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Priming The Pump

©2004, 2016 Get On Board!PRT

If Personal Rapid Transit was designed according to least-cost principles, with low construction cost & operating costs, and high convenience that all add up to profitable operation, why do most PRT strategies involve public investment?

• ULTra: European Union, UK DETR, Welsh Assembly
• Skyweb Express: proposals for state bonding & tax exemptions
• Raytheon: Illinois Regional Transportation Agency
• Morgantown: US DoT Urban Mass Transit Administration

Endorsements of PRT, such as in government long term planning documents and vision statements of transportation-focused NGOs, often contain provisos requiring private funding or operating partners for a future PRT system.

This is often a fair requirement. In SeaTac, Washington, the area once designated for a PRT network was primarily commercial, not residential. Direct public funding may not be entirely appropriate in such a case (although it is not clear how such a PRT system would be philosophically different from publicly-funded stadiums, convention centers and department stores that might be funded by taxes, bonds or federal redevelopment grants).

PRT critics take it a step further. Public money, they say, should be reserved for "proven" transit technologies. There seem to be two justifications for this, first that public investment in new technology is unnecessarily risky or wasteful, and second that there is a scarcity of funds for the transit we already have. A corollary of the latter is that there are "more vital" services needing funding, such as schools. Let's examine these objections, briefly.

"Proven": There is great affinity for transit, which is often seen as an iconic community symbol. Seattle's Alweg monorail and San Francisco's cable cars are two examples. It is easy to see, then, the "proven" requirement as a public endorsement of the validity or worthiness of those systems—almost as though they were living, breathing contributors to civic life.
       They do have value, in that they provide a measure of mobility to the public as well as local color. But there is also a temptation to mistakenly view the "proven" attribute as meaning that current transit cannot be improved upon, that it will forever be state of the art.
       In fact, the main reason we reserve tax dollars for "proven" transit is that they are "proven" to be unable to operate without subsidies (roughly 20-60% in the U.S., depending on mode, tends to be covered by fares). In Seattle, fares cover 19% of Metro Transit's operating expenses (2003); Sound Transit loses $95 everytime a ticket is sold for a Sounder commuter train (2004).

"Scarcity": Scarcity and underfunding implies a state of full funding can be reached, which implies a program providing full service, whatever that is. But government spent $31.8 billion on transit in 2004, roughly $108 per capita. Whether transit is underfunded is not the question: if it got more funding, it could provide more service. Current bus and train ridership is about 8.7 billion trips annually (2002), roughly $3.70 in cost per trip. What benefits would be brought by another 1% ($319M) in funding? 1% more trips (87 million per year, or 238,000 per day nationally)? The real question is whether any amount would ever constitute full funding, and whether full service could ever be met with conventional technologies.

"More vital": Society has many priorities. Schools, health care, public safety and environmental protection are just a few of our many vital needs. But mobility is a vital public need too. Through our political system we rank our needs and allocate spending accordingly, and innovation in transit is a need as well. To deny it any funding whatsoever would mean transit innovation is completely off the national priorities list. Meanwhile, we still have upper class tax cuts, mega-defense contracts, tobacco subsidies, foreign credit financing and other expenditures that benefit only an economic elite.
       The reality is that PRT has received no U.S. public funding for construction or testing since the Illinois RTA participated in the Raytheon project in the 1990s, and that was the first since UMTA funded the PRT/GRT in Morgantown, WV, in the 70s. Today, if PRT gets any public funds at all it is in small amounts to perform general feasibility studies.
      In other words, innovative transit technology is hardly to blame for underfunding of other vital services, and not funding it doesn't mean such funding will be forthcoming. The people we elect to local and state government, Congress and the White House bear that responsibility.

It has been long believed that the opposite of monopoly is competition. Some, examining the supply side, have mischaracterized the transit industry as monopoly, which is not accurate since there are multiple sellers. It is more accurate to describe it as oligopoly or limited competition: since the cost of entering the market is so high as to be prohibitive for many would-be manufacturers, existing suppliers are protected from startup sources of competition.

However, by examining the demand side one can conclude the transit "market" is actually an excellent example of monopsony—many sellers selling to one buyer. In any jurisdiction—city, county, or federated metropolitan—there is just one buyer of transit hardware, the transit agency.

It takes a lot of money to create and operate a bus or train system; transit agencies have it. It also takes expertise; planning consultants and system manufacturers have that. With one buyer per jurisdiction and few sellers, the buyer does not have much from which to choose.

But because it is extremely expensive to become a transit manufacturer, and because the sellers help determine what is "proven", the market for transit hardware becomes a market closed not only to new players, but also to innovation. And closed to private investment in innovation: why would someone invest in innovation if the market, the monopsony, has a history of not buying innovative products?

This is where the public sector comes in, where it must come in if innovation is to be injected into the monpsonystic transit market. The most appropriate use of public funds for this purpose is to help startups overcome the financial barriers to market entry. There are three preferred instruments for accomplishing this for PRT, and they encourage private investment without impacting the funding of existing public programs.

Revenue bonding. Unlike general obligation (GO) bonds, revenue bonds are repaid from a specified income stream, in this case the bonded activity is the development and/or installation and/or operation of PRT. Revenue bonds are used to finance public facilities such as parking garages or convention centers, in which users can be charged a fee to repay bondholders. The SeaTac PRT example would be a good situation for revenue bonding.
      Revenue bonds are riskier than GO bonds because they are not backed by the seller's general fund, and they do not have to be tax-exempt. This protects taxpayers, but revenue bonds can be more attractive than GOs because they pay higher interest due to the risk.

Tax exemptions. Such an exemption, such as for activities subject to sales taxes, is designed to lower the cost of doing business in an activity the government wishes to encourage. And exemptions can be as targeted as desired—for example, a sales tax exemption for a PRT company might apply solely to in-state purchase of construction materials. The advantage to this is that it costs the public nothing—the taxes the PRT company avoids paying would not be paid if the company did not exist.

Competitive grants. Because of PRT's potential use as a tool in urban planning and sustainable energy, in addition to transportation, it is eligible to apply for government and foundation grantmaking programs in these fields. A political process determined the grant programs' objectives are priorities and created a funding pool. Therefore, winning funding through competitive processes shows PRT is deserving of that support; the issue of "more vital" needs is not applicable. Furthermore, the program need not make any grants if applicants fail to meet the criteria.

The purpose here, nor in any part of this website, is not to bash transit, or invalidate the efforts of people who work hard to plan, build and operate bus and train systems. PRT advocates are pro-transit, we want more people to use it, and we think that what is needed is a new transit product like PRT— as a supplement to the traditional systems and as a standalone where transit is now insufficient or uneconomical. The public therefore has a real interest in making sure new technologies are able to blossom and be introduced to the market.

6/16/2005: PRT group wins competitive grant from EPA for transit-oriented development study
4/1/2009: State of New York awards grants to group for study of a PRT network in Ithaca.

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