Private Money, Public Spaces: What to Watch for in the Next Four Years – Next City

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Private Money, Public Spaces: What to Watch for in the Next Four Years

President Trump’s talking about how to pay for an infrastructure overhaul. Here, lessons in everything from bike-share to parking about papering city halls with Wall Street cash.

Story by Bill BradleyTwitter

Published on Jan 25, 2017

There are a number of ways you can get to Motivate’s Brooklyn headquarters. You can take the R train, a dependably sluggish trek to their unassuming office at Third Avenue and 53rd Street in Sunset Park. You can drive (or take an Uber) down Third Avenue and sit in traffic. You can take the B37 bus down Third Avenue and sit in the same traffic. Or you can take your life into your own hands and bike down Fifth Avenue, which has a bike lane that serves as an unofficial loading zone for bars and restaurants while cars clog the streets driving 15 over the speed limit as they leapfrog between red lights. It is the perfect illustration of the problems the United States faces as cities balloon and businesses are squeezed farther from the city center, testing the limits of our rapidly crumbling and inadequate infrastructure.

So it’s kind of fitting that even though there isn’t a Citi Bike dock within miles, Motivate, the parent company of Citi Bike and 10 other bike-shares across North America, is situated in a bustling yet somehow transit-starved corner of Brooklyn. There, on a semi-industrial stretch of Third Avenue where cars drive like it’s the Autobahn (once the traffic lifts), you have the headquarters of a company trying to change the fabric and makeup of cities (and also drive car-obsessed, anti-cycling community boards crazy in the process). But Motivate CEO Jay Walder, the 6-foot-6-inch Queens native and transit savant who has taken turns running New York’s Metropolitan Transportation Authority, the MTR (Hong Kong’s transit), and managed finance and planning for London’s transit, quite likes the commute on days he has the time to ride (Citi Bike, naturally).

And it just so happened on the beautiful October morning that we met he had (conveniently!) just ridden from his midtown Manhattan apartment to Motivate’s Brooklyn office and promptly changed into a Citi Bike hat (he wore a Divvy hat, for Chicago’s Motivate-owned bike-share, during our second meeting). But it would be disingenuous and lazy to call it a publicity stunt — even though it totally was — because I rode my bike to the meeting too. (And, on the way home was pushed out of the bike lane by a UPS truck into a parked car, leaving some mirror-sized bruises along my chest and biceps that I should have taken pictures of for the fact-checker. Mayor Bill de Blasio, more protected bike lanes please?)

America’s infrastructure, from our bridges and highways to urban transit systems and bike lanes, is broken. It has been for years. It’s been crumbling since Walder first worked at the MTA in the 1980s. It’s been a mess since he was instrumental in implementing the Oyster card, London transit’s smart card, in the early 2000s. It’s been in need of a huge injection of cash since he abruptly resigned as chairman of the MTA in 2011 to head up Hong Kong’s transit system. It hasn’t gotten any better since Walder took over as CEO of Motivate (formerly Alta) in the fall of 2014, putting his years of experience running some of the world’s biggest transit systems to work steering a young bike-share company then facing a complicated barrage of challenges.

I say this not because it’s Walder’s fault — it most certainly is not — but to illustrate that he has brought decades of varied experience in tough climates to Motivate, a company pioneering a model that he sees as the next frontier in urban mobility, even if the transportation systems that cities depend on are falling apart, rail line by rail line, creaky bridge by creaky bridge.

Public-private partnerships (often called P3s) were a buzzy phrase used mostly in urban planning and development circles until roughly two months ago, when the U.S. elected a real estate developer from Queens as president and he promised to rebuild our country’s infrastructure. Donald Trump’s plan? “Leverage new revenues and work with financing authorities, public-private partnerships, and other prudent funding opportunities.”

P3s are, as the name suggests, a partnership between parties in the public sector and a private partner. They are typically long-term leases between government agencies and private investors that provide some sort of public service (water, parking meters, toll roads, bike-share). “P3s are a powerful way to get things done,” says Walder. He should know. When Walder was in charge of planning and finance at Transport for London, the national government — against Walder and other top Tube brass’ wishes — privatized maintenance and construction for the subway in a disastrous move that was dismantled just four years later. Hong Kong’s MTR is the gold standard of transit systems around the globe and perhaps the model for PPPs — the MTR is publicly traded on the Hong Kong stock exchange and develops the land above the transit stations it runs.

