The future Northgate light rail station under construction.
Credit: Lizz Giordano

Looking for ways to accelerate the delivery of light rail, Sound Transit is considering using private-public partnerships (P3) for ST3 projects. But to take advantage of potential savings, CEO Peter Rogoff warned the Board it “would have to cede some decisions to a private vendor that it customarily reserves for itself.”

P3s are a procurement form which uses a single private entity for the design, construction, and possibly the financing, long-term operation, and maintenance of projects. The partnership offers several potential benefits to public entities, including reducing risk and costs, lowering agency workloads and providing additional debt capacity, without having to privatize the project.  

Reducing agency workload

In the short term, P3s are more work for public agencies, which are still responsible for completing both the environmental review and design specifications for the bid process. In the long term, however, the partnership can eventually transfer a lot of work to the private company, freeing up agency resources.

“When we are facing a project list [for ST3] this long, if there is an opportunity to have a public/private consortium take on an entire project, and not therefore have to grow the staff as robustly… just relieving us of some of that bandwidth would have some benefit,” Rogoff said during the Thursday Executive Committee meeting.

Risk Transfer and Cost Savings

Once contracts are signed, ST would lock in a cost and timeline for the project, along with (if applicable) a long-term operational cost agreement, passing future risk onto the private company.

“If I am designing [a project] and I know I have to operate it for 10-15 years, I’m really going to think hard about how I design this project so it can be built on budget and operate cost-effectively,” said CFO Brian McCartan. “So by combining all those roles, rather than breaking it up into three different parties, you hope you can gain some efficiencies, and hopefully drive costs and risks down.”

McCartan said the potential for cost savings is greater during the operational phase of the projects.

Increasing Financial Capacity

“In some cases, the private company will bring money to the table,” McCartan said. “Lots of these projects come with 10 to 50 to 100% equity ownership.”

This could free up debt for other projects, allowing the agency to stay under its statutory debt limit while delivering projects faster. Rogoff warned the board there are also some tradeoffs to participating in a P3.

“There is a customary level of engagement in a project that the board is accustomed to … that they would have to cede, or otherwise run up the cost of a P3 type transaction,” Rogoff said.

To take advantage of a P3, the board would have to lock down designs earlier to avoid higher costs later, he added.

According to McCartan, P3s have become the standard method for the delivery of transit projects in Canada, which used this model for much of Vancouver’s train system.

McCartan said the bus-rapid-transit projects on SR 522 and I-405 are good candidates for a P3, as is the expansion of parking facilities planned in ST3. But smaller projects, which are estimated to cost $200M or less, and projects already beyond the 30% design stage, are not ideal.

“If and when you want to start charging for parking, we think that is a good P3 opportunity,” McCartan said. “There are very strong players in the private sector about building, operating and maintaining parking facilities.”

For P3s, many transit agencies partner with the private sector in real estate development in and around transit facilities. However,  a new state statute requires Sound Transit prioritize affordable housing by offering at least 80% of surplus property to non-profit developers first.

28 Replies to “ST Explores Private-Public Partnerships”

  1. Good fit for parking facilities (which ST should really not be doing anyway)

    Otherwise I am generally skeptical of these arrangements. As a rule I believe public infrastructure should be publicly owned and managed.

    1. With a PPP contract, car owners can win the political battle up front making ST pay the private company a set amount in perpetuity to operate what ought to become a profitable piece of infrastructure.

      With public operation, the rules can be shifted over time, enabling ST to eventually charge market rate for all the stalls, and keep the profit.

      1. I’d envision the PPP to do the exact opposite – ST doesn’t have to pay for a parking garage up front (that’s privately funded), and the private operator would have some latitude to set parking rates, giving ST political cover for charging for parking.

        The private operator would, of course, generate profit, but that’s the whole point – the profit is the reward for taking on the risk of building & operating the garage.

      2. It would be a good fit for parking garages but the numbers dont work. $40,000 to build a stall and a $5 a day fee (M-F) would take 8000 days to pay for itself or about 31 years. ST 3 has parking stalls estimate at $130,000 which would take 26000 days or 100 years to pay of at $5 a day. This of course is 0 profit or inflation. Anything more than 5 dollars a day and people will drive to work and pay to park at their office.

      3. If no bidder steps forward, that might make ST realize that garages are expensive per stall.

        Come to think of it, I can’t think of any parking company that builds its own garages for profit. They either build a surface lot or operate somebody else’s garage.

      4. “Anything more than 5 dollars a day and people will drive to work and pay to park at their office”

        $5/day is around $150/month. Parking downtown in cities like Chicago or NYC are >$300/month. I can easily see someone will to pay $300/month for a guarantee parking space adjacent to transit, particularly if the transit itself is free (i.e. paid by employer). People will pay a premium to park close to home (to avoid traffic) rather than pay to park downtown.

    2. Excellent fit for parking facilities. Max out the zoning, squeeze in the bare minimum required parking stalls, and build the thing out for mixed use. Agree that we don’t want private developers involved with ownership of rail facilities.

    3. I don’t mind PPPs as long as they don’t adversely affect station entrance locations and fares. I don’t care how parking is managed so that’s a good first step. And a private owner would be able to overcome the inertia about charging for parking, which ST has only taken limited steps toward. Although it may make it harder to integrate parking with ORCA and monthly passes.

  2. I think the idea is that if the contract calls for ST to pay the company a recurring sum of money over time, rather than borrowing to pay them a big lump sum up from, ST is not technically issuing debt, hence they don’t run up against the statutory devt limit. At the end of the day, it’s an accounting gimmick to work around the law setting a debt limit lower than ST’s real ability to pay.

