Pronto bike share: either way we’re writing a check

Today the Council discussed what to do about the ailing Pronto bike share program.

Background: the city contracted with  non-profit to pilot a bike share system in the city. That organization launched Pronto in 2014, and has grown it to 500 bikes and 54 stations, and 3000 members. They also developed a helmet system for riders, which is very innovative and is being copied by other bike-shared programs. To do all this, they took in some federal and state grants, signed up sponsors, and borrowed money.

Pronto statistics since launch
Pronto statistics since launch

Unfortunately, the system has not reached a critical mass where it can be self-sufficient, mainly because of the debt service they are paying which is draining their cash flow.

Nicole Freedman, who has overseen bikeshare for SDOT since she joined last April (and before that did the same thing for Boston), presented today and tried to put the current state of the system in the context of the 90 other cities in the U.S. that have rideshare programs. According to Freedman, the current state of the system (and not necessarily its finances) is a common outcome of a “phase 1” system, and primes it for a “phase 2” expansion. The accepted metric in the bike share world is that doubling the size of the system delivers a 3-5 fold increase in trips because of the network effect. Currently a bike in the Seattle system is seeing on average one use per day; successful systems are closer to 5-6 uses per day, and doubling it would get it much closer to that goal.

But here’s the problem: Pronto is insolvent. It’s buried in debt, losing money, and doesn’t have the funds to expand. By March 30 it will be unable to pay its bills. Worse: the $1 million federal grant for equipment obligates the city to keep it operating for the life of the equipment, and if the city were to discontinue the program then it would need to repay the federal government the $1 million (less depreciation).

The City of Seattle set aside $5 million in the 2016 budget for further expansion of the system, contingent on the creation of an acceptable business plan. But SDOT is now suggesting that the city should purchase the current program’s assets with $1.4 million of those funds, keep it under city ownership, and put out to bid a contract to run it. Freedman claims that in cities that have successfully established bike share programs, the city usually owns it and contracts it out.

In fact, Freedman claimed that there were three things that “went wrong” with the Pronto program. the first was the private ownerships/governance model. The second was that Pronto had unrealistic expectations for ridership, thus leading it to take on two much debt; and the third was that the debt model (and specifically servicing the debt) left it with an unsustainable cash flow where all of the sponsorship funds were being used to cover the debt service and couldn’t be used for further expansion.

Assuming it’s all true, the key question facing the council remains whether to spend some of its $5 million to rescue the program from insolvency before seeing an actual business plan. Freedman made the case that their call of bids would be very flexible and would allow bidders to suggest all sorts of business models, incorporating a variety of different equipment (including potentially electric bikes),  various levels of expanding the stations, new revenue models, levels of city control, and levels of financial risk the city would need to assume. Leaving the field that wide, Freedman argues, especially given the current rapid progress in bike share technologies, would give the city the best options. SDOT could write a business plan now (and apparently they have a draft in-house already) but they would rather let the bidding process work its magic and write the business plan when they know who they want to award the contract to.

Proposed phases for taking bike share forward
Proposed phases for taking bike share forward

As an aside, that’s a remarkably private free-market solution for a left-leaning city like Seattle. It will be interesting to see what Council member Sawant thinks of it.

Council member O’Brien worked hard to be positive and supportive in the face of such a speculative go-forward plan. He noted that he is a huge supporter of bike-share programs, having tried them in several cities, and is fully confident that Seattle can have a successful program. But he also noted that the city’s second try needs to work, or “we may poison the well for a long time.”  He asked Freedman and SDOT to come back in two weeks to continue the conversation, armed with better information on how the city’s bike master plan will help a bike-share program be successful, and with an updated financial model that incorporates the costs of SDOT staff and other resources implicated if the city were to run the program itself.

Council member Johnson ended the session by observing that the City has the choice of writing a $1M check and shutting down the program, or writing a $1.4 million check and running it itself. “Either way,” he said, “we’re writing a check.”

It reflects poorly on SDOT that they let this situation occur, though it should be recognized that it didn’t happen on Freedman’s watch — she joined after Pronto was already off and running. And SDOT deserves a little bit of credit for hiring Freedman to help boost its own in-house expertise and get things on a better path.

More to come at the next Sustainability and Transportation meeting. You can watch today’s meeting here.

 

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