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Backgrounder #1389 on Smart Growth

August 1, 2000

Competition, Not Monopolies, Can Improve Public Transit


Recently, both Vice President Al Gore and the leadership of the Republican Party have indicated that they will support efforts to increase spending on public transit systems. The press has reported that the Vice President would "devote $25 billion over ten years to improving mass transportation in states and cities, reducing air pollution and liberating Americans from too heavy a dependence on oil,"1 and that Republican Party officials have agreed to "decisively [move] toward the center on such issues as...public transit."2 Public transit systems remain popular in public appropriations and political rhetoric, yet the evidence clearly shows a vastly different story in America's cities and suburbs.

Public transit's share of urban travel has plunged, from 7.1 percent in 1960 to 1.8 percent by 1998--a 75 percent drop in just four decades. Moreover, public transit is highly concentrated: 70 percent of transit ridership occurs in just seven metropolitan areas, with half of that in New York City alone. Yet annual federal spending on transit has surged. Since 1960, federal, state, and local governments have provided a stunning $385 billion in inflation-adjusted funds to America's transit systems--including almost $150 billion in federal subsidies.3 And thanks to the Transportation Equity Act for the 21st Century (TEA 21), passed by Congress in 1999, annual spending on transit will increase from $4.6 billion in 1998 to $8.2 billion in 2003. The $41 billion spent in just those five years will make transit one of Washington's fastest growing spending programs.

Transit remains one of the costliest ways to move people from one place to another, and it is getting more expensive compared with the alternatives. The cost remains significantly higher than the costs of other modes of transportation--nearly 50 percent higher than the cost of Amtrak and four to five times the cost of automobiles, airlines, and private bus services. Between 1970 and 1995, transit's inflation-adjusted cost per passenger mile rose 164 percent; Amtrak's cost has increased 9 percent since 1975; and automobiles, private bus services, and airlines have experienced cost reductions since 1970. After the deregulation of inter-city private bus and airline industries in the late 1970s and early 1980s, competition succeeded in driving down unit costs. Unfortunately, public transit systems--with their legally enforced monopolies--have been immune to the pressure of competition that introduces cost efficiencies in other industries.

Despite the dedication of significant taxpayer funds to transit since World War II and the concentration of service, little progress has been made in reducing traffic congestion. Given its minuscule market share, even if there is a dramatic turnaround in usage and transit's market share were to double, it will not reduce traffic congestion in America's suburban-oriented society with its scattered trip patterns.

Nevertheless, with the right transit policies, there is still a significant potential for transit to serve the public more effectively in the few markets where it might be viable. For example, transit systems around the world have found that contracting out for various services is making public transit more affordable. The transit agencies contract with private or public entities for public transit routes, regions, operating facilities, vehicles, or specialized services (such as door-to-door service for the disabled). Competitive contracting for these services lowers both direct and indirect costs by helping to keep fares affordable, maintain or expand services, and maintain the competitive position of transit relative to the automobile. It has been applied successfully and comprehensively, for example, to entire public transit systems (bus and rail) in London, Stockholm, and Copenhagen, and in Perth and Adelaide in Australia.

Yet the use of competitive contracting in America is proceeding slowly. Currently, while 70 percent of paratransit (dial-a-ride) service is competitively contracted, only approximately 10 percent of public transit bus service is contracted out. San Diego is one example; it has converted 43 percent of its bus system to competitive contracting and is continuing this process at a rate that still guarantees the jobs of its current public transit agency employees.4 Cost savings in such major metropolitan areas that are contracting with private-sector providers for services average about 33 percent.

Congress should encourage state and local governments to convert all bus and rail services to competitive contracting as quickly as possible to facilitate a combination of service expansion, fare reductions, and tax reductions. The public transit agency should purchase transit service through the market by awarding contracts to a lowest-priced but responsible and responsive public or private bidder. It should retain full control over management and operations, routes, schedules, fares, vehicle livery, and service standards. The available capital funding should be used for the most cost-effective projects. Virtually all policy and service decisions should remain the prerogative of the public agency. And construction of new urban rail systems--with their excessive costs for the extremely low population densities they would serve and their limited market share--should cease.

The improved financial performance that governments would achieve from implementing such policies could arrest or even reverse transit's downward market share trend--which would be good news for transit riders and taxpayers alike.


Why has transit persisted? Given its consumer underutilization and geographically concentrated benefits, why have governments continued to subsidize transit? Transit's ability to survive--and even thrive--may be attributable to its success in posing as a "solution" to a changing array of national concerns.

The U.S. Urban Mass Transit Administration was created in the mid-1960s, formalizing the federal role in transit as part of a larger new initiative that also included the Department of Housing and Urban Development (HUD). It was intended to prop up collapsing urban transit systems in order to reverse accelerating central-city deterioration.

A few years later, the energy crisis of the early 1970s enabled transit to reinvent itself as an energy-efficient alternative to the gasoline-dependent automobile. Transit was seen as an integral part of America's emerging energy conservation policy. As environmentalism emerged as a national movement following the first Earth Day in 1970, transit presented itself as an environmentally friendly alternative to cars.

Today, sprawl and congestion are a growing concern, and transit poses as the antidote while still emphasizing its role as the cities' savior now that urban revitalization is back in vogue. Transit also professes to provide cosmic well-being, as Federal Transit Administration head Gordon J. Linton suggests when he claims that investments in transit "help pull together people and their communities so they can fully realize the promise of America."

