UC Irvine Institute of Transportation Studies

Starting in the mid-1960's, federal policy encouraged the public takeover and subsidy of what had been a privately owned, self-supporting transit industry. The combination of public ownership and subsidy was able to halt the long-term decline in ridership, but it also led to the growth of an enormous financial deficit that has become increasingly difficult to bear. 

This paper uses disaggregate data for 62 transit properties to measure the change in productivity (output per dollar of input) over the period 1950–1985. It also shows the relationship between productivity and the size of the transit property - the large transit properties showed the greatest declines in productivity. The evidence shows substantial diseconomies of scale too. 

The magnitude of the productivity decline is surprising: indeed, if transit productivity had merely remained constant since 1964, the year the federal subsidy program began, total operating expenses would be more than forty percent lower. To put that figure in perspective, this is enough cost reduction to erase most of the current operating deficit -- without raising fares.