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9 C h a p t e r 2 This chapter (1) introduces a definition for P3s of all sizes that takes into account both the scope of services and degree of risk transferred to a private sector partner and (2) provides a wide-ranging list of P3 options available to transit agencies. Each option is summarized using existing research identified in the literature review. 2.1 P3s Defined The National Council for Public-Private Partnerships (NCPPP) defines P3s as âa contrac- tual arrangement between a public agency (federal, state or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public.â NCPPPâs definition covers the majority of P3s and some common features of P3s, including: ⢠Partnership between the public and private sector; ⢠Private sector involvement ranging from project delivery, financing and funding, and ongoing operation, to ongoing maintenance; ⢠Risk-sharing; and ⢠Payment to private sector linked to performance. This definition covers the majority of private partnerships with transit agencies. However, it does not address the benefit(s) to public entities beyond increased private sector participa- tion (e.g., added rider amenities, improved transportation services). The definition also does not address the degree of risk transfer. The definition also couples the need for private partner delivery with financing for a project to be classified as a P3. It is important to note broader partnerships that exist in the transit industry and the benefit of alternative approaches for P3s, including additional revenue, community relationships and impact, time savings, and project delivery flexibility. Therefore, this guidebook applies a detailed definition for P3s that takes into account both the scope of services and types of risk transferred (e.g., construction, cost escalation, financing, operations, maintenance, or revenue) to a private sector partner by requiring a service provided to the transit agency and some level of risk transfer to the private partner, as shown in Figure 2. This definition allows a broader array of projects to capture the current state of the practice and may be universally applied to P3s of all sizes and types for transit agencies. Two P3 examples that demonstrate the P3 definition are provided below: A telecommunications company enters into an agreement with a transit agency to provide Wi-Fi and wireless service in transit stations in exchange for the right to manage the service and receive a percentage of the mobile carrier fees and advertising revenues. Defining P3 Opportunities
10 public transportation Guidebook for Small- and Medium-Sized public-private partnerships (p3s) In this case, the private sector partner is providing a serviceâWi-Fi and wireless serviceâ to the transit agencyâs customers, while assuming the risk over the life of the contract that revenues might not be adequate to finance, deliver, operate, and/or maintain the service and associated equipment. The transit agency supplies the infrastructure of the station and transit tunnels. If a transit agency simply enters into a traditional contract with a telecom- munications company to provide the Wi-Fi and wireless hardware or operate an existing system on a cost plus basis without any transfer of risk to the telecommunications company (e.g., delivery, financing, operations and/or maintenance of the service), it would not be considered a P3. An advertising company enters into an agreement with a transit agency to construct and maintain bus shelters in exchange for the right to manage advertising for those shelters and retain a percentage of advertising revenues. In this case, the private partner is providing a service to the transit agency while assuming the risk that the O&M cost of bus shelters may be higher or less profitable throughout the life of the contract than the advertising revenue that will be generated. In addition, the advertising company may assume additional revenue risk by guaranteeing minimum advertising revenue payments to the transit agency. If a transit agency simply enters into a contract with an adver- tising agency solely to outsource advertising services without any associated transfer of risk (e.g., installation, financing, operations, and/or maintenance), it would not be considered a P3. 2.1.1 Sizing Framework of P3s Each P3 example in this guidebook is designated as small, medium, or large based on the aver- age of four attributes: financial impact, risk transfer, revenue potential, and complexity. In addi- tion to indicating the level of risk transfer and the complexity of the initiative, these attributes are designed to size each P3 according to the relative impact on the transit agency. For example, the installation of Wi-Fi and wireless service at each station for the New York MTA is designated as a small P3 based on the financial impact and revenue potential as it relates to the New York MTAâs O&M costs and revenue. The same initiative would be designated as a large P3 if it were implemented by a smaller transit agency if the financial impact and revenue potential were more significant, relative to the smaller transit agencyâs annual budget. The four attributes for the P3 sizing framework are described below and summarized in Table 1. Financial Impact The following ranges are used to classify an initiativeâs financial impact as large, medium, or small. Contractual agreements formed between a transit agency and a private sector entity that: Transfer some level of risk associated with the activities of the transit agency (e.g., delivery, cost escalation, financing, operations, maintenance, or revenue) to the private sector, with the expectation that it will receive a return on its investment Provide a service (e.g., Wi-Fi, advertising, fueling facilities) to the transit agency. A relationship solely based on a one-time transaction or a financial transfer (e.g., tax increment financing) is not considered a service. Figure 2. Guidebook definition of P3.
