Examination of Regional Transit Service Under Contracting:
A Case Study in the Greater New Orleans Region
MTI Report 10- 09
MTI
Examination of Regional Transit Service Under contracting
MTI Report 10- 09
March 2011 The Norman Y. Mineta International Institute for Surface Transportation Policy Studies ( MTI) was established by Congress as part of the Intermodal Surface Transportation Efficiency Act of 1991. Reauthorized in 1998, MTI was selected by the U. S. Department of Transportation through a competitive process in 2002 as a national “ Center of Excellence.” The Institute is funded by Con­gress
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MTI Report 10- 09
EXAMINATION OF REGIONAL TRANSIT SERVICE
UNDER CONTRACTING: A CASE STUDY IN THE GREATER NEW ORLEANS REGION
Hiroyuki Iseki, Ph. D.
Charles Rivasplata, Ph. D.
Rebecca Houtman, M. S.
Adam Smith
Carl Seifert
Tiffany Sudar
April 2011
A joint publication of
Mineta Transportation Institute
Created by Congress in 1991
College of Business
San José State University
San José, CA 95192- 0219
Gulf Coast Research Center for Evacuation and Transportation Resiliency
Merritt C. Becker, Jr. University of New Orleans Transportation Institute
College of Liberal Arts
University of New Orleans
New Orleans, LA 70148- 0001 TECHNICAL REPORT DOCUMENTATION PAGE
1. Report No.
CA- MTI- 11- 2904
2. Government Accession No.
3. Recipients Catalog No.
4. Title and Subtitle
Examination of Regional Transit Service Under Contracting: A Case Study in the Greater New Orleans Region
5. Report Date
April 2011
6. Performing Organization Code
7. Authors
Hiroyuki Iseki, Ph. D.; Charles Rivasplata, Ph. D.; Rebecca Houtman, M. S.; Adam Smith; Carl Seifert and Tiffany Sudar
8. Performing Organization Report No.
MTI Report 10- 09
9. Performing Organization Name and Address
Mineta Transportation Institute
College of Business
San José State University
San Jose, CA 95192- 0219
10. Work Unit No.
11. Contract or Grant No.
DTRT07- G- 0054
12. Sponsoring Agency Name and Address
13. Type of Report and Period Covered
Final Report
14. Sponsoring Agency Code
California Department of Transportation
Sacramento, CA 94273- 0001
U. S. Department of Transportation
Research and Innovative Technology Administration ( RITA)
Office of University Programs
1200 New Jersey Avenue, SE
Washington, DC 20590
15. Supplementary Notes
16. Abstract
Many local governments and transit agencies in the United States face financial difficulties in providing adequate public transit service in individual systems, and in providing sufficient regional coordination to accommodate transit trips involving at least one transfer between systems. These difficulties can be attributed to the recent economic downturn, continuing withdrawal of the state and federal funds that help support local transit service, a decline in local funding for transit service in inner cities due to ongoing suburbanization, and a distribution of resources that responds to geographic equity without addressing service needs.
This study examines two main research questions: ( 1) the effect of a “ delegated management” contract on efficiency and effectiveness within a single transit system, and ( 2) the effects of a single private firm— contracted separately by more than one agency in the same region— on regional coordination, exploring the case in Greater New Orleans. The current situation in New Orleans exhibits two unique transit service conditions. First, New Orleans Regional Transit Authority ( RTA) executed a “ delegated management” contract with a multinational private firm, outsourcing more functions ( e. g., management, planning, funding) to the contractor than has been typical in the U. S. Second, as the same contractor has also been contracted by another transit agency in an adjacent jurisdiction— Jefferson Transit ( JeT), this firm may potentially have economic incentives to improve regional coordination, in order to increase the productivity and effectiveness of its own transit service provision.
Although the limited amount of available operation and financial data has prevented us from drawing more definitive conclusions, the findings of this multifaceted study should provide valuable information on a transit service contracting approach new to the U. S.: delegated management. This study also identified a coherent set of indices with which to evaluate the regional coordination of transit service, the present status of coordination among U. S. transit agencies, and barriers that need to be resolved for regional transit coordination to be successful.
17. Key Words
Contracting, Coordination; Regional planning; Service quality; Urban transit
18. Distribution Statement
No restrictions. This document is available to the public through
The National Technical Information Service, Springfield, VA 22161
19. Security Classif. ( of this report)
Unclassified
20. Security Classifi. ( of this page)
Unclassified
21. No. of Pages
164
22. Price
$ 15.00
Form DOT F 1700.7 ( 8- 72)
Copyright © 2011
by Mineta Transportation Institute
All rights reserved
Library of Congress Catalog Card Number:
2011922800
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Email: mineta- institute@ sjsu. edu
http:// transweb. sjsu. edu ACKNOWLEDGMENTS
This research has been funded by grants from the Mineta Transportation Institute ( MTI) at San José State University ( SJSU) and the Gulf Coast Research Center for Evacuation and Transportation Resiliency at the University of New Orleans ( UNO)/ Louisiana State University ( LSU). The authors are grateful for this support. We would like to thank the staff and leadership at both institutions for their help during this project, especially MTI’s Director of Research, Karen Philbrick, Ph. D. The accuracy of the data reported and the conclusions drawn are solely those of the authors, and not the funding institutions.
Thanks also go to: UNO undergraduate student Brook Singh Ranshi, who helped administer the survey, input data, and create graphs and tables; UNO undergraduate student Jeremy Deubler, who helped administer the survey; consultant at GCR & Associates, Inc. Karleene Smith, who provided kind assistance with collecting data from Jefferson Transit; University of California Los Angeles ( UCLA) graduate student in urban planning Chandini Singh who created a MS Access file for the survey data input; Coordinator for the UNO Planning and Urban Studies Department Paulette P. Simon for managing research funding; and Associate Director of UCLA Institute of Transportation Studies Allison Yoh and UCLA graduate student in urban planning Michael Smart, who provided guidance for our transit user survey. Special thanks to transit agency officials who participated in our survey and/ or interviews, and anonymous reviewers for their comments on an earlier version of this report. Finally, thanks also go to New Orleans Regional Transit Authority and Jefferson Transit for allowing us to survey their passengers, and to the New Orleans region transit riders who took the time to respond to the survey.
The authors would like to thank MTI staff, including Director of Communications and Special Projects Donna Maurillo; Research Support Manager Meg A. Fitts; Student Publications Assistant Sahil Rahimi; Student Research Support Assistant Joey Mercado; Student Graphic Artist JP Flores; and Webmaster Frances Cherman. Additional editorial and publication support was provided by Editorial Associate Cathy Frazier. Acknowledgments Mineta Transportation Institute
