Bus To Bankruptcy

New York's recent brush with a transit strike should be a wake-up call for city and state leaders. It's time to inject private competition into Gotham's public transportation system to control costs and make the city less vulnerable to threats every few years from an increasingly radicalized transit union.

New York already has one of the most expensive transit systems in the nation. It spends about 12 percent more on a per-mile basis than the average large, metropolitan transit system in the United States, according to a recent study by the Manhattan Institute's E.J. McMahon and Baruch College Professor E.S. Savas.

The country's largest system should be able to achieve economies of scale that keep its per-mile costs down. Instead, the transit network's outsized spending requires huge tax subsidies and produces periodic budget crises, like the current one at the Metropolitan Transportation Authority, whose deficit this year is estimated at $1.1 billion.

The system's costs are out of line largely because the transit workers have won an increasing array of benefits from the MTA over the years, with the help of Albany legislators who love handing out goodies to powerful municipal unions.

Labor costs are the biggest component of the system, and for all of the complaints by transit workers during the current round of negotiations about the way the MTA was treating them, most workers in the private sector would be ecstatic to have the kind of benefits typical in the transit system.

Transit workers, for instance, are covered by a very generous public pension system, which grows more munificent every year, thanks to annual legislation in Albany that keeps expanding the system. Transit workers can retire at age 55, or after 25 years of service, at nearly 60 percent of their full salary. Two years ago, Albany legislators reduced the basic contribution that workers must make to the pension system. And pensioners now receive annual cost-of-living adjustments, something unheard of in the private sector.

Transit contracts already include other sweeteners. A bus operator reaches his highest salary level—$48,000 a year—after only five years on the job, and opportunities to make overtime abound. Indeed, one thing that McMahon and Savas found in their study is that the average pay of a bus driver in the system is actually more than $54,000 a year, or 14 percent more than the top pay scale—a hefty wage for relatively low-skilled workers.

Over the years, the transit union has also forced onto the MTA a whole series of expensive work rules that make it impossible to operate the system flexibly. For instance, the MTA can't hire part-time workers to drive its buses or subways—something that is common in the private sector and allows transportation companies to deal with peak ridership periods more effectively and economically. The result is lots of down time and drivers who must work longer than eight-hour shifts—driving up overtime.

Other cities have begun moving away from this kind of costly public transportation cartel, loaded with benefits rarely found in the private sector. The Manhattan Institute study found that in Los Angeles, 21 percent of bus routes are awarded through competitive bidding, resulting in a 40 percent cost savings. Houston contracted out 12 percent of its lines and saved 26 percent; San Diego privatized 44 percent, for a 33 percent savings.

By contrast, New York's system is still run largely by a public transportation authority, with a few routes contracted out on a non-competitive basis to private monopolies. And the union has helped keep it that way. It has used its political power to stymie any private sector alternatives, waging war on outer-borough commuter vans, which serve riders looking for a more convenient alternative to city buses and subways. The vans operate under severe restrictions because of union deals with city politicians.

The Manhattan Institute study estimated that a bus privatization effort in New York that saved merely 20 percent—or less than what is common in other cities—would result in savings of nearly $350 million annually, while savings commensurate with what other cities have realized could push the total cost reductions above $500 million a year.

The ultimate goal should be to replicate what London—another world capital—has accomplished. Over 15 years, the city privatized its entire bus system, which now operates at about half the cost of when it was a public monopoly. What would New York's bus service achieve with savings like that? Stable fares, reduced subsidies, and more money to spend on equipment and service improvements. Given the mess the MTA's budget is now in, the alternative is giant deficits, further fare hikes, and the specter of strikes in the coming years.

From city-journal.org, the Web site of the Manhattan Institute's City Journal, where Steven Malanga is a contributing editor.