cross posted at the demise

In another in the long list of privatization schemes gone (not surprisingly) awry, Chicago, a blue city in a blue state of Democratic party bred leaders that appears by all accounts to be the nation’s laboratory for free.market.cronyist.payback.projects, is running the numbers on its ‘bike share’ program called “DIVVY” (which is really a bike rental scheme) to realize that they just are not adding up.

The City of Chicago began its ‘public/private partnership’ bike share scheme earlier this year after seeking bids by companies interested in partnering with the city in 2012. While a local start-up, Bike Chicago, placed a bid for the city contract that offered to do the job for $26 million over a 5 year period, the company ALTA, a Portland OR based company that has contracted with several US cities including New York, Washington DC and Boston over the past two years in ‘public/private partnerships’ to provide bike share service, was able to secure the city contract for $65 million.

At the time ALTA received the contract from the City of Chicago, concerns arose that the bidding process for this partnership was tainted. It was discovered that Mayor Rahm Emmanuel’s (who was preiously White House Chief of Staff in the Obama administration) appointed city Transportation Commissioner, Gabe Klein, formerly worked for ALTA. The allegation of improprity is currently being investigated by the City of Chicago’s Inspector General.

The program was rolled out in Chicago this past June and about 1400 out of a projected 4000 bikes are ready for rental on the city’s streets. But revenues are not rolling in as projected by the players in this ‘public/private partnership’. As per usual in such contracts, if the costs of running the program exceed the revenues generated by the share service, then Illinois taxpayers are required under the contract to make up the difference. ALTA runs the program at the low, low cost of $2.33 million per month, so far the system has generated about $160,250 per month, or about 7 percent of the fee ALTA is to be paid. Admittedly, the $28 million cost for the first year of the program, is roughly one third of the contract’s total obligation – but at the current rate of revenue, there is little chance that the service will ever be able to be self-sustaining.

As President Obama will tell while looking you straight in the eye, these amazing melding of public funding, public risk and private profits will “create jobs…attract private investment…(have) less red tape to gum up the works…(and, by the way private companies will ensure that projects will be completed) better and faster.” (President Obama, April 1, 2013 Miami, FL).

The Chicago bike rental scheme received $22 million in federal grant money and $5.5 million in Illinois taxpayer funds to kick-start: that is $27.5 million in taxpayer funds out of the $28 million first year costs to run the program. As my math figures, that means ALTA coughed up around $500,000 to secure this keen $65 million 5 year public/private contract.

Chicago city officials, including Mayor Emmanuel, happily report that the numbers from 2 months of bike-sharing in Chicago show that the partnership is performing “beyond their expectations.” At a return rate of 7% of the expected costs to run the program, many Chicagoans are asking themselves just exactly what the signatories to the public/private scheme would consider to be “not meeting expectations” and also are trying to figure out which public (you know, just public) projects will have to be cut back or terminated to find dollars to pay ALTA’s end of this ‘public/private’ boondoggle.

Photo from Steven Vance licensed under Creative Commons