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TABLE OF CONTENTS
EXECUTIVE SUMMARY 1
INTRODUCTION 9
REVIEW OF THE LITERATURE 13
Types of Transit Service Contracting 13
Evaluation of the Effects of Contracting in Past Studies 19
Regional Coordination of Transit Service 24
EMPIRICAL STUDY: EFFECTS OF TRANSIT CONTRACTING 35
Introduction 35
Background 36
Contractual Terms 45
Transit User Survey 53
Performance Indices 65
Regional Coordination in Greater New Orleans 79
Conclusion 91
NATIONWIDE REGIONAL COORDINATION SURVEY 93
Introduction 93
Data, Data Sources, and Data Collection 93
Status of Regional Coordination in the U. S. 94
SUMMARY OF FINDINGS AND CONCLUSION 105
APPENDIX A: PRIVATIZATION OF PUBLIC TRANSIT SERVICE: THE U. K. 109
APPENDIX B: REVIEW OF TRANSIT SERVICE PRIVATIZATION IN
INTERNATIONAL CASES 113
APPENDIX C: LIST OF DOCUMENTS OBTAINED FROM TRANSIT AGENCIES
IN NEW ORLEANS 119
APPENDIX D: RTA AND JET ROUTE MAPS 121
APPENDIX E: TRANSIT USER SURVEY 125
APPENDIX F: SELECTED TRANSIT USER SURVEY RESULTS 127
APPENDIX G: MAXIMUM FLEET SIZES OF RTA AND JET SYSTEMS 135
APPENDIX H: REGIONAL TRANSIT COORDINATION SURVEY 137
ABBREVIATIONS AND ACRONYMS 145
REFERENCES 147
ABOUT THE AUTHORS 161
PEER REVIEW 163 Mineta Transportation Institute
Table of Contents
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LIST OF FIGURES
1. Farebox Recovery Ratios for RTA and JeT, 2004, 2007, 2008, and 2009 5
2. Proportion of Agencies Operating on Different Levels of Contracted Bus Service
by Year ( 1992– 2008) 9
3. Total Modal Expense for Contracted Bus Service by Year ( 1992– 2008) 10
4. Population Estimates for New Orleans MSA ( 2000– 2009) 38
5. Population Estimates for Orleans and Jefferson Parishes ( 2000– 2009) 39
6. Mode of Transport to Work in Orleans and Jefferson Parish, 2008 40
7. Household Income Distribution in Orleans and Jefferson Parishes in 2008 41
8. Race/ Ethnicity of Residents in Orleans and Jefferson Parishes in 2008 42
9. Race/ Ethnicity of Survey Respondents 56
10. RTA and JeT Importance- Satisfaction Scores ( IS) 65
11. Total Modal Expenses ( TME) for RTA and JeT 67
12. Vehicle Operating Expenses ( VOE) for RTA and JeT 68
13. Annual Total Revenue Vehicle Hours ( in Thousands) for RTA and JeT 68
14. Annual Total Revenue Vehicle Miles ( in Millions) for RTA and JeT 69
15. Revenue Vehicle Hours for RTA and JeT Indexed to 2006 Numbers 70
16. Revenue Vehicle Miles for RTA and JeT Indexed to 2006 Numbers 70
17. Revenue Vehicle Hours and Miles for RTA Streetcars 71
18. Annual Unlinked Passenger Trips ( in Millions) for RTA and JeT 72
19. Annual Passenger Miles Traveled ( in Millions) for RTA and JeT 72
20. Average Number of Trips per Capita ( 1,000) 73
21. Annual Fare Revenue for RTA and JeT 74
22. Cost ( TME) per Revenue Vehicle Hour by Mode, for Agency by Year 75
23. Cost ( VOE) per Revenue Vehicle Hour by Mode, for Agency by Year 75
24. Farebox Recovery Ratios for RTA and JeT, 2004, 2007, 2008, and 2009 76
25. Ridership per Revenue Vehicle Hour, RTA and JeT 77
26. Ridership per Revenue Vehicle Mile, RTA and JeT 77
27. Cost ( TME) per Unlinked Passenger Trip, RTA and JeT 78 Mineta Transportation Institute
List of Figures
iv
28. New Orleans Regional Transit Authority ( RTA) Transit System Map 121
29. RTA System Map Route Legend 122
30. Jefferson Transit ( JeT) System Map, Interactive Web Version 123
31. Jefferson Transit ( JeT) System Map, Printable Version 124
32. What is the Main Purpose of Your Trip? 127
33. How Often Do You Make the Trip You are Currently On? 127
34. How Many Transfers Do You Expect to Make on this Trip? 128
35. Does Your Trip Involve Any Transfer Between RTA and JeT? 128
36. How Many Days a Week Do You Use Public Transportation?
( Respondents Reporting Weekly Ridership) 129
37. Was There a Car that You Could Take for this Trip? 129
38. Proportions of Respondents With Income Under $ 50,000 130
39. Age 130
40. Race/ Ethnicity of Survey Respondents by Transit Agency, Total 131
41. Race/ Ethnicity of Survey Respondents by Transit Agency, Total 132
42. Jefferson Parish African American and Caucasian Survey Respondents,
Compared to Parish Population 132
43. Orleans Parish African American and Caucasian Survey Respondents,
Compared to Parish Population 133 Mineta Transportation Institute
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LIST OF TABLES
1. Responses to the Questionnaire on Regional Coordination of Transit Service
in the Greater New Orleans Region 6
2. Regional Coordination Indices, Managerial/ Operational 30
3. Regional Coordination Indices, Organizational/ Institutional 32
4. Regional Coordination Indices, Financial/ Institutional 33
5. Operationalized Indices of Regional Coordination 33
6. Selected Economic Characteristics of Orleans and Jefferson Parish 41
7. Service Characteristics of RTA and JeT 43
8. Responsibilities, Reporting, and Requirements at RTA and JeT 47
9. RTA Transitional Contract Requirements 48
10. Payments and Incentives in RTA and JeT Contracts 52
11. RTA Riders’ Importance Rankings 59
12. JeT Riders’ Importance Rankings 60
13. RTA Riders’ Satisfaction Rankings 61
14. JeT Riders’ Satisfaction Rankings 62
15. RTA Riders’ Importance- Satisfaction ( IS) Ratings and Rankings 63
16. JeT Riders’ Importance- Satisfaction ( IS) Ratings and Rankings 64
17. Agencies and Positions of Respondents for Questionnaire and Interviews 80
18. Responses to the Questionnaire on Regional Coordination of Transit Service
in the Greater New Orleans Region 82
19. Summary of Findings from the Nationwide Regional Coordination Survey 83
20. Fleet Sizes of Agencies Surveyed and Entire Population 94
21. Questions Related to Contracting 95
22. Functions Contracted Out by Transit Agencies 95
23. Questions Related to Fare Coordination 96
24. Interoperator Fare Structure Used by Agencies in Regions with Coordinated
Fare Systems 97
25. Fare Media Sold ( 1) by Respondent’s Agency for Use on Other Transit
Systems, and ( 2) by Other Agencies for Use on Respondent’s Transit System 97 Mineta Transportation Institute
List of Tables
vi
26. Questions Related to Service Schedule 98
27. Jointly Provided Information 99
28. Types of Jointly Provided Information 99
29. Media Used in Jointly Provided Information 99
30. Use of Real- Time Information 100
31. Questions Related to Facilities and Signage 101
32. Types of Facilities Shared Between Agencies 101
33. Existing Agreements between Agencies 102
34. Discount Programs 102
35. List of Documents Received From Transit Agencies in the Greater
New Orleans Region 119
36. Race/ Ethnicity of Survey Respondents 131
37. Agency Size 135 Mineta Transportation Institute
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EXECUTIVE SUMMARY
Introduction
Public transportation is a vital service aimed at accommodating the travel needs of those without easy access to private automobiles, and at maintaining the quality of life in most urban areas of the United States. Public transit agencies in the U. S. have been challenged to provide cost- effective service in the face of both declining state and federal aid. Declines in population, jobs, and business in inner cities have also caused significant losses in the tax bases, and make it financially more difficult for public agencies to provide transit service in these areas where more residents depend on public transit for their mobility. At the same time, continuous trends in suburbanization of jobs and housing have also been increasingly making travel patterns of residents and workers more complex over the past decades, requiring them to travel across multiple jurisdictions. Particularly, the need that transit riders have to be able to travel across a metropolitan area demands better regional coordination to accommodate trips using multiple transit systems.
This study examines two hypotheses pertinent to the possibility of improving efficiency and effectiveness of regional transit service through privatization. Specifically, in the empirical research, the following two hypotheses are examined: given carefully designed contractual terms, ( 1) privatization leads to more cost efficient and effective provision of transit service to the public, and ( 2) privatization improves regional coordination of transit services through internal coordination, when one private contractor is contracted by multiple districts. Of particular interest regarding the first hypothesis is the effects of “ delegated management” contract implemented by New Orleans Regional Transit Authority ( RTA), which transfers more responsibility in management, planning, and financial responsibilities as well as operation and maintenance to a contractor than contracts prevalently used in the U. S. In addition, the unique circumstances in Greater New Orleans, where two transit agencies— New Orleans RTA in Orleans Parish and Jefferson Transit ( JeT) in Jefferson Parish— contracted with the same multinational firm, Veolia, to provide transit service, made it possible to address this second hypothesis.
Literature Review
This study’s literature review covered two subject areas: ( 1) transit service privatization and its effects on productivity, and ( 2) regional coordination of transit service. The transit contracting literature addresses various issues ranging from different forms of competition and ownership issues to economic issues; from labor issues to passengers’ experience ( Thredbo 2010).
In the United States, public transit agencies have been more conservative in terms of both the levels and forms of privatization than the United Kingdom, other European countries, and Australia. Outsourcing is usually limited to operation, maintenance, and occasionally limited planning functions.
Two categories of transit service contracts— cost- plus and fixed- price— are discussed in some detail regarding compensation, associated incentives for contractors, transactions Mineta Transportation Institute
Executive Summary
2
costs, and risks that agencies must be aware of. Performance- based contracts may be of either type, but include specific incentives for achieving service quality goals set by the transit agency. Several important issues that significantly influence outcome of service contracting are discussed, including competitive bidding and negotiation of contracts, in order to set the basis to evaluate contractual terms in the case study.
This study’s review of the literature regarding the effects of contracting in past studies reveals that there remains a mixture of findings on this subject, as different countries exhibit different experiences in transit service privatization, reflecting large variances in the amount of experience in public service privatization and conditions in transit policies, regulations, transit and labor markets, operation and management, operating environment, and overall travel behaviors of the population in different countries. Regarding the U. K., many experts believe that London’s tendering schemes have been more successful in gaining ridership and improving productivity than the fully deregulated systems elsewhere in the country ( Karlaftis 2006; White 1990, 1997). Although tendering transit service has had favorable- enough results in Western Europe, not all European nations have been equally successful at achieving both cost savings and policy goals, underscoring the importance of contract provisions and awarding procedures.
Most quantitative studies of U. S. transit contracting are more mixed on whether, and to what extent, cost- efficiency and/ or cost- effectiveness are realized. In contrast, qualitative studies on transit contracting discuss the higher complexity of decision making for contracting and of its outcomes; agencies are influenced by political, social, and institutional forces, and by levels of knowledge and experience regarding contracting, as well as by economic incentives ( Berechman 1993; Iseki 2008; Richmond 2001; Sclar 2000). Whether or not contracting is more cost effective than public provision of transit is an empirical question. The specific provisions of the contract and the manner in which it is awarded ( through a competitive bidding process or through straight negotiation) can directly influence the cost- effectiveness of transit services.
The studies of transit contracting focus on the productivity and effectiveness of transit service by contractors in individual transit systems, but do not address the implications of contracting on regional coordination. In fact, the importance of regional coordination has been well recognized by researchers and practitioners ( Meyer et al. 2005; Miller et al. 2005; Pucher and Kurth 1989), providing broad definition of regional coordination and integration. However, relatively little research has been conducted on methods and criteria for measuring and evaluating regional coordination and integration using concrete indices and indicators. A common set of indicators in three categories emerged from careful examination of scholarly articles and reports on the subject of regional coordination and integration:
1. Operational/ managerial coordination,
2. Organizational/ institutional coordination, and
3. Financial/ institutional coordination.
Operational/ managerial coordination indicators directly influence a transit user’s experience in a transit system and their perceptions toward the quality of service of the system. This Mineta Transportation Institute
Executive Summary 3
category of indicators includes coordination of general operations such as schedules, fares, and facilities. The second category, organizational/ institutional involves the coordination at the level of transit administration. This type of coordination includes such indicators as coordinated goals and policies, centralized administration, and information sharing. The last category, financial/ institutional, is generally only practiced in highly coordinated regions and involves the coordination or sharing of financial resources for common goals. This category includes measures such as joint funding arrangements and joint procurement of equipment. Based on these three categories, a set of regional coordination indices/ indicators were developed to evaluate the level of regional coordination in the New Orleans region as well as other regions in the U. S. in this empirical study.
Empirical Study: The Effects of Transit Contracting on Service Provision and Regional Coordination
Two jurisdictions in the case study— RTA in the city of New Orleans, which is coterminous with Orleans Parish, and JeT in Jefferson Parish, composed of several suburban cities outside New Orleans— exhibit very different economic and social conditions that influence the provision of transit service. Both parishes were impacted by Hurricane Katrina in 2005, which intensified the decline in population since the 1960s and economic stagnation, and also exacerbated social problems. At the same time, the two parishes— Jefferson and Orleans— have very different economic and demographic profiles. Residents of suburban Jefferson Parish have much higher incomes, longer commute times, and use public transportation less than Orleans Parish residents. Within these settings, JeT operates a much smaller transit system with a much smaller budget than does RTA, but serves a much larger area with fewer routes, while RTA faces the challenge of suburbanization and “ job sprawl,” in which employers are locating in suburban areas. Under these conditions, RTA and JeT currently outsource transit service, but have approached contracting in very different ways in terms of roles and responsibilities that are transferred from the transit agency to a private contractor. RTA made a “ delegated management” contract with a multinational company, Veolia, to transfer a wide range of responsibilities. This decision has created the necessity for a less rigid, more financially complicated contract. In contrast, JeT’s contract is a typical of many transit service contracts in the U. S., outsourcing only operation and maintenance functions to Veolia. It has placed a great deal of emphasis on quality control and customer service to ensure that standards will continue to be met while Veolia is discovering new ways to efficiently cut the costs of bus operation. As for RTA, a desire to reorganize the structure and effectiveness of the transit system while decreasing the previously high operating costs is reflected throughout the contract.
Survey data of 461 transit users were analyzed using Importance- Satisfaction ( IS) analysis and statistical analysis to observe how the riding public perceive the quality of transit service provided under the two different types of contracts in the RTA and JeT transit systems. Although both RTA and JeT transit riders surveyed consider overall ease of making transfers and connections and reliability of service important, they differed significantly in their importance ratings of eight of the 17 attributes in the study’s survey, most notably in the importance of being able to obtain information about JeT routes and schedules. JeT riders not only ranked JeT information higher than RTA riders— in sixth place, they ranked the importance of being able to obtain RTA information even higher— in third place. Mineta Transportation Institute
4 Executive Summary
RTA and JeT riders differed even more regarding satisfaction levels. While RTA riders list two access- related attributes, JeT riders place three regional coordination- related attributes in the top six. Both groups of riders are well- satisfied with access- related attributes, but are concerned with a lack of sitting space, waiting time, and safety at night. There were only three attributes for which there was no statistically significant difference between the two agencies, and only one attribute ( ease of getting around the bus stop/ station) for which RTA riders expressed slightly higher satisfaction than JeT riders, and that difference was not statistically significant. The average percentage of people who are relatively satisfied for all attributes for 61.5 percent among RTA riders, compared to JeT riders’ 75.1 percent, indicating RTA riders are less happy about the quality of transit service than JeT riders, and that RTA/ Veolia continues to face challenges regarding customer satisfaction. As both RTA and JeT riders rank regional coordination- related attributes in the middle range, and in the same order, these two agencies can address improvements with a similar priority.
This study also evaluates the performance of RTA and JeT under different contracts over time, and examines each agency’s financial and operating data, such as operating expenses, quantity of service provided, level of consumption of transit service, and several performance indicators for efficiency and effectiveness. While both RTA and JeT experienced losses in productivity in the immediate aftermath of Hurricane Katrina in 2005, they show different performance trends from 2006 to 2009. Overall, JeT has not seen dramatic changes over the four year period, while RTA has made significant improvements in several areas that could be attributed to the significant restructuring of RTA transit service management and operation under the RTA/ Veolia contract beginning in late 2008.
Although streetcar gains in revenue hours and mileage, passenger trips, fare revenue, and operating cost efficiency are accompanied by losses by buses through 2008 ( while streetcar lines were being restored, and pre- Veolia management), RTA buses made gains in revenue miles and hours, trips per capita, cost efficiency, cost per passenger trip, and farebox recovery ratio ( Figure 1) in 2009— despite this being the first complete year of fully restored streetcar lines. These improvements could be attributed to various adjustments in operation, such as bus realignment, rescheduling, or reallocation of vehicles, implemented under the new management by Veolia. These gains in the bus system are accompanied by a considerable loss of cost efficiency in RTA streetcar operation in 2009 compared to 2008, although streetcars keep higher effectiveness, in terms of ridership per vehicle mile and hour, than buses. This loss in cost efficiency for streetcars can be attributed to a significant increase in operating costs, which may be due to the higher platform- hour rate charged by Veolia for better management— for example, increasing supervisors on the routes to maintain even intervals between streetcars. As a whole, RTA/ Veolia improved the overall efficiency in providing transit service, since the gains made by RTA buses were sufficient to offset the declines in streetcar efficiency.
