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Reason Foundation

Unlikely Hope for Deficit Hawks

Ted Balaker
February 10, 2004

President Bush's prescription drug program is just two months old but is already $140 billion fatter than he said it would be. Of course, our system of government is practically based on the premise that a program will grow much larger than its proponents said it would. For example, Medicare gets more expensive as our population swells and people live longer. Still, the most frustrating programs are those that grow more expensive while their use shrinks. Take public transit. For half a century cost has shot upward, while use has tumbled downward. Thankfully for the few deficit hawks that remain, we now have some hope of reversing those ugly trends.

Senators Richard Shelby (R-AL) and Wayne Allard (R-CO) have targeted the source of much of the problem, and are proposing reforms that would give taxpayers a better deal and transit users a better product.

Why bother, ask some observers. After all, in most any society where wealth increases, private auto ownership and suburbanization will likely follow. Public transit simply lacks the speed, flexibility and convenience to be relevant in modern America. However, this view ignores a crucial reason why transit hasn't changed with the times—it hasn't been allowed to.

Like so many government services, the reason behind transit's inability to innovate lies buried deep within a law that most people have long forgotten. The Urban Mass Transit Act of 1964 was the federal government's attempt to resuscitate a transit system suffering ridership losses. The law began the practice of lavishing local transit agencies with federal grants and�in a bow to unions—protected transit employees from any changes that would cause them financial harm.

The changes created the worst of both worlds: the federal money ensured that transit would not be allowed to fail, while the protections ensured that innovations would never emerge. The feds would now treat transit the way a sadistic doctor would tend to someone in critical condition—artificially maintaining a faint pulse, but refusing to either pull the plug or fully revive the patient.

The law could not stop transit's slide. Between 1960 and 2000, transit's share of work trips fell from over 12 percent to under 5. Meanwhile, federal transit subsidies nearly tripled and total government subsidies ballooned to over 7 times 1960 levels. As transit agencies relied less on fares for revenue, they treated riders less like customers. Costs rose and service faltered.

Strangely, even though the Department of Transportation provides transit grants, the Department of Labor ensures that employment protection measures are met. And good luck to any transit agency that hopes to use federal money to introduce reforms that threaten union control�the DOL actually gives unions the power to stop grants they don't like. It's no wonder transit agencies find it difficult to trim costs and improve service. And since the poor rely on transit most, they suffer most with poor service.

Shelby and Allard propose to breath new innovation into public transit by dusting off the Transit Act and fixing its most mischievous provision, known as 13C. The provision protects transit employees from any "worsening" of their condition, such as job losses or wage cuts. Any transit agency bent on reviving cost-effectiveness and customer service would have to hand over 6 years worth of compensation to any employee who suffered financial loss.

While the ideal solution would be to repeal 13C, two less-drastic reforms would help unleash pent up transit innovations. First, reduce the compensation period from 6 years to one. Second, move 13C oversight from DOL to DOT, which makes sense since the DOT doles out transit subsidies and would likely have more incentive to make sure they're spent wisely.

While 13C is a hulking obstacle, it does not ban innovation outright and we should pay close attention to those reforms that occasionally slip past its grasp. In particular, competitive contracting�in which private firms bid for the privilege of providing service for a specified period of time—has shown promise.

Since competition prods contractors to offer an appealing product, and local government oversight ensures the fulfillment of performance measures, contracting generally provides a better, less costly service. In Houston, Los Angeles and San Diego competitively contracted bus service has yielded savings between 26 and 42 percent. In Denver, contracting cut costs nearly in half. But those are the exceptions—13C generally gives transit unions veto power over such positive reforms.

Instead of continuing to watch cost and ridership trail off in different directions, we should give transit agencies the freedom to produce a better deal for taxpayers and a better product for transit riders.

Ted Balaker is the Jacob's Fellow at Reason Foundation.


Ted Balaker is Producer


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