The deep-pocketed investors that own Motivate brought in Walder soon after buying the company with the confidence that he could lead it through the P3 minefield into the sweet spot where profitability and public benefit meet.

Now, as budget shortfalls continue to rise and infrastructure continues to crumble, municipalities, state legislatures and the new president’s administration are looking to models like Motivate and Hong Kong’s MTR and wondering if a P3 could be the solution to their problem.

“The more you can tie the policy outcomes you want to the success of the company, the better,” Walder says. “It’s crucial that the private sector be held accountable to meeting these goals. And then it’s important for the public sector to evaluate each P3 and learn from it and be able to start new ones from a more informed place.”

But this financial tool is relatively new in the U.S. And as more and more city leaders tout them as alternatives and the nation’s 45th president heralds them as a solution for our infrastructure (and job) woes, should we be worried about the looming and potentially massive privatization of America, or is it just the most direct route to the capital necessary to get projects done?

A MODEL WITH MOMENTUM

Jay Walder would talk about the intricacies of the world’s transit history for hours if you’d let him. He’s got the vibe of a very cool urban policy professor who gets high with his students before Mets games.

“You’ll see this whole story of how these transit lines shaped [London],” he tells me, explaining what one could learn should they find themselves in the London Transport Museum. “It’s almost the way you imagine rivers carving gorges. These lines shaped the whole development, right?”

Walder has decades of experience on both the public and private side of transportation. He was instrumental in getting the Olympics in London and implementing the Oyster card (a huge P3 that was the model for Ventra cards in Chicago), and though there were questions about his swift exit from MTR, he did gain valuable experience working for one of the world’s highest-profile P3s.

His knowledge is so deep that he will simply preface, say, a brief history of New York’s transit in the 1930s, by warning you, “This is my geeky side, so bear with me.”

That instinct to keep asking questions and finding answers may be how a man who reportedly got a roughly $2 million golden parachute from the MTR ended up in a modest Sunset Park office with an open office plan and iced coffee on tap. He wanted to change and shape cities in the way that subway lines did a century ago — and right now, there is momentum around the P3 model Motivate is banking on.

“The big thing for me was that to be frank, I’ve now run three very large transit systems. I just said I loved it, but I wanted to try to think about how I took some of that experience and used it in different ways,” he says. “The MTA’s 112 years old right now. You’re not shaping it from the ground. You’re picking up what’s there and you’re working with it in that way. One of the things that began to really intrigue me was this sense that this was an emerging, powerful force. What I believed was that we could not only fix what was there and really make it something that people would really like, and I hope we’ve succeeded in doing that, but I believed that we could actually shape an entire industry.”

Jay Walder stands with a Citi Bike. (Photo by Alan Chin)

Citi Bike gets the lion’s share of the press — and certainly the backlash — for bike-share, but Motivate runs 11 different systems across North America, each of them their own unique public-private arrangement (soon to be 10 — Seattle announced earlier this month that its bike-share will end in March). Most recently Motivate announced a partnership with Ford in the Bay Area, where it’s expanding from 700 bikes to 7,000, adding 1,000 bikes in San Jose, and finally branching out to the East Bay — all without any taxpayer funding (for now). Twenty percent of the bikes will be in areas that the Bay Area’s Metropolitan Transportation Commission has deemed “communities of concern,” and there will be $5 annual memberships (including unlimited short trips) for low-income residents. And Ford, which is dipping its toes into the city and mobility space with the City of Tomorrow initiative, is actively involved.

“Ford’s role will be incredibly important here,” Walder says. “This isn’t just a marketing or corporate social responsibility play for them. They see themselves as a true partner in helping shape this program as part of their vision for smart mobility for cities.”

LET’S MAKE A DEAL

The scary thing about public-private partnerships in America is there isn’t that long of a track record. They’re far more popular in the U.K. and Australia and countries that are a bit more left of center and regulated than the United States. So when politicians and professors talk about how powerful P3s are, they don’t have an ideal American model. The only thing we do know for sure is what doesn’t work. And that’s Chicago.

