Mass Transit Reform: Lessons for Pennsylvania

Executive Summary

Pennsylvania’s two major public transit agencies, the Philadelphia-area Southeastern Pennsylvania Transportation Authority (SEPTA) and the Pittsburgh-based Port Authority Transit (PAT), have been in financial crisis for years, with no indication of abatement. In response to budget shortfalls—SEPTA and PAT are expected to run deficits in excess of $120 and $45 million respectively in FY 2007-08—policymakers have adopted a three-faceted response: cut service, raise passenger fares, and lobby for larger and perpetual state subsidies for public transit.

Unfortunately for Pennsylvania taxpayers and transit users, the near-total focus on the revenue side of public transit will not address the real reason for transit’s seemingly endless series of financial crises: the fact that the current public-sector monopoly of mass transit services has led to costs that are spiraling out of control. Costs for both SEPTA and PAT have consistently outpaced the rate of inflation, increasing at a far faster rate than they likely would have in a competitive environment. With the success of competitive contracting of transit services abroad, coupled with effective implementation in several American cities, competitive contracting holds the promise of ending Pennsylvania transit agencies’ “budget crisis” cycle.

Since 1970, public transport expenditures have more than tripled despite a lack of any increase in ridership. To bring costs down, some public authorities turned to competitive contracting of transit operations, under which the authorities would decide what service would be provided, along with the terms of service and the fares to be charged. However, the service operator would have to win the job in competition with other private (and public) transit providers.

Approximately 10 percent of all bus service and 15 percent of regional rail service within the United States was competitively contracted as of 2001, with many contracted services achieving savings of 30 to 40 percent. An analysis of successful contracting of transit services elsewhere provides guidance for implementation of a similar program in Pennsylvania. Some smaller systems, such as the Mid-Mon Valley Transit Authority and Westmoreland County Transit Authority, have already begun contracting out transit services. Adopting a successful competitive contracting program in the Commonwealth’s largest mass transit markets could provide not only cost savings, but also management flexibility to offer new services and provide better quality of service.

To bring competitive contracting to Pennsylvania, it will be necessary to overcome several obstacles. Chief among the federal barriers is Section 13c of the Federal Transit Act, which stipulates that “[T]he condition of existing transit workers (shall) not be diminished through transit projects initiated with federal funds.” On the state level, the Pennsylvania Second Class County Port Authority Act grants PAT the exclusive right to provide mass transit service in Allegheny County, stipulating that anyone wishing to provide such service first obtain PAT’s permission to operate. These obstacles are far from insurmountable.

Around the country, agencies have achieved compliance with Section 13c by tying their rate of outsourcing to the rate of employee attrition, so as not to “worsen” the position of any existing employee and thereby trigger the hefty dismissal allowance requirement. This restriction forces progress to be incremental, but these agencies have still achieved significant savings. In order to permit competitive contracting of bus service at PAT, it would be necessary for the Pennsylvania General Assembly to amend the Second Class County Port Authority Act to end the monopoly on mass transit service in Allegheny County.

A number of guiding principles have emerged from contracting programs in other cities which are directly applicable to Pennsylvania. First, agencies responsible for overseeing a competitive contracting program should be responsible solely for transit policy, meaning that it should not directly operate transit services itself. Transit policy agencies should also avoid employing personnel directly responsible for operating bus transit services, thereby limiting additional “legacy costs.” Such agencies, moreover, could begin the implementation of a competitive process by contracting bus routes at the rate of employee attrition, in compliance with the Federal Transit Act. Finally, contracts should be small enough and bid frequently enough to maintain bidder interest and contractor discipline.

Only when services are competitively provided will transit users and taxpayers in Philadelphia, Pittsburgh, and points in between finally obtain the quality of service and cost efficiency that they deserve—and that many other American and international cities have demonstrated is attainable.