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Public-Private Partnerships

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

12:02 PM EDT on July 13, 2009

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 itsmass-transit system to a French company, an approach that could appealto other cash-strapped American cities looking to cut spending withouteliminating bus or rail services.

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

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

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 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.

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