“A lot of this is still very much in the infancy,” Joseph Kane at the Brookings Institution says. “When it comes to actually figuring out the specific return on investment and how this is ultimately going to serve the public interest and the economy at large, a lot of that is to be determined.”

In late 2008 the city of Chicago signed a 75-year contract with a Morgan Stanley-led group of private investors for the city’s 36,000 parking meters. The $1 billion deal, in which Morgan Stanley took over operations of the city’s metered parking system — via the newly formed Chicago Parking Meter LLC — was an immediate coup for the private side and mess for the public side. Parking rates went through the roof — the Morgan Stanley-led consortium raised rates to increase their revenues — and the city’s inspector general launched an independent review in January 2009, which concluded that the city had sold control of its meters for $1 billion under market value.

“The city office principally in charge of this deal, the Office of the Chief Financial Officer, failed to calculate how much the parking meter system would be worth to the city over 75 years if it retained the system rather than leasing it,” Inspector General David Hoffman wrote in his report. “The CFO’s office therefore failed to take into consideration whether this was a good financial deal for the city in light of the value to the city of the parking meter system.”

Kyle Vocelka buys some time for his vehicle from a Chicago parking meter kiosk on Chicago's north side. (AP Photo/M. Spencer Green)

The deal is, without question, an unmitigated disaster. It was, as Matt Taibbi detailed in his 2010 book “Griftopia,” “a blitzkrieg rip-off that would provide the blueprint for increasingly broke-ass America to carry lots of these prized toasters to the proverbial pawnshop.” It’s a road map for what not to do when seeking private investment for public infrastructure. Starting with negotiation.

“Here’s what makes a good P3,” Donald Cohen, executive director of In the Public Interest, a think tank focused on responsible contracting, says. “A really tough agency that’s negotiating hard. Chicago, they got taken. I mean, Morgan Stanley comes in with a billion dollars and they say, All right. We’ll take it today. We’re not going to worry about tomorrow.

In my many conversations with Walder, his P3 mantra was a simple and noble one: transparency. And that starts with the negotiating process. “Transparency is a very, very powerful way of enforcing behavior and being able to do it,” he says. “The contract is never a prescription to what should be done, but the contract is an insurance policy to what should be done.”

But despite my many requests, Motivate wouldn’t provide its contract with New York City, saying it was filled with proprietary business dealings. (An open records request for the contract has not been returned from the Department of Transportation yet.) So it’s unclear what the contract structure and incentives are. But Motivate does release monthly operating reports detailing membership, revenue, ridership and maintenance — though the company refuses to share salaries, profits and deficits. Motivate has refused calls for more transparency from City Council. “We put out a tremendous amount of financial information already,” Walder told Crain’s in 2015.

So while the public doesn’t know the exact details of Motivate’s contract with the city of New York or the exact amount of private investment that has been poured into the system — Citigroup promised $70.5 million through 2024 (on top of its initial $41 million investment) for an expansion announced in 2014 when Walder was hired — we do know they want public money for even more expansion. Which, as the only bike-share program in the country funded entirely by private money and membership fees, would be the first infusion of public dollars for Citi Bike. “I do not believe that you can look to a big expansion without some degree of public support,” Walder said during testimony at a November City Council hearing on Citi Bike expansion.

P3s work when both private and public interests are aligned. With Citi Bike, Motivate has all the execution responsibility: fixing bikes, entering sustainable supply contracts, installing stations, managing call centers. The city of New York has the ultimate responsibility in terms of the use of public space: where stations go, connecting the MTA to Citi Bike, and the Department of Transportation methodically branching out bike lanes in a way that makes sense for mobility.

“What makes public-private partnership work is when the incentives work that way, when both parties are bringing something to the table that’s really relevant there to be able to do it,” Walder says. “When you’re combining investment from both sides to be able to do things, again, the city’s putting down the bike lanes. They’re building out other parts of the infrastructure that work in doing it.”

