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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience APPENDIX A Transit Contracting and Privatization Initiatives in Western Europe While transit contracting has long existed but increased only slightly in the United States during the past decade, it has grown much more rapidly in Western Europe, where it was rare as recently as 15 years ago. Several European countries, including France and Great Britain, introduced privatization measures during the 1980s; during the past decade, many other European countries have followed suit, though in different ways. European Union (EU) requirements to open quasigovernmental activities to competition by public and private suppliers from all member countries have prompted some of these changes, as have concerns about rising transit expenditures during the 1980s and 1990s. Many of Europe’s transit modes, as well as intercity passenger rail, have been affected. This appendix provides a brief overview of circumstances in several Western European countries, focusing on bus services.1 Table A-1 summarizes public- and private-sector roles in transit provision in the United States, Canada, and five EU countries. It should be noted that many studies have examined the effects of bus privatization, deregulation, and competitive contracting on transit fares, ridership, and service quality in Great Britain and elsewhere in Western Europe. A review of the international experience with transit privatization and contracting is beyond the scope and resources of the present study. This appendix is
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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience TABLE A-1 Public- and Private-Sector Roles in Providing Public Transit Service in the United States, Canada, and Selected Countries of Western Europe Country National Role State and Regional Role Local Role Private-Sector Role United States The federal government provides state and local governments with aid for the provision of transit infrastructure and equipment, contributing about half of transit capital funds. A small share of operating revenues is provided by the federal government (the share is largest for small transit systems). Many states provide revenue for transit capital and operations. A few have state transit agencies with operating authority. Most have established regional transit districts for each metropolitan area. State-approved regional taxes (such as sales taxes) are sometimes used to generate the revenue for major capital improvements or operating subsidies. County and city governments often provide operating subsidies for regional transit agencies. The revenue is derived from local property taxes, sales taxes, and other local sources. Transit is sometimes organized at the county or city level, rather than the regional level. Private transit contracting is common in some states and most prevalent in California. Private businesses compete to provide specific transit services (or management functions) that are paid for and prescribed by state and local governments or by public transit authorities. The practice is most common for specialized transit services such as paratransit and support services such as maintenance. A small number of larger systems contract on a more widespread basis for fixed-rate service.
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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience Country National Role State and Regional Role Local Role Private-Sector Role Canada The national government has no role in transit funding, organization, or planning, except for some research and development programs. The Canadian provinces have traditionally provided significant (about half) capital and operating subsidies for urban transit, although this responsibility has increasingly been shifted to metropolitan and municipal governments. Regional metropolitan governments and their constituent municipalities provide most transit services with funding support from the province. Revenues are also derived from property taxes levied in special “transit assessment” districts. Some individual cities and municipalities also provide transit services, for instance through public utility commissions. The private sector has a limited role in the provision of transit. Private contractors supply some services prescribed by the public-sector transit agencies. Germany The national government provides states (Länder) with block funds that can be used to subsidize commuter rail services or otherwise employed by local governments to fund mass transit. The federal government also contributes aid to specific States subsidize commuter rail and provide local government with funds for transit. States cover about half the cost of providing and maintaining railway infrastructure. States set minimum transit service level requirements to be met by local governments. Many local governments allocate state and federal transit funds to regional cooperatives of transit operators known as “verkehrsverbunds” (WBs). The WBs coordinate the provision of transit services over the entire region and reallocate The private sector is increasingly being called upon to compete for contract work. The Swedish model of private contracting or “tendering” on a route-by-route basis is becoming more common.
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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience capital projects, with state and local government sharing in the cost using revenues derived from motor fuel taxes. funds among individual operators. France The national government finances transit directly in the capital of Paris and surrounding suburbs. National subsidies are minimal in the provinces, however, with the exception of funding for large rail transit additions or improvements. Transit is organized at the regional level by the province or by groups of municipalities. Local governments have the main responsibility for subsidizing bus and rail service (capital and operations) using revenues from employer payroll taxes approved by the national government. Taxes may be as high as 40 percent of an employer’s payroll. A small number of large private bus companies operate service franchises in municipalities. The companies compete to provide service over entire networks (as opposed to routes) and they are subsidized by local governments. These companies usually own their own equipment and have long-term contracts. Sweden The national government’s contribution is limited mainly to the funding of major rail infrastructure projects. County governments have primary responsibility for transit operating and capital subsidies and for the planning of services. Subsidies are allocated to local government for the procurement of transit services. Local governments are responsible for procuring the services of private contractors. They contribute about half of the operating subsidy required (except in the Stockholm area, where the county contributes all of the subsidy and has sole responsibility for planning and procuring transit services). Private companies bid for service on specific routes, according to fare, service, and schedule parameters prescribed by the local authority. Rail and bus operations are contracted out. The public sector prescribes the route and fare schedules to be adhered to and often owns the equipment and other necessary infrastructure.
