How the Buy-America Mandate Hurts U.S. Transit

Seoul bus... energy efficient...
Seoul bus… energy efficient…

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.”


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13 responses to “How the Buy-America Mandate Hurts U.S. Transit”

  1. Was talking with a transit planner recently from one of Virginia’s larger cities. I asked him how much it cost to buy one of their (fairly standard) buses. He said $400,000.

    I understand they will be expensive but that seemed a little ridiculous. Apparently there’s some rigidity in that market and not a lot of competition. Companies tend to keep contracts and build buses to order.

  2. Breckinridge Avatar
    Breckinridge

    The fact that the buses are usually 85-90 percent empty contributes to the economic inefficiency, as well….Anybody ever tried variable bus fares to reflect demand? Higher cost during high demand periods, lower cost to fill up the empties….?

    Interesting that the federal government has no problem telling auto manufacturers what their mileage has to be, but it doesn’t sound like the bus manufacturers are held to the same standards. Set the higher standard and the transit firms will all have to upgrade their fleets rapidly. Think of all the jobs you’d create!

  3. There is an op-ed in today’s Post somewhat to the same effect: “Get on board: Transit is in Trouble.”

    One major finance issue missing about transit: federal dollars cannot be spent on local transit operating costs, meaning that some transit firms bought new buses with stimulus dollars and still can’t afford to operate them. Another: bus operations must match federal capital improvement dollars on a one-to-one basis but generally a local government (which operates the buses) has to pay only one dollar for every three that Uncle Sam puts up to build a roadway.

    1. what the GOP is going to do – is force transit to be locally funded and take it out of the Federal budget -in part, because we now add to the fuel tax revenues an additional amount of general revenues equal to the current Fed gas tax revenues.

      gas taxes are for cars… not transit.. is the mindset…

      how it’s going to happen will start this fall if the GOP takes over the Senate.

      then the GOP will concentrate of veto-proof bills .. and try to gain support from the Dems – and rural Congressional Dems are going to be convinceable that gas taxes spent on transit don’t come home to rural communities.

      Our local tea-party brewed BOS would kill local transit in a heartbeat if they can… they keep asking how much one trip costs per rider and the numbers are not good.

  4. this is not an advocacy for transit but rather repeating what I’ve heard and that is that transit is subsidized to give jobs to people who without transportation would just live on welfare and entitlements.

    It’s sorta like the Earned Income Credit where you don’t get the credit unless you have … _earned_ income.

    people of modest means – who have found a place to live that they can afford will not move to be closer to a job if housing is more expensive. make sense, right?

    see our problem is we want 3rd world solutions – i.e. no entitlements or special transit subsidies – but we also won’t let people live in cardboard boxes in slums or city parks and/or die outside of ERs.

    we don’t have the belly to follow through on our instincts!

    we don’t want no fricken welfare state but the idea of hillside slums and kids picking through the dump for food and shelter also revolts us.

    I kinda wish we’re make up our mind – one way or the other.

    ๐Ÿ˜‰

    do I think 400K buses are the solution? Nope.

  5. If the Republicans are going to eliminate publicly-funded transit, the least they could do is simultaneously take down the webs of regulations that keep private transit from functioning. I’m looking at you, taxi unions.

  6. we should further explore this. Would taxis be cheaper than transit?

    should we allow taxis that have no insurance or minimal insurance to operate for the poor? we would allow drivers who do not have valid drivers licenses, or horrendous driving records, or violent criminal records to provide “cheap” taxi service?

    bonus question: who determines what an insurance company is? can anyone sell “insurance” who says they are selling insurance or are there some kind of rules – and who sets those rules?

    what would happen if a 10 person jitney got whacked by an 18-wheeler on the beltway?

    what would keep a jitney from operating on roads with higher speeds?

    how would we allow taxi’s cheaper than transit to operate?

  7. maybe a better bottom line question – would we support lower/less safety and insurance standards for the poor?

    would we provide transit vouchers for the poor to find the cheapest transportation they could rather than operate hugely expensive and underused transit systems?

    and just out of curiosity – what does Europe, Japan and Australia/New Zealand do ?

