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Commentary By Matthew E. Kahn

The Bus-Choice Menu: Promising Policy Ideas to Improve Urban Mobility

Editor's note: The following is the second chapter of The Next Urban Renaissance (2015) published by the Manhattan Institute.


In 2011, public-transit riders in the United States traveled 56 billion passenger miles, with 38 percent of those miles covered by public buses. Bus services require drivers, mechanics, buses, and fuel. Given the high cost of owning and operating a private vehicle, buses are a key transit option for millions of urbanites. Private vehicle use offers private benefits but imposes social costs, from traffic congestion, to road safety, to local and global pollution. This creates an imperative to identify policies that would increase bus ridership. This essay proposes four policies to improve the quality and lower the cost of supplying urban-transit service.

The first calls for eliminating current “Buy America” requirements. Federal subsidies for purchasing domestic buses have strings attached that limit the menu of procurement choices available to transit agencies. Second, cities should privatize more bus routes. By introducing competition into this public monopoly, labor costs would fall. The resulting savings would allow transit agencies to expand service provision. Third, many low-density cities should substitute away from constructing costly light rail and instead develop a flexible, fast bus system. Fourth, cities should recognize the diverse preferences of riders by offering a greater menu of quality, price, and routes.

Together, these reforms would increase public-transit systems’ ridership and efficiency, improving the urban poor’s job prospects, as well as all riders’ quality of life. If more middle-class urbanites used public transit, political support for more efficient public-transit policies, such as road pricing, would rise, too.

I. Repeal the Buy America Act

Urban-transit agencies rely heavily on Federal Transit Administra- tion funding to purchase capital equipment, such as new buses. These subsidies provide up to 80 percent of the purchase price of new buses. Such purchases are subject to Buy America rules, which require that vehicles undergo final assembly in the U.S. and have at least 60 percent of their components, by cost, manufactured in the United States. The Buy America requirement thus constitutes an important entry barrier for foreign bus makers seeking to compete in the U.S. market.1

“Urbanites spend many hours commuting. If such individuals can comfortably move at higher speeds without exacerbating externalities of congestion and pollution, city life will improve dramatically.”

If urban-transit agencies could access federal government subsidies without strings attached, they would have a far larger menu of global buses from which to choose. At present, U.S. bus makers are small in scale: the top two, New Flyer and Gillig, sell 1,000–1,500 buses each year in the U.S., where annual sales total 4,000–5,000. Major international bus makers are significantly larger. Germany’s Daimler sells 30,000–40,000 buses and chassis annually, while Swedish-based Volvo sells 10,000. Japan’s top two bus makers, Hino and Fuso, each sell more than 2,000 buses domestically per year (out of the more than 9,000 total sold in Japan). In 2012, China’s largest bus maker, King Long, sold 29,000.2

The absence of the threat of foreign competition limits innovation incentives for small American producers. The fuel economy of U.S. cities’ bus fleets is insensitive to the price of gasoline and natural gas; in private U.S. vehicle markets, on the other hand, when gas prices rise, consumers respond by demanding more fuel-efficient vehicles, with for-profit sellers quickly responding by designing and marketing such vehicles. That the fuel economy of new buses acquired in the U.S. public-transit bus market does not rise as the price of energy increases is consistent with the hypothesis that protected U.S. firms do not need to innovate to be competitive and retain market share.3

Due to the Buy America requirement, America’s urban bus fleet is more expensive, less fuel-efficient, and of lower quality than it would otherwise be if transit agencies could select from a global procurement menu. In 1997–2011, according to National Transit Data (NTD), the average price for a U.S. public-transit bus (in 2011 dollars) was $309,000 (with the 10th percentile of the empirical distribution $104,000 and the 90th percentile, $497,000). While it is, admittedly, difficult to stan- dardize buses sold by different nations to allow an apples-to-apples com- parison, buses in Tokyo and Seoul are half the price of U.S. buses, with buses produced in China cheaper still. Wealthy, well-governed Singa- pore imports buses from China.4

In short, if U.S. transit agencies could purchase on the international market and still receive federal subsidies, increased competition would lower the prices that agencies pay, while greatly expanding choice. Cheaper buses would lower the cost of providing urban transit, boosting supply. As transit agencies retire gas buses and transition to natural gas buses, hybrid buses, and electric buses, the opportunity to benefit from expanded choice would grow.

In Europe, an extensive network of bus producers works closely with major cities to develop electric buses.5 If such buses run on electricity generated by renewables, they hold the potential for great progress in reducing local particulates and greenhouse gas emissions.

II. Privatize More Bus Routes

Labor is the major cost of providing bus services, accounting for roughly 70 percent of the total cost of operating a bus. Relative to their private-sector job alternatives, bus drivers and mechanics are generously compensated, with some drivers earning over $100,000 annually.6 Privatizing more bus routes would, among other advantages, create a positive, credible threat in future negotiations—over wage contracts and work flexibility rules—between transit agencies and public-sector unions.

