Is It Time to Privatize New York City’s Subways?

The New York Subways Are Substandard. Privatizing Them Could Improve Things.
November 6, 2019

New York City’s transit has been in a perpetual “summer of hell.” Media outlets coined this phrase in 2017 to describe the state of different regional services, with their maintenance backlogs and decay. The phrase still applies, namely to the city’s subways, which are the backbone of the system.

They’re substandard compared to subways in similar globally-prominent cities. Aside from the recent uptick, the Metropolitan Transportation Authority’s (MTA) on-time rating for 5 years was less than 80%, giving it the world’s worst on-time rating among major rapid transit systems. Its farebox recovery is only 50 percent, and could face $42 billion in outstanding debt. Its subways lack basic modern amenities like tap cards, protective railing, and countdown clocks in every station. It doesn’t come close to major Asian cities, where the metro rail is often profitable; nor even to Mexico City, where I found trains were cleaner and more frequent.

Why are the New York City subways like this? At the root of the problem is their age. The system first opened in 1904, and some equipment, like the signals and switches, is a century old. This requires more money than would be otherwise necessary to go toward repairs.

But other subway systems are older than New York’s, such as the ones in London, Paris, and Berlin, yet they perform better. It seems, rather, that the MTA’s problem is an expensive and ineffective bureaucracy.

The New York MTA is a state-run agency with a unionized workforce and an incredible culture of waste. A bombshell 2017 New York Times report found MTA construction costs were 5 times the international average, due to over-payment and duplication from labor unions and private contractors. 62 percent of the budget goes toward labor, including 21 percent to healthcare costs and pensions. Then there’s the misappropriation with the actual capital spending; 10 percent of it goes to Long Island Railroad, a series of low-ridership lines serving suburban commuters. Manhattan Institute scholar Nicole Gelinas thinks this is designed to appease more conservative suburban swing voters, at the expense of reliably left-voting city transit users. Collectively, these spending priorities show how the MTA gobbles up tax money in exchange for poor services, explaining why ridership has declined by 5 percent since 2015.

There are different ideas on how to improve the system. One camp calls for internal government reforms, mainly devolving MTA’s management. It’s run by the state and overseen by Governor Andrew Cuomo, who is widely viewed as being controlled by the unions. Current city council speaker and mayoral candidate Corey Johnson wants to return MTA control to New York City, under the notion that this would improve accountability.

There’s a small camp, though, that thinks the government’s role, no matter the level, should be reduced for New York City’s subways. They could instead be privatized, in hopes that this would encourage competition, raise private capital, introduce labor efficiencies, and curb misappropriation.

The subways somewhat began this way, opening in 1904 as a private, for-profit monopoly that received government regulation and subsidy. When the system failed mid-century due to competition from the suburbs, the subways shifted through various management structures, falling in 1968 under the MTA, which was meant to be an independent, apolitical bureaucracy.

Were privatization to happen now, it would likely mirror that dynamic. The MTA would be dissolved and the subways returned to the city; and they would follow a for-profit model that involves some government oversight. But the examples from worldwide show that this could take many forms.

British rail privatization allowed the state to maintain control of the tracks, but franchise out train operations. There were strengths and weaknesses to this, but the privatization, for all its criticism, did cause ridership to double, capacity to expand, and investment to increase.

In Hong Kong, the Mass Transit Railway (MTR) system is a public monopoly, but in 2000 sold 25 percent of its stock to private investors. This helped the company adopt an expansionist mindset, buying up land around stations and extending its operations throughout Europe, Australia, and mainland China. As I wrote in an earlier Catalyst piece, MTR’s original system in Hong Kong is arguably the world’s best—wildly profitable, high capacity, and always on time.

But Tokyo surpasses these two examples in being the world’s closest thing to a free-market metro rail model, with a bevy of competing private lines. While they must deal with government protectionism and price controls, they manage to stay profitable, in part by owning and developing the land around stations.

There is no reason New York City can’t implement one of these models—it has the density and demand to support profitable rail transit. It won’t happen any time soon, though, as the MTA keeps its grip on this politicized, patronage-ridden fiefdom. But in the realm of different reform ideas, privatization is at least worth bringing up.