City’s Bus to Bankruptcy
November 26, 2002
by E. S. Savas
INSTEAD of raising taxes and cutting services to close the combined state and city budget gap of about $16 billion, we should slash costs. A big, fat target is buses.
Other cities use competitive contracting to cut the cost of their bus operations by up to 51 percent without reducing services. A savings of just 20 percent here would nearly eliminate the $345 million of bus subsidies in the state and city budgets.
New Yorkers are saddled with two subsidized bus monopolies: The Transit Authority (TA) handles three-quarters of the work, and the franchised bus lines do the rest.
The TA's work rules make it one of the most expensive bus systems in the country, $90.74 per hour of service. The seven private bus companies are almost as costly, averaging $86.18 per hour. The city effectively guarantees them a profit, and their franchises are renewed automatically. The 1989 City Charter requires competitive bidding for the franchises, and Mayor Giuliani tried to carry that out, but the City Council - in cahoots with the unions and the companies - blocked him.
How does competitive contracting work? The public transportation agency sets the operating schedule for each route and forms groups of routes. Then it conducts competitive bidding for each group to attract experienced bus companies from all over the country. It awards the groups to the lowest qualified bidders, with a limit on how many groups any one bidder can win, thus creating a permanent competitive climate. Additional groups are offered every year.
These are fixed-price, three-year contracts, based on the bid price per hour of service. Standard fares are in effect. The agency keeps the fares and pays the contractor the agreed price regardless of the number of passengers. The agency monitors each contractor's performance and imposes penalties, specified in the contract, if he fails to perform satisfactorily.
Cities have been doing this for years and have achieved spectacular savings. In Los Angeles, 21 percent of the routes were competitively contracted, cutting costs 40 percent. Houston contracted out 12 percent and saved 26 percent. San Diego, 44 percent, for 33 percent savings. Denver, 35 percent of routes for 46 percent savings.
London and Copenhagen contracted out all their routes for savings of 51 percent and 25 percent.
We don't have to look that far. New Jersey Transit contracts competitively with private firms for some of its routes but also operates its own buses; the contract operations cost 35 percent less than the public ones.
In Long Island, contract buses in Suffolk County are 34 percent less costly than the Long Island Bus Company, which, like the TA, is part of the MTA. (Strictly speaking, Suffolk does not do competitive bidding, but the seven companies there compete with each other for school-bus contracts and therefore have to be efficient to survive.
New York City can start by seeking competitive bids for the 82 franchised private routes, all of which expire at the end of 2003. The TA should form a few groups from its 235 routes and put them out to bid. Van services should be allowed to bid for late-night and other low-ridership routes; a study showed that on some lightly traveled TA routes, the cost was a shocking $31 per passenger.
The labor unions will try to block competitive contracting, fearing job losses. In fact, no one need lose his job. Normal attrition creates about a thousand openings a year, and the number of routes to be bid would stay within this manpower limit. (The rate of contacting could be accelerated by guaranteeing jobs for displaced employees with the winning contractors.) Current operators would be allowed to compete on a level playing field.
Savings of 20 percent would yield at least $340 million; if we match Los Angeles' 40 percent cost reduction, the savings would be $680 million a year. Because of the gradual approach, it will take several years before full savings are realized, but there are no legal or contractual obstacles to competitive contracting. All that's needed is the political will of the mayor and the governor.
E.S. Savas is a professor in the School of Public Affairs, Baruch College/CUNY and co-author with E.J. McMahon of a recent Manhattan Institute report "Competitive Contracting of Bus Service: A Better Deal for Riders and Taxpayers"
©2002 New York Post