Skip to main content

Chapter Summary

Savas, E. S., ed. 1992. Privatization for New York: Competing for a Better Future. The Lauder Report; A report of the NYS Senate Advisory Commission on Privatization. New York.

Chapter 6: Bus Service (Wendell Cox and Jean Love)

Bus service in the United States began in New York City in 1827. In New York State it has grown to account for over one quarter of all transit miles operated in the country. Initially, bus service was administered and operated by the private sector, but was eventually turned over to the public sector to ensure the provision of low fares and adequate routing - something that the public believed the private sector could not achieve. However, public subsidization of the transit system is actually the cause of increased transit costs and declining productivity.

Since 1979, bus fares in New York State have risen at rates that are 2.5 times that of the contracted bus industry and greater than inflation. Additionally, although ridership is down, unit costs have increased by forty-two percent, after adjusting for inflation. The increase in fares and costs is a result of unreasonably high wages paid to bus service employees. These problems are not, however, the fault of the management or employees of public transit service; they are behaving as one normally would under the incentives of a monopoly system. By definition, a monopoly produces less service at a higher cost than competitive enterprises. Therefore, improvements in the bus industry will only come with a change in its structure. In other words, the public sector's monopoly on bus service in New York State should be broken up.

Competition is the key to improving mass transit service in New York State. Two practices that will ensure competition in the industry are:

  1. competitive contracting and
  2. allowing smaller commercial operators to enter the market where they do not duplicate or divert revenues from publicly sponsored operations.

At this time, only 8% of bus service in the U.S. is provided by competitive contracting, however, where it has been implemented, in cities like San Diego, L.A., and Denver, savings of between 30-60% have been achieved. Free entry of commercial services has been implemented in countries such as the U.K, New Zealand, and South Africa through legislation, separation of the policy makers from the operators, and, in South Africa's case, simply opening up the market to small operators. Each case has yielded successful results.

Barriers to competitive contracting in New York State are of a political, legal and bureaucratic nature. Politically, transit management and organized labor present the greatest opposition. Legally, competitive contracting is prohibited either directly or indirectly through the labor bargaining process. Additionally, "public prerogative" legislation (legislation which could determine that citizens of New York do not have the right to negotiate for services at market rate), and Section 13C of the Urban Mass Transportation Act of 1964 (guaranteeing up to six years severance pay for an employee whose job is eliminated due to economies or efficiencies) serve as legal obstacles to implementation of competitive contracting. All of these should be removed and replaced with well-designed competitive contracting legislation and the amendment of existing laws.

Bureaucratically, the bidding process in competitive contracting has, in many cases, been improperly evaluated, awarded, and/or administered. These problems can be overcome through disallowing a public transit agency to both oversee and participate in the bidding process. A separate entity should be created to oversee transit policy processes such as bidding.

The most daunting barriers to competitive contracting are merely perceived. Concerns over access to, safety, and quality of service can be disputed by examining cases where privatization has occurred and successfully maintained, and in some instances improved, the levels of safety, quality of service and routing. Fear of increased corruption, under-handed cost increases by contractors, lay-offs, and union-busting can all be avoided through careful monitoring, contract provisions, and limiting the rate at which privatization occurs.

To reverse the trend in increasing costs and decreasing services in New York State, the author recommends that competition be introduced at the rate of attrition. Additionally, awarded contracts should be limited in both scope and length in order to ensure that the benefits of competition are realized. Both measures can be accomplished through legislative actions and the establishment of and adherence to rigid standards for competitive contracting.

Expected costs and benefits of such action include a projected ten-year cumulative savings of approximately 30% or more, an increase in service quality, and the transformation of public policy concerning the bus industry from that which has traditionally served the "private interests" of managers and employees of public transit agencies to serving public interest as it should. In the end, the winners of competitive contracting will be the riders, the taxpayers, the unemployed, and communities. The only losers will be future (not present) transit employees who will receive market-rate compensation instead of the above-market wages they've received for years.