Privatization If Necessary?

David Cavlovic passed on to me an article by Ben Dachis in the Ottawa Citizen dated December 18.  The thrust of the article is that we can improve transit by avoiding strikes, and we can do that by encouraging competition among service providers.

One of the major stumbling blocks in the current negotiations has been the issue of outsourcing. However, outsourcing of transit operations and maintenance can be done in a way to improve public transit, preserve the jobs of workers and ensure that the city isn’t crippled by a strike.

Ottawa should consider modest relaxations over the transit monopoly that OC Transpo has in the region. Private companies could be permitted to operate a transit route on contract to the city.

If one transit operator went on strike, another could fill the service void. Ottawa can look to a suburb of Toronto, York Region, to see that in the case of a strike by one transit provider — Viva, operated by Veolia Transportation — the rest of the operations continued normally and most riders were not left waiting at the curb.

Competition between transit companies can ensure service delivery, reduce costs and improve service. The key to all of this is transit competition — not a transit monopoly.

This is utter nonsense.  The ability of one provider to take over for another assumes that there is sufficient capacity — buses and drivers — available to operate the fill-in service.  As was well-reported in York Region, the YRT buses could not cope with the riding displaced from VIVA.  Moreover, neither system carries riders on the scale of major urban systems like Toronto’s where the sheer size of operations would make any shift between providers a daunting one.

The classic example is the U.K. In London, controlled competition has led to cost savings and an increase in passenger trips.

In Ontario, privately operated transit systems had operating costs per hour of vehicle operation 20 per cent below publicly operated transit systems. The realized gains in efficiency come a number of ways, such as lower management costs.

London (and anywhere else in the U.K.) is probably the worst possible example regarding labour costs and service provision.  England is notorious for overly generous work arrangements for unionized staff, and the savings (such as they may be) achieved there do not transport across the pond to North America.

A related issue is that many schemes to privatize segments of systems eventually led to monopolies as the larger, better-financed operators systematically bought up the smaller ones.  The problem of a single operator’s shutdown taking the whole system becomes just as real in this situation with the added problem that the negotiating team is removed from public review.

Ontario cost comparisons need to be taken with several grains of salt.  First off, the most likely services to be privatized are those that are small enough for a private firm to take them on.  They are also likely to have much less demanding operating conditions (hours, riding levels, vehicle costs) and be candidates for part-time staff with lower total wages and benefits.  Major urban systems are different, and will automatically have “higher” costs due to their complexity, level of service and the need for a much larger organization to manage and operate their systems.

The unions can bid alongside private maintenance companies for the right to maintain OC Transpo vehicles, in what is known as managed competition. When this was done with U.S. government contracts, public unions won around 90 per cent of all work that was bid out, suggesting that they will not lose much work. In fact, in the U.K., local government employees have been successful at winning contracts for private-sector work in certain services.

If public workers are going to win about 90 percent of all work offered on tender, this implies that they are already competitive or close to it.  A more important question, however, is what proportion of work was actually offered on tender?  How many private companies now exist who repair large bus fleets or subway cars? It’s not as if there is an underutilized transit maintenance industry just sitting there waiting to do work on large transit systems.  The real agenda is likely the selloff of existing public assets to a private “operator” at fire-sale prices.  Think Highway 407.

Large systems already contract out some speciality work where it makes sense to do so, and large-scale capital projects are substantially built by private companies.  The last year has been a bonanza for private transit consulting firms, and there is a queue of construction firms ready to build new lines the moment the designs are finished and the funding is available.

The labour situation in Ottawa will not be helped by sabre-rattling on privatization.  This only fuels distrust at the bargaining table and suggests that the politicians are more interested in scoring debating points than in addressing contract issues.

19 thoughts on “Privatization If Necessary?

  1. Labor cost is always the biggest part of the expenditure pie of most organization. Transit organization is no different. At some point, workers will demand much more than what their work is actually worth. For example, at $5 an hour, a gas station can hire attendants to pump gas for the customer. At $10 an hour, the customer has to pump gas himself.

    I cannot help but wonder where all this labor strife will lead. Will this be a catalyst to push for the adoption of technologies like automated controls. Technologies like Presto already eliminates the need for ticket collectors and people checking transfers. ATO can eliminate the driver and possibly the person closing the train doors.

