The Problem of Infrastructure Profits

I’m sometimes asked about the private sector’s role in infrastructure. I’ll cover this more broadly in the future, but for now, let me pour some cold water on the idea that a private actor could build an urban rail system for profit. This is a political and not technical problem: it is possible to build a few (but not many) urban rail lines that, at good but not unheard of construction and operating costs, would generate decent financial returns. However, such lines are extremely vulnerable to confiscation of profits by government at all levels, especially the local level. Moreover, it is not possible for a local government to give any credible guarantee of security of property for a private rail line.

Lines and extensions

There is a great many rail lines in the world where new construction can be profitable. For example, Tokyo subway lines turn a profit, and the government is not building more because it demands a minimum of 3% rate of financial return – and Tokyo has high construction costs. Seoul has low costs, and it’s plausible that if Tokyo could build subways at the cost of Seoul, it would go over the 3% threshold. London is roughly breaking even on the Underground, and I think Berlin is on the U-Bahn, so some of the stronger extensions might be profitable too.

However, in such cases, the profitable additions are mostly extensions of existing lines. These can be profitable, but not to a private operator, only to the agency that controls the existing line. Even new lines often come as part of a broader system designed around transfers; for example, a short line under consideration in Tokyo is designed to connect existing rail lines in Central Tokyo with the growing waterfront area. Usually, these lines work best with free transfers, so an independent operator can’t easily build them – it’s possible Tokyo will build the line as an independent one with extra fares for transfers rather than as a Toei subway, but if so this will be unusual by global standards.

That said, there do exist places where an independent actor could build an entirely new line and not have to worry too much about connections. The example I keep going back to is Geary Boulevard in San Francisco, where a line could connect Downtown San Francisco, say around Transbay Terminal (or even Union Square to save money and avoid tunneling under Market Street), with the Outer Richmond. The bus along this route has 57,000 riders per weekday, and the total including closely parallel routes is 110,000. Bus connections are useful, but a subway on Geary could succeed without them. The same is true of connections to the BART and Muni subways at Market Street – free transfers would be really useful, but the San Francisco central business district is strong enough that a private investor might well take the hit on ridership to avoid being too entangled with public governance.

A few more plausible independent lines include the Downtown Relief Line planned for Toronto, an east-west line between Queens and New Jersey via Midtown Manhattan, and and maybe even the dormant U10 for Berlin; U10 is unlikely to work at all without fare integration, but fortunately the Verkehrsverbund Berlin-Brandenburg provides a local mechanism for revenue sharing without getting too entangled in public governance, though even then I don’t think the returns would be high enough to interest a private investor.

Some technically plausible returns

Let’s focus on Geary in San Francisco. Total ridership on or parallel to the route is 110,000 per weekday, but that’s on slow buses. A rapid transit line would get much more than that – 250,000 is plausible on a very frequent driverless train averaging 35 km/h end-to-end. High frequency would also encourage off-peak ridership, but let’s keep the annual-to-weekday ridership ratio at 300, typical of New York, and not the higher figures seen in London, since passengers would have to pay a separate fare to connect to non-CBD destinations. So this is 75 million riders a year.

What’s the plausible average fare? The Richmond is a middle-class neighborhood, but even there, fares significantly above the current Muni rate are likely to discourage ridership. Muni currently charges $2.50 one-way or $81 for a monthly ($98 with BART, but we’re assuming no free transfers). Assuming New York behavior again, a pass holder averages 46 trips a month; averaging with occasional riders, let’s say this is $2/trip, or $150 million a year.

Against this, what’s the operating cost? If 75 million trips a year average 5 km (half the route length), and there are 30 passengers per car (the New York subway average, and 20% more than the commuter-oriented BART average), this is 12.5 million car-km per year. This is equivalent to 19 5-car trains per hour in each direction 18 hours a day every day. The non-New York first-world range of operating costs is $4-7.5 per car-km as of 2014, but none of the systems studied in the report is all or even mostly driverless, and entirely driverless operations as in Vancouver would reduce costs to the low end of this range. So make it around $50 million a year in operating costs, plus maybe $8 million in depreciation on rolling stock – and let’s even bump it up a bit to $70 million because the maintenance workers are local, even if everything else can be offshored, and San Francisco wages are high. So, $80 million in operating profits per year.

Finally, the construction costs. This is a 10 km line, so at the global median of construction costs this is $2.5 billion. But Scandinavia, Southern Europe, and Korea are all capable of substantially below-median construction – and Nordic working-class wages aren’t necessarily lower than Californian ones. $1.5 billion is plausible, and even $1 billion is ambitious but not outside the realm of possibility if the line only runs to Union Square, not Transbay Terminal.