    1. Except that it might raise the total amount ST pays, or that passengers pay. I’d want consumer costs set in the agreement, not up to the company judging how much the market can bear.

  3. I can appreciate the benefits of a PPP. Still, I worry that ST already has a culture of not having good intentions and quantitative standards for circulation and access — and that a PPP firm could take advantage of that.

  4. This is kind of out there, but I wonder whether a PPP setup might encourage BRT to be done as driverless busses, since it eliminates one major operating expense. Unfortunately, driverless doesn’t seem to be anywhere on ST’s radar–bus or train.

    1. A driverless 20 mile per airport shuttle might be perfectly acceptable to folks, but blasting down I-405 at 55 amid other vehicles, some of whom will be jumping in front of the RoboBus, does not seem likely to be popular.

    2. How extensively have driverless buses been tested? First they’d have to be tested extensively anywhere, then they’d have to be extensively tested in Pugetopolis, and a conservative transit agency would want proof of this and high liability insurance. If ST decides to explore driverless buses it might let a small contract just to test them for a year or two, but I can’t see ST allowing a bid for driverless buses as just a minor feature, not until they’ve started appearing in production in other fleets.

      1. This could just be a contract which doesn’t specify whether or not the service is driverless but allowing for bid pricing consistent with transitioning to driverless at some point.

      2. First thing about “Driverless” vehicles. Drone aircraft certainly have pilots. Including computer programs. Which somewhere up the line have to be programmed by humans. And therefore subject to all their limitations. Wonder who’s got a urine test patented?

        Probably my own chief problem with human-removed control in either flight or ground traffic: From personal and relayed experience, I’m convinced that the reason any of us are alive is that we’re possessed of awareness and reflexes we don’t know we have.

        Vision probably the least of them. So-evolved because for any living creature for all time, death almost always comes out of the dark. Or amid a swarming cloud of rocks, shrapnel, or cars.

        Vehicle-wise I’ve driven through situations where if maybe fifty people and I hadn’t made the exact right movement at exact right time, same number would’ve been dead.But what we don’t know is how many other times this happened on the same ride- with nobody even aware of it.

        And what we don’t know, we can’t tell a computer. Considering how few crashes there are an hour before dawn where SR101 and I-5 have at it, we’d be hard for an algorithm to beat. (Used to use them for seat-covers and luggage, right?)

        Give half those cars a twenty-mile long virtual steering and brake linkage- but be sure you don’t have a human in the drone recording the results. And be sure your agency attorney has good escape reflexes too.

        For activities involving quick correct motion, we rate pretty well. As long as we’re not forced to drive past to survive the conditions all our senses and reflexes can handle. Our own chief cause of transportation-related death is some organization imitating Alpha-hood who with-holds our basic survival needs.

        Which brings us back to contracting out public transit.

        Mark

  5. What guarantee do ST’s voters have that any private company in the world will still be in business fifteen years from now? And the consequences of its departure? And finding a replacement.

    Above all: by law, a corporation’s first responsibility is to its own shareholders. Who are never obliged to put their customers’ interests ahead of their own. And “Limited Liability Corporation” means just exactly that.

    This isn’t about accounting. It’s about ownership . Right now you, the voters, are paying for Sound Transit. And its officials are directly responsible to you. Some argument whether these people be directly elected by the voters, or appointed by elected officials.

    But whatever pro’s and con’s on these two arrangements, putting a separate company in charge of Sound Transit’s whole operations loses you the voters any control at all. Don’t like one company’s performance? Go ahead, put canceling a contract on the ballot. Also the public’s choice of a replacement.

    And then dealing with who and whatever your new one brings in. Also, after last fifteen years, who’d dare bet that any company you hire to run your operation will still be in business fifteen more from now? So especially over the life of a public utility: You want it done right, don’t contract it out.

    Mark Dublin

    1. It’s nice that the state allows ST to charge for parking. That’s one of those things that I thought transit agencies could do without the state’s permission.

  6. A private company is going to want to make a profit on their endeavor. Where will this money come from? A company would have to be so much better and more efficient than ST that the efficiency would more than cover their profit. The place these videos”efficiencies” are most likely to come from is passing less money to the ST labor force. Rather than privatize, it would be better to hold ST accountable for efficient operations.

    1. The way it worked with the MAX red line was the company paid 1/3 the cost to build the line but got access to developable land that they perceived to be significantly less valuable without the MAX line.

      With Link and Seattle development patterns, it seems like there would be similar opportunities. Say, a private company gets to develop something across I-5 from Northgate in exchange for building the pedestrian bridge. Or, instead of a parking garage, you wind up with the developer building mixed use commercial.

      In the case of the red line, the developer came to TriMet with the concept and offer, so the opportunities may not be obvious until someone presents them. There’s a lot of money to be made from developments along Link, so there could well be some private interest in moving things forward.

      At the same time, no MAX line has been built since with that level of private investment, but it doesn’t hurt to be open to offers.

  7. I came here hoping to see something different: a public-private partnership to get train lines built faster.

    It’s a bit ridiculous that there’s no train to South Lake Union. I know one is planned, but I think that a few tech companies–Amazon, Facebook, Expedia, and Google–should step up and fund that spur. We should be able to build it in years, not decades. And these companies would be the primary beneficiaries of a commuter train running through that area.

    1. Amazon and Expedia, maybe Google would probably bite, but these companies are also known for just being ambivalent towards public transit investment and would rather pour money into private employee buses. Which seems to be their MO as well. I think there would have to be a really big incentive for them do so at this juncture.

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