    I’m not opposed to change, to innovation, as long as we are up front with what we are advocating… and I’m opposed to back-door changes where we pretend something other than what will happen is a “solution”

  8. The actual problem is driving is SO heavily subsidized. According to the National Surface Transportation and Revenue Study we — all U.S. govt’s — subsidize driving by $144 billion annually while subsidizing transit by $39.4 billion. According to the Victoria Transport Policy Institute, on average, it costs American society $.54 per mile for each of the 2.9 trillion miles we drive annually — and higher mileage cars/autonomous cars/electric cars change that number very little. According to the National Defense Council in 2006 (so getting a little dated), we should be paying an additional $10.06 per gallon to pay for the externalities, including keeping the Strait of Hormuz open, our driving creates.

    The problem is our mainstream media — dependent upon automobile ads — refuses to bring out some facts which should be being discussed if there truly was “a free marketplace of ideas” (as the First Amendment pre-supposes) and, hence, no politician brings them up either.

    Please remember that during the 2008 campaign the Democratic front-runner, Hillary Clinton, and her GOP counterpart BOTH proposed eliminating America’s meager 18.4 federal tax per gallon…and at least one of them is running again.

    1. re: cost per mile – consistent with the IRS which allows 56 cents a mile for business use .. 24 cents for medical miles..

      I’ll not blame the media. it seems like both sides of the issue believe the media should be better reporting THEIR side!

      and I have quibbles with the word “subsidy”.

      take a look at what we spend tax money on – and don’t call it subsidized.

      We spend money on schools, higher ed, hospitals, parks and recreation, prisons, police, fire and rescue, waste disposal, and I don’t recall any of it being characterized as “subsidized”.

      and we live in a world -in the US where many think, quite wrongly that taxes on gasoline pay for the road system and even then folks think money is “diverted” from roads to transit, bike and ped where if you look at the facts – the Feds now budget twice as much for roads than the gas tax generates – the other half comes from general revenues – and could be view, in effect as funding transit, ped and bike from a part of those general revenues with the rest going to roads.

      but saying that transit runs mostly empty but it still runs anyhow is of no more or less import than ignoring the fact that we have enormous unused road capacity – having built a lot of it to only carry rush hour traffic and it lies essentially unused at other times but still adds significant operational and maintenance costs.. to keep it “running”.

      Having said all of that – I do wonder what happens if the Feds get out of the gas tax business all together except for perhaps interstates and US signed roads maintenance … and let the states and the localities figure out how they want to fund new roads and transit.

      what the Federal funding has done to transit is essentially prevent the localities from developing sustainable funding plans. They depend on the Feds for money.. and support in the community is polarized between those who think transit is important and needed and those who believe it is stealing their road dollars.

      Most people also do not realize that transportation vans for the elderly and the handicapped are also funded primarily by the Feds not the localities – and the result is that most folks don’t even know we have these services or where the funding comes from – and more important – the needs of the elderly who no longer can drive to get to medical appointments and the handicapped (young and old) to get to their jobs and day care.

      Just like most folks don’t realize that Federal funding for education is about 1/10th of the funding and all of it goes to “Chapter” reading and math specialists and other related help for at-risk kids.

      is it up to the “media” to “educate” folks ?

      it’s an honest question because in the absence of it the advocacy groups are putting out information, a good bit of it is propaganda, misinformation and disinformation – tailored for those who prefer a sound-bite view of the world.

      you cannot have a discussion on the merits – of anything – if people don’t know the facts and don’t really want to know the facts…

      if you ask the average person how much money their locality spends on buses and vans for the elderly and handicapped, how many would know?
      how many would even realize that such services even exist?

      and yet these services are funded primarily from the Feds via transportation funding – gas taxes and general revenues.

  9. As usual Larry, excellent points.

    To refer to one: The four functions of the media, according to every text book on the subject, is 1) to inform; 2) to influence; 3) to entertain and 4) to support the economic system. Supporting the economic system in the micro economic world is so much burying the alleged prime one, “inform,” that media is today only influencing and entertaining. Take, for example, the number of films, TV shows, UTube videos, blogs, etc. where the “protagonist” (or character the story is hung on) is stuck in traffic? Or driving around seeking a parking space? Or happily buzzing along on a bus? Consider the car ads, even the pop-up ads, which almost inevitably show the car — and YOUR alleged personality — zooming through brilliant outback scenery and freedom? Have you ever seen a bus ad doing the same?

