Meme Weeding: Land Value Capture

Last month’s Patreon poll was about meme weeding – that is, which popular meme in public transit I should take apart. The options were fare caps on the model of London, popular among some US reformers; wait assessment, a schedule adherence metric for trains I briefly complained about on Vox as used in New York; and land value capture/tax increment financing/the Hong Kong model. The last option won.

Good public transit creates substantial value to its users, who get better commutes. It’s an amenity, much like good schools, access to good health care, and clean air. As such, it creates value in the surrounding community, even for non-users: store owners who get better sales when there’s better transportation access to their business, workers who can take local jobs created by commuters to city center, and landowners who can sell real estate at a higher price. All of these positive externalities give reason to subsidize public transit. But in the last case, the positive impact on property values, it’s tempting to directly use the higher land values to fund transit operations; in some cases, this is bundled into a deal creating transit-oriented development to boost ridership. In either case, this is a bad way of funding transit, offering easy opportunities for corruption.

Value capture comes in several flavors:

  • In Japan, most urban private railroads develop the areas they serve, with department stores at the city end and housing at the suburban end.
  • In Hong Kong, the government sells undeveloped land to the now-privatized subway operator, the MTR, for high-density redevelopment.
  • In the US and increasingly Canada, local governments use tax increment funding (TIF), in which they build value-enhancing public infrastructure either by levying impact fees on development that benefits from it or by programming bonds against expected growth in property taxes.

In both Hong Kong and the major cities of Japan, urban rail operations are profitable. It is not the case that value capture subsidizes otherwise-money losing transit in either country, nor anywhere I know of; this did not prevent Jay Walder, then the head of New York’s MTA, from plugging the MTR model as a way of funding transit in New York. What’s true is that the real estate schemes have higher margins than rail operations, which is why JR East, the most urban of the remnants of Japan National Railways, aims to get into the game as well and develop shopping centers near its main stations. However, rail operations alone in these countries are profitable, due to a combination of high crowding levels and low operating costs.

The Japanese use case is entirely private, and does not to my knowledge involve corruption. But the Hong Kong use case is public, and does. For all the crowing about it in Anglo-American media (the Atlantic called it a “unique genius” and the Guardian said it supported subsidy-free operations), it’s a hidden subsidy. The state sells the land to the MTR, and the MTR alone, at the rate of undeveloped outlying land. Then the MTR develops it, raising its value. Other developers would be willing to pay much better, since they can expect to build high-density housing and have the MTR connect it to Central. This way, the government would pocket the profits coming from higher value on its land. Instead, it surreptitiously hands over these profits to the MTR.

While Western media crows about Hong Kong as an example of success, local media excoriates the corruption involves. Here’s the South China Morning Post on the MTR model:

The rail and property model was never anything but a delusion to which only Hong Kong bureaucrats could be subject. It traded on the odd notion that you cannot assign a value to property until you actually dispose of it.

Thus if you give the MTR the land above its stations, these sites suddenly and magically acquire value and the proceeds cover the cost of building the railway lines. Ain’t magic wonderful? We got the MTR for free.

Stephen Smith dealt with this issue in 2013, when he was still writing for NextCity. He explained the local corruption angle, the fact that MTR rail operations are profitable on their own, and the lack of undeveloped land for the state to sell in most first-world cities. (Conversely, one of his arguments, about construction costs, doesn’t seem too relevant: Hong Kong’s construction costs are probably similar to London’s and certainly higher than Paris’s, and doing value capture in Paris would be an urban renewal disaster.)

Stephen also tackles American examples of value capture. With no state-owned land to sell to the public transit agency at below-market prices, American cities instead rely on expected property taxes, or sometimes levy special fees on developers for letting them build TOD. Stephen talks about scale issues with the TIF-funded 7 extension in New York, but there are multiple other problems. For one, the 7 extension’s Hudson Yards terminus turned out to be less desirable than initially thought, requiring the city to give tax breaks. See for examples stories here, here, and here.

But there are more fundamental problems with the approach. The biggest one is the quality of governance. TIF is an attractive-looking option in American jurisdictions that recoil at raising direct taxes to pay for service. This means that as happened in New York, it is tempting for cities to promise property tax windfall, issue bonds, and then let successor governments raise taxes or cut services to pay interest. This opaqueness makes it easier to build bad projects. When the government promises especially high benefit-cost ratios, it can also keep issuing new bonds if there are budget overruns, which means there is no incentive for cost control.

TIF also requires the city to use zoning to create a shortage of land in order to entice developers to pay extra to build where it wants them to. Stephen complains that New York reamed problems on upzoning in Midtown East, one of the few locations in Manhattan where developers are willing to build supertall office towers without any tax breaks; the new zoning plan, in the works since he was writing for NextCity in 2013, only just passed. Another such location is probably the Meatpacking District, near the Google building at 14th and 8th, now the city’s tech hub – there is no tall office construction there due to the power of high-income residential NIMBYs. Were the city to loosen zoning in these areas and permit companies that need a prime location to set up offices in these areas, it would find it even harder to entice developers to build in a lower-demand area like Hudson Yards. Midtown East and the Meatpacking District are replete with subway lines, but there are no new plans for construction there, so the city wouldn’t do a TIF there.

The same problem, of TOD-reliant funding requiring the city to restrict development away from targeted investment areas, also works in reverse: it encourages development-oriented transit. In 2007, Dan Doctoroff, then a deputy mayor and now head of Google’s Sidewalk Labs, opposed Second Avenue Subway, on the grounds that the area is already developed. Second Avenue Subway was eventually built, but the 7 extension omitted a stop in an already-developed area amidst cost overruns, as Bloomberg prioritized Hudson Yards. This is not restricted to New York: San Francisco is more interested in a subway to Parkmerced than in a subway under Geary, the busiest bus route, busier than the subway-surface light rail branch serving Parkmerced today. Smaller American cities propose core connectors, aiming promoting redevelopment in and around city center. This in turn means ignoring low-income neighborhoods, where there is no developer interest in new buildings except as part of a gentrification process.

These problems are for targeted investments. But when there is more widespread TOD, TIF ends up being a tax on transit users. Cities build roads without levying special taxes on sprawling development, whether it sprawls by virtue of being near the highway or by virtue of being far from public transit. When they build transit, they sometimes tax TOD, which means they are giving developers and residents tax incentives to locate away from public transit.

Hong Kong is not the right model for any TOD scheme; its corruption problems are immense. It’s a shiny object for Americans (and other Anglophone Westerners), who are attracted to the allure of the exotic foreigner, like a premodern illiterate attributing magic to the written word. Instead of replicating its most questionable aspect, it’s better to look at models that are attractive even to local corruption watchdogs.

This means funding public transit and other services out of transparent, broad-based taxes. Paris uses a payroll tax, varying the rate so as to be higher in the city (2.95%) than in the outer suburbs (1.6%). Everyone will hate them, especially people who don’t use transit and don’t view it as directly necessary for their lives. This is why they work. They compel the transit agency to run efficient service, to stave off opposition from aggrieved center-right middle-class voters, and to run it well, to stave off opposition from populists (“why am I being taxed for trains that break down?”). They leave no room for waste, for cronyism, or for slush funds for favored causes, precisely because they’re hard to pass.

It’s easy to see why politicians avoid such funding sources. The democratic deficit of local governance in the US is immense, and that of Canada is only somewhat better. Nobody wants to lose an election over raising taxes, even in cities where the political spectrum runs from the center leftward. Value capture sounds like a good, innovative idea to fund government without hated taxation, and its abuses are hidden from sight. Even as it forces city residents to endure opaque fees (never call them taxes!), it wins accolades to politicians who propose it. No wonder it continues despite its failures.

66 comments

  1. scrane

    This seems like a kind of shiny object idea – it’s attractive on the surface, but it makes no sense. Instead of encouraging transit to serve undeveloped areas, where it’s not needed, in the hopes of making money from then developing them, it’d be way better to allow the development in high-demand areas that already have good transit but are under-zoned, and build the transit in areas where people need it. No city is so well-planned and well-covered that it makes sense to build transit in undeveloped areas in the hopes of stimulating demand for the transit by encouraging development. There’s always some place that could already benefit from either the transit or the development.

    It reminds me of when someone suggested that new train lines would be improved by placing solar panels on the trains. Solar panels will never run as efficiently on a moving vehicle as a building, due to the angle of the sun and the location of shadows varying along a route, and will be more expensive to install, due to the problem of adding to the electrical equipment needed in the limited space on the train. Instead it’d be way better to take all that money that’d need to install solar panels on the trains, and instead spend it building solar panels on the ideal fixed places in the city and surrounding area. You’ll get far more energy, far more efficiently. I don’t think there’s anywhere on Earth where the solar panel coverage is so dense that the most productive use of a panel would be to put it on the back of a train.

  2. Michael James

    Alon, this is an extremely disappointing piece. I can only conclude that you must be politically/ideologically driven to make so many incorrect statements, especially as I have specifically addressed most of them on your blogsite in the recent past. I think it is outrageous to call what happens with HK-MTRC as corruption. It’s what I call good planning to bring stable finances to the crucial transit system for the overall good of the city-state. That is why several Chinese cities (Shenzen …) have adopted the same approach and other transit specialists commend it (more in a separate post).

    the now-privatized subway operator, the MTR

    This is very misleading. Even Stephen J. Smith calls it “a public-private company”, because that is what it is. Still 70% owned, and obviously largely controlled, by the HK government. The minority of shareholders is presumably to bring the much-vaunted private-sector financial discipline blah blah (though I don’t know who those investors are–are they truly non-governmental?).

    In both Hong Kong and the major cities of Japan, urban rail operations are profitable.

    and:

    The Japanese use case is entirely private, and does not to my knowledge involve corruption. But the Hong Kong use case is public, and does.

    (That’s confusing and seemingly contradictory but never mind …) In both cases (and also French-SNCF’s TGV operations) this is merely an operational profit which is fair enough, but of course the capital cost will never be repaid. This includes all of the “privatised” JR companies who have never had to repay or buy any of their huge assets (indeed massive debts remained in a government holding entity that continues to lose money to this day). For the same reason it is dubious to consider those JR companies as “entirely private”, indeed extremely misleading IMO.
    You haven’t given any concrete or meaningful example of corruption in the HK case. Stephen J. Smith does not use the word in his piece even though he too doesn’t seem to approve of the arrangements but then his history involves the Real Estate industry, and to be sure there are property developers in HK (many billionaires) who object to the fact that they are effectively cut out of some part of the development that MTRC does. But the reality is that private developers have plenty of opportunities in all the developments that MTRC, and I suspect any whinging is limited (they surely must realize these developments wouldn’t happen at all without the MTRC).

    This is your what you consider corrupt:

    The state sells the land to the MTR, and the MTR alone, at the rate of undeveloped outlying land. Then the MTR develops it, raising its value. Other developers would be willing to pay much better, since they can expect to build high-density housing and have the MTR connect it to Central. This way, the government would pocket the profits coming from higher value on its land. Instead, it surreptitiously hands over these profits to the MTR.

    Now, if this profit was going back to shareholders or some other private entity you might be right. BUT IT ISN’T! It is designed so that the public-private entity is financially viable and can also raise some of the huge capital costs involved in expanding the transit system (more later). Also there is nothing the least “surreptitious” about it. It would be seriously pointless just the government selling the land or development rights directly to the developers because that money would be a one-off infusion of cash that would disappear into general government revenue. Instead, MTRC has a permanent income stream from its developments that the politicians
    can’t get their miserable pork-barrelling hands on. If anything this is anti-corruption. Further I reckon it creates better type of development than private developers left to themselves (this would be even worse, is even worse, in the west or at least the Anglosphere).

    Doesn’t something similar happen with US airports (essentially independently-operated but ultimately owned by various governments, federal, state or local): do the airport companies sell off their retail portions to a developer in a one-off deal, or does the airport recover rents from those retailers directly? I know which makes the most sense (even as developers probably scream about it: don’t tell me, I’ll bet there is a law against this arrangement in Texas ….).

    Stephen Smith dealt with this issue in 2013, when he was still writing for NextCity. He explained the local corruption angle,

    No, he didn’t. There is no use of that word and really not even the accusation or implication. You’ve got this seriously wrong and I ask myself why are you doing it. The citation from the South China Morning Post is faintly ridiculous and of course merely reflects some actually corrupt business interests; I wonder if Murdoch was still the owner of the SCMP when that was published? And does anyone doubt that a rail-line and big station with associated development doesn’t, almost “magically”, create value? It’s just sour-grapes that those developers aren’t the sole beneficiaries.
    Stephen J. Smith writes:

    It (MTRC) then develops the land and uses the profits to pay for system expansion.

