U.S. DOT to Stop Rewarding Transit Projects That Use Private Contracts

The Obama administration will reverse a Bush-era policy that gave
proposed transit projects a leg up in the chase for federal money if
their operations and maintenance were to be contracted out privately,
according to a regulation finalized today.

Riders in New Orleans, where streetcars are soon to be operated by a private contractor. (Photo: WSJ)

The change is one of three that the Federal Transit Administration (FTA) plans to make to its oft-criticized “New Starts” program for funding major new investments.

As
the FTA explained in its regulatory filing, since 2007 the agency had
been rewarding transit proposals that used “innovative contractual
agreements” to bolster their local financing commitment (emphasis is
mine):

Specifically, FTA increased the
operating financial plan rating (from ‘medium’ to ‘medium-high’ or
from ‘medium-high’ to ‘high’) when project sponsors provided
evidence that the operations and maintenance of the project will be
contracted out …

FTA has determined that the type of
contracting arrangement used or considered by a project sponsor is not
useful or appropriate in determining the strength of the overall
project.

Contracting out for transit operations and maintenance has become something of a trend this year, with New Orleans, Phoenix, and Savannah all eyeing deals with private businesses.

It’s
unclear how many “New Starts” projects were affected by the old rating
system, but the practice of rewarding transit contractor use jibes with
the Bush administration’s overall affinity for privatizing government functions in defense and emergency management.

In
addition, the FTA’s new regulations speak to the need for a broader
reform of the transit-funding process as part of the next long-term
congressional transport bill. Using “New Starts” as a model for
high-speed rail funding agreements, as Yonah Freemark has suggested, would seem to be a premature move until the program is retooled.