35. When Business Buys Transit

Businesses seek services that drive growth and enhance access; transit agencies look for opportunities for cost-effective expansion. While insignificant numerically when compared with the multibillion-dollar transit industry overall, direct financial support of transit routes by business suggests a heightened awareness of the role of transit in achieving economic goals of growth, mobility, and environmental protection.

A national review conducted last year of transit/business partnerships uncovered a wide variety of approaches, with variations on many different features. They include the following:

  • The nature of the business involvement may range from leadership in its formation, to marketing and promotion, to outright organization and/or directly purchasing the service.
  • The level and significance of the financial contribution may range from being one of many players, along with the transit agency and local governments, to full responsibility for the cost of service.
  • The mechanism for raising private funding may involve business improvement districts (BIDs), which raise funds through assessments against property owners, but exactions in development agreements, negotiated development contributions, quasi-public special districts, and tax increment financing (TIF) have all been used to support transit.
  • The relationship of the public transit agency to the endeavor may be one in which the public agency is completely uninvolved, is providing the service, or is collaborating with marketing and schedule linkages.
  • The type of services provided are typically circulators in business or commercial districts, or extenders of other fixed-route service (light-rail or commuter lines). Business participation also may serve to enhance service into late hours or on weekends.

Business and Transit: Evolving Approaches State and local circumstances, political history, and individual agency and business leadership have all shaped the form of business investment in transit services. Individual community approaches to growth management and urban revitalization have given rise to unique amalgams of business leadership and investment in transit-operating innovations. Examples across the nation include direct exactions of transit subsidies as part of development agreements, formal contribution agreements with individual private parties, quasi-public metropolitan districts formed to provide infrastructure and services to developing areas, and TIF supporting transit along with many other urban revitalization initiatives.

BIDs, which figure prominently in a survey of business and transit collaboration, are a kind of cooperative capitalism, a system through which the private sector operating in a geographic area with common needs and opportunities can improve its economic condition by investing. The principal features of BIDs are especially appropriate to special transit requirements. First, BIDs operate on a multiyear basis that supports advance planning and contract commitments. Second, BIDs are principally financed through a compulsory assessment on real property-a system that makes freeloading impossible. Third, assessments are calculated on a benefit basis. All whose properties are determined to benefit from the BID service or improvement pay (and no others pay). Fourth, BIDs are business planned and business led; those who are assessed dominate the boards of directors. Inherent in the BID power structure is a common desire for return on investment. Moreover, a transit project that is not paying off in terms of delivering customers at satisfactory levels will not receive BID funding for long.

A pioneering step toward direct financial participation in specific transit lines was Denver, Colorado’s 16th Street Transitway Mall, which since 1982 has been maintained by assessments on property. The original 16th Street Mall Management District, which assessed property owners on the basis of proximity to the mall, was superseded in 1992 by a BID. Many of the features of that partnership were replicated and modified in contemporary descendants, and the now-expanded and improved Denver transit mall is considered a flagship feature of a prosperous and growing downtown Denver.

Changing Federal Influences

The most common type of business involvement in transit has been commuter benefit programs wherein employers encourage their employees to use transit by subsidizing transit passes. Many of these local or regional programs were developed as a result of the Clean Air Act of 1990, which required areas that did not attain a specific level of air quality to develop employee trip reduction programs (ETRPs). While no longer mandatory, ETRPs still are often the foundation for local government, transit agencies, and employers to develop and sustain initiatives focused on air quality concerns.

The proliferation of transportation management associations (TMAs) was another important step in the evolution of business involvement in transportation issues. First formed during the 1980s in suburban areas, TMAs were seen as public/private partnerships in which businesses and other employers could be directly involved in a wide range of transportation issues affecting the community (e.g., traffic management planning, congestion mitigation, transit improvements, and trip reduction programs). Early TMAs were touted as the place where business and employers could be directly involved, and participate in developing strategies to address regional transportation issues. Over time, TMA roles have become specific to the needs and circumstances of their loea tion, in many eases taking on direct operating responsibilities for trip-reduction programs and services. In downtowns, business entities such as BIDs have been certified and funded as the TMA for their geographic area, offering unique opportunities for blending business perspective and transportation planning.