    That is another misleading simplification. Building costs are so high that MTRC contributes about 50% of the capital cost of any new line extension and stations, ie. the government must still find about 50%; but of course under these value-capture arrangements MTRC will recover more over a longer timescale from those developments. It’s win-win for the city-state of Hong Kong and I have no idea of why you want to deny this.

    ….the lack of undeveloped land for the state to sell in most first-world cities. …Stephen also tackles American examples of value capture. With no state-owned land to sell to the public transit agency at below-market prices, American cities instead rely on expected property taxes

    This is simply untrue. Hong Kong has less buildable land than almost any city you could think of. And it rather belies that point you are failing to make, that MTRC’s most notable value-capture developments have been on reclaimed land, such as Kowloon-West, the massive IFC scheme in Central and the Tung Chung development opposite the airport (which, even if on the biggest island in HK, Lantau, the vast majority of it being undeveloped forest on rocky mountains & hills, nevertheless at least half of the land of Tung Chung was reclaimed from the sea–for the obvious reason that the mountains of most of Lantau go right to the sea). Further, MTRC has only a minority share of all development at Tung Chung.
    Of course exactly this has happened in NYC, in the reclamation by the city (NYNJPA) to build the original twin towers WTC then Battery Park City adjacent; the NYNJPA acts as the master developer in all these things, yes? Though I have asked here recently whether the MTA recovers any direct and recurrent income via rents etc of the vast shopping precinct built above its stations (run by Westfield, a rapacious Australian property developer)?
    Grumbling about the “low quality” of Hudson Yards sounds like a bit of corruption in itself; I mean does anyone doubt it will turn into highly valuable real estate with time? Then there are “air rights” which presumably apply to any redevelopment of, say Penn Station, etc. These should belong to the MTA or at least shared with the city so that a permanent source of income offsets the high capital costs and operational costs. I believe the same operates at Chatelet-les-Halles in Paris, the world’s biggest Metro station with a very large retail complex above and fully integrated.

    The efficiency or inefficiency of how different transit authorities operate is really a different issue and should not be wrapped up in the argument.

    Hong Kong is not the right model for any TOD scheme; its corruption problems are immense.

    That only deserves one response: nonsense.

    • Alon Levy

      A couple things, on top of what Snogglethorpe said.

      1. China isn’t really an example of clean government, so its adopting the MTR model means nothing.

      2. The article complains about a lot more than private developers being cut from the deal. Most of the profits coming from putting it out to competitive bid would accrue to the government (which owns the land). Giving land at below-market prices to the MTR is a hidden subsidy for a private business. The complaint about magical value is that the government sells the MTR the land at the price of undeveloped land and not at the price of land with an expected rail line.

      3. The MTR already has stable funding: fare revenue.

      4. Yes, a lot of people doubt that Hudson Yards is going to become a new CBD, which is what the Bloomberg administration promised it would be. It’s too far and too poorly served by transit (just one line). Perfect for residential, but that’s not what the city tried to put up there.

      5. STIF here is funded out of a payroll tax, and not out of real estate deals as in New York (I barely know what public sources of money the MTA gets exactly). And I really wouldn’t give Les Halles as an example of successful urban renewal, on either aesthetic criteria (it’s ugly except from the front) or economic ones (instead of enabling the CBD’s migration westward the city should’ve built skyscrapers).

      • adirondacker12800

        They have to finish the buildings at Hudson Yards. Neiman Marcus, Chanel and Dior as anchors to the mall is nothing to sneeze at. Their real estate professionals apparently don’t have a dim a view of it as you. Million square feet of retail ain’t nothing to sneeze at either.

      • Michael James

        on top of what Snogglethorpe said.

        Snogglethorpe made an unsubstantiated statement that was false. As the cliche goes, is that best you guys can do?

        1. China isn’t really an example of clean government, so its adopting the MTR model means nothing.

        How convenient to dismiss any experience in China as inapplicable. China happens to have developed faster than any other nation in history and pulled more people out of poverty and faster than ever in history …. China has the same problem in building public infrastructure as any other entity: how to finance it and how not to bleed money forever. The MTRC model works and works to everyone’s benefit (except a tiny imposition on billionaire property speculators) so of course they are interested as the PRC does have the same public debt issues as other nations.

        2. The article complains about a lot more than private developers being cut from the deal. Most of the profits coming from putting it out to competitive bid would accrue to the government (which owns the land). Giving land at below-market prices to the MTR is a hidden subsidy for a private business.

        So it seems that you are hanging your entire argument on your insistence that MTRC is the exactly the same as any other private property developer? Sorry to say but this is pretty dishonest and irrational. The other argument is about open “competitive” bidding on government property: sure, how does that work out in the west (or especially the Anglosphere where it is dominated by the Donald Trumps or the Westfield group–the Lowy family is the richest family in Australia, our Waltons.)? Under that model the government gets a single payment for the property while all future profits, including unearned capital gains entirely contingent upon the provision of the mass transit service and stations, goes to property speculators. Governments, especially in the Anglosphere, have a poor record of getting the appropriate value of the assets they sell (and that is assuredly as accurately described as corruption than anything you are throwing the word at.) What the MTRC model does is recover a fraction of this future profit stream (that will grow at CPI or better) to help fund the transit that actually helps create it. Note, “helps”, in that transit is so expensive to build it always needs government funds (if you think Japan manages without, then someone is deluding themselves).

        3. The MTR already has stable funding: fare revenue.

        So, you’ll be able to give examples of where that is enough to build and operate a mass transit system? Giving JR-East as an example is dishonest but I suppose you have trapped yourself into that false argument? The basic problem of such large public infrastructure is that the scale and timescale are beyond modern capitalism to fund and recover profits; but unless you adopt the position of extreme libertarians who would see zero public transit, then clearly most human societies have found the need to provide public mass transit and thus must find the best way to fund it and recover some of those costs. Taxes is one method (but again, please give examples of where it works in the Anglosphere–unless you are happy with French/Danish/Swedish/German or even UK tax rates). This is the entire logic behind value-capture and MTRC has shown a viable method.

        4. Yes, a lot of people doubt that Hudson Yards ….

        Adirondacker is correct. It is absurdly too early to be making such statements of doom. This time problem is exactly what makes building mass transit so difficult: you sometimes have to wait years and years or decade for it to mature. You know that HK building HKI and all the astounding associated infrastructure (it was the world’s biggest civil engineering project for the decade it was under construction) took almost a decade. And the West-Kowloon reclamation seems to have been going on ever since my visit to HK (1979, the same year the MTR opened). Then there is the IFC and western ferry piers reclamation project that was huge in scope and ambition. Not to mention Disneyworld, the huge new container ports on the same route. This is what governments are for, and MTR was charged with master-developer status for three of these giant projects on the Airport project: the IFC complex (huge shopping mall, IMO one of the best designed in the world; hotels, commercial-financial etc) with its terminal for the Airport Line (and linked to the main lines at Central); the West-Kowloon Union Square TOD (only just completed this year, see link CityLab below; over 14 Hectares it includes the Ritz-Carlton highest hotel in the world at 118 floors and residential at 125,000/km2–probably the densest in the world–and in the heart of Hong Kong all built on what began as watery harbor 2 decades earlier) and the Tung Chung new town, destined to hold 250,000 residents (I think it is about halfway). There are others too (such as Tsing Yi station built next to the Maritime Square shopping centre and directly underneath the Tierra Verde housing estate) but you get the idea. All of this US$20bn of investment depended critically on the MTR (and Tung Chung) line, and the complex of road+rail bridges connecting it all to Hong Kong (the whole lower deck of the Tsing Ma bridge is for rail). This was superlative long-range planning and vision, and part of it was to set up the various entities (the HKI airport, MTR, the new towns, the ports etc) so that they were sustainable financially. It may not be perfect but is probably the best such arrangement in the developed world. Why do you want to criticize what is self-evidently a huge success that the rest of us look on with envy?

        https://www.citylab.com/design/2017/05/decline-of-shopping-malls-hong-kong-design/526764/
        The Mall Isn’t Dead, It’s Just Changing
        Hong Kong figured out how to make shopping malls a sensible part of the urban fabric. Can this model go global?
        Stefan Al, 16 May 2017.

        5. STIF here is funded out of a payroll tax, and not out of real estate deals as in New York (I barely know what public sources of money the MTA gets exactly). And I really wouldn’t give Les Halles as an example of successful urban renewal, on either aesthetic criteria (it’s ugly except from the front) or economic ones (instead of enabling the CBD’s migration westward the city should’ve built skyscrapers).

        Well, yes, it is easy (and intellectually lazy) to criticize on the basis of aesthetics but nevertheless Les Halles is on a similar scale of urban + transport planning as Hong Kong–and in a much more difficult situation (an ancient city and UNESCO site!). It may have been a tad “ugly” (it was built in the worst period in world history for aesthetics, the 70s!) but I think it is bloody marvellous. Yes, even as I too try to avoid using it as a metro-RER interchange station. The ugliness of the ’70s (mostly subterranean) mall was overstated and the above-ground parks etc were excellent, and did that wonderful strange magic of mixing the ancient (the Bourse, Saint Eustache, old apartment buildings etc) with the new. I haven’t visited since Le Canopée has been built but I like what I see in pictures. Just like today the nitpickers are carping about Calatrava’s Oculus in the WTC redevo, in a decade it will be an icon of NYC; what price is any of that?
        “Should’ve built skyscrapers”; we’ve done that argument before and in essence it would not have even achieved what is claimed: densification etc. given that inner Paris is the densest of any mature city in the world (you have to cherry pick areas before even HK exceeds it). Paris shows how it can be done without demolishing fabulous heritage, and it needs serious vision and yes public expenditure (of course I mean public transit–RER-A and Metro line 1 serving La Defense, the biggest financial district in Europe). One wonders what the real “cost” of demolishing inner Paris would have been? In fact even Maggie’s London copied it in Canary Wharf and the infrastructure required (DLR, Jubilee Line, now London CrossRail etc).

        Also as Adirondacker and B. Turon say, “Property tax breaks expire.” And are horribly subject to mindless ideological or simple partisan politics.

        • Alon Levy

          In Japan, Shinkansen construction is funded by the state, which leases the infrastructure to the relevant JR for a fee. Grade separations, e.g. on the Chuo Line, are considered a public road project rather than a rail project, so they’re funded mostly by the state and the city, while the railroad has to contribute a small amount, IIRC 10-15%. (In the US, the government can compel a railroad to grade-separate a junction at railroad expense even when the railroad was built before the road crossing it.) Additional investments in capacity by a private railroad, e.g. the Tokyo-Ueno Line, are funded by the railroad itself. The Tsukuba Express was funded by a zero-interest government loan, which is more or less what the market rate for loans in Japan is anyway.

          Paris has high residential density. Its job density is sorely lacking, and the center isn’t even Les Halles – it’s the Opera, and judging by retail rents it’s migrating even farther west, in theory encompassing the entire 8th. But forget that: you’re complaining about demolitions, when the Forum des Halles actually was demolished, just replaced with something of low commercial value.

          And both cities have way lower construction costs than Hong Kong, which is the US of East Asia not just in inequality but also in construction costs. Relative to Hong Kong costs, the way subways are built in France defrays maybe 2/3 of construction costs, in that Paris builds subway about 3 times as cheaply; in Sweden, Greece, and Italy, make it 5 times as cheaply.

          So what you’re actually saying is that a model of infrastructure funding that’s largely exclusive to the Anglosphere (note, “largely”: Copenhagen uses it) is superior while constantly taking potshots at the Anglosphere. And ironically, the “Hong Kong and Singapore do it better” meme is almost entirely restricted to the Anglosphere. The discourse in the UK marvels at these places, which are just different enough to be exotic and just similar enough that their business elites go to Oxbridge, speak Tory English, and profess to values English Tories connect to. Through this just-foreign-enough effect, Britain is exposed to the successes of these places and not to their failures; to read about the MTR model’s problems you’ll need to read SCMP and not the Grauniad or the Atlantic. I don’t see much reference to either place in French media, and nobody I talked to in Sweden ever mentioned these places to me as a model; Swedes who think their country needs more market mechanisms talk about internal Nordic reforms or about the US. In Israel there was a brief period of elite fetishization of Singapore in the late 1990s – not of Hong Kong – coinciding partly with economic liberalization and partly with Anglo-American media having suddenly heard of Singapore; it’s since been long forgotten.