    Privatization will not work. Who will takeover the TTC when it is losing money every year? It does not make any business sense. If a private company ran the TTC, all the buses will run downtown and no where else. Even in transit freindly Japan, the government still has a heavy hand in transit. This is because private owners will cherry pick the best lines.

    I think this privatization nonsense is just a bluff. Which politician will sign their own death warrant by throwing away union votes?

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  2. There is a lot of “silly stuff” that is written about privatisation. In reality, the wages and benefits paid by the TTC are not out of line. In fact, as you have written, the TTC has to compete to attract labour. Our society is successful because we have a successful and well employed middle class. Without that Middle Class, our society would founder on the rocks of crime and insecurity. It is easy for “pundits” to make silly arguments, but the real world does not bear out their theories.

    The York example is a defining example of the silliness of their arguments. There was not adequate replacement service available, despite the fact that only a portion of the service was affected. The eventual settlement – a crushing of what in any fair society would be reasonable requests – was not a validation of a successful conclusion. Instead, it was an example of how a powerless few were not able to stand up to an uncaring and powerful employer. The settlement reflected an erosion of our society – not an enhancement of its success.

    I am reminded on the comments from a friend who was an Assistant Treasurer of a major multinationational based in Canada. He made fun of my (in his words) “socialist” tendencies. When he was faced with moving to Texas as a result of a Corporate reorganisation he declined and took severance. He told me, “Even I don’t want to live in a society where I have to live in a gated community to be safe from those who don’t have what I have.”

    It really is in our selfish self interest to pay fair wages – to transit operators and others – and anyone that tells us otherwise is not telling the truth. Squeezing the “cost” out of services, will inevitably squeeze the “justice” (and safety) out of society.

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  3. If anyone actually knew how much, per rider, that the city of Ottawa spends on OC Transpo, they’d better understand what all the fuss is about. IIRC, Ottawa (a city less than half our size) spends as much on transit as we do.

    It’s time for the government of Ontario to pony up the cash. Enough of McGunity’s excuses that we don’t have the money – especially after he said the same excuses were bullcrap when coming from Harris.

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  4. A distinction needs to be made between selling the TTC to the private sector, and contracting out services to the private sector. The former is almost certainly a bad idea, because it means giving up public control of the TTC. However, contracting out services is not necessarily a bad idea, because it will allow for somewhat lower labour costs, which can be seen with VIVA. TTC labour costs are high, and reducing labour costs will allow the TTC to provide more service at the same cost. At the very least, having the union and private operators compete for contracts forces the union to make concessions, even if it ends up winning the contract. Obviously, privatization alone will not prevent strikes if the private operators are unionized (as seen with VIVA), but this should not be expected.

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  5. I think I should just add that YRT is thinking of moving away from contractors. They are building their own garage to be operated solely by YRT, and the Veolia garage in Newmarket is already owned by YRT/VIVA (Veolia is just responsible for operating and maintaining the vehicles).

    As for the future of contractors, there are reports that First Student (YRT in Newmarket/Aurora) and Veolia will lose their contracts in the near future, and I’m anticipating that YRT/VIVA will operate it by themselves. As for the other two contractors, YRT will rent out the yard space (and IMO maintenance facilities) from the contractors, but drivers will be ‘owned’ by YRT.

    The contractor method worked well in the early years of YRT when it was a lot closer to 4 seperate, small systems; however it has grown into a large unified urban system and the contractor system is outgrowing its usefulness.

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  6. Nick, the city of Ottawa runs almost as many buses as the City ot Toronto, and has nowhere near the ridership. This is what happens when you rely on one mode to move people around. Especially a mode that is known to be labour intensive.

    The city needs to stop focusing on express buses, and actually design a better system that does not rely on hundreds of buess converging in the downtown core.

    I used to live in Ottawa, and I used to remember express buses driving past tunney pastures, with a few people. It’s a wasteful system.

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  7. Didn’t the Toronto Transportation Commission came into being in 1920 because the Toronto Railway Company (a private company) refused to expand its routes into the annexed “suburban” areas of Toronto? Now people want to go back?

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  8. Dear Steve,
    The various comments about England, and other European countries are inaccurate. The driving force for changes to transit provision is the European Commission, which has directed that there should be more competition and “open Access”, to reduce costs and improve services. Part of this directive is the reduction of subsidy, both for operations and capital projects. This still has some way to work through.

