Gotham Gazette

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Awaiting The Fate Of City-Subsidized Private Bus Lines

The long-simmering controversy over the fate of New York City-subsidized bus lines was brought to a boil early this month when news reports revealed that the Bloomberg administration has $150 million in unspent funds to replace aging buses and improve bus facilities of the seven private bus companies. This pot of money has accumulated over more than two years as Bloomberg and the Metropolitan Transportation Authority have been negotiating the authority’s takeover of the bus routes, which primarily serve local bus riders in Queens and the Bronx and express riders coming into Manhattan.

Bloomberg wants to turn the bus routes over to the MTA and eliminate the city’s $100 million annual subsidy of the bus companies. Shedding the subsidies for the private bus companies would help close city budget deficits. It would also further reduce the city’s contribution to mass transit. City contributions to the authority’s capital budget fell from $205 million in the early 1990s to only $75 million last year.

Critics believe that the city has refused to purchase new buses as a way to intensify political pressure for the Metropolitan Transportation Authority to take over the bus routes. Using the existing old buses leads to more breakdowns and poorer service for riders. The private bus companies charged in a lawsuit last year that the city had decided “to starve the companies of new buses as part of its plan to create intolerable operating and financial pressures.”

The Bloomberg administration responded that the authority and private bus lines use different types of buses. “If we purchase the buses before the negotiations are complete,” a Bloomberg spokesman reportedly said, “we run the risk of buying obsolete buses that the MTA does not use and cannot service.”

This argument has not passed muster with critics. Unless the city insisted on purchasing more buses fueled with compressed natural gas (CNG), there are no fundamental differences between MTA and city-purchased buses. If the city wished to do so, it could order buses that meet the Metropolitan Transportation Authority’s bus specifications and could be used by the MTA once the agency takes over the routes.

The authority would gladly take over the bus routes under the right fiscal arrangements. It believes that it can provide better service by applying its expertise in bus operations and through economies of scale. But the authority has rejected Bloomberg’s proffered deal unless it is “made whole” financially. If it takes over the bus routes without receiving additional funding, it would have to find scarce dollars either through increased state or federal subsidies – an unlikely possibility – or through higher fares.

Already, the city and the Metropolitan Transportation Authority have missed self-imposed deadlines of last June 30 and of January 1 to complete a deal. The city has extended the current franchises with the seven bus companies until June 30, 2004 and hopes to agree to a transfer by that date.

Meanwhile, service on the lines deteriorates. According to the city’s latest Mayor’s Management Report, the cleanliness rating on the city-subsidized buses declined from 85 percent in July-October 2002 to 68 percent a year later. In interviews with the New York Times, riders complained of buses taking 30 minutes or longer to show up.

(Large) Relic Of A Bygone Era

In the context of public transportation in the New York region, the privately operated bus lines seem like small potatoes and generally receive scant attention. But compared to any other city, the service is substantial – 82 routes, 1,250 buses and 400,000 riders a day make the private operators as a group the twelfth largest transit bus fleet in the U.S. and Canada.

Current franchise arrangements are a relic of a bygone age when private bus operators could make a profit providing service. The city once franchised or contracted with a variety of transportation providers including bus companies, trolley operators and even the companies that operated the first subways. When bus companies were profitable, franchises made sense as a way to select which operators would have the right to use the city streets. But the city has provided capital subsidizes to the bus companies since 1974, thus making for an odd arrangement of public subsidies for franchise operators.

The city owns the buses and some of the bus depots while the bus companies own most of the depots and provide the service. Drivers, mechanics and other workers are bus company employees. Most employees are unionized and have the right to strike – a right exercised several times in recent years, cutting off vital service to riders.

This system has survived previous attempts at change. Revisions to the City Charter in 1989 mandated that the bus franchises be rebid periodically to create competition among companies and thus, it was hoped, cut costs and improve service. None of this happened, however. A combination of political influence, bureaucratic inaction and the likelihood that any rebidding would be unfair led to periodic extensions of the long-running franchises. Although some conservative writers have continued to advocate for competitive bidding for the franchises, it is difficult to imagine how new companies, lacking bus depots, could compete effectively against the incumbents.

Thus, the city has turned from the idea of franchising to the hope of transferring the routes to the Metropolitan Transportation Authority. Aside from the budget and subsidy issues that have played prominently in the press, the transfer raises enormously complex issues. Presumably, unionized employees would be transferred to the MTA, as would facilities owned by the city and the companies. Under law, employees would have their jobs protected. But the private bus companies and the MTA have different unions, creating hurdles for the authority to switch bus routes between garages and rationalize operations to save costs. The different pension plans of the authority and private companies will also need to be resolved. While these issues are ultimately solvable, there may well be more bumps in the road for riders, even once the city and MTA resolve the subsidy issue.

