A merging of the public and private rivers of development

By Deepa

In class, we discussed whether there were guidelines for purely private or public deals. The professor’s response was that, from the public side, the government was interested in policies that would not break their limited budgets, but which would be able to bring jobs and vibrancy to their countries. Governments have the ability to decide zoning and floor area ratio to help determine density. They can also provide the essential infrastructure that attracts businesses, such as electricity, water and transit (many of these can be in the form of PPPs or private entities regulated by the government).

However, there seemed to be a sense that the primary role of government is to promote business investment. It is important to remember that while development is an important goal, the main role of government is, arguably, to promote the interests of citizens. In our discussion on Friday, we seemed overlook this. The question, “Was It Worth It [for the promoters to make the long term investment in HCMC]?” came back as a negative in the long term because the government eventually caused problems for the promoters. It surprises me to hear this sense of unfairness and betrayal when governments no longer extend the benefits they had previously extended. Their economies are maturing and the situation evolves. The government’s concern should be to represent the people and to do what is best for its citizens. At times this is to focus on economic development and easing the private sector entry, and at other times this role is to put into place a system that ensures a smoother transition from aid to trade. Just as shareholders expect a return on their investment and risk appetite, citizens expect a return on government policies and GDP growth. Continue reading

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Success of Tollway Projects vs. Mass transit Systems

By Anonymous

Is it accurate to state that it’s easier to capture the value of saved time in a toll highway situation than in a mass transit MRT/BRT situation? If this is so, why is it so? How would this situation be mitigated?

The success of tollway projects throughout the world and the continual struggle of mass transit systems, particularly metros/subways, to operate profitably despite very high ridership suggests that it is significantly easier for the state to capture the value of saved time from drivers than riders. But why is this?

One potential explanation is that users of mass transit have lower ability to pay, and/or a lower valued of time, than drivers. Both of these are likely true, particularly in developing countries. However, although riders of public transportation have a lower value of time, they also likely have fewer alternatives. This is not to say that those with fewer alternatives should be overly burdened, but to suggest that perhaps there may be greater ability to recoup costs and thus offer a high level of service.

Another explanation is socio-political: it is not just that it is more difficult to capture value, but it is less socially and politically acceptable to do so from those who, as mentioned, have fewer alternatives. This explanation seems the most probable – just as societies today tend to have progressive tax codes and various degrees of social welfare programs, our transportation systems also reflect our collective belief on how the burden of public goods should be allocated.

Is this a situation which must be rectified? That depends. Well-funded cities have mitigated the situation by continually subsidizing the operations of transit systems, and this has worked most of the time. Yes, there is a fair bit of complaining and angst every time the subsidy hits a ceiling and fares must be raised, bringing up the question (again) about why the system must subsidized at all, but isn’t an on-going subsidy just another way of capturing value? The subsidy is funded, of course, by taxpayers – including the vast majority of riders.

For less well-funded cities, however, the answer is more complicated. If lack of stable funding is precluding a transit system from being built, and the transit system has real valuable benefits, an alternative method of funding is needed. One idea is a clearly defined municipal transit tax. This would introduce a more predictable revenue stream and thus lend support to development of a system, and if the benefits of a system are real, presumably the public will be willing to fund it.

How Eliminating the Gas Tax Can Help Reduce Vehicle Congestion in Texas Cities

By Regan Turner

On January 22, 2013, the Texas Tribune reported that some Texas state legislators were proposing a higher vehicle registration fee for drivers of electric vehicles (EVs) to ensure that they pay their share of the annual expenses of building and maintaining roadways.[1]  If this measure were to pass, Texas would join Washington State where a $100 annual fee on drivers of EVs went into effect this month.[2]

With the Texas Department of Transportation (TxDOT) holding $13 billion in debt, the state agency is looking for ways for fill revenue shortfalls.[3]  And as vehicles become more fuel-efficient or do away with the need for fuel altogether, the gas tax that accounted for 33% of the agency’s revenues of almost $7 billion in 2010 is no longer going to suffice.

Rather than addressing only the fact that EV drivers do not contribute to TxDOT revenues, Texas lawmakers should consider what sustainable cities and highways of the future will look like, and change legislation to incentivize public transportation, walkable cities, and EVs.

First, Texas should do away with its gas tax and increase annual vehicle registration fees.  In 2010, vehicle registration fees in Texas that average $58 per vehicle accounted for $1.11 billion in revenues for TxDOT, while gasoline taxes brought in $2.29 billion, or roughly twice the amount generated from vehicle registration.[4]  While I am not suggesting that Texas emulate California, the Sunshine State charges drivers anywhere from $250 to $400 in annual registration fees, so there is significant capacity for Texas to increase registration fees, thereby incentivizing the use of public transportation.

Next, Texas should assess a mileage fee on vehicles due at the time of annual inspection.  If the average Texan drives 12,000 miles per year, a fee of $0.01 per mile would cost a driver $120 per year, which is roughly the average amount paid per driver per year in state fuel taxes ($114).  The difference here is that all drivers pay the same amount toward road maintenance depending on how many miles they drive, regardless of their vehicle’s fuel source.

Opponents of this plan will say that drivers of vehicles not registered in Texas will then not pay any surcharge for the free roads that they use to travel or conduct business in Texas.  To solve this problem, either assess a toll at the time of a vehicle’s entry into Texas, or maintain the gas tax at the pump for out of state drivers by requiring drivers to swipe their driver’s license at the pump when paying.