In the analysis of responses to questionnaires and interviews collected from directors and planners at RTA, JeT, and New Orleans Regional Planning Commission ( RPC) in comparison to data from the nationwide survey of transit agencies on regional coordination indicators, the current coordination of transit service in the Greater New Orleans region Mineta Transportation Institute
Executive Summary 5
is found limited and less advanced than transit coordination in most of the agencies responded to the nationwide survey.
Figure 1. Farebox Recovery Ratios for RTA and JeT, 2004, 2007, 2008, and 2009
Table 1 summarizes Greater New Orleans’ level of achievement in each indicator of regional coordination, along with the percentages of agencies that provided positive responses in the survey. Responses to the questionnaire revealed the premature level of regional coordination of transit service in Greater New Orleans. Out of 17 indices, Greater New Orleans has a fully positive response for only three: ( 1) the availability of transit fare media in the other agency’s service area, ( 2) joint provision of information, and ( 3) sharing facilities. Also, some level of coordination exists in terms of transfer points and discussion of possibly locating and designing facilities to better accommodate transfers, although the questionnaire responses are not consistent between all three agencies. The inconsistency of responses exhibits the different understanding of current conditions on the part of each agency, and their different perspectives regarding transit service coordination. In other categories, RTA and JeT are falling behind the national trend, apart from some unofficial coordination of vehicle scheduling being conducted through a private channel within Veolia. Mineta Transportation Institute
6 Executive Summary
Table 1. Responses to the Questionnaire on Regional Coordination of Transit Service in the Greater New Orleans Region
( 1) Well achieved in Greater New Orleans
Nationwide
Availability of passes, tickets, or tokens in the other transit area’s service area
55%
Joint provision of information on transit service
75%
Sharing facilities ( e. g., terminal, shelter, park & ride lot)
69%
( 2) Partially achieved in Greater New Orleans
Special discount program with other public or private entities
64%
Clearly designated transfer points
74%
Discussion of possibly locating and designing facilities to better accomodate transfers
43%
( 3) Not achieved in Greater New Orleans
A coordinated regional fare system
52%
Passes, tickets, tokens or transfers usable in the other transit system
54%
Free or discounted transfer from the other transit system
63%
Consideration of the other transit system’s service availability in service scheduling
70%
Coordination in time scheduling to accomodate transfers
68%
Real- time information for operation ( e. g., AVL) shared between the two transit systems
6%
Other various agreements, such as joint training for employees
9– 29%
Overall, although there is a certain expectation of regional coordination both between RTA and JeT, and through the internal channel of Veolia, many of the testimonies often lack concrete plans for funding and implementation of regional coordination in follow- up interviews with the survey respondents from RTA, JeT, and RPC. Some discussion of increased cooperation that were repeatedly mentioned, and, therefore, could be candidates for formal implementation include: ( 1) installing a shared facility in Orleans Parish, ( 2) jointly working on vehicle scheduling to provide seamless travel to transit riders, and ( 3) discussing the potential for revisiting fare media sharing programs.
This study also identified several obstacles to public agencies in the region moving forward. One of the most serious concerns is political representation: an assurance of equal representation on any board or decision- making body is essential— in particular, from the perspective of Jefferson Transit, which is a smaller agency in the suburbs. Another serious concern is financial: there has to be a strong justification and solid assurance for JeT that any coordinating efforts for transit service are beneficial to the parish’s taxpayers and transit riders, since parish residents pay a dedicated property tax for transit service. Regarding this point, the mechanism for revenue allocation within any fare media sharing policy has to be transparent and fair, so that both agencies can agree on their share of proceeds. These political and financial issues are major barriers to regional coordination, consistent with past studies on geographic equity and adoption of new technologies among multiple public agencies. At this point, these concerns on Mineta Transportation Institute
Executive Summary 7
the part of the public agencies certainly override any economic incentive that the private contractor both agencies may have.
In summary, the presence of Veolia as a single provider to two separate parishes has increased optimism about the improvement of regional coordination. However, uncertainty and hesitation remain, primarily with respect to political structure, financial concerns, and the role of metropolitan planning organization, which need to be addressed and resolved before attempts at further coordination could successfully move ahead.
Nationwide Regional Coordination Survey
A nationwide survey was developed, based on the indicators of regional coordination found in the literature review, to gauge the present status of regional coordination among U. S. transit agencies in support of the case study of New Orleans transit service. Among 590 transit agencies with fixed- route transit service in the U. S., 202 responded, representing agencies in 45 states. The results of the survey indicate that while regional coordination is commonplace throughout the country, there are still many regions with very low levels of coordination. Transit agency executives offered a number of reasons why they thought this is the case, including local funding requirements and political, institutional, and financial barriers.
Conclusion
This study found some positive indications of effects the RTA/ Veolia delegated management contract may be having on the efficiency and effectiveness of transit service in the RTA transit system and regional coordination in Greater New Orleans, based on the analysis of RTA performance indicators and on interviews. However, the analysis of transit user surveys showed that transit riders are still generally less satisfied with the quality of RTA’s service— in particular with those attributes related to regional coordination— than with JeT’s, and that few RTA riders have noticed substantial positive changes in service quality. The analysis of information from the questionnaire and the nationwide survey regarding regional survey also revealed very limited efforts being made toward coordination in Greater New Orleans compared to the nation average, despite some optimism expressed by the interviewees, and an official report prepared by RPC. Political concerns between the two transit agencies arising mainly from financial issues, such as the distribution of local tax revenue, allocation of revenue from regional fare program, and costs of new technologies, are so substantial that these constraints prevent the agencies from moving forward with coordination. A relatively simple contract between JeT and Veolia does not allow Veolia much autonomy outside of operation and maintenance, and JeT generally has greater reservations toward coordination than RTA. In this situation, it seems important that RTA/ Veolia find ways to improve regional coordination within its system without incurring substantial costs that offset the benefits, so that it can gain cooperation from JeT in future. Certainly, RPC can have an important role in bridging gaps between the two transit agencies.
Despite these findings, drawing more definitive conclusions presented substantial difficulty because of the limited amount of available operation and financial data— due to both a short period of analysis following the execution of the contract, and a variable level of Mineta Transportation Institute
8 Executive Summary
cooperation on the part of RTA. Further analysis will be required to more thoroughly evaluate the performance of the effects of the delegated- management contract between RTA and Veolia over the next several years. For example, one should carefully examine whether Veolia can reverse 2009 declines in streetcar efficiency and increases in operating costs within its significant involvement in planning streetcar expansions. A future study might also explore the prospect of Veolia developing a regional transit monopoly with the execution of its contract to provide demand- response service to a third transit agency in Southeast Louisiana ( River Parishes Transit Authority) in February, 2009, as well as how that may further influence regional coordination.
The findings of this multifaceted study should provide valuable information on a transit service contracting approach new to the U. S.— delegated management. This study also identified a coherent set of indices with which to evaluate the regional coordination of transit service, the present status of coordination among U. S. transit agencies, and barriers that need to be resolved for regional transit coordination to be successful. Mineta Transportation Institute
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INTRODUCTION
Public transportation is a vital service aimed at accommodating the travel needs of those without easy access to private automobiles, and at maintaining the quality of life in most United States urban areas. Households with annual incomes of less than $ 20,000 are at least five times more likely to be carless and three times more likely to take their trips by public transportation than higher- income households ( Pucher and Renne 2001). For local public officials, few services are as fiscally challenging to provide as public transportation, especially in the face of both declining state and federal aid. One of the most important, and certainly the most hotly debated, strategies for cost- effective provision of transit service is privatization. In the early 1980s, facing limited funding for transit service, continuous demand from transit dependents, and political circumstances leading to transit budget cuts, some state and local transit agencies began to contract out their services in order to increase productivity and cost efficiency. Other countries, such as the United Kingdom, Chile and Sri Lanka, experimented with the privatization of transit in the 1970s and 1980s. In most cities, this often entailed the breakup of state- run companies and the sale of entire fleets to the private sector.
U. S. public transit agencies spend a significant amount of public funding to purchase transit service from private firms or other public agencies. In 2008, 37 percent of U. S. transit agencies that provided fixed- route bus transit services contracted out at least some of their service ( Figure 2).
Figure 2. Proportion of Agencies Operating on Different Levels of Contracted Bus Service by Year ( 1992– 2008)
Source: The authors’ calculation based on National Transit Database ( Federal Transit Administration 2010)
Note: Dollar amounts are adjusted to 2008 dollars using U. S. consumer price indices available on the website of the U. S. Department of Labor Statistics: http:// www. bls. gov/ cpi/.
Analysis of data from the National Transit Database ( NTD) shows the total amount spent on contracted fixed route transit reached $ 3.1 billion in 2008 ( or 10.1 percent of total operating Mineta Transportation Institute
Introduction
10
expenses of $ 30.7 billion). Focusing on fixed- route bus service, the total amount spent on contracted service in the United States reached $ 2.0 billion ( or 11.1 percent of total operating expenses for bus service) in 2008 ( Figure 3). Over the 16 year period from 1992 to 2008, total bus mode expenses for contracted bus service increased by 104 percent, from $ 914 million ( 2008 dollars) in 1992 ( Federal Transit Administration 2010). The total amount spent on contracted bus service over the same period reached approximately $ 20 billion ( 2006 dollars) ( American Public Transportation Association 2009). Thus, contracted service makes up a significant portion of all transit provided and funding spent in the United States, and plays an important role in providing mobility to the American public.
Figure 3. Total Modal Expense for Contracted Bus Service by Year ( 1992– 2008)
Source: The authors’ calculation based on National Transit Database ( Federal Transit Administration 2010)
Note: Dollar amounts are adjusted to 2008 dollars using U. S. consumer price indices available on the website of the U. S. Department of Labor Statistics: http:// www. bls. gov/ cpi/.
Despite its importance, the literature on the effects of contracting on the quality and productivity of transit service has been limited in the United States. Most research on U. S. transit contracting is still inconclusive, due to problems with the nature and methodology of those studies over the past decade. In the 1980s and early 1990s, most U. S. studies focused on examinations of cost savings resulting from contracted service, but there are only a limited number of studies that have examined the level of contracting practice for providing fixed- route service ( Halvorson and Wilson 1996; Teal 1985). These studies collectively show savings estimates on the order of ten to forty percent per unit of contracted service ( e. g., per vehicle mile, per vehicle hour), in comparison to in- house ( or directly provided) service. 1 Among U. S. studies, only three cases— the Denver case reported by Sclar ( 1997), the Westchester County case described by Teal ( 1991a), and
a cross- sectional study by McCullough, Taylor, and Wachs ( 1998)— show private service
costs higher than public service costs.
1 For example, Peskin, Mundle, and Varma ( 1993); Karlaftis, Wasson, and Steadham ( 1997); Teal ( Evans 1988; Teal 1991b); and Nicosia ( 2002). For a more comprehensive review of these studies, see Iseki ( 2004). Mineta Transportation Institute
Introduction 11
At the same time, continuous suburbanization and subsequent declines in population, employment, and business in inner cities of the United States have resulted in significant losses to their tax bases while suburban city tax bases remain steady or even grow, limiting inner cities’ ability to adequately fund public transit services. As a result, more transit dependents ( whose mobility depends on public transit due to limited access to private automobiles) remain in inner cities, creating a situation that makes regional coordination of transit service even more difficult for a number of reasons. First, the distribution of transit service is largely driven by the motive of ensuring geographic equity— i. e. allocating transit services based on a jurisdiction’s contribution to transit funds for the region. This poses a challenge because while affluent suburbs may contribute more to public transportation services, residents of these suburbs do not ride transit as much as those who live in inner cities, where transit is more cost- effective due to high densities and concentrated activities. The allocation of transit funds to these suburban areas, therefore, reduces the overall cost effectiveness of transit for the region. Second, individual transit agencies focus on services within their own jurisdictions, and do not effectively address the needs of transit users who travel across different systems. Third, making general service improvements, conducting marketing, providing customer service, and adopting new technologies ( such as smart cards, automated vehicle location systems, or next vehicle arrival notification systems) is also difficult, because individual agencies have different levels of needs and priorities in their use of funding ( Yoh, Iseki, and Taylor 2008). Thus, political and administrative issues among public transit agencies often make regional coordination very difficult to achieve, posing significant challenges to agencies charged with improving transportation for transit dependents.
