1. Prior to passage of the Urban Mass Transportation Act of 1964, most transit service in the United States was produced without public subsidy by franchised private companies. The companies obtained revenue through passenger fares and advertising. Ridership plunged after World War 11, when gasoline rationing was lifted. As their revenues plunged, the private franchised companies could not afford to offer service on low-use routes at the current fares, but the franchise boards that regulated transit were reluctant to allow companies to abandon low-use routes or to raise fares. Federal legislation helped cities finance a buy-out of the private companies, and public subsidies allowed transit to continue to service on low-use routes.

2. Data from National Urban Mass Transportation Statistics: Section 15 Annual Report (Washington, D.C.: U.S. Department of Transportation, Urban Mass Transportation Administration, multiple editions); Transit Operating and Financial Statistics (Washington, DC: American Public Transit Association, multiple editions). The Urban Mass Transportation Administration changed its name to the Federal Transit Administration in 1991.

3. Trends in Public Infrastructure Outlays and the President's Proposals for Infrastructure Spending in 1993 (Washington, D.C.: Congressional Budget Office, May 1992).

4. The Intermodal Surface Transportation Efficiency Act of 1991 authorized a 50 percent increase in federal subsidies to transit and allowed for additional monies to be diverted from highway funds.

5. William F. Shughart and Mwangi Kimenyi, Public Choice, Public Subsidies, and Public Transit (Washington, D.C.: U.S. Department of Transportation, Urban Mass Transportation Administration, Office of Private Sector Initiatives, February 1991); Don Pickrell, "Rising Deficits and the Uses of Transport Subsidies in the United States", Journal of Transport Economics and Policy, Vol. 24, 1985; Robert Cervero, "Effects of Operating Subsidies and Dedicated Funding on Transit Costs and Performance," Urban Analysis, Vol. 8, 1984; John Pucher, "Effects of Subsidies on Transit Costs," Transportation Quarterly (Westport, Conn.: Eno Foundation for Transportation, October, 1982); and Wendell Cox and Jean Love, "Controlling the Demand for Taxes through Competitive Incentives," Government Union Review, Vol. 12, No. 2 (Spring 1991).

6. Jean Love and Wendell Cox, False Dreams and Broken Promises: The Wasteful Federal Investment in Mass Transit (Washington, D.C.: The Cato Institute, 1991).

7. Charles Lave, Measuring the Decline in Transit Productivity in the U.S. (Thredbo, NSW, Australia: International Conference on Competition and Ownership of Bus and Coach Services. 1989) and Don Pickrell, The Causes of Rising Transit Operating Deficits (Washington, D.C.: U.S. Department of Transportation, Urban Mass Transportation Administration, 1983).

8. Wendell Cox and Jean Love, A Public Purpose for Public Transit, Reason Foundation Local Government Center Study #207, (Santa Monica, CA: Reason Foundation, January 1990).

9. Calculated from Interstate Commerce Commission and American Bus Association data.

10. Calculated from the National Urban Mass Transportation Statistics: Section 15 Annual Report (Washington, D.C.: U.S. Department of Transportation, Urban Mass Transportation Administration, multiple editions); and Transit Operating and Financial Statistics (Washington, DC: American Public Transit Association, multiple editions).

11. Wendell Cox, Optimizing Public Transit Service through Competitive Contracting (Washington, D.C.: Department of Transportation, Urban Mass Transportation Administration, 1987).

12. Almost 10 percent of regular transit route services are provided by private contractors. 8 percent is provided by competitively procured contractors; 2 percent is provided by franchised private operators, predominately in New York and New Jersey. Data from School Bus Fleet Annual Fact Book (January 1991) and National Urban Mass Transportation Statistics: 1990 Section 15 Annual Report (Washington, D.C.: U.S. Department of Transportation, Urban Mass Transportation Administration, 1992).

13. Wendell Cox and Jean Love, International Experience in Competitive Tendering, presented to the Second International Conference on Privatization and Deregulation in Passenger Transportation, Tampere, Finland, June 1991.

14. Alan E. Pisarski, Travel Behavior Issues in the 90s and New Perspectives in Commuting (Washington, D.C.: U.S. Department of Transportation, Federal Highway Administration, Office of Highway Management, July 1992). Transit figure adjusted to account for intercity private bus and taxicabs.

15. "Illegal" vans and buses currently operate in New York and Miami offering unsubsidized transit services at fares lower than those charged by the respective transit authorities. Both cities have fined drivers and impounded vans. E.S. Savas, Sigurd Grava, and Roy Sparrow, The Private Sector in Public Transportation in New York City: A Policy Perspective (New York: Institute for Transportation Systems, City University of New York, 1991); Daniel Machalaba, "Opportunistic Vans Are Running Circles Around City Buses," The Wall Street Journal, July 24, 1991; and Dan Holly, "It's Metro vs. Minis in the Battle of Buses," The Miami Herald, May 4, 1991.

