Hong Kong's formula for transit that makes money

In Seattle and other cities, transit is struggling for funding. In Hong Kong, the system is allowed to develop some property near stations, so it is flush with profits to plow into the rail lines. Also: a Koolhaas connection.

Transit in Hong Kong: on the right track.

Transit in Hong Kong: on the right track.

There is really no denying that transportation makes money. Just consider the huge shopping malls perched around interstate off-ramps, the office parks positioned close to airports, the skyscrapers next to subway stations. But transportation itself is usually a money loser. We pour billions of public dollars into highways, airports and transit systems, while others, the home builders, the department store mavens, make the money that comes slows from those public investments.

Hong Kong’s metro system, MTR, has changed this equation, and that is why it’s worth looking at.

If you are ever lucky enough to visit Hong Kong, which is Manhattan-like with its narrow streets lined with high rises, you will see that the MTR’s services are excellent. You may ride the gleaming new high-speed rail line from the new airport that takes you into the new central rail station. Or one of the nine rail and subway lines, including the special train that goes to Disneyland Hong Kong.

What’s amazing about the agency that runs these lines, MTR, is that it actually makes money. So much money that it’s listed on the stock exchange, although the government still owns a majority share. The Hong Kong’s metro system has been in the news in the New York city region because the chief of New York City’s transit agency, the Metropolitan Transportation Authority, shocked the region by announcing his departure to lead Hong Kong’s system for a million-dollar plus annual salary. He left at a particularly bad time, breaking a seven-year contract just as the MTA was facing yet another round of funding gaps and necessary cuts.

Given the perennial money-losing nature of most transportation departments, from highways to rail, it bears asking: how does Hong Kong do it?

The answer is that Hong Kong’s MTR doesn’t let private developers be the only ones that perch lucratively next to its stations. It builds its own homes, offices, and stores. In short, MTR acts as a real estate developer and business company, as well as a train operator. It owns, among other things, 12 shopping malls built around its stations. These properties and businesses produce substantial cash, which keep the transit agency as a whole in the black.

Hong Kong’s MTR is unusual in also actually making money from its fares as well. How it can do this relates in part the uniqueness of running trains on an intense few strips of land filled with development. But for our purposes it’s worth looking at its actions as a developer, and that as a model for transportation agencies and departments in this country.

By many standards, MTR is an unusual company. The MTR only began service in 1979. But once cash was flowing (through development around stations), the government “graduated” MTR to become a private company, still majority-owned by government, so that it could raise funding through capital markets and more nimbly enter into joint ventures with private investors.

In 2000, the Hong Kong government converted the public MTRC into the private MTR Corporation Limited (MTRCL), although the government maintains a majority stake. Shares are traded on the Hong Kong stock exchange. Wikipedia reports that MTR also invests in railways in different parts in the world, and has obtained contracts to operate rapid-transit systems in London, Stockholm, Beijing, Shenzhen, and Melbourne.

[Editor's insert: Recently, Rem Koolhaas, the designer of the Seattle downtown Library, won a contract to do an overhaul of the MTRC design strategy and branding, as well as to design two new transit stations as prototypes. According to one article, "OMA’s design for the two stations will ... include a rethinking of all the elements of a station: its engagement with the street level, its connections, concourses, and platforms, station furniture, circulation and way-finding, and MTR’s visual identity." Koolhaas has an office in Hong Kong and is also working on a culture project in West Kowloon.]


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Comments:

Posted Sun, Aug 7, 6:46 a.m. Inappropriate

Right, let's make our model a repressive Communist dictatorship that forces the relocation of millions of people off their land and into concrete silos just so they can have a workable "transit" system.

I'm sure this is the thinking behind all Seattle Liberals.

jabailo

Posted Sun, Aug 7, 7:50 a.m. Inappropriate

The idea is not unprecedented in the U.S. (and a model long-advocated by conservatives here): the rail companies in the 19th century also made a killing on the land rights astride the actual rail they laid.

smacgry

Posted Sun, Aug 7, 8:04 a.m. Inappropriate


Sound Transit owns properties around its stations. It just sold one off adjacent to the Mt. Baker station so a subsidized condo building for artists could be built. It will sell Seattle Central Community College some property next to the Capitol Hill station, for community college purposes.