NTD provides data, for all the nation’s bus systems, on total operating costs, total passenger miles, total vehicle miles, and operationalcontrol (i.e., publicly or privately operated). Such data can be used to study the real average operating cost, per vehicle mile, from 1992 to 2012. Several noteworthy facts emerge from a review of the data. First, cost per mile increased sharply during 1992–2012. Second, privatized buses display far lower operation costs, per vehicle mile. Third, privatization’s share of miles, though rising, remains low. In 1992, it cost $3.83 (1982 dollars) to move a bus one mile (carrying, on average, 11 people). In 1992, private service providers supplied 6 percent of all bus miles traveled. In 2012, the cost of a bus mile increased to $7.58, with 18 percent of all bus miles privately supplied. In 2012, the average cost of a publicly provided bus mile was $8.10, while a privately provided bus mile cost $5.20—a 36 percent difference.

This large cost differential suggests that privatization would lower the cost of bus service provision. Nevertheless, an “apples and oranges” comparability issue arises: the 36 percent differential is based on comparing 2012 operating costs for transit agencies that did and did not privatize routes. In an ideal experiment, on the other hand, transit agencies would randomly choose whether to privatize routes, with a before-and-after comparison measuring average reduction in operating costs resulting from privatization.

While such an experiment has not been conducted, existing evidence does support the claim that privatization would significantly lower operating costs. Combining this reform with a repeal of the Buy America requirement would make purchasing buses and operating them considerably cheaper.

At present, the political clout of public-sector unions artificially inflates bus drivers’ and mechanics’ wages. It also artificially inflates the number of workers employed, relative to the number deployed by a cost-minimizing firm. New York City’s Metropolitan Transportation Authority’s (MTA) recent negotiations with Transport Workers Union Local 100 highlight how union work rules impede the efficient allocation of workers over the course of a day.7

Nearly everywhere, bus ridership is higher during the morning and late afternoon commutes. Yet the MTA (and many other city transit authorities) is required to employ only full-time workers, despite the fact that the nature of the job means that many such workers have little work to perform during off-peak hours. Such inefficiency is, of course, good for the workers employed but bad for the public, for the transit authority enjoys less flexibility to offer different levels of service to meet fluctuating rider demand.

Bus drivers’ artificially high pay—relative to their best private-sector alternatives—represents another harmful inefficiency: in essence, it amounts to income redistribution financed by taxpayers.8 Finite bud- gets mean that the higher taxes necessitated by this public-sector wage premium results in lower levels of bus service provision. Were it less costly to purchase and operate buses, more buses could operate. Higher quality would remove vehicles from the roads, mitigating transportation’s social costs, such as pollution, traffic accidents, and congestion.

Reductions in bus service costs would likely expand the quantity of bus services provided. Such an increase in service provision could have important benefits for the urban poor, who typically do not own cars and often face long commutes to work. The “spatial mismatch” literature posits that urban minority unemployment is high, partly because of the considerable time cost of commuting from urban ghettos to areas with jobs.9 Recent empirical work has further documented how higher levels of bus service could help moderate this urban-employment challenge.10

By privatizing bus routes, transit suppliers would enjoy greater freedom to incorporate technological advances, such as driverless vehicles. Of course, transit unions are aware that such technology poses a threat to demand for their services, creating a Luddite-like incentive to discourage innovation and oppose technology.11 This raises the question of whether public union workers have the right to inefficiently do their jobs, even if more cost-effective substitutes emerge. If such a right is legally recognized, transit authorities should consider buying out such workers to phase in new technologies.

III. Invest in Buses, Not Light Rail

Though relatively few U.S. cities have an underground subway system, many more continue to build light rail.12 The latter includes Oklahoma City, Pittsburgh, Raleigh (N.C.), Rochester (N.Y.), and Miami, which all plan to open new light-rail stations in 2015. These are expensive initiatives. Milwaukee’s streetcar project has an expected price tag of $123 million, and New Orleans’s, $75 million. Unfortunately, previous research suggests that rail projects are unlikely to generate the ridership necessary to justify such investments. Economists have documented the enormous cost overruns on many rail transit projects and their ex-post failure to deliver ridership that matches ex-ante forecasts.13

“If more middle-class urbanites used public transit, political support for more efficient public-transit policies, such as road pricing, would rise, too.”

Light rail is most likely to be cost-effective if it takes shoppers and workers to desired locations more swiftly than alternative options. Begun in the early 1980s, Boston’s Red Line into Davis Square helped gentrify the neighborhood surrounding that transit stop.14 However, another study—examining public-transit use in areas surrounding new transit lines built in 16 U.S. cities from 1970 to 2000—documented that only the Washington, D.C., and Boston transit expansions produced a significant positive impact on local ridership.15 Why?