On the funding front, successive federal transportation laws have substantially broadened the activities fundable with federal dollars and added ingredients to the mix as business leaders initiate transit improvements. In 1991, the Intermodal Surface Transportation Efficiency Act (ISTEA), renewed in 1998 through the Transportation Equity Act for the 21st Century (TEA-21), authorized the Congestion Mitigation Air Quality (CMAQ) Program, which offers broad, flexible funding for a wide range of projects. With CMAQ available to fund environmentally friendly vehicles, and operating subsidy grants for specialized routes, transit agencies and funding local governments have had financial wherewithal to partner with businesses willing to contribute money toward the cost of expanded services.

American Transit Realities

Against this backdrop of increased flexibility of funding and broader business participation, public transit agencies continue to confront the realities of a subsidy-dependent public enterprise that cannot “make it up in volume” by expanding service. Faced with farebox recovery ratios between 30 and 70 percent, transit agencies must look very carefully at every proposal for expanded service, since state and federal subsidies are fixed annually and growing very slowly compared with operating inflation. Many transit agencies evaluate enhanced service proposals against published criteria, and must maintain general equity in decision making for service expansions. A decision to extend hours for one line, or begin a new route, must be evaluated against all the requests for service facing the agency.

In Charlotte, North Carolina, for example, the Charlotte Area Transit System (CATS) does not start new service without a promising market analysis, and regards all new service as demonstrations that mllst meet ridership projections to be continued beyond an evaluation period and be made a permanent part of the system. According to those standards, CATS policies may require a financial contribution from the business community for up to 100 percent of a marginaJ operating cost for new shuttle service in employment areas. A bus service linking two employment centers is 100 percent subsidized by Wachovia Bank: its employees ride for free, and the general public pays an express fare.

In effect, the financial participation of business, often matched with CMAQ funding for special-purpose vehicles and operating costs, improves the cost-benefit evaluation of proposed service if it is to be provided by a public agency. Alternatively, the funding may make it possible to provide the service directly rather than through the transit agency. Even in the latter situation, case studies suggest that successful service practices include linking to existing transit services through schedule coordination, joint marketing, and fare reciprocity.

Business Changing the Equation for Transit Improvements

Experiences in Tampa, Florida, and Washington, D.C., illustrate the dilemma faced by transit agencies and the role businesses may play in bringing service to an area that the private sector believes essential to economic growth.

The Hillsborough Area Regional Transit (HART) agency serving Tampa had operated a downtown troUey-style circulator bus as part of its regular system since 1998. The troUey,linking hotels, the convention center, the downtown transit center, and new streetcar lines, was so successful that downtown businesses wanted to see extensions to a local retail area (Hyde Park). HART extended the service to Hyde Park, but on a limited schedule. The service was expanded to longer hours only after it created a package of external funding, and the extended hours, costing $200,000, are being covered by the city of Tampa and by private businesses (hotels, destinations, and the Tampa Downtown Partnership). Naming rights will also be sold for additional support.

In another section of Hillsborough County, local officials and the developer of a mixed-use village wanted a weekend circulator that would link the new neighborhood to local retail establishments. The circulator, which will come on line when the development opens next year, will be paid for in its entirety by developers and through the sale of naming rights. In the meantime, a Channelside Hooters/Express begun in January 2004 links the business district with Channelside restaurants, paid for entirely by Hooters. “Hillsborough County is very large, and like every other transit agency money is tight. [f we consider any new service from our own operating funds, we have many competing areas of need that must be considered as well,” notes Toni Short, who designs special services for the transit agency.

Because of the competing demands it faced, the Washington Metropolitan Area Transit Authority (WMATA) in the District of Columbia could not respond to the needs of businesses in Georgetown for late-night and off-peak service. The popular commercial area, unserved by the Metrorail subway, has 17,000 jobs and only 3,600 commercial parking spaces. The Georgetown Partnership BID, estimating the cost of expanded bus links to Metro at $1.8 million per year, secured a federal grant and split the remaining cost between the businesses and passengers. Arlington County, Virginia, has contributed $100,000. Two routes link Georgetown with the Dupont Circle, Rosslyn (Virginia), and Foggy Bottom Metro stations. With fares at $1, or 35 cents with a Metrorail transfer, ridership on the Georgetown Metro Connection has climbed rapidly, requiring increases in vehicles from six to ten. The partnership is evaluating this service over a three to five-year horizon. “If we could turn this over to a public agency [at that point] and it could maintain the same level of service, we would welcome that discussion,” Ken Gray, executive director of the Georgetown Partnership, told to the Washington Post early last year.