As the record indicates, the Federal Transit Administration has failed to achieve any of these objectives. There is more driving, while transit use continues its long-term decline. Older center cities are still losing jobs and residents. America is more dependent on imported oil than ever before. Although the air is cleaner today than it was decades ago, the gains are due to technological improvements in cars, not transit use.

How can transit's success in obtaining ever more federal funding be reconciled with its failure to maintain its market share? The reason appears to be that the federal transit program has evolved into a massive pork-barrel project. It bestows significant financial benefits upon the design and construction firms that build and renovate transit systems, and upon the unionized workforce that must operate the system at wages in excess of those earned by non-union counterparts.

A new rail-based transit system for a major metropolitan area may cost as much as $10 billion. For example, Washington, D.C.'s new Metrorail system, which has been under development since 1970, is estimated to have cost $10 billion, while Atlanta's system cost $3 billion.

Such costly systems provide lucrative long-term contracts to major construction firms and their subcontractors. Because construction workers on these projects must be paid higher-than-market wages,5 trade unions are also influential advocates for the continuation and expansion of rail-building programs. The availability of such widespread financial benefits induces Congress to shift federal resources from less costly and more efficient bus service, which involves little new construction, to more costly and less efficient rail alternatives, such as light rail, commuter rail, and subways. Once transit systems are completed and in operation, unions and their members continue to receive preferential treatment and financial windfalls.6 Such federally mandated generosity encourages America's approximately 200,000 public transit workers to become aggressive advocates for the preservation and expansion of an unreformed federal transit program.

Transit advocates often claim that transit has the potential to significantly reduce traffic congestion. The reality, however, is that transit ridership has steadily declined. Failing to draw in commuters, unable to attract new riders, and focusing on rail lines at the expense of bus routes, the nation's transit systems have proven to be unable to improve traffic congestion.

Many privately funded transportation and urban planning experts are skeptical about transit's reach. For example, at a recent U.S. General Accounting Office conference, Anthony Downs of the Brookings Institution said that "Attempts to cope with rising traffic congestion by shifting more people to public transit are not going to work."7 At the same conference, David Luberoff of Harvard's Kennedy School of Government made the following observation:

Why are we still investing in mass transit despite 20 years of data showing that rail transit generally does not have significant impacts on either mobility or air quality?... At some point, however, the rest of the country either says to the few areas that getting the bulk of the transit money, "That's enough" or "We want to build transit lines too." It looks like it's the latter.8

For the past 25 years, one of the federal government's primary transit policy goal has been to draw people out of their automobiles. Despite spending hundreds of billions of dollars, however, transit's share of urban travel has continued to fall. Urban rail systems have not helped. For the overwhelming majority of trips, including work trips, transit by rail is simply not a viable alternative to the automobile. Transit services have spent their funds on higher-than-necessary operating costs and overcapitalized rail systems. Rather than expand and improve existing services, the transit systems have chosen to subsidize urban rail systems that have at best a marginal impact on select parts of a metropolitan area.

Declining Market Share
Transit's ridership, as measured by "boardings" (each time a passenger enters a transit vehicle)9 and market share (percentage of passenger miles traveled on public transit), has been falling for decades. Annual transit journeys per capita have dropped 25 percent since 1970, and annual journeys per capita in 1996 were at the lowest point since before the turn of the century. Chart 1 illustrates these trends.

Annual transit boardings per capita have fallen in 38 of the 49 major metropolitan areas since 1980. (See Table 1.) The New York City metropolitan area retains the highest market share at 9.3 percent,10 which is twice the share of Honolulu, which takes second place at 4.6 percent. Transit exceeds 2 percent of market share in only seven metropolitan areas, and 1 percent in 17 areas. Transit exceeds 2 percent market share only in cities in which a large number of commuters who travel downtown use transit. This underscores the extent to which transit has become irrelevant to metropolitan transportation.

Public transit ridership is highly concentrated in the largest metropolitan areas. New York City represents only 7 percent of the U.S. population but accounts for nearly 42 percent of transit passenger miles annually. New York, Chicago, Los Angeles, San Francisco, Washington-Baltimore, Philadelphia, and Boston together comprise less than 25 percent of the national population, but they account for approximately 75 percent of public transit passenger miles.11

The Journey to Work
Why has transit's overall market share declined? A large percentage of transit's loss is due to its declining market share of work trips. This loss of market share for work trips is particularly significant because the problems that transit ostensibly addresses--pollution and congestion--depend on transit's success among commuters.

Transit's share of work trips has declined by 60 percent since 1960. (See Chart 2.) During the 1980s, transit's market share for work trips declined in all but two of the 39 metropolitan areas with populations of more than 1 million. Transit's market share grew only in Houston and Phoenix, both of which greatly increased bus service levels from a small base.12 In all metropolitan areas that built or expanded urban rail systems, transit's market share dropped. The declining per capita ridership in the 1990s suggests that transit's work trip market share is continuing its downward trend.

Yet in the largest downtown areas, transit retains a substantial market share for work trips. For example, 73 percent of New York's downtown commuters and 61 percent of Chicago's use transit. Transit's downtown work trip market share exceeds 30 percent in six other downtown areas: San Francisco, Boston, Philadelphia, Washington, Seattle, and Pittsburgh.13 In the suburban areas that surround the major downtown areas, however, transit carries a much smaller percentage of work trips, peaking at 12 percent in New York and averaging under 4 percent in the 24 other metropolitan areas.