Rail transit connects outside areas to city centers. Likely ridership hinges on whether particular urban downtowns represent attractive clusters of jobs and culture. Proponents of rail transit often claim a “field of dreams” effect, such that new development communities will sprout up around new transit stations. Gentrification and densification are most likely to occur when attractive walk- and-ride stations connect riders to networks that quickly whisk them to desirable downtowns.

An ongoing research literature examines how place-based investments in subways affect urban economic growth. One recent study, investigating every subway installation around the world, rejects the hy- pothesis that city populations grow after a subway is built. The study suggests that subways are not a key input in local economic growth.16

Such research represents broad averages and may not reflect the experiences of certain cities. New York, for instance, has certainly benefited from its subways: its high population density raises the likelihood that sufficient riders reside within walking distance of its very expensive system. In more decentralized cities, it is unlikely that constructing a new subway will boost densification.

All this suggests that urban planners should be more modest about their ability to predict their respective cities’ future economic development. When planners recognize their inherent limitations, a strong incentive emerges to increase their flexibility to switch course in the future, should new city hot spots arise. Buses, which can be rerouted, offer such flexibility. Indeed, as crime levels and the general appeal of various neighborhoods rises and falls, the desire to live and work in different areas within a city fluctuates.

The current Big Data revolution offers urbanists the opportunity to plot, in remarkable detail, emerging hot spots of economic and cultural opportunity—at all hours of the day. Armed with such data, buses could be redeployed to rising areas, with extra routes added to meet peak demand. The combination of flexible, re-routable transportation technology (buses) and real-time data on demand offers the realistic possibility of a vastly more responsive urban transportation system.

One unanswered question involves how best to approximate the advantages of light rail using bus rapid transit. With the adoption of the latter, urban areas will face the challenge of having dedicated bus lanes, such as those on New York’s 34th Street.17 Cities can experiment by first opening bus rapid transit, and then exploring the extent to which bus speed and ridership increase as a result (with rider satisfaction judged by, say, tweets and other social media). Such experiments would also allow transit agencies to measure the unintended consequences of such policies: To where is car traffic deflected? How are citywide traffic speeds affected?

IV. Increase the Bus-Choice Menu: “Uber for All”

For decades, urban public-transit buses have suffered from the stigma that they are slow (in waiting times and in frequent stops, per mile of driving) and uncomfortable, with strangers packed together and seats scarce. (In the past, when urban crime levels were higher, such proximity added further anxiety.) The net effect—a cheap fare but an expected low-quality experience—has meant that poorer people disproportionately ride buses, while richer individuals favor the more costly but faster, higher-quality experience of riding cars.

Three recent trends suggest that buses could become significantly more attractive for a broader set of urbanites. First, urban crime is down sharply, boosting the willingness of middle-class travelers to ride in close proximity with strangers. Second, the WiFi era of mobile phones and applications offers new opportunities to improve the quality of public-transit bus use. Third, the shifting demographics of cities (more children and senior citizens) suggest that demand for high-quality bus services might rise, with more young people choosing not to drive and many older ones no longer able to operate private vehicles but still requiring transport services.

The rise of Uber, the popular ride-sharing app, holds important lessons for urban bus transportation. Uber’s business model features several key elements.
With the aid of a smartphone, a potential rider can quickly know the time cost of waiting for a vehicle to arrive. In addition, Uber now offers different grades of vehicles (low-cost, high-end, spacious) from which to choose—and with known prices. Uber collects riders’ credit-card information in advance, so no time is lost paying fares at journey’s end. (A fare confirmation receipt is e-mailed to riders.) Such convenience has propelled Uber into the ranks of billion-dollar companies. Widespread cell-phone ownership would allow individuals to swiftly enter their location and final destination into a public-transit app. The app would then provide the recommended travel route, along with the nearest bus stop and expected waiting time. An electronic account could be created, allowing potential riders to prepay, or tap a card upon entering the bus. Just as Uber offers different levels of service, bus-transit agencies could differentiate their bus fleet based on various attributes, such as free WiFi, seat size, and even the guarantee of an empty seat.18

By making bus ridership more comfortable and productive, demand would likely rise. In big cities in particular, a difficult commute is a major quality-of-life cost: if, say, a person is awake for 16 hours a day and commutes merely 35 minutes each way by public transit, 7 percent of the person’s weekday waking hours are spent commuting.

Supplying more precise information on bus arrivals and seat availability (coach, first class) would help riders better plan their days—a development particularly valuable in cities that experience harsh weather, thereby reducing time spent waiting outside. Improving quality and reliability would produce a multiplier effect: as the social

stigma of bus ridership declined, middle-class people with “keeping up with the Joneses” preferences would be more willing to ride buses.

