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Across America’s cities, the inherent flaws in public transportation are becoming all too apparent. There are few urban residents who have no qualms with their public transit system. From aging infrastructure, budgets that struggle to cover costs, and a noticeable decline in ridership, there’s a growing argument for the privatization of transit infrastructure. This move will make better use of taxpayer dollars and will help ensure the efficiency of urban transportation which our financial markets rely on.

Exploring the current state of public transportation in many U.S. cities reveals less-than-ideal conditions. The American Public Transportation Association recently published a report revealing that public transit use decreased by 28.3% in 2021, continuing a trend that began in 2014. Despite receiving mounds of taxpayer funds, these agencies only manage to cover a fraction of their operating expenses through fare revenue. On average, transit services covered just 23.6% of their costs through fares in 2018, heavily relying on taxpayer-funded subsidies for the remainder.

Privatization introduces market motivations into the equation, bringing a fresh approach to public transit’s typical issues. In particular, the potential cost savings from privatization are significant. Research by the Empire Center found that competitive contracting for bus services could reduce operating expenses by 20-51% while maintaining service quality. The Cato Institute estimated that privatizing bus transit could have saved $5.7 billion in operating costs in 2011 alone, a 30% reduction.

The privatization of public transportation systems has the potential to significantly enhance the flexibility of how services are designed and delivered. According to a report from the U.S. Government Accountability Office (GAO), several public transit agencies have effectively collaborated with private mobility providers to offer on-demand services. This approach proves especially valuable in sparsely populated areas or during times of low demand. A standout example is in Austin, Texas, where the local public transit authority, Capital Metro, teamed up with Via, a tech company, to launch “Pickup,” a service that allows passengers to arrange shared rides on demand within designated zones.

Capital Metro’s figures indicate that, since its inception, the Pickup service accommodated over a million rides, effectively bridging the gap left by traditional fixed-route services. While this arrangement doesn’t equate to complete privatization, it showcases how the involvement of the private sector can aid public transit agencies in evolving to meet new travel trends and preferences. This collaboration has the added benefit of drawing in users who might not have previously considered public transit options. NBER found that the increased use of bus transit that would occur due to lower prices would generate a welfare gain of $524 million.

Even if a full institutional shift isn’t possible, complementary private transit options can be a welcome addition to the current framework. A study by the U.S. Government Accountability Office (GAO) found several instances where cities have effectively woven private transit options into the larger public transit fabric. Sacramento, California, serves as a prime example. The city’s public transit authority collaborated with a private firm to produce on-demand shuttle services aimed at sparsely populated locales or during times of lower demand. The Sacramento Regional Transit District reports this innovative service catered to over 23 million riders in 2020 alone, pinpointing a significant stride in bridging the gaps left by traditional transit routes. These instances of public-private partnerships illustrate the potential benefits of opening up the transit sector to private enterprise, especially in enhancing the flexibility and specificity of services offered.

Furthermore, research indicates privatization can improve public transit systems’ labor productivity. A study in the Berkeley Planning Journal found that contracted bus services in the U.S. had 7% higher labor productivity than public ones, which resulted in somewhere between 15% to 19% in cost savings. This increase in efficiency could allow for more buses on the roads or extended service hours without additional costs, benefiting users.

With the issues plaguing public transit in the United States, introducing privatization and harnessing the capabilities of the private sector could be the key to unlocking substantial cost savings, enhancing service quality, and boosting the overall efficiency of transit systems. Privatization can motivate increased ridership, elevate labor productivity, and broaden the spectrum of services available. In pursuing privatization, we can pave the way for transit systems that are not only more sustainable and efficient but also more attuned to the needs of U.S. citizens.

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