During the economic downturn, local governments in the Greater New Orleans region have continued to struggle to provide public services. For example, the provision of public transportation has been particularly difficult in the city of New Orleans, which initially lost more than half its population and 236 public transit vehicles ( 205 buses and 31 streetcars) after the Hurricane Katrina disaster in 2005. For low- income New Orleanians who do not have access to private automobiles, public transit service affects the quality of their lives— commuting, going to school, taking care of private business, and having social lives. With the recent trend of state and federal governments being hesitant to increase financial assistance for local public transit services, local officials and transit planners must seek a variety of ways to increase efficiency and effectiveness in the provision of public transit services. Under these circumstances, and as transit privatization strategies continue to be employed around the world, the two primary transit agencies in the New Orleans region have separately contracted transit services from one multinational private firm.
This study examines the efficiency and effectiveness of providing regional transit service through privatization as a strategy to improve the quality of transit service and achieve financial resiliency for regional transit systems. In particular, the study addresses the following two sets of questions in this study. The first set of questions evaluates the effects of transit service privatization by measuring changes in service improvements, cost efficiency, and cost- effectiveness of service provision in two individual transit systems. While Jefferson Parish uses the transit service contracting approach most prevalent in the Mineta Transportation Institute
12 Introduction
U. S., 2 that is, contracting out operation, management, and/ or maintenance, New Orleans Regional Transit Authority ( RTA) now outsources a variety of functions and responsibilities to a contractor at a level unprecedented in the U. S. 3 These two transit systems are compared for various performance indicators.
The second set of questions examines whether or not one private firm that serves two areas under separate contracts can increase regional coordination for both. The current situation in the Greater New Orleans region presents a unique case in which one private firm has contracted with two districts— Orleans Parish and Jefferson Parish— in separate contracts for different functions of providing transit service. In this situation, this study examines the level of regional coordination in the Greater New Orleans region relative to other regions in the U. S., based on data collected through questionnaires and interviews conducted with local public agencies, as well as a nationwide online survey.
The following chapters will review existing literature on the topics of transit contracting and regional coordination, and develop a set of indices with which to measure regional coordination from the literature. The study will describe the transit systems in Orleans and Jefferson Parishes and the contexts within which they operate, and then will present and analyze findings from the surveys and data collection undertaken for this report, and finally, presents its concluding remarks and recommendations.
2 Contracting allows public agencies to maintain control of the policy decisions about service quality and quantity, such as service coverage, operating hours, and headways, while outsourcing operation and/ or maintenance.
3 According to Veolia, the only comparable model in the U. S. is its own management of Foothill Transit in Greater Los Angeles. Veolia manages the administrative, financial and planning functions for Foothill, but actual operations of buses and paratransit are contracted to two other firms ( Veolia Transportation 2009). Mineta Transportation Institute
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REVIEW OF THE LITERATURE
The transit contracting literature addresses various issues ranging from different forms of competition and ownership issues to economic issues; from labor issues to passengers’ experience ( Thredbo 2010). Although the fundamental objective of transit service contracting is to increase cost efficiency and cost effectiveness in providing transit service, public transit agencies may take different strategies to achieve these goals, balancing them with other policy priorities ( e. g., improving service quality, reducing emissions, alleviating congestion).
In general, public transit agencies in the U. S. have followed more conservative strategies within the spectrum of transit service contracting than their counterparts in other developed countries, including the U. K., the Netherlands, and Australia, generally outsourcing only their operation and maintenance functions. As a result, research on this subject is more advanced outside the U. S., and therefore more literature is available from these and other experienced countries. At the same time, because many different factors influence a transit agency’s decision whether or not to outsource public transit service, it is not easy to compare cases in the U. S. to those in other countries. The transfer of ideas to the U. S. must be done with great caution, as each country is very different.
Proponents of contracting tout its potential to reduce the cost of transit service provision through greater flexibility for contractors. They argue that contracting can reduce the inefficiencies associated with providing peak service, relax labor rules, and reduce overtime payrolls ( Cervero 1988; Morlok and Viton 1985; O'Looney 1992; Tomazinis and Takyi 1989), thereby freeing up public funds for other uses. At the same time, economists point out that the promise of contracting will only be fulfilled in the presence of competitive bidding, well- designed contracts, effective oversight, and competitive rebidding of contracts ( Black 1991; O'Looney 1998; Savage 1986; Sclar 1997). Complicating matters are the many political, fiscal, institutional, and transit system factors that affect contracting decisions ( Berechman 1993).
Whether or not contracting is more cost effective than the public provision of transit is an empirical question. The specific provisions of the contract and the manner in which it is awarded ( through a competitive bidding process or through straight negotiation) can influence the cost effectiveness of transit services. Competitive bidding normally allows the regulator to more carefully stipulate the necessary conditions over the life of the contract, ensuring greater accountability, while negotiation can permit experienced private operators to bring their knowledge to bear in the design of a complex contract. Similarly, some publicly- provided services with lackluster performance have been restructured to make them more cost effective than before when the potential of future competition from private contractors has been introduced ( McCullough, Taylor, and Wachs 1998; Wallis 2003).
TYPES OF TRANSIT SERVICE CONTRACTING
Many of the current arguments in favor of public transit deregulation and privatization around the world can be traced back to a series of studies and policies in the 1980s in the U. K.; 4 particularly the U. K. Transport Act of 1985, which virtually deregulated bus transportation,
4 Appendix A describes the history of privatization of public transit service in the U. K. in more detail. Mineta Transportation Institute
Review of the Literature
14
leading to the deregulation and privatization of bus transit service in the U. K. The privatization of transit services in the U. K. presented two distinct approaches— deregulation and tendering, and was characterized by three factors: ( 1) ownership of transit service, ( 2) control over policy issues, and ( 3) geographic area and/ or system size of operations to be privatized or tendered. The following discussion will focus more on transit service contracting/ tendering/ outsourcing than on deregulation, because it is more relevant to most U. S. urban settings, where public agencies have theoretically kept control over policy issues and where transit has been maintained as a social service for those that have limited access to a private car for either financial or physical reasons. In particular, this study will review the nature of contracts and payment schemes because of their crucial roles in determining the outcomes of service contracting. Past research has examined the types of transit privatization that will likely facilitate the best outcomes in terms of cost savings and service quality, focusing on types of compensation and processes for selecting contractors ( Gagnepain and Ivaldi 2002; Hensher and Stanley 2003, 2008; Hensher and Wallis 2005). Indeed, many factors associated with transit privatization influence the quality of a private operator’s performance ( Hensher and Stanley 2008), including the degree of government regulation and the size of the transit market.
Cost- Plus and Fixed- Price Contracts
Much of the literature associated with public service contracting, or tendering, focuses on two types of contracting: ( 1) cost- plus, and ( 2) fixed- price contracts, although in practice the distinction is sometimes blurred in cases where incentives or penalties related to specific performance goals are included, or where provisions for renegotiation exist to accommodate for future uncertainties ( Cox and Love 1991; Gagnepain and Ivaldi 2002; Laffont and Tirole 1993; Piacenza 2006; Roy and Yvrande- Billon 2007). Laffont and Tirole ( 1993) place public service procurement contracts along a spectrum between cost- plus and fixed- price. They define cost- plus contracts as one in which the government pays its contractor all its realized costs, plus a fee independent of the contractor’s actual performance. In a fixed- price contract, on the other hand, the contractor’s compensation from the government remains the same regardless of either performance or exogenous changes in costs. Each model has potential strengths and weaknesses. Fixed- price contracts are generally held to incentivize cost efficiency and cost reduction than cost- plus contracts, but cost- plus contracts permit more flexibility with lower transaction costs in the provision of goods or services that are very complex or subject to many uncertainties ( e. g., involving a high degree of technological innovation, or long- term contracts where future circumstances are difficult to predict), and may inhibit a contractor’s incentive to sacrifice quality to cut costs ( Bajari, McMillan, and Tadelis 2002; Laffont and Tirole 1993).
Gagnepain and Ivaldi ( 2002) examine cost- plus and fixed- price contracts and their use in French public transit systems to determine which is more likely to encourage increased
Mineta Transportation Institute
Review of the Literature 15
firm performance. 5 The authors found in their analysis that cost- plus contracts offered very little incentive for operators to improve efficiency because the regulator pays the firms ex post costs. This ex post payment, in conjunction with an assumed lack of complete information on the part of regulators concerning the operator’s efficiency practices, creates a situation in which operators have limited concern for efficiency because they will be reimbursed even if expenditures increase. Although fixed- price contracts outperformed cost- plus schemes in their analysis even when regulators’ information was limited, optimal welfare was higher in networks with better- informed regulators.
Roy and Yvrande- Billon ( 2007), who also analyzed French transit systems on the basis of technical efficiency, distinguished between three general types of contracts: ( 1) management, essentially a cost- plus contract in which the contractor receives a fixed management fee, but the public agency bears the service provision costs; ( 2) gross- cost, a type of fixed- price contract in which the contractor bears the production- cost risk but fare revenue is accrued to the public agency; and ( 3) net- cost, another variety of fixed- price contracts in which the contractor’s subsidy is based on both its projected costs and projected fare revenues, exposing the contractor to revenue risk. The authors find that operators under both types of fixed- price contract were more technically efficient during the period studied, and that gross- cost contracts had the higher efficiency scores than net- cost. The differences between all types of contracts were statistically significant but slight, however, suggesting that technical inefficiency is not the primary cause of burgeoning transit costs in France.
Examining Italian transit systems using cost- plus or fixed- price contracts ( both gross- and net- cost), Piacencza ( 2006) also finds beneficial results for fixed- price contracts, exhibiting lower cost distortion than systems employing cost- plus contracts. Traffic conditions, however, also had a substantial effect on overall efficiency, limiting the gains that can be expected from fixed- price contracts without addressing traffic regulation policy in highly congested networks. Drawing upon experience they have had with contract design in Detroit, Los Angeles, St. Louis and various other cities, Cox and Love ( 1991) also found that fixed price contracts generally yielded lower costs for the transit authority while cost- plus contracts tend to favor the firm vying for the contract.
Performance- Based Contracts
Regarding transit service privatization, Hensher and his colleagues have conducted an examination of the type of contract that is best suited to include both performance indicators and incentives ( Hensher and Prioni 2002; Hensher and Stanley 2008; Hensher and Wallis 2005). Their studies go beyond incentives that focus on cost efficiency, and examine how regulators can add a dimension of service quality within contracts that addresses policy
5 Their study is based on three primary assumptions. First, the authors assume that transit service is regulated by a local authority ( regulator), and that a single, private firm ( operator) is responsible for operation, unlike completely deregulated regimes, or regimes with multiple operators. Second, it is assumed that information asymmetries exist between the regulator and operator, because operators have much more knowledge of factors in service operation: for instance, the number of buses required to operate a specific network and their associated costs; fuel consumption levels, which are highly dependent on drivers’ skills; and the increased costs of operating during periods of heavy traffic congestion ( Gagnepain and Ivaldi 2002). Mineta Transportation Institute
16 Review of the Literature
goals for transit that may improve social welfare, but not necessarily be profitable enough for operators to pursue without additional subsidy ( e. g., attracting new passengers, maintaining low fares, school service, increasing service frequency overall and during peak hours for passenger comfort).