    In the UK all bus services were deregulated in 1986, and operate on a commercial basis. City Councils can fill network gaps by competitive tendering on a time limited basis (usually 4 years). A private operator can, and many have then put on commercial services, especially if the tendered service is run by a rival, at which point it has to be withdrawn as unfair state aid. During the period 1955 – 1986 buses were losing market share at about 2% pa. Since 1986 this progessively decreased, and last year the market share of buses increased fractionally. It is too early to say if this is the start of real growth although the increase in gas prices did push some car drivers onto buses.

    London however is a Royal anomaly. Here bus services and fares are controlled by a public body (Transport for London). Bundles of routes, usually area based are re-tendered every 7 years or so, and 7 different operators run 90% of the services. Bus use in London has risen faster than the rest of the UK because:
    (a) number of buses increased by 50% for more frequency
    (b) bus fares reduced
    (c) subsidy of about 100% of cost, for fares
    Transport for London employs 22,000 staff but does not operate any bus services.

    Finally from early in the 1990’s all state and most municipal bus companies were privatised, from which through mergers, the following are now the major operators:
    Arriva,
    First Group
    Go Ahead
    National Express
    Stagecoach.
    Between them they operate 90% of UK bus services, and most have bought operators in other European countries and North America.

    They have been aggressive at driving down costs, at improving services, including the complete fleet replacement, so that the average age is now under 8 years, from 14years in public ownership.

    There are many problems, often resulting from the ideology of left leaning local councils that refuse to co-operate with private bus companies. As yet there is no satisfactory timetable information service for a whole area.

    The “privatisation” of the national railway system has also had similar effects but with much larger growths of patronage, now 1bn trips pa.

    There are some lessons to learn from this, and I advised the Dutch Government on a middle way to conform to the European directive and retain passenger friendly operators and services.
    Prof. Lewis Lesley
    Liverpool England

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  9. I spent the first 24 years of my life in Ottawa, plus two more when I returned for grad school in 2004. When I lived there, I was completely dependent on my bicycle and OC Transpo to get around. I cannot tell you how insignificant the many problems of the TTC are compared with OC Transpo.

    Justin, the express buses you saw driving past Tunney’s Pasture (a major stop on Ottawa’s faux-BRT, the Transitway) were quite likely green route express buses, which provide a weekday-rush-hour-only service between outlying suburbs and the downtown core. They cost a premium over regular service and not only run downtown with a very light load, but then turn around and run empty back to the suburbs! Meanwhile the trunk routes are running with overfilled buses.

    All services converge on a pair of one-way streets through the downtown, with no transit priority at intersections. It leads to total bus gridlock, which is why a very expensive transit tunnel under downtown has been planned. Older proposals called for this to be a bus tunnel, but that would have been even more expensive than LRT.

    OC Transpo management have never understood LRT. A former general manager for OC Transpo, John Bonsall, now works for McCormick-Rankin as a BRT evangelist and goes around the world deprecating LRT at every opportunity. Current OC Transpo management are just waiting for their chance to retire and go work for McCormick-Rankin too. It’s a totally corrupt mess, and the union is the least of their problems.

    Privatization would not fix what’s wrong with OC Transpo, but a complete replacement of their management team would (including the senior city staff who really pull the strings).

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  10. “Nick, the city of Ottawa runs almost as many buses as the City ot Toronto, and has nowhere near the ridership. This is what happens when you rely on one mode to move people around. Especially a mode that is known to be labour intensive.

    The city needs to stop focusing on express buses, and actually design a better system that does not rely on hundreds of buses converging in the downtown core.

    I used to live in Ottawa, and I used to remember express buses driving past tunney pastures, with a few people. It’s a wasteful system.”

    I therefore blame this labour spat in Ottawa on their refusal to commit to LRT and rely instead on their outdated BRT technology. We can see here that BRT is prohibitively expensive, with an LRT line I would think that their labour costs would not be as high as they are now.

    Down with BRT. We can see how it can cause problems in York and god help is if we get this rammed down our throats.

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  11. Prof. Lewis Lesley Says:
    December 21st, 2008 at 2:51 pm

    “Dear Steve,

    “The various comments about England, and other European countries are inaccurate. The driving force for changes to transit provision is the European Commission, which has directed that there should be more competition and “open Access”, to reduce costs and improve services. Part of this directive is the reduction of subsidy, both for operations and capital projects. This still has some way to work through.

