Read this account of the privatization of London, and maybe let’s think again about privatizing the MBTA in Boston.
First, as only a Brit could put it about the overall privatization of Britain since 1982:
It was a free-market frenzy. Everything we owned was being flogged off by pinstriped bastards reeking of lunch.
And this about London’s privatized skyline:
The utter capitulation of London’s planning system in the face of serious money is detectable right there in that infantile, random collection of improbable sex toys poking gormlessly into the privatised air. Public access? Yeah, we’ll definitely put a public park at the top (by appointment only).
In sum, one hundred years from now, historians:
…will wonder why people tolerated this transfer of collective wealth from taxpayers to shareholders.
privatization versus full-fledged privatization. it’s true there are many different privatization models, which imply different levels of private ownership and public control of what would formerly have been public assets. But the outcome in all of these models is the loss of public control and the turnover of formerly public decision-making authority to private hands. In other words, the public is pushed out of the decision-making equation.
Also, in saying that there’s no likely way, other than privatization, for the T to raise the $13 billion it needs, I think it should be made clear that the public still pays for this. What usually happens is that a private company puts the money up front and then expects to be paid back with substantial interest over a long, long period of time. So the result is that the cost actually is much higher over the long run to the public in these deals than if these projects were funded through publicly issued bonds, for instance. Yet, the public loses most if not all control over the assets. It’s not a formula for much public benefit over the long run.
I haven’t yet read your linked report on London, but will do so.
The T IS funded through bonds. It no longer gets appropriation.
They just can’t tell us where the money went.
as I think you used shorthand. MBTA capital spending is through bonds, as has long been true. Operating costs are funded through the sales tax dedication, rider fares, adverts, parking and other rental fees and a few other small sources.
I don’t want to try to cut through the language of what constitutes privatization or its merits but the MBTA already contracts out a large part of its mission. See Keolis, or the BMG discussion about buses in Winthrop/Paul Revere .
“Where” they spend the money is laid out quite clearly.
Hint: they spend more on debt service then they do on debt service ($424M) as they do on wages ($493M) FY15 numbers.
…Aloisi of diverting Federal money earmarked for capital improvements to debt service? With the collusion of the board?
Could be….too bad the State Auditor can’t investigate.
Come on porc’. We’ve been fellow bmgers a long time. You play above board, as do I.
Cut the crap, and don’t put ugly words into my keyboard. It’s not cute.
But the entity is run like a business. That’s the model used in Hong Kong, which built a much better much larger and much more financially stable mass transit system from scratch since 1985 while the T was grinding down to its present quasi-unworkable state. In Hong Kong and Tokyo mass transit is financed in large part by real estate development managed by the quasi-public transit agencies and through various other revenue sources. Moreover, they are listed companies that can sell shares on global capital markets, which is where the developed world goes for capital finance. Result: billions in annual profits and capital that are invested into the mass transit system. Moreover, the public by electing Baker and the legislative representatives who brought us DeLeo, has made crystal clear that they don’t want to pay more taxes in general, and certainly not for T — and absolutely not $13 billion worth of capital improvements. Conclusion: maybe this crisis will result in a few hundred million being spooned into the system, but the probability that will result in any substantial improvement is about 1.5% ($200 million/$13,000 million).
…that sounds way too close to describing the charter school model for my comfort.
Hong Kong’s MTR, we’d have to start the T from scratch and methodically develop it over 40 years. It would have to be extremely popular to start with and experiencing increasing public demand. According to Wikipedia,
Privatization doesn’t seem to have started until 2000. The Hong Kong government had already built a formidable, popular train system before it privatized, which was after the British handed over its last colony.
There might be some useful funding mechanisms we could borrow for the T, but there are a lot a significant differences from Hong Kong.
Passenger rail, when run as a business, ALWAYS fails.