Bruce Schaller is Principal of Schaller Consulting, which provides research and analysis to government, business and non-profit groups seeking to identify and meet customer needs in the transportation sector. He is also a Visiting Scholar at the Center for Transportation Policy and Management at New York University.

Taxi Fare Hike

After more than two years of start-and-stop debate on the issue of a taxi fare increase, the Taxi and Limousine Commission (TLC) proposal for a 26 percent hike, which would increase the average fare from $6.85 to $8.65, was no surprise. It has been eight years since the last fare increase and news reports indicated that many of the nine taxi commissioners favor a fare increase. Moreover, a fare hike, broadly supported by taxi owners and drivers, has won editorial endorsement in the city’s papers and apparently some combination of acceptance and support from taxi riders.

What is remarkable is the commission’s plan to allocate three-quarters of the fare increase to driver incomes, with the remaining one-quarter allocated to cover increases in taxi owners’ expenses. This 75/25 driver/owner split of the fare increase is an historic change from past practice. Traditionally, taxi fleet owners and the now-defunct Taxi Drivers Union negotiated a 50/50 split of fare increases. Ironically, if the plan is adopted, drivers will have gained a larger portion of this fare increase now, when they have no union to represent them and a Republican mayor is in office, than when the drivers were unionized and Democrats occupied City Hall.

Why The Shift Towards Drivers

The Taxi and Limousine Commission’s proposal partly reflects the emergence of the New York Taxi Workers Alliance as a vocal and effective driver advocacy group. Drivers have not had a strong voice in the industry since the late 1960s, when the dissolution of large fleets weakened the influence of the Taxi Drivers Union.

A second factor in the new 75/25 split is the recognition that both taxi owners and drivers and the public benefits when driver incomes increase. Drivers obviously benefit from higher incomes. To the extent that higher incomes attract a stable and committed driver workforce, the quality of cab service is also likely to improve. My recent report also concluded that higher driver incomes are associated with lower accident rates for taxicabs. And to the extent that higher driver incomes attract more drivers to the industry, taxi owners benefit by getting their cabs leased for more shifts a week and generating greater income from lease fees.

A third factor is simply that government officials and the public sympathize with the needs of hard-working, largely immigrant cab drivers. Although estimates of driver incomes vary from the $22 per shift sometimes claimed by the Taxi Workers Alliance to my estimate of up to $120 a shift on average (with a wide variation from one driver to the next), even $120 for a 10 to 12 hour shift is clearly too low, particularly considering that as independent contractors, drivers do not have an employer paying Social Security, health insurance or pension benefits.

While there is broad public and industry agreement that drivers should receive most of the fare increase, there is sharp disagreement on whether the city’s proposal has struck the right balance. Bhairavi Desai, co-founder and organizer of the Taxi Workers Alliance, says that the city’s proposal is a “good start.” But she believes that the city should give drivers a better deal, ensuring that they can earn a “livable wage” of $14 per hour for 12-hour shifts. After the proposed fare increase, drivers will still make less than $10.10 an hour.

The Metropolitan Taxicab Board of Trade, which represents taxicab fleet owners, believes that the owners' predicament should be taken into account, citing 37 percent increases in operating costs since the 1996 fare increase, and additional costs from the Taxi and Limousine Commission’s proposed service improvements.

Will Cabs Operate Differently?

The debate between drivers and fleet owners is complicated by uncertainty about how the fare increase may lead to changes in the way that cabs are operated. In a traditional fleet operation, fleets pay all the costs of operation except for gasoline, which drivers pay. However, most of the industry (aside from the one-third or so of cabs that are owner-driven) lease by the week rather than by the shift. Weekly leasing reduces owner expenses for operating a garage, checking cabs between shifts and, in some cases, maintaining and repairing the cars. Furthermore, some weekly leases involve the lease of just the medallion license. In these “driver owned vehicle” leases, drivers pay for both the purchase and maintenance of the car. As I discussed in another recent report, some proposed changes by the Taxi and Limousine Commission may prompt some owners to move further in the direction of weekly leasing, thus shifting some operating costs to drivers, and might reduce the availability of cabs.

900 Additional Medallions

Beyond the driver/owner income split, the city’s taxi fare proposal is notable for its timing. The proposal comes in the midst of environmental reviews for issuance of 900 additional taxicab licenses over three years, with the first batch of 300 planned for issuance by the end of the current fiscal year on June 30. Although the fare and new medallions are officially considered in two separate processes, it was widely expected that the city would increase the fare prior to the first medallion auction. One reason for the timing is to ensure that any boost to medallion prices from the fare increase would be captured in auction prices. In addition, unofficially linking the fare to the medallion sale discourages any taxi owners that are inclined to oppose the medallion sale from actively working to stop it.

