Break Up SEPTA

On November 3, about 5,100 union workers for SEPTA went on strike without warning, leaving 450,000 people needing to find a new way to work. The union is demanding a 4% salary raise and an increase in pension contributions. Transportation strikes are nothing new to Philadelphia; SEPTA workers have gone on strike nine times since 1975.

This strike is anything but a fight for the working class. The union’s demands are well beyond the means of SEPTA and state taxpayers. The average SEPTA union employee earns $52,000 per year, $15,000 more than the median annual salary for all Philadelphia workers. The city’s unemployment rate reached 11% in September as the number of unemployed residents has almost doubled since December 2007.   While taxpayers are losing jobs and taking pay cuts, SEPTA’s largest union is demanding a salary increase.  Like most local government entities, SEPTA’s pension plans are severely underfunded, likely requiring a local tax hike in the coming years just to pay current benefits. Now is hardly the time to put benefit increases on the backs of taxpayers.

Governments, unlike businesses, don’t face market pressures to keep labor costs down – they have no competition.  When public employees stop offering (monopolized) services, politicians feel pressure to meet the union’s demands in order to get the public services operating again, usually at taxpayers’ expense.  SEPTA has used this leverage well.   The agency is facing a $120 million deficit next year, but instead of controlling costs, they have a record of lobbying successfully for increases in state subsidies – being rewarded for poor money management.  Most recently it benefitted from Act 44 of 2007, which depends on tolls from I-80 (which are in doubt) and higher turnpike tolls in order to fund mass transit. SEPTA should not be given additional subsidies while it fails to manage costs.

How can Pennsylvania lawmakers avoid this mess? The first step is to open mass transit in Philadelphia to competitive contracting, whereby private companies would compete to operate SEPTA’s network. Cities like Los Angeles, San Francisco, and Boston use competitive contracting of transit services. In addition to bus services, approximately 15% of commuter rail services in the United States are competitively contracted. This practice has reduced operating costs 20% to 51%, with savings of about 35% being the norm. Las Vegas, home of the largest fully contracted-out U.S. system, has costs approximately 30% below systems of similar size.

Furthermore, state regulations require transportation providers (taxis, vans, busses, etc.) to apply for a license with the Pennsylvania Utility Commission (PUC). Applicants have to demonstrate safety, as well as “a clear transportation need not being met.” Following that, existing transportation companies may petition the PUC to deny a certificate from being granted to the applicant. This system protects existing providers from competition and keeps prices high. Removing restrictions would create increased competition, improve service, and lower prices for riders.

Secondly, transit agencies should become more dependent on attracting local customers and less on state subsidies. Increasing the reliance on local funding and fares would discourage inefficiency as riders pay for the cost of transit and demand better and more efficient services-reducing agency waste and keeping costs down.  State subsidies should be converted to vouchers for low-income riders, essentially creating a true marketplace.

Finally, Pennsylvania needs to adopt legislation like New York’s Taylor Law, which clearly defines appropriate parameters for unionized state employee strikes. They are allowed to voice their concerns through mediation and arbitration, but strikes are punishable with jail time and fines.

Elected officials should not be held hostage by unions with the ransom of higher taxes and subsidies. Pennsylvania needs laws that limit unionized government employees from shutting down public services and that allow the private sector to compete in the mass transit market.  Such reforms will create a more efficient system and save both transit users and taxpayers money.

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Elizabeth Bryan is a Research Associate and Katrina Anderson is a Research Fellow with the Commonwealth Foundation (, a public policy education and research institute located in Harrisburg.