Defining p3 Opportunities 11 Large. Capital costs are greater than $150 million or annual O&M costs represent more than 25 percent of the project sponsorâs O&M costs. Medium. Capital costs are between $150 million and $10 million or annual O&M costs represent between 25 percent and 10 percent of the project sponsorâs O&M costs. Small. Capital costs are less than $10 million or annual O&M costs are less than 10 percent of the project sponsorâs O&M costs. Risk Transfer To be considered a P3, the arrangement must transfer some level of risk from the transit agency to a private sector partner. Initiatives are measured based on the types of risk trans- ferred (e.g., construction, funding, financing, operations, maintenance, renewal/life cycle costs, or revenue). There may be multiple risks associated with multiple functional areas of the transit agency, or the risks may be concentrated in a single functional area. The following ranges are used to classify an initiativeâs level of risk transfer. Large. There are more than three types of risk transfers (e.g., delivery, funding, financing, operations, maintenance, or revenue). Medium. There are two or three types of risk transfers or more than three types of risk transfers in a single discrete area. Small. There is one type of risk transfer or two types of risk transfers in a single discrete area. Revenue Potential The potential revenue that may be generated from the project is classified as large, medium, or small based on the percentage of the sponsorâs annual operating revenues. Large. Revenue generation is greater than 10 percent of the transit agencyâs annual operat- ing revenues. Medium. Revenue generation is between 10 percent and 1 percent of the transit agencyâs operating revenues. Small. Revenue generation is less than 1 percent of the transit agencyâs operating revenues. Capital or O&M Costs Level of Risk Transfer % Operating Revenues Initiative Complexity Large > $150M capital costs or > 25% of O&M costs Large > 3 types of risk transfer Large > 10% of operating revenues Large Significant complexities Medium $10M - $150M capital costs or 25% - 10% of O&M costs Medium 2-3 types of risk transfer or greater than 3 types in single discrete area Medium 1% - 10% of operating revenues Medium Some complexities Small < $10M capital costs or < 10% of O&M costs Small 1 type of risk transfer or 2 types in single discrete area Small < 1% of operating revenues Small Fewer complexities Table 1. P3 sizing attributes.
12 public transportation Guidebook for Small- and Medium-Sized public-private partnerships (p3s) Initiative Complexity The level of complexity reflects legal requirements and/or organizational challenges that make an initiative more difficult to implement and manage. For example, a P3 requiring creation of a new office or division within a public transit agency is decidedly more complex than one that can be managed by existing staff. The following qualitative ranges are used to size an initiativeâs complexity as large, medium, or small. Large. These have significant complexities related to implementation. Medium. These have some complexities related to implementation. Small. These have fewer complexities related to implementation. If the average of the four attributes is small or medium, the initiative falls within the case study range and is presented in Chapter 3. This means that some examples may be designated as large for one or two attributes; however, as long as the average falls within the case study range (case studies detailed in Chapter 3), the example is considered a small- or medium-sized P3. The framework is also designed to determine the size of the P3 relative to the size of the sponsor, given the wide variation in the size of transit agencies across the country. The sizing evaluation framework is graphically shown in Figure 3. 2.1.2 Example of Sizing Framework of P3s An example of the application of the P3 sizing evaluation framework is provided with refer- ence to the MBTA Boston Landing Station P3 project, which is one of case studies profiled in Chapter 3. The project includes private funding to build a commuter rail station in the Brighton area of Boston, Massachusetts. The private developer, NB Development Group, is designing and constructing the new rail station for the MBTA to improve access to its mixed-use development. In addition, the developer will fund O&M costs of the new station for a 10-year period. The project is a medium-sized P3 initiative, shown in Figure 4. Financial Impact The Boston Landing Station is expected to cost an estimated $20 million. The initiativeâs financial impact is classified on the lower end of medium because the stationâs $20 million capital cost is on the lower end of the $10 million to $150 million capital cost financial impact range for medium. St ud y Ra ng e Financial Impact Risk Transfer Revenue Potential Initiative Complexity P3 Initiative Size L M S L M S L M S L M S L M S Figure 3. P3 sizing evaluation framework.
Defining p3 Opportunities 13 Risk Transfer The private developer has agreed to take on the risk of delivering and funding the station (capital and 10 years of O&M costs), including at least two types of risk transfer. The initiativeâs risk transfer is therefore classified as medium. Revenue Potential The new station will generate fare revenue from riders accessing the new station, as well as an annual contribution to MBTA from the private developer towards operating costs. The devel- oper contribution is only a small percentage of MBTAâs $668 million operating revenues in FY 2016, which is far less than the 1 percent threshold for the revenue potential range of small. Initiative Complexity The initiative includes some complexities, such as the need for significant coordination between the private partner and the transit agency on station delivery and construction proce- dures. Complexity is therefore classified as medium. 2.2 P3 Options to Transit Agencies Partnerships between transit agencies and private entities come in all shapes and sizes. They range from traditional design build projects, where a private company builds an infill station to improve service to the public, to innovative technology applications, such as solar panels producing energy on top of bus shelters. A wide-range list of P3 options for transit agencies is provided in Table 2. These options are discussed in further detail in this chapter. In practice, many of the options listed above have not yet been structured as P3s by any transit agency in the United States because of the lack of risk transfers beyond funding (e.g., sponsor- ships, naming rights, and advertising). However, other P3 arrangements are more commonplace (e.g., design, build, finance, operate, and maintain). This list purposefully excludes funding and public financing options that solely leverage taxes generated by improvements since a partner- ship based on taxation and fees is not considered a service. The following sections provide additional information on the P3 options available to public transportation agencies identified in Table 2. These discussions identify existing research for each P3 option available to transit agencies. Table 3 illustrates the risks and benefits of each category. St ud y Ra ng e Financial Impact Risk Transfer Revenue Potential Initiative Complexity P3 Initiative Size L M S L M S L M S L M S L M S $20M Capital Cost 2 TypesDelivery and Finance < 1% of Operating Revenues Some Complexities Medium Figure 4. Sizing evaluation of Boston Landing Station case study.