These policies will cause drivers in Texas to recognize the costs associated with driving and therefore incentivize denser cities and the use of public transportation, biking, and walking.  Otherwise, Texas is on track to spend $400 billion in roadway infrastructure by 2035 with a broken business model that does not address the issue of vehicle congestion that will only continue to get worse.[5]

Smart Cities: Repeatable Experiments or Research Labs?

By Lauren Burrows.

We recently read a case about a company called Living PlanIT that has proposed to build a greenfield “Smart City” in which it will attempt to reduce waste and increase the use of renewable materials in building, deploy renewable sources of energy, and manage energy, waste and water more efficiently. While this sounds very appealing, as we discussed the case and reviewed the drawings of the concept, I could not help but be reminded of the book, “The Death and Life of Great American Cities,” by Jane Jacobs. Jacobs published this book in 1961 in response to the “urban renewal” movement of the mid-twentieth century, which was a program of land redevelopment in dense urban areas that sought to bulldoze slums in order to create open (and, Jacobs argued, sterile) city spaces. In recent years, the concept of a “smart” city has attracted a great deal of attention and several new cities have been proposed based on this model, including Masdar in Abu Dhabi and New Songdo City in Korea. However, it remains to be seen how we will measure the success of these developments. Will companies choose to locate in these cities? Will people choose to live there? Will we choose to replicate them elsewhere or will they simply prove to be sterile research laboratories?

If these developments do prove to be nothing more than research laboratories, as I suspect they may, how can we predict which “smart” technologies will prove successful in being implemented elsewhere? First, the technology must create clear, measurable and repeatable value that can be captured by a single entity. A technology that creates value for the greater public good or that cannot be easily quantified will have trouble gaining traction. Second, there must be a clear decision maker for the sales process. Technologies that require a number of parties to collaborate will also experience difficulty. One example of a technology that meets these requirements comes from a company called Big Belly Solar, which develops solar-powered, networked trash compactors that save time, fuel and money for municipal governments and other institutions that manage waste removal from public spaces. Big Belly Solar trash compactors add five times the capacity as existing trash cans, reducing the frequency with which entities have to send personnel and/or trucks to collect trash. Furthermore, these trash compactors are solar powered so they do not require grid connection and are networked so that an entity can track which garbage cans are full and only send personnel and/or trucks to garbage cans that are full, further reducing fuel use and time. The savings that this technology generates can be easily measured and tracked and there is a clear entity that derives the benefits and the company can identify who the appropriate decision maker is within that entity. Regardless of whether these experimental “smart cities” lead to a proliferation of other greenfield “smart cities,” I expect that they will generate a number of viable technologies like the Big Belly Solar trash compactor that will be developed and applied elsewhere.

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Mobility on Demand: Not Enough

By WXZ

Mobility on Demand has become very popular over the past few years in developed countries with the rise of the likes of ZipCar, RelayRides, and Car2Go (see exhibit 1) in major urban centers.  These programs have been able to provide certain segments of the population—college students and young professionals—with more convenience and a reduced need for private cars.  However, government policies for private car owners needs to be tweaked in order to bring about a meaningful impact in increasing the “sustainability” of the city.

Exhibit 1 (clickable)Mobility WXZ

Source: Author compiled table based on information from company websites

 Zipcar is by far regarded as the most successful Mobility on Demand program in the US, and it has gained quite a bit of hype and press in major urban centers.  Yet, as of its 2012 10K filing, Zipcar only had approximately 673,000 users. After more than a decade, it had only been able to penetrate less than 0.3% of the urban population in the US (total population of the US = 315,299,632[1], 82% of the US population resides in cities and suburbs[2], which means 258 million people are the target audience).  Even if we only account for the cities where Zipcar has operations (see exhibit 2)[3], the market penetration is just over 2%.  And that is not to mention that the 2% is an optimistic upper limit, as many Zipcar members – myself included (thanks to a free membership from my summer employer) – do not use the service more than once or twice a year.

Exhibit 2 (clickable): 

WXZ Cities

Data source: US Census Bureau

The key here is not whether the likes of Zipcar are doing well.  These companies have great concepts.  However, it is not enough to just have car-sharing services in order to make cities more “sustainable.”  Even with the existence of these services and cheap public transportation, people want cars because it raises their social status.  Moreover, the tendency for humans to be overpowered by bad events over good ones is a well-documented phenomenon[4].  People remember best the times when they had very unpleasant experiences from not having a car, rather than when they had good experiences.  Therefore, individuals usually overestimate the value of car ownership to themselves.

There needs to be higher costs to effectively overcome the exaggerated values people place on car ownership.  Unless governments properly reduce implicit subsidies for private cars, car ownership will not decrease significantly.  One such example is the availability of cheap parking in cities.  Roadside parking and dedicated parking lots take up a large amount of land that are otherwise very valuable, especially in areas with prime real estate.  However, most parking fees are not priced to match the fair value of the land.  While there are many social, economic development, and political arguments for why it makes sense to charge significantly lower fees, we cannot expect to change the behavior of consumers unless such implicit subsidies are reduced.


[1] US Population Clock by the US Census Bureau. http://www.census.gov/main/www/popclock.html

[3] See list at http://www.zipcar.com/about/ under the “find cars” tab.

[4] Bad is Stronger Than Good.  Review of General Psychology 2001. Vol. 5. No. 4. 323-370 http://www.csom.umn.edu/Assets/71516.pdf