Transit Outsourcing Booms — But Are There Safety Trade-offs?

30streetcar.600.jpgNew Orleans streetcars, such as the one pictured above, are about to be outsourced to a private French company. (Photo: NYT)
The Wall Street Journal reports today on the growing number of cities around the country that are in talks to outsource local transit systems to cope with the budgetary pressures of the recession.
New Orleans plans to outsource nearly every aspect of its mass-transit system to a French company, an approach that could appeal to other cash-strapped American cities looking to cut spending without eliminating bus or rail services.

Under terms of a deal struck earlier this month, the New Orleans Regional Transit Authority will pay a subsidiary of Veolia Environnement about $56.3 million each year, and potentially $600 million over the next decade, to finance, manage and operate the city's bus and streetcar lines.

The deal could eventually save Norta -- which spends about $72 million a year to run its system -- as much as 30%, said Chairman Cesar Burgos.

Transit outsourcing is a notion that sounds reasonable enough, particularly given Congress' reluctance to let large cities use federal money on operating costs. But the Journal omitted a notable detail about Veolia, the French company that's poised to run transit networks in New Orleans and Savannah, Georgia: It is battling Los Angeles' Metrolink commuter rail in court over a September crash that killed 25 people.

That crash occurred when Robert Sanchez, a Metrolink engineer hired by Veolia, ran a red light and hit a Union Pacific freight train. Sanchez was later revealed to be sending text messages 22 seconds before impact, and federal investigators found that he invited a local teen to try driving his train.

Veolia strongly defended its safety record following the Metrolink crash, though L.A. has since scaled back its use of private transit contractors amid local reports that listed the company's past missteps.

Veolia's website notes that its deals are not "privatization" -- a word that carries a somewhat loaded political subtext -- but "outsourcing," which does not entitle a private firm to "the acquisition of all of the public company's assets."

But no matter what term is used, letting contractors bid to manage local transit raises the question of whether safety and service trade-offs are inevitable as the firms work to maximize their profit potential.

The rest of the Journal's article on transit outsourcing is viewable in full after the jump.

"This is a model that will grow jobs...and create an enormous opportunity for cities," said Mark Joseph, chief executive of Veolia's transportation unit.

Outsourcing can introduce new risks, including the financial soundness of the companies involved and the potential for a backlash if residents come to feel a deal isn't in the public interest. In the past year, financial issues have grounded or delayed deals to privatize Chicago'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 delegate so much control to a private company, but the New Orleans transit deal shows how far some cities may go to preserve key services as the recession drags on.

Across the country, the traditional revenue streams that transit agencies rely on are declining, but interest in bus and rail service is growing. Faced with a budget crunch, an increasing number of cities may join New Orleans in seeking to curb costs by turning operations over to private companies that can potentially run systems more efficiently.

Officials in Savannah, Ga., are negotiating a similar contract with Veolia to the one New Orleans worked out. Patrick Shay, a board member of the regional authority who has been involved in the talks, said Savannah needs help in areas ranging from software to supply-chain management in order to improve its bus system.

In the Phoenix area, Valley Metro's new 20-mile light-rail line is being operated by private contractor Alternate Concepts Inc., and the transit authority plans 37 miles of new rail service in the years ahead. Already, Valley Metro outsources its bus services. "We live, breathe and eat with our contractors," said Susan Tierney, a Valley Metro spokeswoman.

In March, the transit authority in Houston awarded a $1.5 billion contract to a division of Parsons Corp. to build, operate and maintain four new light-rail lines. Transit agencies in Dallas and Fort Worth, Texas, are seeking a private partner to finance, build, maintain and run a 67.7-mile passenger-rail network starting in 2013.

Outsourcing, particularly the kind of wholesale delegation coming to New Orleans, doesn't work for every transit agency. In Los Angeles, the Metropolitan Transportation Authority contracts out service on 21 of its 200 bus lines at savings of roughly $45 per hour of operation, according to spokesman Rick Jager. Despite the savings, Mr. Jager said the authority has no further plans to outsource because labor agreements with its unionized work force prevent it.

Many agencies with older systems "can't get off first base with contracting because the labor unions are so powerful," said Cal Marsella, 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 bus service to Veolia and Ohio-based First Transit Inc. Buses operated by the companies are on time at roughly the same rate as the buses driven by RTD employees, Mr. Marsella said, but the privately run buses produce 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 Veolia employees, and their labor agreements will be honored, Mr. Joseph said.