14 public transportation Guidebook for Small- and Medium-Sized public-private partnerships (p3s) Capital Improvements Operations and Maintenance Real Estate Marketing Agreements Innovative Technology Design Build O&M Concession Joint Development Sponsorship Energy Technology Design Build Finance Transportation Network Companies (TNCs) Air Rights Naming Rights Fare Payment Design Build Maintain Maintenance Concession Station Access Advertising Real-Time Information Technology Design Build Operate Maintain Long-Term Leases Wi-Fi and Wireless Service Design Build Finance Operate Maintain Easements Design Build Finance Maintain Vending and Retail Concessions Table 2. P3 options to transit agencies. Benefits Risks Capital Improvements Accelerated delivery process Construction cost savings Efficiencies in project delivery and management Revenue risk Design and build quality Building in the public right of way Cost overruns O&M Cost savings Stronger community relationships Operational flexibility, particularly with respect to labor Better serve riders Disparity in level or quality of service provided to riders Possibility of not meeting specified service levels Real Estate Designed with more focus Accelerated growth of transit oriented development (TOD) Outsource leasing and property management responsibilities Possibility of private partner not meeting expectations of agreement Change in real estate market makes development infeasible Marketing Agreements Can provide revenues to the transit agency without assuming risk or contributing financially Enhanced systems Promotes alternative methods of transportation funding Failure to deliver service as planned Private partner fails to find sponsors/ advertisements Failure to achieve expected revenue stream Innovative Technology Enables advancement in the transit agencyâs system Safety and security Customer satisfaction Possibility of private partner not meeting expectations of agreement Possibility of system malfunction after installation causing delays in service Failure to deliver service Table 3. Benefits and risks of P3 options by category.
Defining p3 Opportunities 15 2.3 Capital Improvements Capital improvement P3s may vary in size and include the transfer of some combination of design, construction, finance, and operations and/or maintenance risk to the private sec- tor. While many capital improvement P3 initiatives are large-sized projects, innovative project delivery methods have been implemented for smaller capital projects, such as infill stations, bus facilities, and rail maintenance facilities. There are many different models for capital improvement P3 options, including the following: ⢠Design Build (DB) ⢠Design Build Finance (DBF) ⢠Design Build Maintain (DBM) ⢠Design Build Finance Maintain (DBFM) ⢠Design Build Operate Maintain (DBOM) ⢠Design Build Finance Operate Maintain (DBFOM) Table 4 summarizes the U.S. DOT definition for the six types of capital improvement options. 2.3.1 Design Build DB is a project delivery method that combines the design and construction of a project, tra- ditionally completed separately, under one fixed-fee contract. DB is preferred over traditional methods because it transfers the interface risk between design and construction away from the public procurer and gives a single point of responsibility. This streamlining has at times resulted in faster project completion, lower costs, and higher project quality. Additionally, public part- ners can have the benefit of only managing one contract through project completion. The private partner assumes the risk that designs are free from error, removing the possibility of schedule delays related to disputes between the designer and the contractor and removing the need for change orders related to constructability issues with the design, which is a significant risk for traditional delivery methods. Public Responsibility Private Responsibility (P3 capital improvement options fall along a range from Public Responsibility to Private Responsibility) DB DBF DBMa DBOM DBFOM Own Public Public Public Public Public Plan Public Public Public or Private Public or Private Public or Private Design Private by DB contract Private by DBF contract Private DBM fee contract Private by DB contract Private through P3 contract Build Private by DB contract Private by DBF contract Private DBM fee contract Private by DB contract Private through P3 contract O&M Public Public Private by Maintenance or DBM contract Operations: Public Private by O&M contract Private through P3 contract Financial Responsibility Public Initially Private/ Later Public Public Public Private through P3 contract (may include milestone and available payments) or Public Source: Table template from FHWA website. aDBFM is a variation of DBM and includes financing. Table 4. Capital improvement project types.
