Chicago’s Divvy bike-sharing program costing taxpayers big

Divvy bike stations are expanding throughout Chicago, offering riders low membership costs and 24-hour rental fees. But this multimillion-dollar project is bringing in only a fraction of the money necessary to fund it. Last year, the city of Chicago announced a controversial $65 million contract with ALTA Bicycle Share to operate a 4,000 bicycle bike-share program in...

Divvy bike stations are expanding throughout Chicago, offering riders low membership costs and 24-hour rental fees.

But this multimillion-dollar project is bringing in only a fraction of the money necessary to fund it.

Last year, the city of Chicago announced a controversial $65 million contract with ALTA Bicycle Share to operate a 4,000 bicycle bike-share program in the city. Chicago selected the politically connected ALTA despite the fact a local company, Bike Chicago, placed a bid that was nearly 40 percent cheaper.

After months of delays, Chicago’s new Divvy bike-sharing program finally launched in late June. In announcing the results of the first two months of the program, city officials have said it is performing “beyond expectations.” But a closer look at the numbers shows anemic revenue numbers that fall way short of the costs to taxpayers.

As the Chicago Tribune reports:

“About 5,000 annual Divvy members are enrolled, at $75 each, and more than 37,000 24-hour passes have been sold, at $7 each.”

This equals out to approximately $31,250 ($375,000/12 months) in annual membership revenue per month and $129,000 in 24-hour ride revenue per month. This $160,250 per month in revenue is roughly equivalent to 7 percent of the $2.33 million per month cost to taxpayers in the program’s first year. The first-year potential cost to taxpayers will be at least $28 million, which includes $22 million in federal grant money and $5.5 million in local funds.

For every taxpayer dollar spent on bike share programs, that dollar cannot be spent elsewhere in the local economy.

The Chicago Tribune reports the program has 1,479 bicycles in circulation, which is roughly 36 percent of the Divvy program’s 4,000 bike goal. The late start in launching the program meant Divvy missed out on much needed revenue during Chicago’s short summers. While more stations and more bikes will likely mean more revenues, the bike-share program still faces many hurdles and threatens to cost taxpayers millions.

Many of the prime bike-share locations in downtown Chicago have already been built. Most of the additional planned bike-share locations stretch far beyond the downtown population and tourism area, raising the prospect of weaker revenues from additional stations. Not to mention with school starting and the summer vacation season ending, ridership will likely fall significantly between existing stations.

The bike-share program will also have to negotiate Chicago’s notorious cold and snowy winter months when bike ridership will predictably plummet. Chicago’s climate features six months where average temperatures are lower than 50 degrees, and three months where the average high temperature is 35 degrees or lower. ALTA is relying on cronyism embedded in the contract to sustain itself during these lean months to the detriment of the taxpayers who are funding it.

According to the contract between the city of Chicago and ALTA, operation fees are supposed to be covered by user fees, but if the Divvy bike share program fails to earn enough revenue it could end up costing taxpayers millions.

Key facts about the Chicago Divvy bike share program:

• First year cost of program is estimated at $28 million
• Five-year contract is between city and ALTA is worth $65 million
• Five-year cost is $17,105.26 per bike
• Only $375,000 in annual membership fees collected year to date
• Only $259,000 in 24-hour pass fees collected year to date

It’s quite surprising that poor revenues roughly equivalent to 7 percent of first-year costs during summertime’s peak ridership months translates to performance “beyond expectations.” If this is considered good performance, just how low were expectations to begin with? Perhaps the rosy comments from City Hall are more about political spin than hard facts.

Taxpayers should be on alert when it comes to Chicago’s bike-share program. It’s not prudent for alocal government to go billions of dollars in debt and risk even more taxpayer dollars on an unproven business model.

If Divvy fails to recoup taxpayer money it would be wise for the city to explore termination of the contract and program at the earliest time possible. At the very least, a thorough review of the program at the contract’s end is in order.

Stopping the flow of taxpayer money doesn’t mean an end to bike-sharing opportunities in Chicago. If a population of people really demands a bike sharing program they will pay for it voluntarily, and there will be a financial incentive for an entrepreneurial business to meet that demand. No government funds needed.