          • Untangled

            I agree that Micheal’s comments do seem to take shots at the Anglosphere, it does feel a bit cheap especially considering its regular recurrence. Obviously, the MTR model does work financially and I don’t think it’s super corrupt. It is one thing people should look at but I don’t think taking value capture to the scale of Hong Kong, with its density and all, is socially worth it in any western city. It is worth a look and taking inspiration from but it shouldn’t be the only thing people should look at and I don’t think it’s perfect either. Even in the Anglosphere, taxes are higher than Hong Kong so some money, if not all, should continue coming from there.

            In Sydney, there’s a new (and still small) government developer called UrbanGrowth which generates profit from urban projects, they were recently put in charge of Sydney’s biggest urban renewal project at the Bays Precinct so profits go to the government and a lot of new major projects have UrbanGrowth’s fingerprints as well. This developer is independent of the transport agency.

            One problem I see with MTR is their “dull developments” with malls and podiums, which MTR largely carries out. Tung Chung is probably a good example of this. Some places like Sheung Shui and Yuen Long have a good mix though. This is one thing that needs to be addressed.
            http://www.scmp.com/comment/insight-opinion/article/1270425/rethink-hong-kongs-dull-housing-development
            http://www.scmp.com/comment/insight-opinion/article/1926353/walls-hong-kongs-very-own-gated-compounds-must-come-down-too

    • Martin

      I agree with the general gist that MTR is generally a public company, so that giving a public entity rights to land development is not really corruption when the model is transferred elsewhere (though on the other hand I would argue that these days the entire HK government structure is in a way corrupt at heart, and mainly benefiting a small cliche of oligarch developers and the civil service themselves, this is a fairly recent phenomena).

      My main point is that I strongly object to the concept that high land prices are a result primarily of scarcity. Hong Kong is an extremely green space (take the golf courses for example), and these days land reclamation is so cheap that it would be profitable in pretty much all of Hong Kong (something true for all of the 10-15 most expensive cities in the world). The Hong Kong government is running on land sales and the (increasingly mainland) developers to access to that scarce land. This is a big implicit tax that the extremely hardworking and productive population pays.

      This system with artificial scarcity of land, sales of land funding the budget (primarily mainland oriented white elephant infrastructure projects these days though), and a privileged position for oligarch is partly a result of a populist (and genuine popular) desire for low taxes. Still I dont think a populist political party would continue with similar policies. The entire governance structure is basically a way to defraud the people at Hong Kong, for the benefit of Beijing (through ridiculous infrastructure projects), the civil service, and a small group of property developer.

      • Michael James

        Martin 2017/09/08 – 13:29 wrote:

        these days the entire HK government structure is in a way corrupt at heart, and mainly benefiting a small cliche of oligarch developers and the civil service themselves, this is a fairly recent phenomena).

        Yes, but as you say this is recent. I would say post-handover. The HK civil service had the reputation as one of the best (and least corrupt) in the world. But the relevant point here is that the MTRC is actually a counter-force against this type of “corruption” (I think that is not the appropriate word; indeed Alon has corrupted its meaning!) Its structure and raising of funds means that the expansion of the MTRC continues and so far has not been subject to political interference the way it has in the Anglosphere. Part of that is that this kind of value-capture still serves the property developers; despite any whinging (and I’m not sure of how much there is–Stephen J. Smith’s report doesn’t have anything substantive and I don’t see it elsewhere) for the simple reason that they still get their piece of the pie. They might even (secretly) welcome MTRC’s role in easing the social housing crisis (a bit) because they know it is an unsustainable issue in HK.

        My main point is that I strongly object to the concept that high land prices are a result primarily of scarcity. Hong Kong is an extremely green space (take the golf courses for example), and these days land reclamation is so cheap ….

        It is not that cheap and at the least it takes time. Much of that green space is now protected national park etc and though the government is increasingly truly corrupt (ie. serving political masters in Beijing) any attempt to resume much of it creates a big fight. In fact I am a bit surprised with what they did with the prime land of the old Kai Tak airport–nowhere near as densely redeveloped as it could have been, which is an acknowledgement that it needs more breathing space amongst its dense areas.

        This is a big implicit tax that the extremely hardworking and productive population pays.

        Well yes and no, but what is the alternative? A western-style highly-progressive taxation system? What chance of introducing that in HK? Hah, higher corporate taxes? Or more gambling like Macao? (Hong Kong Jockey Club provides 6.5 per cent of revenues and largely funds those parks, gardens and universities & research etc). Again, value-capture appears to work in a place that wants to keep its direct taxes low. I may or may not agree with the tax regime but as a solution LVC works, and mostly simply diverts the same rents from billionaires back to something that benefits the people. There is no evidence that population you speak of what benefit in any way if LCV disappeared. You seem to admit that in your last para. And alas, the chances of a populist government is next to zero. The problem with any enlightened “solutions” we liberals might dream up, is that they would probably destroy the village to save the village.

        (I am curious as to what you call ” mainland oriented white elephant infrastructure projects these days”? Are you thinking of the HSR? Or the West-Kowloon Cultural Centre?)

        • Martin

          Regarding the white elephants if I understand it correctly most of the land sales are locked into an infrastructure fund. This fund is these days largely used for incredibly expensive connections to the mainland. The worst example is the Macao bridge that is mind bogglingly expensive for very little value, but also the train connections to China.

          I am pretty sure a genuinely democratic government would stop funding the budget by land sales (taxing house buyers) and move towards other funding sources. After all this is the main concern of the population. This is what the more responsive government in Singapore (and the mainland arguably) does. The current high construction costs and land prices are politically engineered.

          • Michael James

            Martin wrote:

            This fund is these days largely used for incredibly expensive connections to the mainland. The worst example is the Macao bridge that is mind bogglingly expensive for very little value, but also the train connections to China.

            Really? I haven’t examined it in any detail but the Pearl River Delta is the world’s largest urban area–between 64m and 120m people. It accounts for something like 38% of all China’s trade and ≈10% GDP.
            The Hong Kong–Zhuhai–Macau Bridge will join Hong Kong, Macau and Zhuhai. The 50 km link is expected to cost US$10.6 billion, which if true is hardly hyper-expensive. It joins HK at Tung Chung and HKI.
            Supposed to open in December. I haven’t checked recently to see its status.

            In any case you don’t think strong transport links between the dozen cities in this mega-hyper-city of mega-cities aren’t required? A huge fraction of HK business activity is within this zone; apparently HK’s re-exports (of stuff made in Shenzhen etc) has a value of 190% of HK GDP. Mainlanders represent 40% of HK’s visitors (even if most Hong Kongers would prefer it were not so.)

            I guess you don’t support a HSR for the NEC either?

            I’m not quite sure what “other funding sources” for Singapore means? The casino? Or tax-haven money, including DPRK money for their Russian & Iranian oil purchases? Or their foreign investments (ie. sovereign wealth funds via Temasek Holdings etc. Which is funded via a 120% govt debt to GDP ratio. HK’s is 68%.)

  3. snogglethorpe

    No city is so well-planned and well-covered that it makes sense to build transit in undeveloped areas in the hopes of stimulating demand for the transit by encouraging development. There’s always some place that could already benefit from either the transit or the development.

    For private railways, the calculations aren’t really the same. If they play their cards right, they can get cheaper underdeveloped land, build a railway serving popular commuter destinations, build housing and shops, and get a nice return on their investment. If they do a good job, they’ll get a continuing return from their shops, and a new railway that will hopefully be profitable after a while (as the shops and new housing will attract other investments to these areas).

  4. snogglethorpe

    In both cases this is merely an operational profit which is fair enough, but of course the capital cost will never be repaid.

    For Japanese private railways, you are wrong (dunno about MTR).

    This includes all of the “privatised” JR companies who have never had to repay or buy any of their huge assets (indeed massive debts remained in a government holding entity that continues to lose money to this day). For the same reason it is dubious to consider those JR companies as “entirely private”, indeed extremely misleading IMO

    This is also wrong about JR. Alon has covered this exact issue extensively in the past.

    Note that for purposes of this discussion, JR is also not the most interesting party, not just because of their history, but because they are not a pure urban railway, and also have many long distance and rural lines etc. Rather the many (profitable) independent railway companies are.

    • Michael James

      Snogglethorpe, so give me some hard information (no links to blog opinion or unverifiable blank statements). In fact your post is nothing but empty opinion so I don’t know why I am bothering to reply. I am weary of hearing references to these entities as golden examples of “private” enterprise when in reality they have been gifted hundreds of billions of dollars worth of operational assets. But I don’t call this “corruption” (especially as the CEOs who run such corporations are excessively paid like in the west. But I do wonder how Alon labels
      HK-MTRC as corrupt while JR-East etc is an examplar when (despite all the complications of these public-private concoctions) they are so similar. And the important thing: created by their governments (under pressure from neo-libs and econo-crat accountants) to “stop the fiscal bleeding”. With JR, it hasn’t worked:

      michael.r.james 2015/10/16 – 05:39
      To describe entities like JR East as “fully private” is a considerable simplification. I can’t pretend to understand the complex history of “privatisation” of Japanese National Railways (ie. the original government entity). But it surely tells you why true private passenger railways don’t really exist; these newish entities are only possible because of decades or a century of previous public investment building the networks.

      JR East was incorporated on 1 April 1987 after being spun off from the government-run Japanese National Railways (JNR). The spin-off was nominally “privatization”, as the company was actually a wholly owned subsidiary of the government-owned JNR Settlement Corporation for several years, and was not completely sold to the public until 2002.

      The Settlement Corporation was set up to handle the assets and debts of JNR prior to attempts to sell off the 5 operating rail companies.

      In 1987, when the privatization of Japanese National Railways took place, JNR debt totaled over ¥37 trillion [US$301bn]. Upon passage of the 1987 Railway Reform Law, the debt of JNR was split, with 60% of the responsibility falling directly on the JNR Settlement Corporation, and 40% falling on three of the JR Group railway companies, JR East, JR Central, and JR West. While the smaller portion was expected to be repaid, the three JR Group railway companies were not held liable for failed earnings, and only made significant profit through sale of stock. JNR dignitaries staggered interest payments on the large existing debt to keep the JNRSC from paying back the debts that it was expected to. During its tenure, the debt increased, leaving taxpayers to pay off nearly ¥24 trillion [US$195bn] as of 2009.

      As I say, I don’t know details of JR East but I suspect it will be similar to Hong Kong MTRCL, also privatized but whenever line extensions or major capital expenditure is necessary the HK government pays for at least 50% of that cost. So even in incredibly high-ridership networks (JR East carries 6 billion pax pa) these so-called private rail operators aren’t really … and I don’t think we should refer to these companies as if they the same as, say, WalMart. (I almost wrote GM but of course it was nationalized after the GFC with $50bn of public money, then after 5 years or whatever, reprivatized with the loss of $10bn to the taxpayer–without even counting the opportunity cost of all that money over those years.)
      And one thing these rail companies are not models for, is privatization in western countries. They may function quite well in particular societies like Japan and Hong Kong but would be disasters in the Anglosphere. Where there is not enough public or political support for passenger rail transit, as in the USA, then you’ll get what you pay for: crap (by international standards). Even where the private companies inherit a century’s worth of infrastructure and working routes, like the UK, the service deteriorates and fares become even more expensive and the actual infrastructure company (Railtrack plc) went bust and had to be rescued (re-nationalized) by government (where it remains today). They say that the TGV side of SNCF is “profitable” but of course that is in an operational sense and certainly does not include any liabilities of the capital cost in building all those HSR. Just as HK’s MTRCL is praised as the best run (and profitable) “private” city Metro in the world but it, like JR East, neither built its system nor pays for its expansion.
      ….
      https://en.wikipedia.org/wiki/Japanese_National_Railway_Settlement_Corporation
      https://en.wikipedia.org/wiki/Japan_Railways_Group
      https://en.wikipedia.org/wiki/East_Japan_Railway_Company
      …………………………………………

      • Michael James

        Oops, typo in my post:

        But I don’t call this “corruption” (especially as the CEOs who run such corporations are excessively paid like in the west.

        should have been “are not excessively paid”.

      • Untangled

        I am weary of hearing references to these entities as golden examples of “private” enterprise when in reality they have been gifted hundreds of billions of dollars worth of operational assets.

        Not JR but some of Japan’s third sector railways are privately financed.

        • Michael James

          Untangled 2017/09/07 – 23:19 wrote:

          Not JR but some of Japan’s third sector railways are privately financed.

          Yet, Alon specifically discusses JR-East only.
          And you continue the great tradition of making evidence-free blank statements. Why not provide some actual evidence and detail?

