One of the primary benefits of competitive bidding or outsourcing, even if it includes existing public employees or collective bargaining units, is the ability to increase efficiency by reconfiguring labor arrangements. Former Indianapolis mayor Stephen Goldsmith pioneered this approach, dubbed the "Yellow Pages Test," during his tenure (see his discussion in his book, The Twenty-First Century City. (Reason's extensive work on privatization can be found here.) Unfortunately, transit agencies have been hamstrung by federal regulations from using this management and efficiency enhancing tool through Section 5333(b), Title 49 U.S. Code (formerly known as Section 13(c) of the Federal Transit Act).
According to the U.S. Department of Labor, any time federal funds are using to “acquire, improve, or operate a transit system, Federal law requires arrangements to protect the rights of affected transit employees.” U.S. law Section 5333(b) “specifies that the arrangements must provide for the preservation of rights and benefits of employees under existing collective bargaining agreements, continuation of collective bargaining rights, protection of individual employees against a worsening of their positions in relation to their employment, assurances of employment to employees of acquired transit systems, priority of reemployment, and paid training or retraining programs.”
In many cases, of course, fewer employees may be needed even though the ones that remain may be more highly compensated because the skill levels and responsibilities have changed substantively. Thus, the inability to more efficiently manage labor becomes a hurdle to achieving efficiency because federal labor law specifically limits the ability of transit agencies (or private contractors) to reorganize the workplace if it significantly impacts existing unionized transit workers. Some agencies have interpreted the common-sense language in the law to mean that private contractors much employ the same transit workers in the same jobs at the same wage and benefit levels. (These restrictions only apply to federally funded projects and programs.)