Bus Regulation: A Unique Legal Specialty

By: Jerry A. Casser, Esq.

Published in “Transportation Law Update” – May, 1989.

Historically, bus transportation in the State of New Jersey has been handled primarily by small family owned companies which were handed down from father to son. About 60 years ago, prior to the formal regulation of the intrastate bus industry by any State agency, the main thoroughfares of each municipality were serviced by individual operators, each of whom owned a single bus and drove it himself.

The individual operators later formed associations with each owner operator continuing to drive his own bus. The associations developed coordinated schedules and devised receipt pooling and collective purchasing arrangements. On many of the routes served by the associations there continued to be individual operators who remained independent of these groups, both financially and operationally.

Some of the associations evolved into single companies by the process of one operator buying up the interests of other members of the association. However, in some areas such as Hudson and Essex Counties, the association concept has continued to the present time.

The Public Utilities Commission first acquired jurisdiction over regular route intrastate bus operations in 1916. At that time a two step process was required in order to obtain operating authority for intrastate service. First, the proposed operator was required to apply to each municipality covered by his route for authorizations which were known as municipal consents. An owner operator who desired to operate only a single bus over the route would obtain a single municipal consent to operate the bus over a specified route, two consents to operate two buses, and so forth.

Once the municipality granted the municipal consent, the consent would not become effective until and unless approved by the Public Utilities Commission upon a factual determination that there was a public necessity for the proposed service and that the operator was qualified to render the service.

The requirement of municipal approval was eventually eliminated in 1973, at which time all existing municipal consents were "grandfathered" into Certificates of Public Convenience and Necessity which are issued by the Department of Transportation and are now the sole required authorization for intrastate bus service in the State of New Jersey.

Throughout this entire period, the independent bus companies have had to compete for passengers, first with Public Service Coordinated Transport, and later, after its acquisition by the State, New Jersey Transit. Nonetheless, these companies have thrived by virtue of the need to be efficient and the fact that they have generally conducted business in a limited geographical area while NJ Transit's operations have sprawled over the entire state and have been fraught with the business inefficiencies found in most bureaucratic entities. Unfortunately, the need for the State of New Jersey to justify its presence in the transportation business has stunted the growth of the bus industry by overregulation.

Overregulation has created a climate for the bus regulation specialty in the field of law. Before a privately owned bus company can obtain new financing for its business, enter into a lease for its business premises, adjust the rates which it charges for riding its buses, change operating schedules, serve recreational points such as Atlantic City's Casinos, transfer stock on its books to family members and other individuals, sell business property which is no longer needed, merge with another family owned corporation, or even terminate an unprofitable business, prior approval from the Department of Transportation is required.

In this morass of bureaucratic turmoil, a specialty has been found, tenuous though it may be. Although there is ample opportunity for an attorney to perform continuing legal functions for his client, with all of the petitions, motions, and tariffs required to be filed, hearings to be attended and just plain business advice to be given, there have been hints virtually every year that the privately owned bus companies will soon be a thing of the past.

The condition of the bus industry in the State of New Jersey is quite unstable today. While other states have turned to public ownership of bus transportation, New Jersey has continued with the private ownership of bus transportation for many years. However, the seemingly unending spiraling of costs has made it possible for only a few large companies and a number of very small companies to operate profitably.

The program under which the State of New Jersey has been purchasing buses for leasing to companies at $1 per year has for the most part taken away the market for used vehicles and severely depressed the prices of these vehicles, making it difficult for the independent companies to upgrade their fleets.

Under the laws of the State of New Jersey, a regular route operator may not discontinue its service without first obtaining approval from the Department of Transportation. Experience has demonstrated that a threatened stoppage of service will be met with substantial resistance by the State, with the backing of the Attorney General and the Courts.

Similarly, a regular route operator must obtain approval from the Department of Transportation for the transfer of its regular route operating rights to another operator. Again, experience has shown that the Department of Transportation is reluctant to grant such approval, even in situations where the acquiring company has demonstrated the capability of operating the service in a satisfactory manner.

Accordingly, a bus operator cannot merely walk away from an unprofitable route, and has virtually no market for its disposition. Frequently, the only choice available to the operator is to declare bankruptcy or abandon all intrastate operations.

But for the apparent rejuvenation of the industry in the last 15 years because of the opening of the Atlantic City market, many bus companies would have gone out of business. As it was, approximately a dozen longtime bus operations have closed their doors since 1983, and several more have substantially curtailed their operations.

A new deluxe motorcoach today costs upwards of $225,000. Liability insurance coverage is exceedingly expensive and not always available. The type of financial investment needed to start up or continue a bus company is beyond the means of most people. The period of time needed in order to comply with most of the State imposed regulations is equally staggering. Bureaucratic delay often means that the period of time necessary to obtain an increase in bus fares is one year or more, with the bus company losing money in the interim.

The period of time to obtain a new bus route or obtain initial charter approval can take from three months, if uncontested, to two years, if contested by another carrier. In this situation, the less experience the attorney has in this field, the longer the wait, for there are many obstacles to be found along the way. Not only must the attorney deftly maneuver around the State's regulations, but he must also engage in an adversarial proceeding with the attorneys for competing companies.

Sometime soon, it has been said, the transportation business in the State of New Jersey will be placed entirely in the hands of the State owned NJ Transit. Additionally, there have been rumblings that "deregulation" will eliminate most State oversight of the transportation industry, much in the manner that Federal "deregulation" has eliminated most of the Federal oversight. If so, there will no longer be a need for a transportation attorney in this State. I have been living with this threat for the past twenty years, and as each year passes, I breathe a sigh of relief.

Several years ago, the State enacted legislation that has reduced the delay in granting small fare increases and at the same time has generated new work for transportation attorneys. The State annually sets a "zone of rate freedom" within which a bus company can adjust its fare structure without the usual administrative hearing process.

This has generally increased the number and frequency of fare increase filings and tariff changes creating some additional opportunities for a transportation attorney to serve his clients.

I am a believer in the free enterprise system. We have seen the death of the corner grocery store in favor of the large supermarket. Many small family businesses in the urban areas of the state have closed in the face of competition from the large suburban and highway malls. The small bus companies live on and should continue to do so.

As an attorney, I have a great deal of pride in practicing my profession. Even more than that, I enjoy the opportunity to preserve the privately owned bus companies for what they are, efficient local businesses which provide competitive service, competitive prices, and in many cases a community flavor. If the service is not good, if the prices are not competitive, if the buses are not clean or the drivers courteous, there is always another company ready and willing to serve the public. If there were one State owned company, would this be true?

What I am seeking is a greater understanding of the bus regulatory field. With this understanding will come the entrance of additional attorneys into the field who will have a similar interest in modifying the existing legislation and in upholding the private sector against further incursions by the government.