Business Leadership Helping to Align Resources

Transportation management associations and business improvement district leadership often serve similar roles in getting diverse stakeholders to think about area needs. Indeed. In a number of cities, BIDs have formally assumed a TMA’s function. In downtown areas, the somewhat nonintuitive task may be to consider the circulation needs of an area already well served by transit. Businesses may be the first to recognize that transit works for journeys in and out, but inadequately for internal circulation that promotes shopping, dining, and residential choices. The absence of good circulator capacity may have already led employers, hotels, and other entities to launch numerous shuttle services, which may be highly inefficient and fail to provide good general circulation.

Atlanta and Washington, D.C., provide examples of where multiple interests already have spent a lot for limited-purpose shuttles (such as those transporting employees between offices and remote parking lots) without achieving strong area mobility for the general public.

In Washington, Rich Bradley, executive director of the Downtown D.C. BID started with the notion of a simple downtown circulator, to make access to retail shops easier from the Mall and employment centers in the downtown. Now, converging forces have significantly enlarged the perceived need, the scope of service, the community of stakeholders, and the overall complexity of the undertaking.

“The downtown has become a real city;’ says Bradley, “not just a government office park. The new convention center and hotel, together with reuse of the old site and $5 billion in new development on the horizon, have produced widespread awareness of the congestion and access problems looming if we don’t think hard and strategically about what the District will need:’ Today, 26 government agencies have shuttle buses for different locations; hotel tour buses are a growing source of congestion.

“Many parties have a stake in this: the city, Metro, the federal government, museums, hotels, and businesses. We need to look at this as a collaboration with shared objectives and responsibilities, and be respectful of competing needs and priorities,” adds Bradley.

As a result, the Downtown D.C. BID, which originally envisioned a relatively simple circulator partially subsidized by BID members, now participates as a partner with the District government, WMATA, the National Capital Area Planning Commission, the Council of Governments, the General Services Administration, and others in promoting a new surface transportation system linking downtown, the U.S. Capitol, the National Mall, and Union Station. The closure of Pennsylvania Avenue in front of the White House has added to circulation problems, but may also bring new federal commitments to the solutions.

In this instance, the promotion of a circulator by a BID has turned into a broader effort to address diverse circulation and congestion issues. An assessment of existing conditions and needs released in mid-2003 forms the basis for the service proposal expected to he launched in late 2004 or early 2005.

In downtown Atlanta, Central Atlanta Progress (CAP) then director Rick Rhinehard began with an assessment of all the current shuttle operations there, and discovered that the downtown was crisscrossed by over a dozen shuttles sponsored by private businesses, universities and other schools, corporations, medical facilities, and hotels and other tourism entities. Those interviewed by CAP all expressed interest in a rationalization of the current circulator arrangements. The BID expects to playa leadership role in convening stakeholders to determine the feasibility of a new arrangement. In suburban Atlanta, four community improvement districts have pooled $1.65 million to advocate for public transit in an area dominated by automobiles but awaiting major decisions on development of major transit lines.

If the assessment of need by business leadership is against the backdrop of existing service, so too may be the prospects for success. In Philadelphia, the University City BID launched Loop around University City (LUCY) in 1999 with the support of its member institutions. Ridership climbed steadily; but the long-term business plan anticipated that the participating institutions would gradually scale back their own shuttle services, thus making continuing financial participation in a consolidated service fiscally palatable. That has not happened, however, and while LUCY continues to be a popular service among students, employees, staff, and visitors, financial withdrawal by member organizations is a continuing concern.

Business Leads to Product Improvement

The Philadelphia region offers illustrative history in the evolution of business involvement. During the late 1980s, the Southeastern Pennsylvania Transportation Authority (SEPTA) pioneered “rubber-tire extensions” of its extensive commuter rail service, frequently requiring local public or private sector guarantees against operating losses. But rail service was generally too infrequent, and not close enough to new office parks to sustain viable service. City-size buses were expensive to operate, unpopular in many communities, and inconvenient for customers because they often could not get to front-door locations. Many of the new jobs were among groups unfamiliar with commuter rail, so rider recruitment was doubly difficult. The commuter rail bus extensions eroded steadily.

In the mid-1990s, SEPTA planners worked with suburban employers and county officials to revamp the suburban extenders. New routes were designed to connect with more frequent bus service, and smaller buses and a concomitant lower wage scale reduced costs. Employers, recognizing the value of access for employees, joined with local governments in guaranteeing any costs above the farebox recovery ratio experienced on the balance of the transit lines. Ridership on one of the most popular lines was so strong that no business subsidy has been paid for peak service, but office park owners are paying two-thirds of operating losses (or approximately $60,000 a year) to continue late evening and Saturday service.

