A Free-Market Energy Blog

Privatizing Local Transit: Part of the Free Market Energy Agenda

By Randal O'Toole -- January 6, 2011

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.


  1. Jon Boone  

    Thought-provoking article, which likely only scratches the surface of the complexity of the general issue. Cities/suburban areas that have comprehensive mass transit–Washington, DC (I love the Metro there), New York, Boston, San Francisco, Portland–are thriving. Many of those that do not continue to experience decline, especially older regions–Baltimore, Philadelphia, Pittsburgh, Detroit. Metropolitan Los Angeles and Atlanta are both transportation nightmares, a reason sane people should question living there. That they grew so large so quickly, without mass transit coordination, seems a major reason why.

    And then there’s Europe. The mass transit network of Amsterdam, for example–subways, metro, trams, trolleys, buses, trains–is astonishing both for fun and function–and low cost.

    I’d like to know more about the roles of government and the private sector in creating the best existing systems. This may be one area where government/private partnerships might make sense. However, it’s likely too late to do much creative work in this country in expanding mass transit systems, given the expense and political upheaval that such enterprise would generate.


  2. Mike Moskos  

    I agree with your general supposition, but for a slightly different reason: we need more transit and with declining tax revenue, the only way to get it is to lift the transit monopoly so that private operators can fill the gaps in service that local governments cannot fill. In the future, far more people will give up their cars (due to higher fuel prices and/or declining incomes). Let private operators fill in. I suspect they’ll do a better job for the primary reason you site: they are primarily oriented towards attracting as many riders as possible. Not to be nit-picky but the 3 private operators I’m familiar with here in Miami charge exactly what the county charges for fares ($2) and they typically run regular sized vans or the same mini-buses the car rental companies use at airports. They generally offer a less luxurious ride, but who cares–they come more frequently and frequency is the thing that counts. I want LOTS of more private operators in Miami. What the private operators don’t offer (yet) are the heavily discounted monthly fares or disabled fares (though they could with government help). Of course, every single road is a massive money-loser (that sound you hear is the giant sucking sound that road construction and maintenance take out of general funds in government budgets), but no one ever questions that. As car ownership declines, look for citizens around the country to start questioning the massive dollars that go into road construction and more importantly, ongoing maintenance. We must remember that at one time, this county moved more people via privately owned mass transit than all the other countries on earth combined. Fares tended to decline over time (esp. when the super efficient electric streetcar, called “light rail” now) came into being. Even Chicago’s Loop was privately built.


  3. MarkB  

    @Jon Boone

    I don’t know how Boston got on your ‘thriving’ list, but you obviously don’t live in Boston. The rapid transit trains constantly break down during rush hour – often in tunnels – and we are told the system is chronically under-funded. That is, under-subsidized. Thirty cents on the dollar goes to debt servicing, bus drivers are making over $80,000/yr., and employees can retire at any age after 23 years’s service. And oh yeah – the Governor wants to raise the gas tax in part to dedicate funds to the MBTA.

    In a hospital, this patient would be in intensive care – but it would never die – just go on costing more and more money.


Leave a Reply