A New Kind of Deal: Developing Private-Public Partnerships in a Modern Chicago

Gabe Klein is the Commissioner of the Chicago Department of Transportation (CDOT), having been appointed by Mayor Rahm Emanuel in 2011. Before he moved to Chicago, Commissioner Klein served as Washington, DC’s Director of Transportation. Commissioner Klein also has been a Regional Vice President of Zipcar and was a Co-Founder of On the Fly, an electronic vehicle vending company. 

On November 1, 2013, Commissioner Klein announced that he would resign his post as head of the Department of Transportation at the end of month in order to return to the private sector. Klein made a number of major departmental changes in his time as commissioner, but his likely lasting legacy for Chicagoans will be his championing of bike-sharing and speed camera installation in the City.

Part of your work as CDOT commissioner is not only to improve the city’s infrastructure through creative projects, but also to find creative solutions to funding these projects. Considering Chicago’s current financial state, what do you think the role is for private-public partnerships with city infrastructure?

I think it is huge. I think the definition of private-public partnerships is changing because there really is a continuum, and private-public partnerships are essential. We expect partnerships with everyone we do work with at this point, and that includes improving the quality of the work being done in the street.

The lines are becoming blurred more and more between government and the private sector, which can be a good thing if managed well. And with the financial state of the state, and therefore of the city, the mayor has charged us to be extremely creative and also to be very careful of every dollar we spend.

The Divvy bike share is a perfect example where the city and the federal government capitalized the program, and the operator is the one that is being pressured to make money. Basically we don’t pay any money for operations, and any profits are shared between the city and the operator. So for the cost of one CTA train, just one car, we were able to launch this huge new public transportation option.

We are open to more private-public partnerships as well. I know if you look at previous private-public partnerships the city has done, Chicago catches a lot of criticism. The parking meter deal was not so good. The Skyway deal was probably a good one.

This is the future of private-public partnerships, where the private sector is willing to do a lot of the heavy lifting, and, if the program is profitable, the city gets to share in the profits at very little risk.

How do you, as a policy maker, evaluate these partnerships to make sure that you protect the city’s assets against bad deals?

For one thing, you have to hire really good people that have the city’s best interests at heart. You have to have subject matter experts for a number of different fields because, for instance, when the city was negotiating the parking meter deal I don’t think they understood the real future value of those parking spaces and the retail nearby. Those spaces might have been worth $10 or $12 in ten years. We don’t know. And if you do the math on it, the city got compensated way too little for what it was giving up. The point is, if you are not sure, then don’t lease a major asset for an extended period of time. Keep it, bond it out, and put a team in place to maximize the revenue.

In DC parking revenue is up 400 percent over the last five years. We never sold it; what we did was put in value added services to the public. We put in pay-by-phone, new meters that are solar powered, and networked the meters so they are never out of service. We made it easier to park.

Cities need to start looking at things through the lens of the private sector and through the demands of the consumer. What does the consumer want, what kind of value can I add to them, and what kind of value can I add to my coffers? If they had done that with the parking meter deal in Chicago and not have rushed to complete a deal in 60 days to plug a revenue hole, what happened in DC might have happened here.

So we should never be in a rush to do a private-public partnership. It should be well thought out. Do your due diligence, have subject experts, and make sure whoever is negotiating the deal is awesome at negotiating contracts.

Since they are taking the major risk, why are private firms interested in improving municipal infrastructure, and are they changing how municipal infrastructure develops?

 What I see more and more, especially on the service side, is that when the government is not providing the level of service that people need—and that is okay because sometimes they can’t—the private sector will step in. You see this with ride sharing.

Coming from DC, they still don’t have credit card machines in taxicabs, and they wonder why services like ride sharing and Uber are eating their lunch. So, with recent improvements in technology, the playing field between some public sector and private sector solutions has been leveled a bit, which I think is interesting.

