Transit Outsourcing Booms — But Are There Safety Trade-offs?

30streetcar.600.jpgNew Orleans streetcars, such as the one pictured above, are about to be outsourced to a private French company. (Photo: NYT)

The Wall Street Journal reports
today on the growing number of cities around the country that are in
talks to outsource local transit systems to cope with the budgetary
pressures of the recession.

New Orleans plans to outsource nearly every aspect of its
mass-transit system to a French company, an approach that could appeal
to other cash-strapped American cities looking to cut spending without
eliminating bus or rail services.

Under terms of a deal struck earlier this month, the New Orleans
Regional Transit Authority will pay a subsidiary of Veolia
Environnement about $56.3 million each year, and potentially $600
million over the next decade, to finance, manage and operate the city’s
bus and streetcar lines.

The deal could eventually save Norta — which spends about $72
million a year to run its system — as much as 30%, said Chairman Cesar

Transit outsourcing is a notion that sounds reasonable enough, particularly given Congress’ reluctance
to let large cities use federal money on operating costs. But the
Journal omitted a notable detail about Veolia, the French company
that’s poised to run transit networks in New Orleans and Savannah,
Georgia: It is battling Los Angeles’ Metrolink commuter rail in court over a September crash that killed 25 people.

crash occurred when Robert Sanchez, a Metrolink engineer hired by
Veolia, ran a red light and hit a Union Pacific freight train. Sanchez
was later revealed to be sending text messages 22 seconds before impact, and federal investigators found that he invited a local teen to try driving his train.

Veolia strongly defended its safety record following the Metrolink crash, though L.A. has since scaled back its use of private transit contractors amid local reports that listed the company’s past missteps.

Veolia’s website notes that
its deals are not "privatization" — a word that carries a somewhat
loaded political subtext — but "outsourcing," which does not entitle a
private firm to "the acquisition of all of the public company’s assets."

no matter what term is used, letting contractors bid to manage local
transit raises the question of whether safety and service trade-offs
are inevitable as the firms work to maximize their profit potential.

The rest of the Journal’s article on transit outsourcing is viewable in full after the jump.

"This is a model that will grow jobs…and create an enormous
opportunity for cities," said Mark Joseph, chief executive of Veolia’s
transportation unit.

Outsourcing can introduce new risks, including the financial
soundness of the companies involved and the potential for a backlash if
residents come to feel a deal isn’t in the public interest. In the past
year, financial issues have grounded or delayed deals to privatize
Chicago’s Midway Airport and build a new tunnel to the Port of Miami.

It is unusual for a big-city transit agency in the U.S. to delegate
so much control to a private company, but the New Orleans transit deal
shows how far some cities may go to preserve key services as the
recession drags on.

Across the country, the traditional revenue streams that transit
agencies rely on are declining, but interest in bus and rail service is
growing. Faced with a budget crunch, an increasing number of cities may
join New Orleans in seeking to curb costs by turning operations over to
private companies that can potentially run systems more efficiently.

Officials in Savannah, Ga., are negotiating a similar contract with
Veolia to the one New Orleans worked out. Patrick Shay, a board member
of the regional authority who has been involved in the talks, said
Savannah needs help in areas ranging from software to supply-chain
management in order to improve its bus system.

In the Phoenix area, Valley Metro’s new 20-mile light-rail line is
being operated by private contractor Alternate Concepts Inc., and the
transit authority plans 37 miles of new rail service in the years
ahead. Already, Valley Metro outsources its bus services. "We live,
breathe and eat with our contractors," said Susan Tierney, a Valley
Metro spokeswoman.

In March, the transit authority in Houston awarded a $1.5 billion
contract to a division of Parsons Corp. to build, operate and maintain
four new light-rail lines. Transit agencies in Dallas and Fort Worth,
Texas, are seeking a private partner to finance, build, maintain and
run a 67.7-mile passenger-rail network starting in 2013.

Outsourcing, particularly the kind of wholesale delegation coming to
New Orleans, doesn’t work for every transit agency. In Los Angeles, the
Metropolitan Transportation Authority contracts out service on 21 of
its 200 bus lines at savings of roughly $45 per hour of operation,
according to spokesman Rick Jager. Despite the savings, Mr. Jager said
the authority has no further plans to outsource because labor
agreements with its unionized work force prevent it.

Many agencies with older systems "can’t get off first base with
contracting because the labor unions are so powerful," said Cal
Marsella, general manager at Denver’s Regional Transportation District.

