Addressing the transit productivity crisis

Executive Summary

Following the onset of the COVID-19 pandemic, public transit systems throughout the United States experienced an unprecedented ridership collapse as people stayed home and avoided crowded public spaces. While most disease mitigation measures have since been abandoned, the impact of the pandemic continues to be felt in a variety of ways, including persistent changes in travel behavior. One consequence has been a muted transit ridership recovery, which stands at approximately three-quarters of the pre-pandemic ridership level in the United States. Depressed transit ridership has been met with unprecedented public subsidies, especially from the federal government. These two trends resulted in a steep decline in transit productivity.

This decline has alarmed policymakers. However, while conditions have substantially worsened in recent years, public transit productivity has trended downward since the end of World War II, largely due to increasing household incomes, growing private automobile ownership, and the dispersal of households and then workplaces into the suburbs.

Falling demand for transit led to a wave of transit company bankruptcies. Congress responded with the Urban Mass Transportation Act of 1964, which provided funding for states and cities to take over bankrupt private transit companies. Initially, the federal transit program only provided capital assistance to transit agencies, although this was soon expanded to direct operating support. Transit productivity worsened considerably during this period of increasing government assistance:

• In the 15 years prior to the Urban Mass Transportation Act of 1964, transit productivity fell an average of 1.4% per year (measured in bus hours/real dollars) across all transit systems and 1.3% for large systems.
• Between 1964 and 1972, productivity declines averaged 2.1% per year for all systems and 3.1% for large systems.
• Between 1975 and 1985, transit productivity declines averaged 3.1% per year for all systems and 3.8% for large systems.

These changes in the type and level of subsidy allowed transportation researchers to reach several conclusions on the interactions between government financial support and transit productivity, including:

• Federal subsidies had three times the negative effect on transit productivity as state and local subsidies;
• Nearly all operating subsidies were absorbed by rapidly growing operating expenses rather than stimulating demand for transit service; and
• Both public ownership of transit systems and increasing subsidies to these systems encouraged wasteful expenditures.

In 1998, Congress responded to these findings by limiting direct operating support to small transit systems in urbanized areas with fewer than 200,000 residents. Unfortunately, changes in subsidy policy did little to address the long-term decline in U.S. transit productivity. Between 1960 and 2019, the inflation-adjusted operating costs more than quintupled while ridership remained flat. In the years immediately preceding the COVID-19 pandemic, the Bureau of Labor Statistics began publishing measures of transit labor productivity. Between 2013 and 2019, transit labor productivity declined, mostly due to increasing transit agency employment.

Following the onset of the COVID-19 pandemic, public transit ridership collapsed. As of 2023, nationwide ridership had only recovered to approximately 71% of 2019 levels. Much of this ridership decline can be explained by changes in work travel. Transit systems were largely designed to facilitate journeys to and from work in central business districts, and working from home remains two to five times its pre-pandemic share of “commuting”—and four to eight times the share of mass transit commuting—depending on how it is measured.

Depressed ridership led Congress to authorize unprecedented federal subsidies for transit agencies. Supplemental COVID-19 appropriations during FYs 2020 and 2021 provided $69.5 billion in emergency support for transit agencies, equivalent to nearly five years of pre-pandemic federal transit funding. The Infrastructure Investment and Jobs Act enacted in FY 2022 increased federal transit funding by 67% over the levels previously authorized by the Fixing America’s Surface Transportation (FAST) Act of 2015 in nominal dollars.

This large increase in federal funding allowed transit agencies to continue to provide service close to pre-pandemic levels, with transit service provided between 2019 and 2023 falling by only 10.3% (in vehicle revenue-miles) despite ridership declines of 29.3%. These dynamics had predictable effects on transit labor productivity, with productivity declines almost entirely driven by decreased ridership.

As historical experience with transit subsidies has shown, advancing transit efficiency is not a simple question of additional funding. Making better use of existing resources must be prioritized to avoid counterproductive subsidy policies that merely deepen and prolong transit’s productivity crisis. Two strategies to advance transit productivity show particular promise:

• Competitive contracting: Under public-private partnerships, transit agencies can contract out transit service provision to private firms. The agency would serve as the coordinating and oversight entity, developing performance requirements and ensuring private partners adhere to those requirements embedded in their contracts. A 2017 study estimated that contracting out bus service in the United States could reduce operating costs by 30%.
• Transit vehicle automation: Urban rail transit is increasingly automated outside the United States. A 2023 study comparing rail lines in the United States and fully automated lines abroad estimated automation could potentially reduce U.S. operating costs by 46%. In addition to rail transit automation, numerous companies are developing automated road vehicles. One rubber-tire automated transit company that is developing two projects in California claims it can reduce operating costs by approximately 80% compared to average costs faced by conventional transit systems.

Unfortunately, both competitive contracting and automation face substantial deployment barriers in the United States. Section 13(c) of the Urban Mass Transportation Act of 1964 established transit worker labor protections. This provision was included to ensure collective bargaining agreements continued to be honored during the period when transit systems and their workforces were transitioning from heavily unionized private ownership to—at the time—sparsely unionized government ownership.

Section 13(c) requires transit agencies that receive federal funding to certify employee “protective arrangements” with the Department of Labor, including:

• The preservation of rights and benefits of employees under existing collective bargaining agreements;
• The continuation of collective bargaining rights;
• The protection of individual employees against a worsening of their positions in relation to their employment;
• Assurances of employment to employees of acquired transit systems;
• Assurances of priority of reemployment of employees whose employment is ended or who are laid off; and
• Paid training or retraining programs.

The result is that transit agencies are greatly constrained in enacting any operational change involving employees. Section 13(c) generally requires transit agencies to either incur substantial upfront costs to pay off affected employees or delay the realization of labor-saving benefits. Transit agencies largely dependent on annual government appropriations face a strong financial disincentive to adopt practices and technologies that would improve service and reduce growing operating subsidies.

Transit employee labor protections included as part of the Urban Mass Transportation Act of 1964 were designed to address the particular circumstances of the time, when just 2% of state and local government employees were authorized to collectively bargain. But this transition period has passed, and all affected employees have long since retired. Further, most states have authorized public-employee collective bargaining since the 1960s, with 63% of state and local employees being authorized to collectively bargain as of 2010.

Section 13(c) exists alongside federal, state, and local labor laws that apply to public-sector workers. Importantly, federal transit labor protections supplement rather than substitute for other general labor protections. As a result, Section 13(c) provides transit workers—and only transit workers—with special protections beyond those enjoyed by other government employees.

This has two important implications for policymakers. First, eliminating Section 13(c) special transit worker labor protections would merely level the playing field between transit workers and other government employees. All other federal, state, and local labor policies that apply to government employees would continue to apply. Second, repealing Section 13(c) would not automatically usher in transit public-private partnerships or automation. Rather, it would remove an impediment to transit agencies seeking to negotiate more-flexible labor contracts in the future.

This report finds that public transit ridership is unlikely to recover to pre-pandemic levels within the next decade. Depressed farebox revenue and rising operating costs will continue to manifest in transit agency fiscal instability, and policymakers will face growing pressure to authorize additional operating subsidies. This would be a mistake given that past experience shows increasing operating subsidies may simply hasten productivity declines, which would undermine the public benefit case for continued transit service. A wiser approach would be encouraging transit agencies to make better use of existing resources. The first step in this process would be Congress repealing Section 13(c), which presents a formidable barrier to transit agency efficiency reforms.

Full Policy Brief: Addressing the Transit Productivity Crisis

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Source: https://reason.org/policy-brief/addressing-transit-productivity-crisis/