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From LI Bus, a case study in the purpose of transit

by Benjamin Kabak

Here’s an interesting question for you: Should public transit systems and the public authorities that run them be trying to turn a profit? In other words, at what point should authority heads such as Jay Walder cease running a transportation network as a public good and start running it as a business?

The answer to this question isn’t an easy one in an age of austerity. By and large, public transportation networks are inherently not operated as a business as the service level. In New York, for instance, the MTA runs mostly empty trains at 3 a.m. and allows buses to run routes with a cost-per-passenger high enough to make any private CFO cry. That’s how New York City exists as a huge economic hub and tourist destination today, and that’s how mass transit is operated as a public good.

On the other hand, though, are a few competing demands. First, the MTA must operate these services efficiently through a streamlined bureaucracy and a procurement process that isn’t beset with red tape. Second, it cannot become an organization beholden to pension costs and lifetime benefits. Third, it will require public subsidies from a government whose constituents depend on public transit for their daily lives, and politicians will have to recognize that the MTA or a similarly situated organization may not operate as efficiently as a corporation that answers to stock-holders. The demands are different, and the expected benefits are different.

Recently, a few good minds in the transit realm have been debating the way transit authorities operate. David Levinson has called for financially sustainable mass transit systems while Jarrett Walker has called upon those funding transit systems to better outline their goals. The competing demands of ridership vs. coverage are at odds with financially self-sustaining transit systems. I’ve simplified their arguments, and it’s worth reading their pieces at length because we’re seeing this debate play itself out in real life on Long Island.

The Long Island Bus saga has been a debacle. In its original agreement with Nassau County, the MTA agreed to operate the service as long as the county paid for it. Over the years, the county’s contributions had decreased while the MTA’s had increased, and the authority threatened to pull out of Nassau if County Executive Edward Mangano didn’t agree to upping the county’s contributions from $9 million to $26 million. Mangano called the MTA’s bluff and decided he could run the bus system for less by farming it out to a private company. He claimed no service cuts or fare hikes would follow.

From the start, the privatization process has been a mess. The county used a non-transparent process to pick Veolia, a company with close ties to Mangano’s campaign, and they failed to meet a July deadline for an agreement. The MTA will operate the buses until December 31, and at that point, Nassau County will reduce its contributions to just $2.5 million — $6 million less than the cost of fuel alone. Veolia will then be expected to cover the difference. Without subsidies, no one, including the company’s CEO, knows how.

Earlier this week, Michael Setzer spoke about how the company would save the millions it stands to lose from the MTA and state when it takes over the LI Bus network. “You can’t save $35 million by turning off the lights,” Setzer said. In other words, there’s virtually no way Veolia can operate the bus system with its current route structure and fare system while breaking even or turning a profit.

On their website, if you read closely enough, Veolia has said as much. They are threatening “adjustments” of bus timetables that will reduce frequency, and while they say there is no plan in place to raise fares next year, they also say that “it’s possible that modest service redesigns and fare increases will be recommended.” You can’t just save $35 million by turning off the lights.

Veolia is a private company long used to operate bus systems with large public subsidies. If they can’t turn a profit in Nassau County with a meager subsidy and the current route plan or fare structure, something will have to go. Relatively empty buses that provide a transit lifeline for people who can’t afford anything else will be cut, and fares will go up. A public good won’t be so public any longer.

As this grand experiment rushes toward a launch, we’ll watch Nassau County closely. It could be a model for how transit agencies can operate, but it sounds as though it’s going to be an example in government failure and the decline of a once-proud bus system. Perhaps Nassau County will come to its senses and recognize the purpose of its bus system before it’s too late, but I’m not counting on it.

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Alex C September 21, 2011 - 1:34 am

I feel for those poor new shiny Orion VII’s they’ve been getting with that evil wasteful government money. Those things are going to get some awful maintenance (if any) as a cost-cutting measure.

Chris September 21, 2011 - 2:21 am

Levinson’s dead right overall. The main idea is this: if you’re arguing that the MTA should be subsidized because low-income people depend on public transit, you’re either an advocate for transit pork or deeply paternalist. If you have a dollar in your pocket, and in front of you stand an MTA motorman and a poor person, and you give the dollar to the motorman, I doubt the poor person will thank you.

The tweak needed to Levinson’s idea is this: the “core” is the biggest network that can be profitable given full freedom of setting fares. The routes and runs that cannot be profitable under any fare scheme, should indeed be dropped. In New York, I suspect that most of the MTA would fall into the core except for some late night routes. Once you’ve established the core, you can choose to set actual fares at lower levels and operate at a loss. We as society can all simply recognize that financially supporting these losses is someone’s poorly targeted welfare scheme.

Bolwerk September 21, 2011 - 4:22 pm

Public financing going to a useful public service that benefits all stakeholders, albeit some indirectly, strikes me as neither paternalism or pork. If it were paternalism, people would be forced to use it for their own good. If it were pork – eh, well, it would probably come out of Texas‘s pocket, and not be of much use to any of the stakeholders.

There is certainly a case to be made for better financial performance with transit, but that doesn’t call for a doctrinaire market-sensitive regime that potentially cuts off millions of people from a service they depend on.

Chris September 21, 2011 - 5:44 pm

It’s paternalism because we are forcing people to pay for it, not to use it. The government has cash, gives it to the MTA, and alleges that this specifically benefits low income people who are “dependent” on public transit. The government meanwhile had the option to give those same people the same cash directly – whether as a distribution to all low income people, or perhaps only to transit riders by matching transit spending with a refundable tax credit for people below a certain gross income.

