If the $50 billion 2014 Winter Olympics in Sochi, Russia, have raised the specter of runaway public spending on infrastructure, Vancouver, Canada, offers an alternative.
One of the legacies of the Olympic Games held here four years ago is a light-rail line that has become something of an international model in transit circles. The sleek Canada Line runs from the suburb of Richmond, British Columbia, into the heart of Vancouver, with a spur to the airport. Since it opened in 2009, it has picked up more riders than expected—112,000 per day, or about 40 million per year. The Canada Line also has come with costs that are predictable, thanks to the innovative financing scheme that built it and continues to sustain it today.
The Canada Line was the first transit project in North America to use a public/private partnership, or “P3,” in almost every way these partnerships are possible. A private firm was responsible for designing, building, and partially financing the 19-kilometer (12 mile) line. The firm also is responsible for maintaining the infrastructure and operating the service until 2040.
It is not uncommon for private companies to take some mix of those five jobs in projects such as toll roads, hospitals, and jails. But to assign all five of them to a private contractor in the context of a transit project was unusual. Today, light-rail projects In Edmonton, Alberta; Denver, Colorado; and the Maryland suburbs of Washington, D.C., are moving ahead with Vancouver as their model.
The decision to build the Canada Line in this way was controversial. Critics—especially unions—said it was a form of privatization that delivered no real benefits, financial or otherwise, to the public. Many others pooh-poohed the projections of 100,000 riders a day, saying those rosy forecasts rarely came to fruition. Local politicians balked twice at approving the line before finally managing to get a yes vote through.
Four-plus years after railcars began to roll, most of those fears have melted away. To riders, the Canada Line is seamlessly linked to Vancouver’s other two SkyTrain metro lines run by the regional government agency TransLink. Passes and tickets are good on any line. The trains are driverless and automated, like the other SkyTrain lines. The only visible difference is the Canada Line’s cars are bigger and configured differently inside than those on the other SkyTrain lines. And Canada Line staff wear distinctive green-and-blue jackets not seen elsewhere in the system.
Few people seem to recognize that the Canada Line is operated by a private company, and even fewer seem to care. There have been some glitches, especially during construction. But by and large, the Canada Line has succeeded at demonstrating a new way for cash-strapped cities to add to their transit networks.
How It’s Structured
As is often the case in P3 deals, the private sector partner on the Canada Line is a consortium made up of many parties. The partners are SNC-Lavalin (a Montréal-based engineering and construction company), the Caisse de Dépôt et Placement du Québec (a credit union), and British Columbia Investment Management Corporation (which manages billions in British Columbia pensions). Their consortium is called InTransitBC. A subcontractor called Protrans BC (a subsidiary of SNC-Lavalin) handles ongoing maintenance and keeping the trains running on time.
InTransitBC invested C$720 million (about US$670 million) in the deal. That is 40 percent of the project’s total price tag of C$2.05 billion (US$1.87 billion). The rest of the money came from the federal, provincial, and municipal governments, as well as TransLink and the Vancouver Airport Authority. In exchange for InTransitBC’s upfront investment, TransLink pays the consortium mortgage-type payments to cover the debt repayment along with money for operations and maintenance. Last year, that payment amounted to $104 million. It goes up slightly each year.
Those payments are calculated based on InTransitBC’s meeting certain service performance goals. For example, 70 percent of the payment is based on successfully running about 40 trains per hour. Another 20 percent of the payment is based on maintaining general repair and cleanliness. So far, InTransit BC has hit all of its performance targets.
Service also gets good ratings from its closest observers—transit riders. In independent customer surveys, the Canada Line consistently rates higher than the other SkyTrain lines on all kinds of measures: frequency of service, feeling safe from crime, absence of graffiti and litter, and reliability. The only area it did worse was in the courteousness of staff. And although more than 50 percent of riders complained about overcrowding, that was true for the other lines as well.
When asked how Vancouver’s experience has been with the Canada Line, Doug Allen, CEO of InTransitBC, says those performance metrics are what matters. “If you’re meeting all of your targets from an operational perspective, and you’re meeting the public’s need based on their response, that’s success,” Allen says.
