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Abuses and Usurpations

Friday, March 1, 1996

Long before "devolution" became a Washington buzzword, Indianapolis mayor Stephen Goldsmith turned to private companies to deliver municipal services in Indiana's capital city. He started with trash collection and moved on to waste-water treatment; in May 1994, Indiana's state legislature passed a bill allowing him to use state funds to improve the city's inefficient public-transportation system. The idea was simple: Add independently operated buses to the city's recently deregulated taxicab and jitney services to provide more efficient, cleaner, and cheaper transportation for the people of Indianapolis.

But Goldsmith has been forced to confine his competitive program to state-funded transportation systems because of a roadblock thrown up by Congress. Bowing to the anticompetitive policies of the ancien regime, the "revolutionary" 104th Congress approved an amendment offered by Texas Democrat Ronald Coleman which severely limits efforts to re-limit government. That amendment reaffirmed section 13(c) of the 1964 Federal Transit Act, which stipulates that any public-transit worker "negatively impacted" by competition may receive six years of salary and benefits. By seconding this mandate, the GOP-controlled Congress institutionalized the government monopoly in American mass transit and hurt the poor urban residents that the federal subsidies were designed to help.

Section 13(c) ties federal mass-transit funds to a bundle of mandates aimed at protecting unionized city workers. The estimated cost of these transportation mandates to states and localities is two to three times the value of the subsidy. The federal government contributes less than 5 percent of all mass-transit operating funds -- about $4 billion a year -- but its mandates gobble up 10 to 15 percent of local mass-transit costs. Ron Utt of The Heritage Foundation calculates that section 13(c) regulations alone cost local transit authorities approximately $2 billion to $3 billion each year.

How did this happen? In the 19th century, the mass-transit industry was private, but it turned to government to protect it from competition. Regulation protected and hobbled private enterprise. Cities imposed price controls, mandated service routes, and gave in to demands by labor unions for strict work rules and wage formulas.

When private mass-transit companies began to fail in the 1940s and 1950s, they were taken over by cities. These municipalities remained wedded, however, to the inefficient management techniques that drove private transit firms to bankruptcy. Under pressure from public-employee unions, they sought an alternative source of revenue: the federal government.

In 1964, Lyndon Johnson signed the Urban Mass Transit Act, granting localities up to three- fourths of funds needed for local transit projects -- provided that authorities do business only with transit unions approved by the U.S. Department of Labor. In a brazen attempt to fight union-busting, Johnson supported section 13(c) of the bill, which offered a federal guarantee of the right to collective bargaining.

As a result, labor unions could threaten the loss of federal mass-transit subsidies in negotiations with local officials. Unable to cut labor costs and improve efficiency, transit authorities were forced to scrimp on maintenance and hold off on new equipment. Ridership declined as commuters found car travel cleaner, safer, and less expensive.

The 1964 act is just one of many Great Society programs that placed local responsibilities under the purview of the federal government -- with disastrous results. Since federal subsidies began 30 years ago, government at all levels has showered mass-transit projects with $200 billion in subsidies. But in that time transit ridership has dropped 15 percent and operating costs have increased 105 percent.

The salaries for municipal bus drivers are often three to four times those in the private sector. According to Wendell Cox and Jean Love, consultants at the American Legislative Exchange Council, competition could save mass transit 20 to 60 percent of its costs each year. With expanded routes and better service, ridership would rise by 50 percent. Most importantly, an estimated 100,000 new workers, including many poor minorities, would be added to the economy.

Transportation is a local priority best met by local officials and markets working together. When Indianapolis allowed competitive bidding for its "Open Door" service for the disabled, it enjoyed dramatic improvements in service and served more than twice the number of daily riders for the same amount of money.

By cutting counterproductive federal regulations, urban areas could spend their resources on more pressing concerns such as crime and stifling tax rates. Says Mayor Goldsmith, "Our fiercest competition for jobs and growth is not Chicago, Cleveland, or Atlanta, it is the 100 miles of rural, low-tax communities that surround us." Too bad Congress is ensuring this competition is one-sided.