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Transportation Thu Feb 07 2013

Our Coming Public-Private CTA: How Much Will We Pay?

VENTRA_CMYK_Logo.jpgWhile it's easy to get overwhelmed trying to keep track of all the Chicago transportation improvement projects on the docket for the next decade, two major changes are coming soon that will permanently alter the way Chicago's public transportation system operates. These changes -- a newly outsourced mass transit fare payment system and a potential investment into 'L' line modernization and expansion -- will both involve the Chicago Transit Authority in public-private partnerships (PPPs or P3s).

However, despite assurances that P3s are vital for the future of infrastructure, and public officials' claims that the city is not "selling off" its assets, we should be skeptical of the idea that these projects are foolproof solutions to budget woes. Not only have the city's previous transportation-related P3s proven to be an increasingly expensive burden on Chicagoans, but similar mass transit P3's in other cities across the world have had mixed results, at best. For these reasons, the current P3 projects in the pipeline for the CTA deserve more public scrutiny to ensure that they benefit Chicagoans without incurring additional fees and burdens.

In recent years, P3s have gained popularity as a way for private entities to profit from co-funding massive infrastructure projects or otherwise filling roles previously conducted by governments. P3s work in a variety of different ways, depending on what exactly a partnering private entity is contracted to do -- it could merely finance construction, but it could also have a role in designing, operating, maintaining, and/or even owning a given project for a brief period of time.

Proponents of P3s (including our current mayor and president) assert that these kinds of deals free the government from the burden of paying to maintain and improve public infrastructure, particularly in an era when federal, state and city resources are increasingly unavailable or spread thin. CTA President Forrest Claypool is also enthusiastic about the possibilities of P3s, and was quoted in a recent Tribune article as saying, "We believe that partnerships with the private sector are one piece of the key to keeping mass transit healthy."

But what exactly is on the table? And what do we know about these projects?

Back in September, the CTA announced that it would be rolling out a new contactless fare payment system in Summer 2013 called Ventra. Customers will be allowed to pay using cards, tickets, special debit and credit cards with contactless chips to "tap" their payments, and (eventually) mobile devices. Based on a CTA-awarded 12-year contract for $454 million back in November 2011, this new payment plan will link CTA and the Pace bus systems under one open fare system. By 2014, the current payment methods you're used to, such as CTA passes and Chicago cards, will be replaced with Ventra. In fact, you've probably already seen Ventra logos on 'L' station turnstyles.

Ventra is the product of San Diego-based Cubic Transportation Systems, itself a subsidiary of an international technology and defense firm. Cubic specializes in tracking transactions for mass transit systems, and its previous clients include San Francisco's Bay Area Rapid Transit (BART), the Washington Metropolitan Area Transit Authority and the Pennsylvania Port Authority Transit Company, along with transit systems across the UK, Canada, Europe and Australia.

How will Cubic make money off of Ventra? According to Breaking Travel News, "Once the system is live, CTA and Pace will pay Cubic a monthly fee plus a fee per 'tap,' or paid fare." In return, Ventra is expected to save the CTA over $50 million in fare collection-related equipment, maintenance and support costs.

As the CTA and Pace begin to roll out Ventra, a different type of P3 is in the exploratory stages.

Last week, local news outlets reported that private investors are interested in partnering with the CTA on two major 'L' projects the city can't currently afford -- modernizing the Red and Purple Lines north of the Belmont stop, and expanding the Red Line southward to 130th Street. The bidding process is still in the works, but the city has hired Goldman Sachs to assess exactly how money can be made from these projects.

These may sound potentially beneficial on paper, but Chicago doesn't have the best track record with transportation P3s. The city's 2005 leasing of the Chicago Skyway gave the city $1.83 billion, but the country's first privately-run toll bridge is now also the costliest per mile, and recently raised its toll rate for two-axle vehicles from $3.50 to $4 (with additional scheduled increases coming in 2015 and 2017). Similarly, Chicago's much maligned 2008 parking meter leasing deal will raise parking rates in the Loop to $6.50 an hour.