This piece reinforces how building rail these days makes sense ONLY in really dense cities. Sound Transit’s heavy regressive taxing scheme to build rail in our lightly-populated neck of the woods is a staggeringly-expensive folly.

The author writes: “Given the perennial money-losing nature of most transportation departments, from highways to rail, it bears asking: how does Hong Kong do it?” What “bears asking” around here are the questions that nobody likes asking – how does transit around here “do it”? The answers to that are ugly.

Unlike any of their peers the bus and train services providers here impose crushingly-heavy regressive taxes. The details are disgusting. Taxes targeting individuals and families in the name of transit are very high. Metro obtained (mostly sales tax) tax increases in 1980, 1993, 2001, and 2006. Sound Transit obtained very high sales tax powers twice recently. All of those tax hikes were designed to target individuals (for the most part).

Metro, the transit governments in Pierce and Snohomish counties, and Sound Transit will confiscate something on the order of $1.3 billion in local tax revenue this year alone. All the peers do a great job of providing bus service, and expanding train systems, with far less annual local tax revenue:

- TriMet (Portland) - $233 million;

- DART (Dallas/Fort Worth) - $385 million;

- San Diego Metropolitan Transit System - $100 million; and

- RTID (Denver) - $241 million.

There is no excuse for taxing in the name of transit here to be many times higher than in the peer metro areas.

Not only are dedicated transit taxes too high here, they are the wrong kinds of taxes. The 1.8% sales tax for buses and trains, plus existing car tab taxes and Metro’s property tax, are designed to target people. That’s exactly what we don’t need now. Those regressive taxes act as an anchor on consumer spending, and it is consumer spending that pulls areas out of recessions. We’ve got the most regressive tax scheme in the country here and that’s in large part due to what is done in the name of “buses and trains”.

In the Twin Cities they got a new light rail system from downtown to the airport (with a tunnel) in the mid-2000’s. There was NO new local taxing for that. About the same population is served (2.8 million) but look how no long-term bonding and no new taxing was used there for light rail:

http://www.metrotransit.org/facts-about-trains-and-construction.aspx

The new local taxing associated with ST2 will be about $85 billion over the next forty years, as required by the terms of Sound Transit bond sales contracts. That’s a terrible way to finance trains and buses – no other government leaders do that to their communities. Punishing people financially is the name of the game here though.

TriMet serves three counties around Portland. It only needs about $230 million in local taxing each year to provide expanding bus and rail systems and services to roughly the same population as the Sound Transit taxing area. The TriMet financing plan imposes taxes on businesses directly. The average family there pays $0 in direct taxes for transit each year. The way it was designed here though is nasty: Sound Transit and Metro taxes cost the average family of four here $455 every year, and that amount is set to increase for decades.

Want to elect smarter, more frugal individuals onto Sound Transit’s board to get better results out of that government? Tough nuts. It was designed to be entirely unaccountable to people. That means its treatment of the public – especially in a financial sense – will deteriorate.

crossrip

Posted Mon, Aug 8, 2:08 p.m. Inappropriate

The issue is "Eminent domain." As long as a transit agency can just condemn land, and build a shopping center or whatever it's hardly fair to the original land owner to have their property taken at the value of whatever it was before the rail station was installed and then that same agency increase the value of it via the station.

Of course one could argue that public dollars are subsidizing private ownership of that same land and thus we should as taxpaying owners of that system benefit from the increased value and not the previous owner.

Either way leads to host of unintended consequences.

As far as taxing business, Washington has already a weird system in place. Taxing gross revenue makes it really hard to start a business because as soon as some of the cash rolls in, you get taxed on it, no matter how much upfront investments you had to spend to get that first dollar. And generally businesses pass the cost of doing business along to their customers. So it's not exactly a free ride for "people" either.

Crossrip, the key is the bonding. Once the ruling that bonds are some how involate contracts all the agencies issued them as soon as the project was approved to keep people from running any sort of referendum to repeal the project. Also I totally agree with you, the ST board is accountable to no one.

GaryP

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