Public utilities, from Chris Potter. CC BY 2.0
The MBTA is struggling, but they’re not the only transit authority facing both near and long-term challenges. The MTA in New York is trying to find the funds for its capital plan; WMATA is facing systemic budget deficits while trying to restore rider confidence in the system.
For-profit corporations such as airlines aren’t the right answer to govern transit in an American context. So, what kind of structure could work?
Writing at Citylab, David Levinson made the case for structuring American transit operations as regulated public utilities, able to pull the best elements of private sector management and pair them with the fundamentally public purpose required for urban mass transit.
David cites seven key elements of this model:
- Competitive tendering for services
- The ability to raise fares (with regulatory approval)
- Using a smartcard as a common platform for fare payment
- Specific contracts with local governments to operate subsidized service
- Ability to recapture land value through land ownership and real estate development
- Access to private capital markets
- Local governance, funding, and decision-making
These elements aren’t substantively different from the elements of German public transport governance reforms outlined by Ralph Buehler and John Pucher: competitive tendering for many services, increased fares, investments in technology to improve capacity, efficiency, and revenue. Public regulation oversees these efforts to operate the core business more efficiently.
Lisa Schweitzer (USC Professor focusing on urban planning and transportation) offered extensive feedback on her blog (in several parts). All are worth reading, I’ve linked to each and included a short summary and/or quote:
1. On the regulated public utility concept: “First of all, even though quangos [a British term: quasi-autonomous non-governmental organizations – what we’d usually refer to as a public authority] are somewhat insulated from voters and politics, they still have play with budgetary politics, and those games are where lots of stupid enters into transit provision.”
Schweitzer identifies three main problems with applying the concept to transit. First, unlike water or electric service, the demand for transit use isn’t universal. Aside from a few dense cities, there isn’t necessarily a built in customer base. Second (and related to the spotty demand for transit service), some jurisdictions can/do opt out of transit service, hurting the overall network. Third, unlike water or electricity, there are many different levels of transit service.
2. The challenges of competitive tendering: the devil is in the details for how to successfully structure operations contracts: “And that’s a really the key point for competitive tendering and service quality gains you hope to achieve: if you are going to to do this, you need to be clear on service expectations. The reason the cable guy gets to treat you like crap is that’s not part of the franchise agreement which centers on channels and rights for particular sports events–not customer service response times.”
3. Farecards and technology: Schweitzer notes that most transit agencies already offer smart farecards, but perhaps a regulated utility would have more incentive to invest in technology to collect additional revenues or adopt policies (such as all-door boarding, or proof of payment) that would speed operations and improve efficiency. This is really a matter of institutional incentives rather than simply adopting farecards.
4. Capital cost recovery: While Levinson argues that new transit lines should only be built if they can break even on fare revenues and value capture from adjacent land, Schweitzer counters that this formulation depends on the mode and the type of transit line:”Right now, you have jurisdictions with people who are very avid about wanting rail transit. We must have rail now.”
“You want a train? Fine. Either let us build 70 100-story apartment complexes next to the station (if it pencils for us) or you pay whatever portion of the capital and operating costs that apartment complex would have covered for the utility. Your choice. Again, rich districts can have their single-acre lots if they want, and they can have their trains if they want them–even if nobody wants to take the train and they just use it as decoration. They just can’t stick the rest of us with the bills for those trains.”
5. Asset values and access to private capital: This isn’t exactly a silver bullet. For as well as competitive bidding worked for London’s buses, the similar deal for the Underground flopped:” The Metronet-London Underground deal came about in 1998 in part because the transit provider, Transport for London, was financially stretched and their capital stock decayed. This is a big deal: taking over large capital stocks is risky, let alone doing so because you have to bail somebody out. It means you probably have crumbling assets with an uncertain price tag to fix.”
In London’s case, one rail company delivered on their agreements while another operator came back to the public for additional funds and eventually went into bankruptcy: “While newspapers blamed the public sector partner for failing to manage the contracts properly, the public audit on the deal cited Metronet’s own corporate governance and poor management as the primary reason for the failed partnership.”
