Learning From Hong Kong

The impending departure of MTA chief Jay Walder for the more lucrative shores of Hong Kong to lead its metro and commuter rail system has one silver lining: It has brought our attention to a top-notch metro system that not only can pay its chief a million-dollar-plus salary, but which doesn't need public money at all. In fact, the Hong Kong Mass Transit Railway Corporation actually makes money.

As the region's Metropolitan Transportation Authority worked last week to make up billions of dollars in shortfall in its capital budget, despite having cut thousands of jobs and vital service over the last few years, the question screams out: how does Hong Kong do it?

The answer is that Hong Kong's MTR acts as a real estate developer and business company, as well as a train operator. It owns 12 shopping malls built around its stations, as well as residential and office properties. These properties and businesses produce substantial cash, which keep the transit agency as a whole in the black.

A little history here is helpful.

Hong Kong's MTR only began service in 1979. But once cash was flowing (through development around stations), the government "graduated" MTR so it could raise funding through capital markets and more nimbly enter into joint ventures with private investors.

In 2000, the Hong Kong government converted the public MTRC into the private MTR Corporation Limited (MTRCL), although the government maintains a majority stake. Shares are traded on the Hong Kong stock exchange.

This is an extraordinary comparison to our beleaguered MTA, which has struggled with debt and disrepair for decades, despite the fact that it is the backbone and veins of one of the richest cities on the planet.

With a bit of MTR-style tweaking, some of this wealth could be harnessed to keep the transit system healthy, reliable, efficient — and affordable.

While it may seem extraordinary to have a transit company operating like a profit-making company, it's not novel. Private streetcar lines made money more on the homes and shops built around their tracks, on company-owned land, than the nickel fares they received. In numerous cases, electric utilities — PSE&G in New Jersey was one — owned the streetcar companies and utilized them to stimulate development, which created demand for electric power contracts.

While retaining public control of vital infrastructure systems — a crucial point — governments can facilitate new versions of these old arrangements. An obvious example from recent history is: what if the MTA had chosen to directly develop the land around Hudson Yards in Manhattan or Atlantic Yards in Brooklyn, rather than leasing or selling these new business districts out to private developers for a lump sum payments? To be sure, the MTA is receiving some money from these deals, particularly the more lucrative Hudson Yards. But why have the private sector reap most of the profit from improvements to public stations and tracks?

Beyond these mega-deals, I wager there are scores of smaller development opportunities around stations if the MTA has this approach in their toolkit. If aggressively pursued, it can help to relieve to some degree the fiscal crisis faced by transit systems today, filling some of the capital funding gap and keeping service in place, and preventing counterproductive fare increases. NJTransit across the Hudson could follow a similar path.

Let me be clear here though. I don't want the MTA or other transit agencies to be only concerned with making a profit for their shareholders, which is how private businesses act. I want the MTA to make a profit for the public, so that its capital improvement program can be well funded, and so that fares can be kept down, maybe even lowered. If it takes having the MTA act like a real estate developer to do that, I have no problem with it.

The MTA or NJTransit can pursue a number of strategies to profit from the commercial potential of land around their stations. In addition to direct development, it can also partner with private companies, have value-added tax districts imposed, or develop more retail, office, or even hotels within stations. But this will take leadership, not just from the transit agencies but from the politicians who really ultimately lead them.

We already have our own models that work. The Port Authority, like Hong Kong's MTR, is free of taxpayer funding. It has a variety of assets: tunnels, bridges, the port, etc., that subsidize the PATH system. And we have successful publicly-traded and regulated utilities here in New York and New Jersey: Con Ed, National Grid and PSE&G.

If you are ever lucky enough to visit Hong Kong, which is Manhattan-like with its narrow streets lined with high rises, you will see that the MTR's services are excellent. You may ride the gleaming new high-speed rail line from the new airport that takes you into the new central rail station. Or you may ride one of the nine rail and subway lines, including the special train that goes to Disneyland Hong Kong. It is still a smaller system's than New York's. It also has numerous attributes that are Hong Kong-specific, and which would be difficult to copy. But there is no reason we can't study it, and learn from it. Perhaps Mr. Walder, once he mastered his new job, could give us some advice. It's the least he could do.