Transit's small market share with respect to suburban work trips results from two factors. First, suburban locations rarely receive frequent no-transfer service. For suburban commuters, then, public transit is often slower and less convenient than private automobiles. Second, employment densities and, thus, transit demand are much lower outside downtown areas. As a result, transit offers virtually no hope for reducing traffic congestion in suburban areas.14

Commuters Prefer Cars
New urban rail systems have failed to attract new riders--and, thus, to reduce traffic congestion--for two fundamental reasons.

  • Most locations in the urban area cannot be served by rail. In the typical city with a new rail system, more than 99.2 percent of the urbanized area is more than a quarter-mile walking distance from a station.15 (See Chart 3.) As a result, commuters cannot conveniently reach the overwhelming majority of jobs and homes by urban rail unless they walk long distances or transfer to other carriers, either of which is time-consuming and inconvenient.

  • Rail offers no speed advantage. Even in the few corridors served by new urban rail, transit generally provides no speed advantage compared with highway alternatives. New light rail systems average 17.3 miles per hour. Metro systems average 19.4 miles per hour, while commuter rail systems average 33.2 miles per hour.16 Express bus systems tend to operate at approximately 25 miles per hour. In comparison, the 1995 Nationwide Personal Transportation Survey found that automobiles were faster than all modes of public transit and nearly double the speed of both light rail and metro.17 Furthermore, these comparisons understate the automobile's advantage because transit trips require time in walking to and from transit stops and in connecting trips by automobile or bus.

Transit Relies on Rail
A number of urban areas have built expensive new rail systems18 with the expectation that they would attract enough automobile drivers to reduce traffic congestion. Some have made the claim that a single light rail line has the same person-carrying capacity as up to six freeway lanes and that metro systems can carry even more.19 While this is theoretically true, the volumes that new U.S. light rail lines carry do not remotely approach such a level. (See Chart 4.)

On average, new U.S. metro lines carry 60 percent less volume than a single freeway lane couplet20 and 3 percent more volume than a single arterial lane couplet.21 New light rail lines carry 80 percent less volume than a single freeway lane couplet22 and 50 percent less volume than a single arterial lane couplet with traffic signals.

Because most new urban rail riders are former bus or carpool passengers, new rail systems have little or no effect on automobile congestion or overall commuting patterns.23 For example, Washington, D.C., has built the nation's largest new urban rail system with routes totaling 90 miles of track, all at a cost of $10 billion. Washington's Metro, however, has had a minimal impact on the share of commuters who drive to downtown Washington, which is by far the region's strongest transit market. (See Chart 5.)

The single largest cause of air pollution is automobile use. Because urban rail systems do not materially reduce automobile use, they cannot materially reduce air pollution. A report by the U.S. Department of Transportation confirms that rail systems have little impact on pollution. For example, in Washington, D.C., the nation's most comprehensive and expensive new rail system is credited with removing barely 1 percent of emissions in the area.24 The report concludes that new rail systems make only modest air quality improvements because only part of the additional ridership of these systems is drawn from SOV (single occupant vehicle) users. Others are drawn from buses, carpools, and latent demand.25

Although the availability of transit has had no material effect on air pollution, air pollution from mobile sources (street and highway traffic) has declined significantly, largely as a result of technological improvements in the internal combustion engine. As the vehicle miles traveled have increased, air pollution has decreased. (See Chart 6.) Between 1970 and 1997, carbon monoxide emissions dropped 43 percent, volatile organic compound emissions fell by 60 percent, and nitrogen oxide (NOx) emissions declined 5 percent.26 At the same time, the total vehicle miles traveled increased more than 130 percent.27 Even Los Angeles, with the worst air pollution in the nation, has made significant progress. From 1976 to 1998, the number of days per year that violated federal ozone standards fell by nearly 70 percent,28 despite a more than 75 percent increase in traffic volumes.29

Moreover, revolutionary automobile technologies are likely to reduce air pollution still further. Honda and Toyota are now marketing hybrid gasoline-electric vehicles that substantially increase gasoline mileage and reduce air pollution. A number of manufacturers are working on a fuel cell propulsion technology that would be non-polluting. Honda has announced that it will market fuel cell automobiles in California by 2003.30 Nonetheless, it will take at least two decades for the nation's vehicle fleet to be converted; therefore, mobile source pollution will continue to be a concern.

Increasing population densities, however, will only make pollution worse. Higher densities lead to more vehicle miles traveled per square mile and more severe air pollution. Urban areas with the lowest air pollution have population densities under 1,750 people per square mile. (See Chart 7.) Urban areas that have "extreme" air pollution have average population densities about double that of the urbanized areas with no air quality problems.

In addition, because traffic congestion reduces average speed, it increases air pollution. For two of the three primary mobile source pollutants, carbon monoxide and volatile organic compounds, the optimal average vehicle operating speed is approximately 55 miles per hour.31 As average speed decreases, pollution increases. The third source pollutant, nitrogen oxides, is different: The optimum speed is 20 miles per hour, although little additional pollution is produced at speeds up to 45 miles per hour.32 Thus, with respect to air pollution, the optimum operating speed for nitrogen oxides is approximately 45 miles per hour. Nationally, average work trip speeds are less than 34 miles per hour,33 indicating that air pollution generally could be improved by increasing average automobile operating speeds. (See Chart 8.)