The Amalgamated Transit Union, which represents bus drivers across the country, didn’t respond to requests for comment.

Mr. Marsella’s agency outsources about 47% of its fixed-route bus
service to Veolia and Ohio-based First Transit Inc. Buses operated by
the companies are on time at roughly the same rate as the buses driven
by RTD employees, Mr. Marsella said, but the privately run buses
produce cost savings of roughly $30 an hour. Among the reasons:
Starting pay for bus drivers employed by RTD is $15.49 per hour, versus
$12.25 for ones the companies hire.

In New Orleans, the city’s unionized bus drivers will become Veolia
employees, and their labor agreements will be honored, Mr. Joseph said.

  • ZA

    It costs money to build, buy, deliver, maintain, drive, collect revenue, and administer the system. How any cities wants to bundle these costs is their choice, and probably won’t reduce many of these base costs significantly. At the end of the day, a person needs to get from X to Y within budget and on time, otherwise they’ll join the congestion, or become utterly isolated.

    Too bad the bus has more often been used in this society to price time in the social strata (or worse), instead of delivering the maximum number of people to their destinations efficiently.

  • marcos

    The SILO deals worked out so well, maybe privatizing transit would have the same impact as privatizing prisons did, to get corporate buy-in for expanding their cash cow.


  • In San Francisco, I’m still not certain why we have a San Francisco County Transportation Authority and the Municipal Transportation Agency – I’m not a “Supply Chain” or “Efficiency” specialist, but this is one of those things that me go “Hmm……”

    Whether a transit system is privatized or not, if the people operating it live elsewhere, why should they care if it sucks?

  • bikerider

    The primary cause of the Metrolink accident was not privatization, or even “texting” but the lack of automatic train control — a technology which has existed since the 1920s. Let’s also not forget that Amtrak engineers have killed plenty too.

    “Privatization”, “outsourcing”, “contracting” or whatever you want to call it is widely used (especially in “socialist” Europe). If it reduces costs to operators, then so much the better. And in terms of accountability, public-private partnerships can actually work better if deals are set up where the contractor can be penalized for missing performance targets.

  • Why should cell-phone using operators be a problem caused by outsourcing?

    Indeed, how quick we are to forget…

    “The driver of a westbound T-Third train was traveling at almost 22 mph when he rear-ended an N-Judah train stopped at King Street between Third and Fourth streets, the report said. The train speed limit is 5 mph. The T-Third driver, who emerged with a cell phone at his ear, had been found at fault in two prior avoidable accidents, the report said. The driver, 45, had also been cited for having a cell phone plugged in inside the train.

    Phone records show the driver on four phone calls in the train from 1:12 p.m. to 1:26 p.m. He started an internet download to his phone eight minutes before the crash.”

  • The problem isn’t just privatization — the post makes it into a bogeyman, which it isn’t, at least in the UK where almost all train services and bus services are privatized and fairly good. (The exception being rail maintenance, which was privatized to disastrous effect.)

    The problem is that US agencies do not seem to be able to effectively oversee these contracts. Low-bid culture? Legalized bribery of poorly paid government workers? The limited number of bidders on major projects? A right-wing cultural belief that the invisible hand of privatization will solve problems, without requiring oversight? Who knows.

    I doubt it will be a problem for Phoenix, Dallas, and Houston, because they’re starting with brand spanking new systems that require little maintenance. It’s when you try to privatize an old system that requires constant investment to keep working that you run into massive problems.

  • bikerider

    The difference is that in the UK, automobile has much lower mode share of trips. Voters rely on public transit, and will punish political parties at the polls when service does not meet expectations. Whereas in the US (and the Bay Area) nobody cares if the transit service sucks because they don’t need it, or use it often enough.

  • marcos

    @theo: “I doubt it will be a problem for Phoenix, Dallas, and Houston, because they’re starting with brand spanking new systems that require little maintenance. It’s when you try to privatize an old system that requires constant investment to keep working that you run into massive problems.”

    I thought a basic of capital systems accounting was that one accounted for incremental consumption of capital by funding a depreciation account which could be drawn down to maintain the system.

    If these newer systems are not budgeting today for the lifetime costs of operating their systems, then they’re going to find themselves in the same deferred maintenance quandaries as the Muni found itself in the mid 1990s, when there was no money put aside to account for the depreciation of rolling stock purchased in the early 1980s.




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