Commonly referred to as performance- based, this type of contract includes not only a payment for delivering a minimum level of service, but also an incentive structure for rewarding operators for increases in the quality of service that meet the transit agency’s policy goals. A critical feature of performance- based contracts, whether they are competitively tendered or negotiated, is that payments above the level specified for the operator’s minimum obligations are based on the social or environmental benefits that the regulating agency hopes to realize, rather than primarily on commercial considerations. Another key feature is that operators typically have more knowledge of customers’ wants and needs than regulators do, and thus, should have tactical freedom to design routes and schedules that meet the requirements that regulators establish as a framework ( Hensher and Stanley 2003). Designing subsidy- based incentives that give operators sufficient motivation to pursue otherwise unprofitable social goals ( in a cost effective manner), requires a high degree of cooperation between operators and authorities ( Carlquist 2001; Hensher and Stanley 2003).
An example of a performance- based contract is that of Hordaland, Norway, which became the first county in Norway to fully implement this type of contract. 6 Hordaland county, home of Norway’s second- largest city, Bergen, entered into “ quality contracts,” or performance- based contracts, with its three operators in 2000, replacing net- cost contracts ( Carlquist 2001). Initial reform proposals called for introducing competitive tendering, but instead, Hordaland officials chose to try negotiating performance- based contracts, with the threat of switching to tendering if operators failed to meet expectations.
Increasing the number of revenue kilometers provided was seen as the most important service improvement from the passengers’ point of view, but it was recognized that operators faced marginal costs and benefits under different circumstances. In order to remunerate operators in ways that would encourage them to provide socially- optimal levels of service at all times of day and in all places without changing passengers’ fares, Hordaland used modeling schemes that took into account not only the different marginal costs of adding service for peak or off- peak periods and in areas of different density, but also considered social benefits from attracting private automobile drivers to transit during heavily congested periods, and the higher proportions of seasonal pass holders and school children eligible for free fares in more rural areas ( Larsen 2001). Passengers’ overall perceptions of service are also accounted for in the contracts, with bonuses and penalties based on customer satisfaction surveys ( Carlquist 2001). Reviewing the implementation of performance- based contracts in the year after its inception, Carlquist ( 2001) found that customer satisfaction surveys provided positive results, despite negative media coverage in 2000. Although actual use of some of the incentives had diverged somewhat from the original recommendations, operators were free to make changes as long as they did not reduce total network kilometers.
6 Oslo had previously implemented a more limited form of performance- based contract ( Carlquist 2001). Mineta Transportation Institute
Review of the Literature 17
Process of Selecting Contractors, Increased Costs Associated with Re- bidding Process, and Communication in Complex Contracting
Performance- based contracting has emerged as an alternative to conventional tendering, 7 in response to some of the drawbacks associated with tendering ( Hensher and Stanley 2003; Mathisen and Solvoll 2008). As privatization of formerly publicly owned and operated bus service has proceeded, in regimes that have chosen to contract service areas rather than fully liberalize their transit markets— i. e. those that introduce competition for a transit market rather than within a transit market ( Karlaftis 2006)— the question of how contracts are awarded has increasingly been a topic of debate, alongside the question of what implications the type of contract has on cost and quality of service.
Competitive tendering has been the primary tool for public agencies seeking to award an exclusive right to allow an operator to service a specific area, encouraging the efficiency gains associated with competition ex ante, while still maintaining some degree of public control over the kind of service to be provided ( Yvrande- Billon 2006). In practice, however, there are challenges to designing and implementing tendering processes that yield the desired service quality and efficiency gains ( Yvrande- Billon 2006). Negotiated contracts, which have been used more frequently in public- private partnerships for infrastructure provision, are an alternative to tendering ( Hensher and Wallis 2005).
In a study of public transit in 13 European nations, the MARETOPE project found that cities that competitively tendered transit service had the largest positive increases in overall efficiency ( MARETOPE 2003). Cost reductions of as much as 20 to 30 percent or higher have been achieved where tendering has been introduced. However, the largest reductions are typically found in the first round of tendering, and the price increase of tendering became a serious concern among transit agencies in Europe between 1983 and 2001. In some cases, this may be partly due to the “ winner’s curse” phenomenon ( Hensher and Wallis 2005). “ Winner’s curse” refers to the likelihood that in auctions where incomplete information is a hazard faced by bidders, the winning bidder will be the one who has overestimated the value of the item being auctioned by the most, or in the case of transit, has underestimated the costs of providing the service. In other cases, this is because of declining numbers of bids per contract and increasing public subsidies ( Hensher and Hauge 2001). This is especially true in cases where contracts must be re- bid due to underperformance of the first round operator. Not only does this increase costs by requiring another bidding round, but the number of bidders in the second round tends to be less, as contracts are usually too big and the pool of potential bidders too small ( Hensher and Wallis 2005).
Another cause of concern in competitively tendered auctions is the lack of regulator/ operator communication in devising contracts. Bajari, McMillian and Tadelis ( 2002) found in their study on private sector building contracts awarded in Northern California that tendering/ bidding mechanisms perform poorly when projects are complex, and stifle the
7 Performance- based contracts can be wholly negotiated or tendered. Conventional tendering’s tendency to be focused entirely on the lowest- price bid limits the action of market- based competition to the ex ante contracting stage, whereas performance- based contracts ( ideally) build in market- like mechanisms throughout the contract period ( Hensher and Wallis 2005). Mineta Transportation Institute
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communication between buyers ( regulators) and sellers ( operators), making it nearly impossible for the buyers to utilize the expertise of the sellers in creating the contract.
The complexities of competitive tendering have been a reoccurring topic of discussion in the Thredbo conference series. 8 Conclusions drawn from discussions conducted in conferences outline five steps that must be dealt with in the implementation of competitive tendering: ( 1) stimulating competition, ( 2) making clear what you want, ( 3) getting what you want, ( 4) getting what you paid for, and ( 5) next time around ( Hensher and Hauge 2001). These may seem simplistic but the complexity of tendering leaves some wondering whether public agencies that are new to competition for service operation should consider utilizing a different method of contracting. This has led to questions of whether or not there are viable alternatives to competitive tendering ( Hensher and Hauge 2001).
Negotiated Contracts
The widely discussed alternative to competitive tendering is the strict negotiation of contracts without a prior bidding process. Whereas competitive tendering requires the regulator to accept the lowest bid for a predetermined contract, negotiation requires the regulator to work directly with the operator in determining price and performance goals for the contract. In theory, the negotiation of contracts that have not been put out to bid can alleviate some of the financial costs of competitive tendering while opening up a dialogue between the regulator and potential operator. Using negotiation, the value of the service is created based on the combined knowledge and expertise of both the operator and regulator, whereas competitive tendering determines the value of the service based on bid prices received ( Hensher and Stanley 2008). It is important to note, however, that while some negotiation of contracts follows the competitive tendering process, its purpose is to agree on the final details of a bid, in contrast to negotiations where no prior bidding process has been undertaken.
While negotiation permits more flexibility in the design of complex contracts, achieving cost reductions may be more difficult than in competitive tendering, particularly if the public agency has limited knowledge of the operator’s costs. 9 Competitive tendering can still be a tool used in negotiated contracts when operators are not conforming to the expectations laid out in the negotiated contract. In situations where the operator is continuously failing to meet standards, the regulator can use competitive tendering as a bargaining tactic to either induce performance, or to secure a different operator in cases where underperformance continues.
8 Thredbo is the Australian city where the first Competition and Ownership in Land Passenger Transport Conference was held in 1989. The series of biennial conferences that followed have been held in cities around the world, and is still known as the Thredbo Series ( Thredbo 2010).
9 One method to introduce an element of competition in pricing without auctioning the route or network is “ yardstick” competition. Yardstick or benchmarking methods introduce surrogate competition by comparing multiple similar firms’ prices, and basing all firms’ reimbursements on the best benchmark. A firm that reduces its costs more than the firms it is compared to profits, whereas a firm that fails to reduce its costs while other firms do will lose ( Schleifer 1985). In the early 1990s, the yardstick model became the most popular form of contract for bus transit in Norway, replacing lower- powered individual negotiations with each firm. More recently, however, many Norwegian counties have been switching to contracts based on subsidy caps or tendering ( Dalen and Gómez- Lobo 2003). Mineta Transportation Institute
Review of the Literature 19
EVALUATION OF THE EFFECTS OF CONTRACTING IN PAST STUDIES
Transit Service Privatization in the U. K.
Although there is some disagreement regarding the ultimate outcomes of deregulation within the U. K., many experts and academics believe that tendering- schemes in London have been more successful in gaining ridership and increasing productivity than have deregulated systems in other areas of the country ( Karlaftis 2006; White 1990, 1997).
White ( 1997) found that ridership fell throughout the deregulated areas as much as 35.6 percent in the metropolitan areas and increased by 1.3 percent in London. In terms of productivity, White found an increase in productivity of 11 percent and a 23.6 percent decrease in total operating costs in the metropolitan areas ( outside of London), along with a 16.2 percent decline in ridership between 1985 and 1989. In contrast, in London, passenger trips and productivity increased by 5.6 percent and 4.4 percent respectively, while total operating costs declined by 10.5 percent ( Karlaftis 2006). Similarly, Banister and Pickup observed a 10.2 percent increase in ridership in London during the two- year period following deregulation ( Karlaftis 2006). Other studies on the tendering experiences in London report reduction in cost per vehicle kilometer by 35 percent ( Department of Transport 1984, 1994; Mackie, Preston, and Nash 1995; White 1995) and by 14 percent from 1985/ 86 to 1988/ 89 without including depreciation of vehicles ( Glaister 1997). Including depreciation of vehicles, operating costs per vehicle kilometer declined by 41.2 percent between 1985/ 86 to 2002/ 03 ( U. K. Commission for Integrated Transport 2004). These figures remain inconsistent because of different methods employed to gauge specific attributes and to control for external factors that can influence variables, such as population and economic growth, and lack of accurate reporting methods ( Colin Buchanan and Partners 2003). In addition, another problem with evaluating the London case is the difficulty of dealing with the highly aggregate data, a change of regulation, and contract terms over time ( Toner 2001), while Glaister ( 1997) states that tendering cut down overhead costs in management, engineering, and staff facilities.
While the studies by White and by Banister and Pickup were undertaken within the first ten years following the Transport Act of 1985, more comprehensive studies have been conducted in recent years to better understand trends and the effects the Act has had on bus operations in the long run. Colin Buchanan and Partners ( CBP), which was commissioned by the European Commission Directorate- General of Transport and Energy, examined the effects of deregulation and transit contracting on the overall health of the transportation system. 10 CBP collected data for 43 European Union cities including 29 with no competition, ten with controlled competition and four with deregulated competition which had a minimum of five consecutive years of data available. The most recent years used in this study ranged from 1995 to 1999, depending on the age of the system and how well information was reported. In their analysis, CBP found that cities without competition experienced, on the average, an annual decline in ridership of 0.2 percent, and an annual increase of 1.7 percent in areas of controlled competition areas, and an annual drop of 2.6 percent in service areas that were fully deregulated ( Buchanan and Partners 2003). CBP
10 The EC had previously collected some data to examine this issue and hired CBP as consultants to ensure that their methods of evaluation and conclusions would be consistent with that of the CBP. Mineta Transportation Institute
20 Review of the Literature
does point out that there are a variety of factors that cannot be accounted for in their study that have the potential to influence the outcome, such as issues the following: size, the phase of deregulation a particular area is in, and general geographical and demographic characteristics. These factors exert influence on travel and ridership patterns ( Colin Buchanan and Partners 2003).
Transit Service Privatization in Other International Cases
Despite initial skepticism in other European countries about introducing competition into transit, tendering made inroads in the following years, and by 2000, the European Council was officially encouraging its member states to speed up liberalization of their transit systems ( Regulation ( EC) No 1370/ 2007 2007; van de Velde 2001). In 2007, European Union Regulation 1370/ 2007 updated the legal framework for the awarding of transit contracts and compensation for public services, acknowledging the growth of an EU- wide transit market subject to the Treaty’s protection of economic freedoms. The regulation advocates regulated competition— with safeguards11— as means to achieving “ more attractive and innovative services at lower cost,” based on studies and experiences of member states that had already implemented competition in transit ( Regulation [ EC] No 1370/ 2007 2007, p. L 315/ 2). Gwilliam and van de Velde ( 1990) summarize the status and nature of several Western European countries’ transit policies and markets in the late 1980s, as the immediate impact of the U. K.’ s reforms were being observed, and van de Velde ( 2001) revisits those countries a decade later, as the EU considered amendments to its regulation of payment of transit operators in light of the ongoing market changes.
