From Delhi's famously overcrowded buses and the legendary Paris Métro to the waves of commuter trains rolling into Manhattan each morning, transit systems are as different as the cities they serve. Most, though, share one unfortunate characteristic: chronic operating deficits. According to a recent McKinsey benchmarking study of 48 public-transit operators around the world, the average transit agency covers less than 70 percent of its operating expenses with passenger revenues (Exhibit 1).

Operating deficits in transit systems stem from two essential sources. The first, intrinsic to the task of safely transporting millions of passengers every day, is the need to make trade-offs between the system's public-service mission and its operational efficiency. These trade-offs involve complex and at times contentious policy issues—such as fare structures, service levels, and route design—that are often beyond the short-term control of typical transit agencies. The second, however, involves factors that they can address without sacrificing safety or service: fleet maintenance, labor management, and fare collection.

As agencies scramble for their share of increasingly scarce public resources, not to mention additional funding for security, some of them might need to consider politically controversial changes such...