Some estimates put the annual cost of owning a car, excluding parking costs, as high as $7,000. An unlimited bus and subway pass in New York costs $116.50 per month. If middle-class households chose to substitute bus for car, it would be the equivalent of a large tax cut for middle-class urbanites.20 With better public transit, land currently dedicated for parking could be redeployed for other uses.21

Better access to bus service would stimulate the development of new neighborhood restaurants and cultural hot spots, reinforcing the link between private retail entrepreneurs, restaurants, bars, and clubs, and the transportation network. Big Data generated by apps would help determine where new bus routes should be deployed, matching supply in real time with emerging demand.

A bus with 40 riders is one (albeit unusual) type of small community. Another dimension of bus quality thus involves ridership demographics. Buses could differentiate themselves by, say, targeting a younger crowd (or an older one). Buses might offer different sections where groups could form and interact. The possibilities for innovation are considerable. Transit agencies could rely on Big Data and tweets to infer whether various experiments offer services that riders desire.

New York offers exceptional space for piloting new ideas.22 The city’s MTA carries 70 percent of all U.S. subway riders, 40 percent of all commuter rail trips, and 20 percent of all bus riders.23 These figures highlight the MTA’s national leadership role in educating other U.S. transit agencies on innovative policy.


Urbanites spend many hours commuting. If such individuals can comfortably move at higher speeds without exacerbating externalities of congestion and pollution, city life will improve dramatically. The four reforms discussed would offer diverse urban-transit riders—especially the urban poor, who would see their productivity rise—higher-quality transport at lower cost.

In recent decades, the major quality-of-life challenges in cities have included crime, pollution, and congestion. Great progress has been made reducing urban crime and pollution, yet traffic congestion persists. Road pricing is a widely accepted solution to the latter; yet it suffers from insufficient political support. If middle-class households enjoyed access to high-quality public transit in the form of better bus networks, opposition to road pricing would invariably decline—and with it, congestion.


1. Shanjun Li, Matthew E. Kahn, and Jerry Nickelsburg, “Public Transit Bus Procurement: The Role of Energy Prices, Regulation and Federal Subsidies,” National Bureau of Eco- nomic Research, working paper no. 19964 (2014). Early supporters of the Buy America requirement were direct in their intentions. “The adoption of this amendment,” urged Senator James Davis in 1933 on the Senate floor, “…will help stem the tide of foreign competition,”
2. See ics/10-23-kahn.pdf.
3. Li, Kahn, and Nickelsburg, “Public Transit Bus Procurement.”
4. Ibid.
5. See
6. See fights-part-time-bus-drivers.html.
7. Ibid.
8. Alberto Alesina, Reza Baqir, and William Easterly, “Redistributive Public Employment,”
Journal of Urban Economics 48, no. 2 (2000): 219–41.
9. John F. Kain, “The Spatial Mismatch Hypothesis: Three Decades Later,” Housing Policy Debate 3, no. 2 (1992): 371–460.
10. See
11. See erless-buses-on-the-way.html; and erless-buses-2014-12.
12. See
13. Don H. Pickrell, “A Desire Named Streetcar: Fantasy and Fact in Rail Transit Planning,” Journal of the American Planning Association 58, no. 2 (1992): 158–76; and John F. Kain, “Deception in Dallas: Strategic Misrepresentation in Rail Transit Promotion and Evaluation,” Journal of the American Planning Association 56, no. 2 (1990): 184–96.
14. Matthew E. Kahn, “Gentrification Trends in New Transit Oriented Communities: Evidence from 14 Cities That Expanded and Built Rail Transit Systems,” Real Estate Economics 35, no. 2 (2007): 155–82; and John F. Kain and Zvi Liu, “Secrets of Success: Assessing the Large Increases in Transit Ridership Achieved by Houston and San Diego Transit Providers,” Transportation Research Part A: Policy and Practice 33, no. 7 (1999): 601–24.
15. Nathaniel Baum-Snow, Matthew E. Kahn, and Richard Voith, “Effects of Urban Rail Transit Expansions: Evidence from Sixteen Cities, 1970–2000 [with Comment],” Brook- ings-Wharton Papers on Urban Affairs (2005): 147–206.
16. Marco Gonzalez-Navarro et al., “Subways and Urban Growth: Evidence from Earth” (2014). See GonzalezNavarro_Turner_unp2014.pdf.
17. See
18. See system-considerations-for-transit-agencies.aspx; wireless/2008-04-10-wifi_N.htm; and net/11016941/Transport-for-London-trials-free-WiFi-on-buses.html.
19. See
20. Donald C. Shoup, “Cruising for Parking,” Transport Policy 13, no. 6 (2006): 479–86.
21. See
22. See sign-concepts-better-buses-queens.
23. Kenneth Small, “Road Pricing and Public Transit: Unnoticed Lessons from London,”
Access 26, no. 3 (2005): 10–15.