16 public transportation Guidebook for Small- and Medium-Sized public-private partnerships (p3s) Frequently, DB projects are not considered P3s as there is no service provision and the arrangement transfers very little extra risk to the private sector. However, many smaller transit agencies do not traditionally use DB and sometimes view the method as an innovative option to deliver projects faster and cheaper. This is a common delivery method for small- and medium- sized P3 initiatives. 2.3.2 Design Build Finance A DBF contract assigns the private partner responsibility for obtaining full or partial financing of the project in addition to design and construction. This method incorporates a DB delivery approach while allowing the transit agency the option to advance to the construction phase of the project before all funding is secured. This practice is also called deferred financing. DBF is a method less commonly used by public transit agencies because it requires all the contractual complexity and higher cost associated with private finance with no long-term private sector involvement to address longer term cash flow needs or project lifecycle cost reduction. 2.3.3 Design Build Maintain/Design Build Finance Maintain A DBM assigns responsibility to design, build, and maintain an asset to a private partner. This method is common for sponsors that want to transfer maintenance responsibility to the private partner that constructs the asset but where the public sector operates the transit service. DBM can be a beneficial arrangement for services and facilities where the initial contract is closely related to maintenance and the initial private partner is best qualified to maintain something it builds (e.g., rolling stock or bus fleets). DBFM is a variation on DBM and includes financing. 2.3.4 Design Build Operate Maintain DBOM is a close variation of DBM, where the private partner is responsible for design, con- struction, operations, and maintenance of the asset. O&M responsibility is specified for a defini- tive multi-year time period and is often addressed under a separate but connected contract. DBOM is the preferred method for transit agencies looking to use traditional municipal or non-profit public finance but still able to transfer the O&M responsibility to the private partner. Large-sized examples include the JFK Airtrain in New York and the New Jersey Transit Hudson- Bergen Light Rail project. DBOM is commonly used for airport automated people movers as they are highly integrated systems specific to each manufacturer. DBOMs have also been applied for small- and medium- sized P3s for certain services or assets, including Wi-Fi and wireless service or real-time display monitors. 2.3.5 Design Build Finance Operate Maintain The DBFOM method transfers the greatest risk to the private sector partner, including the design, construction, financing, operations, and maintenance of the project. The transit agency Washington Metropolitan Area Transit Authority (WMATA) NoMa-Gallaudet Metrorail Station, Washington, D.C., opened in 2004 as the Washington Metrorailâs first infill station. the project delivery method was design-build, which reduced the project schedule by half. the project was partially funded by the private sector and local property owners through land donations and the creation of a special assessment district.
Defining p3 Opportunities 17 retains ownership of the project. O&M responsibility is specified for the life of the contract. The quality of service is typically governed by a series of performance standards that include incen- tives for high performance and penalties for poor performance. Performance standards may include physical condition, capacity, congestion, and ride quality. The DBFOM model is still relatively new to the public transportation industry because of laws and regulations which restrict transit P3s. Increasingly, the public sector is focusing on the operational performance, innovation potential, risk transfer, and expedited project implemen- tation benefits of DBFOM, which can minimize the cost of delivery over the entire life cycle of the asset. If successfully implemented, DBFOMs can offer a great deal of benefit to the transit agency as much of the risk is transferred to the private partner. 2.4 Operations and Maintenance Outsourcing the O&M of transportation and other services is a form of P3 that may pro- vide cost savings and reduce operations and/or maintenance risk in certain instances. O&M P3 options include three major categories: ⢠O&M concession, ⢠Transportation network companies (TNCs), and ⢠Maintenance concession. 2.4.1 O&M Concession In an effort to increase efficiencies, a transit agency may grant a private partner an O&M concession contract to operate and maintain a new transit service, a portion of a transit agencyâs existing transit service, or all of a transit agencyâs service. Other contracted services may include outsourcing of fueling, maintenance, or cleaning services. These contracts require the private partner to commit to performance targets with monetary implications. Private partners often receive a portion of the operating revenue or other compensations. To be classified as a P3, an O&M concession must include risk transfer beyond a traditional cost plus contract. This may include revenue risk transfer such as guaranteed minimum pay- ment to the public transit agency or O&M risk transfer through performance-based compen- sation. These options have become common models for O&M concessions for many transit agencies. If structured with performance targets, O&M concessions have the potential to lower costs, improve service, and increase customer satisfaction. Colorado Department of Transportation (CDOT) and Denver Regional Transportation District (RTD), US 36 Managed Lane & Bus Rapid Transit Project, Denver, Colorado, is a DBFOM p3 with a 50-year agree- ment being delivered by CDOt and the Denver rtD. the funding is a mix of federal, state, local, and toll revenues, financed through tIFIa, equity, and private activity bonds. the project alleviates congestion for Bus rapid transit (Brt) and high Occupancy/toll (hOt) lanes, provides a new bikeway, and reconstructs roads and bridges, providing multimodal benefits. Massachusetts Bay Transportation Authority (MBTA), Boston, Massachusetts, reached an O&M agreement with Keolis in 2015. Keolis will operate MBtaâs commuter rail service and must improve the quality of service by meet- ing benchmarks specified in an operating agreement. Some of the performance benchmarks include meeting on-time performance expectations, providing minimum seating capacity, and providing the required number of locomotives on a daily basis.