No Increase In Wait-Time Charges

While the overall size of the proposed fare increase, 26 percent, is widely accepted, some have questioned the structure of the proposed new fare. The proposed fare increases the mileage charge from $1.50 per mile to $2.00 a mile, a 33 percent increase, but leaves the wait time charge of $12 an hour unchanged, just as it was not changed in the 1996 fare increase. This means that drivers will make the same money waiting in traffic in 2004 and beyond as they did in 1990, while they will make 60 percent more when moving at any reasonable speed. Drivers will thus be encouraged to avoid congested Midtown traffic if they can find passengers elsewhere in Manhattan. This may be good from a traffic standpoint (potentially fewer cabs in Midtown) but would not help increase taxi availability for passengers.

Taxi and Limousine Commission Chairman Matthew Daus said that the wait time issue is likely to draw comment at the commission's March public hearing on the fare proposal and that the commission will “deal with drivers’ concerns” after the hearing.

Drivers will also be encouraged to serve Kennedy Airport since the flat rate from JFK to Manhattan is proposed to increase from $35 to $45, a 29 percent increase. Press complaints of a lack of cabs at JFK may thus be alleviated.

Rush Hour Surcharge

The city’s proposal abolishes the 50 cent night surcharge, instituted in the early 1980s when it was difficult to attract drivers to work at night. The night surcharge would be replaced with a $1 rush hour surcharge in effect between 4 p.m. and 8 p.m. The rush hour surcharge is intended to increase cab availability during this peak-demand period by encouraging drivers and owners to move shift change times out of the traditional 4-5 p.m. period. Whether this will happen remains to be seen. The surcharge may also increase cab availability because the higher fare will somewhat depress demand, thus following the tenets of “congestion pricing.” In this respect the $1 surcharge makes sense and might also be applied to the morning rush hour.

Paying By Credit Card And Other Improvements

The city also announced four other service improvement proposals along with the fare increase. Two of the proposals are much-needed improvements: mandating acceptance of credit and debit cards for payment of the fare, and mandating scratch-free partitions so that passengers can see out the front window and can see the driver and cab licenses, which are mounted on the driver’s side of the partition.

The city also proposes to establish a group ride program at various as-yet unannounced locations. Group riding promises to give passengers a break on the fares they pay. Unfortunately, most group ride experiments have failed due to the difficulty of matching up passengers with similar destinations and because the process of grouping passengers compromises a main benefit of taking a cab, which is speedily getting to one’s destination.

Mapping Technology

The city proposes to mandate GPS (global positioning system) technology in each cab. The idea is to bring cabs up to speed with current technology, a sensible idea that fits nicely with the mayor’s background and goals. The announced specifics of the program, however, are weak – in-car mapping capabilities and automated data collection. A much better idea would be to use GPS to track the location of occupied and unoccupied cabs in real time and immediately feed this information back to drivers on a map that shows their immediate geographic area. Drivers could use the map to drive toward areas of high demand for cabs, benefiting both themselves by getting more fares, and benefiting customers by getting cabs to the areas they are most needed.

More Income For Drivers; More Availability For Riders

Overall, the implications of the fare increase, which is likely to take effect in the late spring, are most significant for driver incomes and taxi availability. Driver incomes would increase by as much as 40 percent. Their cash take-home incomes would reach record levels in inflation-adjusted dollars.

For taxi users, the fare in inflation-adjusted dollars will be in the upper end of the range that the fare has occupied over the past two decades, and significantly below the fare in the 1970s.

More significantly for taxi riders, the fare increase combined with the proposed sale of 900 new medallion licenses will increase cab availability as the number of cabs expands and the higher fare somewhat reduces demand. Using economic growth and inflation estimates in the city’s January budget plans, I estimate that cab availability will increase by six percent from 2003 to 2007. This is a significant increase, particularly in the face of a growing economy, and will bring availability back to the relatively healthy level experienced in 1992.

Once the fare increase and medallion issuance are completed, the Taxi and Limousine Commission will need to decide whether it wants to continue treating these essential policy issues like the flu -- once it's over, it simply goes away. A better course of action, once current controversies are resolved, would be to evaluate industry finances and taxi service availability on a regular basis and place decisions on fares and new medallions in the context of providing the city with good quality, readily available cab service.

Bruce Schaller is principal of Schaller Consulting, providing research into transportation. He is also a visiting scholar at the Center for Transportation Policy and Management at New York University.

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