Tuesday, June 5, 2007

Time For An Open Source Model for Public Transit?

Background: The "Natural Monopoly" Model

Public transit systems operate on a sort of "natural monopoly" business model. That is the notion that due to the high capital costs of a public transit system there must be a large customer base to help pay those costs. Provisions in the RTA Act (e.g., 70 ILCS 3615/3A.08 (giving Pace jurisdiction over "any public transportation by bus" in the six-county region except for CTA service)) and municipal franchise agreements give the service boards the exclusive right to provide public transit service in this region. This gives them the ability to keep their customer base intact. (Would someone kindly send me a copy of the Chicago-CTA franchise agreement.)

The great fear of the service boards, like that of any monopolist, is that competitors will emerge and "cherry pick" the profitable parts of their business and leave them with the large capital investment requirements but only the most unprofitable operations.

The downsides of natural monopolies are lack of customer choice and lack of innovation. (Higher prices--"monopoly rents"-- are not an issue when it comes to transit since fares are kept well below cost through public subsidies.) We see this when it comes to alternatives to the private auto in this region. At the one end, taxis offer point-to-point service for individuals or small groups. At the other end of the spectrum the service boards offer big buses running down major streets and railcars running on dedicated rights of way. Except for ADA paratransit service, which is available to only a limited segment of the population, there is nothing the public transit system offers in between--no shuttle services, no jitney vans, no mini-buses and the like to fill the market gap between the taxi and the standard transit vehicle. (Pace's van pool program is a limited but notable exception.)

Over the past 150 years urban transit transitioned from a private enterprise model to the current public transit model. (Link to short historical overview here.) In recent decades, however, some seeming natural monopolies in other areas of the economy--e.g., airlines, telecommunications--have transitioned to a private enterprise model. Internationally, that change has been most pronounced in the former Soviet bloc, where many state-owned enterprises have been privatized. In Europe and Asia major transportation facilities such as expressways have been privatized. Closer to home, the long-term leases of the Indiana Toll Road and the Chicago Skyway illustrate this transition from the notion that the government is the only viable provider of transportation services.

If the RTA and the service boards secure a bailout from the General Assembly then they have no incentive to change their current business model. If, however, there is no bailout and they have to go through a painful round of service cuts and fare increases, maybe they will see this as an opportunity to shift to a "open source" business model for transit in this region and away from the natural monopoly model now in place.

The "Open Source" Model

By open source model I mean an approach to providing transit service that is the flip-side of the current natural monopoly model. I have in mind the kind of productive collarboration among many parties directed at a common product or task, perhaps best exemplified by the Linux operating system and Wikipedia. (See Wikipedia entry here.) Here are some elements of an open source model as it applies to transit:

1. Multiple Service Providers: The public mission would shift from directly providing all public transit service to maximizing non-auto transportation options for the region. This means that many new private (and even public) transportation providers would be allowed--indeed welcomed--to provide transit service.

2. Common Technology Platform: Public transit agencies would aggressively push out their technology such as the CTA bus tracker system so that all vehicles providing public transportation in the region would be on the same information network. This means that customers would be able to easily discern when the next vehicle would be in their area regardless of whether it was a CTA bus or a private van. Likewise, all transit vehicles would be plugged into the same fare collection system, which would allow customers to transfer easily between vehicles run by different operators.

3. Information Sharing: The common technology platform would allow transportation providers to share information that would help them give better service and make reasonable pricing decisions. This information would include ridership data, fares collected, demographic data, on-time performance data, and other information currently maintained and closely guarded by transit agency planning departments.

4. Customer Service Quality Standards: The service providers, whether public or private, would have to meet some basic requirements, such as vehicle safety standards and minimum levels of insurance. The key here would be ensure that these requirements are not so onerous as to pose a high barrier to entry into this market. This is a real risk, especially in a highly politicized environment.

5. Equity Issues: The open source model would address social equity issues on the demand side rather than the supply side. Currently, we say that we need a large and expensive public transit system in large part because we need to provide transit options for the poor. Yet, that expensive system serves far more people than the poor. A more effective approach would be to subsidize travel only for the poor. That targeted approach would be less costly and more precise, thus doing more good. Technology such as the Chicago Card and I-PASS customer accounts allow the targeting of transit subsidies.