18 public transportation Guidebook for Small- and Medium-Sized public-private partnerships (p3s) 2.4.2 Transportation Network Companies TNCs provide on-demand transportation by connecting customers to nearby drivers using a smartphone application platform. TNCs emerged in the late 2000s and the most prominent companies, Uber and Lyft, were founded in 2009 and 2012, respectively. TNCs do not operate services themselves, but connect private drivers with passengers in real time through their net- works. Many transit agencies originally considered TNCs to be competitors for ridership, noting the potential to lose choice passengers. However, some transit agencies have since shifted their views on TNCs, acknowledging the potential role TNCs can play within the overall transporta- tion network and seeking opportunities for innovative partnerships. TCRP Research Report 188: Shared Mobility and the Transformation of Public Transit explores the relationship between public transportation and shared modes such as TNCs. The research found that the more people use shared modes, the more likely they are to use public trans- portation, own fewer cars, and spend less on transportation overall. The report also found that TNCs and public transportation complement each other by serving different trip types. TNCs can extend transit catchment areas and bridge gaps in an existing public transportation network, especially the first-mileâlast-mile gap near rail stations. TNCs have been advertis- ing this benefit in many major cities across the United States and have been actively seeking to form innovative partnerships with transit agencies. The first TNC P3 that includes sig- nificant risk transfer is currently being piloted in Florida and is profiled as a case study in Chapter 3. TNC partnerships could also be structured to serve certain paratransit passengers. These partnerships may take the form of subsidized door-to-door trips in wheelchair-accessible TNC vehicles and taxis. For example, MBTA recently estimated that the T could save as much as $47 million a year on The Ride program, MBTAâs paratransit service, by raising fares, reducing service, and providing an option for certain passengers to use TNCs or taxis. A TNC partner- ship has the potential to offer significant O&M cost reductions and improved services when compared to traditional paratransit services offered by transit agencies. While no paratransit TNC P3 currently exists, many transit agencies are considering the possibility of partnering with TNCs to provide certain paratransit services. However, there are many barriers to overcome before these partnerships can be considered further, including FTA drug and alcohol testing, liability and occupational safety, vehicle safety and inspec- tion, insurance, fleet-level accessibility, Buy America provisions, and other accessible ride requirements. 2.4.3 Maintenance Concession Transit agencies may also choose to enter into a partnership with the private sector for the acquisition and maintenance of certain assets or equipment. This approach may be considered when the asset is not one that the public sector agency has experience maintaining, or when the maintenance provider is the original manufacturer or constructor of the asset. For example, transit agencies may enter into these agreements to maintain a facility, a portion of the facility (e.g., exterior, roofing, HVAC), or a new technology. Californiaâs Metropolitan Transportation Commission (MTC), San Francisco, California, partnered with tNCs Lyft, Carma, and Scoop in 2016 to launch a new carpooling service to relieve highway traffic congestion for regional commuters in the Bay area. By using one of three tNCs, commuters are rewarded with toll-free access in Bay area express Lanes and reduced toll rates on state-owned Bay area bridges.
Defining p3 Opportunities 19 2.5 Real Estate Development Private partners frequently benefit from higher property values that accompany access to public transportation services, a larger customer base as a result of increased foot traffic in the area, and/or increased transportation options for employees and customers. In return for this benefit, private partners may enter into partnerships to advance a transit improvement. Real estate P3 options include the following: ⢠Joint development, ⢠Air rights, ⢠Station access, ⢠Long-term leases, ⢠Easements, and ⢠Vending and retail concessions. 2.5.1 Joint Development Joint development is a partnership between a transit agency or other public agency and a pri- vate entity to develop a public transportation project that is related to, and often located near, other non-transit developments (i.e., commercial, residential, or mixed-use). The development and property must have a physical and a functional relationship. Joint development can occur when a transit agency owns land and leases the land to the developer for an extended period of time. This enables the developer to build on the land with a reduced risk of losing the capital investment. In exchange, rents are paid to the transit agency, creating a revenue stream that can be bonded against to support the development of a transit improvement. Joint develop- ment can also include the sale of development rights for upfront capital funding. Developers are incentivized to purchase and develop land near the transit station for increased employee and customer access. Joint development is a common partnership arrangement for some transit agencies. Los Angeles Metro and the Washington Metropolitan Area Transit Authority (WMATA) have created joint development programs to identify and manage P3 opportunities around heavy rail stations. Some joint development partnerships are solely funding mechanisms, without any added risk transfer. To be a P3, a joint development agreement must include additional risk transfer beyond fund- ing. For example, a joint development P3 may transfer operations and/or maintenance risk of the station or related assets to the private partner. Pennsylvania Department of Transportation (PennDOT) Compressed Natural Gas (CNG) Fueling Sta- tions will supply CNG to up to 37 transit agencies over a 20-year p3 agreement. pennDOt entered into a con- tract with a private partner, trillium, to build, operate, and maintain the fueling stations and provide other fueling upgrades. pennDOt expects transit agencies to see significant savings due to the project. Based on current fuel prices and usage, agencies can save a total of more than $10 million annually. Los Angeles County Metropolitan Transportation Authority (LA Metro), Los Angeles, California, owns 15.6 acres of land that include the North hollywood Station transit hub and 957 parking spaces. La Metro released an rFp to work with developers to transform this area into an iconic example of transit oriented develop- ment. the developers, trammell Crow Company and Greenland, are in stages of developing a large central square, community gathering place, new mixed-use development, and pedestrian and bike paths.
