Montreal should end the public monopoly on city transit – Private contracting could lower costs and improve services

The strike threat by maintenance employees at the Montreal Transit Corp. provides a stark reminder of the drawbacks of a union monopoly in a public utility.

Why not get off the beaten track? Opening urban transit to competing private operators would end the current union monopoly. As a bonus, this reform would also result in lower maintenance costs.

The fully public management model used in most of Canada’s cities has increasingly been abandoned around the world because of its inefficiencies and constantly rising costs. In many countries, public authorities have been leaning toward a competitive tendering model and more partnerships with the private sector to provide transit service to their citizens.

The idea behind this type of model is quite simple. It is based on the distinction between organizing and financing transit networks, on the one hand, and operating them, on the other hand. Thus, while public authorities continue to set routes, schedules, frequencies and fares, along with indicators of quality and customer satisfaction, the provision of service has been turned over to competitive operators, both private and public. These operators must compete to obtain renewable fixed-length contracts by aiming for the best quality/price ratio.

Competitive bidding might require highly detailed and sometimes costly transportation contracts, but it offers a number of advantages. Just as shoppers benefit from competition among suppliers to get the best deal, public authorities gain from competition in the bidding process. They can take advantage of the expertise of private operators in looking after operating risks and can focus instead on such service improvements as greater frequencies, more routes and so on.

In financial terms, there is a clear benefit to public authorities – and ultimately to taxpayers. Competition in winning and retaining transit contracts in a given geographic area provides incentives for operators to control their costs while offering more reliable and punctual service. Reduced operating costs mean the public can get more out of a given investment. More funding is available to finance service, along with a newer fleet or other infrastructure needs, without squeezing taxpayers.

Experience from such reforms is out there. In Europe, competitive tendering is becoming the norm, encouraged by the European Union. France has applied this model to public transit over a number of years. Such social democratic countries as Denmark and Sweden have successfully reformed urban transit, with substantial reductions in operating cost.

In Copenhagen, bus costs per vehicle-hour fell 24 per cent between 1990 (the year of the reform) and 1998. In 2004, they were still 12 per cent below the 1990 level. In Stockholm, competition has prevailed since 1993 in subway, bus and suburban train operation. Competitive tendering has brought costs down by a similar degree, saving about 110 million euros a year for SL, the local transit corporation. Such savings have helped offset the costs of heavy investments over the years. Meanwhile, public transit’s share of local travel went up. Ridership levels, measured in complete journeys, rose by 13.8 per cent between 1993 and 2005.

There is also the British example. In London, bus transportation was gradually put up for competitive tendering between 1985 and 1994. Operating costs per vehicle-kilometre, after taking account of inflation, fell 42 per cent between 1986 and 1998. They rose after 2000 but are still about 20 per cent lower than before. Such cost reductions allowed for service increases of almost 70 per cent in 2006, compared with 1986-87 levels. Results are similar outside Europe.

While competitive tendering in public transit already exists in some Canadian suburbs, it remains very limited compared with other developed countries. There is no reason not to take advantage of competitive tendering to the same extent it is used elsewhere.

Marcel Boyer is Vice President and Chief Economist of the Montreal Economic Institute.

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