Privatization and Competition in New York City Transit

October 9, 2012

The antidote to monopolies, including public-sector ones, is competition. Not all public services lend themselves to it, but we should opt for competitive contracting wherever possible. One viable area is bus services, where competition would help break up inefficient transit monopolies. With more than 2 million daily riders -- the most in the country -- New York is a city that would especially benefit from privatizing its bus system, says E.S. Savas, a senior fellow with the National Center for Policy Analysis, and Presidential Professor at the School of Public Affairs at Baruch College, City University of New York.

Major cities such Los Angeles, San Diego, Stockholm, London and Copenhagen introduced bus competition several decades ago and were spectacularly successful in reducing costs without negatively affecting service. Indeed, savings ranged from 20 percent to 51 percent in cities that used competitive bidding to select bus contractors, according to a Manhattan Institute study. Specifically, after privatizing its bus service:

  • Stockholm's cost per kilometer for bus operations dropped 20 percent from 1991 to 1999.
  • Copenhagen's cost per kilometer dropped 25 percent from 1989 to 1999.
  • London's cost per kilometer dropped 51 percent from 1985 to 2000.

Even a 20 percent cut in costs would save New York close to $500 million a year -- enough to restore many dropped routes (more than 30 bus routes, 500 bus stops and two subway lines were dropped in recent years).

Competition for bus service should be introduced gradually. Beginning in one borough, existing bus routes could be divided into several logically related route clusters of similar size. The Metropolitan Transportation Authority (MTA) could continue to operate most of the clusters, at least initially, with just two or three put out to competitive bid for staggered three- to five-year contracts. The MTA could invite bids from qualified private bus operators and compare the bids with current costs. If a bid price is lower, the state would still continue to set fares and receive the income on the contracted routes, but award the cluster to the private bidder and pay it to operate the routes.

Because it is unrealistic to expect the MTA to fairly evaluate bids or private companies' performances, an independent authority would be set up to take over these tasks. The experience in other municipal services shows that after losing several rounds of competition, public agencies begin to adopt the better practices of the private sector.

Competitive contracting is neither a heretical notion nor an untested scheme. Many cities do it, and they have much experience to draw upon.

Source: E.S. Savas, "Privatization and Competition in New York City Transit," National Center for Policy Analysis, October 8, 2012.

 

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