20 public transportation Guidebook for Small- and Medium-Sized public-private partnerships (p3s) 2.5.2 Air Rights The sale of air rights is a type of joint development that gives a private partner the right to develop, occupy, and control the vertical space above a property owned by the transit agency. This typically occurs above an existing or planned station in a dense urban area. Air rights can either be bought, leased, or transferred to the private partner. Leasing is far more common among rail transit properties. Transit agencies must own the station land. Developers are incen- tivized to purchase and develop above the transit station for increased employee and customer access. Many air rights sales, leases, or transfers are solely funding tools, without any added risk transfer. To be considered a P3, an air rights agreement must include additional risk transfer beyond funding. 2.5.3 Station Access Private partners across the United States are prioritizing access to public transportation when developing real estate for commercial office space, including new locations for corporate head- quarters and other major developments. Many consider direct and seamless station access to be critical to successful development. Station access agreements are typically made as part of an adjacent capital improvement project, joint development, or air rights agreement. A private partner may agree to deliver, finance, operate, and/or maintain the new station access point as a benefit to customers and employees. As a relatively small addition to the cost of a larger development, private partners may agree to take on significant risk transfer. For example, the Boston Landing Station in Boston, Mas- sachusetts, and the Dunwoody Station extension in Atlanta, Georgia, were completely designed, constructed, and funded by the private partner as a small part of the partnerâs larger headquar- ters development. Both partners noted the significance of direct station access for employees and customers of the planned commercial and retail space in the surrounding area. Transit agencies receive improved access to the new development at little to no cost with limited risk. Improved station access also may increase station usage and ridership. 2.5.4 Long-Term Leases As another type of joint development, transit agencies may negotiate a long-term lease at a low rate in return for transferring real estate risk (e.g., delivery, financing, operations, maintenance, Washington Metropolitan Area Transit Authority (WMATA), Washington, D.C., leases air rights above the Bethesda Metrorail Station on the red Line in Montgomery County, Maryland. this was one of the largest air rights projects in the nation, including a 50-year lease with a minimum of $1.6 million in annual lease payments to WMata. In addition, developers shared capital and operations costs of the station, including shared ventilation systems and auxiliary generators. Metropolitan Saint Louis Transit Agency (MetroLink), St. Louis, Missouri, entered into a memorandum of understanding in 2015 with Cortex Innovation Community, which includes private companies such as BJC health- care, in order for the employees of the innovation community to gain better access to a light rail station. MetroLink did not have enough funds to build a new station in the area, so major Cortex employers funded part of the station costs (and expansion of a nearby station) not covered by federal contribution. this station demonstrates how the business communityâs investment in transit can create public and private benefits.
Defining p3 Opportunities 21 and revenue). Transit agency-owned property in close proximity to transportation systems can be desirable to developers and therefore provide opportunity to be leveraged. In the case that the public entity has land available to lease, it offers the entity another revenue stream. 2.5.5 Easements Transit agencies may lease space in transit rights-of-way to private companies to develop communications lines or other utilities. This strategy has been used by transit agencies to gen- erate revenue and transfer management, operations, and/or maintenance risk to the private sector. The private sector is often able to install utilities at a lower cost than traditional under- ground utility installation on an existing, secure right-of-way that is generally well protected from intrusion. The public sector can also benefit from this arrangement by using a portion of the space and infrastructure for the transit agencyâs rights-of-way needs (e.g., fiber optics system). This option has been employed Bay Area Rapid Transit (BART) in California and WMATA in Washington, D.C. Easements have also recently been explored by others as an innovative method for generating additional annual revenue. The private partner will often assume O&M risk of the easement and, in some cases, may assume management and revenue risk of renting out any additional space. 2.5.6 Vending and Retail Concessions Many transit agencies have a strict no food and beverage policy in stations and on trains to keep cleaning costs low and customer satisfaction high. Some transit agencies allow food and drinks and specific vending and retail concessions in certain stations. Benefits include generating revenue that will offset capital and operating expenses, increasing transit ridership, providing additional activities and amenities at stations, and improving station safety and perception. Such concessions also make better use of high-traffic spaces and make goods and services more easily accessible to transit riders. To be considered a P3, a partnership must include risk transfer beyond a traditional vending contract. For example, a major vendor in a station may agree to maintain and operate the rest of the station in return for exclusive vending rights. An example of a vending and retail concessions P3 is a partnership where the private partner manages all vending and retail concessions in the station and therefore the private partner assumes revenue, operations, station improvement, and maintenance risk of the retail spaces. Portland Metropolitan Area Express (MAX) Red Line, Portland, Oregon: Bechtel enterprises funded 23 percent ($125.8 million) of the 2001 red Line extension, connecting downtown portland to the portland Inter- national airport (pDX). this DB contract consisted of a long-term lease where the private entity received an 85-year, rent-free lease to develop a 120-acre mixed-use commercial site near the airport. the timing of development during an economic downturn resulted in delays and a different mix of tenants than initially expected, but the development reached full occupancy by 2011. San Francisco Bay Area Rapid Transit (BART), San Francisco, California, contracted with MFS Network technologies (MFS) in 1995 to install a $45 million fiber-optics system for its rail system. In addition, MFS procured a $3 million fiber conduit. In return, MFS received the easement rights to rent out the conduit space to any carrier. Bart receives 91 percent of the rental revenues and MFS receives the remaining 9 percent.