But bike-share, unlike most infrastructure, is a nimble system that can adapt to meet changing demands. If stations don’t see much traffic they can be moved. If membership dips because it’s too expensive, the price point can be reconsidered — or you can quickly change pricing structures for lower-income residents (Citi Bike offers all NYCHA residents monthly memberships at a discounted $5 monthly rate). Bike-share is a complicated ecosystem, but it’s not nearly as Byzantine and complex as a bridge or a mid-size American city’s decaying water system.

P3s, THE TRUMP WAY

The president’s infrastructure plan isn’t about infrastructure as much as it is about subsidizing the work of contractors and developers. His $1 trillion proposal, according to a white paper posted on his campaign site in late October, offers a huge carrot to investors and contractors who want to pour money into infrastructure projects: $137 billion in proposed federal tax credits. And Trump has appointed his fellow New York real estate cronies Richard LeFrak and Steven Roth, billionaire developers specializing in large-scale commercial and residential development with little experience in infrastructure or government, as special advisers to his infrastructure plan. As special advisers they don’t have to face Senate confirmation hearings or fill out ethics forms, the latter of which, according to Politico came as a relief to LeFrak.

When Trump talks about leveraging P3s to rebuild infrastructure it’s important to remember that the federal government doesn’t build stuff — cities and states do — it just acts as a bank (whether that’s issuing billions in tax credits, low-interest loans or prime activity bonds) and a regulator of existing laws, regulations, programs and funding streams.

“They want to hand over our roads, bridges, light rail, water systems, to private investors and give them the power to determine what we have, what we pay and how we do it. That’s just fundamentally what [Trump] wants to do. And it’s going to cost us more to use those services.”

One fear about Trump’s public-private push is that private investors will only want to back projects that have a proven revenue stream — like toll roads and toll bridges or electricity grids — to ensure they see a return on their investment. This could leave everything from non-toll roads and decaying pipes to rural roads and small ports in a lurch (an example of the scenario can be found today at a port of refuge in Northern Michigan that may have to close because it can’t get money to dredge its entrance). Infrastructure is more than just major roadways — and many of the people I spoke with said incentivizing investment in public spaces and projects that provide revenue would put non-revenue-generating infrastructure projects and maintenance continually on the back burner.

“Public-private partnerships and private investment in public infrastructure have a lot of limitations,” says Congressman Peter DeFazio, a Democrat from Oregon and the ranking member on the House Transportation and Infrastructure Committee. “And the transportation committee came to a bipartisan consensus on this two congresses ago and we put out a report, saying P3s and private investment, it’s a tool. It’ll work in a limited number of areas. It’ll work best in the areas that have a cash flow, rate of return.”

That’s how P3s work: when there is a durable revenue stream to actually give the private side a return on its investment. It’s why, back in Chicago, Morgan Stanley jacked up parking meter prices immediately.

Trump’s infrastructure plan has been one of the few, if only, measures that’s been greeted with bipartisan support. Well, not the plan itself — there have been grumblings from both sides about how to pay for it — but the conceit: Our infrastructure is broken and we need to fix it. Democrats and Republicans don’t dispute that. But what Trump has proposed is entirely different than President Dwight Eisenhower’s Interstate Highway Plan of the 1950s and, according to a recent Washington Post-ABC News poll, 66 percent of Americans oppose Trump’s plan to extend billions in federal tax credits. And Tuesday Senate Democrats, led by minority leader Chuck Schumer laid out a $1 trillion infrastructure plan of their own — the same price tag as the president’s — but called for significant federal investment. “We will not support tax credits for developers,” Schumer told reporters.

“It’s not paid for. You gotta distinguish that,” he continued. “You have to pay for tax incentives, too. Giving people big tax breaks — it’s a method of financing. We don’t like that method of financing because A, it doesn’t build things in 90 percent of the cases where it’s needed and B then a lot of the expense that you go to goes in the pockets of developers and very wealthy financiers. And it creates tolls everywhere. Cause you have to pay for it back. That’s not been the American tradition — ask Dwight D. Eisenhower.”

Kane echoed Schumer.​ “Trump’s plan is very different than how infrastructure has been traditionally funded and financed across the country,” he says. “For the most part, it’s largely a public-driven exercise at a state and local level, so introducing a more widespread private sector approach is somewhat unprecedented — at least at the scale that’s being talked about.”