Despite the city's expensive mistakes under Mayor Daley, are P3s worth considering for Chicago's future transit needs? For other modes of transportation, the jury's still out. The Daily Herald's Marni Pyke notes that P3s are probably the only way projects like the proposed Illiana corridor between I-55 and I-65 will get built. On the other hand, Chicago magazine's Whet Moser recently listed several examples of other cities reconsidering general P3 deals.

So far, there's no word on whether CTA or Pace fare structures will change as a result of the switch to Ventra, or what sort of potentially controversial funding schemes will have to take place in order for an investor to back the Red and Purple Line projects. However, this hasn't stopped Cubic's own blog from proclaiming P3s (and specifically, Chicago's CTA projects) as "The Future of Transportation Funding."

As it turns out, outsourcing fare collection to Cubic hasn't necessarily solved mass transit funding problems in other cities or prevented burdens from being passed along to riders. Even after nine years, London public transit's Cubic-driven Oyster Card system -- which is similar to Ventra -- still has some problems correctly reading and properly charging for contactless fare payments. Edmonton's public transit system, which is used as a case study on Cubic's website, saw its fares increase across the board at the beginning of the month.

Back in 2004, Atlanta implemented a Cubic-based SmartCard system for Metropolitan Atlanta Rapid Transit Authority (MARTA). Currently, MARTA is outlining a financial restructuring plan to outsource operations including payroll, human resources and cleaning services, cut union benefits, and potentially hike fares by $30 million if other operational costs can't be significantly slashed. This comes months after a series of problems the MARTA "Breeze" cards had accepting credit and debit card payments.

Perhaps the ultimate example of a mass transit P3 deal gone wrong is the case of the Las Vegas Monorail. As the only privately built and owned metropolitan mass transit system in the United States, the 3.9 mile route received investments from several private companies from the get-go, features brand-sponsored cars and stations, and charges $5 for a single ride. Yet the system still managed to file for bankruptcy protection in 2010, from which it's only now beginning to emerge. Despite all the private funding and operation imaginable, LVM officials are still figuring out how to fund future expansion.

This is not to say that private investors are solely to blame for cost increases. Clearly, each regional mass transit system faces its own unique combination of economic, legal and logistical hurdles. At the same time, cost-saving P3 investments haven't prevented some of the funding issues that P3s are hypothetically supposed to solve for cities, and are in no way the end-all, be-all solutions to maintaining and improving a mass transit system.

At Northwestern University's recent William O. Lipinski Symposium on Transportation Policy and Strategy, William Blair & Co. partner Thomas Lanctot described the Ventra deal as "a poster child for the way to structure P3s (public-private partnerships), provided that the new fare equipment works as expected."

If the track records for Cubic and other transportation P3s are any indication, perhaps we, the public, should start bracing ourselves for a partnership with disappointment.

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Roland Solinski / February 8, 2013 4:09 PM

It's hard to say P3s are good or bad. The devil is always in the details. In the case of the Skyway and parking deals, the increase in rates is actually a desirable outcome from a certain standpoint - it decongests roads, makes parking easier to find, and encourages drivers to switch to transit. The real issue with the parking lease is the way it gives control of street space to a private entity, so we can't ever remove parking spaces to make way for bike lanes, bus lanes, wider sidewalks, or anything else that might reform the way streets function and move people.

In the case of the proposed P3s, for Ventra, Red Line, etc the basic idea is that the private company can get the project done cheaper, because it doesn't have to worry about political pressure that increases costs(e.g. the use of union labor). The private company makes money because only SOME of the savings are passed on to the government, and the private partner keeps a portion. In theory, everyone should win. In reality, win-win is possible but it requires the city and the taxpayers to be extremely wary about evaluating the terms of a deal.

Tom Tresser / February 8, 2013 4:45 PM

Just take a look at the book, "Public Service, Private Profits- The Political Economy of Public-Private Partnerships in Canada" by Prof. John Loxley. Cut to the chase at p. 182 - "Our analysis suggests that public financing of P#s is not an advisable option."

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