Who's driving the bus?

Who's driving the bus?

CATS stands at a crossroads as consultants suggest private management take the wheel.

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You could forgive CATS staffers for giving themselves a moment in the sun. Even as officials took to the microphone at the Jan. 15 board meeting to extol the accomplishments of 2012 and the improvements in the city's mass transit system, everyone at the standing-room-only meeting knew the agency was about to get hammered.

Moments later it did, when a representative from TMG Consulting presented its much-anticipated report on the agency. In short: CATS is understaffed, overspends, and ranks 15th out of 16 peer systems in service efficiency. To fix things, the board should replace everyone in the CATS C-suite with better-qualified experts from a private company.

The so-called contract management recommendation came as no real surprise. Some sort of privatization contract was expected to be among the options favored by TMG. What is less certain is how the next few weeks or months will play out, as one faction of the board—bolstered by community groups like BRAC and CPEX—pushes for contract management, while other board members line up against it, which they already are doing.

Who might run the show?

In its report to the CATS board, TMG Consulting recommends the transit agency replace its top administrators with outside experts. Among the possibilities are three large transit companies that have similar arrangements in cities around the country. More...

“I'm against contract management or privatization,” said board member Montrell McCaleb, drawing a line in the sand. “There is no way you can dress up contract management. It's privatization.”

Actually, it's not. Privatization is different from contract management, as TMG consultant Dwight Norton was quick to point out to the board. Privatization involves turning over an entire system, with its assets and liabilities, to a private company. Contract management is more like hiring an agency to send over some temp workers—just really, really qualified temp workers who can run the agency more effectively and efficiently.

That, at least, is the idea, and many experts believe it's the best way to go. According to Randal O'Toole, a senior fellow at The Cato Institute, a Washington D.C., libertarian think tank, transit systems that have farmed out management to private companies are reaping the benefits.

“Contracting out saves a lot of money,” O'Toole says. “It's just more efficient. There is enormous waste in government transit agencies.”

Consider Denver, which contracts out roughly half its bus service to a private company and operates the other half through the municipal transit agency. The privately run buses cost just over $5 per vehicle revenue mile to operate, according to O'Toole, about half the $10 per vehicle revenue mile that the municipal buses cost to operate.

“The really interesting thing is that the contractor has to pay taxes that the government is exempt from, as well as all sorts of other expenses,” O'Toole says. “Yet it's still a less costly option for the city.”

Advocates of contract management say it's not just about saving money, however. It's more about efficiency and better utilization of resources. That has been the experience in New Orleans, which contracts with an international company, Veolia Transportation, to manage, operate and maintain the entire Regional Transit Authority—an arrangement far more extensive than that recommended by TMG for Baton Rouge.

According to statistics, the costs of operating buses in New Orleans in 2011 were slightly more than in 2009, when Veolia took over the RTA, but still less than in 2007 or 2008. However, New Orleans city leaders say the level of expertise Veolia brings to the system is what is most beneficial about the contract. The French company has basically overhauled the system and designed new routes that better reflect the needs of the population.

“They have done a good job of re-imagining the lines here and are really good at planning and strategic use of resources,” says Cedric Grant, deputy mayor for facility, infrastructure and community development. “When you are financially constrained you have to go with the entity that can give you optimum efficiency.”

Contract management

• Relatively quick and easy to implement
• Available expertise
• Knowledge transfer
• Quick turnaround of system

• More expensive than direct hires
• Staff integration challenges and risk
• Talent pool will vary depending on area
• Risk of private sector volatility

Good examples
• El Paso, Texas
• Lexington, Ky.

Source: TMG Consulting, New Orleans

Contracting out some or all of a transit system's operations isn't necessarily going to solve its problems. O'Toole believes only a fully privatized system guarantees free market forces will bring true cost savings. Otherwise, he says, the arrangement is really just a government-subsidized contract.

New Orleans leaders also note that while a more efficiently run system is better in countless ways for the city's bus and streetcar riders, the RTA still doesn't have enough money to make ends meet, a situation they don't see improving.

“It's not so much an issue of privatization,” he says. “It's more a question of how much it costs to operate a system and how to subsidize transit. That's a question every system in the country is facing.”

Baton Rouge's CATS is among those systems, and several community leaders have suggested that a private contractual arrangement is an option seriously worth exploring.

CATS Board Chairman Jared Loftus agrees, though he knows it won't be easy convincing everyone on his board. For now, he says he's not worried about that.

“We want to explore the options on the table and make a decision about which direction to take,” he says. “Then we'll worry about getting the votes to make it happen.”

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