by James A. Bacon
Why do bus lines so consistently lose money? One reason is that transit companies, out of concern for the poor, keep fares too low. Another is that politics dictate that money-losing bus routes stay open. A third reason is that federal regulations effectively require transit companies to purchase American-manufactured buses that cost more while providing lower gas mileage.
The stock response of the state and local political systems across the United States — and no exception here in Virginia — is to increase subsidies for a failed business model. There is little constituency, it appears, for reforming mass transit to operate more efficiently.
A new paper, “Public Transit Bus Procurement: the Role of Energy Prices, Regulation and Federal Subsidies,” highlights a little-appreciated problem afflicting the municipal bus industry — how a federal “Buy America” mandate drives up the cost of purchasing new buses and how insensitive transit companies are to rising gas prices when managing their bus fleets.
“U.S. public transit agencies pay more for buses than they would have if there had been free international trade in buses,” the authors write. “The domestic bus makers supply a small number of differentiated bus models. The lack of competition could retard incentives to develop more fuel-efficient buses.”
With $55 billion in annual revenue in 2011, public transit agencies spent about $2.5 billion on new buses and $3.5 billion to maintain the existing stock. Nationally, more than 60,000 transit buses were in operation across the country.
Private vehicle owners factor in gas prices in their decisions when to keep an existing vehicle or upgrade to a new one, and they enjoy a wider range of choices when they do upgrade. Likewise, overseas transit companies enjoy the benefit of a highly competitive bus-manufacturing industry across Europe and Asia. But the U.S. public bus fleet is produced mainly by small domestic sellers that don’t enjoy the economies of scale that some international bus makers do.
Thanks to the Buy America mandate, U.S. bus manufacturing industry faces no meaningful foreign competition. Foreign makes account for 1.5% of all U.S. public-transport buses.
For a variety of complex reasons, the authors write, U.S. transit operations also are “non-responsive” to fuel prices and fuel efficiency. The result: the U.S. bus fleet averages lower gas mileage — 3.54 miles per gallon in the U.S. compared to 4.74 mpg in Tokyo and 5.05 mpg for diesel buses in Seoul. As a result, capital and operating costs are higher.
Conclude the authors: “The subsidy on domestic buses and the lack of international competition imply that U.S. taxpayers face a higher price for urban bus services and U.S. owners of the domestic firms that produce the buses gain some monopoly rents.”