    “In the UK all bus services were deregulated in 1986, and operate on a commercial basis. City Councils can fill network gaps by competitive tendering on a time limited basis (usually 4 years). A private operator can, and many have then put on commercial services, especially if the tendered service is run by a rival, at which point it has to be withdrawn as unfair state aid. During the period 1955 – 1986 buses were losing market share at about 2% pa. Since 1986 this progressively decreased, and last year the market share of buses increased fractionally. It is too early to say if this is the start of real growth although the increase in gas prices did push some car drivers onto buses.”

    I find it a problem when an outside agency dictates how a local operation shall run its service. It is also a problem with NAFTA. I believe that big business is using these agreements to force their way into publicly operated services.

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  12. Steve,

    I’m no fan of wholesale privatization schemes. For that matter most so-called PPPs are quite suspect.

    That said, you, more than any of us, are aware of the nature of sometimes intransigent, sometimes bloated, sometimes myopic bureaucracies (which of course can exist in the private sector too)….

    Which brings me to a side tangent on the current subject.

    There is a thread over at Urban Toronto

    In which a discussion is currently underway on the seeming wastefulness and overbuild of the proposed Steeles Station bus terminal on the proposed Yonge Subway extension.

    I thought this would be an opportune moment to solicit your input on 28 bus bays in an underground behemoth. Bureaucratic boondoggle or great foresight and planning?

    Steve: A 28 bay Steeles terminal would make sense if this were the end of the line, although I would want to see a design that worked for LRT, not just for buses. For an intermediate station, the configuration is pure madness, and makes me wonder whether the TTC is hedging its bets.

    If the line were only extended to Steeles they would want a big terminal to replace Finch, but that’s not the official agenda.

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  13. Ottawa has 1,000 buses, whereas the TTC has 1,700. There’s also a smaller ridership share when compared to other modes of transport (Ottawa is Canada’s walking capital)

    Regardless, privatization would be a mess in this country. The answer to these problems is to find a way to ensure that job action does not take down 100% of the entire transit network. That’s like sending a giant FU to everyone who relies on bus service. Does anyone here seriously think that either management or the union really cares about the effect they are having on people’s lives? Of course not – neither is paid to care, and in fact, they are paid to NOT care. Ideas like privatization bringing increased ridership because “That’s what happened in London” are not valid because London and England have very strong pro-transit policies (What we call BRT they call “bus lanes” and are found everywhere) and also very strong anti-car policies (London’s downtown ‘congestion charge’, which is still leaving many downtown businesses reeling)

    Long story short – there are about four or five different discussions going on in this thread that IMHO should be separated out.

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  14. Walter Lis Says:

    “December 21st, 2008 at 12:51 pm
    Didn’t the Toronto Transportation Commission came into being in 1920 because the Toronto Railway Company (a private company) refused to expand its routes into the annexed “suburban” areas of Toronto? Now people want to go back?”

    This is correct. TRC refused to expand beyond the boundaries of their original 30 year franchise of 1891.The original TRC franchise actually assumed operations from the City of Toronto which had taken over the operation of the Toronto Street Railway. The City of Toronto in turn began to operate its own streetcar lines – The Toronto Civic Railway (formed 1910-1911) to cover the areas that the TRC would not expand to. These routes were: Gerrard, Coxwell, St. Clair, Danforth, Bloor West, and Lansdowne.The TTC was created on Jan. 1, 1920 and commenced operations Sept.1, 1921.

    Now I am somewhat biased on the idea of “going back” to private operations as I am a TTC bus operator. I am very much a student of history and feel that this idea would result in a massive downsizing of the TTC as private operators would only want to operate routes that are profitable and cut all nonprofitable routes. The purpose of any urban transit system is to be a “network” of routes serving the entire urban area. I would hazard to guess that private operators would also defer many maintenance items in the interest of maximizing their profits – this was one of the major problems that the City had with respect to the TRC.

    Robert Wightman Says:

    “December 21st, 2008 at 8:58 pm
    I find it a problem when an outside agency dictates how a local operation shall run its service. It is also a problem with NAFTA. I believe that big business is using these agreements to force their way into publicly operated services.”