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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience Country National Role State and Regional Role Local Role Private-Sector Role Great Britain The national government has primary responsibility for funding rail and bus transit in greater London. It also subsidizes commuter rail outside London by providing funds to local passenger transport authorities. In other areas, local authorities support some transit services with grant aid from the national government. Local governments (e.g., counties) subsidize a small number of bus routes designated by passenger transport authorities as “socially necessary.” Local authorities also fund concessionary fares for students, the disabled, and the elderly. Bus services outside London are largely private, unregulated, and unsubsidized except for public funds provided to private operators for “socially necessary” services. Private bus companies provide lightly subsidized contract services in greater London. Netherlands The national government provides most transit subsidies, contributing to both operations and capital. It also sets fare and service policies. Local governments have minimal funding responsibility but are responsible for tendering private-sector services and ensuring performance. Private companies are increasingly being called upon to compete for contract services. SOURCE: TRB 2001.
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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience offered as background, and no attempt is made to review the results of other studies. Great Britain By far the most dramatic movement toward transit privatization has taken place in Great Britain. In 1985, legislation passed by the British Parliament deregulated motor bus services throughout the country, with the exception of the greater London metropolitan area. Local transportation authorities were disbanded, and public transit operations were privatized and many of their assets sold. Although the government retained safety rules and licensing authorities, it divested and deregulated the industry commercially. The newly for-profit operators were allowed to enter and exit markets as they wished, establish their own timetables and networks, set their own fares, and choose their own equipment. Local authorities were tasked with maintaining sufficient bus stands and shelters; obtaining and subsidizing contracted services on a small number of “socially necessary” but unprofitable routes; and reimbursing bus companies for the discounted fares offered students, the elderly, and people with disabilities. Otherwise, private operators had to cover their own capital and operating costs without public assistance and at their own risk. The national government provided a small subsidy in the form of fuel rebates. When deregulation was passed, the original plan was to gradually instill more competition in the bus operations of greater London, and eventually privatize and deregulate that system in the same manner as elsewhere. London Transport, the public transport authority, was charged with contracting out, or tendering, bus services with as little public assistance as possible. A subsidiary unit (the Tendered Bus Division) was created and charged with obtaining the purchased bus services, while London Transport retained responsibility for route planning and setting of fares. The once-public bus fleets were converted to a subsidiary, known as London Buses Limited (LBL), and were required to compete with private companies for the opportunity to serve specific routes in a progressive process aimed at increasing the amount of tendering. Routes were awarded to the operator that could run the best service at the lowest subsidy price, and several of the initial routes went to private companies rather than to the newly created LBL. The LBL initially faced several problems resulting from higher overhead that made it difficult to compete with the leaner private operators. To address this problem, and as a step toward the still-planned deregulation of buses in greater
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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience London, the LBL created 13 locally based subsidiary companies. They conducted their own wage negotiations with the unions, took actions to reduce overhead, and competed against each other as well as against the private companies for bus contracts. The subsidiaries became increasingly successful in competing for routes, which are typically rebid at 5-year intervals. The LBL subsidiaries were fully privatized in 1994 as the companies were sold to other bus operators, management, and employees. Partly because of the success with tendering, the national government has abandoned plans to extend the deregulation of bus services to London. Deregulation continues elsewhere, although the national government has taken some regulatory steps to improve bus service quality, and local passenger transportation authorities have been restored in most urban areas to improve overzall transport planning. Germany The federal and state governments of Germany have been seeking to instill more competition in the provision of public transit. Rather than subsidizing transit services directly, they have increasingly been offering municipalities and other local jurisdictions block grants to provide transit and other public services. To make the most of these funds, local governments have been experimenting with contracted services, as well as the privatization of some bus companies. In most cases, the local government franchises designate routes for specific periods of time, usually lasting no more than 8 years. This is done on a route-by-route basis, meaning that the services of several operators make up the overall network for an urban area. During the franchise period, the operator is protected from competition on the route (and on parallel routes), but is obligated to provide service at specified frequencies and within prescribed fare and quality levels. After the term has expired, the operator can apply for renewal along with other competing operators. Where projected service costs exceed projected fare revenues, local authorities seek competitive bids and award the franchise to operators requiring the least public subsidy. Transit operators in many of the large urban areas of Germany are able to cover their operating costs through fare box revenues, especially when the government reimbursement for the discounted fares offered to students and the disabled is included. In many localities, however, bus operations are cross-subsidized with the revenues generated by their parent or partner electric and gas utilities. This situation has become problematic, viewed as protective by