Risk and Reward
In the P3 model, TransLink transfers not only responsibilities to InTransitBC, but also risk. There are risks involved at every step of a rail project. A design flaw can later cause cost overruns or delays at the construction phase. A construction flaw can later create difficulties with maintenance or operation. Traditionally in Canada, the public sector has owned all of those risks. Authorities were stuck with whatever system they got, often at a higher cost than expected.
On the Canada Line, however, the private sector owns most of those risks. InTransitBC designed, built, operates, and maintains the system. So there is no one else to blame if problems occur. Matti Siemiatycki, a University of Toronto professor of geography and planning, says this is something Vancouver got right. Siemiatycki has assessed a wide range of Canadian P3s, including the Canada Line. “One of the things they did really astutely is the type of risks they transferred,” Siemiatycki says.
One risk TransLink didn’t transfer was ridership risk. InTransitBC is not penalized much if ridership falls or doesn’t rise as much as expected. So the operator doesn’t exert pressure on TransLink to get routes or schedules changed in order to meet ridership goals. “It means the line is extremely well integrated into the system,” Siemiatycki says.
Another key point: While InTransit BC effectively controls the Canada Line until 2040, the public sector retains ownership of the asset
None of this was easy to negotiate. The woman who orchestrated the setup of the project for TransLink, lawyer Jane Bird, says it’s a tough job for the public sector to figure out what exactly to demand of the private partner. And it requires thinking about projects differently.
“Governments spend most of their life specifying,” says Bird, who is now overseeing the renovation of Canada’s diplomatic mission in London. “All of the engineering profession is trained and culturally attuned to that, saying the chair should be green and it should be this high and it should have four legs.” Instead, in a P3, government officials need to think about what they want to achieve, and leave it to the private company to figure out how to get there.
“What Are We Really Trying to Accomplish?”
For the Canada Line, Bird recalls that the government partners set out to specify details such as how many luggage racks there should be on each train. But InTransitBC’s designers pushed back. They argued that passengers don’t like luggage racks because they want to be close to their bags. So the trains were designed with cantilevered seats for under-seat bag storage, as well as large open spaces where riders can stand next to their luggage.
“It takes more time than it would appear at first blush to figure out what the goal is,” Bird says. “What are we really trying to accomplish?”
One regret that Bird has relates to communications during the construction phase of the project. To build a downtown tunnel, one innovation that InTransitBC came up with was to use the “cut and cover” method of construction, rather than boring the whole line. It saved hundreds of millions of dollars.
But it also caused huge public outrage. Only after the bid was announced did the public become aware of the trench that would temporarily snarl city traffic. Anger over construction spurred public protests and lawsuits from businesses. Many people turned against the project, at least during the construction phase.
In retrospect, says Bird, “I would have spent more time talking to the public and elected officials about how innovation works. There were all sorts of good public reasons to do [cut and cover].”
One thing about the construction nobody complained about: It went faster than expected. The Canada Line opened three months ahead of schedule.
Value for Money?
Some debate remains about whether any of this saves money. The P3 structure was sold as a way to save taxpayer dollars in the long run, offering what the industry calls “value for money.” But those calculations are complex and based on debatable assumptions.
Before the project was built, a TransLink subsidiary determined that the public would save C$92 million (US$84 million) overall, compared with the cost of doing the project the traditional way. That assessment, however, is based on assigning $260 million to all those risks InTransitBc was assigned—risks that may or may not actually cost the company real money. Take that risk premium away, and traditional construction penciled out $141 million cheaper.
Siemiatycki notes that P3s often appear on paper to be a better value because of these risk premiums. But he says there often are “no publicly available data to determine whether such large premiums are empirically warranted.” After reviewing “value for money” reports from Vancouver and other Canadian P3s, Siemiatycki concluded that P3s “are an expensive way of delivering infrastructure.” Then again, cost overruns often made traditional projects expensive, too.
It will take many more years to draw a definitive conclusion on the Canada Line. Four years in, it is largely viewed as a success by most experts who’ve looked at it as well as the people who ride it every day. But the stations are still new, the escalators to the platforms are still young, and the train cars still have their gleam—and 2040 is a long time away.