There exists a great deal of variation in the amount of experience in public service privatization throughout the world, with each country exhibiting a unique set of transit policies, regulations, transit and labor markets, operation and management, operating environments, and overall travel behaviors. As a result, each country exhibits somewhat a somewhat different experience in the area of transit service privatization. There is a mixture of successes and failures. The Netherlands, Scandinavian countries, Poland, and Australia have seen more favorable results, while France and Italy have had more disappointing outcomes.
Causes of failures in competitive tendering include: ( 1) lack of competition in French cities, keeping incumbent providers in place with little incentive to improve of cost savings; ( 2) inability to reduce high labor costs due to a contract clause that require transit providers to retain existing employees in Italy; ( 3) no clear service specifications in France and Italy, giving advantages to incumbents; and ( 4) monitoring and quality control problems in the Netherlands. Individual experiences in France, Italy, the Netherlands, Scandinavian countries, Germany, Central European countries, Australia, South American countries, and South Africa are reviewed in more detail in Appendix B.
11 While the EU found sufficient positive results of competition in its studies to make it the officially preferred policy for transit provision, the emphasis on safeguards is warranted, as not all European cases have been equally successful at achieving both cost savings and public policy goals. Mineta Transportation Institute
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Transit Service Contracting in the U. S.
In comparison to the U. K., other European countries, and Australia, the U. S. has been relatively more conservative in terms of forms and levels of public transportation privatization even after the Reagan administration promoted privatization of public services in the 1980s. Most public agencies in the U. S., if they engage in any outsourcing at all, tend to outsource operation, maintenance, and occasionally planning funding to the private sector, 12 but keep control over policies issues, such as fare structure, route design, and operation hours. This may be a reflection of the fact that public transit business in most urban areas will not yield profits and requires public subsidies from the governments regardless of whether transit service is provided by the public or private sector. This status of provision of transit service also influences the number of studies conducted on this subject in the U. S.
Because of the heightened interests in fixed- route bus service privatization in the 1980s and continued interest in the 1990s, a number of studies were conducted to examine cost savings and cost efficiency gains expected from service contracting. 13 The first group of studies examined costs to provide transit service before- and- after contracting, and most them reported cost savings and/ or cost efficiency gains in contracted services. A study of fixed- route bus services in Denver by Peskin, Mundle, and Varma ( 1993) showed one- year cost savings of $ 2.5 million ( or 12.5 percent), based on an incremental cost analysis, and $ 5.1 million ( or 25.8 percent) based on a fully allocated cost analysis. A fully allocated cost analysis by Denver RTD Public Financial Management ( 2001) reported savings of $ 40.1 million dollars ( or 31 percent) or more over nine years. Three studies on contracted service in the Foothill Transit system, which were commissioned by Los Angeles County Transportation Commission and conducted by Ernst and Young ( Ernst and Young 1991, 1992, 1993), showed a 43 percent cost savings. Teal ( 1985) and Teal and Nemer ( 1986) found significant cost savings at the level of, on average, 39 percent for six fixed- route services and 43 percent for six commuter bus services. While most studies examined cost savings and/ or cost efficiency for the service contracted, Karlaftis, Wasson, and Steadham ( 1997) analyzed cost efficiency for transit systems. They analyzed monthly data from an approximately six- year period, and found that cost efficiency increased by 22 percent ( or an 18 percent reduction in cost per vehicle mile) after all transit service routes in the Indianapolis transit system were contracted out to a private firm.
The second group of studies conducted a cross- sectional comparison of the costs of services provided by the public sector and by the private sector, either by system or by line. Morlock and Viton ( 1985) found higher cost efficiency— in terms of average costs per vehicle mile— was consistently higher in privately provided services by a margin of 40 percent to 50 percent than publicly provided services in three U. S. cities. Downs ( 1988) found that the six private companies as a group were more cost efficient and cost effective in providing local bus service than the New York City Transit Authority. Webster’s case study of Dallas Area Rapid Transit ( DART) ( 1988) also reported costs per vehicle mile for contracted suburban express and local services that were lower by about 40 percent than in- house services.
12 On average, in the U. S. the farebox recovery ratio is less than 30 percent.
13 Iseki ( 2004) provides a more comprehensive review of these studies. Mineta Transportation Institute
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Employing a simultaneous equations model in an analysis of panel data of more than 300 U. S. transit agencies from 1994 to 1998 to addresses the endogeneity problem between
contracting decision and cost efficiency, Nicosia ( 2002) developed a transit cost model to
predict the potential minimum cost to produce specified outputs, given input prices as well as other influential factors. 14 Nicosia found cost savings of 14 percent of operating costs, or approximately $ 3.7 million ( in average dollar over the six- year period from 1993 to 1998), for the average public transit agency in her analysis.
Iseki ( 2010) analyzed a cross- sectional time- series data of more than 400 agencies constructed from the National Transit Database from 1992 to 2000, using a simultaneous equations model with a clear distinction between agencies that contract out only a portion of service from those that contract out all service and taking into account the moderating effects of several factors on the effect of contracting on cost efficiency. Iseki found relatively small cost efficiency gains in the average cases— 7.8 percent and 5.5 percent for partial and full contracting agencies respectively. Iseki’s analysis also shows the effects of contracting on cost efficiency vary by factors such as peak- to- base ratio, agency size, the wage gap between bus operators in the public and private sectors, and agency.
Only a handful of studies reported negative economic effects of contracting services in the U. S. cases. In contrast to the findings of Peskin, Mundle and Varma ( 1993) and Denver RTD Public Financial Management ( 2001), Sclar ( 1997) argues that the Denver RTD actually lost $ 9.2 million ( in 1990– 1995 dollars) in contracting over six years. And in contrast to the findings of Ernst and Young ( 1991; 1992; 1993), Coopers and Lybrand ( 1991) reports that the net marginal cost per revenue hour of in- house services was equivalent to that of services procured from a private firm in the Foothill Transit District. In a study of multiple contracting cases in the U. S., Teal ( 1991a) cited Phoenix Transit and Westchester County studies that increased costs. McCullough, Taylor, and Wachs ( 1998) reported that operating cost per revenue vehicle hour in the system level is much higher in an absolute term for agencies that contracted some portion of their service than for those that contracted all or none of their service, using cross- sectional data from the National Transit Database ( NTD) over a 5- year period, from 1989 to 1993. Examining the rate of cost increase over the study period, they also found that unit costs increased below inflation for all three groups, but least for those agencies with partially contracted service.
In addition to cost savings concerns, the effects of contracting on workers’ wages and benefits and quality of service in terms of vehicle maintenance and collision rates have been a point of apprehension. Kim ( 2005) conducted the first comprehensive study of the effect that contracting out operations has on workers’ wage and benefit packages by examining twelve U. S. transit operators from 1995 to 2001, finding that overall, private operators were paid less than the rate in which comparable public employees were paid ( Frick, Taylor, and Wachs 2006; Kim 2005). In her regression analysis of the NTD for 320
14 Nicosia’s transit cost model is a fundamentally different approach from other studies. It has a solid theoretical basis of the functional form based on the duality theory that allows an analysis of production and cost functions at the same time ( Obeng 1985). Refer details of transit cost models to the studies such as Foster ( 1974), Williams ( 1979), Viton ( 1981), Friedlaender et al. ( 1993), Braeutigam ( 1999), and Nicosia ( 2002). Mineta Transportation Institute
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agencies, Nicosia ( 2002) found that contracted service providers had 70 percent more vehicle collisions and 36 percent more vehicle breakdowns than transit systems that were publicly operated ( Frick, Taylor, and Wachs 2006). In these cases, it is likely that cost savings were realized at the expense of workers and quality of service provided and not necessarily from increases in efficiency.
Collectively, most studies of transit contracting in the U. S. have reported on the varying level of positive economic outcomes in terms of cost savings or cost efficiency ( i. e., cost per unit of service output— cost per vehicle mile and cost per vehicle hour). At the same time, several studies reported adverse impacts of contracting on the costs, labor conditions, and quality of service.
In contrast to this dominant group of quantitative studies, qualitative studies on the subject discuss the higher complexity of decision making for contracting and of its outcomes. These qualitative studies argue that agencies are influenced by political, social, and institutional forces, and by levels of knowledge and experience regarding contracting, as well as by economic incentives ( Iseki 2008; Richmond 2001; Sclar 2000).
While research has been done on public decision making regarding whether or not to privatize transit service as well as other public services ( Lopez- de- Silanes, Shleifer, and Vishny 1997), there has not been any research on how such privatization of transit service may affect the quality of transit service in a regional level. This is not a big surprise for two reasons. First, as a contract is made between each public agency and a contractor for a service provision within each system, the success of contracting is often measured also within each system. In addition, regional transit coordination is usually considered responsibility of public agencies, often in conjunction with regional authorities or entities. Nevertheless, contractors may have an important role to increase effectiveness of regional coordination with its role to determine service scheduling and distribute service information. Furthermore, as a private contractor increases its role in other functions, such as planning and capital acquisition, it is likely that their influence on the quality of regional coordination also increases.
The next section will discuss transit service regional coordination in depth based on the literature review. However, it should be noted that it does not include discussion of private contractors’ role in regional coordination as no studies on the roles, behaviors, and attitudes of contractors toward transit service coordination could be located.
While research has been done on public decision- making regarding whether or not to privatize transit service as well as other public services ( Lopez- de- Silanes, Shleifer, and Vishny 1997), there has not been any research on how such privatization of transit service may affect the quality of transit service in a regional level. This is not a big surprise for two reasons. First, as a contract is made between each public agency and a contractor for a service provision within each system, the success of contracting is often measured also within each system. In addition, regional transit coordination is usually considered responsibility of public agencies, often in conjunction with regional authorities or entities. Nevertheless, contractors may have an important role to increase effectiveness of regional coordination with its role to determine service scheduling and distribute service information. Mineta Transportation Institute
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Furthermore, as a private contractor increases its role in other functions, such as planning and capital acquisition, it is likely that their influence on the quality of regional coordination also increases.
The next section will discuss transit service regional coordination in depth based on the literature review. However, it should be noted that it does not include discussion of private contractors’ role in regional coordination as no studies on the roles, behaviors, and attitudes of contractors toward transit service coordination could be located.
REGIONAL COORDINATION OF TRANSIT SERVICE
As one of its components, this study examines the possibility that a private firm contracting with multiple public transit agencies within a region may improve regional coordination of transit service. This section discusses the different types of regional coordination and identifies the indicators that researchers have used to define and measure regional coordination.
Transit users often travel across political jurisdictions conducting economic and social activities in dispersed metropolitan and urban areas. Since many transit users have to travel across a region, the provision of transit service that accommodates people’s travel needs is inherently a regional issue. However, political, operational, organizational and financial barriers often pose challenges to coordinating transit services across jurisdictions within a region.
The importance of regional coordination and integration has been well recognized by researchers and practitioners ( Meyer et al. 2005; Miller et al. 2005; Pucher and Kurth 1989). According to NEA, an international research firm based in the Netherlands, regional coordination/ integration is defined as:
The organization process through which elements of the passenger transport system ( network and infrastructure, tariffs and ticketing, information and marketing etc) are, across modes and operators, brought into closer and more efficient interaction, resulting in an overall positive enhancement to the overall state and quality of services linked to the individual travel components. ( NEA Transport 2003, 17)
Regional coordination and integration are important in providing seamless travel to transit users using multiple transit systems to reach a destination ( Cook, Lawrie, and Henry 2003; Miller, Englisher, and Kaplan 2005; NEA Transport 2003; Pucher and Kurth 1989). Regional transit systems that are not well- coordinated can impose burdens on transit users, discourage transferring among multiple transit agencies, and decrease ridership ( Miller, Englisher, and Kaplan 2005). Some of the burdens that riders may face in an uncoordinated transit system are unpredictable travel times, long transfer times, lack of system wide information and increased fare payments ( Miller, Englisher, and Kaplan 2005). By coordinating services, some regions have been successful in reducing those burdens, and thereby increasing ridership and customer satisfaction ( Miller et al. 2005; Pucher and Kurth 1989). Several examples have been pointed out in the literature. Pucher Mineta Transportation Institute
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and Kurth ( 1989) found that regional integration has been an important factor leading to an increase in transit ridership in decentralizing cities in Germany. Miller, Englisher, and Kaplan ( 2005) conclude that integration has led to customer level of service improvements and ridership increases in the San Francisco Bay Area.