          You know there are powerful reasons why all those originally private city transit systems ended up going bust and were taken over by government all over the world. (Well actually, Paris Metro was never private; perhaps that is why it is judged so often as the best in the world, last in 2016; it really helps that a single entity is designing such huge systems–the only future contenders will be the likes of HK and Shanghai etc where it is also one entity.). So, in the biggest city in the world with huge transit population, and in the peculiar circumstances of “Japan Inc.” in the post-war period, a couple of private Tokyo metro companies survived–but even they provide good case studies as they practice value-capture in their mega-shopping complexes above their mega-stations (which I have described on this blog in the past; the Ikebukuro complex was my “local” when I worked in Tokyo; it has two big department stores owned by two of the Metro owners, Tobu and Seibu. A billion plus passengers pass thru this station each year.). Oh, but please also remember that the single largest carrier of pax in Tokyo’s Metro is the former state entities–though I suppose you could claim them to be “private” too?

          • Michael James

            Incidentally I am pretty sure that if it were in the Anglosphere, that Wall Street and LSX etc would insist that Tobu and Seibu “divest” those profitable shopping centres so that there was no cross-subsidising between the rail operation and the property/retail side, so you know to maximise shareholders stakes, increase transparency and accountability blah blah. We’d find a way pretty quick smart to make those Japanese rail companies go bust while a small number of “investors” profited. In this scenario of course the government would be forced to rescue Tobu & Seibu minus any value-capture components and so continue to feed those billion customers into the retail side while not sharing a dime in its profits. In fact I am pretty sure this is what lies behind London’s omnishambles of LCR failure–and if LCR were to manage to recover and become profitable you can bet your house on the government privatising the profitable bits thus returning LCR to its miserable non-profitable status. Just google Southern Rail to see how this system operates–even as huge government subsidies continue to flow into these notional private entities (what is not notional is the excessive salaries of top management and the financial entities behind them, nor the decline in quality of rail service provided etc).

            And somehow this kind of thing is not considered “corrupt” by Alon and econo-crats! It’s the absolute worst of institutionalised corruption. And it is why LVC will be resisted in the Anglosphere.

          • Alon Levy

            What you are pretty sure about is exactly wrong. Value capture-funded transit has a history in the US (it’s what funded the Pacific Electric system, which then got rid of the money-losing transportation business once it sold all the land it owned), and is used by Florida East Coast. It’s also how the Bloomberg administration built the 7 extension to nowhere.

            Also, Tobu and Seibu are making money on rail operations (as is the MTR). There’s no cross-subsidy, just synergy between two different businesses.

          • Untangled

            And you continue the great tradition of making evidence-free blank statements. Why not provide some actual evidence and detail?

            Knew that you would say that and was thinking of providing links. But then I left that part of the comment out because there would be a chance to get you angry again. Anyway.
            https://en.wikipedia.org/wiki/Keikyu
            https://en.wikipedia.org/wiki/Keihan_Electric_Railway

            but please also remember that the single largest carrier of pax in Tokyo’s Metro is the former state entities–though I suppose you could claim them to be “private” too?

            Correct, but I never mentioned Tokyo Metro. I thought Tokyo Metro was still government owned though, not private. Even then it’s still a massive simplification. A lot of Tokyo Metro lines have “direct through service” with private lines, essentially, the private company will build a line but that line gets directly connected to the public Tokyo Metro so passengers don’t have to change trains when the Tokyo Metro section starts. A bit like RER-B. The different owners will supply and maintain their own rolling stock in the “direct through service” system that is compatible across the two different railway owners.

            Here’s examples.
            https://en.wikipedia.org/wiki/T%C5%8Dy%C5%8D_Rapid_Railway_Line
            https://en.wikipedia.org/wiki/Tobu_Skytree_Line

          • Michael James

            Reply to:
            Untangled 2017/09/08 – 00:17

            Hmm, don’t have anything to reply to. What point were you trying to make that I didn’t make in my earlier post?

            Perhaps you didn’t mention JR-East but Alon did. Here is the data on that thing you didn’t know:

            Tokyo Metro (excl. commuter rail) is ≈9m per day, which is about 23% of Tokyo-area rail transit (excl. Shikansen) of 40m per day. JR-East carries 14m per day (mostly commuter rail) thus about 35% of total.

            JR-East is one of those so-called “private” (via privatisation) lines which makes a “profit” on its operations (which is good, but it is dishonest to consider it as if it were any old private company). The Toei Subway is run directly by the Tokyo Metropolitan Government and Tokyo Metro is owned indirectly by the Tokyo and national governments. Very approx. those two smaller operators carry another 23% of Metro users.

            But anyway, are you agreeing that HK-MTRC is a horrible bed of corruption and is no model for others on how to run a successful and operationally-cost-neutral or “profitable” highly functional city metro system? I’m finding the arguments difficult to understand.

            And if you live in an Anglosphere country and you’re not angry about the state of public transit then there is something wrong with you. (But then we already knew that didn’t we 🙂 (That’s a joke, Tangled … yes, I know, I won’t leave my dayjob anytime soon for a standup career; but actually there is a popular satirical tv show in Australia called “Utopia” that is entirely about big public infrastructure projects and the often absurdist nature of the politics behind them; a constant joke in Oz is that if a pollie is talking about HSR it must be election time (they’ve been talking about it in regular cycles since 1982)).

          • Michael James

            Alon Levy 2017/09/08 – 01:18 wrote:

            What you are pretty sure about is exactly wrong. Value capture-funded transit has a history in the US (it’s what funded the Pacific Electric system, which then got rid of the money-losing transportation business once it sold all the land it owned) …

            Hmm, doesn’t Pacific Electric prove me exactly correct?

            Also, Tobu and Seibu are making money on rail operations (as is the MTR). There’s no cross-subsidy, just synergy between two different businesses.

            So I went looking to see if those (blank) statements were true but short of finding individual subsidiary annual accounts (which may exist but may also only be in Japanese?) was not successful (ok I didn’t try too hard, and ok I won’t be surprised if it is profitable but see further below … ).
            But, speaking of corruption, I did find this:

            In 2004, the Seibu Group collapsed due to the revelation that the head of Kokudo (the predecessor of Seibu Holdings), Yoshiaki Tsutsumi, had falsified financial statements for over forty years. The scandal, which involved falsifying the ownership of Kokudo’s share holdings in Seibu Railway, was compounded by the increased competition faced by Prince Hotels in the hotel and leisure market as well as an additional pay-off scandal involving a corporate racketeer. Seibu Railway was consequently delisted from the Tokyo Stock Exchange in December 2004 after shares fell to ¥400 from a peak of ¥8000.[3][4] As a response to this, Seibu Holdings was founded on February 3, 2006 with the aim of restructuring the group following an investment of ¥100 billion from the American private equity firm Cerberus Capital Management.[5] Tsutsumi, having pleaded guilty to the fraud charges in 2005, retained a 5% stake in Seibu Holdings having previously owned a 36% stake in Kokudo.

            I have no idea whether this 40 years of falsifying the books impacts on its profitability today (does anyone?). Curious isn’t it to have been “rescued” by an American PE shark (or the appropriate nautical term is “vampire squid” right?). These usually search for any bits of such companies that can be sold off at immediate profit (usually flowing thru to some other entity while the original company remains loaded up with huge debt burden …while also paying outrageous management fees to outsourced “management” ie. Cerebrus; you know the routine). But it seems the Japanese and their fiendish complexities of cross-holdings and controls has for the moment stymied them. PE don’t buy a transport company to run a transport company (horrors, you think they are that stupid!)–they buy them because they usually turn out to own valuable city property that can be sold off in a once-only profitable transaction; often then in a lease-back arrangement that further burdens the transport company. SOP. (I am confident this kind of thing is behind LCR’s debacle–you know who was one of the original major shareholders in the original public-private LCR PFI? None other than the top vampire squid: Goldman Sachs.)

            In the light of this I wonder whether one ever gets to the bottom of these complicated (Japanese) entities. I see that at one point the Seibu Railway was owned by the government! Anyway in what I will claim supports my case here is a bit more of this tortured history and how Japan Inc rules (esp. when an American PE predator gets on the books….):

            On December 21, 2005, Seibu Railway was delisted from the Tokyo Stock Exchange. A reorganization of the group, completed in February 2006, created Seibu Holdings to act as a holding company for both the railway and Prince Hotels. Cerberus Capital Management, an American investment fund, became the largest shareholder in Seibu Holdings with a 29.9% share of the new company.[1]
            In late 2012 and early 2013, Cerberus proposed that Seibu Railway abolish five non-core lines, along with other restructuring measures throughout the Seibu Holdings group, but management refused to implement these changes. Cerberus then executed a tender offer to increase its stake to 35% as of June 2013, giving Cerberus the power to veto shareholder resolutions.[5] Cerberus had aimed to raise its stake to 44%, bringing it closer to an outright majority, but Seibu management engaged in a massive campaign to thwart the tender offer, including advertising within Seibu trains to passengers who owned stock. The East Japan Railway Company and several financial institutions also planned a support scheme to keep Cerberus from acquiring control of Seibu, but it was ultimately not implemented due to a lack of potential financial benefit for the investors. At the June 2013 shareholder meeting, several proposals by Cerberus were voted down, including the election of outside directors and the abolition of non-core lines

            All jokiness aside, I really don’t think my case about Anglosphere corporate behaviour and reinforced by our dumb political philosophies is in any way wrong. Not even an exaggeration. Just the brutal reality.

            I need to familiarize myself with the details but I think I am a newfound Georgist! (Thanks ‘John Wayne’). Isn’t LVC a very Georgist thing?

        • Untangled

          But anyway, are you agreeing that HK-MTRC is a horrible bed of corruption and is no model for others on how to run a successful and operationally-cost-neutral or “profitable” highly functional city metro system? I’m finding the arguments difficult to understand.

          Obviously, if you’re dealing with property there will inevitably be some issues but I don’t think MTR is too bad. Aside from that, MTR has been involved in other corruption not related to property. Besides, HK has a very powerful ICAC to rein things in, unless your name is CY Leung. But, yes, the Hong Kong model is worth looking at but you do need to be careful.

          I’m not sure why HK needs it TBH, MTR made a profit of HK$2.5billion from their fares and operations alone, their operations aren’t losing money. Property just fattens their profits up very, very nicely (by around HK$10 billion reading their annual report).

          And if you live in an Anglosphere country and you’re not angry about the state of public transit then there is something wrong with you. (But then we already knew that didn’t we

          Yeah man that’s true, that’s one of the reasons why I like Sydney Metro (for reasons I won’t go into again), which Alon gave a shout to in another article.

          • Michael James

            Untangled 2017/09/08 – 01:31 wrote:

            Aside from that, MTR has been involved in other corruption not related to property. Besides, HK has a very powerful ICAC to rein things in, unless your name is CY Leung. But, yes, the Hong Kong model is worth looking at but you do need to be careful.

            Careful? Of course. However you have again thrown a corruption charge with zero details or evidence. I know it is tedious to have to back up such things in a blog but this notion of corruption is pretty fundamental and I simply find it egregious to be throw about; even as I agree that anything to do with property speculation–anywhere but especially HK–is hardly ever free of it. Some of it will even be justified in the larger view (if MTRC has to do things to get a big project off the ground, to remove blockages by some of those billionaire property moguls ….).

            I’m not sure why HK needs it TBH, MTR made a profit of HK$2.5billion from their fares and operations alone, their operations aren’t losing money. Property just fattens their profits up very, very nicely (by around HK$10 billion reading their annual report).

            That’s Alon’s line but you are neglecting totally the capital costs. HK-MTRC continues to contribute about 50% of the (huge) capital costs of extending lines and building stations etc. Why is it only me on this thread who considers it is false accounting to consider an entity “profitable” just because it manages to run its operations ok. I mean if someone wants to give me tens of billions of dollars of free assets I can probably run at a profit (as long as I don’t ever have to repay that capital or even the interest on it …).

            Anyway, some agreement we should be grateful for.

          • Untangled

            HK-MTRC continues to contribute about 50% of the (huge) capital costs of extending lines and building stations etc.

            That’s true, but given that MTR is operationally self-sufficient and is not in trouble, why not get the government to fund 100% of capital costs and hand it over/rent it to MTR when it’s completed. The government can deal with funding and property instead of MTR.

          • Michael James

            Untangled 2017/09/08 – 03:59 wrote:

            That’s true, but given that MTR is operationally self-sufficient and is not in trouble, why not get the government to fund 100% of capital costs and hand it over/rent it to MTR when it’s completed. The government can deal with funding and property instead of MTR.