In the glory days of US passenger rail, private companies ran posh and highly-publicized passenger trains because those trains were the best advertising money could buy. The nation depended on rail for virtually all of its travel. Every burg had a station, and that station was a vital and active participant in the day-to-day life of the town. It was plastered with posters and timetables. The successful campaign was targeted at purchasing agents for companies who wanted to ship freight — agents who lived in all those cities and towns and learned about the railroad from its passenger trains. The resulting brand awareness increase freight sales, and made investing in money-losing passenger trains a win for the railroad. The passenger trains themselves ALWAYS lost money.
The combination of modern media and automobiles changed all that.
Successful public transportation (most of Europe, notably including Switzerland, Germany, and Austria) results from significant government subsidies.
The premise that passenger rail transportation should be “run like a business” flies in the face of nearly two centuries of international experience.
Convenient, affordable, and safe public transportation is valued by PEOPLE, and therefore governments. It is NOT valued by any successful for-profit business.
1. The Hong Kong system owned the land when it was cheap, and then built rail to serve that land, and made sure the land was “zoned’ to allow large development. That model simply does not apply to the MBTA in any way shape or form.
2. One need not be a listed company to have access to capital. The bond market serves all credit worthy customers, publicly listed, privately held, and government. Cargill has about $130B in annual revenue, in a capital intensive industry. They’re privately held. You think they have any trouble gaining access to cheap capital? Fifteen US states as diverse as Delaware and Texas have AAA bond ratings (MA is AA+). Think they have any trouble gaining access to cheap capital? Los Angeles WAter and Power (LADWP), the nation’s largest municipal electric company, has an Aa3 rating and over $7B in debt, but they too have no trouble accessing capital despite not being “listed”. And, frankly, the MBTA has no problem getting loans (Aa1) — the MBTA’s problem is that they don’t have the additional revenue to make the payments. Even if the interest rate were 0.0%, the MBTA still doesn’t have the revenue to pay back additional debt.
I don’t disagree with your assessment of the liklihood of a near-term fix, but you continue to hold up a transit agency that has absolutely no parallels to the MBTA to justify solving a problem the MBTA doesn’t have.
the T through real estate development. But in any case, do you have any sources to back up your assertions about the Hong Kong transit system? In particular, do they have an online version of their statements of revenues and expenses and assets and liabilities? There is a website for the Hong Kong subway, which looks like it is run by the MTR Corp., but I couldn’t find any corporate info on it. Didn’t look that hard though.
how the MBTA would acquire the development rights surrounding transit stops, short of stealing property from private land owners.
An explanation of how the HK system acquired its development rights would be a good starting point.
Hell, they could develop the air rights of their right of ways.
The problem is one of urban planning and zoning. The MBTA, to make enough money to dent their budget (no less make $13B in profits) would have to be building 30+ story skyscrapers. In Quincy, Allston, Medford, the works. There’s no way their host communities (read: cities and towns) rewrite their zoning to allow for that kind of massive development, and furthermore it’s generally not the case that those communtites have the other urban infrastructure to handle massive development like that.
And then there’s timing. Let’s just say the MBTA got the go-ahead from the lege to build ten 30-story buildings. How long does it take to plan, approve, build, and then sell/lease that space? Ten years feels about right. So even if the MBTA had the land in the right places and had the right to build massive developments, it would still take ten years. I’m not arguing for or against the plan, or that we shouldn’t do something because the payoff isn’t for ten years, but let’s be clear — if this is the best idea we’ve got, we’re in bad shape.
that I linked to in the post is that when private interests begin buying up property, the public loses access to that property. Even air rights in London are being privatized. The day will come in Lonon when:
Let’s not go that route in Boston.
Yesterday I asked the question as a starting point to expose the lunacy of the comparison of the MBTA to Hong Kong. Since there has been no response on this, Neer’s second time to tell us the T should follow that model, it is obviously not plausible in a reality-based world. Thank you for laying it out more directly than my question to Neer did.
