Wednesday, August 22, 2012

Feeding The LTC Money Drain

Last weekend I made an adjective-laden assertion on Twitter that a "bloated inefficient union monopoly results in poor service," by which I was referring to our friendly neighbourhood London Transit Commission. Local tweep Shawn Adams challenged my premise, asking me to elaborate.



There have been increasing complaints about London's transit service; I think we can agree that it's suffering. Instead I'll give my reasoning why public sector unions and government monopolies often result in poor service, as well as focus on areas of concern with the LTC itself.

When unions operate in the private sector where there is healthy competition, a natural balancing mechanism exists. There is a limit to how far they can push and how much they can demand. If they demand too much, or if they go on strike, they risk their employer losing customers and going out of business.

Unions operating in the public sector lack this natural safety buffer. When public sector unions negotiate or strike, they know the government won't go out of business. What's worse, the people on the other side of the negotiating table are negotiating with other people's money (OPM). This balancing effect is reflected in Canada's unionization rates. In the private sector, 16% of employees are unionized, while in the public sector, this number jumps to over 71%.

The problem is amplified when services are provided through a government monopoly. Whether it's the government itself with the monopoly, or an private company which is given a monopoly by the government (such as The Beer Store), the effect is the same. There are no alternatives to which consumers can turn, and no competition to punish inefficiencies. This leads to growing costs and poor service.

As public unions demand more, the operating costs increase, which get passed on to consumers. In a competitive market, consumers may switch to a less expensive alternatives, but in a monopoly there are no alternatives. Consumers are also left high and dry if a public union goes on strike, halting the entire service. If a cab company's employees went on strike, people would use another cab company. When the LTC goes on strike, as they did in 2009, riders are left without bus services. (Though I must admit, the 2009 LTC strike made my daily commute so much easier!)

Shawn asked for specific inefficiencies. Let's go back to the 2009 strike and look at the demands of the union. The union initially demanded a 20% wage increase over 3 years. A 20% increase, during a recession?! Even the 9% increase over 3 years the LTC offered was generous, but why shouldn't it be? It's not their money. Even "penny pinching" LTC General Manager Larry Ducharme's salary increased from $108,000 to $138,000 between 2004 and 2009, a whopping 28% over 5 years!

LTC drivers now pull down about $25 an hour. Compare this to other cities. The average wage of bus drivers and subway/transit operators in Windsor/Sarnia is $14/hr (2010), $15/hr in K-W (2010) and $16/hr in Toronto and Ottawa (2010). In 2011, private school bus operator Langs Bus Lines was offering $13.25 an hour for drivers.

But inefficiency is more than just excessive pay and waste. It's also about the quality of service produced for the money being invested — the "bang for the buck." The LTC has been able to reduce costs by running buses less frequently. Service hours have decreased 23% from 1991 to 2011. As a result, we get a diminished quality of service as riders must sometimes wait for extended periods to catch a bus, or be passed by as buses reach capacity. Complaints have more than doubled from 2009 to 2011.

So what's the solution? If it were up to me, I'd break up the monopoly and introduce competition in our transit services. Allow private operators to bid for contracts to service routes. The operators would still be funded by the city plus fares, but would do so in a competitive environment. Other cities, such as Milton, are already enjoying public transit provided by private operators.

Or, we can stick with our bloated inefficient union monopoly and keep feeding the LTC money drain.