Privatization of Transit Can Increase Service, Decrease Costs of Public Services

Written by Katie Lettie and Amanda Maher

“Fix it first,” urge the advocates who would like to see taxpayer dollars invested in fixing existing transit systems rather than investing in rail expansion. Meanwhile, proponents for expansion argue that strategic expansion will catalyze new economic development, thereby expanding the tax base—money that can then be reinvested into the transit system.

Even in a world of limited resources, it shouldn’t be an either-or approach. As Boston’s public transportation system, the MBTA, is quickly realizing, public-private partnerships can lay the groundwork for a path somewhere in between.

The Brighton neighborhood, located just five miles from downtown Boston, provides an example. Brighton had once been served by the MBTA’s Green Line light rail system. In the 1960s, with the introduction of the Green Line’s D-branch, the MBTA was facing a shortage of light rail trolleys and opted to abandon the A-branch to Brighton. Yet this neighborhood remained a haven for the region’s college students, young professionals and recently, Harvard University’s growing campus. The neighborhood’s density and proximity to businesses and universities certainly merits public transit access, but the already cash-strapped MBTA did not have immediate plans to reintroduce service.

Plans changed when New Balance decided to expand alongside its Brighton factory store.

New Balance planned to relocate its headquarters from downtown Boston to Boston Landing, a massive 15-acre, mixed-use development project in Brighton, led by NB Development Group, a subsidiary of the shoe company. The project has captivated local development audiences, not for its size, but for one unique feature: the development will include a new MBTA station on the Worcester-Framingham commuter rail line—and it will be entirely funded by NB Development at a cost of approximately $15 million. The station will return rail service to the Brighton community after more than four decades, and the station will provide immediate access to Boston Landing visitors, residents and employees. All at no cost to the MBTA.

Though the MBTA has previously engaged the private sector in contributing to station costs (for instance, Federal Realty contributed approximately $200 million toward the Assembly Square station, a new light rail stop that services Federal’s anticipated five million square foot development at Assembly Row), it is the first time a corporation has fully funded an MBTA station. NB Development has also agreed to maintain the station for the first decade after its 2016 opening.

These projects support a growing trend of municipal governments leaning on the private sector to fund what have traditionally been relatively straightforward public services. Austin, Texas, and San Diego’s North Country Transit District outsourced public bus services several years ago, and New Orleans granted management of its entire public transit system to a private company. During the recession, Chicago entered into a 75-year agreement to lease its parking meters to a private company in exchange for an upfront $1.2 billion payment.

While it’s true that public-private partnerships such as these can be widely beneficial for communities, the devil is in the details. For instance, in San Diego, the private sector bus operator was able to realize cost savings by lowering the starting wage of bus drivers from $14.00 per hour to $10.50, and scaled back benefits – including the elimination of pensions.

Chicago’s deal was even more controversial. Chicago aldermen adopted the parking meter privatization proposal only four days after Mayor Daley presented it, desperate to fill a budget hole with the upfront payment the deal would generate. The bid documents were never vetted by aldermen, nor were public hearings on the proposal held. A report released after the fact found that the City was foregoing at least $974 million in additional parking revenue as a result of the terms of the agreement. It was a raw deal for taxpayers—a deal that would be in place until 2083. To make matters even worse, the new operator, sharply raised the price of parking at the meters, in some cases fourfold.

“There are a lot of dangers in terms of loss of control over public policy, not getting enough revenue for these assets, as well as a lack of transparency,” warned Phineas Baxandall, a senior analyst at the U.S. Public Interest Research Group.

Private companies face risk as well. The economic downturn caused the Las Vegas Monorail Company to file for Chapter 11 bankruptcy protection in 2010. The company restructured its debt and was able to keep the tourist-dependent system up and running through the recession. With interstate commerce down during the global recession, the operator of the Indiana Toll Road filed for similar bankruptcy protection, as did the operators of South Bay Expressway in San Diego and the operators of the 16-mile Southern Connect in Greenville County, South Carolina. When operations are privatized, operators cannot turn to taxpayers as a buoy when times are tough.

As these public-private partnerships become more common, more lessons are learned. Namely, the most successful cases of privatization stem from thorough, transparent negotiations that provide the community with an opportunity to provide input. “Not all privatization deals are bad,” said Chicago Alderman Roderick Sawyer. “But if we’re going to do this, let’s be honest with the public and let them know what’s going to occur: it’s going to save this much money, it’s going to cost this many jobs.” Indeed, a proposal to privatize Midway Airport was abandoned after a detailed analysis found the deal would not justify the costs.

Ironing out all details up front may take more time and resources, but doing so will help to protect a corporation’s bottom line while ensuring cities and taxpayers reap long-term benefit.