The overall productivity of the transit industry is much lower than that of other passenger transport industry. Transit costs per passenger mile are significantly higher than those of any other mode of transportation--nearly 50 percent higher than the cost of Amtrak and four to five times higher than the cost per person mile of automobiles (including personal trucks), airlines, and intercity (private) buses. (See Chart 9.)

Transit's escalation of costs has exceeded that of other modes by a substantial margin. From 1970 to 1995, inflation-adjusted transit costs per passenger mile rose 164 percent. Amtrak's costs, in comparison, rose only 9 percent between 197534 and 1995, while for automobiles, intercity buses, and airlines, the costs actually decreased between 1970 and 1995. (See Chart 10.)

The intercity bus and airline industries were deregulated in the late 1970s and early 1980s, and the ensuing competition drove down unit costs. In contrast, all public transit systems maintain legally enforced monopolies in their markets and are thus immune to the competitive pressures that introduce efficiencies in other industries. Even industries that were not deregulated generally experienced productivity gains over this period, reflecting overall productivity improvements throughout the U.S. economy. Public transit, however, did not experience any such gains.

Among the many forms of transit, new rail systems are far and away the most costly. Among the 28 proposed rail systems evaluated for federal funding by the Federal Transit Administration in 1999, 27 are so costly that it would be less expensive to lease an economy car for each new commuter.35 Six would be more costly than leasing a luxury car.

Although transit fails to achieve any of its broad national objectives, a reformed transit program could achieve a few narrowly defined social and regional objectives.

First, transit could play an important role in America's welfare system. The automobile is the major form of personal transportation in this country, but its cost may exceed the resources of low-income individuals and households. The absence of public transit limits the mobility of low-income individuals, and this in turn restricts their ability to achieve financial independence through employment. Some subsidized transit, therefore, may be an appropriate part of America's welfare system for low-income individuals, including the elderly.

Although social welfare objectives may justify some transit subsidies, recent trends in federal transit spending have been detrimental to the poor. Federal expenditures have shifted away from programs that serve the poor, who often live in the central cities, to programs that primarily serve higher-income suburban residents who commute to jobs in the center city. Too often, when cities create light rail systems, they then cancel or reroute existing bus lines to transit stations. This undermines the intra-urban bus transit service that benefits low-income groups. For example, in Los Angeles, a planned light rail expansion would have diverted financial resources away from the routes serving poorer residents toward those serving suburban commuters. In 1998, minority residents sued the transit authority over its plans and ultimately forced the transit authority to cancel its light rail expansion.

Transit can also be practical in an old, large center city with a significant employment base downtown and difficult automobile commuting conditions due to congestion, limited parking, and narrow streets. Such urban areas number no more than seven nationally--New York City, Chicago, Los Angeles, San Francisco, Washington-Baltimore, Philadelphia, and Boston. These cities account for more than 70 percent of transit's ridership, but within each of these urban areas, the downtown area represents less than 20 percent of the metropolitan area's jobs. Despite vast expenditures of resources on transit, other cities have not been able to replicate the ridership shares achieved by these seven cities (which have themselves fallen). One notable and expensive failure is Portland, Oregon, where the metropolitan transit work trip market share fell 36 percent from 1980 to 1990 despite the opening of a new light rail line. Such failures, however, have not discouraged Congress or the President from devoting more and more resources to public transit.

Although transit may be appropriate and competitive in a few cities, the current federal transit system does not necessarily serve these cities in a cost-effective manner. Moreover, while transit may be competitive in a few older cities, albeit with substantial subsidies from all levels of government, this does not justify the existing federal system. Today federal subsidies redirect fuel tax dollars paid by motorists across the land to transit systems that serve a fraction of the commuters in a handful of cities.

The federal transit system as it currently exists, with its costly mandatory labor contracts and its monopoly dominance of the markets it serves, should be reformed to reduce costs and improve service for transit systems nationally. Two steps in particular would materially improve transit systems throughout the country: competitive contracting (public-private competition) and rapid transit alternatives that rely on bus rather than rail technologies.

Competitive Contracting
Governments worldwide are converting entire public transit systems operated by government organizations to a system based on competitive contracting to reduce rates for unit costs to market. Under competitive contracting, transit agencies purchase transit services from the competitive market, awarding service contracts to the lowest responsible and responsive public or private bidder. The transit agencies still retain full control over management and operations, routes, schedules, fares, vehicle livery, and service standards. Virtually all policy and service decisions also remain the prerogative of the public agencies. Contractors simply provide the services specified by the public agencies at the fares specified. To the customer, the transit system remains an integrated whole with no apparent changes. Where contractors provide capital assets, transit reserves can be reduced.

Cities throughout the world are using competitive contracting to keep fares affordable, maintain or expand services, and maintain the competitive position of transit relative to the automobile. Cities that have applied competitive contracting to transit successfully and comprehensively include London, Stockholm, Copenhagen, Perth, and Adelaide, Australia.36

The conversion to competitive contracting has proceeded much more slowly in the United States, but significant savings have been achieved nonetheless. (See the Appendix for additional information.) Currently, approximately 10 percent of public transit bus service and 70 percent of paratransit (dial-a-ride) is competitively contracted in the United States. In major metropolitan areas, the cost savings from contracting with private-sector providers have averaged 33.1 percent. Table 2 provides details on the U.S. experience with competitive contracting in 43 cities.

