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The Private Bus Fuss
The real solution to Gotham’s poor bus service: competition.
Spring 2004

New Yorkers elected Michael Bloomberg mayor hoping that the successful executive would run Gotham in an efficient, businesslike way, but the billionaire mayor has shown little inclination to apply business principles to government. Nothing illustrates this tendency more clearly than his effort to solve the problems plaguing the seven private bus lines that operate some of the city’s inter-borough commuter routes.

Responding to complaints about poor service on the private lines, the mayor has demanded that the Metropolitan Transportation Authority take over the routes—which in one stroke would absorb them into one of the most expensive, heavily subsidized public transit systems in the nation. But the problem isn’t that private firms run the routes, as the left-dominated City Council and other anti-privatization critics have charged and as the businessman mayor seems to believe. The problem is that the city hands out those transportation contracts under a no-bid system that breeds inefficiency and cronyism.

The current mess results from a half-century of bad policy decisions. Before World War II, private companies ran the city’s entire bus system. Beginning in 1947, however, the city began to assume control of the private lines, using bus-company requests to hike the then-nickel fare as justification for “transit unification,” under centralized government control. At the same time, the city also contracted with several private bus companies to run routes under the new system. Eventually, the private lines won from the city heavy operating subsidies and automatic contract renewal, protecting them from competition.

No genuine private marketplace operates like this, so it’s no surprise that the “private” bus lines’ performance leaves much to be desired: the city subsidizes service to the tune of $145 million annually, and service stinks. The company owners, though, became big political givers to city pols, enabling them to maintain their cushy monopolies until now.

Bad as this arrangement is, Bloomberg’s proposed MTA takeover would not be any better. The MTA’s own system suffers from massive inefficiencies and high expenses. A study by Manhattan Institute senior fellow E. J. McMahon and Baruch College professor E. S. Savas, for example, found that the MTA spent $90.74 per vehicle operating hour in 2000—fifth-highest among the nation’s 30 largest transit systems. Making matters worse, the MTA wants fatter subsidies before it takes over any routes.

To lower costs, genuine privatization is necessary—and that means setting up real competitive bidding for transportation contracts. Denver, Houston, Los Angeles, and San Diego have all realized sizable savings by turning to competitive bidding in this area. In Denver, bid-out routes cost 46 percent less to run than those the city still runs directly; in Los Angeles, which now contracts out more than half its bus service, the savings amount to roughly 40 percent.

There’s no reason New York can’t follow these cities’ lead. It’s another case of the mayor’s not even knowing what the right battle is.

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