Profiting $80 million a year on $1.5 billion in investment is thus plausible, giving somewhat better returns than 5%. There’s risk inherent in the figure – costs may escalate, ridership may disappoint, operating costs may be higher than expected. All three happened almost from the dawn of rail technology – they all were rampant in the Railway Mania. The good news is that there is also some upside – office growth in the center of San Francisco could generate more demand, and mass upzoning in the Richmond could happen and was recently a near-miss in the state legislature.

Nonetheless, 5% returns at this level of risk, given decent confidence in one’s cost control, are still reasonable. However…

The government will confiscate profits

Unfortunately for any prospective private investor, the city and state governments have a large toolkit with which to confiscate all profits:

  • Impact fees – such a subway would have positive impact on the neighborhood, but the city can still find grounds to levy fees.
  • Nuisance suits – groups can invent grounds to sue on and demand bribes (“community benefits”) in exchange for dropping the suit.
  • Construction regulations demanding more expensive methods that are (or seem) less disruptive, e.g. a ban on the use of cut-and-cover even for stations.
  • Requirements that all workers be unionized and that nothing be outsourced, even things that can be done remotely like the control center.
  • Rules calling all new housing construction along the line a benefit to the company, for which the company has to pay a fee.
  • Unfunded mandates for fare discounts for seniors, children, the poor, and other groups; the city can pay these discounts out of its own budget, but why not claw into the profits of a private rail operator?
  • Hearings at the inevitable objections (someone is always unhappy) in which legislators demand personal favors (“community benefits,” again) in exchange for a yes vote.

The operating requirements, like the unfunded discount mandate, can always be imposed in the future in case the operator profits more than expected. This means that there is not much upside – if profits are higher, there will be more confiscation. The effective profit rate net of the cost of compliance with regulations approaches zero. It may well be negative – the city has every interest in driving a private operator that just spent $1.5 billion of its own money on a subway into liquidation, buy out the infrastructure, and operate service itself.

This in fact happened in New York in the 1920s and 30s. Starting under Mayor John Hylan, the city used regulatory denials to deliberately drive the private streetcar companies out of business. Simultaneously, through the construction of the IND to compete with the private IRT and BMT subways and through denial of a fare hike from 5 cents a ride to 10 cents even after post-WW1 inflation halved the value of the dollar, the city did the same to the private subway operators; the IRT went bankrupt in the Depression, and in 1940 the city bought it and the BMT out.

Obedience, emigration, or the graveyard

The state, or any actor more powerful than you, always offers you this choice. The meaning of obedience is flexible (the political opposition in a democracy is still obedient), and the meaning of the graveyard is usually not literal (“you’ll never work in this town again,” not “you will be killed”). But the choice is still this.

The main way of avoiding the graveyard, emigration, is not available here. Subways are physically fixed infrastructure. If a local government doesn’t like you, you can’t take your capital and move somewhere else. For this reason, owners of tangible property, like small business owners, have had anti-socialist politics going back to the emergence of socialism as a real political force around the Paris Commune, whereas skilled workers didn’t mind socialism as much.

Modifying the meaning of obedience is possible in a place with stronger norms of rule of law. In a capitalist country, earning a profit and paying the normal corporate tax rather than 100% is obedience – the risk is not federal confiscation but state or local confiscation, where the United States never established such norms, relying on the threat of capital flight to lower-tax, lower-regulation states to discipline governments.

I brought up the example of Berlin because I think that here the threat of local confiscation is smaller (but not zero – witness the rent control bill), but even then it’s unlikely to be a 250,000 riders/10 km line – it’s probably a breakeven line or slightly better, ideal for public but not private construction. For the most part, the subway lines that can be profitably built in the EU have already been built; there aren’t huge cities here with unique construction cost problems, except London, where I don’t think there’s an even semi-decent case for any rail line that’s not an extension of existing lines (counting Crossrail as an inward extension of suburban lines).

However, within the US and probably also Canada, even a well-capitalized corporation can’t really modify the meaning of obedience to include profitably constructing urban infrastructure. It can only emigrate, which in this case means knowing not to allocate capital to fixed infrastructure in the first place. Even if apparent returns beat the market, which I don’t think they do, the real returns will be zero so long as state and local governments remain as they are.

62 comments

  1. Roger Senserrich

    There is always the central issue about urban rail – a lot of the benefits of it are external to the rail operation itself. Take for instance reduced congestion, or lower polution in the corridor, or higher rents and property values. A publicly run rail line would capture that (or most of it – the cleaner air might still help the politician get reelected…), but not a private subway operator.