Transit agencies may competitively contract public transit routes, regions, operating facilities, or specialized services such as door-to-door service for the disabled. Vehicles and capital facilities may be provided publicly or competitively. Competitive contracting can be used as a strategy to achieve competitive costs for an entire transit system. It can also be used to achieve "ad hoc" contracting, or competitive costs for a specific portion of a transit system such as maintenance and repair. Most international competitive contracting has involved system conversion, while most U.S. cases have been ad hoc.

Competitive contracting lowers costs both directly and indirectly. Direct savings result from the difference between the non-competitive cost of operating a service and the market-based cost established through competitive contracting. Direct savings may occur either when cities award contracts to private firms or when public transit agencies provide services at market rates. Indirect savings occur when non-competitive services reduce their costs in response to competition or the perceived threat of competition.

Governments also gain financially from the higher tax revenues that private contractors pay. Public transit operators, unlike private companies, are typically exempt from most taxes. They are "tax users," not tax payers.

By phasing in competitive contracting to match the employee attrition rate, governments can implement competitive contracting without requiring layoffs of transit employees. Cities can implement faster transitions by buying out expensive federally imposed labor privileges.37 Some studies have estimated that the savings from competitive contracting would pay for such buyouts within two years.38

Transit Alternatives
The federal, state, and local governments' fixation with expensive rail systems has resulted in an overinvestment in a few transportation corridors at the expense of improving more highly traveled corridors.

Advocates of rail systems often claim that urban rail is more cost-effective than bus alternatives, principally because it carries higher passenger volumes per on-board employee. A single driver can operate a bus with a capacity of 60 to 75 passengers, but a 10-car urban rail unit can carry more than 1,000 passengers with one to three employees. Despite these differences, however, rail systems are rarely less expensive than bus systems because of the vast differences in the capital costs needed to build and service the systems.

Rail systems are much more capital-intensive than bus systems. In 16 of the 18 rail systems built in the United States since 1980, the full cost per passenger mile of rail service, including both capital and labor, is higher than that of bus service. On average, new rail systems are approximately 175 percent more costly than bus systems in the same communities.39

These differences are even more pronounced when comparing a new rail system to the bus routes that it eliminates. Rail systems generally are built to operate on the transit routes with the highest ridership. In fact, rail lines usually replace the best bus routes. Because bus service serves virtually all of the rest of the transit system, including the least productive routes, the most cost-effective bus routes can be more than 60 percent less expensive than the average bus route.40 High volume bus routes, therefore, are almost always less costly to operate than rail lines.

A U.S. Department of Transportation report confirms that express bus systems in dedicated freeway lanes are five times more cost-effective than light rail and heavy rail on a cost-per-passenger-mile basis.41 On average, the cost per person mile of new urban rail is more than three times more expensive than buses in the same urban area. New urban rail is even less cost-effective when compared to high volume express bus services: Rail costs nearly 15 times more than the nation's most efficient express bus system.42 Moreover, express buses operating on existing freeways are able to provide door-to-door trips that are faster than those of new urban rail systems. (See Chart 11 and Table 3 for more information on rail and bus costs.)

Another U.S. Department of Transportation report indicates that there is no passenger preference for rail over bus where comparable levels of service are provided.43 In other words, any passenger volume that can be accommodated by new urban rail lines could be moved less expensively by express buses.

Despite the disadvantages and higher costs of rail lines versus buses, public planning processes more often than not prefer rail alternatives to buses.44 This suggests that bias, political influence, or other factors are manipulating the planning process. For example, in Portland, a busway alternative was rejected because rail advocates claimed it would "pour 500 buses an hour"45 onto the downtown transit mall (an exclusive bus roadway). At the time, Portland operated fewer than 450 buses a day, and no reasonable set of circumstances could have led to such a concentration of bus traffic in a single location. In Chicago and Milwaukee, planners who favored rail compared it to bus alternatives with much lower levels of service, and thus weighted the odds against bus service.46

What sustains rail's popularity in the face of the evidence suggesting that alternatives are more practical? Public officials may mistakenly believe that rail lines reduce traffic congestion. While virtually none of the technical data support the claim of traffic reduction, some planning documents do offer conclusions that exaggerate the minuscule benefits conferred by rail systems or that contradict their own analyses.

The availability of federal subsidies for rail lines is perhaps the most important factor favoring rail service. Local governments routinely seek to improve their economies by obtaining federal funding that otherwise would go elsewhere in what could be called the "if we don't take the money, Baltimore will" syndrome. The anticipated economic impact of federally subsidized transit is not unique to rail systems. Just as cities lined up in the 1950s for federal funding to build high-rise public housing projects that later undermined urban quality of life, today cities queue for federal money to build rail lines that were obsolete decades ago.47 Professor John Kain, former chair of the Economics Department at Harvard University, says the rush to build rail is due to "Boosterism, appeals to civic pride, the self interest of owners of CBD (central business district) and other strategically located properties, and a fondness of politicians for building monuments...."