Walder was reticent to discuss Trump’s plan. When I pressed him on it during a phone call after the election he said, “I’m looking at Dani [Motivate’s communications director] to see whether or not she’s giving me the leeway to say that any topic related to the president-elect is off the table.” When asked what the public should be concerned about, he said, “I don’t know that I would want to lay out what we should be concerned about.”

But there is healthy skepticism among policymakers and experts about rebuilding the country’s infrastructure with private money. Specifically: There are reservations about putting public space and services up for sale.

“They want to hand over our roads, bridges, light rail, water systems, to private investors and give them the power to determine what we have, what we pay and how we do it,” Cohen warns. “That’s just fundamentally what he wants to do. And it’s going to cost us more to use those services.”

Champions of P3s will say private investment fills public budget shortfalls. Critics say it’s selling our public space — roads and transit systems and distressed water pipes — to the highest bidder, who will then retain control and influence decision making on the bottom line of what is ultimately a public service.

President Donald Trump walks with first lady Melania Trump in Washington, D.C. (AP Photo/Alex Brandon)

“The more money and private investment there is,” Cohen continues. “The more power they have over the deal because it’s a power relationship. It’s going to have strings. It will have prohibitions. They may prohibit local hire agreements.” This is what is commonly referred to as “hair on the deal” — labor standards, community benefits agreements, green mandates — and it often cuts into the private side’s bottom line.

Trump’s infrastructure plan, as Kevin DeGood lays out at the Center for American Progress, would do nothing for “thousands of other communities with real needs. This includes everything from small towns and rural communities to many low-income communities and communities of color in large urban areas that would simply not be attractive to elite Wall Street investors. In reality, an infrastructure plan built on tax credits for Wall Street is not a plan for America; indeed, it would do nothing for the vast majority of Americans.”

When Trump touts his infrastructure plan as “deficit neutral” it means that a toll road or water system is on, say, Goldman Sachs’ balance sheet. So it’s deficit neutral for the government — but we still have to pay for it. This shift toward the privatization of public goods and services turns the relationship between taxpaying citizen and government into strict consumerism: We’re not paying tolls and subway fares for upkeep, but rather to keep investors happy about their profit margin. Infrastructure isn’t supposed to generate a profit — that’s why roads and transit systems typically operate at a loss.

DOING THE MATH

Walder has overseen a dramatic turnaround at Motivate. Months before he took over, Citi Bike was on the verge of financial ruin seeking tens of millions of dollars to stay afloat. 2016 saw a 40 percent increase in rides over 2015. And now Motivate hopes to replicate Citi Bike’s success as they ramp up expansion in the Bay Area. There are questions about affordability and equitability as the local systems work to address the needs of riders far from the city center, but there’s no denying Walder’s years of expertise have led to a turnaround at Motivate. Bike-share is here to stay in America.

But the city hearing in November at which Walder asked for public funding to invest in expansion was telling. As Citi Bike builds out, it’s becoming less of a toy and more of a real piece of the transit puzzle — which was the plan all along. And a public service needs public money. CitiBank can’t bankroll bike-share in New York City forever.

Which brings us back to Trump’s big infrastructure promise. A private infusion of cash is a Band-Aid for most infrastructure projects. Sure, the cash is here now, but that’s sacrificing public control and input and autonomy later. Infrastructure is a public good — it should also be a public process. P3s work, as Walder told me repeatedly, when the public and private interests are aligned. When private money enters the infrastructure equation — no matter how noble and well meaning it is — the public is likely to suffer, or, in the case of Chicago, foot the bill so private investors can recoup their investment.

“There has to be real federal investment. If they’re really talking about rebuilding the nation’s infrastructure and tolling everything we’re going to make people pay for it three times. First off you already paid for it. Secondly you’re gonna keep paying a gas tax. And third, you’re gonna subsidize the tax credits that those people get. And fourth, you’re gonna pay a toll!” Congressman DeFazio, losing track of the ways taxpayers are on the hook, said. “I don’t think most Americans, particularly those in rural America who voted for Donald Trump, are gonna think that’s a good deal.”

Our features are made possible with generous support from The Ford Foundation.

Bill Bradley is a writer and reporter living in Brooklyn. His work has appeared in Deadspin, GQ, and Vanity Fair, among others.

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