            Remind me where in the Anglosphere has that worked, even remotely? (In this case HK & Singapore don’t count!) In the past 5 decades? (Post-war really.) It is something the Asians and Europeans (minus UK) can manage but not the Anglosphere where politics always fucks it up. Like those *&%$#@ Texas senators who try to write law that prohibits the state putting a dollar into any HSR (or any rail). There are lawyers trying to block CAHSR. I mean, Tangled, just how much evidence do you need? In the US the infrastructure is literally falling to pieces. The UK has prevaricated on most projects since the war (HSR, London CrossRail–first designed in 1946! on improving London transit in general, regional train services in general and a poor autoroute system–also poorly built). Australia is even worse because we don’t have a good legacy system; but we have been talking of most transit projects for 40 years with barely a thing done. But sure, we’ve managed to make our housing the most expensive in the developed world, and to embrace a system that is so evidently increasing inequality.

            I can’t believe you are serious about that suggestion. It would simply revert to the current status where the only people who capture any of the value created by transit are the usual suspects: billionaire property speculators.

          • Alon Levy

            Actually… the London Underground breaks even operationally. It helps that a zone 1 monthly pass costs twice as much as a STIF monthly pass valid in all of Ile-de-France.

            Also, the legal challenges in both California (NIMBYs plus anti-spending Republicans) and Texas (NIMBYs plus people who are anti-rail on principle) aren’t going anywhere. The US isn’t actually a NIMBY-friendly legal system; when the state wants something built, it builds it, no matter how many slush funds it needs to create.

          • Untangled

            I can’t believe you are serious about that suggestion. It would simply revert to the current status where the only people who capture any of the value created by transit are the usual suspects: billionaire property speculators.

            I was thinking more about having separate government agencies for the two different roles.

      • Alon Levy

        You should read some of my older posts about the JNR debt. JNR had debt coming from two sources: infrastructure construction (mainly Shinkansen), and operating losses in the 1970s, for which JNR borrowed money instead of getting ongoing government subsidies. The latter debt was wiped; the state retroactively subsidized the operating losses of its state-owned railroad. The former debt was not wiped; the private companies keep paying interest on debt on infrastructure that they own and make use of.

        Also, SNCF being profitable isn’t just an operational thing, and you really shouldn’t say “of course” about it. “Of course” has this kind of “everybody knows this” quality. In reality, SNCF is profitable even after depreciation (as is DB), and the LGVs built before this year all have healthy financial return on investment. A few years ago there was a study that warned that future LGVs would have low (but still positive) financial ROI, in the 2-3% area; I forget what the ROI for the then-under construction LGV Sud-Europe-Atlantique was, but I think it was at the higher end of this range. This study was reported in Anglophone media in a really bad fashion, mostly trying to draw conclusions about HS2, and somehow the reporting turned from “future LGVs may not have high enough ROI to make financial sense” to “SNCF gets hidden subsidies.”

        • Michael James

          All of that sounds an awful lot like special pleading about the history of JNR debt. And I am pretty sure that the first period after privatisation of the JRs that they couldn’t even pay the interest on the debt mountain and a further restructuring was required. I don’t have any problem with either the debt the restructuring or even the privatisation (esp. of the Japanese kind). But I do have a problem of the false characterisation of this arrangement as “proof” that a “private” company can be profitable; that’s misrepresentation and poisons the argument about how to run transit. Your characterisation of HK-MTRC as corrupt is going one step further and you haven’t done anything to either correct it or convince me otherwise.

          And ok I may have been offhand about SNCF’s TGV operations. But the reason is that, while it is good, I don’t think it is fundamental in the way that you apparently do. Transit really does pay its way. Just that it is extremely difficult to capture its value so that the transit-provider/operator itself makes a profit. This is the way most Euro (except UK; phew, after Brexit we can dispense with this tedious qualification) and Asian nations run things. They understand. I understand. Anglosphere economists and politicians have so narrowed their field of view that they refuse to see it anymore. Hence why we have such lousy transit and people like Trump, Brexit/May and Tony Abbott in power! (Or Abbott’s original mistress, Maggie T. a genuine train-hater.)

          Just like that econo-rationalist stuff about future LGVs with low ROIs. (Or Cerebrus wanting to cut the 5 lowest-use Metro lines). Of course, by definition they are the last ones being constructed. But that absolutely doesn’t mean that they shouldn’t be built. And it certainly doesn’t mean they will remain low-use. A transit system is a network above anything else and I think it would be a failure if the TGV network didn’t eventually link up the east with the southwest (ie. Montpellier (& Marseilles) with Bordeaux via Toulouse etc; M & T happen to be the two fastest growing cities in France (and Europe)). (Oops, once again revealed my selfish motives: from my future fantasy of having a second home in Sete I want to quickly get to Paris (about 4h, TGV; and Lyon etc), Barcelona, Toulouse and Bordeaux; well either as fast as land transport can manage or verrrry slow–about 8km/h on a peniche on the Canal du Midi.) Other than these southern growth spots, this whole line is an aerospace corridor (even Bordeaux, I was surprised to read, has a significant fraction of its economy in this–mostly Airbus contracting) and Toulouse and Montpellier are biotech centres also.

          About fetishisation of Singapore and HK. Of course the Anglosphere tries to take credit since, like you say, they are old Empire and their top ruling elite went to Oxbridge or these days Harvard etc. (David Tang died last week; he was a big hit on the London social scene for 4 decades.) That’s not why I like Hong Kong (and despite everything still do .. I’m a hopeless optimist). I admit it is partly sentimental as it greatly impressed me on my first youthful travels–as the MTR was being built under Nathan road, and then watching it continue to build great infrastructure and provide for its (refugee) population etc. Even though the HKI and associated projects marked a high-point, it was also the sad turning point: post-handover the ruling titans of commerce turned miserabilist and heartless. I’ve read some who diagnose it as a rational response to the uncertain future though in many ways this is self-fulfilling prophecy. That ruling class has in fact reverted to Anglosphere class-based (wealth & privilege) indifference. They had one of the world’s best social housing systems but it was abandoned after the handover–they created the crisis. Inequality has got worse and given the terrible housing situation probably even worse than bland statistics show. Now the traitorous and cowardly titans are cravenly giving into the PRC. But I like the people and there is an indisputable buzz compared to most places, including Singapore (a police state with one senses a pent up volcano of frustration only partly suppressed by material well-being) or China itself, or Japan or Korea etc.

          I happen to think that the Eurasian combination is great; I am a big advocate of the Asianification of Australia to get rid of our awful cultural cringe to the Brits, toxic slavery to all things American, and all the mediocrity it seems to embrace. It seems to bring out the better side of stuffier Brits; eg. Chris Patten, a conservative (once a “future PM”) who, after losing his seat in parliament, was gifted the last governorship of HK and who had the good sense to press ahead with the HKI project (against fierce PRC objections) and some democratisation (yes, all too late)–all so different to what his British government (ie. Thatcher’s) was doing back home. (Of course one has to admit it is easier to organise and run a city-state.)

          The reasons why I constantly criticise the Anglosphere is because it is entirely deserving of it. I have lived in the big 3 (ok not Canada) and –forgetting legacy–their track record during most of my life has been awful. And then you see that others can do it so much better. HK, even Singapore has many good points, and of course Europe, particularly France where I lived for a decade. I make no apology for it because I am obviously correct. The notion that nation-building infrastructure can be reduced to a false set of econometric equations is plain foolish, and was not how the British Empire or the American empire were built! Certainly not in the absurd narrow-cast sense practiced by the Anglosphere today. I mean seriously does anyone reading this think that the Trump, Brexit (and for the minority the Oz experience is not quite as bad but bad enough) crap is good? It is not just bad, but actually appalling. And it is only the endpoint which these countries have been ineluctably heading towards all along since Reagan and Thatcher kicked it off.

          • Untangled

            I happen to think that the Eurasian combination is great; I am a big advocate of the Asianification of Australia to get rid of our awful cultural cringe to the Brits, toxic slavery to all things American, and all the mediocrity it seems to embrace.

            WTF? How does that even solve these problems?

          • Alon Levy

            No, it is not special pleading. Borrowing to fund operating losses isn’t normal, but JNR did that. I think so did SNCF before the LGV Sud-Est opened, but its losses were small enough that current profits can cover them. In either case, it’s completely wrong to say a company isn’t profitable just because debt its predecessor (!) accumulated in the past for operating losses (!!) that were subsequently eliminated.

            The way most European countries work, with a big exception for Britain, is that they fund it out of broad-based taxes, without special land deals. They leave land deals to the private sector, and when the government does get involved, it’s to build social housing, not to fund a privatized company.

            Singapore and Hong Kong get contrasted a lot. But I don’t think they’re all that different, except Singapore is de jure more democratic and de facto somewhat more authoritarian. They’re the #2 and 3 origin countries for students at Oxbridge (the UK is #1), they have the two highest Gini indices in the developed world, they have no independent unions, they maintain a strong legal system and property rights, and they have low corruption below the top level and high corruption at the very top.

            The corruption pattern matters – a Western businessperson working in (say) Cambodia has to pay bribes, but one working in Singapore doesn’t. So people outside Singapore get the perception that Singapore as a whole is clean, even though the Government Investment Corporation, run by the prime minister’s wife, lost several hundred billion dollars of people’s savings (“Central Provident Fund,” or CPF, the closest thing Singapore has to a pension system).

            At any rate, both of these places are incredibly British. It’s not necessarily a bad thing – I think London is the only Western city that paid any attention to Singapore’s congestion pricing success, decades after the fact. Other Western cities then paid attention to London. But it does mean that the discourse about them is inherently British and not pan-first world, pan-Western, or pan-European. This matters, because on issues where London thinks it knows best, it never thinks to imitate Hong Kong, for example using Octopus as anonymous low-fee electronic money.

            Re future LGVs: I agree with you! That study if anything confirms that some future LGVs would have high value. The LGV PACA is absolute shit, but Tours-Bordeaux has high value, and so does Bordeaux-Toulouse-Marseille in all likelihood. It helps that the financial ROI is higher than the interest the French state pays on long-term debt. This is why you let the state worry about long-term infrastructure development and the private sector worry about developing real estate.

          • Michael James

            Untangled 2017/09/08 – 04:52 wrote

            “I happen to think that the Eurasian combination is great; I am a big advocate of the Asianification of Australia to get rid of our awful cultural cringe to the Brits….”
            WTF? How does that even solve these problems?

            You really don’t get it? It is our ridiculous British heritage, that we don’t do anything. People from Hong Kong, Shanghai or even Japan, Korea and Singapore don’t think twice about just doing what is needed. Instead we have an endless enquiry about thinking about doing it, at the end of which we have forgotten all about it until the next political cycle. Have you forgotten Lee Kuan Yew’s insult to Australians: that we are the poor white trash of Asia-Pacific. He was right, and that fact that we lucked into riches via the mining boom doesn’t change it (in fact it rather reinforces it: we’re the Beverly Hillbillies living in our harborsidemansions on the easy wealth from digging holes in the ground; and it could never last and lo, it is fading and inequality is on the increase etc etc).
            Don’t tell me you are an Abbott voter; you laud his Knights & Dames? His absolute hatred of trains (he vowed not to put a single federal dollar into public transit; something I think he picked directly from his heroine Maggie whose skirt he touched while he was a Rhodes scholar at Oxford in the early 80s). For the past two decades the only infrastructure we’ve built is hyper-expensive toll road-tunnels; and we’re still doing it even though the experience that it will never fix congestion and it keeps getting ever more expensive (no one knows but WestConnex is heading towards $40bn). Meanwhile the current feds want to rip $4bn out of universities (and force them to charge students more via the debt scheme) and build new coal-fired generators. It doesn’t get much dumber.

            You bet I want us to shake ourselves out of this appalling dumb state but alas our dumbfuck culture is strong and it may well subvert the next-gen Asians (ie. Australian-born). But it is a positive part of moving away from the awful (recent; forget age of Empire of which we were a minor dumping ground) influence of the Brits, or the terrible Americanisation of everything (eg. that fantastically stupid deracination of our universities not to mention that we are all getting obese and ugly in a trashy takeaway culture). I suspect you are blinded to our true mediocrity by our (transient) current apparent wealth and prosperity. Yet, millenials aren’t quite so in love with it and for good reason. All these decades of poor decisions or no decisions are catching up with us.

