As part of efforts aimed at improving the productivity and effectiveness of public transit systems, performance evaluation techniques have received a great deal of attention among transit analysts. Development of performance evaluation methodologies applicable to groups of systems has been limited by the issue of comparability. It is generally claimed that transit performance is sensitive to the environment in which the system operates. Since operating conditions vary from one system to another, performance comparisons may not be appropriate. However, the extent to which operating conditions affect performance has not yet been established. Using a sample of 30 California fixed route transit systems, this paper examines the effect of environmental and institutional factors on performance efficiency. It is found that operating conditions have a significant impact on transit efficiency, and therefore these factors must be identified and controlled for when performance comparisons are made. It is concluded that significant improvements in transit system efficiency will require the cooperation and efforts of both transit operators and policy makers.