Competitive Tendering:
Improving Transit in Toronto

The essential role of government is deciding. Government may later, itself, do what it has decided should be done. But equally it may not. Its basic intention is simply to see that what should be done is in fact done
- Citizens League of the Twin Cities

December 1995

Cuts in provincial subsidies, Metro officials say, will force a 25 percent fare increase on Toronto Transit Commission (TTC) riders. If TTC takes a business as usual attitude, riders are indeed likely to pay more for less service. But around the world, transit systems have faced greater financial challenges without raising fares or reducing service. The starting point is the recognition that business as usual is not good enough; public transit can maintain its important contribution to the community only by focusing its resources on a single objective --- serving riders.

Lonndon (UK) reduced its bus operating subsidies more than 80 percent while expanding service more than 20 percent. Los Angeles services threatened with discontinuation due to budgetary pressures were saved and subsequently expanded through competitive tendering. London and Los Angeles were able to expand service despite declining subsidies as a result of competitive tendering. The strategy these transit systems chose deserves consideration in Toronto.

Under competitive tendering, the transit agency continues to decide what transit service is provided --- the routes and the schedules --- it determines the fares, and it establishes safety standards and service standards. Competitive bids are sought from private companies to provide particular routes and services under contracts that must be re-bid every three to five years. Employees of the public transit agency are permitted to bid under the same terms and conditions as the private companies. The contract is awarded to the responsible and responsive bidder who submits the lowest bid. Riders are unaware of any differences except for lower fares and higher service levels that are made possible by the savings.

Entire transit bus systems are being converted to competitive tendering or have already been converted in London, Copenhagen, Helsinki, Stockholm, Goteborg, Melbourne, Adelaide, Perth, Wellington, Christchurch, Auckland, Las Vegas and elsewhere.

The savings have been substantial --- ranging from 15 percent to 60 percent. But, more importantly, the cost escalation curve has been shifted radially downward. In London, costs per kilometer have declined by more than 30 percent relative to inflation. In Goteborg, Sweden, costs have been reduced by half --- and much of the service is still operated by transit agency employees. In Perth and Adelaide, public transit agencies have reduced their costs per kilometer by more than 20 percent, virtually overnight, in preparation for competitive tendering. Price Waterhouse documented 60 percent savings in Los Angeles, and noted that service quality and safety were improved under competitive tendering. In San Diego, despite constrained funding, competitive tendering savings have permitted a more than 50 percent increase in bus service, while allowing the transit authority to commit more resources to its new light rail system.

There is no doubt that TTC and its riders face a crisis. But it is a cost crisis, not a funding crisis. Over the past 10 years, TTC costs per mile have risen substantially in relation to inflation. If its costs had been held within inflation, TTC would have needed $125 million less to operate its services in 1994. If costs had been held within inflation, TTC could have operated without a provincial subsidy or reduced fares by 25 percent. It's not a lot to ask. Where transit agencies have converted to competitive tendering, below inflationary cost increases have been the rule.

But TTC faces a related and more threatening crisis. Ridership has dropped 15 percent since 1990. Worse, virtually all of the lost ridership has been full fare passengers --- the passengers for whom the alternative form of transportation is invariably the automobile. Business as usual could relegate TTC to a much less important role in Toronto, not unlike many American transit systems that have become largely irrelevant.

There are obvious barriers to competitive tendering. TTC's unions, in particular, oppose competitive tendering. Competitive tendering would bring an end to overly costly work rules and compensation that is far in excess of what comparable employees are paid in the private sector.

It is never easy to change course. It is especially difficult when strong interests oppose reform. But TTC is at a critical juncture. It is confronted by the most fundamental organizational choice. Will TTC focus its resources to serve transit riders, or will special interests continue to cream off subsidies and fare revenues at the expense of the riding public?

Transit plays a pivotal role in Toronto. It is not just TTC that is at stake.

(c) 2001 --- Wendell Cox Consultancy --- Permission granted to use with attribution.
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