Despite its importance, relatively little research has been conducted on methods and criteria for measuring and evaluating regional coordination and integration using concrete indices and indicators. In contrast, many studies on the subject tend to broadly define regional coordination and integration, but do not offer any specific indicators to measure it.
While limited, scholarly articles and reports that provide specific indicators, as well as concepts, to measure regional coordination and integration, were carefully examined in order to identify a common set of indicators ( Tables 2, 3 and 4). Broadly speaking, among those actually measuring regional coordination and integration, scholarly journal articles often use indictors to analyze the success or failure of specific transportation systems, programs, or policies, while research reports prepared by transit agencies and consultants tend to use indicators as criteria to make recommendations for improving a specific transit system.
Tables 2, 3, and 4 illustrate the following three categories to organize indicators of regional coordination and integration:
1. Managerial/ Operational Coordination ( page 30),
2. Organizational/ Institutional Coordination ( page 32), and
3. Financial/ Institutional Coordination ( page 33).
There are similar typologies within each of these three categories that provide a better perspective on the concrete measures that can be taken by regional transit service administrators to achieve regional coordination. The following sections discuss each of the identified measures in relation to the three aforementioned categories of coordination.
Managerial/ Operational Coordination
The first category of indicators is managerial/ operational ( Table 2). These indicators directly influence the transit user’s experience in a transit system and their perceptions toward the quality of service of the system. Among the eight articles in Table 2, all except one ( Cook, Lawrie, and Henry 2003) discuss at least two indices in this operational/ managerial coordination category.
One of the most frequently mentioned types of operational integration in the literature is schedule ( or timetable) coordination. 15 Timetable coordination allows for the seamless transfer of transit passengers from one vehicle to another, from one mode to another, and from one transit system to another. By coordinating arrival and departure times, agencies
15 Several of the articles suggest the use of technology in coordinating schedules. Many transit operators have begun using GPS technology to coordinate schedules and provide better information to transit users on arrival or departure times of vehicles. These technologies such as the automatic vehicle location system can greatly enhance the ability of operators to better coordinate their own schedules and schedules of other operators by providing real- time information about vehicle locations. Mineta Transportation Institute
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can minimize waiting time for travelers at transfer points. This has a direct impact on transit riders’ experience by reducing waiting times, particularly out- of- vehicle time, which users usually perceive more onerous than in- vehicle time. Miller, Englisher, and Kaplan ( 2005) discuss one such example of successful schedule coordination in the San Francisco Bay Area that was done by coordinating schedules of two regional transit systems: Bay Area Rapid Transit ( BART) and Caltrain. After coordinating schedules, Caltrain experienced a 17 percent increase in ridership over four months.
Intermodal facility coordination is frequently mentioned as an important factor of regional coordination and integration ( NEA Transport 2003; Pucher and Kurth 1989; Transport for London 2001; Tyson 1990). Transport for London’s ( TfL) “ Best Practices Guidelines” provides the most extensive research on intermodal interchange facilities and discusses why this type of coordination is integral to transit planning. Well- coordinated intermodal interchange facilities can help reduce problems such as uncertainty about arrival times, lack of safety, or exposure to the elements by making transfers more convenient, comfortable, secure, and predictable ( Transport for London 2001). In particular, taking into account that people generally dislike transferring because of the inconvenience and uncertainty involved ( Horowitz and Zlosel 1981), improving interchanges can significantly raise the overall level of integration in a regional transit system ( Transport for London 2001). Interchange facilities in certain scales16 provide lighting and security, shelter from the elements, and serve as centers for passenger information. Other articles mention the importance of accommodating the needs of transit users in non- transit modes at interchange facilities and transfer points, including the provision of park- and- ride systems and bicycle facilities ( Pucher and Kurth 1989; Transport for London 2001, 2002).
Information coordination is also identified as a key component of coordination and integration. This form of integration brings together information from multiple agencies, combining it into one medium and using common terms, descriptions, and logos to make it understandable to the user ( NEA Transport 2003). There are several references to utilizing real- time, computerized information from regional entities, allowing the transit user to access this coordinated information, either through on- display boards at transit facilities ( Pucher and Kurth 1989; Transport for London 2001) or electronically, via the Internet ( Miller, Englisher, and Kaplan 2005; Transport for London 2001). It can reasonably be assumed that technologies not readily available when these articles were published ( e. g., Internet- ready mobile phones, handheld computers) would further enhance the user’s experience. These various techniques for disseminating comprehensive information for regional transit service can heighten the user’s sense that he/ she is dealing with one coordinated transit system, as opposed to many multiple operators, which can make interpreting information much easier ( Miller, Englisher, and Kaplan 2005; NEA Transport 2003; Pucher and Kurth 1989; Transport for London 2001; Tyson 1990). Information coordination is not only important for information on schedules or routes, but also for reporting accidents, delays, or emergency information to passengers or among agencies ( Transport for London 2002).
16 As noted by Iseki et al. ( 2007), transfer facilities can vary greatly in levels of accommodation to passengers, ranging from a simple curbside stop with no shelter to large city- center transfer stations accommodating multiple modes and thousands of transit users. Mineta Transportation Institute
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Fare coordination enables the use of single tickets or passes among multiple transit agencies. Several articles mention fare coordination’s role in regional coordination and integration ( Miller, Englisher, and Kaplan 2005; NEA Transport 2003; Pucher and Kurth 1989; Transport for London 2001; Tyson 1990). When a trip takes more than one leg to complete, fare integration enables passengers to pay only once, despite the number of operators providing the service ( NEA Transport 2003). Fare integration can be implemented within one agency or among multiple agencies, and in the form of passes, stored- value cards, or transfer tickets ( Miller, Englisher, and Kaplan 2005). Where passes or stored- value cards are not in use, transfer tickets can offer some degree of coordination among transit operators, allowing passengers to transfer within a transit system or to another system at a discounted fare or at no extra charge for a certain length of time, which can facilitate better coordination between transit systems. Miller, Englisher, and Kaplan ( 2005) note that many transit systems in the United States with a coordinated fare system have created a better experience for the user. Pucher and Kurth ( 1989) discuss the success ( in terms of ridership growth) of fare coordination and innovative pricing structures in Germany, Austria, and Switzerland, where transit systems utilize corporate and university discounts and special off- season fare rates.
Lastly, coordinated expansion of service is also important for improving regional coordination and integration ( Pucher and Kurth 1989). Coordinated expansion of routes allows for more direct and faster journeys, while increased service intervals help attract more transit users ( Pucher and Kurth 1989). Pucher and Kurth ( 1989) cite expansion of routes, improving regional connectivity, and increases in service intervals as key to the success of regional transit systems in Germany, Austria, and Switzerland. The coordination of transit routes and interchanges is also important to regional coordination and integration by connecting routes that otherwise might otherwise be disjointed ( Transport for London 2001; Tyson 1990).
Organizational/ Institutional Coordination
The second category of regional coordination indices includes organizational and institutional efforts progressing towards regional coordination ( Table 3). The literature presents regional coordination at a variety of levels. Highly coordinated regions have integrated regional transit, including a centralized administration, long- term planning and research, and a shared regional vision and strategy ( Cook, Lawrie, and Henry 2003; Federal Highway Administration 2002; Miller, Englisher, and Kaplan 2005). These highly coordinated regions are characterized by an active policy at all authority levels ( from individual managers, to operators, to regional transit authorities) to implement coordination, with fair representation of all operators at a regional coordinating agency ( NEA Transport 2003). These regions may also choose to monitor interagency coordination through the application of performance measures, i. e., benchmarking their progress against integration indices derived from case studies ( NEA Transport 2003).
In a regional setting, the policies of individual transit entities can greatly help or hinder the success of regional coordination. Shared regional policies regarding staffing, maintenance, and cleaning of intermodal facilities were identified as indicators of coordination. For example, in Paris “ site committees” of transportation operators, local officials, and private tenants are Mineta Transportation Institute
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often established to manage intermodal facilities and maintain operations ( Transport for London 2001). Similarly, Cook et al. ( 2003) referred to the ability to consolidate staff and staff training as benefits to regional transit system consolidation and coordination. This sort of regional training can produce a more consistent quality of service system- wide for transit users. Furthermore, Pucher and Kurth have identified similar regionally shared policies, such as shared advertizing and marketing, as keys to successful coordination ( and increased ridership) in several of Germany’s Verkehrsverbunds, regional transit authorities established in each of the country’s major urban areas ( Pucher and Kurth 1989).
Several authors mentioned that a uniform set of agency policies clearly defining roles and responsibilities are essential in reducing conflict between entities and/ or transit agencies ( Cook, Lawrie, and Henry 2003; NEA Transport 2003; U. K. Commission for Integrated Transport 2001). Indeed, the FHWA discusses the importance of establishing a regional concept of operations in which roles and responsibilities are thoroughly defined through regulations and regional agreements ( Federal Highway Administration 2002). Shared regulatory policies can, in fact, strengthen a regional transit system ( NEA Transport 2003). Similarly, the sharing of data on ridership, fare revenue, and accidents between agencies could strengthen regional coordination and reduce conflicts ( Miller, Englisher, and Kaplan 2005). In addition to institutional policies and goals, a strong political commitment transcending municipal administrations is seen as essential to regional coordination ( NEA Transport 2003).
Financial Coordination
The final category of indices covers financial coordination ( Table 4). If one thinks of regional coordination as a spectrum of involvement between regional transit entities, evidence of these financial indicators are most often found in the more highly integrated regions, while less integrated regions would likely utilize relatively simple coordination practices, such as timetable sharing. According to the U. K. Commission for Integrated Transport, the most coordinated regions funnel dedicated funding through a citywide umbrella agency ( with responsibilities for regional coordination). While creation of this additional layer of bureaucracy is a major barrier in some cases, it is crucial to improving integration. Case studies in the U. K. demonstrated that regional coordination was “ only likely to be achieved where funds and resources for policy and scheme implementation are readily available and vested in regional authorities” ( U. K. Commission for Integrated Transport 2001, 28). One of the most important factor affecting regional transit planning and coordination is the role of local government in identifying funding sources for the establishment and ongoing operation of cooperative programs at the regional level ( Rivasplata 2006).
In the U. S., the financial integration of regional transit systems is much less common than in Europe. According to Miller et al., ( 2005) joint funding proposals and joint procurement of equipment between regional transit entities are practices that can indirectly impact the service provided to users. Their survey of transit regions across the U. S. found that several regions ( including Metro DC, Puget Sound, San Francisco Bay, Southwest Connecticut and Dallas/ Fort Worth) utilized joint funding and/ or joint procurement of vehicles. However, the authors acknowledged that none of these regions actually prepared Mineta Transportation Institute
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cost- benefit analyses before embarking on coordinative projects, and as a result, have not been able to quantitatively measure the outcome of infrastructure improvements ( Miller, Englisher, and Kaplan 2005). Elsewhere in the literature, dedicated funding sources were seen as beneficial, as they can ensure that regional transit systems provide matching funds for state and federal grant opportunities. In addition, dedicated regional funding sources were seen as potentially important for training of regional staff, coordinating fares and schedules, and improving regional facilities ( Cook, Lawrie, and Henry 2003).
