Competition in transit system would save money – Other cities have found PPPs improve service and lower costs

Montrealers should start thinking of competitive reforms that could improve performance of public transit. The Montreal Transit Corp. is in a financial dead end caused by rising costs.

Between 2000 and 2005, MTC costs per trip (excluding para-transit) rose by nine per cent relative to inflation. In other words it cost $57 million more to provide service in 2005 than if costs had been held to inflationary increases. Rising fuel prices and other factors explain a part of this increase, but remuneration costs per employee rose 23 per cent during the same period.

International experience has clearly shown that monopoly service provision, whether it’s government or private, leads to higher costs. This is why new funding for transit rarely produces a corresponding return for riders and taxpayers. There is no incentive to keep costs under control, and as a result, they rise steadily and more rapidly than would be the case in a competitive situation. We can say that transit in Montreal does not have a funding problem; it rather has a spending problem.

There is an alternative to government monopoly transit service. It is competition, which offers the hope of positioning transit to play a larger role on the island in the future. Without competition, transit will continue to stumble from funding crisis to funding crisis, while riders pay higher fares and taxpayers pay more in subsidies.

A basic model for a public-private partnership (PPP) involves maintaining full public policy control over fares, routes and schedules. Riders can expect higher future service levels and lower fares as costs are reduced. Taxpayers obtain better value because their tax subsidies go much further. When firms compete for the right to operate services, there is an incentive to minimize costs. However, this process would not lead to a decline in quality since the public authority can impose financial penalties or even cancel the contract if the private partner does not respect objective standards.

There are a number of examples around the world of PPPs implemented to cut down operating costs. In 1988, the Colorado legislature required the Denver transit system to tender competitively a portion of its services. Today, 40 per cent of bus service is competitively tendered. Even this partial conversion has had stunning results. In 2005, overall bus costs were only two per cent higher than in 1989 (after allowing for inflation). However, for that two per cent, the riders of Denver got a more than 90 per cent increase in service levels. Bus ridership is up by more than 75 per cent. Gross savings over the period have exceeded $1.1 billion.

Competitive tendering is being used in a number of metropolitan areas in Europe – Copenhagen, Lyon, Nice, Grenoble – and in Australia -Perth and Adelaide. In 1985, London Transport began competitively tendering its bus services – the famous red double-deckers.

The results were impressive. By 2000, all of the services were competitively tendered. Costs per kilometre had been reduced by half. As a result, the total cost of the system dropped by one-third in inflation-adjusted terms, while service levels were increased by a third. Accumulated savings reached more than $10 billion by 2000.

And it does not have to stop with buses. Stockholm has also competitively tendered its métro, light rail and suburban rail systems. Again, there have been substantial savings. A number of metropolitan areas in Germany and the United States – Boston, Los Angeles, San Diego, San Francisco, Dallas-Fort Worth and Miami – have competitively tendered their suburban rail systems.

Wendell Cox is an associate researcher at the Montreal Economic Institute and a visiting professor at the Conservatoire national des arts et métiers in Paris.