The MBTA/the Commonwealth could have obtained the supermarket adjacent to the GLE terminus in Medford ten years ago when it was for sale and the broad GLE plans were being set. There could have been a dense mixed use development there with surplus revenues accruing to the MBTA but instead we got another Whole Foods supermarket. Since the T could not pull the trigger on that one obvious site, they won’t likely try it anywhere.
Just read the post by Adeas linked above. As to the your example, it proves my point: the existing structure is extremely unlikely to capture revenue opportunities because it is not structured to do so. Restructure it as a quasi-private business and hope returns as the example of other cities, including but not limited to Hong Kong testifies. The reality is that the status quo has failed as virtually any T user can testify. Therefore, the structure should be changed.
and it is interesting but has zero information on how a purchaser of a privatized MBTA system would acquire the land needed to generate enough revenue to support the system. So tell us how you might answer my easy question, or stomv’s tougher questions about getting massive rezoning across half a hundred communities.
You tell me to “just read the post.”I say just answer the questions rather than fob off the easy stuff, because so far it is not much more than spitballing ideas without regard to “reality-based” democracy.
It’s always easy to find excuses for why things won’t work. Of course Boston is not Hong Kong and of course the land in Hong Kong was cheap before the MTR made it valuable (that’s the point). It’s equally easy to refute these assertions: some T stops can be developed; debt finance is not the same as equity; private capital can have a real impact; and on and on. All of which is beside the essential point which is: the existing structure has failed. The T has failed. It doesn’t work well enough to support our economy, and is dragging us down. Without fundamental restructuring, the record of the past 50 years (since the T was formed in 1964) it is likely to continue: continuous deficits yielding steady absolute decline and rapid relative decline.
a scenario where there is sufficient revenue that can be generated from development on MBTA owned land, or lacking a broad plan, name five locations where this is plausible. I am unaware of any places in the T system where this might happen but I do not pretend to know the entire system.
I see no evidence that privatization will work, and much evidence that it will fail.
Meanwhile, the scenarios you contemplate all strike me as a very hard way to accomplish this, when a much easier way is available if we will just DO IT:
Tax the wealthy. Raise taxes, significantly, on very-high income and wealth residents. Raise the capital gains tax significantly, coupled with an increase in its threshold. Raise the personal income tax significantly, coupled with an increase in personal exemptions.
I’m not saying that the politics are easy (but the politics of your scenarios are likely to be even more byzantine). I am saying that the fundamental strategy is MUCH easier: shift the debt burden from the MBTA to the state, raise taxes to cover the service on that debt, and borrow more money to fund the necessary investments — raising taxes to cover that debt service as well.
We cannot have public transportation that is convenient, affordable and safe and not raise taxes. It’s THAT simple.
… that I agree with you on raising taxes, this is a short-to-medium term fix only. “Funding the MBTA” may be apart from “Fixing the MBTA” in the manner of treating a symptom rather than a root cause. It may be necessary to do, but it won’t be sufficient.
To the extent that taxes are too low at present, under this model they will, someday, be too high and, if you believe as I do, that the MBTA is a poorly-funded and poorly inflated political football then moving to a better funded, but still poorly inflated political football, tho’ better, might be a recipe for a cycle of tax and spend wastefulness (I can’t even believe I typed that sentence… but I did.)
Herein lies the crux of the issue: Robert DeLeo and Charlie Baker both, have a way of thinking that goes along the lines of, “We should get to say what the MBTA is and does if we pay for it,” as though it is something that we could stop paying for, or arbitrarily pay less for at will, or whim. There focus is on the payment and not upon either the use or the affect. Their attitude should, instead, be: “We should jumpstart the MBTA because it is a vital component of our economy and someday that vitality will redound to solvency for the MBTA” for just as a poor economy can lead to a faltering MBTA, the converse is probably even more so; a robust MBTA can lead to more robustness in the economy. I think is in this vein that Bob_Neer makes his underlying point — and I daresay you may agree with a goodly amount of it — The point is that the MBTA needs to be able to make decisions for itself and have some avenue to solvency that doesn’t depend upon the whims of Robert DeLeo or the ideology of Charlie Baker. It also needs to remain dedicated to the vitality of the common wealth as that is it’s sole raison d”etre. The question is whether a quasi-private entity can do this and, while providing an impetus to the economy, become solvent in doing so. If the MBTA is a vital component of a vital economy then there ought to be ways to capture some of that vitality back into the MBTA for solvency and expansion.
