Paying for bike-sharing systems EXAMPLES AND TRENDS FROM LATIN AMERICA Introduction

Bike-sharing systems (BSS) have played BOX 1 a key role in discussions around how to promote in cities for more than Financing and funding (CFF, 2017) a decade. This role has further increased Financing: Related to how governments (or with the emergence of private dockless private companies) that own infrastructure find the money to meet the upfront costs of building said systems since 2015. There are now infrastructure. Examples: municipal revenues, bonds, thousands of BSS in operation in cities intergovernmental transfers, private sector. across the world, particularly in Europe, Funding: Related to how taxpayers, consumers or Asia, and North America. others ultimately pay for infrastructure, including paying back the finance from whichever source Creating a BSS, however, is not simply a matter of governments (or private owners) choose. replicating a model that has worked in another city. BSSs are one element of a city’s overall transport infrastructure, Examples: Taxes, municipal revenues, user fees like roads, buses, metros, bike lanes, sidewalks, etc. Their and sponsorship. implementation must be based around a city’s context, including: (a) the applicable laws and regulations with respect to planning and operation of a BSS; (b) its integration with networks, particularly The financing and funding options for a BSS will be its ability to connect transport nodes with offices and dependent on the operational structure that the city residences; and (c) the potential of cycling as a mode of chooses. In all cases, the city will be involved in this transport in the city and any relevant sustainability or structure: the degree of involvement will depend on the development objectives (Moon-Miklaucic et al., 2018). selected technology and the role of the private sector in the system’s operation. Broadly, BSS can be divided There are several planning guides for cities to understand into three types based on who owns the assets and who the technical, legal, operational, commercial and financial provides the service (ITDP, 2018): options behind a BSS (ITDP, 2013; ITDP, 2018a; Montezuma, 2015). An initial analysis should help cities answer the Publicly owned and operated: A public body owns the following questions: bikes, stations, software, etc. and directly delivers the service.

Publicly owned and privately operated: A public WHAT CAN A BSS DO FOR THE CITY? body owns the bikes, stations, software, etc., but a private entity delivers the service according to a contract. IS THE CITY READY TO IMPLEMENT A BSS? Privately owned and operated: One or more private IS A BSS THE RIGHT OPTION FOR THE CITY? entities own the bikes, stations, software, etc., and also deliver the service, according to local regulations.

Only when these questions can be satisfactorily Cities in Latin America have, over the last decade, answered, should the city discuss how to create the experimented with all three types of operational structure best possible BSS. This technical and operational analysis – which are, in any case, not completely exclusive. should not preclude financing options or be based ’s Ecobici was initially managed by the city, around a city’s preferred instrument. In other words, the together with Serttel (Brúa & Irade, 2013); a new operator, decision to resort to financing from the municipal budget Tembici, will be in charge from 2019 (PBSC, 2018). A or to the private sector should be made based on what different Ecobici, in City, is operated by the media is best for the BSS, rather than before these technical company ClearChannel, also operating several systems specifications are known. in Europe (Delgado, 2017). However, in recent years, with the emergence of private dockless companies and larger operators, there has been a tendency toward models that are fully managed by the private sector and that do not rely on public financing or subsidy. This has been in line with global shifts in the bike-sharing industry.

22 Bike-sharing systems (BSSs) are one element of a city’s overall transport infrastructure, like roads, buses, metros, bike lanes, sidewalks, etc. Their implementation must be based around a city’s context.