22 public transportation Guidebook for Small- and Medium-Sized public-private partnerships (p3s) Most of the vending and retail concessions P3s include food and beverage services. However, these partnerships also have the potential to include other services, such as dry cleaning, grocery delivery, and convenience stores. 2.6 Marketing Agreements Marketing agreements may include the private installation and operation of assets such as display monitors, advertising boards, vehicles, stations, bus shelters, transit lines, and/or transportation services. As a part of these arrangements, the private sector may advertise exclu- sively in the sponsored location for an agreed-upon price. This often includes an agreement to operate and/or maintain the asset and often generates revenue to offset costs related to opera- tion of the asset. Such agreements may also include the sponsorship of a product related to the transit agency (e.g., fare cards, real-time display monitors). Marketing agreements include the following: ⢠Sponsorship, ⢠Naming rights, and ⢠Advertising. 2.6.1 Sponsorship Transit agencies may sell sponsorship rights for an asset in return for a specified service with risk transfer. To be considered a P3, the private partner must assume additional risk beyond simply a financial payment to the transit agency. This risk could include design, construction, operations, and/or maintenance of the sponsored asset. For example, a private partner might install, operate, and maintain real-time display monitors in stations in return for exclusive tech- nology use and logo placement in the station and/or on the monitors. Sponsorships have been used by transit agencies primarily to raise additional advertising rev- enues. Many private partners in the technology industry have entered into sponsorships to provide Wi-Fi/wireless service, display monitors, and real-time information. 2.6.2 Naming Rights Naming rights are a type of marketing agreement where the private sector receives naming rights for a station, line, or other asset in return for assuming delivery, finance, maintenance, Metropolitan Atlanta Rapid Transit Authority (MARTA), Atlanta, Georgia, has partnered with various private partners to provide vending and retail concessions to its passengers. In 2010, phase 1 was implemented to provide vending machines in stations. Marta charges the private partner a minimum guaranteed rent plus a percent- age of sales and does not permit the partners to price more than 10 percent of merchandise above market prices. Centre Area Transportation Authority (CATA) Sponsored Service, State College, Pennsylvania, offers subsidies from various apartment complexes and the university circulator to commuters, including students, in State College, pennsylvania. tenants of the apartment complexes receive a bus pass with their rental lease and the hous- ing complex reimburses Cata per ride (wholesale fare). this arrangement produces 28 percent of Cataâs annual operating revenue. the University Circulator offers free rides to all and the University pays a flat fee per hour of service. there is an annual contract in place that establishes the level of service and fee terms. the latter arrange- ment produces 35 percent of Cataâs annual operating revenue.
Defining p3 Opportunities 23 and/or operations risk. The sale of naming rights has been primarily used by transit agencies as a funding mechanism to offset the capital and/or operations costs of the asset. To be considered a P3, the private sponsor must take on additional risk beyond funding. For example, a private sponsor may agree to design and construct the station or provide feeder transit services to connect employees and/or customers to the station. 2.6.3 Advertising Advertising contracts are widely used by transit agencies primarily to raise additional rev- enues. Contracts may include advertising rights for the exterior and/or interior of buses and trains, bus shelters, and rail stations. Advertising contracts can also be applied to innovative technologies such as real-time display monitors and Wi-Fi/wireless services. To be considered a P3, the private partner must assume risk beyond funding. For example, a private partner may assume advertising management risk and/or O&M risk of the asset. In practice, most advertising contracts in the public transportation industry do not qualify as a P3 because they do not include risk transfer beyond that which is typical of a traditional advertising contact. Some transit agencies have reduced advertising costs and transferred advertising risk to the private sector by employing innovative advertising P3s. Innovative tech- nologies also present opportunities for transit agencies to transfer risk and increase advertis- ing revenues through higher-priced advertising space on display monitors and Wi-Fi/wireless access. 2.7 Innovative Technology As the newest and most innovative category of P3 initiatives available to transit agencies, innovative technology P3s are expected to grow as new technologies related to public trans- portation enter the marketplace. Since many of these technologies are advancing rapidly, it is important to consider future technological advances in the decision to pursue the P3 and in the design concept. Today, the most common innovative technology P3 options include the following: ⢠Energy savings, ⢠Fare payment, ⢠Real-time information technology, and ⢠Wi-Fi and wireless service. Southeastern Pennsylvania Transportation Authority (SEPTA) Station Naming Rights, Philadelphia, Pennsylvania: the thomas Jefferson University hospital purchased commuter rail station naming rights for $4 mil- lion for 5 years. Septa will receive 85 percent of the money and titan Worldwide, an advertising agency, will receive 15 percent. In return, the hospital is providing feeder bus service for patients between the hospital and the station. Septa plans to use the naming rights payments to make customer improvements at the station, including upgrad- ing entrances and restrooms. Chicago Transit Authority (CTA) Bus Shelter Concession, Chicago, Illinois: Cta partnered with a private company that specializes in outdoor displays to construct and maintain bus shelters. the private partner received advertising management rights in return for maintaining the shelters.