6. Local funding: While Schweitzer sees the virtues of local funding, there are risks to completely forgoing federal funds. If there is a chance to reform things, it will likely involve the feds: “If we really do believe that there are normatively better ways for cities to be, then there is a role for federal governments to play in setting standards and incentives.”
David, freed from the space constraints of Citylab when writing via his own blog, responded in depth:
1. The regulated public utility model: “I imagine like most reforms, it would be phased in, tested, refined, and revised in the various laboratories of democracy. Some city has to go first, some other city has to go second, and hopefully learn from the first, before every last city does.”
2. Competitive tendering: “…the answer is quite complicated about how to configure to maximize consumer welfare, and experimentation is probably required. Just giving the system away is certainly not the answer. Having the franchises be of a limited duration (5-7 years, e.g.) is better than a 20-30 year franchise. This is feasible for buses where the capital is the ultimate in mobile capital. It would be much harder for a traditional utility where the infrastructure is expensive, embedded in the ground, and long-lived.”
In other words, it’s a lot easier to structure a deal for competitive contracts for bus operations than it is for fixed, naturally monopolistic rail services – both in terms of structuring the deal, and in terms of attracting operators.
3. Farecards: “I would go further and say we should have pre-payment via stop-based farecard reader, i.e. all significant bus stops should have arterial BRT like payment”
4. Capital cost recovery: “Capital investments are new stocks while operating expenditures are continuing flows. From a public policy perspective, continuing with existing commitments (which may be an implied social contract) may be more important than making investments that bring about new commitments. Thus new commitments (such as new rail lines which have irreversibly embedded immobile capital) should only be undertaken if we believe at the outset (admittedly a forecast, which have problems) that they have cost recovery.”
5. Asset values: “Investing in new infrastructure is a lot riskier than investing in already built infrastructure (thus the early financiers of the Channel Tunnel got wiped out twice, similarly the Dulles Greenway and many other privately funded pieces of new infrastructure that were either more expensive than expected, or built too far in advance of demand.”
The broad concept of a regulated public utility has a lot to recommend: it threads the needle between the public purpose inherent to modern transit, while also pulling the best elements from private enterprise and the benefits of running a service-oriented business like a business.
While demanding additional efficiency from transit operators, German public policy worked in concert with these reforms – traffic calming, dense development around transit stations, and increased taxes and fees on car-based transport both improved transit’s attractiveness and also provided new revenue sources.
As Dr. Schweitzer notes, the single biggest take-away from Levinson’s article is the concept of transit as a public utility in the first place. Getting over that mental hump can open doors to plausible reforms.
What might those reforms be? In addition to Levinson’s list, Ralph Buehler and John Pucher offer their lessons from the German experience:
- Encourage regulated competition; take advantage of private sector expertise
- Collaboration between local governments, transit operators, and labor unions
- Focus on profitable services – not to ignore ‘equity’ services. Jarrett Walker would refer to this as a focus on ‘ridership’ routes instead of ‘coverage’ routes – and building political consensus around this isn’t an easy task!
- Collaborate with other transit operators; encourage easy exchanges between systems for passengers, interoperable systems, etc.
- Improve service quality; focus on customer service.
- Increase transit’s competitiveness with complimentary public policies – for example, increased fees on driving/owning a car, encouraging dense development near stations, etc.
All in all, the list is quite similar to Levinson’s.
However, in Germany, the push towards some of these reforms came from the outside (EU regulations); existing transit operators viewed them as a threat forcing reform and a new focus on customer service, efficiency, and overall quality – all while working to reduce costs. Similar to an airline facing bankruptcy, German operators used the EU mandate to find common purpose with their unions to improve efficiency and reduce overall costs.
Both Schweitzer and Levinson sing the virtues of local funding, but reform of this magnitude might require outside stimulus. In the same vein as Schweitzer’s defense of federal experimentation in policy, the federal government is well suited to fill that role. However problematic the federal focus on streetcars may be, the federal focus has certainly shifted the attention of local governments; the TIGER grant process shook up the traditional relationship between the FTA serving a few transit authority grantees. The projects might not be the best investments in mobility, but it does reveal the potential for the feds to drive change in transit governance.