In our last article, we discussed how some smaller cities have launched contracted programs with rideshare providers like Via and Uber, rather than operating their own transit. But one problem with this method is that it locks in single providers, who receive government subsidies and exclusive operating rights in these jurisdictions.

A more radical approach—yet one that may be more efficient—would be for city governments to provide transit vouchers instead, and allow providers to compete for customers. Then, if demand warranted, these should be allowed to scale into higher-capacity service.

In most markets, it is de facto illegal to operate transit privately. Uber, Lyft, and contemporaries like Via faced an uphill battle in most cities, and practically nowhere can they do so at their full preferred capacity. London banned Uber from operating for 18 months; regulations in Austin caused Uber and Lyft to temporarily exit the market; and California may drive them out altogether. Even prior to the emergence of TNCs, taxi services were regulated under a medallion system in most cities, and the result was high costs for passengers and drivers alike, minimal competition, and lack of innovation.

At the same time, many U.S. cities spend lots of money on public transit, without much return on investment. Take Dallas: the transit authority DART received an annual subsidy of $538 million from sales taxes, but only 50 million annual riders. Bus ridership declined by 15 million riders between 2008 and 2018. For four decades now, Los Angeles has invested substantially in expanding mass transit as a means of addressing its notorious gridlock, but ridership remains painfully low and has dropped. Outside of America’s legacy cities, transit ridership amounts to a rounding error in overall mode share, in growing and stagnating markets alike, and was declining well before the pandemic.

But little known, even to many transit advocates, is that even sprawling cities have, at various times and degrees, been home to informal, semi-underground private transit networks. Small-scale entrepreneurs have operated services in metros as diverse as New York City, Pittsburgh, Miami, and Southern California. Called “jitneys” or “dollar vans,” these routes are characterized by informal but consistent service, for low fares. Ridership figures are hard to determine, thanks to the shadow nature of these businesses, but they are known to carry substantial traffic. They work both in competition with public transit and as a feeder, and are even more common in foreign countries, as I have previously covered for Catalyst.

Because the services are illegal, or work in a grey area, their potential is constrained. They are often not able to advertise, access curb space, or use the same road right-of-way that public transit can. In the “transit voucher” system we propose, these services would enjoy liberalization and a new flood of consumer cash distributed by the city, helping them scale.

The concept would work as follows: Rather than operating a publicly-owned transit provider, or subsidizing specific companies, a city, county, or other administrative body would distribute transit funds to residents, similar to a housing voucher or other direct aid program. Authorities could either grant this to all residents without restriction, or limit it to lower income residents through means testing. In exchange, the authority would remove all passenger transportation regulations not concerned with safety and consumer protection. Specifically, there would be no rules governing fares, service coverage and frequency, or distance between stops. There are a few advantages to this concept, as opposed to contracting with specific providers.

First, such a model would avoid locking cities into monopolistic contracts, and reduce overall subsidy. Rather than going through a lengthy contracting process to receive government privilege for, say, a five-year term, providers would have to compete on the ground for customers, receiving market feedback like any other business. Without constraints on beginning or terminating service, multiple providers could respond dynamically to consumer needs.

Second, it would reduce the bureaucracy inherent in transit provision—if operators could experiment with route planning and service delivery models, service could be provided more quickly than through the conventional public processes.

Third, it would allow for experimentation in service delivery models. Some cities are ideally suited to fixed route, high capacity service. Others, such as Arlington, TX, the city that pioneered contracting with Via, are more dispersed, and on-demand models are more effective.

Mass transit today, by contrast, operates on political demands—be they from labor unions, transit agency administrators, politically-connected contractors, or squeaky wheel patrons who may skew an agency’s coverage goals. Those demands would not entirely vanish under a “voucher” model, but the potential for experimentation makes it worth trying.

The question then becomes how high the voucher would need to be to give those who don’t own cars true mobility. One way to determine that would be looking at what agencies pay now on a per rider basis. This can be surprisingly high when looking at the National Transit Database, which tracks every agency’s spending. SEPTA, serving the Philadelphia metro area, expends $0.94 on each passenger mile and $4.80 per “unlinked” trip, while spending over $880 million in local, state, and federal funds. Looking again at Dallas, DART spends $1.30 per passenger mile and $16.80 per “unlinked” trip, receiving over $634 million in taxpayer subsidy.

Our guess is that vouchers would be far cheaper than these figures, due to reasons mentioned above. DRT providers have generally managed to avoid union labor deals, major capital expenditures, and overhead. That will be reflected in their ability to provide more services at lower cost to a city. They have also proven to achieve better mobility than government transit—if you are in a hurry, you would likely hail an Uber over taking a public bus.

So a voucher system that leverages a private DRT market, while it may sound abstract and politically-unlikely, is worth trying for U.S. cities that want an alternative approach to transit.

[This was co-authored by Scott Beyer and first appeared on Independent Institute. It's part 2 in a series on improving mass transit. Here's part 1.]