          • Untangled

            Didn’t vote for Abbott but I’m not convinced by your arguments. Obviously there are issues that still need to be addressed and a lot of it is not heading in the right direction but a lot has changed since Lee Kuan Yew’s comment, besides, it was a comment to Malcolm Fraser to encourage him to undo Gough Whitlam’s reforms (I don’t suppose you support that) and in later years he wasn’t as critical. Of course, I would love to see more Asian-Australian politicians regardless, but whether it’s an absolute necessity for meritocracy instead of endless enquiries, I’m not fully convinced. Also, did you see that Asian-Australian women on that anti-gay marriage advert? Dumbfuck culture seeping in?

            http://www.afr.com/news/world/asia/lee-kuan-yew-was-australias-sharptongued-friend-in-asia-20150304-13upqq

          • Michael James

            Alon Levy 2017/09/08 – 05:09

            I can agree with a fair of that comparison of Singapore and HK. However do you know that the current three young dissident MPs (Joshua Wong, Nathan Law and Alex Chow) are claimed to be the first political prisoners in Hong Kong’s history. Whether that is strictly true is not important but the comparison to Singapore is big where they have always imprisoned politicians and dissidents without compunction.

            Also, the Britishness of these places is of a previous Britain not of today’s (or the post-war) one. Plus the colonial effect; the attraction to renegades and n’er-do-wells etc; the very founding of HK was an act of rebellion by an officer who only got away with it because of slow communications (but London still punished him despite his obvious initiative after being evicted from Canton.) The kind of thing that creates Australians (I’d include Americans except that they got the religious nutters as colonialists; I think history shows petty criminals are a better feedstock!) Oh, and a truly outsized influence of Scots (most of the big trading houses and banks were their creation); even a few colonials (Cathay Pacific was founded by a pair of Australian and American airmen hanging around after the war). That’s partly why the likes of Chris Patten was a success in HK; I am pretty sure in his book (my memory is only impressionistic these days) he admitted his political wipeout in the (diseased) UK was a blessing and made his “career”, gave it meaning in a way that serving Thatcherism never would (in fact it poisoned every conservative polllie to this day along with Thatcher-lite Blair and others). I think he might have made a much better (conservative) politician if he had pursued it back in Blighty after HK (but he took the baubles, chancellor of Oxford; no doubt endless board positions etc). Too bad. They got Blair instead! (I actually voted in that election and couldn’t understand why anyone thought he was going to save them.)

            As to what you call “corruption” it is really a version of Confucianism; deference to elders and nepotism etc. Again Singapore is far worse with their single-family soft-dictatorship. All Asian cultures have it. What was a strength can be a modern curse. We see it working its logical outcome in Samsung all the way to the presidency in the ROK. Japan has it and will never change. Some think Singapore is storing up trouble.

            The hope I and others saw in Hong Kong, perhaps naively, was that it could escape this more than most of the others including Singapore. As I wrote earlier the ’97 handover began a change in that trajectory. I think those three dissidents and their generation show what it could have been. They are the true inheritors of those who made Hong Kong like Baroness Lydia Dunne, Anson Chan, Martin Lee and even Jimmy Lai, and I’m sure many others who had a vision beyond empty power and money. The current leadership is nothing more than a total capitulation to the “corruption” you speak of, ie. to the strongmen in the PRC. They are defeatists as well as simple opportunists as they believe their own families and circle will thrive under whatever China chooses to do with them. I don’t know how it will work out but it could be depressing. With the ruthlessness of Chinese leadership it is hard to be optimistic. One hope might be that in addition to some Hong Kongers keeping the light burning, the Pearl River Delta super-region might also get weary of Beijing (and ditto Shanghai where all the revolutions began).

            In any case in HK’s (and for that matter Singapore’s–the act of immigration is an auto-selection of the better ones, politically speaking) misfortunes and rejection of their young of heart and mind, I see some opportunity for poor white trash Australia. We already take a fair number of them as students and then immigrants. We should really make them welcome (though it gives me a slight pinge of guilt in depriving HK of them). They will be nothing but a good influence in our dumb nation; they know not to take stuff for granted. (I think they will be wasted in the US.)

            London’s travel card is modelled directly on HK’s Octopus card which in turn was created by ERG, an Australian company. But I suppose you are saying that London only took certain features instead of all the advantages that made Octopus such a sensational success?
            Also I found this in my files (from a WSJ article!) which rings true (and consistent with what I said about it being the best of an earlier Britain):

            The British people who ran Hong Kong built the MTR as [what] they wished the railways in London would have been if they had been built properly,” said the Railway Consultancy’s Mr. Harris.

            And that summarizes neatly my desire to turn Oz into a Eurasian nation, more Hong Kong (even British HK) than the awful pale case of class-bound decrepitude we see in today’s Blighty.

          • Alon Levy

            It’s not an Asian thing, contra the Lee clan’s exhortations. It’s an old Tory thing: aristocracy, traditional gender roles, people occasionally going to jail for gay male sex, child birching is legal and (rarely) practiced in school. Japan, South Korea, and Taiwan are not like that – Japan has a more openly rebellious teen culture, Taiwan has gay marriage and single-payer health care, all three are democratic and have normal inequality levels for non-English-speaking developed countries. The party politics in Taiwan and Japan is pretty strange by Western standards, but in South Korea it’s completely recognizable.

            For example, the immigration policies in Hong Kong and Singapore are also similar to those of Canada, New Zealand, Australia, and the UK: lots of work migrants, not many refugees. The US is the same, but all numbers are lower, especially high-skill work migrants. Japan, South Korea, and Taiwan allow little immigration in all categories. Continental Europe is decent about work visas, and much better about humanitarian migrants.

            None of this is about Confucian values. If there’s a classical Chinese philosophy Singapore embodies, it’s legalism. Hong Kong is moving in that direction as well, and historically it was really neither – it was a mercantile city-state.

            Oyster is indeed modeled after Octopus, down to the name. But it doesn’t have the electronic money version of Octopus, which the MTR heavily invested in after privatization. Instead, it has gimmicks like the daily caps, which US transit reformers are enthralled with.

          • Michael James

            Untangled 2017/09/08 – 06:19

            Didn’t vote for Abbott but I’m not convinced by your arguments. Obviously there are issues that still need to be addressed and a lot of it is not heading in the right direction but a lot has changed since Lee Kuan Yew’s comment, besides, it was a comment to Malcolm Fraser to encourage him to undo Gough Whitlam’s reforms (I don’t suppose you support that) and in later years he wasn’t as critical.

            Every bit of that is seriously depressing. And scary that someone can’t be convinced of such toxicity. From Fraser to Abbott via Howard. But it just proves we get the politicians we deserve, well that you deserve. Of course Fraser was an appalling member of the squattocracy (and got to Oxford by money not merit) and after an illegal coup against Whitlam, then did the square root of SFA when in power. He may have tried to repent in old age but as I wrote (link below) that was all too late. It is what you do when you have power to change things that matter. Come to think of it, you being a young fogie, my piece could be addressed to you. Please read the table of Whitlam’s changes (all in a mere 30 months of government) and realize how much of modern Australia (the good things not the neo-liberal bullshit that is bringing us undone) that you take for granted, traces to him. He was a giant (and physically too; the second tallest head of state in history; only de Gaulle was taller!) but intellectually where it mattered; he was an urbanist too, setting up our first Department of City and Urban Development (which Fraser immediately shut down; see what I mean, how dumbfuck and viciously stupid can conservatives get) and is responsible for the Australian Embassy in Paris (just near the Eiffel Tower) designed by architect Harry Seidler, with Marcel Breuer and Pier Luigi Nervi (in fact this year is its 40th anniversary–it has actually aged well, compared to much other modernist stuff). In a nice piece of justice Gough lived in the penthouse when he later served as UNESCO ambassador. (You can see that fabulous roof-top terrace with its views over Paris and across to the Trocadero in the movie Ocean’s Twelve–the scene with Clooney, Pitt and Albert Finney.) Just like conservatives tried to kill the Sydney Opera House (but it was too advanced, though they sacked Utzon and to our shame he never set foot in Australia again, never saw his completed masterpiece) Fraser probably would have stopped the Embassy too (as another of “Whitlam’s extravagances”). I mean what is it, Tangled, that makes them so … df?

            http://www.abc.net.au/unleashed/stories/s2922662.htm
            What Would Gough Do?
            Michael R. James, 11 June 2010.

          • Michael James

            Alon Levy wrote:

            It’s not an Asian thing, contra the Lee clan’s exhortations. It’s an old Tory thing:

            It is very much an Asian thing (well an East-Asian thing–it’s the Hakka Chinese clan that runs Singapore), while, yes, being layered with some old Brit methodology & law. But it is the Asian clan thing (in all those countries) that makes them (eventually) successful and orderly. Say compared to the Italian mafia-clan model, or the Russian gangster-capitalism thing or the Catholicism primo-family thing in South America (and latterly Spain & Portugal etc) not to mention the Philippines. It’s a secular philosophy that resolves many of the traps all these others fall into, and remains the core (even if not acknowledged) of most if not all these societies. Australia doesn’t have that Confucian Clan thing and it is why LKY threw that insult at us (which contrary to Tangled’s delusions, still applies; indeed we now revel in it: Upper Middle Bogans etc) and why we are not nearly as successful as we should be (as Paul Keating, the next most competent PM after Whitlam, said “ffs, we are the only nation with an entire continent to ourselves” (and unsaid: “and we still screw up”)).

            When that Tory thing is applied to other places and cultures (Malaysia, Myanmar, India, Pakistan, Kenya etc), not so good. (South Africa doesn’t count as it wasn’t something applied to the local culture but a takeover, along with a soupcon of Calvinist brutalism from the Dutch.) Curious that it takes Confucianism to run good transit! The Brits are re-importing it from HK to try to overcome their utter transit mess over the past 50 years or so. (Well to run it, while the French build it for them.)

          • Untangled

            And scary that someone can’t be convinced of such toxicity.

            Yes, Fraser’s policies that reversed a lot of Whitlam’s gains were quite toxic and not good, the thing I was trying to raise was, as you seem to praise Lee Kuan Yew, was that he was also advocating for those exact same policies. Isn’t that a bit contradictory on your part, to praise Lee Kuan Yew (who advocated for these reversals) while denouncing Fraser? Anyway, all you’ve done is your bog standard response to complain about conservatives, which admittedly is largely true (although clearly framed around your own biases).

            that Confucian Clan thing

            I don’t see how you can justify this is thing as best thing for Australia or the western world. I think it’s worth noting that the West has mostly, although not uniformly, followed the principles of the Age of Enlightenment. In fact, the West was made and built on Enlightenment values, not Confucianism, you know the countries that brought you the industrial revolution in the first place. The continual rise of Enlightenment values and values emanating from the Enlightenment has been a process that has taken hundreds of years, from events like the French Revolution, to Darwin challenging the church on creationism, to the modern rights movements that focus on various types of equality. Confucian values may well be good for Asian societies but I don’t think that it will be easily applied and tolerated in the west like Enlightenment values. Despite the challenges it faces today, I still think that these principles offer the best future for the west as it did in the past. With that said, I’m ready for a lecture from Micheal about the failures of the Enlightenment and how it won’t deliver good transit.

          • Michael James

            Reply to: Untangled 2017/09/09 – 07:52

            It’s very late Saturday night (AEST) so I can only guess from your post that you have had a few too many glasses (or bottles) of wine tonight, as you are reading all kinds of things I didn’t actually write. I merely quoted LKY and didn’t make a judgement on his rule (which is neither all good nor all bad). Ditto for Confucianism which I simply explained is key to understanding East Asian society. Re the Enlightenment, you seem to have missed my Francophilia (having gone native during my decade living there): they have the best version of urbanism I have ever experienced and likewise Paris for city transport and France for inter-city transport too. Eurasian societies could merge the best of both their philosophies (and cuisines for that matter!).

            As to my position on Conservatives, it’s not “bias” when it is based on a lifetime of evidence!
            At this point I’ve got to tell you the RSPCA are comin’ for you …. (and yeah, maybe me too).

          • Untangled

            it’s not “bias” when it is based on a lifetime of evidence

            Well, the language you used to frame those arguments earlier clearly showed a heavy dose bias.

            At this point I’ve got to tell you the RSPCA are comin’ for you …. (and yeah, maybe me too).

            The more the merrier.

  5. Michael James

    This means funding public transit and other services out of transparent, broad-based taxes. Paris uses a payroll tax, varying the rate so as to be higher in the city (2.95%) than in the outer suburbs (1.6%). Everyone will hate them, especially people who don’t use transit and don’t view it as directly necessary for their lives. This is why they work. They compel the transit agency to run efficient service, to stave off opposition from aggrieved center-right middle-class voters, and to run it well, to stave off opposition from populists (“why am I being taxed for trains that break down?”). They leave no room for waste, for cronyism, or for slush funds for favored causes, precisely because they’re hard to pass.