Generally, bus-based systems cost less, move more quickly, and provide comparable or better service than new urban rail systems. Cities seeking federal largesse to expand their transit systems would be far better served by less expensive and more effective bus strategies. This is a lesson that Los Angeles is learning, perhaps too late. Despite the more than $5 billion spent to construct two light rail lines, one metro line, and six commuter rail lines, traffic is worse than it was before construction began--and transit ridership has declined . The near-bankrupt public transit agency has suspended further rail development and is considering a regional rapid bus program.48

Rapid bus systems are also relatively easy to competitively contract, which greatly reduces costs and hence subsidies. This makes additional funding available for other service expansions, fare reductions, or lower taxes. Indeed, many transit services may be operated profitably. London, England, has contracted out the entire bus system, which is now profitable for both capital and operating expenses.49 Many communities can also afford less grandiose rapid bus systems without raising taxes. Rail systems invariably require tax increases, either at the start of construction or when the community learns that it cannot afford what is has been promised. It is the promise or threat of such tax increases that recently induced the citizens of San Antonio, Portland, St. Louis, Milwaukee, and Miami, among others, to reject new or extended rail service in their communities.

Despite significant infusions of public funding, transit has made virtually no progress in reducing traffic congestion. Indeed, given its minuscule market shares, there is virtually no potential for transit to reduce traffic congestion in today's dispersed, suburban-oriented cities. Nonetheless, there is significant potential for transit to serve the public more effectively in the few niche markets where it might be viable. Two important changes would help transit better serve the public:

  • Competitive Contracting. All bus and rail services should be converted to competitive contracting as quickly as possible. This could allow a combination of service expansions, fare reductions, and tax reductions.

  • Alternatives to Rail. Because of the extremely low densities of U.S. urban areas, transit's minuscule market shares, and the high costs of rail lines, rail lines are virtually never cost-effective relative to other transit solutions. Available capital funding should be used for the most cost-effective projects that rely on bus rather than rail technologies, and construction of new urban rail systems should cease.

The improved financial performance that would result from such policies could arrest or even reverse the downward trend in transit's market share. For the nation's transit riders and taxpayers generally, this would be good news indeed.

Wendell Cox is principal of the Wendell Cox Consultancy in St. Louis, Missouri, and a former Visiting Fellow at The Heritage Foundation.

APPENDIX: The Record on Competitive Contracting

Competitive contracting has allowed cities around the world to achieve significant unit cost reductions. Table 4 summarizes the experiences of several cities both here and abroad.

In Europe, the European Union (EU) is encouraging the conversion of public transit systems to competitive contracting. According to an EU policy report:

The concession system (competitive contracting)--where services are subject to open contract but within a defined operational framework--is well suited to providing an environment which gives incentives to operators to raise standards whilst safeguarding system integration which is particularly important to urban and regional transport. The Commission...will look at ways of promoting the concession (competitive contracting) system.50

Throughout the world, cities have converted their transit systems to encourage competition and competitive pricing.

London. London has converted its entire bus system to competitive contracting. London Transport (LT) has the developed world's largest public transit bus system. With approximately 6,000 buses, its system is roughly double the size of New York City's. Under a parliamentary mandate, LT competitively contracted all of its bus services over the period from 1985 to 1999. In 1997, LT's bus system operated at a profit; in addition, the taxpaying, private operating companies that operate the bus lines pay taxes on their profits. The results of competition in London between 1985 and 1999 attest to the benefits of privatization:

  • Services have been expanded 29 percent over 12 years, while total operating expenses have been reduced 31 percent (adjusted for inflation).
  • Costs per vehicle mile have dropped 46 percent, which is an annual cost per mile reduction of 4.4 percent.51

Initially, a public operator won more than half of the competitive contracts, but the company was later divided into 11 separate firms and sold to private investors (including management and employee buyouts). These companies continue to operate most of the service at market rates.

Copenhagen. Copenhagen converted its entire bus system to competitive contracting. The Danish parliament mandated the conversion to competitive contracting in 1989, and it has since been completed. Copenhagen Transport administers a public transit system of 1,100 buses, making its system similar in size to that of Washington, D.C. More than 20 operators provide service under competitive contracts. The rate paid for non-competitive services (provided until conversion by the former public monopoly) is limited to the average rate paid to contractors.52 Inflation-adjusted bus costs per mile have dropped nearly 20 percent since before the conversion.

Stockholm. Beginning in 1993, Stockholm converted all of its bus and metro services to competitive contracting. The public transit system consists of 2,000 buses and 900 rail cars, and its annual ridership is comparable to that of Chicago, Portland, and Seattle combined. According to the public transit agency, "Quality has, at a minimum, been retained unchanged."53 Overall system costs per person mile have declined 20 percent.

Melbourne. The Victoria state government competitively contracted the entire Melbourne public bus system in 1993. Cost savings have been achieved, and the government has been able to avoid the expense of renewing the bus fleet. The light rail and commuter rail systems have recently been competitively contracted.54

Auckland, New Zealand. Competitive contracting of virtually all transit services has resulted in 16.5 percent more service, while overall costs have declined by 21.2 percent--a 33.5 percent reduction in cost per mile.55

San Diego. San Diego has converted 43 percent of its bus system to competitive contracting since 1979 and is continuing the conversion process at a rate that guarantees the jobs of present public transit agency employees. There have been no layoffs. More than 100 buses are now competitively contracted.

  • In the competitive environment, the inflation-adjusted, system-wide bus costs per vehicle hour have dropped 41 percent. From 1979 to 1996, bus costs were $475 million less than if costs had risen at industry rates. This is nearly $100 million more than San Diego spent to build its first two light rail lines. These savings have made it possible for the system to increase bus service levels by 82 percent since 1979, while the bus service budget increased by only 7 percent.
  • "Ripple effect" savings have reduced the costs of non-competitive service by 36 percent per vehicle hour. The former monopoly, San Diego Transit, has won competitive contracts.

