The Public Purpose: Putting an End to Transit Blackmail

1 The Public Purpose: Putting an End to Transit Blackmail

Number 25 September 1998

Putting an End to the Transit Blackmail

The US media frequently reports on frustration with growing traffic congestion and intractable air pollution. And just as often the solution of more funding for transit is advanced as a solution.

However promising the theory, higher transit subsidies have invariably failed to produce a corresponding increase in ridership. Last year's BART (Bay Area Rapid Transit) strike in San Francisco illustrates the point. As most everyone following the local media accounts knows, BART employees are paid well above market rates. Yet BART employees walked oft the job and exposed the community to unbearable traffic congestion. The subsequent expensive settlement will consume funding that could have been better used to expand transit services and attract new riders.

For more than two decades governments have provided substantial and increasing support to transit. Yet national transit ridership is at the lowest point in 20 years, and trends in the Bay Area are little better. While BART is one of the most successful rail systems in the nation, the Bay Area transit market share continues to slip --- down more than 15 percent since 1970 (before BART). One of the primary factors in this less than stellar performance is escalating unit costs (costs per mile or hour). Since 1970, the most new transit funding has gone to support higher than inflationary cost increases, rather than the new services and lower fares that might have attracted higher ridership.

The culprit is not transit boards, transit managers or transit unions, it is the structure of transit itself. Transit operates as a monopoly, devoid of the competitive incentives that have reduced transportation unit around the world.

A consequence of the monopoly structure is that inordinate power is granted to transit unions. With a service so important as BART, the unions can essentially "hold up" the public for expensive settlements. Even a BART board composed of the most fiscally conservative people -- - which it is not --- would find it politically impossible to withstand the pressure to settle on unfavorable terms. The unions in-effect direct access to the public purse is unique. Railroad, airline unions and other private sector unions cannot successfully appeal to the political process to force uneconomic settlements, yet transit unions can. So long as this is the case, BART's unions will routinely table exorbitant demands under threat of service interruption --- and who can blame them? Such behavior is encouraged by the monopoly structure.

But there are other ways to organize transit. Increasingly, legislatures in the developed world are imposing competitive disciplines on transit, to achieve unit costs consistent with market rates. The mechanism is competitive contracting. Stockholm is converting its subway to competitive contracting, with savings of 20 percent. Urban rail systems will soon be converted across Australia, while Germany is not far behind.

Through competitive contracting, the public transit agency seeks competitive bids from private firms to supply part or all of the service. Public control is retained, as the transit agency continues to specify timetables and service quality standards. But there is an important difference. The private contractors must provide the service for an agreed upon fixed price. As a result, labor negotiations are based upon commercial reality, not political blackmail, as labor and private management bargain over a commercially, rather than politically determined amount of money.

The same formula is being used to deliver bus services as well, with cost savings ranging from 20 percent to 60 percent. National mandates have or are converting entire transit systems in Sweden, Denmark, Finland, the United Kingdom, New Zealand, Australia and South Africa.

If commuters are to be attracted out of automobiles, it will be necessary to use every dollar to provide higher service levels and affordable fares. Transit's fundamental problem, nationally, in the Bay Area and at BART is insufficient cost control, not insufficient funding. As in the past, virtually any new funding provided to transit in the monopoly environment will be largely consumed in higher real unit costs, and little will be left for more service or affordable fares. The bottom line is this. The additional transit dollar can only be spent once. It will either be spent to raise unit costs inordinately, or it will be spent for public benefit. It can't do both.

It is vain to hope that more money will produce the new services necessary to attract materially more riders without abandoning the current monopoly structure.