Shifting the transit-funding paradigm: Transit finance grows up

By Mary Ebeling

Development of creative financing and new revenue sources for transportation projects remains a hot topic in transportation circles. Public-private partnerships exist in highway transportation, often using tolls as the revenue source to attract private investment. Transit P3s, however, remain behind the curve in development of policies and best practices. A P3 proposed for the Purple Line light rail in the Maryland suburbs of Washington, DC, illustrates new opportunities for funding a major capital transit investment with a combination of public and private funding.

The structure of the P3 in Maryland sets up a complicated balance between protecting the public investment and keeping private sector partners at the table to fully implement the project. Moved forward by Maryland DOT and WMATA, the Purple Line light rail project is valued at an estimated $6 billion over the life of the contract. The P3 agreement will fund the project, a 16 mile-long light rail line, with a mix of public and private capital. The agreement protects the public interest while providing sufficient expectation of revenue for private sector investors. The corridor the Purple Line will run on is already heavily used. The Capital Crescent multi-use trail currently occupies the right of way needed for the Purple Line, and bicycle and pedestrian transportation planners and advocates have worked to make sure the design includes space for this busy non-motorized facility.

Purple Line mapThe complicated 35-40 year agreement for the Purple Line specifies the responsibilities of the public and private partners. Setting of fares and ownership of the rail line remain in the public sector. The private partner will design, build, operate, and maintain the light rail line and will also receive an “availability fee” of between $100 and $200 million annually. The fee compensates the private investors for the costs of designing, building, operating and maintaining the rail line. The fee also reduces the risk to the private sector in the case of operating losses and guarantees the private partner will continue to make service available.

The Purple Line offers numerous benefits. The project moves beyond the hub and spoke system of the current DC Metro. The new line will directly connect to four lines of the Metro system and all three of the MARC commuter rail lines without requiring a trip into DC. Because of these new transfer opportunities, cross-county trip times may decrease by as much as 40 percent. The new purple line will also smooth connections to Amtrak’s Northeast Corridor.

Additionally, Maryland DOT and WMATA anticipate the Purple Line will contribute to economic revitalization and transit-oriented development projects in communities that the new rail line travels through such as New Carrollton and Silver Spring. The area in question, north of DC but within the beltway, developed rapidly during the post WWII era and has become known for automobile congestion and commuting headaches.

Transit P3s to date have been implemented as pilot projects in SAFETEA-LU. But only a few, notably the Eagle Project in Denver, part of the Regional Transit Development authority’s FasTracks program, have moved forward. This project, done as a pilot, set the precedent for ambitious projects like the Purple Line. Support is growing at the federal level to encourage greater private partnerships for transit projects. Many agencies, cities, and states now view P3s as a way to gain access to capital, particularly as federal participation diminishes.

Mary Ebeling is a Transportation Policy Analyst at SSTI.