Lott: Competitive Contracting Provides More Transit at Lower Cost
America’s transit systems, like many other public institutions, are caught in a squeeze between rising infrastructure and maintenance costs and declining availability of funds to meet those needs.
How deep is the problem? Seventy-one percent of public transportation agencies saw flat or decreased local funding over the past year and 83 percent saw flat or decreased state funding. As a result, the American Public Transportation Association says that nearly eight in 10 agencies have had to cut service or raise fares or are considering either of those actions.
Larger transit agencies were particularly likely to take such steps — seven of 10 cut service in the past year and half of them raised fares. Three-quarters of those large systems reduced their employment rolls — almost half the time through layoffs.
Given the long-term decline in gas tax revenues, Congress is severely challenged to simply maintain current federal funding levels for transportation, including mass transit. Now, as lawmakers take up a massive reauthorization of federal transportation programs, a key priority must be helping transit systems find the tools to control their costs, maintain service levels and keep transit workers employed across the country.
One key innovation is to encourage transit systems to consider having a portion of services provided by private companies via competitive contracting. By providing more service at a lower cost, competitive contracting will help preserve transit service, avoid transit worker layoffs and maximize the value of federal investment in public transportation.
At a time when transportation funding faces severe constraints, federal policy must shift to encourage public agencies to consider how they can use innovative partnerships that meet vital public interests by saving money on operations, maintaining high levels of transit needed to get hard-working Americans to their jobs and preserving transit industry jobs.
Our proposal would incentivize competitive contracting by making agencies that meet a target for competitive contracting — competitively contracting 20 percent of their fixed route bus service — eligible for a higher federal share for their bus capital expenses. Currently, the federal share for bus capital expenses is 80 percent. If a transit agency competitively contracts at least 20 percent of its fixed route bus service, it would be eligible for an increased federal share of 90 percent.
Federal transit law has always included provisions allowing private sector participation. There is a long history of transit agencies using competitive contracting to reduce operating costs, with those savings reinvested in service and infrastructure. This year’s surface transportation reauthorization bill provides a landmark opportunity to go to the next level and actively encourage competitive contracting as one part of the solution to American transit’s financial challenges.
There is no question that competitive contracting saves money for taxpayers while maintaining service and employment levels. Based on National Transit Database reporting, the cost savings from privately contracted service are substantial. Operating cost per revenue mile nationwide is $6.25 for purchased fixed route transportation service versus $9.79 for directly operated service — a 36 percent cost savings. Those savings are most pronounced within large transit systems, where the cost differential is $6.67 versus $11.19 per revenue mile, a cost savings of more than 40 percent.
Competitive contracting allows for these cost savings and operational efficiencies while maintaining local control over routes, fares and schedules, ensuring strong accountability through performance standards and preserving labor rights — including full compliance with transit labor protections that are meant to prevent any adverse effects to existing employees. Privatization does not impact the workforce’s right to organize — approximately 75 percent of the private contracting transit workforce is unionized.
Indeed, success stories for competitive contracting of transit services abound. Today, 76.6 percent of all demand response service is privately contracted. Between 1998 and 2009, privately contracted service for fixed route bus service increased from 7.4 percent of total vehicles in maximum service to 15.9 percent — more than doubling, but remaining a fraction of all service.
The history of contracting by the Denver Regional Transportation District is particularly noteworthy. A Colorado state law passed in 1988 to reduce public transportation costs required at least 20 percent of Denver transit service to be competitively contracted. The initiative’s success led to that threshold being raised to 35 percent. Today, more than 45 percent of bus service there is competitively contracted and Denver RTD saves over $60 million annually. Service has even been enhanced and, in many instances, safety and on-time performance have improved. Both RTD’s direct employees and the private carriers are unionized.
This is an excellent example of a solution that keeps budgets under control while preserving vital services that workers and families need, and which are essential to the smooth operation of our economy.
Encouraging and facilitating competitive contracting for transit services is something Democrats and Republicans on the Hill should come together to support.
Trent Lott is a former Republican Senator from Mississippi who now serves as senior counsel at Patton Boggs. He is the chairman of the Affordable Commuting Coalition.