that the MBTA
“existing structure has failed”
is not so obviously true as you claim. If you are suggesting that MBTA management was the cause of the failure, name the specifics. If you are suggesting that privatization will lead to massive new developments around MBTA properties, show us where, when and how we get there.
I think it is unlikely that privatization proponents can come up with any answers about how privatization would work within the next decade, as stomv notes. I expect there would be plenty of bidders for the MBTA after the taxpayers pony up a few billion dollars in that period to make the MBTA worthy of the region, but why should we sell off a modernized system? The pro-privatization argument is especially bizarre coming from proponents of the B2024 bid since MBTA improvements need to happen before the next ten years pass.
The greatest failure in metro mass transit was a political one and it resides in the offices of the legislature and the executive branches for the past 40 years, magnified under the Baker/Finneran forward funding scheme. It was a failure of our democratic system that crashed the MBTA and nobody is proposing to privatize those malefactors.
A rush to privatize the MBTA with a wave of the hand towards London and Hong Kong is not a plan. “Reality based” details are need and there are not any offered by proponents of privatization on BMG. The proponents owe us that, at a minimum.
I’m sympathetic to your argument and Tom’s. I agree if the legislature agreed to have the state assume the system’s debts and found billions in new financing the system might likely make significant improvements. But it is not going to happen with Baker as Governor and DeLeo as Speaker, and the MBTA’s history since 1964 suggests it is not likely to happen, period. Nor, perhaps, should it: we live in a democracy and a majority has been explicit: no new taxes for the T. That is why the system has been in decline and is likely to continue to decline. I don’t know which exact real estate assets should be exploited and that’s not the point: existing ones if possible, new ones if necessary. Appoint a committee to restructure the T, endow it with sufficient assets to be listed on NASDAQ or the NYSE and function as a viable business and generate profits that can be reinvested into the system. That is the essential element of the system that has been a success in Hong Kong (it was not a success in London, so we shouldn’t follow that model). As public transportation advocates, we should all agree that the more assets the system has, the better. Everything else I have heard here “if we will just DO IT” is of course completely correct, with respect and admiration and a shared devotion to mass transit, but also unrealistic given the history of the past 50 years and recent electoral results. Thus, although the sentiment is worthy, the result will just be a continuation of the status quo and continued decline.
The Washington DC Metro didn’t just happen. You might find Building the Washington Metro: An Online Exhibit interesting.
I agree that the challenge is to break out of the history of the past 50 years and recent electoral results. In my view, privatization won’t accomplish that, and will instead (like casinos) only shift the corruption, deal-making, and power-brokering to places where it is even more difficult to manage.
I can tell you, as someone with fairly extensive scar-tissue from both successful and unsuccessful venture capital deals, that the shenanigans, double-dealing, deceit, and outright fraud that we’ve already seen in the MBTA over the last 50 years (not to mention the Big Dig) will be even more likely in any “privatized” approach.
BTW, Hong Kong is a business environment and culture known for its corruption. There’s a reason why John Le Carre chose Hong Kong as the setting for The Honorable Schoolboy.
models of running and improving the system. But all proponents of privatization should remember that the public will still pay for it. They will pay for it either through higher taxes and T fares over the long run, and they will probably lose access to public space.
Oh really? In what vote was that made explicit? Implicit? Sure, I buy that. But explicit?