    Some of those are straight out of a economics textbook, and some of it might even be true. But don’t you think it is a tiny bit weird that the NYC-MTA system is the one that you and many others complain about–its inefficiencies, poor decision making, lousy asset management etc.–is the one that operates close-ish to that model. Yet the HK-MTRC is rated as one of the best operated and most efficient such metros in the world?

    And your point about “transparent, broad-based taxes” can be true, yet, again, in the Anglosphere at least, they are resisted with maximum force and vicious oppositionism. And so are very difficult to introduce. And even if there may be notional hypothecation of such specific taxes, over time it will always be hostage to different governments/politics. HK is renowned as a low-tax jurisdiction and you can be sure the titans of commerce (who have an outsized voice & influence) would fiercely resist any increase. So this is a mechanism to avoid that–indeed Value Capture has been developed or proposed specifically to overcome such resistance to direct government funding/more taxes, especially in the Anglosphere (of which Hong Kong is a honorary member). Your example of Paris reinforces this: yes they apply that special tax (and in the kind of tax that econo-crats especially dislike, a payroll tax! an anti-employment tax!) and French people generally accept their very high taxes, but you think Americans would? Ask a Texan. So instead the Anglosphere uses government-guaranteed debt such as bond issues which creates a perpetual debt instead of Value Capture which can create a perpetual income stream. The only “losers” (only in relative sense as they still can make good money) are the billionaire property developers while everyone else wins.

    Something very wrong with your reasoning on almost all these points.

  6. Benjamin Turon

    “This means funding public transit and other services out of transparent, broad-based taxes”

    While it likely doesn’t meet the definition of a “broad base tax” why did this post ignore dedicated sales taxes for public transit? A number of cities over the past two decades have voted in at the ballet to enact quarter or half penny dedicated sales taxes to fund transit, most notably Denver with its FasTracks program, not mention or discussed in this post? That’s actually the way a lot of urban centers in the States are helping to fund the expansion of public transit including light rail and heavy rail. Other cities that have voted in such dedicated taxes include Los Angeles, Phoenix, and Dallas.

    WIKIPEDIA: FasTracks
    https://en.wikipedia.org/wiki/FasTracks

    Financing FasTracks
    http://www.rtd-fastracks.com/main_33

    A few years back I wrote a letter-to-the-editor about raising the sales tax for New York State with it being dedicated to pre-existing highway bridge and public transit state trust funds, and also to intercity rail and the NYS Barge Canal. Each by my calculation would get a couple hundred million annually. My letter got favorable feedback from the head of the local transit authority, the CDTA.

    In NYS the not-so-much “Summer-of-Hell” has brought up in the media discussion on bringing back the New York City commuter tax, East River bridge tolls, and perhaps congestion pricing as ways to fund transit.

    NYTimes: Make Commuters Pay Their Share Again

    • Michael James

      Quite true, but you’ve revealed one of the major weaknesses of such taxes as I mentioned in the earlier post: a subsequent government can drop the taxes (and reintroducing such taxes is never easy) (or as in Texas the senate has tried to make it impossible for Texas government to use public monies for HSR). The point about Value Capture is that it locks in a recurrent income that is much more difficult for a transient bunch of politicians to undo in a short time. Also the income comes from exactly those who benefit the most from the transit infrastructure, ie. it is a version of “user pays”.

      • Alon Levy

        No, it’s the exact opposite, actually. The reason is that if you ask me to estimate the revenue generated by a 1% income tax hike, then given access to standard econometric tools I’ll be able to give you a decent estimate. If you ask me to estimate the revenue generated by value capture, then I’ll need to know the future expected value of the development, which is much less certain. (What is more certain is the auction value of selling land to the highest bidder.) Because it’s less certain, politicians have an incentive to lie to themselves or to the public about it, which is why New York’s not raising as much revenue as hoped for out of Hudson Yards.

        And yes, governments can cut taxes. It’s a thing that wingers do, and even some non-wingers, like Macron. The point of building good public services is to make it unpopular to cut the spending required to finance the tax cuts. I’m sure that some of the ultraliberal elements of LR would be delighted to privatize SNCF or something; but SNCF is making a profit on intercity service, and Transilien and the SNCF RER lines are not sufficiently hated that the Franciliens would be okay with gutting them, so Chirac, Sarkozy, and Fillon (“un vol pour la France”) didn’t even come close to proposing that. In Germany, the government is making DB privatization-ready, which means deferring maintenance to make it look more profitable, but it’s still not actually privatizing it, because the train delays in Germany aren’t bad enough that people would be okay with it.

        As for user pays: the user pays principle means raising transit fares until the service breaks even. As soon as you don’t do that, you’re getting away from the user pays model. You can try to look for groups of users who’d benefit, like people living and working in areas served by transit, but that turns into a tax on TOD, which is exactly backward.

        • Michael James

          Alon Levy wrote:

          As for user pays: the user pays principle means raising transit fares until the service breaks even. As soon as you don’t do that, you’re getting away from the user pays model. You can try to look for groups of users who’d benefit, like people living and working in areas served by transit, but that turns into a tax on TOD, which is exactly backward.

          I was obviously meaning “user pays” in that much broader context. We all know that the narrow sense, ie. the transit user pays for everything, simply doesn’t work. Using either JR or MTRC as examples where it does “work” is such nonsense; ignoring billions or hundreds of billions of capital costs is sheer denialism and unscientific to boot. I am fine with defining value-capture as another “tax”, obviously much broader than any other kind of tax whether land or payroll tax etc. The critical aspect is that it captures the often outsized growth of value in such developments (that result in high rents and high capital gains, that otherwise accrue to billionaire property speculators many of whom, a la Buffett, manage to not pay taxes at even the rate you and I or Adirondacker do.) I totally reject your notion that these methods applied to TODs is “exactly backward”. And yet you seem to feign not to understand this mechanism, and how those billionaires become so fabulously wealthy without doing anything much productive but merely being classic rentiers, while all the heavy lifting–the public infrastructure required–is paid for by someone else. I guess the offense against neo-conservative economics and politics is so great that it overwhelms the rational side of the brain:-)

          • Michael James

            Alon Levy 2017/09/08 – 01:20 wrote:

            Yes, yes, it’s neoconservative to object to putting special taxes on TOD…

            I must be missing something here. I mean neo-cons dislike any taxes and they definitely don’t believe in anything like TOD (for one thing it has to be based around permanent rail public transit) and TOD’s constrain what billionaire property speculators can get up to.
            Perhaps you misunderstood what I wrote (or ok, I wrote it poorly).

    • adirondacker12800

      Those awful suburban commuters work in an office, store etc., that pays rent which includes property taxes. they go out and buy lunch and pay local sales tax on it. They use water, sewers, traffic control then go home.
      Roads don’t need elaborate plans to levy sales taxes or property taxes or income taxes. Tax the fuel.

  7. Michael James

    In Suzuki et al’s book (I am sure you know it but details below) a chapter is devoted to Hong Kong and the various TODs with value capture (or as they call it: LVC: Land Value Capture) and of course it is very complimentary. There are chapters on Tokyo (ditto) and the final chapter is on Europe & USA which is a much more mixed-bag. I haven’t read that chapter in detail yet but the problem appears to be the philosophy behind the PPP (or Maggie Thatcher’s Private Finance Initiatives, PFE) which seem to allow every private participant to profit but not the public one. For example since its creation in the 60s the Washington-MATA there has been “$235 billion in economic development at or next to Metro property” yet “WMATA’s annual reports in recent years explicitly state that the financial contributions from Joint Development projects have not been significant. As in other US cities, parking fees around WMATA Metro stations generate larger receipts.”
    In the UK the example given is the LCR (London & Continental Railways) which was supposed to, via a PFI, optimise returns, both public and private from the building of the Eurostar HSR line to terminate in the redeveloped St Pancras station. But it turned into an absolute disaster requiring massive bailouts by the government (which resulted in LCR becoming a totally government-owned entity). Incidentally LCR was granted property development rights around King’s Cross and Stratford Stations (until 2086); this area has become hyper-trendified and is pure hipster (well upper-class hipster) today so one wonders just where all the money that must have changed hands has ended up? (The book was published in 2015 but it gives no details on this issue; mysterious omission.) I presume LCR has similar rights around the Stratford Station and that, unless equally mismanaged, this may ultimately make handsome yields for LCR (“profits” are shared 50:50 with the Department for Transport)–not only does it have Eurostar, a mainline rail station, 3 London Underground lines (including the terminus of the Jubilee line), Dockland Light Rail, it will also be the terminus of London CrossRail. Someone should be sacked if they can’t make that a success. Yeah, but who will be surprised if this massive government project (Eurostar-HSR, London CrossRail, Jubilee Line; all the Olympics-2012 facilities) doesn’t flow into private pockets … as usual. I point it out, Alon, because it is another example of where substantial government land is in fact available to public transport projects–both in prime inner city or in outer areas where much more housing should be possible (London was destined to add at least another million residents in the next decade, though now with Brexit ….).

    Anyway here is my (cherry-picked) selection from the conclusion of this section (on the developed world):

    Financing Transit-Oriented Development with Land Values: Adapting Land Value Capture in Developing Countries (Urban Development)
    by Hiroaki Suzuki, Jin Murakami, Yu-Hung Hong, Beth Tamayose. 2015
    ISBN-13: 978-1464801495

    To fully capture potential economic benefits, entrepreneurial railway agencies should pursue development opportunities on their lands and create capital gains with other private developers. Ideally, corporate profits will attract other multinational headquarters and business services to these locations with new interregional passenger services. However, the sizable intercity accessibility and development benefits conferred by HSR-related megaprojects should not be dominated by global corporate entities at the expense of local public interest around regional transit centers. Development-based LVC should not be merely adopted as a money-making tool.

    That last sentence (“not merely ..”) is a comment on HK’s MTRC which has become a de facto housing development authority (in lieu of the failure of the official HK housing authority which has been knackered by the HK developer lobby and one cause of HK’s housing crisis) and not just hi-end apartments (which is what the private developers would only do). Also, you’d have to say that their developments are well planned; of course they won’t appeal to everyone but HK has little choice and I recommend anyone with any interest in these things, the next time they fly into HKI they should take the local bus across to Tung Chung and check it out. I wouldn’t have thought I would so approve of such a development but it is very good. The station is part of a semi-circular complex of shops and apartments of relatively low-rise around a piazza whereas the massive hi-rise you see from the airport (twenty four 64-floor towers arranged in a giant arc/wall of them) are separate (so they don’t loom over and overwhelm the more public realm) but easily accessible by a covered walkway thru the complex. This new town will hold 250,000 by the time they are finished.

  8. Harald

    Talking Headways covers this topic as well this week. http://streetsblog.libsyn.com/episode-154-land-value-capture-and-transit
    “Episode 154: Land Value Capture and Transit
    This week we are back at the UITP Global Public Transport Summit in Montreal. We recorded this session on Land Value Capture featuring Julian Ware of Transport for London, Sharon Liu of Hong Kong’s MTR, and Iain Dobson of Strategic Regional Research Associates in Toronto. Each of them discuss how each of their organizations looks at land value capture as a specific tool for transport development.”
    Haven’t listened to the episode yet.

    • Michael James

      Haven’t listened to the episode yet.

      !
      That discussion may well be very interesting but I need to read a transcript. Probably the same reason you haven’t bothered to download it, even though recommending it.

  9. john wayne

    Sounds like the author is just about on the precipice of land value taxation and misses it. Georgism is the solution.

    • Alon Levy

      What problem does a land value tax solve that a property tax doesn’t? It’s not really about taxing land improvements vs. the unimproved value of land, because this distinction is just about irrelevant to TOD – in all places in question developers already build to the maximum allowed density.

  10. ckrueger99

    Excellent article and comments as interesting as the article. (I wish I could be notified of new comments by email without having to comment.)

  11. jekbradbury

    “in all places in question developers already build to the maximum allowed density” — this seems to be the major point which Alon is assuming and Michael would dispute. If it’s true, the argument goes, value capture/TIF has nothing at all to do with LVT/Georgism because the tax increment would be the result of land value increases due largely to upzoning rather than due to the actual transit improvement.
    But doesn’t it sort of come down to the question of whether “maximum allowed density” closely tracks current potential density (which many zoning advocates would argue is the case in well-run US cities)? Maybe the LVTers will have to sign up for that claim too now, which would be ironic…

    • Michael James

      jekbradbury 2017/09/09 – 18:05 wrote:

      “in all places in question developers already build to the maximum allowed density” — this seems to be the major point which Alon is assuming and Michael would dispute.