33 How to finance bike-sharing systems

The relatively paltry capital investment required for a BSS A BSS includes a package of assets: makes it unlikely that cities will be able to access external bikes, stations (if necessary), vehicles financing, which is generally reserved for larger projects. to rebalance the number of bikes However, it also makes it unnecessary for cities to incur debt to establish a BSS. There are few examples of external across the city, any software required financing for BSSs. Buenos Aires received a US$50m loan to operate the stations, mobile apps, from the International Finance Corporation in 2017 which financed the development of a new Bus Rapid Transit line or the bikes, a control centre, etc. and included new bicycle lanes and bike-sharing stations Relative to other forms of transport, along the route (IFC, 2017). The Asian Development Bank launched BSSs in three cities in southeast Asia in 2012, funded BSSs require limited upfront capital by a US$2m grant from the Government of (ADB, 2012). investment (Moon-Miklaucic et al., Private investment from developers or universities may also 2019). Capital investment for traditional be accessed to finance the expansion of systems, after its establishment (ITDP, 2014: 127). BSSs are estimated at between US$900- The most well-documented example of a BSS financed $3,500 per bike (ITDP, 2018: 33): even by accessing capital markets is ’s . the largest systems’ total cost has not This BSS was founded with the explicit intention of not exceeded the US$ tens of millions. requiring public financing or subsidies (ITDP, 2014). Citi Bike is privately owned by Inc. and operated by subsidiary Dockless systems, which don’t rely on company . The operator received a US$42m loan fixed stations, have lower capital costs from ’s Urban Investments Group in 2012 to cover the capital costs of the scheme. In 2014, in order (Pal and Zhang, 2015). to finance a doubling of the scheme, the operator raised US$30m in equity from its then owners, Bikeshare Holdings LLC, and a further US$15m loan from Goldman Sachs (NYC DOT, 2014). A US$5m investment from The Partnership Fund for New York City specifically financed the scheme’s expansion in lower-income communities (NYC DOT, 2014). An additional injection of capital came in November 2018, when Lyft completed its acquisition of operator Motivate by making a 5-year, US$100m investment in Citi Bike to ‘double its current service area and more than triple its Cities in Latin number of bikes to nearly 40,000’ (Citi Bike, 2018). America have followed However, this example is not reflective of how most BSSs different financing models have been financed. It is likely more reflective of New York for their BSSs, from wholly City’s wealth, financial industry and of the scheme’s prestige. public (Medellín) to private No other BSS has come close to raising a similar amount of companies on a concession capital through both debt and equity, although some, like St Louis’s BSS in the U.S., have also followed the principle of basis (). being exclusively privately funded (ITDP, 2018: 74).

Most commonly, BSSs have been financed directly through municipal budgets and related sources:

 The establishment and expansion of ’s BSS, now called Santander Bikes, was financed by , the city’s transport agency. Publicly-available estimates for the capital costs range from £140m for the first six years to a total of £195m between 2011 and 2018 (Quilty- Harper & Payne, 2011; Ponsford & Lee-Zogbessou, 2018).

44  , and other cities contracted out the operation The bike-sharing sector in Latin America has shifted in of their BSS to advertising agencies, whereby these recent years due to the exponential growth of Tembici, a companies can, in return, sell all or part of the city’s outdoor Brazilian private bike-share operator, and to the emergence advertising. The financing of the BSSs is devolved to each of private dockless companies. Tembici, founded in 2010, advertising agency. These schemes technically don’t require expanded its operations from , Sao Paulo and Rio a public subsidy, but cities forgo potential advertising de Janeiro in 2017 to now include 16 Brazilian cities and, revenues which can be greater than the value of the BSS from 2019, Buenos Aires and de (Rivas, 2018; contract: estimates for Paris suggest that the advertising Serrano, 2019). Tembici’s business model varies by city, but agency generated up to €60m annually (ITDP, 2018). in Rio de Janeiro the operator is partnering with Banco Itaú, a Brazilian bank, to privately own and operate the ’s was initially financed by grants from the system with only a limited relationship with the city. U.S. federal government and resources raised from the city’s Tax Increment Financing programme (Greenfield, 2013). Private dockless companies operate in – , Vbike, Dezba (Moon-Miklaucic et al., 2018) – in Cities in Latin America have followed a variety of these Sao Paulo – Yellow, among others (Clark, 2018) – and in an financing models. Buenos Aires initially owned and operated increasing number of cities. These companies are mostly its BSS, Ecobici, which is subsidised and free to all users. backed by venture capital and there is limited information In Mexico City, the city owns the assets behind Ecobici, available about their financial sustainability. but the system is operated by Clear Channel Outdoors, an advertising agency. Other schemes, like Bike Rio, are run entirely by private companies based on a concession.