“SEPTA went from a supply model, extending its commuter lines without much success, to a demand model, listening to employers describe what they needed and were prepared to buy:’ says John McGee, head of marketing development for the transit agency. “Not only has employer financial support continued, as new office parks have come on line, but also developers have been careful to design them for efficient front-door access by transit vehicles.”

But suburban businesses have not discounted the importance of the commuter rail system. As in many other cities, a veritable fleet of private vans meet trains arriving and departing from Paoli station on SEPTXs “Mainline” every day. These vans, plus five SEPTA bus lines connecting there, have turned the station at the historic western end of the Mainline into a transportation hub.

Charlotte’s Gold Rush circulator service began as a private, building-to-building service run by Bank of America for its employees. In 2001, the transit agency (CATS) joined forces with the business improvement district (Charlotte Center City Partners) to take the service “public:’ Patrons of the downtown service report satisfaction with it. Bank of America, which still contributes a significant portion of the business subsidy of $652,000 a year, has been relieved of direct management of a transit service; and CATS is able to integrate the service into its web of transit lines. In September 2003, the Gold Rush celebrated “Two Years, Two Million Riders” when it reached its million-riders-a-year projection, reports Moira Quinn, COO for Charlotte Center City Partners.

Orlando’s Lymmo service is a third-generation effort to provide an appealing transit service within the city’s downtown that is connected to a peripheral parking garage, opened in 1982. Parking revenues originally funded a free trolley service and later a free bus service, but public acceptance has only arrived with Lymmo, which opened in 1997. Lymmo, operated by the LYNX, the Central Florida Regional Transportation Authority, runs on a three-mile dedicated transitway using low-floor vehicles favored by a public less accustomed to traditional buses, explains Daisy Stanjskis. assistant director of the Orlando Downtown Development Board. Operating costs are jointly covered by parking garage revenues and revenues from a tax increment financing (TIF) trust fund established within the Community Redevelopment Agency. Maintenance of the transitway is also supported by the TIF trust fund, while an assessment on property taxes for the downtown development board funds planning and promotion for downtown. using Lymmo accessibility as a marketing feature.

Mandatory Transit Investment

Predevelopment recognition of traffic impacts and need for mitigation commonly lead to road and parking improvements. but congestion and air quality concerns have also resulted in non-voluntary business support of transit.

In Santa Monica, the California Coastal Commission requires hotel developers to contribute money toward public transit shuttle service. The public transit agency, Big Blue Bus, receives about 40 percent of the cost of operating a two-mile electric bus shuttle linking the Third Street Promenade, the beach, downtown, and Civic Center arenas. The $190,000 is negotiated through developer agreements, and is heavily promoted by Big Blue Bus and the hospitality industry.

Eight miles south of Denver, Colorado, a far more expansive public/private partnership was formed through developer exactions in the mid-1990s. The Denver Tech Center, a cluster of independent office parks currently huusing 85,000 jobs, presented major infrastructure challenges. One of the conditions of development and zoning required business support of a free circulator bus when traffic turning movements reached a certain level The result was the Denver LINK, which began service in 1999. The city of Greenwood Village and three metropolitan districts formed the Southeast Transportation Authority to operate LINK. These self-taxing districts, approved by voters but governed by a board that determines the type and level of service, paid all cost for LINK initially.

While LINK originally had no connection with the public regional transit district (RTD), that is changing dramatically. Recognizing that LINK encourages overall transit ridership, RTD now bears 30 percent of operating costs and a CMAQ grant covers another 20 percent. Ridership on LINK has climbed steadily to over 1,000 a day and it is expected to triple or quadruple when a new light-rail tine opens in 2006 and reconfigured LINK routes feed the light-rail stations. “The financial balance among the parties will shift as ridership soars to support light rail;’ notes Suzanne O’Neill, manager of LINK, “but the village of Greenwood and the three metropolitan districts are committed to the circulator for the long term.”