      It’s not that I necessarily dispute it but that this is not the right way to view this issue. (For the record, clearly it is not true in Europe and especially the city in which Alon lives, Paris. This is why he argues that the 20 Ha or whatever of Forum les Halles should have been built with skyscrapers! You know like that tower in Montparnasse we all so love about Paris; put La Defense in the middle on a UNESCO site!) Alon is reflecting what today’s (Anglosphere) developers want–maximum hi-rise for their own little plots (they don’t give a damn about the area in which they build, until they move on to their next project). Also no one would have built 64-storey towers at Tung Chung without 1. the MTR line and 2. the long-range planning of the Tung Chung TOD. (Also it is only governments who can organise such long-term projects that involve land reclamation from the sea like at Tung Chung, West-Kowloon and HKI; and that “island” opposite Aberdeen now served by the South Island Line (East)). I suppose one could add 3. HKI, but that was going to be there, and I suppose one could argue that developers could have built Tung Chung and provided a bus-only service across to the HKI MTR station (which exists of course but Tung Chung has its own MTR station and in fact its separate ROW metro train line).

      No, my argument with Alon is that he thinks “full value” can be captured by government selling developable land directly to the developers, instead of giving it at a low-ball price to MTRC who then go on to capture some of the windfall development profits. That is an absolutely atrocious argument and reflects what happens throughout the Anglosphere today–and precisely why our transit authorities are in perpetual financial pain. It is against all the evidence that the developers go on to make outsized profits on such developments in which the government builds the transit (and usually the roads too). Government may earn back a pittance in increased rates etc but barely enough to maintain all the usual urban infrastructure. I mean why does anyone think property developers are amongst the riches billionaires in the Anglosphere? One of them sits at 1600 Penn Ave! The family that owns Westfield (who have the retail rights at WTC) are the richest in Australia. Even Macdonalds makes more profit from its property operations (leasing back at 100+% margins) to its franchise holders (who have no choice) than selling burgers.

      My point is that we must structure these TOD so that the transit authority (not solely the government who will never pass this windfall on to the transit authority) gets a permanent and rising income from these developments that their (our) infrastructure enables, to fund current operating expenses as well as contributing serious money towards the capital cost of extending the transit. Exactly as HK-MTRC operates and why it is acclaimed as best-in-world. (At the same time I don’t believe in privatisation, even partial privatisation as in MTRC, of these bodies because it obviously can introduce serious conflicts of interests and goals. But I don’t believe HK would ever allow either a majority share to be privately owned or actual control to be exercised by those private interests–just as that American Private Equity group’s aims to plunder Teibu was halted by concerted Japanese government and business interests.)

      The height of development is a secondary issue. In HK and a few other places (not many) it will be super-hi-rise but in others–like Paris but actually many modern cities too–it will be Haussmannian, ie. 6 to 8 floors. As any casual look at the evidence will show, the latter much more often achieves the overall high-density of residents that urban planners (and tax offices) desire; turns out they (Haussmannian developments) are what people much prefer too. (Without even asking people who lived in or close to Grenfell Tower!) But also building height is dependent on current technology and current state of transit–ie. it changes over time. Look at the thin ultra-talls being built in Manhattan today. For example Tung Chung wouldn’t have 64-storey towers without all this other infrastructure. The southern side of Hong Kong island will almost certainly increase in height because of the South Island Line (East, just opened; West to come). One can’t imagine at how much extra value is being created in these areas (total population a mere 300,000; almost the same number will be in Tung Chung upon completion) due to now being on the Metro just minutes from the rest of Hong Kong. (It’s true that the bus service to HK Central (via tunnels under the Peak) is efficient but you know … buses.) (Having said that, one of the most exhilarating bus rides I remember was sitting on the top deck of a bus from Aberdeen back to Central but on the western coastal route. … in the middle of a gigantic rainstorm, half-expecting the bus to be blown or washed into the harbour any moment. I was amazed they kept driving.)

    • Untangled

      This is why he argues that the 20 Ha or whatever of Forum les Halles should have been built with skyscrapers! You know like that tower in Montparnasse we all so love about Paris; put La Defense in the middle on a UNESCO site!

      I don’t think building skyscrapers in Les Halles is a crazy idea, even if it’s surrounded by a UNESCO site. Tour Montparnasse looks ugly and sticks out because it’s the only skyscraper in the whole area rather than forming a cohesive skyline. 20 hectares is enough to build a few towers and a cohesive skyline so it won’t look like Tour Montparnasse. 20 hectares is also exactly not a lot of land either so it won’t be enough to wreak Haussmann’s Paris, if done correctly, it won’t overshadow it either. Look at the historic City of London for example, ever since Ken Livingstone allowed them to be built, they mix historic/short and new/tall quite well.

      • Michael James

        Tangled, now you’re just trying to get a rise out of me. I’m a sucker for that especially concerning Paris. In fact I just roughly measured it and the site is about 14 Ha so you’d only squeeze a few buildings on it, which means minimal gain for what it would do to the local area and in fact all of Paris. It is 200m from the Louvre, Palais Royal, Tour St Jacques and lots more–Notre Dame is about 800m etc. throwing shadows over it all and being an intrusive presence all around this part of old Paris. It would definitely wreck the heart of Paris and impinge negatively on all the heritage (the entire centre of Paris is a UNESCO site because of its huge density of heritage sites and cohesiveness). I think Tour Montparnasse does demonstrate why it shouldn’t be done: it is beside the point about the tower itself (which is not too bad given its epoch; it has a certain austere bronzed-glass profile) but what it does to the area and it isn’t anything good. I suppose plenty of people use the retail shopping at that site (not me, not sure I ever went there in the entire time I lived in Paris–if one is going to Galeries Lafayette you’d go to the original one unless I suppose if you lived in the 14th/15th or used Gare Montparnasse). Have a look at the other buildings done at the same time as part of the redevo of this area, ie. the really mediocre medium-rise buildings behind Gare Montparnasse (the Tour Montparnasse was built on the old site of the original Gare which was rebuilt just downstream, and part of that devo were buildings above the rear of the station (above the tracks, including the Jardin Atlantique). It extends to the Ricardo Bofill Place de Catalogne just east of the station, though they are Haussmannian height so no great damage done.

        In fact the buildings around Les Halles are distressingly mediocre (the 70s, what else can be expected)–this is the pedestrianised Horloge quartier, mostly residential, but it has the saving grace of being standard Haussmannian height. Many visitors probably don’t even notice them. Just a block to the east they took a big risk with the Pompidou Centre (Ctre Beaubourg) but again if nothing else its height would have avoided it being very damaging to the heart of Paris (in fact it is higher than the buildings around it–the roof terrace is an excellent place to see over most of Paris) but it turned out to be a brilliant design that again managed that trick of perfectly and strangely mixing the ancient with the ultramodern (it retains its excellent PoMo style to this day, quite a feat; compare with the follies of Bofill next to Montparnasse though they are more restrained than his usual pastiche). Or of course the original 70s Les Halles; as I noted earlier I reckon the renovation, La Canopée, is another that artfully mixes the ancient with the ultramodern. (Seeing as how he is on-site, if Alon can overcome his phallus complex he could give an opinion on this:-)

        Further, Alon proposed modern hi-rise here because he wanted to reinforce the old business district. The financial industry retains its showpony headquarters here but the real business is mostly at La Defense these days; btw the pick would be the Credit Lyonnais HQ with its multi-storey lobby-foyer and magnificent staircases, among the most impressive in the world (similar to da Vinci’s Chambord double-helix but even grander), see here. Hmm, actually I accidentally went to the NYC CL building (page in Wiki) and even though it is 190m tall I see its floor space is only 3x the CL building in central Paris. Now a factor of 3 is still a factor of 3 but at 45,000 m2 it was the biggest civil building in Paris for yonks–it shows what you can get in a Haussmannian building. If central Paris was going to have a new hi-rise business district it was going to be in the 14th/15th where the Montparnasse tower was the first in a grandiose plan that luckily was still-borne.

        So the point is that either of these alternative futures would have undermined La Defense–which consists of a bunch of mostly mediocre hi-rise but does form an acceptable ensemble (your point Tangled), though I think the extension of the Grande Axes (of Grande Armee-Arc de Triomphe-Champs Elysée-Obelisque-rue de Rivoli/Faubourg St Antoine to Place de la Nation) gives it a design cohesion/continuity with old Paris, that say Canary Wharf or anywhere else can’t match. Tangled your notion of “cohesive skyline” actually comes true here. It might have been a risk but turns out those shots (especially at dusk) of the Eiffel Tower with La Defense behind it (foreshortened by the photography) has become very popular on any tv news story on Paris etc. I agree, it looks good! But in the heart of Paris, no.

        As I’ve said before, what’s not to like? A giant (biggest in Europe) financial district only a few km west of central Paris with superb transit connections (and roads–a big set of freeways around and under the whole complex, obviously something you couldn’t possibly do in Central Paris).

        Look at the historic City of London for example, ever since Ken Livingstone allowed them to be built, they mix historic/short and new/tall quite well.

        I’m pretty sure it had zip to do with Red Ken because the City of London ferociously guards its ancient independence from the city of London, and it determines (with its own mayor and governing structure) what happens in its square mile (doesn’t even the Queen have to seek permission to enter the City?). I happen to find London a real mess, ie. aesthetically and even from an urbanist p.o.v. Some of that is due to its historic failure to grasp the opportunity after the fire of London and some is due to the damage from WW2 but actually mostly due to their peculiar aversion to planning. I don’t think London mixes the new with the old at all well. Canary Wharf is ok because it is more cohesive and not intruding on old London and is the interesting setting of the old wharves etc. I think if Canary Wharf had been conceived earlier then none of those hi-rises would have been built in central London–there is plenty of space in the old wharf area and, just as with La Defense, it makes more sense to locate it all together (and plenty of space for new housing too).

        • Untangled

          now you’re just trying to get a rise out of me.

          You got me there.

          But in the heart of Paris, no.

          Argh. I understand the heritage value but it kind of leaves cities feel like they’re stuck in time, there needs to be a mix, when you’re given the rare chance to, take it.

          I’m pretty sure it had zip to do with Red Ken

          I know it sounds a bit strange but I checked it up before I made the comment and it’s true that Ken brought skyscrapers to the city.

          • Michael James

            Untangled wrote:

            I understand the heritage value but it kind of leaves cities feel like they’re stuck in time, there needs to be a mix, when you’re given the rare chance to, take it.

            But that is exactly what Paris is, to an aching perfection. It has some of the best modern architecture in the world (and no I don’t mean the Tour Montparnasse!). Your complaint is a forced cliche, probably (if I had to guess) from a dearth of experience (just an observation; I won’t hold it against you since we have established that you are a young fogie; plenty of time to change your mind, though you’ll have to lose that young/old fogie thing). Paris actually has the best of the ages unlike any other city in the world. While London has a lot of stuff too it is a total mess. Rome is in fact what you describe (Paris has roman stuff the same age as Rome eg. the Arènes de Lutèce in the 5th arrondissement is the same age as the Coliseum in Rome, ie. 1st century AD). Paris has better set of medieval, renaissance, Gothic, 17th-18th century, Belle Epoque and indeed modernista and modern and PoMo, than almost any other city (Barcelona competes on some of these but not in ensemble; Vienna does quite well too.). I don’t think any of the modern cities compares, including NYC which is kind of grotty and drab up close, and most of the others are just uninspiring. Funny enough I would put HK ahead of most. There are plenty of beautiful Euro cities but none that exceed Paris on all counts (Barcelona is the only one anywhere near the same league with its superbe modernista element and it too integrates modern stuff very well.)

            I don’t think that thing about Ken Livingstone refers to the buildings you think it does. Most of the well known ones (Lloyds; Westminster Bank, St Mary Axe aka Gerkhin; Toaster, Shaver etc) are all in the City of London and no mere mayor of London would have had anything to do with them. Some of these may have been built during his term but it was out of his jurisdiction; in any case the mayor of London doesn’t have all that much power. (The Shard broke this mould being the other side of the river and a lot of Londoners dislike that it is now spreading outside the City.) I believe the first serious hi-rise in central London was the infamous Centre Point building (34 floors) at St Giles, Oxford street (West End not City of London) but that was 1963 almost two decades before Ken. This latest outburst of hi-rise is generally attributed to Boris Johnson’s time as mayor but this was also a time when central government was Tory.

  12. Pingback: Week in review: September 11, 2017 | TriTAG

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