Las Vegas. Fast-growing Las Vegas has converted its entire public transit system from a private monopoly operation to competitive contracting--the first such complete conversion in a major U.S. urban area. Ridership has risen by approximately 300 percent since competitive contracting began, placing Las Vegas among the top 25 U.S. urban areas in public transit ridership. The total conversion of the public transit system was immediate. In the first year of operations, total operating expenditures rose 135 percent, while service levels were increased by 243 percent, for an inflation-adjusted cost per vehicle reduction of 33.3 percent.

Indianapolis. Indianapolis contracts 70 percent of its bus system competitively. The public operator won a major contract by reducing costs per hour by 22 percent. Through competitive contracting, Indianapolis increased bus service levels by 38.4 percent, while total inflation-adjusted operating costs increased only 8.5 percent between 1994 and 1996.

Denver. A 1988 Colorado state law required a 20 percent conversion of Denver's Regional Transportation District (RTD) bus service to competitive contracting. More than 180 buses are now competitively contracted. In 1999, Governor Bill Owens signed a bill requiring that the competitive contracting mandate be expanded to 35 percent by March 2000.

  • Since beginning competitive contracting, RTD has increased bus service levels by 25.6 percent, while total inflation-adjusted operating costs have increased only 3.0 percent between 1988 and 1995. In contrast, during the six years before competitive contracting, operating costs rose 18.8 percent, while service levels increased 17.5 percent.

  • "Ripple effect" savings have reduced the inflation-adjusted costs of non-competitive service by 11 percent per hour.

  • A new procurement effort in 1999 is expected to reduce costs by another 15 percent as a result of intensified competition. Cost savings from the program's inception to the conclusion of current contracts are estimated to reach $140 million.56

Los Angeles. More than 20 percent of Los Angeles' bus service is now competitively contracted. With 550 buses run competitively, Los Angeles has more competitively contracted buses than any other U.S. metropolitan area, operating approximately the same number of buses as the entire St. Louis or Portland transit systems. In the late 1980s, Los Angeles competitively contracted public transit routes that were threatened with cancellation due to financial constraints. Ridership on the competitively contracted routes increased 150 percent while other routes' ridership declined throughout Los Angeles. In an independent audit, Price Waterhouse reported cost savings of 60 percent per mile as well as improved service quality. In addition, fares on the competitively contracted services stayed lower than those on the regional system.


1. Frank Bruni, "Gore Pledges $25 Billion to Improve Mass Transportation," The New York Times, June 29, 2000.

2. Thomas B. Edsall, "Bush Deal Keeps GOP Stand on Abortion," The Washington Post, July 1, 2000, p. A1.

3. See Wendell Cox Consultancy, "Urban Transport Fact Book," at www.publicpurpose.com/ut-ussby.htm. 

4. There have been no layoffs from this process.

5. The Davis-Bacon Act requires that federally funded transportation construction projects be performed at "prevailing labor rates," which are established administratively by the U.S. Department of Labor. These rates are often above the prevailing market wages. The result is higher than necessary construction costs, both because of the higher wages and because non-union companies are less likely to compete for federal projects.

6. Section 13(c) of the Urban Mass Transportation Act of 1964 requires that local transportation agencies receiving federal transit funds hold special negotiations with the workforce and that any labor contract between the agency and the union be reviewed and approved by the U.S. Department of Labor, which in turn seeks the views of transit unions on each contract. Section 13 (c) also discourages the use of cost-saving competitive contracting and outsourcing by requiring that any transit employee who loses a job because of outsourcing-related cost savings must receive up to six years of severance pay (one for each year of service up to six). As a result of this requirement, cost efficiencies available to all other government work are rendered nearly impossible to achieve in public transit systems.

7. U.S. General Accounting Office, Surface Transportation: Moving into the 21st Century, May 1999.

8. Ibid.

9. U.S. public transit systems measure ridership in "boardings." A single passenger trip may involve more than one boarding. For example, a passenger who transfers from one bus to another to complete a trip is counted as two boardings.

10. Market share data from Wendell Cox Consultancy, "Urban Transport Fact Book," at www.publicpurpose.com/ut-97usptdata1.htm (July 19, 2000).

11. Calculated from U.S. Department of Transportation, Federal Transit Administration, 1997 National Transit Database.

12. Because both Houston and Phoenix had minuscule transit market shares in 1980, small increases in ridership yielded large percentage changes in transit use.

13. Calculated from 1990 U.S. Census Bureau employment location data, reported by Wendell Cox Consultancy at www.publicpurpose.com/ut-25cbd.htm(July 19, 2000).

14. This problem--the fact that so few urban trips are "transit competitive"--was the subject of a recent study sponsored by the American Public Transit Association. See Paul M. Weyrich and William S. Lind, Does Transit Work? A Conservative Reappraisal (Washington, D.C.: May 1999).

15. Calculated from 1996 National Transit Database transit station and Texas Transportation Institute urbanized land area data.

16. Commuter rail's apparent speed advantage over the automobile is often more than nullified by the time necessary to transfer to and travel on connecting transit services. Generally, there is a single commuter rail station in the downtown area, which places many work destinations beyond walking distance.

17. Light rail speed is calculated from the U.S. Department of Transportation's 1996 National Transit Database. The express bus speed is calculated from the 1990 National Transit Database, which had more comprehensive speed data for express bus systems. Automobile commute speed and transit comparisons are taken from U.S. Department of Transportation, Nationwide Personal Transportation Study, 1995.