16. Private Sector Briefs: Private Sector Involvement in Public Transportation (Washington, D.C.: U.S. Department of Transportation, Urban Mass Transportation Administration, Office of Private Sector Initiatives, 1988, 1990, 1992); R.F Teal, G. Giuliano, and E. Morlock, Public Transit Service Contracting (Washington, D.C.: U.S. Department of Transportation, Urban Mass Transportation Administration, 1986).

17. KPMG Peat Marwick, Subhash R. Mundle and Associates, and Transportation Support Group, Denver RTD Privatization Performance Audit Update (Denver: November 1991).

18. Wendell Cox and Jean Love, "Reclaiming Transit for the Riders and the Taxpayers," Critical Issues: How Privatization Can Solve America's Infrastructure Crisis, Edward L. Hudgins and Ronald D. Utt, eds. (Washington, D.C.: The Heritage Foundation, 1992).

19. Price Waterhouse, Subhash R. Mundle and Associates, Benjamin D. Porter, and Patti Post and Associates, Bus Set-vice Continuation Project: Final Report (Los Angeles: January 1992).

20. Data from National Urban Mass Transportation Statistics: Section 15 Annual Report (Washington, D.C.: U.S. Department of Transportation, Urban Mass Transportation Administration, multiple editions).

21. Wendell Cox and Jean Love, "Designing Competitive Tendering Systems for the Public Good: A Review of the U.S. Experience," Transportation Planning and Technology, Vol. 25 (London, U.K.: Gordon and Breach Science Publishers, June 1990).

22. For example, Price Waterhouse, Subhash R. Mundle and Associates, Benjamin D. Porter, and Patti Post and Associates, Bus Service Continuation Project: Final Report (Los Angeles: January 1992) and KPMG Peat Marwick, Subhash R. Mundle and Associates, and Transportation Support Group, Denver RTD Privatization Performance Audit Update (Denver: November 199 1).

23. See also, Jean Love and Jim Seal, "Competitive Contracting in the US: Overcoming Barriers," paper presented to the Second International Conference on Privatization and Deregulation in Passenger Transportation in Tampere, Finland (June 1991).

24. (See also endnote 30.) To ensure that the riders of Boston's public-transit system received the full benefit of increasing public-transit subsidies, Massachusetts enacted (1980) a law to reserve public prerogative (public management right) in organizing and managing the delivery of the public-transit services of the Massachusetts Bay Transportation Authority (MBTA) in Boston. The act prohibited MBTA from bargaining collectively or entering into any agreement over inherent management issues including competitive contracting. (A legal challenge by the transit unions yielded a United States Court of Appeals decision upholding the Massachusetts law.)

25. For a full exploration of perceptual barriers, see Wendell Cox and Jean Love, "Bus Service," Privatization for New York: Competing for a Better Future, E. S. Savas (ed), A Report of the New York State Senate Advisory Commission on Privatization, Ronald S. Lauder, Chairman (New York, N.Y.: 1992).

26. Public transit authorities sometimes have understated their costs in third-party procurements. (A "third-party procurement" is one in which a publicly funded agency, other than the contracting authority itself, responds to a request for proposals. The publicly funded agency may be a neighboring transit authority, a university, or some other branch of state or local government. It is a third-party procurement, for example, if transit authority B responds to a request for proposals issued by transit authority A.)

27. Chief Counsel of the Urban Mass Transportation Administration, Yellow Cab Company v. Jaunt, Inc., June 30, 1988.

28. Michael Keough, Scale Economies Among United States Bus Transit Systems (Washington, D.C.: U.S. Department of Transportation, Urban Mass Transportation Administration, 1989).

29. A draft report on U.S. contracting from 1984 to 1992 by Travers Morgan and Wendell Cox Consultancy found that contracts for 50 buses or more attracted the smallest number of bidders regardless of which party supplied the buses. When agencies supplied buses, more bidders were attracted by service contracts of 15 buses or less. When contractors were required to supply buses, the largest number of bidders were attracted by service packages of 15 to 29 buses. (See July to August 1992 Transit Times, a publication of the American Bus Association.)

30. Colorado Senate Bill 164 and The Public Transportation Consumer Protection Act, The Source Book of American State Legislation, Vol. 6 (Washington, D.C.: American Legislative Exchange Council, 1990-1992). The Colorado bill was the first state legislation to mandate competitive contracting of transit services. The Denver transit agency was required to contract for 20 percent of its bus service.

31. Nonattributable costs, that is, capital and operating costs that represent functions not covered by proposed service contract (most typically, planning and marketing) should not be included in public-agency cost comparisons. Use of fully allocated or total costs provides realistic estimates of the stable, long-term costs of the agency and savings through competitive contracting. Use of marginal costs as inappropriate for public-sector monopolies like transit, which are characterized by unproductive use of resources.