55 How to fund bike-sharing systems

BSSs can have significant operating costs. The main cost is incurred in rebalancing bikes across the system, but others include staffing, maintenance, marketing and administration costs (ITDP, 2018). If the BSS is financed through a loan, debt repayments may also constitute a significant operating cost.

The funding for a BSS can come from a variety of sources (Table 1). However, studies so far suggest that these are often not enough to break even (Montezuma, 2015; ITDP, 2018). User fees, both for single rides or through memberships, constitute the bulk of revenues, but are seldom sufficient to cover all of the operation and maintenance costs. Some BSSs come close: in Washington D.C., 97% of ’s costs are covered by fares, while user fees make up for 80% of the costs of Chicago’s Divvy system (ITDP, 2018). The gap is filled through sponsorships, advertising, fees, taxes, subsidies and permits.

Main funding sources Example

User fees Washington D.C.’s Capital Bikeshare recovers almost all of its costs through user fees. London’s Santander Bikes includes daily and annual memberships, and pooled and individual business memberships.

Naming rights London’s BSS was initially named after Bank, but has been sponsored by Santander Bikes for £6.25m a year since 2015. The naming rights for ’s were sold to Vodafone for €1.2m a year (Ajuntament de Barcelona, 2014).

Advertising space Chicago’s Divvy is sponsored by Blue Cross and Blue Shield of , whose logo appears on the system’s bikes and vans (City of Chicago, 2014). The city is also able to attract further sponsor for the system’s docking stations and kiosks (Greenfield, 2014).

Parking fees Revenue for the operation of Barcelona’s Bicing comes from on-street parking fees (ITDP, 2014).

Taxes Medellín’s EnCicla is funded through environmental taxation (Soto, 2019).

Subsidies Buenos Aires’s and Medellín’s BSS are free for users and the cost of each trip is subsidised by the city.

Permits Private dockless companies may operate after purchasing a permit, calculated by bike or as a lump sum. The payment for these permits can cover some of the city’s operating costs, particularly administrative costs.

Table 1. Main funding sources for bike-sharing systems. Adapted from Moon-Miklaucic et al., 2018.

66 The cases of New York City and London show how cities The case of London suggests that the costs to operate can maximise the sources of funding available to them. a BSS are not fixed. The overall subsidy has decreased In New York City, the initial loan from Goldman Sachs by two-thirds between 2014/15 and 2017/18 (Figure was guaranteed against the scheme’s advertising partner 1). This has been the result of slower expansion and and user fees. contributedYear an 2 initial010/11 US$41m 2011/12 over 2012/13therefore reduced 2013/14 costs 2of0 planning14/15 and201 installing5/16 2 new016/17 2017/18 five years for the scheme’s naming rights and advertising, stations. Funding sources have also slightly increased: extended to US$70.5m through 2024 (Flegenheimer, TfL’s contract with Santander Bikes includes, on top of 2012; NYC DOT, 2014). CitiBank’sTfL decision 7.10 to purchase 9.2 3 11.08£6.25m a year 10.78 for the scheme’s 11.46 naming 10.16 rights, a £1m 3.62 a 3.75 the naming rights was based on the positive association year ‘activation fund’ including offers, activities and other of being linked to New York City’s first new transport programmes (TfL, 2015). More than 10m journeys were network in 100 years, as well as its advertising potential; made in 2018, with five out of 11 months setting yearly internal surveys by CityBank suggest that the bank’s records (TfL, 2018a). favourability rating tripled as a result (Essex, 2017).

14

12

10

8

6 £m per year

4

2 10.78 10.16 3.62 7.1 0 9.23 11.08 11.46 3.75 0

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Financial year

Figure 1. Transport for London’s subsidy by financial year. Sources: TfL, 2017; TfL, 2018b.

Table 1 and the examples provided above demonstrate how there are multiple ways for cities to construct a financially sustainable business model for their BSS. The reliance on one or another of the various revenue sources should be based around a technical and operational analysis of several options. This decision should also ensure that the model is built upon a clear understanding of what a BSS can do for the city and upon a realistic assessment of whether the city is ready to implement a BSS.

