Feb. 10, 2016 SIGN IN | REGISTER

Lott: Competitive Contracting Provides More Transit at Lower Cost 

America’s transit systems, like many other public institutions, are caught in a squeeze between rising infrastructure and maintenance costs and declining availability of funds to meet those needs.   

How deep is the problem? Seventy-one percent of public transportation agencies saw flat or decreased local funding over the past year and 83 percent saw flat or decreased state funding. As a result, the American Public Transportation Association says that nearly eight in 10 agencies have had to cut service or raise fares or are considering either of those actions.

Larger transit agencies were particularly likely to take such steps — seven of 10 cut service in the past year and half of them raised fares. Three-quarters of those large systems reduced their employment rolls — almost half the time through layoffs. 

Given the long-term decline in gas tax revenues, Congress is severely challenged to simply maintain current federal funding levels for transportation, including mass transit. Now, as lawmakers take up a massive reauthorization of federal transportation programs, a key priority must be helping transit systems find the tools to control their costs, maintain service levels and keep transit workers employed across the country.

One key innovation is to encourage transit systems to consider having a portion of services provided by private companies via competitive contracting.  By providing more service at a lower cost, competitive contracting will help preserve transit service, avoid transit worker layoffs and maximize the value of federal investment in public transportation.

At a time when transportation funding faces severe constraints, federal policy must shift to encourage public agencies to consider how they can use innovative partnerships that meet vital public interests by saving money on operations, maintaining high levels of transit needed to get hard-working Americans to their jobs and preserving transit industry jobs. 

Our proposal would incentivize competitive contracting by making agencies that meet a target for competitive contracting — competitively contracting 20 percent of their fixed route bus service — eligible for a higher federal share for their bus capital expenses.  Currently, the federal share for bus capital expenses is 80 percent. If a transit agency competitively contracts at least 20 percent of its fixed route bus service, it would be eligible for an increased federal share of 90 percent. 

Federal transit law has always included provisions allowing private sector participation. There is a long history of transit agencies using competitive contracting to reduce operating costs, with those savings reinvested in service and infrastructure. This year’s surface transportation reauthorization bill provides a landmark opportunity to go to the next level and actively encourage competitive contracting as one part of the solution to American transit’s financial challenges. 

There is no question that competitive contracting saves money for taxpayers while maintaining service and employment levels. Based on National Transit Database reporting, the cost savings from privately contracted service are substantial. Operating cost per revenue mile nationwide is $6.25 for purchased fixed route transportation service versus $9.79 for directly operated service — a 36 percent cost savings. Those savings are most pronounced within large transit systems, where the cost differential is $6.67 versus $11.19 per revenue mile, a cost savings of more than 40 percent.

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