Executive Summary
In theory, competitive contracting for bus service should lead to lower costs. But in practice, can privatization of mass transit actually save communities money?
This case study presents one example in which substantial cost savings were achieved. In the San Gabriel Valley of Los Angeles County, the use of competitively contracted bus service resulted in long-term savings of between 24 and 43 percent based on fully allocated cost comparisons, with no evidence of a deterioration of service. Ridership is 14 percent higher than had been projected for the public operator. Due to a combination of private-sector operating efficiencies and marketwage packages, Foothill Transit Zone provided an area formerly served by municipal operators with more cost-effective bus service.
This result is consistent with a growing body of evidence that competitively contracting for bus service is significantly less costly than monopolistic public provision. Experience in San Diego, Denver, and Los Angeles—among others—shows the potential of competitive contracting.
In light of the advantages of competitive contracting, it is surprising that more municipalities have not embraced privatization. This case study highlights the legal and political obstacles that impede public officials from making use of private contractors. Opposition by organized labor and federal legislation such as UMTA 13(c) can make privatization of transit difficult. Foothill Transit Zone endured extensive legal challenges brought by the unions of the public transit operator. But the ultimate success of the Foothill Transit Zone demonstrates that competitive contracting for mass transit services can be introduced and can result in savings to taxpayers.