If I have money, to be spent for your benefit, it is absolutely and always paternalism for me to make the decision where it is spent. (Actual “public goods” in the economic sense are an exception to this, but transit with any type of fare collection is not one.) I think the argument that paternalism is justifiable (we’d rather people consume transit than video games, or cigarettes, or heroin) is much stronger than the argument this is not paternalism.

And this is to say nothing of the fact that we are also spending money to subsidize transit use by the upper middle class and rich – in my perfect world the legislature would have to allocate this money separately, so that we could see which lawmakers support incremental spending on the Metrocards for Millionaires subsidy. That’s money, of course, that we could otherwise be giving to the dependent people we are trying to help.

Bolwerk September 22, 2011 - 11:28 am

That’s really stretching the definition of paternalism – actually, it seems to argue that any discretionary government service is paternalistic. Subsidized transport is more akin to welfare than to paternalism in that context, though I don’t strictly see how it could be said to be welfare either. An example of paternalism would be making people take transit for their own damn good because they’re getting fat and need to walk more. And since when has the argument for transit been that it should subsidize low-income people? The bulk of New York society depends on it, and has for a century.

You kind of lost me in your second paragraph. This isn’t about you having money, it’s about the city/state having public money that is spent for a public purpose. And your aside about public goods seems rather bizarre, since transit, even with fares, is probably about as close to a non-rivalrous, non-exclusive good as you can get.

Andrew September 22, 2011 - 11:03 pm

If we’re going to apply this to buses, we should apply it to the rest of the transportation system.

So, remind me, which streets are profitable?

Larry Littlefield September 21, 2011 - 9:38 am

The payroll tax has become toxic.

While our rail systems are essential to the economy (driven, for the whole state, by Manhtattan), the buses are generally a social service for those who cannot drive.

There are few organizations in the world capable of running our rail systems, because the broader rail industry has shrunk. Not so for buses, which have close cousins in trucks.

Remove the buses from the MTA, and not just in Nassau. Give NYC and the counties the option of keeping the payroll tax to fund them, or getting rid of it. NYC would also save on the money it now contributes for the former private companies.

If they want to maintain free transfers with the subway, the fare would count 100% as a subway fare, not a bus fare. And just make sure Nassau and the counties take the pension cost along with the bus systems.

Benjamin Kabak September 21, 2011 - 9:40 am

Larry: When you say the payroll tax has become toxic, do you mean politically due to suburban opposition or economically due to its impact on businesses?

Larry Littlefield September 21, 2011 - 11:01 am

Politically toxic.

Businesses just pass on the cost of the tax to workers in lower pay, with the rich who are paid in capital gains and the retired conveniently exempted.

Union contracts, of course, prevent public workers from having the cost passed on to them as well. The rich, seniors and unionized public employees don’t pay. That’s why the pols like the payroll tax.

Fd October 9, 2011 - 8:08 pm

Prove it

SpendmoreWastemore September 21, 2011 - 10:19 am

Look at NYC roads during rush hour.

Now take everyone off each bus, put each in a car and let me know where you can fit it all.

Under the East River is not an option 😉

Christopher September 21, 2011 - 11:45 am

Let’s for a moment remember that roads do not pay for themselves. Not even close. They are heavily subsidized. We seem to have lost the idea of the purpose of human organizations of nations and cities is at least in part to provide public benefits that cannot be covered on an individual basis. There is nothing paternalistic about this attitude it’s the power of collectivism that was a key to human development.

IsaacB September 21, 2011 - 3:43 pm

In principle, I’m for public transit for charging as high a fee as it can get away with, thus insulating itself from the perpetual political machinations that it’s subject to.

That said, if public transit were to be profitable, private enterprise would block it from functioning.

Witness the “charter regulations” imposed on public transit. At the behest of private (but often subsidized) bus companies, federal regulations severely restrict (if not bar) public transit from operating charter services.
( http://www.gpo.gov/fdsys/pkg/C.....art604.pdf )

JAzumah September 21, 2011 - 4:39 pm

When the Feds allow me to apply directly for 80% of the cost of a new bus every 12 years, the transit agencies can compete with me for charters. Until then, no dice.

Fd October 9, 2011 - 7:59 pm

You are wrong prove it

Alon Levy September 22, 2011 - 2:14 am

Levinson’s point about core vs. coverage routes is true as a general fact of planning, but by itself it’s not going to give you anything near profitability. On NYCT, the single best-performing bus route, the M86, recovers 91% of its total operating costs; if you’ve seen higher numbers indicating profitability, they include only direct costs.

Chris’s point about a notional core is precious, but you should add to it both notional fare hikes and labor cost cutting. I’m kind of annoyed that as a libertarian, Levinson missed the overstaffing that occurs throughout American transit agencies. (To remind everyone: Toei provides 25% of NYCT’s train-km with 14% the labor force.) Even privatization can’t fix that by itself, because the contracts often enshrine a high staffing level, for example in California.

Bolwerk September 22, 2011 - 1:17 pm

Well, it’s obvious why people like Levinson miss that point. Most so-called libertarians spend too much time worrying about ideological immaculacy. Hell, it’s what many of them dedicate their professional lives to. To even consider the nitty-gritty details of job design, organizational coordination, occupational stress, training, performance, and employee motivation, much less engineering, is risky for them because it might lead to heretical conclusions. That many of these issues have always been dealt with in management-union dialog in places like Germany and Japan probably goes a long way towards explaining why they can have fairly well-compensated workforces at a fraction of the cost.

In all fairness, other groups completely ignore it too. Republicans prefer to focus on eliminating anything that benefits urban areas, and the so-called liberals don’t want to step on the unions.

DavidDuck September 22, 2011 - 8:19 pm

Bolwerk that is one of the best nickel summaries of the libertarians I’ve every read. +1E7

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