    Now go back and look up all the articles about the Deepwater Horizon oil spill iin 2010. Millions, maybe billions, of words in the Washington Post and the New York Times — our best (I submit) newspapers of record. Read them all. NEVER once over five months of daily front-page headlines; over covering even what Jimmy Buffet thought of the effect on his paradise; over covering the money being made renting to reporters; over the shrimping effect; over the lawyers flocking to the Gulf Coast for their personal killings; over the lack of birds to be cleaned up; over virtually everything you could possibly think of, NEVER once did reporters at the two newspapers of record point out that the oil being collected by the skimmers; the oil which BP had hoped to harvest directly was headed for our automobile gasoline tanks. That if we drove less, we wouldn’t need to drill in deep water (or above the Arctic Circle, or strip-mine tar sands; or invade Iraq; or subsidize eCar purchases, or…), somehow the reporters never thought that might be a part of the biggest story of their lives.

    1. re: the “media”.

      good points!

      I’d add:

      there are some pretty good print and broadcast media. I particularly respect SOME of the articles in the NYT, WaPo and WSJ plus others but I’ve gotten in the habit of check who the author is …

      but we now have competing media -namely the “think tanks” of which some are objective and respectable.. honest.. and others basically exist primarily to manipulate data and information to fit their agenda. Some just shade a little and others are not at all bothered to totally synthesize data .. and claiming it came from an objective source ..

      I’ll give an example – assertions that social security is going “broke” and is causing our deficits and will lead the country into bankruptcy with it’s “unfunded liabilities” – all confirmed by the Social Security Trustees report.

      totally false .. totally manufactured but.. very effective and it leads to the gullible to swallowing it hook, line and sinker.

      Social Security is funded from FICA not general revenues and by law it cannot pay out more than FICA brings in – i.e. it cannot by law, have an unfunded liability. It has some issues with being able to pay out 100% longer term.. no different than many private and public pension systems do..

      it’s just an example.. pick any subject of which the left and the right fundamentally disagree and you can get your own bias fed to your heart’s content!

      Every night I hear O”Relliey talk about how the mainstream media controls the news – at the same time he claims that he is the most listened too cable channel for the last 13 years.. and he is joined by Limbaugh, Levin, Malkin, Hannity, Beck and a ton of like-minded broadcasters.. but the “left” media “controls” the news…

      so the “media” is no long the “media”. it is an amalgamation of print and broadcast and internet.. not only like a fire hose – but dozens of firehoses pointed in all kinds of directions.

      people now believe what bests suits their views – not what’s necessarily true because the truth is what best confirms their biases…

      the guy who flunked science and math in high school now knows that climate science is a “hoax”.

      we’d have plenty of transportation money if it wasn’t diverted to bike trails and transit.

      people who don’t have insurance – don’t go to ERs for their care and we don’t pay when they do it – anyhow.

      taxi’s don’t need to have insurance.. or standards.. to protect the public.. it’s an evil monopolistic rent-seeking scheme.

      insurance itself is a lefty liberal concept.

      poor people could ride cheaper in unregulated taxi’s than buy-America transit buses…

      on and on it goes…

      we don’t need no stinking transit or health care … let them walk and when they get tired of walking..they should die .. and die damn quick and don’t get the left wing media involved!

      ๐Ÿ˜‰

  10. I think transit, it’s accepted role in our society, government’s role in funding transit, and taxpayer/road users attitude towards the legitimacy of transit – illustrates the the evolution of Conservative politics today.

    Most middle-of-the-road folks believe transit should exist and accept the idea that taxes will fund it.

    And it was not that long ago that one could be a Conservative, a principled fiscal conservative, – on the right – but support transit and things like transit, minimum wages, head start, free & reduced lunches for at risk kids.. social security, Medicare, public school,

    But now days, if you have been determined to be a RINO – you are no longer welcome in the party. On the other hand, every wacko bird running around loose whether it’s Ted Nugent to Ted Cruze … birth deniers, Agenda 21 conspiracy types.. get rid of the Depts of Energy, Commerce, Education, EPA, the Fed, impeach the POTUS for illegally changing laws.. Benghazi, IRS, you name it – they’re all clumped together under one tent – except for the outted RINOS.

    there is no such thing in the lexicon any more called “moderate conservative”.
    Whether it was Bennett in Utah or Dick Lugar in Indiana.. they are no longer part of the GOP.

    if you are even suspected to be “wobbly”, the current Conservatives will “primary” you – even if it means – the Dems win the election when the replacement challenger is a wacko-bird.

    there are no Conservatives that say: (for instance) – we need to modify transit to do things differently… instead.. it’s like we don’t want no stinking 400K buses and million dollar bus stops – we need jitney’s and unregulated taxi’s instead – like you see in 3rd world countries.