    Sure, you can do like Japan or the trolley lines of yore and make the infrastructure a real state play, but this is hard to pull off, and you eventually run out of parcels to sell by the trolley line and a expensive light rail line with a ton of annoying regulation by the city.

    • Alon Levy

      It’s not even a real estate play in Japan… Tokyo Metro is profitable without that, and the other privates (and JR East) are profitable on transportation alone and use real estate for synergy, not cross-subsidization. This is not the same as early-20c America.

      • Roger Senserrich

        The point still stands, however – many of the societal benefits of a rail line are not captured by the entity that solely operates that railroad. Positive externalities do happen – and they lead to underinvestment unless a goverment entity is taking care of it.

        • Herbert

          The biggest example of a positive externality in the real world that we can see daily is “pretty architecture”. It benefits a developer little if their buildings are pretty on the outside. So in the modern era, developers build as ugly as they can get away with…

          • Eric2

            Yet somehow publicly built buildings, like Boston City Hall, turn out just as ugly if not uglier. Private developers at least have incentive to make buildings as pretty as is necessary to attract buyers. Public buildings are often just tasteless monuments to the architect’s ego…

          • Luke

            Whether or not you like it, Boston City Hall is a Brutalist masterpiece. The point is whether or not the particular style of architecture is to any particular person’s taste, money can be spent on it because it is presumed to be of benefit even to people who will never step inside. Intellectually stimulating, even if not pretty.

            By contrast, see the Korean-style commieblock apartments built by the dozens across South Korea: done by private development, lovely for those who get to live in them, but little more than painted concrete boxes to those who will only ever walk by, because anything more is added expense without a guaranteed commensurate return in profit, and Koreans have mostly become accustomed to them.

            “Pretty enough to attract buyers” need neither to be pretty–or even interesting–at all.

      • Nilo

        Yeah but the vast majority of the profits are in the real estate for a lot of these companies. These things seem to fluctuate quite a bit but Cervero cited a high of 81% of profits and a low of 19% of profits coming from real estate in 1993, and far more firms were located towards the high end.

      • Tonami Playman

        Tokyo metro and the other Private companies are profitable, but I don’t know why Toei is so deep in the red. They have little to TOD like Tokyo metro, but can’t seem to make a profit. Maybe because Tokyo metro took all the busiest routes.

        Toei’s AGT, Nippori Toneri liner is also unprofitable. According to this article, it’s 5th most crowded line in Tokyo area with ridership outpacing forecasts despite the light nature of the line. About 80,000 riders per day.

        I do notice that Toei is fond of pursuing unique technologies like this rubber tired AGT and the linear motor powered Oedo line, while the other private companies and JR East ruthlessly pursue simplicity and standardization.

        • Eric2

          Toei Subway gets 11 million riders per km per year, which is one of the highest of any metro worldwide (for comparison London and NYC are 4 million, Beijing and Moscow 6 million, Chicago ~1.3 million). Shouldn’t be hard for them to make a profit even with a few bad decisions.

        • Andrew in Ezo

          Toei as a whole has been profitable over the last several years (2018 profits were 35.9 billion yen), it was the construction costs of the deep bore Oedo Line that had saddled it with red ink. All four heavy rail subway lines make an operating profit, as do the bus services and the power generating division. The Arakawa Tram, the Toneri Liner, and zoo monorail operate at a loss.

          Click to access report2019.pdf

          • Alon Levy

            Is the Toneri Liner losing money because it’s serving a very poor area of the city, so that fare revenue isn’t as high?

          • Tonami Playman

            Comparing the fare charge for 10km range on Toei Subway network to Nippori Toneri Liner, it’s 280 yen from 10 – 15km for Toei subway and 340 yen from 8-10km for Nippori Toneri liner. It looks like it’s already a premium charge for the Nippori Toneri liner. Any higher an they probably would drive riders away.

            I suspect it has to do with the passenger volume. Since it’s a low capacity line which in 2018 averaged 89,000 daily passengers (according tohere, and here) on 9.7km or 9,000pax/km despite the high crowding on the short 5 car trains. Compared to the Oedo line which is the weakest of the Toei Subway lines, in 2018 the Oedo line averaged 977,000 daily passengers(according to here, and here) on 40.7km or 24,000pax/km

            According to Japanese Wikipedia, MIRC is running an operating profit on the similarly independent Tsukuba express which averaged 386,000 in 2018 on 58.3km or 6,600pax/km. They also charge a similar 340 yen for 10km ( according to this trip fare estimate from Aoi station to Akihabara which is about a distance of 10km)

        • yuuka

          Toei sort of has no choice – the Asakusa line is standard gauge to accomodate Keikyu and Keisei, the Shinjuku line is weird gauge because of Keio, and the Oedo line has tiny linear motor trains as an attempt to keep costs down (I believe it was Tokyo’s most expensive subway line at some point). Only the Mita line is anything compatible with the mainline rail network given its interoperations with Tokyu.