I think on the infrastructure side, and even on the services side with Divvy, there is a real value the government can lend to the private sector in terms of assets that they can maximize revenue from, such as street corners, trash cans, etc. I mean right now we are selling advertising on our Divvy bike stations and solar powered trashcans for a high revenue generation. These projects are also successful because they benefit from the city’s influence. So not only is it the physical assets, it is that these programs become extensions of the government and grow because of that. I was with Zipcar when we were on our own, and that grew very slowly. Divvy, by comparison, is growing like wildfire, and in the end it still benefits the constituents, with very little effort from the city.

I think of my job as kind of like being a CEO of a company. Instead of having shareholders, I have the public; instead of having a board, I have the alderman; and instead of a chairman of the board or another CEO above me, I have the mayor. You run it the same way. Sometimes it’s not about financial return. It’s about what is the highest and best use for this asset; what is the greater good for the public. What I do find is that the more we can do in government to look at the return on investment and the profitability of the projects we are trying to do, the better quality the service will be that we provide.

If we just wanted to put out a bike share program and not care if it makes money, just to provide a service, that program is going to be a much slower growing system than if you had thought about what it can generate. Divvy is already making money; it had $400,000 in positive cash flow its first month, and that’s because we are so hyper-focused on customer service and the quality of the experience. We are running Divvy like a private sector operation. We must think more about how we can plug these holes in our citizens’ demand at low cost and with a good return on investment.

Do you think Chicago is going toward less private car ownership and, if so, is this a good thing?

Yes, and it is a good thing for a lot of reasons. It tells us that we are doing our jobs. Again, I came from Washington. While I was there, Washington saw a three percent growth in population and a six percent drop in motor vehicle registration. The people that move into the city move here because of quality of life and because of the options that they have around them.

In my current neighborhood, for instance, I moved into the South Loop two and a half years ago, and there was one grocery store. Now there are four. I don’t have to drive anymore to go to the grocery store. There’s now a Jewel, a Whole Foods, a Trader Joe’s, and a Mariano’s opened last week. Success begets success.

We provide services like bike share, the city seems cooler, and now maybe the college kid doesn’t move to the coast. That kid ends up staying in Chicago and by the time he starts having kids, when he’s around 35 years old, he has been contributing to the tax base for years. And now, instead of moving out to the suburbs, he stays because the schools are better from the many more people who made the same decision he did and who have been funding them. He becomes a permanent member of the tax base, and eventually you reach a tipping point. That is what happened with Washington, and the benefits just take over.

We have to do everything we can to help stimulate this kind of growth. The mayor is focusing on moving companies back into the city; that’s important. The Red Line construction, that’s important. The Divvy bike share is important. The investment in parks, in Maggie Daley Park, the fact that we are paving more than ever, all of these things are important. Then the city starts to feel different and has a different energy about it.

Transportation is great. I know it flies a bit under the radar for people when compared to education and public safety, but the reasons people want to come into the city is great public spaces, great public schools, public safety, and public transportation. For me, those are the four things I think about, and transportation touches three of them.

If we are headed toward fewer cars in Chicago, how should the city’s physical infrastructure change to meet the increased density of bicyclists and pedestrians? 

When you are changing a city like we are, you have to do some reengineering. You also have to educate people about what we are trying to do, why we are doing it, and why we need a safer, more modal city. You have to encourage people to accept these services and enforce things.

There is no silver bullet to any of this, and that is why I love the job, because it is incredibly complex. However, if you do it all right, if you fire on all cylinders, and we have drawn up a multitude of plans to make sure we are focused, you can really do something.

For me it comes back to the four Es. We have to reengineer our streets at low costs, so we do a lot of retrofitting and striping, educate people, encourage people to use the services, and enforce with automated speed enforcement, which is a big thing for us because we don’t really have Chicago police doing traffic enforcement as much versus higher priorities.

If you look at something like a bike lane, which is about $100,000 a mile, it is the lowest cost, highest return investment you can make when talking about your infrastructure because of the additional benefits you get out of its installation. Decongestion, environmental benefits, enhanced real estate value—you get more out of it than anything else.

Bike share you can do really fast and see the impact immediately. Here, we launched 300 stations in 90 days, and every one of those stations is a mini transit oriented development node, just like a transit station.

We have to think more about what we can do fast, for lower cost and higher return.

Feature Photo: cc:(vonderauvisuals)