A government program in southern Nevada intended to compete with app-based commercial ridesharing services brought in only $62,000 in its first two months of operation, while costing taxpayers $1.4 million.
The Southern Nevada Regional Transportation Commission’s (RTC) rideshare service, “Trip to Strip,” was launched in May. Las Vegas’ bus services has lost customers to ridesharing services such as Uber and Lyft.
The RTC created a fleet of eleven-passenger vans that riders can book through an online app. The government service does not have “surge pricing” that charges more during periods of high use the way Uber, Lyft, and other ridesharing apps do. Also, RTC uses vans instead of passenger cars, and it stops only at fixed points on the strip, instead of on demand.
Higher Labor Costs
The RTC had said the routes would meet 20 percent to 40 percent of their expenses from riders. Trip to Strip fell far short of this target in the first two months.
One reason for the poor performance is that the drivers are RTC employees, says Baruch Feigenbaum, assistant director of transportation policy at the Reason Foundation and a policy advisor to The Heartland Institute, which publishes Budget & Tax News.
Uber and Lyft drivers are contractors, not employees of the companies, so the copanies don’t have to provide benefits for their drivers, says Feigenbaum. RTC employees are unionized and have health care benefits.
“The value in the rideshare companies is in their cheaper labor costs,” Feigenbaum said.
Other factors, such as the limited geographic range of the app, lack of consumer awareness of the program, and longer wait times for a vehicle may have also contributed to the poor ridership, says Feigenbaum.
Start-up costs such as those for creating the user app may also have contributed to the high price tag, says Richard Fellner, policy director for the Nevada Policy Research Institute.
However, revenues for the service is expected to cover only a fraction of its operating expenses, says Fellner.
“The RTC operates on a model expecting to lose money,” Fellner said.
The RTC should sell or shutter the service if its revenue does not improve, says Fellner.
“In the government, it is so typical for a program to exist indefinitely,” Fellner said. “The government points to its existing programs as if just doing something is enough. But you have to know when to pull the plug.”
Attempt at Innovation
The RTC is different from most government services in attempting to be competitive, Feigenbaum says.
“RTC tries to be innovative, and that’s what sets it apart,” Feigenbaum said.
“If we’re going to take it as a given that the government is in this sector, it’s good for them to learn from the market,” Fellner said.
Other government agencies should follow suit, says Fellner.
“[The RTC is] willing to take a step in the right direction,” said Fellner. “I don’t think we should criticize them for that.”
Government can’t be truly competitive with private businesses, Feigenbaum says.
“It’s hard for a government agency to match what the private sector can do,” Feigenbaum said. “If [government services] can either be bad or be mediocre, I’d prefer them to be mediocre.”
Juliana Knot ([email protected]) writes from Grand Rapids, Michigan.