    People who are elderly, handicapped, in wheel-chairs or blind or deaf, or just poor – screw them – it’s not our job to accommodate them, let’s get rid of the job-killing ADA.

    Now – not all Conservatives say this – but they’re all grouped up under one tent these days – except for the RINOs who have been tossed out – so one must presume that if they remain together as a group – at the same time they’ve tossed the RINOs that they do pretty much agree overall even if they vary a bit on specifics.

    so you get something like Transit – and the Conservatives as a group are opposed to it – even though they don’t agree on all specifics – they’d all be just fine if transit got killed.

    when they speak in their various opposition “tongues” – they comprise a monolithic opposition – not just opposed to one kind of one form of transit – but an aggregate group opposition made up of their various individual oppositions.

    there are none in their group that is brave enough to say: “wait a minute, we need transit, but it needs to change”. As soon as those words come out, they are escorted to the RINO exit door.

    there is no real – group level support for ANY different kind of transit. It’s like health care and immigration and birth control – as a group – there is no Conservative path to a different solution… there is no solution – because the opponents cannot get together and support something.. as a group.

    the ones that are opposed to any/all kinds of transit – will not even compromise with those who want some less, more modest form of transit. taxi’s have to be totally unregulated … there is no compromise for some specific different kind of regulation that would allow uber-type services. The “do this for the poor” is a cynical ploy for the gullible who would be so goofy as to believe that an unregulated taxi or a jitney would be “better” for those who current use transit.

    I’m not opposed to changes. I too believe 400K for a bus is too damn much and having buses run mostly empty – going past stop after stop is not efficient and we should work the issue but I also think having thousands of miles of unused road capacity – except at rush hour is not much different other than it does not have the same opponents of transit opposing that excess capacity either.

    we’ve degenerated as a society. The people who seek compromise and fiscal conservatism are “enemies’ if they don’t toe the hard line on the right.

    and the thing is – until and unless people who do value moderate approaches that include compromise get out and vote – the “anti” folks are going to rule and it’s not going to be a positive agenda .. it’s going to be even more destructive.

    so we do not have real dialogue any more on how transit should change. It’s basically about keeping it or getting rid of it… no middle ground …

    there will still be wars… they will just be internecine… instead of partisan.

    The NBIR paper, by the way said this:

    (1) do not respond to energy prices in either their scrappage or purchase decisions;

    (2) respond to environmental regulations by scrapping diesel buses earlier and switch to natural gas buses;

    (3) prefer purchasing buses from manufacturers whose assembly plants are located in the same state;

    (4) exhibit significant brand loyalty or lock-in effects;

    (5) favor domestically produced buses when they have access to more federal funding.

    go to their abstract: http://www.nber.org/papers/w19964

    what are they supporting? what the ‘anti’ folks will do – is they’ll take these opposition points – and use it as justification to kill transit all together.

    this is no path to a future transit.

    and if you don’t believe it – then key in to GOOGLE

    how ‘buy-American” hurts (to get the overall right-wing view)

    and

    how ‘buy-American” hurts transit

    to get the right’s view on transit…

    then key in:

    why transit should be abolished

    then

    why unions ruin transit

    it don’t take long to get the drift of the right these days.

    as said earlier – the thing that really disturbs me is

    not that there is opposition and not that even certain opponents actually do have alternative proposals

    it’s the fact that the Conservative orthodoxy cannot even agree on alternatives they support – as a group.

    they’re not pushing for Conservative alternatives.

    they’re basically supporting destruction of the current institutions and little more than that.

    we’re no longer looking for solutions – for alternatives …

    we cannot survive as a Country if this becomes our majority view of government.

    do we really want to just break government and walk away? some do.. how many compared to how many not? right now – the sand-in-the-gears folks have the votes.

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