NCPA - National Center for Policy Analysis

Federal Transit Program Is Wasteful

March 9, 2011

The federal transit program and the transit systems that it subsidizes are among the most wasteful enterprises in the American economy, and reforming them should be among Congress's top priorities, says Wendell Cox, a visiting fellow in the Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation.

The problems with transit extend well beyond low load factors and costly rail projects.  Since 1982, state and local taxpayers spent more than $750 billion (in 2009 dollars) in subsidies.  Yet transit's market share dropped by more than one-third during that period.

  • Part of the problem is a labor cost structure driven by perverse incentives for cost maximization rather than cost effectiveness.
  • Brookings Institution economist Clifford Winston cites the fact that dismissed transit employees may be eligible for up to six years of severance pay under requirements of federal law.
  • Transferring services to less costly private contractors could trigger these six-year severance payments for the displaced public employees.
  • Besides the fact that virtually no other workers in the nation have such benefits, the prospect of such payments is enough to discourage even the most courageous transit manager from seeking operating efficiencies.

None of this is to suggest that transit does not have a valuable role to play in urban transportation.  Transit costs should be no higher than necessary, and transit improvements should cost no more than necessary.  Yet the record over at least the past 40 years has been one of expenditures rising much faster than ridership, says Cox.

Source: Wendell Cox, "Federal Transit Programs: Spending More and More for Less and Less," Heritage Foundation, March 2, 2011.

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