24 public transportation Guidebook for Small- and Medium-Sized public-private partnerships (p3s) 2.7.1 Energy Savings Sustainability is becoming an increasingly important concern in the public transportation industry. Some transit agencies have entered into energy savings partnerships with renewable energy developers. For example, a private partner may install renewable energy technology on agency property. The transit agency then purchases or receives a portion of the electricity gener- ated by the technology. This allows private partners to develop new initiatives with lower risk while transit agencies are able to purchase sustainable energy without paying for significant upfront costs. BART used this approach to install a 2.5-megawatt system on agency property. 2.7.2 Fare Payment While most major public transportation systems in the United States already use contactless smart cards as one option for fare payment, these are primarily closed-loop systems, meaning that the transit agency issues and manages fare payment using proprietary technology. An open- loop system refers to the use of multiple forms of payment, including traditional fare payment methods, privately sponsored contactless cards, and payment applications using compatible smart phones. These payment methods have been piloted by many major transit agencies (e.g., Utah Transit Authority), which are often sponsored by major credit and debit card companies. Passengers are able to directly use their personal debit cards, credit cards, or compatible smart phones as fare media. In addition, an open-loop system can also apply to the use of dual-purpose smart cards with both transit and prepaid debit accounts. The privately sponsored cards can be used for paying transit fares and for other everyday purchases. Transit agencies in the United States have entered into open payment partnerships and pilot programs in an effort to improve the customer experience, increase transaction speeds on buses and other cash payment modes, transfer data security risk, and lower the costs of in-house fare management O&M. These partnerships also provide opportunities for revenue sharing between the partners for advertising and transaction fees. Similar to other innovative technologies, fare payment technology also requires significant upfront investment. Entering into a P3 with the private sector can allow transit agencies to pilot or fully implement a new fare payment technology by transferring the upfront investment costs and risks to the private sector. As part of this arrangement, a private partner will assume part or all of the upfront investment risk and may assume revenue risk in the form of minimum payments to the transit agency. In return, the private partner will receive a share of the revenue raised from transaction fees and advertising. Alameda-Contra Costa Transit District (AC Transit), Alameda and Contra Costa counties, California, leverages the benefits of solar electricity without the burden of the cost. aC transit partnered with Sunpower access to install solar panels in two different locations, Oakland and hayward. the project benefits include lifetime energy savings of $5 million over 25 years, provides 100% of the energy required to run their hydrogen fuel facility, and the project was completely funded by partners. Chicago Transit Authority (CTA) Fare Payment System, Chicago, Illinois: Cta partnered with the fare col- lection company Cubic to install a contactless open fare payment system that allows passengers to pay with fare cards, tickets, and debit or credit cards. the private partner receives a monthly fee (base and variable components) in return for installing, operating, and maintaining the fare collection equipment and system. payments begin once the commercial service status of the system is achieved. Cta also transferred the risk of credit card processing and security. Cta believes this initiative will save the transit agency an estimated $50 million over 12 years.
Defining p3 Opportunities 25 2.7.3 Real-Time Information Technology Transit agencies are partnering with private partners to provide real-time transit informa- tion and connecting transportation options on mobile applications, business kiosks, street-level kiosks, and in-station displays. Similar to other innovative technology P3s, these partnerships may include significant risk transfer, including installation, operations, and/or maintenance of the technology. In addition, portions of these displays may be used for interactive advertising or marketing agreements. Private partners may assume revenue risk by agreeing to minimum annual advertising/sponsorship revenue payment to the transit agency. 2.7.4 Wi-Fi and Wireless Service Some private partners are working with transit agencies to provide customer access to cel- lular networks and Wi-Fi service, often including access to real-time information. In addition to avoiding upfront investment costs and transferring risk to the private sector, benefits for the transit agency include improved customer satisfaction and safety. The private partner often receives a percentage of advertising revenues or sponsorship rights. Seattle Department of Transportation (SDOT), Seattle, WA, announced a pilot p3 program with transit Screen in 2014. transitScreen would install ten screens in downtown buildings to help travelers make better deci- sions by highlighting all transportation options in close proximity to the building. the screen shows the multimodal options available to the traveler as real-time information. the first 10 locations were selected based on location and willingness to pay for installation. transitScreen will donate the screens, and SDOt will pay for the software and first year of maintenance. New Jersey Transit offers high-speed wireless internet access to major rail terminals and on board trains thanks to Cablevision, the private partner. the arrangement is at no cost to New Jersey transit. the project installation began in phases in 2013. the contract is for 20 years and Cablevision System Corporation will implement and maintain a systemwide wireless internet service to the standards specified in the agreement. the communications infrastructure includes fiber optic cabling, wireless access points, antennas, and related equipment in stations, along the right-of-way, and on board trains.