18. A new rail system is one that opened in 1975 or later.

19. Light rail is a rail line that operates mostly on the surface; metro systems are fully grade-separated subways or elevated subways.

20. A freeway lane couplet is two lanes of freeway, with one operating in each direction. Rail lines operate in both directions.

21. An arterial lane couplet is a major surface street with traffic signals.

22. A freeway lane couplet is two lanes of freeway, with one operating in each direction.

23. Jonathan E. D. Richmond, New Rail Transit Investments--A Review (Cambridge, Mass.: Harvard University, John F. Kennedy School of Government, 1998).

24. U.S. Department of Transportation and U.S. Environmental Protection Agency, Clear Air Through Transportation: Challenges in Meeting National Air Quality Standards, August 1993.

25. Ibid.

26. Calculated from data from U.S. Environmental Protection Agency, National Air Pollutant Emission Trends Update: 1970-1997, March 1999.

27. U.S. Department of Transportation, National Transportation Statistics 1998, and U.S. Department of Transportation, Highway Statistics 1997 .

28. South Coast Air Quality Management District, "Historic Ozone Air Quality Trends," at www.aqmd.gov/smog/o3trend.html (July 19, 2000).

29. Estimated from Federal Highway Administration daily traffic and population trend data.

30. "It's Official: Honda and Volkswagen Join California Fuel Cell Partnership," Hydrogen and Fuel Cell Letter, November 1999, at http://www.hfcletter.com/letter/november99 (July 19, 2000).

31. Calculated from data from U.S. Environmental Protection Agency, Office of Transportation and Air Quality (formerly Office of Mobile Sources), "AP42, Air Pollutant Emission Factors," at www.epa.gov

32. Above 45 miles per hour, nitrogen oxide pollution increases more rapidly.

33. U.S. Department of Transportation, Nationwide Personal Transportation Study, 1995.

34. Because Amtrak was established in 1971, data for 1975 are used for this analysis.

35. Wendell Cox Consultancy, "The Urban Transport Fact Book," at www.publicpurpose.com/ut-rail&carlease.htm  (July 19, 2000).

36. In the less-developed world, private entrepreneurs provide most urban transit services without government subsidy.

37. Section 13(c) of the Urban Mass Transportation Act as amended requires up to six years of severance pay.

38. For example, see Phoenix Management Services, Southeastern Pennsylvania Transportation Authority (Philadelphia): A Business Audit, 1997, and Wendell Cox, VIA Metropolitan Transit (San Antonio) Opportunity Analysis (San Antonio: Texas Public Policy Foundation, 1997).

39. The data to produce accurate full-cost comparisons between buses and rail lines are not readily available. The referenced data rely on the best readily available information and are likely to have underestimated actual cost differences.

40. Before the Los Angeles light rail lines were built, the best routes were nearly 70 percent less costly per passenger mile than the system average. Calculated from 1984 Southern California Rapid Transit District route data reports.

41. John Kain, Ross Gittell, Amrita Daniere, Tsur Summerville, and Liu Zhi, Increasing the Productivity of the Nation's Urban Transportation Infrastructure (Washington, D.C.: U.S. Department of Transportation, Federal Transit Administration, January 1992).

42. Academy Lines in metropolitan New York.

43. Moshe Ben-Akiva, Ridership Attraction of Rail Compared with Bus (Washington, D.C.: U.S. Department of Transportation, 1991).

44. This does not mean that express bus systems should replace the high volume rapid rail and commuter rail systems serving the nation's largest downtown areas--New York, Chicago, Philadelphia, San Francisco, Washington, and Boston. But other than these historic, densely developed commercial centers, cities are better served by express buses, which can carry at least the same passenger volume at higher speeds for a lower cost than rail lines.

45. Regional Plan Association, The Renaissance of Rail Transit in America (New York: June 1991).

46. Wendell Cox, Light Rail in Milwaukee (Milwaukee: Wisconsin Policy Research Institute, 1998), and Wendell Cox and Jean Love, Analysis of the Chicago Central Area Circulator (Chicago: Illinois Taxpayer Education Foundation, 1995).

47. John Kain has described a mid-1960s report prepared for the federal government that concluded that building rail modes would be ineffective and overly expensive.

48. Booz-Allen & Hamilton, Inc., Regional Transit Alternatives Analysis: Study Results, report prepared for the Los Angeles County Metropolitan Transportation Authority, November 6, 1998.

49. London Transport, London Transport Annual Report, 1997-8.

50. European Commission, The Citizen's Network: Fulfilling the Potential of Public Passenger Transport in Europe, 1996.

51. Calculated from London Transport, London Transport Annual Report, London Transport Annual Reports, 1985 through 1999.

52. Calculated from data supplied in Johannes Sloth, Managing Director, HT, "Success Stories: Copenhagen Transport," paper delivered at "Reinventing Mass Transit: Moving into the Millennium" conference in Chicago, May 1999, and personal communications.

53. AB Storstockholms Localtrafik (Stockholm public transit authority) data, annual reports 1995 and 1998 (English).

54. Information provided by Department of Transport, state of Victoria.

55. Calculated from Auckland Regional Council data.

56. Wendell Cox Consultancy, "The Urban Transport Fact Book," at www.publicpurpose.com/ut-index.htm(July 19, 2000).

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