    This is the problem that I have with Metrolinx which I feel is imposing a (provincial) vision on transit in the GTA. While I don’t always agree with my employer (the TTC), I do feel that they have a better idea for what transit priorities should be within Toronto.

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  15. I have mixed feelings about contracting out services, but given that politicians don’t have the cajones to declare transit an essential service, I tend to lean slightly on the side of limited contracting out. While I believe that all government-run services are essential and should be subject to binding arbitration in lieu of the right to strike, I also believe that workers of private firms should always have the right to strike. Therefore, if the government contracts out the service, the possibility of a strike will exist (though, the contract could stipulate penalties or cancellation of the contract if a strike extended beyond some limit, but that won’t happen due to the cajones issue mentioned above).

    The York example is bad, but not because of the capacity issue. Certainly that was an issue, but “regular” YRT services had some extra capacity and over the first week of the strike, many VIVA users “discovered” that the rest of YRT actually existed and, wait for it, their tickets/passes worked on it! A small silver lining to the cloud was that when people needed to find an alternative, for some that alternative was the rest of the system.

    The example is bad because it was VIVA that was on strike. YRT operations involved four contractors, of which Veolia is one. The other three operate in different parts of York Region with some overlap where their areas overlap. VIVA, being the “rapid transit” service of YRT, operates across most of York Region. Though there is not sufficient capacity to handle all VIVA passengers, there is alternate service across all of VIVA. This cannot be said if any of the other contractors had a strike. If the workers at Miller Transportation went on strike, there would basically be no service east of Yonge Street (except for Bayview, and VIVA).

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  16. I want to debunk a myth, that “private” transit means the “small” routes get axed.

    Its simple really. YRT is run by “private” transit. Each garage is owned and operated by a private agency. Miller in Markham (Also does Toronto’s garbage) Can-Ar in Vaughan (Also does coach runs) First Student in Newmarket (also does school buses) and Veolia (specializes in screw over their drivers). YRT runs routes that are unprofitable(in fact, ALL of their routes are) and for many who may have ridden YRT but did not know it was, in fact, a private service, this will likely come as a surprise. It may also come as a surprise to many on the right that YRT is no more efficient than any other transit company in the GTA, the majority of which are publicly owned and operated.

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  17. Gord wrote, “as private operators would only want to operate routes that are profitable and cut all nonprofitable routes”

    This is an example of mixing up privatizing with contracting out. If one sold off the TTC to a private operator, I have no doubt this would be the outcome. However, contracting out operations does not give the contractor the right to pick and choose the routes. To use York Region as an example, YRT sets the service standards, decides where the routes will run, and sets the schedule. The private contractors operate the vehicles to meet that requirement.

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  18. Calvin Henry-Cotnam Says:

    “December 22nd, 2008 at 3:19 pm
    Gord wrote, “as private operators would only want to operate routes that are profitable and cut all nonprofitable routes”

    This is an example of mixing up privatizing with contracting out. If one sold off the TTC to a private operator, I have no doubt this would be the outcome. However, contracting out operations does not give the contractor the right to pick and choose the routes. To use York Region as an example, YRT sets the service standards, decides where the routes will run, and sets the schedule. The private contractors operate the vehicles to meet that requirement.”

    I did not mix up “contracting out” with “privitization”. I specifically answered a question posed by Walter Lis. To answer Nick J Boragina’s comments: YRT is “contracted out” not “privatized”. YRT is public owned and YRT owns all of the vehicles.

    Keep in mind that “contracting out” is specifically covered in several sections of our CBA. The TTC cannot contract out without the agreement of ATU113. I think I can safely say that this won’t happen as our union is opposed to this concept. One of the TTC strikes in years past was over the proposal to have “part-time” operators at a lower rate of pay and no benefits. The Union struck and the TTC backed away from this proposal.

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  19. Surely if station maintenance services were contracted out, the deplorable conditions found in TTC stations would improve.

    Steve: One fascinating problem organizations have in contracting out is in defining exactly what they want to accomplish. Sometimes, what they get internally is a function of underfunding and/or mismanagement. When the target specs are translated to a contract, either the cost goes up, or the contractor spends their time cutting corners. There is also the problem of contract performance enforcement. If an organization wasn’t willing to manage its own staff properly, it is rarely likely to force a private contractor to do any better.

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