The Impact of an Open Source Model

An "open source" transportation system would be far more dynamic than today's public transit system. There would be more kinds of vehicles, new kinds of service, and many service providers. Everyone would work off of, and contribute to, a common technology platform. Customers would be directly involved, by tapping into the information network to obtain next vehicle information, reserve trips in advance, organize travel groups to present to service providers for price quotes, and provide customer service feedback. Innovation would be encouraged and the one-size-fits-all approach to public transit that prevails today would fade away.

Pricing would be more varied than today. People likely would have to pay more for custom service--e.g., a guaranteed spot on a Wi-Fi equipped van with comfortable seats. Door to door service would cost more than area to area service. Time of day pricing would be encouraged, which could well result in higher prices during the rush hour and overnight periods. Yet, some service, such as large buses down key arteries during rush hour and train service generally, likely would continue to be run by public transit agencies, at least for a time, at current fare levels. On the whole, however, it is quite possible that people would be paying somewhat more than they do today.

In return for higher average cost, customers would get more service and, hopefully, better service. Customers would have more options. These might include jitney services that travel up and down major streets at times and at frequencies that public transit agencies using big buses cannot afford. Other options include subscription van services that would provide door-to-door service from home to work and back, feeder buses supporting major train stations, van pool aggregators that would use internet technology to provide service to similarly situated customers and brokers who would link people to a variety of bus/van/taxi options via a sort of Travelocity for local travel.

Under this model the government would not to wash its hands of transit responsibilities. Government would still be actively engaged in transit, but in a new role as coordinator and facilitator rather than as transit provider. Government would encourage innovation and competition, provide a set of common technical and safety standards, and kick in financial support through aid to the poorest travelers or subsidies for service in particular areas or at particular times. Government might be able to assist through mass procurements of vehicles and technology at lower prices than private operators could obtain on their own.

All this turns the current natural monopoly model on its head. Instead of trying to take on the massive task of providing a public transit system, government works to get the private sector to take on as much of that work as possible. Government focuses on what it can do well--establish basic service requirements and an open technology platform, provide a clearinghouse for information, provide targeted subsidies--and leave the actual transportation work to the transportation professionals.

If this sounds a bit like what happened when the Chicago Housing Authority got out of the business of operating huge housing complexes, that analogy might not be all bad. Most people give the CHA credit for its transformation. Who misses Robert Taylor homes? Maybe something as dramatic needs to happen on the public transit front.

It is always frightening to make a fundamental shift in your business model. Giving up control is especially hard for governments to do. While privatization and deregulation are far from perfect solutions, in many industries we have seen improvements when they moved away from the natural monopoly model. As the article cited above indicates, urban transit once made a wrenching transition from private to public ownership and operation. Maybe it is time to embrace a different business model yet again, an "open source" approach to transit operations that will leverage Internet technology and the private sector to provide better transit service at lower cost to the government.


Even if the RTA secures more funding after its herculean Moving Beyond Congestion effort, does anyone really believe that the transit funding problem will have been fixed? A somewhat different cast of characters will be crawling over Springfield 5-10 years from now warning of a transit "crisis" and seeking more public subsidies. Maybe the problem is not with the funding, but rather with the public transit business model itself. Maybe transit is an area where government can be more productive as a facilitator, a standards setter, and a standards enforcer, while leaving the details of service to mostly, but not probably not exclusively, private transportation providers.


Anonymous said...

For motor transit from buses to taxis, it would be easy to bid the services out every 2 years or so to private companies, who could offer a smorgasbord of service options at a defined level of service and competitive (compared to other bidders) prices. Rail transit operation would be more problematic to transfer to a private operator or operators because of the fixed plant and rolling stock expenses and limitations, as well as the unionized work force and work rules.

Anonymous said...

The debate over whom is subsidizing who in the transit business belies the fact that today's transit system is a radial system for downtown Chicago and has been instrumental in preserving and enhancing the viability of the downtown area. In terms of who should pay for the system, the RTA sales tax rates are probably about right relative to the benefits returned. Users should absolutely pay more in fares, and downtown business/real estate interests should also begin to pay since they are the primary beneficiaries of the system which brings access to a regional pool of labor.

Lost in the debate over subsidies is when, how and who creates a transit system for the suburbs that primarily serves intersuburban travel and the major suburban activity centers. The RTA's Stategic Plan certainly does not address this question.