Barriers to Regional Coordination
The literature also discusses barriers to regional coordination. Finding sources of funding can be a major barrier to regional coordination and integration ( Federal Highway Administration 2002; Miller, Englisher, and Kaplan 2005; Pucher and Kurth 1989). Coordination and integration projects are often expensive to implement, and many regions lack the money or resources to do so ( Miller, Englisher, and Kaplan 2005). Moreover, the Texas Transportation Institute has grouped types of barriers that face regions; some of these groups include jurisdictional/ boundary issues, communications, funding, cross- agency concerns/ lack of trust, service gaps, differing driver requirements, cost allocation, and differing collecting and data requirements ( Capital Area Regional Transit Coordination Committee 2006; North Central Texas Council of Governments 2006). These types of obstructions to regional coordination can be present in many urban areas.
Regional Coordination Indices Summary
Table 5 summarizes the indices of regional coordination that were identified in the literature review in a way that they can be more easily operationalized for actual measurement. A “ data needed” column elucidates data to obtain to accurately apply these indices to actual measurement of regional coordination. Some of the information is more concrete and easily obtainable ( fare schedules, routes, etc), while other information related to organizational policies is obtainable only through interviewing local transit planners and operators. It should be noted that transit operators in this table can mean either public transit agencies or private transit companies.
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Table 2. Regional Coordination Indices, Managerial/ Operational
Type of CoordinationIndicesPucher et al., 1989Miller et al., 2005Cook et al., 2003TfL, 2001Tyson, 1990NEA, 2003UK Commission, 2001Federal Highway Admin., 2002Integrated timetablesOn- time arrival rateTotal average delay ( regional) Average point- to- point delay timeGreater pedestrian and cyclist priority Balance use of street space to enable walking, cyclingBetter provision for cyclists ( secure cycle parking) Easier interchange between modesInformation provision expandedReal- time info about travel cond. sharedCoordinated activities of information disseminationTransit trip planning info sharedManagerial/ OperationalSchedule coordinationBetter coordination of timetablesCoordination of timetablesInformation coordinationComputerized timetablesIntermodal facility coordinationPark- and- ride systemsCoordinated intermodal facility improvementsShared interchange signage and route way informationCoordination between modesNetwork integration ( operational) Establishment of transfer centersUniform security guards & lighting in interchange zonesReal- time shared informationInformation provisionInformation IntegrationBetter provision of informationTimetable coordinationHigh- tech approach to coordinating and time tabling
Note: TfL, 2001, Transport for London, Best Practices; NEA, 2003, NEA, Integration and Regulatory Structures; U. K. Commission, 2001, U. K. Commission for Integrated Transport. Mineta Transportation Institute
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Table 2. Regional Coordination Indices, Managerial/ Operational ( continued)
Type of CoordinationIndicesPucher et al., 1989Miller et al., 2005Tyson, 1990NEA, 2003UK Commission, 2001Federal Highway Admin., 2002Attractive monthly and annual ticketsSingle system- wide passesCorporate or Univ. discountsDiscounts for off- season ticketsMore attractive faresService expansionSecurity- actual and perceived ( incl. appropriate shelters, lighting, amenities) Increased service frequencyCarefully coordinated routesReserved bus lanesShelters, passenger info, lighting, seating, at all stopsExpanded, modernized bus stops and stationsPerceived affordability - good value for moneyImproved quality of vehiclesAppropriate speed limits ( reduces perceived journey time, creates safer conditions) Better service qualityIncreased service qualityCustomer satisfactionManagerial/ OperationalFare coordinationCommon tariffsReduction of transfer fees between jurisdictionsExpansion/ coordination of services ( routes, stops, etc.) Inter- availability of ticketsTicket and fare integrationInterchange journeys ( transfer coordination)
Note: TfL, 2001, Transport for London, Best Practices; NEA, 2003, NEA, Integration and Regulatory Structures; U. K. Commission, 2001, U. K. Commission for Integrated Transport. Mineta Transportation Institute
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Table 3. Regional Coordination Indices, Organizational/ Institutional
Type of CoordinationIndicesPucher et al., 1989Miller et al., 2005Cook et al., 2003TfL, 2001NEA, 2003UK Commission, 2001Federal Highway Admin., 2002Coordinated marketing/ advertisingBetter marketing and innovative advertisingCoordinated staff trainingConsolidation of trainingShared staff training in multi- modal information provisionData sharingShared Ridership statisticsIncident ratesClearly defined roles and responsibilities; Political commitment to integrationMarket compatibility of servicesAn authority with coordination roleRegulatory and institutional frameworkNetwork integration ( institutional) Benchmarks to measure progressIndex for measuring integrationIntegration with other ( external) organizationsActive policy at all authority levels to implement coordinationOrganizational/ InstitutionalShared use of information/ availability of information Coordinated goals and PoliciesUniform set of policies among agencies to reduce conflictOverseeing agency/ institutional frameworkIntegrated institutional arrangementsRegional concept of operationsCoordinated and centralized administration/ governance Long term planning and research  Centralized administrationShared regional vision and strategy  Fair representation of members in region
Note: TfL, 2001, Transport for London, Best Practices; NEA, 2003, NEA, Integration and Regulatory Structures; U. K. Commission, 2001, U. K. Commission for Integrated Transport. Mineta Transportation Institute
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Table 4. Regional Coordination Indices, Financial/ Institutional
Table 5. Operationalized Indices of Regional Coordination
Type of Coordination
Regional Coordination/ Integration Indicator
Operationalized Indices
Data Needed
Managerial/ Operational
Service Schedule Coordination
Coordination in timetables between entities/ modes to accommodate transit users ( TUs’) transfers
Waiting time at major transfer points, headway times, on- time arrival rate, total average delay, ( regional), average point- to- point delay time, coordinated bus scheduling system
Coordination/ Consistency in daily/ weekly operating time schedule to accommodate TU’s needs
Daily & weekly operating schedule
Information Coordination
Information of multiple transit systems shared and provided to TUs, disseminated jointly?
Information on web sites, brochures, maps, web apps, etc.
Computerized shared information system for TUs in real- time ( e. g., web site, iPhone apps)
Information on web sites and web applications.
Computerized shared information system for operators in real- time
Technologies to share real- time information for operation ( e. g., automatic vehicle location system)
Fare Coordination
Coordinated regional fares, regional system- wide transit passes ( one- day, weekly, monthly, annual, off- season, discounted to universities, companies shared medium passes)
Fare media
Locations where to purchase transit passes
Provision of regional passes in all districts
Type of CoordinationIndicesMiller et al., 2005Cook et al., 2003UK Commission, 2001Shared/ coordinated funding arrangementsJoint funding proposalsDedicated regional funding sourceIntegrated funding arrangementsShared purchasing of equipmentJoint procurement of equipmentFinancial/ Institutional Mineta Transportation Institute
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Type of Coordination
Regional Coordination/ Integration Indicator
Operationalized Indices
Data Needed
Managerial/ Operational
Intermodal Facilities Coordination
Joint intermodal facility operation and maintenance
Operation and maintenance
Proximity and directness between stops/ stations
Design of transit facilities at transfer points
Shared signage
Signage
Shared security force and system
Security force and system
Shared park & ride lot
Park & ride lot
Coordinated Service/ Expansion
Route expansion, increased service frequency, service quality improvement, Joint vehicle upgrades
Information on routes, service frequency, vehicle upgrades
Organizational/ Institutional
Coordinated Marketing/ Advertising
Joint marketing
Information on advertisements
Coordinated Staff Training
Joint staff training
Information on training
Data Sharing
Shared system usage/ ridership information
Data sharing system or activities
Coordinating Goals/ Policies
Shared goals/ policies
Information on transit agencies’ goals and policies
Intermodal Facilities Coordination
Joint intermodal facility planning/ construction/ maintenance
Presence of such facilities and coordination between operators, MPO’s involvement for planning
Creating Institutional Framework
Regulatory framework
Presence of such regulations
Authority created with coordination role
Presence of such authorities
Coordinated and Centralized Administration/ Governance
Policies to implement coordination
Presence of such policies
Monitoring of coordination/ integration with indices to measure integration in place
Presence of such a system and indices
Financial
Shared/ Coordinated Funding Arrangements
Joint funding proposals
Presence of such practices
Joint funding arrangements
Presence of such arrangements
Dedicated regional funding source
Presence of such sources
Shared purchasing of equipment
Joint vehicle/ equipment purchase
Presence of such practices
Note: Operators in this table can mean either public transit operators or private transit service contractors
Table 5. Operationalized Indices of Regional Coordination ( continued) Mineta Transportation Institute
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EMPIRICAL STUDY: EFFECTS OF TRANSIT CONTRACTING
INTRODUCTION
The purpose of this study is to examine the possibility of improving the efficiency and effectiveness of regional transit service provision through privatization. The unique circumstances, where one private firm has been contracted separately by two districts— Orleans Parish and Jefferson Parish— to provide public transit service, have made it possible to address this second question, regarding regional coordination.
This study examines two main hypotheses:
1. Given carefully designed contractual terms, a private firm has a strong incentive to perform well and meet requirements specified in contracts in order to receive compensation and rewards and avoid penalties, and that this good performance by a contractor will lead to more cost- efficient and effective provision of transit service to the public.
2. Given carefully designed contractual terms, a private firm has an incentive to improve regional coordination, increase ridership, generate more fare revenue, and present a good performance for future contracts by combining services in the two separate areas through internal coordination. 17
The first hypothesis addresses very common questions pertinent to privatization of public services: the consequences of the transit service privatization on changes in quality, cost- efficiency, and cost- effectiveness of service provision. Of particular interest in this question is the effects of “ delegated management contract” implemented by New Orleans Regional Transit Authority ( RTA). After a significant degradation in the quality of transit service following Hurricane Katrina, RTA decided to contract out a large portion of functions and responsibilities to a private firm— significantly more than regular contracting arrangements made in the U. S.— and started a series of interim contracts with a multinational private sector operator of multi- modal transit, Veolia, in October, 2008. Following this provisional period, RTA and Veolia entered into an official contract with an initial term period of five years, starting in September 2009.
Veolia Transportation is the North American business unit of France’s Veolia Transport, a multinational, multimodal transportation provider operating in 28 countries. Veolia Transportation 200 operates contracts in the U. S. and Canada, and cites over 100 years of experience in the U. S., including operations in Jefferson Parish since 1949. Veolia Transportation offers a variety of transit contract options, ranging from strictly management or strictly operational contracts to delegated management and public- private partnerships, encompassing design, construction, financing, operation, and maintenance of transit networks. Although Veolia Transportation’s website promotes its delegated management option and touts the success of such contracts in Europe, Veolia’s delegated management contract with RTA is its first in the U. S.
17 In other words, a private firm may provide more cost- effective transit service with better regional coordination than do two separate public agencies, if the firm is given appropriate incentives ( such as adequate compensation and the prospect of continuation of contracts in future). Mineta Transportation Institute
Empirical Study: Effects of Transit Contracting
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Veolia Transport’s parent company is Veolia Environnement, a French- based corporation offering services in three areas in addition to transit: water, waste management, and energy.
Veolia has also contracted with Jefferson Parish Transit ( JeT) for operation, basic management, and vehicle maintenance of transit service since July 2006.18 Under these circumstances, we examine the efficiency and effectiveness of providing transit service at each of these two agencies in New Orleans separately, carefully taking into account differences in contractual terms and conditions for regional transit service in New Orleans over years. 19
The second hypothesis examines a potential benefit to regional coordination that may arise from having one private firm provide services for multiple jurisdictions in a region. In other words, this study will examine whether or not, and how efficiently, one private firm that contracts with two different jurisdictions can achieve better regional coordination for transit service in multiple aspects, such as planning, management, operation, and adopting new technologies, while avoiding geographic equity issues and other jurisdictional problems. 20
Given appropriate coordination and regulation ( e. g., incentives to increase fare box revenues by encouraging ridership), a private firm may create a more coordinated system.
Although it is often difficult generalize the analysis findings of a case study of one or more agencies, it can provide experiences that contribute to a better understanding of the advantages and limitations of transit contracting as it relates to regional service coordination.
BACKGROUND
Greater New Orleans Region
The Greater New Orleans region offers a unique opportunity to study the effects that contracting transit provision has on cost efficiency and effectiveness, quality of service delivered, and regional coordination. 21 As it is important to understand the economic and social settings in which RTA and JeT operate public transit service in order to examine the effects of contracting, this s