U.S. DOT to Stop Rewarding Transit Projects That Use Private Contracts

The Obama administration will reverse a Bush-era policy that gave proposed transit projects a leg up in the chase for federal money if their operations and maintenance were to be contracted out privately, according to a regulation finalized today.

NA_AY921_TRANSI_G_20090712150850.jpgRiders in New Orleans, where streetcars are soon to be operated by a private contractor. (Photo: WSJ)

The change is one of three that the Federal Transit Administration (FTA) plans to make to its oft-criticized "New Starts" program for funding major new investments.

As the FTA explained in its regulatory filing, since 2007 the agency had been rewarding transit proposals that used "innovative contractual agreements" to bolster their local financing commitment (emphasis is mine):

Specifically, FTA increased the operating financial plan rating (from 'medium' to 'medium-high' or from 'medium-high' to 'high') when project sponsors provided evidence that the operations and maintenance of the project will be contracted out ...

FTA has determined that the type of contracting arrangement used or considered by a project sponsor is not useful or appropriate in determining the strength of the overall project.

Contracting out for transit operations and maintenance has become something of a trend this year, with New Orleans, Phoenix, and Savannah all eyeing deals with private businesses.

It's unclear how many "New Starts" projects were affected by the old rating system, but the practice of rewarding transit contractor use jibes with the Bush administration's overall affinity for privatizing government functions in defense and emergency management.

In addition, the FTA's new regulations speak to the need for a broader reform of the transit-funding process as part of the next long-term congressional transport bill. Using "New Starts" as a model for high-speed rail funding agreements, as Yonah Freemark has suggested, would seem to be a premature move until the program is retooled.