          The tram was already there before the war, and the AGT was probably a decision made because of the low-density catchment. They could have found a way to build a branch off the Mita line, but that would probably have driven up costs a lot more. As for the zoo monorail, that was sort-of a tourist attraction that got shut down a while back.

  2. SB

    What about developing countries where new rapid transit lines are needed the most and ASAP? Should private actors build and own transit in developing countries’ cities?

    Also Seoul has privately owned lines with fare integration such as Line 9, Shinbundang (base fare is more expensive but no additional costs to transfer) and Ui LRT. Does that change that rate of return?

    • Alon Levy

      In developing countries, the ability to earn a profit without confiscation is even weaker, especially if you’re a foreign corporation, I think?

      And Seoul presumably also has good enough public institutions that it can do the usual regulations and still it’s possible to earn a profit? It’s not like San Francisco, where the construction costs per km are on the order of 5 times higher than in Seoul.

      • Herbert

        In many low income countries incumbent bus operators are politically well connected private operators by and large. So you would have to fight them as well as convince the government… Plus for social reasons bus fares are often subsidized (in Managua the single ticket costs less than 10 cents US)

        • Tonami Playman

          In Lagos, the National Union of Road Transport Workers (NURTW) does have a stranglehold on Local politics. They impose multiple layered taxes on every private transport vehicle(usually mini buses) in the city which have to be paid daily with all vehicles displaying their multiple tax payment tickets on the dashboard behind the windshield. Failure to comply will result in seizure of the said vehicle.

          The crazy part is all the taxes collected don’t go towards the public account, but to the private account of the Union chief. Decades of weak state government have left open a power vacuum that the NURTW union chief has grown to fill to the point of influencing the state governorship elections.

          In the 2019 state elections, Ambode, the then incumbent governor was ousted serving only a single term. Speculation is that he was pushing policies that threatened the revenue of the NURTW. Policies like banning the mini-buses serving as the cities major mode of public transportation.

          There are frequent turf battles on who operates on what route especially the very busy ones.It is going to be very messy for a private company to invest in a transit route.

  3. yuuka

    > a short line under consideration in Tokyo is designed to connect existing rail lines in Central Tokyo with the growing waterfront area. Usually, these lines work best with free transfers, so an independent operator can’t easily build them – it’s possible Tokyo will build the line as an independent one with extra fares for transfers rather than as a Toei subway, but if so this will be unusual by global standards.

    I have to point out that as things stand, the current proposal by MLIT is to have this new line be an extension of the Tsukuba Express from Akihabara via Tokyo Station, and TX jurisdiction may or may not end at Tokyo Station. So even if the line was given to Toei to operate, a transfer fare would still be charged.

    This sort of arrangement isn’t that uncommon in Japan, with a minor operator’s only line chiefly existing to expand the service area of a parent line, but that’s not a big problem given the prevalence of through service which gives an almost transparent impression to the passenger. Most notably there’s the Nagoya subway’s Kamiida line, a one-stop extension of Meitetsu to connect with other subway lines.

  4. Jacob Manaker

    You tacitly assume that the private operator will need to negotiate with the local government for construction permits, at which point the government can “lock in” requirements to ensure permanent dependency and confiscation. Local governments seem fairly disciplined about imposing nonsense such a price caps, at least within the utilities markets. But for regional rail systems which reuse extant rights-of-way, such negotiation is not so necessary. And, indeed, Brightline is currently developing a plan for commuter services. But even if the Brightline talks fall through (note that they are asking for a subsidy, and giving Miami-Dade ample opportunity to impose unfunded mandates), consider Milwaukee and Houston.

    Milwaukee has an existing privately-owned North-South rail trunk from Germantown & Thiensville that extends almost to the CBD. The owner, Wisconson & Southern, is small, and so (nominally) more innovative than the Class Is; more importantly, they have trackage rights as far as Milwaukee Intermodal station. The route isn’t particularly dense, but there’s enough empty lots, this could be remedied through ToD by W&S.

    Houston is a similar story: it’s pretty-much a one-railroad town, so UP could act unilaterally. The routes are primarily industrial, but Houston is known for having zoning that lots of cash can bend, so ToD can also densify along them.

    Would local and state government would be able to impose confiscatory conditions in situations like these?

    • Alon Levy

      Mainline rail is unique in that there is very little subnational jurisdiction in US law; states can’t even exercise eminent domain on railroads.

      • Eric2

        If Democrats win the presidency and Senate this year, should we add to the list of laws they should pass while they have the chance “grant states the right of eminent domain over railroads in urban areas”?

        • Henry Miller

          That is a dangerous double edges sword. There are cased where freight lines are not playing nice and good routes for a passenger train cannot be used. However I fear states will use their power to take bad lines just because they can. Freight needs to get around and if the railroads cannot use their power existing routes that is more freight that must move by other mean: truck.

          That is beware unintended consequences. Politics is full of them.

        • john

          @ Eric2

          No.

          No the nth degree.

          Even with the current ban on state/local eminent domain over railroads, there’s potential for anti-urban mischief, if federal officials collaborate with state/local officials. About 20 years ago an anti-urban GOP congressman in the Houston area, who got wind of a local community proposal to reactivate the lightly-used Katy Railway for suburban commuter rail, teamed up with the state DOT to eminent domain the railroad (federally), rip out the tracks and build the Katy Freeway instead. Not because there was any real need for another highway in the area, despite after-the-fact justifications drummed up by the congressman and DOT, but mainly out of ideological animus to the idea of rail transit and the liberal group that proposed it. I forget the congressman’s name, but I believe he was a minority whip or powerful committee chair or something, the one who lost reelection several years later after some kind of scandal and went on a reality show briefly (Dancing With Stars or something? Something ridiculous for an unpopular middle-aged conservative politician to show up on. People were dancing in the commercial).

          Sandy Johnston posted about freight in upstate New York recently, and provided an example of an inactive freight ROW that had been built over by developers, who had permits, tax breaks, etc. from the local government.

          Giving states/localities eminent domain power over existing railroads, at a time when so many are still dominated by people with suburban or rural auto-centric worldviews, and when so many local politicians are in the pockets of local developers, would guarantee the destruction of many valuable rights-of-way, especially lightly-used or inactive ROWs in urban areas with development potential and rising property values, exactly the ROWs most valuable for inexpensively building rail transit.

          • Eric2

            Hm, that is an interesting point. ROWs once built over can never be retrieved.

            At the same time, there are a number of urban rail ROWs in places like LA, Chicago, the East Bay Area, where the economic value of potential commuting would seem to be much higher than the economic value of freight along those lines. And possibly the two could even coexist, with freight from midnight-6am and passengers the rest of the time. And electrification could have a great positive effect. But all this is a non-starter because the local freight railroad simply refuses access, and local authorities have no way to make them accommodate.

            Maybe eminent domain should be allowed for other rail purposes but not for any other purpose?

          • john

            @ Nilo: Thank you! I couldn’t remember his name, and I didn’t feel like staying up any later for a bunch of indirect googling.

          • Anthony

            @Eric2 – the economic value of freight rail is really, really high. The railroads in LA are paying billions of dollars to achieve minutes of speedups between the Port and Barstow. There’s no real need for freight rail on the San Francisco Peninsula, because there’s no port there, but the Port of Oakland still ships out a *lot* by rail, so there’s a substantial economic value to keeping the freight lines clear of commuter rail.

      • Ethan Finlan

        So what you’re saying is, if Caltrain were privatized, and DTX turned west towards Geary… 😉
        Less trollishly, this seems to imply that PATH, which operates under mainline regulations, could be privatized and construct extensions on the NJ end (through running onto the Raritan or West Shore, for instance) with less trouble if agreements could be reached with the host railroads (one of which being NJ Transit).

        • adirondacker12800

          The people already crowding onto PATH to capacity might take a dim view of encouraging more people to use it.

    • Henry Miller

      As things stand today Texas is the state least likely to take all profits, and thus if you are thinking about building a private railroad your best bet to actually get a return on investment. That isn’t to say Texas won’t change next election though.

      I’m not sure about Wisconsin. My impression is that you will get a few years before taxes take your return, but you will probably always get a little profit back even if the return on investment isn’t there. Again this will change with every election.

      If you are thinking about a private rail of any sort you need to start with hiring lobiests in each state capital. (and DC) only when you have politicians from both parties paid for can you think of building. This will cost some profits but it is an investment.

      • Eric2

        On the scale of decades, I can imagine there is too much uncertainty for that. Look how much US politics has changed in just the past 4 years…

      • Alon Levy

        Texas Central has some protections thanks to its status as a railroad, which is the main subject of litigation precisely because nearby landowners are NIMBYing it. I don’t think a non-railroad would necessarily be safe from confiscation in Texas – the Republicans aren’t any more amenable to rule of law than Democrats, they just have other priorities for confiscation, e.g. Trump getting Facebook to hire a political officer on pain of denial of government contracts (which denial has happened to Amazon, which refused to do the same re the WaPo).

        • Eric2

          Any thoughts about the prospects for Texas Central now, given their recent victories on one hand, and their cost estimate jumping to $30 billion on the other hand?

          • Eric2

            When the projected cost was $15 billion, they said it would all be privately raised. Now that they say the actual cost may be $30 billion, they are considering asking for government stimulus loans.

            $30 billion would make it one of the most expensive HSR projects per mile in the world, I believe. Despite the favorable terrain and lack of obvious complications (besides being in the US).

          • Gok (@Gok)

            A lot of the money is coming from the Japanese government, like the Taiwan HSR. Adjusted for 2020 dollars the Taiwan project cost US$76M/km and $30B for the Texas project would be $77M/km. THSR required a bunch of tunneling though.

          • Tonami Playman

            So much for private companies able to control costs better than public entities. With such costs, I’m doubting any meaningful progress on this project.

          • Herbert

            Taiwan High Speed Rail was also supposed to be “private”… Seems like there’s a pattern…

      • R. W. Rynerson

        #Henry Miller – In Oregon two railway companies were in a state-mandated race to build south from Portland to California. The winner in a set time period would get the federal land grants. The west side line, financed by prudent Scottish investors, moved steadily ahead. The east side line fumbled around and was a financial basket case. As later described, stagecoach entrepreneur Ben Holladay stepped in and bought the east side line, then he bought the Oregon legislature. They voted to extend the deadline, Holladay brought in new managers and money. The west side company gave up and it became a secondary line.

        After the fire in ’06, the cable slots in San Francisco were full of crud and cable lines were obsolete, but there were interests even then in using franchise requirements to do bad things to the recently consolidated United Railways company. The company’s quick solution was to bribe every member of the SF council and set the line crews out to string wire like mad.

  5. Martin Kolk

    I highly doubt that an isolated line, where the ticket fees would have to fully over construction costs, would be even close to profitable anywhere in the world. Transit relies on network effects, and it would otherwise be really hard to be able to offer an acceptable price of travel. The for-profit transit projects in East Asia (which are not isolated lines, but integrated systems) are de-facto reliant on cheap access to valuable land and helpful cooperative planning from the local government, which is in a way a different form of government subsidy. Nowhere in the world would it be possible to buy all land at market price from a profit-maximizing actor to build inner-city urban transit I would assume. Then as transit is very obviously a public good, it is very hard to see why any government would even consider giving unrestricted monopoly rights to run transit to a pure for-profit agent.

    If one with profitable means just to cover running costs (and not the investments to build the system), I think basically any metro system in a 2+ million inhabitant system, if well run, would be profitable though.

  6. Michael

    American rail fans tend to forget that the massive pre-depression rail roads, interurban, and streetcar networks were constantly at odds with local government. To operate a streetcar right-of-way required a charter from the city & sizable investment. After 20 years or so, the charter would expire and need to be renewed at significant cost. A governmental authority would always regulate fares & schedules.

    If the companies had dedicated right of ways, ability to control their own fares & schedules, and the state didn’t pump buku money into debt-funded road & bridge construction to stimulate the economy for last 100 years, not to mention create a car-based class/race apartheid, private rail might still be around. But each of those happened and are likely to continue to happen.

  7. Gok (@Gok)

    You don’t even need to go as far as New York by the way. Geary itself did have a private transit railroad for 30 years, which was confiscated by the city 1912, and downgraded into the current bus lines in the 1950s.

    • R. W. Rynerson

      Yes, I was waiting to see if anyone else caught this. The Muni vs. Market Street Rwy. Co. battle was an epic that went on for two generations, fueled by the populist Hearst newspapers (AM and PM) in addition to the usual suspects in franchise issues. And Geary was literally right in the middle of it. The battle included regular trips into the California Supreme Court, fare decreases ordered by the California Railroad Commission, and all the while the Muni operating a thin, but well-placed network,

      In regard to the Muni’s Geary, it was paralleled by MSR Rtes 1, 2, 3 and to show how dense the traffic was even then, a 1927 study showed those “Sutter Street” lines making a profit, even with capital costs and a ROI included. In further insanity, the MSR extended the Rte 4 streetcars out Balboa Street in 1932. Let me raise my voice with incredulity: 1932! Still, Geary remained strong. In ’35 or ’36 my father, visiting from Portland, was impressed to see the conductor (2-man crews) ring up over 200 fares on a one-way trip from downtown to the ocean. He also learned the hard way that if he was alone at a stop, a young man was expected to swing onto the car as it coasted by after a token brake application. It was the sort of competition that some libertarians dream of, although the “Roar of the Four” tracks on Market Street could be hazardous for pedestrians.

      On September 29, 1944 that other war overseas was set aside for a day and the longer-running San Francisco war ended with the takeover of the broken down “White Front Cars” by the Muni. The two systems were merged with some modifications and the new fare was what the MSR had fought for years to establish.

      In Alon’s perceptive analysis, the Sutter Street routes and the Balboa Street line might still be there, offering free transfers to the rest of the Muni network. Also, long-deferred service restructuring makes it easier to reach points via N-S crosstown lines without riding down to Market Street. This, too, was already tried in San Francisco, when the MSR did get a fare increase, riders on the Sacramento Street cable line of the MSR shifted over to the parallel California Street line. The eccentric California Street company held to a nickel fare. That’s why today there’s a cable on California; the MSR surrendered and replaced their cable with a motor coach line (there’s more history after that, but the point is that a fare difference with short walk distances can have a disproportionate effect). The hypothetical Geary capital project would require more than the usual O&D studies if fare differences, transfer arrangements, etc. are in play.

      For further insanity in “Everybody’s Favorite City” see Smallwood, Charles A.; “The White Front Cars of San Francisco”; Interurbans; Volume 27, Number 3; Fall, 1970.

    • Alon Levy

      Do you have a recommendation for a history of San Francisco transit, like the article I linked to re New York or the section in 20th Century Sprawl about Denver and how it regulated its streetcars to death?

      • R. W. Rynerson

        The museum/historical group could give you advice. Their on-line store offers several lightweight books. And right now, their blog post has a good article that explains why the cable routes evolved under the Muni as they did.
        https://www.streetcar.org/cable-cars-1954-a-huge-loss/

        To my knowledge, Smallwood’s book that I cited is the best on the MSR economics and politics. Other than it, a lot of my background comes from newspapers and anecdotes over the years of growing up on the West Coast.

        Going through the early years helps to understand it. There is an authoritative book by a classic liberal economist:
        Hilton, George W.; “The Cable Car in America”; Howell-North Books; Berkeley, CA; 1971. It includes maps, typical fan trivia, but also includes the business side. In Denver I discovered that more substantial, multi-story buildings went up along the cable lines than on the streetcar extensions because the cable lines were so capital intensive. The maps in this book led me to numerous discoveries. It was a hardbound book, so I would recommend it as a long-term investment.

        Hilton & Due also wrote the standard U.S. and Canadian book:
        “The Electric Interurban Railways in America”; Stanford University Press; Stanford, CA; 1960. It has lots of business information on the California interurbans, but for geographic reasons there were no interurbans in San Francisco. One MSR line went south to San Mateo and was referred to locally as “the interurban” but it did not fit the definition.

  8. Herbert

    Why would anybody want the private sector to build public transit?

    If there is a need to pay profits to shareholders, that means higher fares by default.

    Plus, especially when it comes to above-ground transit, the state has a few aces up its sleeve… For example reallocating road-space costs nothing in dollar terms (it may cost something in political will terms) whereas private operators need to pay for every single square inch…

    The only theoretically conceivable benefit of a private operator of public transit would be that they do not have to listen to political consensus… Which dangerously approaches a “democracy is bad” ™ point of view…

    • Henry Miller

      There isn’t a good way to do infrastructure. The limits space mean that whoever does it, either private or government is subject to corruption. My job doesn’t let me move to a different mode of transportation so I’m stuck with what I can get.

      If every building was at least 30 floor I could probably devise a scheme for 3 different private companies to share space underground (or above ground) in a fair way. Then everyone would have a choice of operators and all operators could earn a reasonable profit after doing proper maintenance. No city in the world is that dense (many downtowns are, but the rest of the city needs the same density) so this fails.

      I favor private business, but it only works when there is real competition. Government is always a monopoly with everything you hate about private monopolies applying.

    • yuuka

      Theoretically it would be possible for the government to build infrastructure and then lease it to a private operator. They’d be on their own afterwards.

      That’s how we used to do it in Singapore… until the private operator got too distracted chasing profits and let the train service rot, costing the government a fair bit of political capital.

      • Nilo

        That’s what they did in NYC. Then the government built a system designed to directly compete with it that missed transfers all over the place!

  9. df1982

    Not really convinced about this theory of government capture of potential private profits. There are, after all, presently three attempts at building privately-owned passenger railroads in the US: Miami-Orlando, Dallas-Houston and Victorville-Las Vegas. In all three of them, the main obstructive force is rural NIMBYs supported by right-wing politicians with a hard anti-rail agenda, and their goal is simply to stop the line being built, not to hive off some of the profits.

    Also surprised to hear you bring up private transit lines at all. You effectively debunked the idea of NEC privatisation, on operational grounds rather than due to corruption. And you generally seem to be in favour of integrated transit systems built according to long-term, centralised planning. Having privately built-and-operated lines with segregated fares leads to a balkanised transport system, the deleterious effects of which can already be seen in places like Philadelphia, Miami and really anywhere in the US with commuter rail.

    If there is room for the private sector in public transport, I would probably use London buses as a model. Routes and even timetables are centrally planned, and the public interface for fares, customer service, etc. is TfL. There is even unified branding across the network. The private companies are purely concerned with efficient service provision and are basically invisible to the passenger.

    • R. W. Rynerson

      The London approach is how private operation has evolved in Denver. We did not set out to copy anyone in particular, it just made sense as we went along. Over 50% of the rubber-tired service miles are run by contractors. All of the Light Rail Lines (C, D, E, F, H, R, W) and future Commuter Rail (Line N) are run by the Regional Transportation District. Commuter Rail Lines (A, B, G) are run by the consortium which built and maintains them.

    • Jacob Manaker

      To quote Alon’s comment on my post earlier: “Mainline rail is unique in that there is very little subnational jurisdiction in US law; states can’t even exercise eminent domain on railroads.” This is why your counterexamples are compatible with Alon’s thesis.

      • df1982

        That pertains to existing rail lines, but these are new-builds (except for the stretch between Miami and Cocoa), so there are plenty of opportunities for state graft, but they largely haven’t happened. And it’s not politically determined, since the states involved (Texas, Florida, Nevada, California) are red, purple and blue. The main obstructive factor is a hard right that just doesn’t want to see rail built, period.

        • Henry Miller

          Rail has not made much of an effort to court the right. Warren buffet is a well known leftist who has a lot invested in rail. Likewise most of transport supporters are hard left, even when there are good arguments on the right.

          The above shouldn’t matter but in practice it does.

          • df1982

            The US right seems to be OK with freight rail, since it is profitable without any public subsidy, and how goods are moved is difficult to load with political significance. But they think passenger rail of any kind is communism, and mobilise against it even when it’s a private company willing to invest $15b of infrastructure spending in their state. If it was anything else they would bend over backwards with subsidies galore to attract that kind of capital investment (see: sports stadiums), but if it’s a private company proposing a high-speed rail line, they convince themselves that it’s doomed to be a failure and subsequently a drain on the public purse (which can be a self-fulfilling prophecy if they bog projects down in frivolous litigation and legislative obstructionism).

          • Alon Levy

            Abbott himself is fine with Texas Central. Individual landowners, who are Republican, are trying to stop it for ideological reasons, but that’s not the same as the main of the Republican Party.

          • adirondacker12800

            Republicans went off the deep end a long time ago. Who knows what they will think, it depends on the mood of talk radio hosts and Fox News.

  10. fjod

    The San Francisco example is surprisingly comparable to the Oxford Road/Wilmslow Road corridor in Manchester, which has to be one of the strongest potential metro routes in Europe ( map here). Along with the logical extension to Victoria station, this route is also 10km, all underground but most of which eyeballing it I think could be built cut-and-cover. Unfortunately all usage calculations are speculative because the UK’s mess of a privatised bus system means there are no official figures on how many people use the corridor’s many routes – but I recall hearing that it’s in the tens of millions per year so it seems roughly in line with the Geary figures you cite. Furthermore, it’s relatively self-contained, and demand is somewhat distributed across the route (moreso than in SF from my experience). Of course it would make more operational sense to through-run any new metro services on the Metrolink line towards Bury (this line is already highly profitable for TfGM), but given your calculations for SF it might still make sense for a private operator to build the new portion in a self-contained way. The arduous British planning process and lack of precedent is probably enough to kill off any speculation, though.

  11. Pingback: Thursday’s Headlines From the Four Corners of the Earth – Streetsblog USA
  12. Oreg

    Transit infrastructure is the text-book example of a natural monopoly, i.e., it is practically impenetrable to competition. Privatizing a natural monopoly leads to monopoly profits and substandard service as there is no competitive pressure to prevent them. Without competition the standard advantages of private enterprise over central planning therefore don’t apply. Add to that the advantages of central planning of transit networks. Transit networks should be owned by the public.

    There could be a place for private corporations in operating transit services (on publicly owned infrastructure) as is the case in German regional rail. Every so many years there is a public tender for well defined transit operations, establishing competition between operators. This approach requires fare integration across operators to keep the system usable.

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