Workers & Economic Inequality

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Purple Haze

Twenty-five thousand dollars can really take you places. Unless you happen to be the Maryland Transit Administration. In that case, $25,000 will take you exactly twelve inches.

That’s the cost of building one foot of the Purple Line, the planned light-rail system that will link four Metro stations and several of the Washington, D.C. area’s fastest-growing suburbs on the Maryland side.

The line inched closer to reality this week after Maryland governor Martin O’Malley announced that Annapolis would seek a public-private partnership to build and operate it.

A private group comprising several firms would construct the line using a mix of federal, state, local, and private money. They would then run it for 30 or 40 years in exchange for an annual fee from the state, a process known in the industry as design-build-operate-maintain, or “DBOM.”

It’s clear why Maryland would find a DBOM model attractive: by ceding almost all of the project’s execution to the private sector, the state government will be able to reduce its own financial commitment to the rail link, which is slated to cost $2.15 billion. Except for initial preparations, all the state has to do in theory is kick back, relax, and wait for the revenue to start flowing.

If this sounds like something you should be skeptical of, that’s because it is.

Could such a setup be successful? Of course. But there simply isn’t much precedent for a mass-transit DBOM of this scale.

So while the DBOM model is not problematic per se, the Purple Line deserves our strict scrutiny as negotiations between the state and the private sector move forward.

A Question of Price

At current estimates, building the Purple Line will cost $25,000 for every foot of track, or $132 million per mile. That’s high even for the U.S., where infrastructure is notoriously expensive.

The typical defense is that the cost of building in suburban Maryland (one of the wealthiest parts of the country) as well as a lack of existing infrastructure are what’s behind the price.

That doesn’t totally explain, however, why the quoted figure has gone up so much in so little time. A 2008 study from the federal and Maryland transportation departments concluded that construction on the chosen route would only cost about $1.3 billion, or 65 percent less than the current estimate.

The same report found that operations and maintenance would cost about $32 million per year. The current estimate is $69 million, a number the Federal Transit Administration criticized in a recent project report.

By contrast, a 2005 press release from NJ Transit said the agency pays about $35 million for the Hudson-Bergen line.

As far as the DBOM setup is concerned, the fact that these high prices occur at both the construction and operations stages is cause for alarm, whether they’re accurate or not.

If they are accurate, Maryland officials will be very tempted to accept a lowball offer that could see costs climb higher as construction continues. Because so few companies are able to pull together the resources for a DBOM project, competition is limited, and it becomes very difficult for a government to gauge what is an accurate estimate.

This is what happened in New Jersey with the Hudson-Bergen Light Rail, one of the only other mass-transit DBOMs in this country. In that case, only two groups ultimately had the resources to submit bids. The group that won the contract bid $600 million lower than the group that lost, but over time it became clear that the price would be closer to the losing bid.

In theory, the state is supposed to be immune to these cost escalations because the price is agreed on beforehand. In reality, though, builders have proven litigious in making sure they don’t bear the burden for increases.

If, however, the numbers for the Purple Line are inflated, the low amount of competition will result in inflated bids, with companies quoting high prices and pocketing the difference.

Smooth Operator

Of course, a for-profit company can’t be blamed for seeking to profit from the Purple Line. But therein lies an inherent problem with DBOM: in this country, the best transit systems are highly unprofitable.

So how does a private group, tasked with running a light-rail line, work around this?

If allowed to, it would probably raise fares. This is the concept behind the new express highway lanes in Northern Virginia, where the private operator has permission to increase tolls to ensure it makes a profit.

But Maryland officials have said that they will both set the fares and control the revenue for the Purple Line. Instead, they’ll pay an annual fee to the private company that will be set in the contract.

That’s good for riders, but if the payment is fixed, then the only way for the operator to increase revenue is to widen the gap between how much the company claims the Purple Line will cost to run and how much it actually costs.

That means either overestimating during the bidding process, or running as bare-bones a transit system as it can without getting in trouble.

To protect against this, Maryland would be wise to insist on an extremely detailed and well-administered incentive scheme. Such a scheme exists with the Hudson-Bergen line in New Jersey, but one study found that transit officials originally underestimated how comprehensive it would need to be.

Of course, enforcing it would take time and money that Maryland doesn’t have, which is the reason it’s seeking a DBOM in the first place.

Trust, But Verify

To be sure, studies have generally found that most municipalities with DBOM projects have been happy with the results.

The particular circumstances of the Purple Line, though, mean that when the bidders are announced, Marylanders should demand transparency and scrutinize the offers to make sure they’re getting their money’s worth.

The obvious solution would be to let WMATA, the existing D.C.-area transit agency, run the Purple Line. But it is currently preoccupied with a new line already under construction in Virginia, and has shown no interest.

As a result, Maryland is going to find itself in a difficult position. The Purple Line has been in the works for a generation, and it will be too tempting to simply throw money at a private bidder just to make sure the thing gets built.

But with the commutes of thousands of Marylanders at stake, that’s a temptation the state truly can’t afford.

Tags: wmata, public-private partnership, metro, mass transit, anbinder
Workers & Economic Inequality

Workers & Economic Inequality

In recent decades, and especially since 2000, the richest Americans have enjoyed soaring income and wealth while the rest of the population's living standards have stagnated. The Century Foundation was one of the first institutions to raise serious concerns about these trends and propose ideas for improving economic conditions for all Americans- not just the fortunate few.

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