The Metro Transit Authority is holding serious negotiations with a highly regarded Cincinnati-based bus management firm to decide if that firm will take over operations of the regional Metrobus system.

The firm, ATE Management and Service Co., Inc., operates municipal bus systems in 32 U.S. cities ranging in size from Baltimore to High Point, N.C., and is praised by transit officials for its managerial and marketing skills.

"It's going to be a very tough decision on what to recommend to the board," Metro general manager Theodore Lutz said. He expects to make that recommendation sometime before Sept. 1.

Ironically, the decision on whether to employ an outside management team is coming at a time when Metrobus service is getting better marks from its riders than it has in years.

That was never more evident than at Thursday's Metro board meeting when D.C. Member Jerry Moore, a persistent critic of bus operations, praised Lutz because, for the first time he could recall, there had been few complaints to his office about air conditioning not working through Washington's torrid summer.

Metro's July 4 bus and subway operations worked very well this year and the Mall area was cleared of fireworks watchers within 90 minutes - a far cry from the Bicentennial fiasco a year earlier when promised buses didn't run and thousands were left stranded downtown for hours.

"If this contract management proposal had been in shape to vote on last July 5, it would have passed easily," one Metro board member said. "Now, it's going to be a much closer question."

That could mean that Lutz' recommendation will be pivotal. When Lutz took the job of Metro general manager last year, one of his first instructions was to study the contract managment proposition and to reorganize the Metro staff so that somebody would clearly be in charge of bus operations.

It was a lack of accountability, board members felt, that permitted problems like July 4 to happen. From the moment Metro took over bus operations in 1973, a persistent criticism of former Metro general manager Jackson Graham was that he saw his primary role as building the subway, not operating buses.

Despite the fact that Metrobus added routes, improved reliability and service and eased transfers between lines, it was clear to any user that the bus system was not what it could be. Furthermore, from the day of public acquisition it began to cost the area's taxpayers enormous amounts of money.

Although supporters of public acquisition of the bus system testified in Congress that no subsidy was anticipated, the deficit ballooned from $3 million the first year to more than $50 million last year.

What Metro had inherited was a skeleton, not a body. There were no spare parts, woefully inadequate maintenance facilities and a decrepit ileet with no replacements ordered. Furthermore, labor costs - primarily for drivers' salaries - continued to climb.

What seemed phenomenal in Washington, however, was also true everywhere else. No public transit system - including those under contract management - is meeting its operating costs out of the fare box today. Every system in the United States requires some measures of public subsidy.

That fact, however, also makes the conventional business yardstick of profit and loss a difficult one to use in rating potential bus managers.

"Since you know you're not going to make money, how do you judge?" asked William A. Boleyn, Metro's assistant general manager for finance.

"Do you base it on cost reductions? On good service? Remember, that public transit cannot always do, for political reasons, what a private company can do - just lop off a route because it is not profitable. So revenue control is ruled by social and political reasons, not business ones."

Metro board members got their first look at the ATE management team in a executive session Thursday. At that session, ATE president Philip Ringo and his staff told the board they could save Metro $2.5 million a year gross. However, the management fee would run between $700,000 and $800,000.

Few, if any, savings could be reached in the most costly area of bus operations - salaries.

After the meeting, Metro board member Joseph Wholey said that "My frame of mind is that it would have to cost us little or nothing" to go to contract management. "You can't tell much by a presentation," he added. "We asked them to give us information on past accomplishments."

If ATE has a strong supporter apparently leaning in its direction it would be D.C. City Council Chairman and Metro board member Sterling Tucker. "I am strongly in favor of our considering contract management," Tucker said. "That is because we (Metro) were not organized to run a bus system.

"Metro's problems are to build the subway, run the buses, and solve the financial and political problems. Roy Dodge (Metro's assistant general manager for construction) can build the subway; Lutz is a financial whiz who knows his way around Capitol Hill; but we don't have anybody to run the buses."

Lutz, with the board's concurrence, did reorganize Metro along the lines Tucker outlined. But he has not named a bus manager because, Lutz said, "I don't know yet whether I'm hiring somebody to run the Metro staff or whether I'm hiring someone to supervise a private contractor." So Lutz himself has been acting as the bus manager.

If ATE winds up running Metrobus, it will be the biggest system that company has to date. But it already has some major cities - Minneapolis, Cincinnati, Kansas City, and Baltimore.

In most cases, ATE was hired by hard-pressed municipal governments to run a privately owned bus company that had just collapsed.

That's what happened in Cincinnati, ATE's headquarters. After ATE took over, things got better, Cincinnati City Manager William Donaldson said. "My general impression is that ATE's management and maintenance is as good as anybody's, and they do very well at merchandising," Donaldson said.

"If I have a criticism" he said, "it would be that ATE wants to keep expanding service - and that means we keep expanding our losses," [WORDS ILLEGIBLE] recommend that Cincinnati keep ATE. "I couldn't do it better," he said.

A check of transit experts could find only one major contract that ATE has lost once it had been hired. That was in Denver, where a regional rapid transit district was created by referendum to build a light rail (glorified trolley) system and run the buses.

The light rail [WORDS ILLEGIBLE] for lack of federal support. [WORDS ILLEGIBLE] to run the buses had [WORDS ILLEGIBLE] place. Denver executive [WORD ILLEGIBLE] John Simpson said. "ATE run the buses very well for the years between the public takeover of private companies and the time we felt we were ready to run the buses," Simpson said. ATE was not fired for cause, he said. "It was mutually amicable," he said.

ATE has generally been able to get along with its labor unions, officials said, although it resided over a difficult bus strike in Richmond last year.

George Davis, president of the Amalgamated Transit Union Local 680, which represents Metrobus drivers and mechanics, said the prospect of outside management is "disturbing." "I've gone through hellfire and damation since 1974 to get Metro to understand the bus system, and we might have to do it again," Davis said.

He praised Lutz. "Two weeks after Lutz had the job, he came over to see me," Davis said. "It used to take two weeks to get on General Graham's calendar, and then it was clear he didn't want to see you."

Davis said that Lutz cleaned up previously fuzzy lines of communication and that he knows exactly who to call when he has a union problem.

ATE won consideration for running Metro by submitting what Lutz called the only responsive proposal to a Metro invitation to present specifications.

ATE, according to a pamphlet sent to The Washington Post [WORD ILLEGIBLE] Ringo, would normally install a management team of up to 10 people to handle specific bus operation functions. The resident manager could also call on ATE's Cincinnati office for additional expertise.

ATE is privately owned, according to Ringo's pamphlet, and most of its middle managers own stock. No one individual has more than 8 per cent, he said. Ringo has a reputation of recruiting and retaining top transit people he sees in other systems.

Metro staff employees are understandably nervous about the situation. Some of them could lose their jobs. "Given good support from the front office, which we have with Lutz," one official said, "this staff can do as good a job as anybody."