Contracting For Public Transit Services: Evaluating the Tradeoffs

When considering public transit, travelers typically judge whether it serves desired destinations in a timely manner and at a reasonable cost – often in comparison to traveling by private vehicle. How public transit agencies choose to operate their services – their networks, service frequency, and fare structures – to compete with private vehicles and provide mobility for those without them is the subject of this synthesis. Specifically, we examine the "make" or "buy" decision in public transit: Should government agencies operate (make) transit service directly, or does it save money to contract with private firms (buy) to operate transit service? The latter option is often called "contracting out" or, less accurately, "privatization." Whether to make or buy transit service has fueled highly charged political debates that frequently cleave along partisan lines. Liberals often favor direct public provision of government services, and fear that contracting with private firms for service usually hurts labor. Conservatives tend to favor competitive procurement of goods and services, and assert that contracting for transit service is almost always more efficient than direct government provision. However, the issues at stake are far more subtle and complex than these competing perspectives, which are often offered in black and white at public meetings and depicted simplistically by the media. In this synthesis we aim to bring both nuance and rigor to bear on what can be noisy ideological debates over the costs and benefits of contracting out for transit service. It summarizes a series of recent studies conducted by researchers at the University of California. Our focus is on bus transit, which carries more passengers than any other transit mode (subway, trolley, van, etc.), operates on fixed routes and schedules and in mixed traffic on local streets and freeways. In the United States, the term "contracting out" is generally used when a public transit agency procures the services of a private firm through a competitive bid process. The contracted service may be for a portion of the system, such as a bus route, or systemwide. The transit agency typically maintains ownership of the service and authority over setting policies, such as fares and schedules. This system contrasts with full privatization efforts, such as those in the United Kingdom, where private firms own and operate public transit service (Iseki, 2004, 3-8). Private contracting also is used for transit maintenance and transportation infrastructure provision (mainly road and rail construction and street maintenance). Similar to transit service contracting, private infrastructure provision has generated controversy and debate over perceived benefits and challenges. Parts 1 and 2 of this synthesis present background on public transit provision over time, with a focus on today’s context. Part 3 analyzes and interprets key findings from a series of University of California studies of transit contracting. Part 4 considers the reasons contracting for transit operations has been chosen in practice as well as its effects on the traveling public, transit operators, and transit workers. Part 5 offers general guidelines for situations in which contracting has proven most promising and when it is less useful. Finally, Part 6 concludes with a recommended action plan for the State of California. Parts 1 and 2 present background on public transit provision over time, then focus on today’s context. Part 3 analyzes and interprets key findings from University of California studies of transit contracting. Part 4 considers the reasons that contracting out has been adopted and evaluates its effects on the traveling public, transit operators, and transit workers. Part 5 offers general guidelines for situations in which contracting has proven most promising and when it is less useful. Part 6, the conclusion, offers state decision-makers an action plan on transit issues.