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Do City Buses in the US Make a Profit?
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Re: Transit private contracting
  • 7/2/2015 10:00:46 PM
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..

Predictable asks "@Lyndon - did I touch a nerve? :-)"  No, no nerves touched. I just realized a little data on the issue would help the discussion, so I went looking for it. Found some pretty good stuff.


From you post, it seems that privatization generally saves money; but often the savings aren't as large as expected or promised. (Plus there may be other issues with lower wages or less experienced drivers.)


 

Yes, that seems to be the case exactly, based on the info.


Austin is an exception in the wrong direction - costs have gone up and there isn't any savings at all - annual expenses after privatization are up. Since you know this system well, what is your view of the cause for this?


 

Great question, wish I knew the answer. Needs a dedicated investigative journalist on the case. From my experience working at Capital Metro, I have my suspicions, but I'll keep them to myself until I have more data to substantiate.

Here's another article on Capital Metro's privatization:

Cap Metro OKs $520 million in contracts, outsourcing all bus service

The decision to privatize was strongly driven by political mandate from the Texas legislature and other political factors. Other stuff is purely speculative.

 

 

Re: Transit private contracting
  • 7/2/2015 6:06:40 PM
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@Lyndon - did I touch a nerve? :-)

From you post, it seems that privatization generally saves money; but often the savings aren't as large as expected or promised. (Plus there may be other issues with lower wages or less experienced drivers.)

Austin is an exception in the wrong direction - costs have gone up and there isn't any savings at all - annual expenses after privatization are up. Since you know this system well, what is your view of the cause for this?

 

Transit private contracting
  • 7/2/2015 4:08:05 PM
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..

Predictable writes


The private sector is good at some things and so is the public sector. Think of UPS (packages) and the U.S. Postal Service (letters). Both, in my view are very good at what they do. And aren't they both unionized? 


 

There are situations where it makes sense for a transit agency to contract out a small portion of its operations as an adjunct to its basic service. For example, a trial or demonstration of a new type of service (e.g., dial-a-ride) to see if that would work as envisioned. A contractor could help start up the trial service without the agency having to invest in new employees and other measures that would later need to be dispensed with if it doesn't work out.

Predictable further writes


Millions of individual rides within NYC seems like a better match for the private sector by my hunch. Fully agree that we're missing the data that would be needed for a real recommendation.


 

Well, since my earlier comments I've done a bit of reseach. Here are some of the data and other information I've found.

According to an article on the Transitwiki.org website,


Three general perceptions about how contracted labor reduces operating costs dominate contemporary views. First, contracting labor capitalizes on any difference in the cost of non-union labor in the private sector. Typically, non-union labor is believed to be less costly than unionized labor. Second, contracting with the private sector introduces competition into the labor market, creating an incentive for labor unions to reduce wages in their contracts with the public sector. Third, transit agencies contract out inefficient service in order to maintain efficient operations under their direct control. This may include utilizing more flexible non-union labor such as in split shifts.

...

Despite these commonly held views, contracted service yields only moderate cost savings. In a study of 400 transit agencies spanning a 10 year period from 1992 to 2002, partially contracted service yielded a 7.8 percent cost savings while contracting all service yielded only a 5.5 percent savings.


 

An article on the Nola.com website discusses the privatization (outsourcing) of labor which began in 2008 on the New Orleans transit system. The system began experiencing extraordinarily high costs when operations were contracted to Veolia (management firm), which under the contract had been given a 5% profit margin. According to the article, "During Veolia's tenure, the RTA's operating costs have risen steadily from $75.4 million in 2008 to $90.6 million in 2012, according to the National Transit Database."

A particularly good discussion of transit outsourcing and privatization was published in a 2013 article by Kelly Chen in the San Francisco-area Bay Citizen titled "What's driving privatization of public transit?". The article reports that "As more cities turn to private companies to run public transit systems, our recent investigation shows that privatization may not be the silver bullet that cash-strapped municipalities were hoping for" ... and it cites the case of a transit contractor in Fairfield, California fined for providing poor service. Then the article continues: "Behind the fines, however, is a much larger ideological debate: Is privatization of certain industries like transit, which some traditionally consider to be public domain, a good thing?"

Interviewing a reporter specializing in transit issues, Chen provides some background and insight with respect to the privatization issue:


Q: Why are more cities turning to private companies to run their public transit systems?

A: Privatization started under (President Ronald) Reagan, who championed public-private partnerships in favor of smaller government. But the trend really accelerated during the (recent) recession because a lot of municipalities and transit agencies don't have enough money to maintain these services. The one thing that outsourcing your public transit does is save money.

Across the country, very large cities are going this route: Austin recently outsourced all their bus services; New Orleans handed over its entire public transportation to a private company, including its management; Nassau County in Long Island did the same.

A lot of times these deals will be sold as saving the taxpayers this many millions of dollars. But looking at a couple of different situations in San Diego and New Orleans, the money being saved has been quite a bit less than advertised. That's not to say they haven't been saving money. Often they'll tout savings that are quite far above than what is being saved.

Q: Who benefits? Who loses?

A: One of the biggest costs for public transit is labor. When they contract to private companies, they can winnow away labor costs by not offering pensions and cutting health benefits. So naturally, bus driver unions don't like these arrangements because it means their wages and benefits will be cut.

For example, a few years ago in northern San Diego County when the North County Transit District brought in a private company, the starting wage for a bus driver went from $14 to $10.50 an hour. One general concern that comes with paying drivers less is safety – maybe you have more inexperienced drivers. This isn't the case for every company, but it's a concern.


 

To this I'll add my own more direct experience with Capital Metro (for which I'm a former data analyst), the transit system in Austin Texas, which eliminated its entire operating workforce in 2012 and converted to outsourced labor. Here are total annual operating costs, reported in the National Transit Database:

2010 $177.2 million

2011 $170.4 million

2012 $176.6 million (year privatized)

2013 $188.2 million

I'll also note that the transition to privatized operation incurred major additional expenses, necessitating substantial layoffs within the administrative workforce (planners, operating supervisors, etc.) beginning in 2011. 

For additional information, I found the following document from the Transportation Research Board useful: Contracting for Bus and Demand-Responsive Transit Services. A Survey of U.S. Practice and Experience.

 

Re: Outliers
  • 7/1/2015 11:59:03 PM
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@Lyndon

I'm sure you know more about public transportation than I do.

Still, I think it's about more than unionized workers. The private sector is good at some things and so is the public sector. Think of UPS (packages) and the U.S. Postal Service (letters). Both, in my view are very good at what they do. And aren't they both unionized?

Millions of individual rides within NYC seems like a better match for the private sector by my hunch. Fully agree that we're missing the data that would be needed for a real recommendation.

Re: Outliers
  • 7/1/2015 11:12:58 PM
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..

Predictable writes


That on-demand service in NYC probably serves people with severe mobility challenges. So, it would involve costly accessible vehicles and maybe even additional personnel beyond the driver. 

@James - Granted there are some special needs here, but many of the trips are also quite short - to the nearest grocery store.

The NYC MTA is currently providing the service for about $74 per trip. I wouldn't dismiss the idea that a private option could provide the same trips for the same customers at $70 each. 


 

First, keep in mind that any such dial-a-ride service would still have to comply with the Americans With Disabilities Act (ADA), so the problems of accessible vehicles and special boarding and tiedown responsibilities would still apply. Also, keep in mind that the driver, alone, is typically responsible for this.

Second, in my view, outsourcing public transit operations to private providers typically is just a means of bypassing the unionized workforce in favor of typically non-union, lower-wage/benefit drivers, while helping convey a flow of public money (the tax revenue supporting transit) into private pockets.

If it saves any money at all (which is an issue needing further research), it would be done on the principle that lowering the wage level and working conditions of the workforce yields a public benefit. I question whether that actually advances the longterm benefit of us all.

 

Re: Outliers
  • 6/30/2015 11:55:01 PM
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I agree, great discussion!

Re: Outliers
  • 6/30/2015 11:54:13 PM
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Well it did a great job of it. I wonder if and when electric buses become an influence on profitability in the future.

Re: Outliers
  • 6/29/2015 3:12:53 PM
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That on-demand service in NYC probably serves people with severe mobility challenges. So, it would involve costly accessible vehicles and maybe even additional personnel beyond the driver. 

@James - Granted there are some special needs here, but many of the trips are also quite short - to the nearest grocery store.

The NYC MTA is currently providing the service for about $74 per trip. I wouldn't dismiss the idea that a private option could provide the same trips for the same customers at $70 each. 

 

Re: Outliers
  • 6/24/2015 11:30:07 AM
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I will ride the elephant bring him by!:) Thanks for the great discussion.

Re: Outliers
  • 6/24/2015 11:10:50 AM
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One of the goals of my graphs is to get people to talk about the elephant in the room! ;)

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