Opportunities for Innovation

The small scale of business-led transit services has enabled innovation in technology and marketing. Many of the services subsidized by business partnerships use smaller, electric, or natural gas vehicles, often funded in part by CMAQ grants. In New York and South Beach, the local electric utility companies have participated in capital costs. The Santa Monica “TIDE” is cosponsored by a utility spin-off developing electric vehicle recharging infrastructure. Colorful paint schemes, themed marketing, and low or free fares are all common features.  Recognizing that many potential riders are wary of transit. services are designed to provide service to front doors instead of to street-side bus stops. City Avenue Special Services District in Philadelphia introduced GPS technology and Web-based access to real-time vehicle schedules. “Nextbus.com tracks signals as buses move over the route, beaming estimated arrival times to selected bus stops, and to a Web site;’ explains David Cohen, head of the City Avenue Special Services District. Despite steady ridership increases funding shortfalls in the third year forced closure of CART. Orlando’s Lymrno stations have similar GPS-driven notices that keep riders informed of wait times for the colorful, compressed natural gas, low-floor vehicles.

Lessons Learned

Highly local circumstances generally give rise to private sector participation in transit, but several elements are commonly cited. The journey to work is a major reason why businesses often advocate for and sometimes finance transit. Shortages of skilled or unskilled labor are major considerations in whether downtowns or decentralized employment centers rise or fall during tight employment periods. Moving customers from residential centers to shopping, or within shopping districts, is another objective. Benefits include generating foot traffic and lessening parking demand, or releasing land required for parking to be better used for development. For customers, transit tailored to their needs and time preferences can reduce the inconvenience of traffic congestion, thereby easing the total shopping experience. Supplemental transit can also serve recreation centers, an off-peak benefit in situations where origins andlor destinations are concentrated. Some businesses are compelled by local land use approval requirements to contribute to transit, helping localities reduce congestion and mitigate air quality problems.

Business-sponsored transit produces diverse types of service and sponsorship. At the least costly form, businesspeople and/or their representatives simply advocate for provision of transit in a given location and make the case of benefit to the local economy. However, they make no commitments to share the resulting costs. This is probably the most common example. A one-time cost to business and/or property owners occurs when businesses or their representatives agree to finance either in whole or in part physical or operational planning.

Commitments to multiyear funding may involve maintenance or a transit right-of-way, or an agreement to share operating costs or to take on the entire burden of operation beyond any governmental contribution.

Sponsorship may come in the form of a single business such as a shopping center or business park where a common area maintenance (CAM) charge may provide a way to raise funds. A business association may resort to voluntary fundraising, which, experience shows, becomes more difficult with each passing year. BIDs represent a proven method to overcome the freeloader problem common in voluntary systems and to ensure multiyear funding.

The growth of business-supported transit reflects two important trends in metropolitan development. The first is the continued decentralization of employment, often to locations far from needed employees. Retention of workforce, and requirements to mitigate traffic congestion caused by growth, may drive business interest in transit. The second trend is the economic revitalization of urban centers where increasing traffic congestion coincides with visitors’ and employees’ increasing need to access convention centers, hotels, office towers, shopping, dining, entertainment, and transit nodes. Regardless of the actual route design or the structure of financial participation, the private sector’s investment in supplementary transportation reflects economic self-interest.

The Bottom Line

Businesses invest in the belief that the economic benefit will exceed the cost. New transit extensions, particularly circulators, have something in common with pedestrian malls. They have often been looked upon as tools to enhance flagging downtown shopping business, but rarely do. Ridership fails to materialize, and willingness to underwrite subsidies evaporates. On the other hand, if an urban district is taking off, a transit investment added to the mix may be an important ingredient in spurring growth and reducing the congestion and parking pressures that may otherwise strangle growth. At the tip of Manhattan, Carl Weisbrod’s Downtown New York Alliance has launched a noteworthy example of business investment in transit. In an area rich in transit services-to get in and get out-“we believe that the future growth and vitality of the neighborhood requires mobility within … for employees, residents, tourists, shoppers, and visitors,” explains Weisbrod. State-of-the-art electric loop buses-free to riders, with all operating costs borne by Alliance members-are expected to provide lower Manhattan with connectivity within the district to reflect the increasingly diverse residential and commercial character of the area. Operating costs will run into the high six figures, and capital costs will be shared among transportation agencies and the New York power authority. “Business interests see this increased mobility as an economic tool playing up assets, the growing retail and hospitality choices, and the waterfront,” he notes.

But how will success be measured? “We are confident of ridership, given the 500,000 rides each year on a commuter connection bus we’ve been operating for several years,” says Weisbrod. “But the real test will be the results–does it help retailers, the hospitality industry, and employees … will it be an engine of growth?”

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