A Small Step Forward

If you’ve been paying attention to things that I have written over the years, one topic that keeps coming up is privatization of government services. This is particularly true of mass transit, something that I discussed on last week’s episode of Watchdog Wire Radio.

Today the state of Maryland took one step albeit incomplete forward in moving down that road:

Maryland will seek a private company to build and operate a planned $2.2 billion light-rail Purple Line, marking the first time the state has used such financing on a public transit project. 

Gov. Martin O’Malley (D) plans to make the announcement about the 16-mile transit link at an event in Bethesda on Monday. The governor also plans to highlight more than $1 billion in new funding for transportation projects in Montgomery County, administration officials said. 

The package includes a $400 million state commitment for construction of the Purple Line, as well as more funding for county bus service, new intersections and other road work in one of the most congested regions in the state.

Clearly, the idea that the state of Maryland will allow a private company to build and operate the proposed Purple Line is in line with my long-held position on privatization. When the state floated the idea of a public-private partnership back in May I was skeptical, justifiably so given the state’s poor track record of following through on such partnerships and insistence that the transportation infrastructure be built and maintained by the state regardless of the cost savings available through privatization.
You’ll notice from the May story that the state floated the idea that 5-10% of the cost would be funded by a private company. While the  percentage of private investment does exceed that, private funding still does not account for even half of the funding:

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The package includes a $400 million state commitment for construction of the Purple Line, as well as more funding for county bus service, new intersections and other road work in one of the most congested regions in the state…. 

Maryland officials are counting on the federal government to cover about $900 million of the project’s construction cost and will look for contributions from local governments and the private sector as well, said Erin Henson, a spokeswoman for the Department of Transportation. Construction could begin as early as 2015.

That means a grand total of $1.3 billion for the Purple Line project will still be coming from state and federal taxpayer resources, to say nothing of any contributions the state gets from Montgomery and Prince George’s Counties, or any of the municipal governments to be serviced by the Purple Line project. At most only 41% of this project will be funded by the private sector contractor.
Getting back to the contract itself, this is not a simple case of the State of Maryland entering into an agreement with a private company to build and maintain the line and to make their profit based on ridership, efficiencies, and farebox recovery. Taxpayers will be on the hook to the contractor as well:

With the Purple Line, Maryland is seeking a single private partner to design, construct, operate and maintain the project. In return, the state plans to offer annual payments throughout a 30- to 40-year contract period. Deductions would be made from the payments if the operator falls short on standards such as on-time performance, cleanliness and customer service, according to transportation officials.

So instead of incentivizing efficient operation, timely performance, and affordable fares, the State is automatically building in a contract period and only will deduct from the payments made to the contractor if they fail to meet what will likely be the barest of bare minimum standards of safety and performance.
Today is a big day in Maryland, because the State is finally starting to see the light of privatizing our infrastructure, but we have a long way to go until it is done in such a way that the taxpayers see a truly efficient cost savings.
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Bonus feature: it was timely that I saw this from Ed Driscoll today as it relates to Light Rail lines being proposed by governments instead of rapid bus lines:

A transit agency that expands its bus fleet gets the support of the transit operators union. But an agency that builds a rail line gets the support of construction companies, construction unions, banks and bond dealers, railcar manufacturers, electric power companies (if the railcars are electric powered), downtown property owners, and other real estate interests. Rail may be a negative-sum game for the region as a whole, but those concentrated interests stand to gain a lot at a relatively small expense to everyone else.

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