"This is a model that will grow jobs...and create an enormousopportunity for cities," said Mark Joseph, chief executive of Veolia'stransportation unit.
Outsourcing can introduce new risks, including the financialsoundness of the companies involved and the potential for a backlash ifresidents come to feel a deal isn't in the public interest. In the pastyear, financial issues have grounded or delayed deals to privatizeChicago's Midway Airport and build a new tunnel to the Port of Miami.
It is unusual for a big-city transit agency in the U.S. to delegateso much control to a private company, but the New Orleans transit dealshows how far some cities may go to preserve key services as therecession drags on.
Across the country, the traditional revenue streams that transitagencies rely on are declining, but interest in bus and rail service isgrowing. Faced with a budget crunch, an increasing number of cities mayjoin New Orleans in seeking to curb costs by turning operations over toprivate companies that can potentially run systems more efficiently.
Officials in Savannah, Ga., are negotiating a similar contract withVeolia to the one New Orleans worked out. Patrick Shay, a board memberof the regional authority who has been involved in the talks, saidSavannah needs help in areas ranging from software to supply-chainmanagement in order to improve its bus system.
In the Phoenix area, Valley Metro's new 20-mile light-rail line isbeing operated by private contractor Alternate Concepts Inc., and thetransit authority plans 37 miles of new rail service in the yearsahead. Already, Valley Metro outsources its bus services. "We live,breathe and eat with our contractors," said Susan Tierney, a ValleyMetro spokeswoman.
In March, the transit authority in Houston awarded a $1.5 billioncontract to a division of Parsons Corp. to build, operate and maintainfour new light-rail lines. Transit agencies in Dallas and Fort Worth,Texas, are seeking a private partner to finance, build, maintain andrun a 67.7-mile passenger-rail network starting in 2013.
Outsourcing, particularly the kind of wholesale delegation coming toNew Orleans, doesn't work for every transit agency. In Los Angeles, theMetropolitan Transportation Authority contracts out service on 21 ofits 200 bus lines at savings of roughly $45 per hour of operation,according to spokesman Rick Jager. Despite the savings, Mr. Jager saidthe authority has no further plans to outsource because laboragreements with its unionized work force prevent it.
Many agencies with older systems "can't get off first base withcontracting because the labor unions are so powerful," said CalMarsella, general manager at Denver's Regional Transportation District.
The Amalgamated Transit Union, which represents bus drivers across the country, didn't respond to requests for comment.
Mr. Marsella's agency outsources about 47% of its fixed-route busservice to Veolia and Ohio-based First Transit Inc. Buses operated bythe companies are on time at roughly the same rate as the buses drivenby RTD employees, Mr. Marsella said, but the privately run busesproduce cost savings of roughly $30 an hour. Among the reasons:Starting pay for bus drivers employed by RTD is $15.49 per hour, versus$12.25 for ones the companies hire.
In New Orleans, the city's unionized bus drivers will become Veoliaemployees, and their labor agreements will be honored, Mr. Joseph said.