Privatizing Local Transit: Part of the Free Market Energy Agenda
Those who are not yet convinced that government is vastly less efficient than private enterprise should closely examine the nation’s transit industry. In 1964, the industry was mostly private and earned an overall profit. In that year, Congress gave local governments incentives to take over transit, and by 1970, the industry was nearly all publicly owned.
Today it loses nearly $40 billion a year.
In that time, the industry has seen a spectacular decline in productivity. According to data published by the American Public Transportation Association, the industry’s chief lobby group, between 1970 and 2008, inflation-adjusted operating costs more than quadrupled, while transit ridership grew by about 40 percent. In the same time period, the number of annual transit riders carried per operating employee fell by nearly 50 percent. As economist Charles Lave observed, “It’s uncommon to find such a rapid productivity decline in any industry.”
This decline in productivity can be traced directly to government ownership. Since more than three out of four transit dollars come from taxes rather than fares, transit agencies are much more interested in getting money out of taxpayers than in attracting new transit riders. Although the core transit business is in dense inner cities, the typical transit agency taxes a broad area, which obligates it to provide transit service to distant suburbs that have three cars in every garage. As a result, the number of people boarding the average transit bus per bus mile has declined by nearly 40 percent since 1970.
Transit agencies also focus on costly capital improvements, such as downtown transit centers and light rail, that do little for transit riders but keep the attention of taxpayers and, more important, federal and state appropriators. Light rail is a huge scam, as it is inferior to buses in every way but one: light rail costs more money and thus creates more supporters for transit funding. Railcar manufacturers, electrical contractors, and construction companies are among the biggest supporters of transit subsidies.
Transit agencies also cater to transit unions, another big political constituency. The highest-paid city employee in Madison, Wisconsin is a bus driver who earned nearly $160,000 in 2009. More than 8,000 of the 70,000 employees of New York’s Metropolitan Transportation Authority earn more than $100,000 a year, including a Long Island Railroad conductor who earn nearly $240,000 in 2009.
All of these costs have made transit the most expensive form of travel in the United States. Airlines collect fares averaging about 14 cents per passenger mile, and subsidies are around a penny per passenger mile. Intercity bus fares and subsidies are comparable, though new low-cost bus companies such as Megabus charge fares that are only about 7 cents per passenger mile. In contrast, transit fares average 22 cents a passenger mile, while subsidies average 74 cents per passenger mile. Including amortized capital costs, some light-rail lines cost taxpayers more than $3 per passenger mile.
Transit advocates claim the environmental benefits of transit justify these subsidies. In fact, there are no environmental benefits; transit uses about the same amount of energy per passenger mile as the average car. While some rail transit lines are a little more energy efficient than a typical automobile, most bus lines are far less energy efficient, mainly because the buses run nearly empty most of the day.
The contrast between private intercity buses and public urban buses is stark. Intercity buses are some of the most energy-efficient vehicles around because they operate at an average of two-thirds full. Urban transit buses are some of the least energy-efficient vehicles because they average five-sixths empty.
Transit advocates assume government subsidies are needed to keep transit going. The few private transit providers in the U.S. prove this isn’t true. Private buses operate 24 hours a day in Atlantic City, NJ, at moderate fares without any subsidies. Several bus companies compete directly with Miami-Dade transit buses, charging lower fares despite getting no subsidies. The main reason there are no private competitors in most other cities is that they are illegal.
American cities and states should privatize transit, both to save taxpayers money and to improve transit service in dense areas where transit is really needed. Private transit operators would probably increase service in dense inner cities where most transit riders live. Service to remote suburbs might change from regularly scheduled (but empty) buses to dial-a-ride buses that would pick people up on demand.
Congress has to start by eliminating the incentives it has given transit agencies to invest in high-cost rail transit systems. If states are concerned about the effects of privatization on low-income people, they could give them transportation vouchers, good for any public conveyance from taxis to airlines. This would be less expensive, and far more effective, than funding huge transit bureaucracies and expensive rail lines.
At a time of fiscal austerity, this is an easy budget cut. May it come to the front of the line.