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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience the EU. Although services that are directly operated by government are not subject to EU requirements for market competition, many of the transit operators and utilities in Germany are private, albeit regulated, entities. Changes are still being negotiated among EU members. Scandinavia Next to Great Britain, Sweden has proceeded further than any other European country in privatizing once-public transit services. Prior to 1989, local transit authorities in each of Sweden’s 23 counties (and the Municipality of Stockholm) provided exclusive operating licenses to individual transit operators. These companies were usually owned by the county and local jurisdictions. The system of licensing was abolished by the national government in 1989, and counties were encouraged to open their transit markets to competition. Most county and local governments, required to pay for all transit capital and operations out of their own budgets, elected to seek competitive bids from other operators on a route-by-route basis. Low price (that is, lowest required public payment) is usually the deciding factor in awarding contracts to bidders, who are typically given exclusive authority to provide the service for a period of 3 to 5 years. The operator is provided a fixed sum by the government, which receives the passenger revenues. Contract incentive schemes to encourage operators to attract more patrons, including a percentage of collected revenues, are becoming more common. Many of the Swedish bus operators are now subsidiaries of large British and French transport companies. Denmark has also increased its use of contracting for bus services, although on a more incremental basis than in Sweden. Outside of the Capital Region of Copenhagen, regional transport authorities issue licenses to individual operators for service in specific areas. Routes, schedules, fares, and other conditions of service are established by the authority. The duration of most licenses is 5 to 8 years. Legislation passed in 1989 requires that tendering be used increasingly within Copenhagen for bus services. Copenhagen Transport, the regional transportation authority, is obliged to seek competitive tenders for two-thirds of the bus services in the region. The tenders are sought on a route-by-route basis. Copenhagen Transport, which has its own bus division, is not allowed to place bids. Its function has become increasingly oriented toward planning and policy making, overseeing of the placement of tendered services, design and integration of the network, and establishment of fares. The authority is also responsible for marketing and ensuring conformity in service quality. National legislation re-
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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience quires that all bus services in Copenhagen be provided by private companies as of July 2002. France, Belgium, and the Netherlands Transit services in the Capital Region of Paris are provided almost exclusively by the government, funded at the national level. Decentralization laws passed in France during the early 1980s, however, leave it to local authorities to provide public transportation. Local authorities can consist of a single municipality or several acting together. Each authority establishes an “urban transport perimeter,” or PTU, in which it can levy a tax on employers for transportation funding. PTUs—which total more than 150—may provide the transit service directly. However, national legislation passed in 1993 requires that any PTU that chooses to delegate its transit service to another entity must publish a call for bids from competing operators. These tenders are usually offered for the entire network rather than on a route-by-route basis, as is common elsewhere in the EU. As a result of this rule, public transit operators in France consist of a mix of public, private, and semiprivate companies. Even in those PTUs that have opted for direct provision of service, management of the operations is usually delegated to a private company. In neighboring Belgium, responsibility for urban transit lies with regional governments. Each region has its own approach to providing the service, some using contracting more than others. For instance, very little contracting goes on in the Brussels Capital Region, in which transit services are provided by the publicly owned regional Interdistrict Transport Company. In most other regions, however, a portion of public transit service is contracted out, usually on the basis of payments per vehicle-kilometer of service and subject to the meeting of specified service standards. Approximately 40 percent of bus services in Flanders is contracted to private firms from Belgium, which are often family-run enterprises. Further north in the Netherlands, the institutional organization of public transit is highly centralized within the national Ministry of Transport. The ministry allocates funds as well as operating subsidies to the country’s transit infrastructure. The Netherlands has eight municipal transit companies and several regional ones for smaller urban areas; each operates within its designated boundaries without competition. The Dutch government has experimented with tendering during the past decade, but on a very limited basis for interurban and demand-responsive operations.
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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience Note 1. Much of the information presented here about transit contracting in the European Union was obtained from UITP 1997. References ABBREVIATIONS TRB Transportation Research Board UITP Union Internationale des Transports Publics TRB. 2001. Special Report 257: Making Transit Work: Insight from Western Europe, Canada, and the United States . National Research Council, Washington, D.C. UITP. 1997. Major European Players in Public Transport: New Developments in the European Union. Brussels, Belgium.
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