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Denver proves Purple Line private funding can work

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Denver is expanding its light rail system using private partners.

Maryland Governor O’Malley is expected to announce today that the federal government has approved the Purple Line’s planning, and that Maryland will seek a private company to help pay for construction.

The idea is that a private company would pool its money together with state and federal funding to construct the Purple Line. The same company would then operate the line. In exchange, they would keep the fares, and Maryland would pay an annual contract fee.

With limited federal funds available, this type of public-private partnership is becoming common nationwide. DC is considering it for streetcars, but Denver offers a more instructive example.

In 2004, voters in Colorado passed a referendum for 122 miles of new rail transit in the Denver area. But the funding approved as part of that vote wasn’t adequate to build everything, so the transit agency had to find an alternate strategy. They’ve since approved two public-private partnerships, and are in the process of contracting a third.

Denver’s first partnership was for the Eagle P3 project, which is building 40 miles of electric commuter rail to the Denver suburbs and airport, at a cost of about $2 billion. The partnership is proceeding smoothly, with construction well underway and completion expected in 2016.

The second partnership is for a 10-mile-long suburban light rail extension. It began construction last year and is also expected to open in 2016.

The third will be for the 18-mile North commuter line. The transit agency put out a Request For Proposals in June, and is expected to select a partner company this fall.

All in all, Denver has or will soon have private partnerships to build almost 70 miles of new rail.

These deals do come with a cost. Typically the annual fee the state has to pay the partner is higher than the typical operating subsidy would be. So in essence, the operating cost is higher. But in exchange, the partner builds the line more quickly and sometimes more cheaply than the government could on its own.

Update: As expected, O’Malley announced the plan to use a partnership this afternoon. He also announced $680 million in state funds for the Purple Line, plus millions more for the Corridor Cities Transitway, Montgomery County Ride-On, and road projects.

August 5th, 2013 | Permalink | {num}Comments
Tags: commuterrail, funding, government, lightrail, transportation

  • Edward Russell

    Maryland needs to be prove to the private sector that it can provide a stable availability payment stream (the annual fee mentioned) to a concessionaire that is not subject to the annual appropriations process before the private sector will even touch the project. Then you can start talking about how much equity the private sector will be willing to put into the deal.nnBut the Eagle P3, which I should note is dated considering it closed in 2010, is a good example to follow. RTD structured the deal well and construction is already progressing well.

  • jimbo

    The devil is in the assumptions, as ever. If you start with the assumption that it is, somehow, the will of God that public funds are limited now, you can almost make these deals seem like a good thing. It is significant, of course, that even their supporters concede that they are more expensive in the end than publicly funded and operated projects. But why are public funds in short supply? Tax rates in the US are at historically low levels. So it’s not inevitable, immutable or whatever that we can’t use public monies. It’s the result of conscious policy choices by the likes of Martin O’Malley. Well, doesn’t that put the issue in a different light?

    • BeyondDC

      I don’t think it changes anything right now.nnnI agree that nationally our infrastructure taxes are too low, and should be much higher. But individual states can’t get too far ahead of curve. nnnStates have to compete with one another. O’Malley can only raise taxes in Maryland so much before the law of diminishing returns kicks in and Virginia’s lower rates sap away too much business. nnnFixing the tax rate either has to be done from the top-down nationally, or it has to be gradual from the bottom up. Lacking federal action, Maryland can think about raising its taxes again in another decade, but in the mean time we either have to put off investments like the Purple Line, or find creative ways to build them. nnAnd of course, it we put off the investments they’ll probably cost more in the future. nnIt’s really no different than bonding. You pay interest over a few decades in order to get the money now.

  • jimbo

    Of course, public finances have national, state and local dimensions. All need fixes, especially at the national level. That still doesn’t make this a good deal. If Maryland borrowed its share of the funds, and built and operated the line itself, the overall cost would be much lower, if only because the state can borrow at much lower rates than a private firm. nIn the long run, something like the Purple Line is needed, but if Maryland invested the funds it does have or could borrow and invested them now in better bus service, the impact on congestion and such would be immediate and considerable.nThese deals exhibit the same approach to public finances as was applied in the past to public pensions. Create a sense of crisis, make lots of promises and employ a combination of wishful thinking and chicanery to the long term finances.

    • BeyondDC

      Why the state doesn’t bond this itself is a reasonable question, but I suspect there’s an answer.

  • Mark R. Brown, AICP

    Hoping a public/private Purple Line deal will free up more money for Baltimore’s Red Line.



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