77 What does this mean for Latin America?

These examples provide a snapshot Miklaucic et al., 2018). In some cases, it has had disastrous results. , for example, went from being the first of the financing and funding European city to allow Mobike to operate to suffering a considerations that need to inform series of negative headlines after the company pulled out the establishment of a BSS in any city. under the guise of vandalism (Pidd, 2018). There is already a wealth of experience in Latin America about how to create BOX 2 a financially sustainable and successful scheme, whether publicly or privately E-scooters and disruptive technologies owned, or publicly or privately E-scooters have recently become another competitor operated. Despite some setbacks, the to traditional bike-sharing systems. They occupy less space, are cheaper to maintain and have proven sector has seen significant growth, more profitable to the extent that some providers are particularly in the last few years. switching to them from e-bikes (e.g. Field, 2019). On the other hand, they have no health benefits and are However, the sector has also seen dramatic changes in less safe than bikes. It remains to be seen whether the last few years and it is not clear that any of these local governments should promote them, let alone examples or experiences will be relevant for much longer. invest in them, given that there may be better public It is also not clear how the existing planning guides for policies available. cities and the examples listed above apply to smaller cities who may also be considering a BSS. Given the fast pace of change and the expectation that most of the growth in the number of BSSs will likely happen in small and medium- Hybrid models have also emerged. has operated sized cities in Latin America, cities need to carefully dockless bikes since 2005 in , without public consider the basic questions underpinning any BSS, namely: subsidies. Surcharges are applied if users leave bikes away from main roads, with flexible stations located near public transport nodes (Schlebusch, 2017). NiceRide, which WHAT CAN A BSS DO FOR THE CITY? operates in and St. Paul, follows a similar hybrid model (Small, 2018). IS THE CITY READY TO IMPLEMENT A BSS? Finally, cities in Latin America may be able to leverage IS A BSS THE RIGHT OPTION FOR THE CITY? national programmes to develop BSSs. The Paris Agreement has spurred innovations in how different countries plan to implement their climate change Only after the answers to these questions are determined, commitments. should cities develop a business model that can maximise the benefits of a BSS. The planning process needed to For example, Colombia has pioneered a so-called National establish a successful BSS should keep all relevant financing Appropriate Mitigation Action on Active Transport and and funding options available, rather than, for example, Demand Management (NAMA TAnDem). This programme preclude public subsidies or rule out a permitting system includes nine measures, one of which promotes the for private dockless companies. establishment of public bicycle schemes according to cities’ sustainable mobility urban plans and based on careful Even when these answers are determined and a decision design (Capone & Calderón, 2017). The C40 Cities Finance to proceed with a BSS is made, the questions that BSS Facility (CFF) will be supporting the Colombian cities of planners have successfully addressed since the early Bogotá, Cali, Montería and Bucaramanga in establishing 2000s may not be relevant anymore. The emergence of a public bicycle schemes (CFF, 2018). The pooling of these fourth generation of BSSs, characterised by dockless bikes, projects within the NAMA and Colombia’s commitment to different bike types (e.g. e-bikes) and rapid deployment is the Paris Agreement is designed to create opportunities for increasingly making certain elements, such as stations and further technical assistance and financing. mixed asset ownership, obsolete. Only a few cities so far have embraced this model – Seattle, Singapore (Moon-

88 Conclusion

Cities in Latin America aiming to Business models need to, however, be based upon a careful consideration of what a BSS can do for a city and promote sustainable mobility, and on whether the city has the capacity to plan and manage cycling in particular, should consider such a system. The bike-sharing sector has seen dramatic changes in the last few years and it is not clear that past establishing a bicycle-sharing system. examples and experiences will be relevant for much BSSs can be an important element of longer. It is also not clear how they apply to small and medium-sized cities. The trialling of permitting systems for a city’s transport infrastructure and dockless companies and the emergence of new, hybrid are relatively cheap to implement. models, together with national efforts to promote the There are a multitude of financing establishment of BSS, promise to drive growth in the sector and innovation around financing and funding going forward. and funding options available. It is not necessary to resort to public investment or subsidies, as private sector companies can cover both the capital and operating costs of a BSS.

Electric scooters have recently become another competitor to traditional bike-sharing systems, in cities across Latin America.

99 References

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