Letter to Los Angeles MTA on
Competitive Contracting Report

9 November 1999

Supervisor Michael Antonovich
County of Los Angeles
Hall of Administration
1200 West Temple Street
Los Angeles, CA 90012

Re: MTA Outsourcing Report

Dear Mike:

As you may recall, after having been appointed to three terms on the Los Angeles County Transportation Commission by the late Mayor Tom Bradley, I left in 1985 to undertake a consulting practice dedicated to improving the efficiency and effectiveness of government services. One of the issues on which I have spent the most effort is competitive contracting (outsourcing) of public transit service. As a former colleague, I wanted to bring to your attention concerns about the September 1999 MTA Outsourcing Report

The Outsourcing Report is based upon inaccuracies, an incomplete search of the literature, insufficient analysis and frankly incorrect conclusions. A few examples will illustrate (Please note that these are just examples --- there is much more to criticize about the Outsourcing Report):

1. Denver: The Outsourcing Report contends that RTD (the Denver transit agency) had intended to competitively contract 100 percent of its service, but that "political and labor efforts" limited the amount of contracting to 20 percent. In fact, there was never any intention on the part of RTD to contract all of its service. Colorado Senate Bill #164 (1988), as introduced and of which I was the consultant author, would have required 100 percent competitive contracting. But Governor Roy Romer indicated that he would not sign a bill requiring more than a 20 percent competitive contracting mandate. Incidentally, that mandate was expanded to 35 percent in the last session of the Colorado legislature. Worse, the Outsourcing Report indicates that RTD has lost money on competitive contracting, basing its conclusions on the Amalgamated Transit Union sponsored work of Dr. Elliot Sclar. In fact, significant savings have been achieved, which have been documented by KPMG Peat Marwick, and an RTD sponsored management study by Mundle & Associates and Wendell Cox Consultancy. RTD has issued its own refutation of the Dr. Sclar's study. My response to his work is included in a paper delivered at the Sixth International Conference on Competition and Ownership in Cape Town two months ago (attached). The Denver experience is outlined in a Transportation Research Board paper by Subhash Mundle, Janet Kraus (attached), derived from the RTD commissioned management report.

2. London: The Outsourcing Report indicates that transit service was deregulated in London. While transit was deregulated in Great Britain outside London, inside London service was converted to competitive contracting. The Outsourcing Report further indicates that subsidies had been reduced by 25 percent in two years. In actuality, transit service was not deregulated in London and the subsidy savings were 100 percent, as in 1997 a profit relative to both capital and operating costs was earned by private contractors and London Transport All service is now provided by contractors, through an overall integrated and coordinated system managed by London Transport. Actual unit cost reductions (cost per vehicle mile) are more than 40 percent since competitive contracting began in 1986. Details of this experience are documented in my 1995 paper co-authored with Jean Love and Nick Newton, the official who oversaw the London Transport conversion to competitive contracting. Somewhat mystifying was the Outsourcing Report's criticism of service quality in London. In fact, under competitive contracting service has become more reliable. Perhaps most telling is the fact that the Labour government has indicated no intention to reverse the competitive contracting conversion --- indeed it has commented favorably on the London experience (it is one of only a few Tory policies that Labour has openly embraced). As a result of the much higher levels of service that more cost effective operation has permitted, bus ridership is rising and is now at the highest level in more than 20 years.

3. San Diego: Perhaps most significant is the omission of San Diego, which under the administration of the Metropolitan Transit Development Board has competitively contracted 40 percent of its bus service and experienced by far the most significant cost improvement in the nation over the last 20 years. In 1997, San Diego bus costs per mile were 27 percent below that of 1979 (inflation adjusted). This has resulted not only from the direct reduction of costs through competitive contracting, but also through the competitive effect (ripple effect) on public costs, as the public transit agency has positively responded to the more competitive environment by becoming more efficient. This experience is documented in a 1997 paper co-authored with Jean Love and Nick Newton (attached). Indeed, if SCRTD/LACMTA bus service costs had been controlled as well as in San Diego, there would be sufficient annual savings to continue an aggressive rail construction program, while providing a higher level and quality of bus service to MTA's core transit dependent customers.

4. Las Vegas: The Outsourcing Report indicates that since the entire transit system was competitively contracted, "performance and service availability have decreased." This is absurd. Service has been greatly expanded and ridership has risen sharply. This year, more than 50 million passengers will be carried by Citizen's Area Transit in Las Vegas, up from approximately 10 million before competitive contracting was implemented in 1992. I have been very familiar with transit performance for more than a quarter century, and I am unaware of any metropolitan area in the world in which ridership has risen so rapidly in such a short period of time. The Las Vegas experience is described in my 1997 paper. In fact, the American Public Transit Association, no proponent of competitive contracting, declared Citizen's Area Transit to be the best transit system in the nation a year or so ago. Incidentally, Las Vegas had operating costs of under $42 per vehicle hour in 1997, compared to the MTA bus cost of over $90.

I have published considerable recent research on competitive contracting. The above noted products that review the examples from the Outsourcing Report are just a few. In addition, I have: