Public-private partnerships can help the subway survive
By: David Gilford
Tags: Public Transit, Urbantech, New York City, Ooh Advertising

Four technology-enabled approaches for new revenue, capital investments and improved customer experience.

Op-ed originally published in Crain’s New York Business, Dec. 15, 2020

Normally the nation’s busiest subway station, March 21, 2020 (photo by David Gilford)

Transportation is the lifeblood of a city’s economic activity, yet most transit agency budgets tell a different story.

In March New York’s Metropolitan Transportation Authority was losing $125 million per week as ridership dropped 90% under stay-at-home orders. By the end of the summer, COVID-19 had highlighted globally that the way cities fund public transit is broken.

As governments rethink budgets, transit leaders should consider engaging the private sector through four technology-enabled approaches:

Balance promises of revenue with more flexible contracts. Transit agencies control valuable urban real estate, requiring sophisticated strategies to maximize their value. Lease-style contracts with out-of-home advertising firms are most common today, such as the MTA’s 2017 deal with Outfront that promised more than $800 million in capital investment and 14,000 new digital screens. Agencies typically seek to maximize fixed-lease payments through a “minimum annual guarantee” for these long-term, competitively bid contracts. While intended to reduce risk, this approach showed its limits this year. As transit ridership dropped precipitously during the spring, firms quickly renegotiated agreements nationally to remove fixed payments. A better approach is to pre-negotiate any relief under varying ridership scenarios, both negative and positive. Accurate, real-time data sources allow fair allocation of risk and reward, even in times of crisis, enabling cities to keep more of every dollar their assets generate. Prioritize customer experience. Revenue need not be the only goal of a public-private partnership, especially as agencies seek new ways to provide safe, reliable and enjoyable transportation. As 5G wireless becomes commonplace, robust digital infrastructure will be a baseline expectation. New physical structures can also provide ancillary services, such as the Oonee pod’s bicycle storage for PATH train commuters, further deepening a system’s relationship with riders. Contracts should both require and incentivize customer-centered innovation. Bundle assets rationally to find the best partners. A handful of bus shelters alone are unlikely to attract industry interest or meaningful revenue. By combining assets across departments, agencies can attract competition and maximize the value of their portfolios. In October the Port Authority of New York and New Jersey announced four contracts that will generate nearly $400 million in revenue and fund $100 million in capital investments. Bundling four major airports resulted in the largest U.S. airport advertising contract. Unlike prior contracts, however, the Port Authority unbundled its PATH commuter rail system, bus terminals and billboards, recognizing that specialist firms could maximize non-airport revenues while bringing new amenities customized for each facility type. Embrace new technologies with foresight. While digital screens have replaced paper posters, technology is creating media and new revenue sources in unlikely places. Earlier this year Awkwafina’s voice took over the 7 train’s announcements to promote a television show set in Queens, generating $10 million in incremental media value. Public-private collaborations such as the Transit Innovation Partnership are rapidly testing technologies to improve core functions, such as safety, signaling, accessibility and curb management. To preserve public trust, technology adoption must be coupled with community input and clear, robust data privacy policies. Because no one can predict future technologies, flexible contract structures are critical to enabling innovation.

Viewed in the scale of billion-dollar budget deficits, these approaches merely hint at the catalytic potential of creative, tech-enabled public-private partnerships. In pushing for government stimulus, congestion pricing and other large-scale solutions, transit leaders must not overlook the private sector’s role in innovation that brings new revenue, capital investments and improved customer experience.

There’s too much at stake not to explore new opportunities.