Unfortunately for the suburbs, their transit system is not likely to materialize any time soon and not just for lack of money. New use of todays radial commuter rail lines to serve intersuburban travel does not appear likely, and these lines are not close to the major activity centers. Meanwhile, Metra is recklessly pursuing dubious expansions of its system that either are not proximate to the employment centers (EJ&E/STAR) or merely add more spokes to the radial system to downtown (UP/CSX/Southeast Service); and is seeking to commit the region to these speculative projects at a cost of billions of dollars.

Bus has lots of possibilities unfortunately the suburban bus company - Pace - does not. Other metropolitan areas like Los Angeles, Cleveland, Boston have learned valuable lessons about how to diversify their investment in transportation by relying on new forms of high performance bus in smart arterial corridors, managed lanes or exclusive lanes. Los Angeles' highly acclaimed and very successful Metro Rapid features high performance bus in smart arterial corridors.

In our region, the suburbs have had to suffer 2o plus years with a suburban bus company that is a failed organization and constantly strapped for money. This also is not addressed in the RTA's strategic plan. Instead the RTA's strategy is to plant a few spies out in Arlington Heights to keep tabs.

Adding to Pace's woes is a strong bias in our region agaist bus fueled in part by Pace's own ineptitude, TOD advocates at MPC/ULI, the consulting industry, Metra, and a coterie of suburban mayors including one who serves on the Board of the bus company. Consider the following from Schaumburg mayor and Pace director Al Larson: "You can talk all you want about buses - how pretty they are. But people in the suburbs won't ride buses. They would ride rail". [Elk Grove TImes, March 18, 1999] Further, on Octobver 22, 1997 as the RTA was set to begin studying potential extension of the CTA Blue Line, the CHicago Tribune reported that: Larson, however, was not particularly pleased with the mention of bus transit as a possible alternative to a rail system. "We want something more than just an HOV bus lane on the toll road" said Larson. In other words, we don't want no damn bus. And this from a Pace director. Note to Larson. WHen talking to the press, boost the product.

So what to do? Lots of ideas have been floated to reorganize transit so here is another. Combine Metra and CTA - they serve the same travel market and Metra is really just an extension of the CTA. Metra should take the suburban feeder bus routes as these are just another form of station access, not unlike the commuter parking business in which Metra has been heavily involved since its inception. Abolish Pace. A new organization is needed with the leadership, imagination, experience, fianancial resources and political savvy to build and operate a transit system for the suburbs. This could be done as you suggest using the open source model. The suburban network should best rely on high performance bus in smart corridors, on expressway shoulders, exclusive lanes or managed lanes in order to diversify our region's investment in transportation consistnet with the shared use principles in the 2030 Transportation Plan.

Anonymous said...

I agree with the commeter regarding Pace. However, another problem is the practice of one service board (Metra) dictating how much resources another service board (Pace) should get. THis is occuring now as the transit bosses consider how to divide potential new RTA sales tax revenue. Pace is a very weak organization that will never be able to rise to the occasion. Heck, DuPage County handed Pace a golden opportunity with the DuPage Area Transit Plan in which DuPage stakes its future on bus. Unbelievably Pace has shown little or no interest.

Anonymous said...

Let's get back to the topic. Maybe charter schools will prove that an open source model will work. It is similar to transit, in that they way things currently are structured, neither can work without a massive public subsidy.

Let's see what "deregulation" has brought us in other areas. There is no competition for residential electric customers and a flawed reverse auction, where all power suppliers are given the highest price that will satisfy the demand, instead of having them bid for the lowest price. You have in telecommunications, at best, a duopoly, with neither company (AT&T or Comcast) particularly interested in customer service once it has made the sale. And all of them run incessant commercials through their front groups telling you to call your legislator on their behalf. The only place where there is competition is cellular, where the barrier to entry is not great, since the neighborhood need not be wired.

Maybe the place to start is the taxi industry. Instead of having demonstrations in front of City Hall petitioning for a fuel surcharge, why not just deregulate the taxis, subject to a license and inspection tax, and a prohibition on price fixing (including prices fixed by the leasing and dispatch companies). You would then have 4000 entrepreneurs ready to compete.

pc said...

I'm not sure how you provide equity or predictability: through guaranteed minimum service levels? Despite many attempts to require taxis to take fares in underserved parts of the city, even calling a taxi on the south side is little guarantee that you'll get one even after a lengthy wait. Plentiful IT may work for Crackberry addicts like me, but not for grandmothers on the Southeast Side.

Predictability is crucial for rail, since its infrastructure is a fixed capital investment. As such, its presence allows others -- namely developers -- to plan around it.