. Prasarana, who owns bus operator RapidKL, estimated a ridership reduction of 40% from pre-pandemic levels.

With this as context, we ask the basic question: does low ridership justify the cutting of bus services? We argue that it does not and that the fundamental issue lies in how bus services are financed.


Subsidised, up to a point

The majority of transit bus services in the Klang Valley are operated by Prasarana which is owned and financed by the federal government. Prasarana receives government funds for capital expenditure but not for operating expenditure, the latter of which is meant to be covered by revenues from fares and other income-generating sources. As an indication of the shortfall: Prasarana’s total operating expenditure (total, not only for bus services) comes up to around RM300 million monthly i.e. around RM3.6 billion annually, but it receives around RM1.1 billion in revenues.

Given this shortfall it is unsurprising that when fare revenues fall further due to lower ridership and cheaper monthly passes, Prasarana is forced to limit their losses by cost-rationalising and terminating bus routes.

Realistically, even with the gradual roll-out of COVID-19 vaccines, it is unlikely that we’ll see ridership return to pre-pandemic levels in the next 1-2 years. Service operators will have to sustain significant losses in the near term which would likely lead to even more cost-rationalisation and route-cutting. But bus services continue to be a vital public good to the commuters who have little other choice; these are the same ones facing wage reductions and employment shifts since the MCO.

Clearly, something has to change. It is time that we articulate how we value the benefits and multiplier effects of public goods like transit bus services – especially in times and events of low ridership – and use that as a basis for rethinking how these services should be financed.


The value of public goods

Supporting bus services has clear social and economic benefits such as mobility for vulnerable groups, reduced urban congestion, reductions in carbon emissions, and an increase in economic productivity. The American Public Transport Association shows that every $1 billion annually invested into public transportation delivers up to $3.5 billion of GDP generation.

Recognising the value of public goods go hand-in-hand with sensible financing. In 2018, Singapore allocated $1.1 billion under the Bus Service Enhancement Programme (BSEP). Alongside subsidising bus services operations, the program also increased buses on the road and added new bus routes to serve a wider network.

While Malaysia’s PENJANA stimulus package in Budget 2021 supports public transport users through fare subsidies, it did not specify how public transport service providers would be supported in maintaining their operations. Given the current shortfalls, by funding only capital expenditure, and by hoping that fare revenues will cover operating costs, transit bus services will continue to be starved of sufficient resourcing. The lofty aim of increasing public transport modal share, never mind having a world-class public transportation system, will remain unachieved.


Where can increased funding come from?

Increasing government funding to cover bus service operations is admittedly difficult. In many countries including Malaysia, public transport is financed from general taxation, which means that public transport must compete with other public goods and programs for funding from a shared pool. Compared to education or health, spending on bus services could be seen as much lower priority, despite the importance of public transportation in enabling employment opportunities and supporting the most vulnerable communities.

One approach to consider in mitigating Prasarana’s losses from operating the majority of Klang Valley’s bus services is earmarked taxes. Earmarked taxes is when a proportion of revenue from a specific tax or charge is ‘earmarked’ or ring-fenced and used directly for public transportation.

A widely discussed source of earmarked tax is congestion pricing, a tax charged directly to private vehicle users for driving into specific urban centres. Congestion pricing has long been implemented in major cities like London and Singapore.

Since 2015, The Kuala Lumpur City Council (DBKL) has mulled implementing congestion pricing, though it remains to be seen whether there will be political will to implement it, not to mention earmarking it for improving KL’s bus services. If there is political will, we should look to best practices from cities like London which reinvests congestion pricing revenues into public transport operations and infrastructure development.

Another example of earmarked taxes is from vehicle registration fees used towards improving public transportation. In countries such as the Netherlands and Portugal, the vehicle registration tax goes one step further by taxing vehicles based on their carbon-emission rates.

Earmarking taxes such as congestion pricing and vehicle registration fees not only help to fund public transport services. In the case of congesting pricing especially, it also encourages commuters to use public transport more frequently as the more cost-effective alternative. Earmarking taxes, however, is admittedly complicated.

Local authorities that impose congestion pricing on local busy roads, for example in KL or PJ or Georgetown, may want such taxes to be earmarked for use only within the local council’s boundaries. This could get into messy turf issues as Prasarana is federally-owned.

Funding Prasarana from federal sources such as vehicle registration fees may also get into other turf issues; such fees are collected by MOT while Prasarana is MOF-owned. Resolving transit bus financing is not easy, but given the services’ current dire straits, the government needs to have the will and stamina to work through these issues. Else, Malaysia will continue to rely on an unsustainable model to deliver a much-needed public good.


Conclusion

Malaysians are in difficult times. Public transportation, and buses specifically, are essential in coping with economic hardship particularly for the more vulnerable members of society. The current financing model which places emphasis on funding capital expenditure but not operations has resulted in the termination of essential bus services. There will potentially be more service cuts in the future as service providers struggle to maintain their cash flow.

Earmarking taxes specifically for public transportation is not a perfect solution but it is worth serious consideration, as well as other financing models. At the core, we urge the government and service providers to approach financing bus services differently i.e. by valuing its worth as a public good instead of emphasising or prioritising commercial principles.


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