More Deets on the Divvy Funding Situation

Untitled
While Divvy has previously used CMAQ money to cover operations shortfalls, they probably won’t need to in the future. Photo: John Greenfield

In an article last Friday, the Tribune’s Jon Hilkevitch implied that the new price hike for Divvy day passes is a desperate measure the city is taking because the bike-share system is bleeding cash, when that’s not the case at all. “The daily fee to rent a Divvy bike will jump by more than 40 percent next week because of a deficit and escalating costs to run the expanding bicycle-sharing system,” he wrote. “Divvy has yet to steer clear of red ink.”

Hilkevitch noted that that the system, which launched in June of 2013, posted a $171,000 operating loss for the remainder of that year, and a $500,000 operating loss in 2014. However, he chose not to include info that Chicago Department of Transportation Commissioner Rebekah Scheinfeld sent him in a statement:

The overall system revenue, including the Blue Cross Blue Shield sponsorship [$12.5 million over five years] and advertising on kiosks, brings in income to Divvy and the city’s bike programs. Overall Divvy is not losing money.  CDOT is investing the revenue from Divvy in bike infrastructure improvements such as bike lanes, bicycle safety education and other programs that benefit the entire city of Chicago, not just Divvy users.

Divvy gets guaranteed advertising revenue from the docking station placards via its outside ad vendor Outfront, formerly Van Wagner, CDOT spokesman Mike Claffey told me yesterday. The minimum amount of revenue for the city was $31,250 per month back when the system had 300 stations. Now that Divvy has expanded to 476 stations, the guarantee has risen to about $45,000 per month.

Around the time the bike-share program launched, Hilkevitch and the Tribune published a series of articles disparaging it. However, a few months later, the reporter ran a column that basically admitted he was wrong to suggest no one would use the wildly popular system. Last Monday, I responded to Hilkevitch’s latest Debbie Downer Divvy article with a Streetsblog post.

On Wednesday, the first day of the price hike, the Trib ran another piece by Meredith Rodriguez featuring quotes from bike-share users. Most of them had no problem with the price of 24-hour passes rising from $7 to $9.95. Once again, the article contained Hilkevitch’s misleading statement that the program “has yet to steer clear of red ink.” When I called him out on Twitter for repeating the same claim twice, he had an interesting response.

He was referring to a statement from his first article: “Divvy posted a $500,000 operating loss in 2014, and the city used grants that it received for the federally funded program to erase the deficit, city officials said.” The system’s bikes and docking stations were paid for with about $30 million in government funding, mostly federal Congestion Mitigation and Air Quality Improvement grants, which can generally only be used for infrastructure, not operations or maintenance.

However, Claffey confirmed today that Divvy’s original CMAQ grant did include about $2 million in contingency funds that the department was allowed to use for any system-related costs, including operations. Hilkevitch was correct when he tweeted that using that money would not be a sustainable way to offset operations shortfalls in the future.

Hilkevitch also would have been justified in referring to the operations deficits themselves as “red ink” in the Trib articles. However, it was still irresponsible of him to imply that the entire Divvy system is losing money, while failing to mention that the sponsorship and ads are actually generating revenue for the city.

Claffey told me today that CDOT isn’t planning on using the BCBS sponsorship and ad revenue raised so far to cover future operations shortfalls. “The decision was made… to use the previously locked in revenue to benefit the entire city wide bike system — both for infrastructure and safety education,” he stated.

That helps explain why the day pass price was raised. Even though the system is making money overall, the projected $800,000 a year in additional income from the fee hike will be used to help cover future operations deficits.

However, Claffey said sponsorship and ad money raised from now on will also be used for operations. “At this point we are working aggressively to find additional advertising and sponsorship revenue to cover operations costs,” he stated. “We have something in the works that we will be able to announce soon in this area.”

Contrary to what people may have gathered from the Trib articles, it sounds like Divvy won’t be going broke anytime soon.

  • Great post, thanks for the helpful information. It’s funny, people hear a double digit percentage increase and think the sky is falling. The daily rate is now similar to Citibike.

  • LowSeason

    I’m not trying to rain on your parade here, but having re-read this article twice now, I’m not sure what additional “deets” you’ve provided. First of all, Divvy’s operator Motivate (fka Alta) filed for bankruptcy last year…not exactly a sign that this thing is financially sustainable. Second, I can’t help but notice all of the squishy accounting language being used. For example, “makes money” can mean any number of things from an accounting perspective. You may think it means one thing but the cynic in me wonders if this sort of malleable language was chosen deliberately. Third, there’s a simple solution to clarifying all of this: open the books. I’m a little surprised they aren’t disclosed as a matter of policy. But they won’t. Hmmm. Fourth, I’m a little surprised you casually brush off your own line about the incremental $800,000 being used to offset future operating losses. This is another sign (unless something is getting lost in translation) that people aren’t describing the accounting treatment properly. How does Divvy go from a $500,000 operating profit (excluding the BCBS ad revenue!) to a soon-to-be operating loss while generating an additional $800,000 in revenue from fee hikes?! It defies logic. The only explanation that makes sense is that that “operating profit” is not a true operating profit, and Scheinfeld is taking some liberties in describing Divvy’s financial health. (Btw, I am a former accountant in case you’re wondering) Finally, let’s stop pretending that operating a bike share is like an actual, real business that contributes money to CDOT. Its existence is solely due to a federal grant…someone somewhere paid for it. Then Alta filed for bankruptcy, and presumably freed themselves of prior obligations (ie someone somewhere lost money). I say all this as a supporter of Divvy, btw.

  • BlueFairlane

    I don’t think the sky is falling. I just think the price is now more than I’m willing to pay.

  • Annual memberships are $75 ($6/mo)

  • BlueFairlane

    I don’t want a membership. My usage hasn’t justified a membership until the last month of so. And to be frank, Divvy’s mechanical inconsistency hasn’t encouraged me to shell out for a membership. I’d rather pay by ride, but I won’t pay $10.

  • To recap: previously, if you used Divvy more than ten days a year, it was worth buying a membership. Now a membership is a better deal if you use it more than seven days a years. Other advantages of a membership include much quicker checking out of bikes (practically instantaneous vs. several steps at the kiosk); being able to skip lines at kiosks (which, after a music fest or similar event, can mean the difference between getting a bike and not); and occasional members-only perks, such as BOGO burritos at Chipotle.

  • There are several additional “deets” in this article, that weren’t in my previous piece on the subject:

    – The amount of money that comes in from ads, and the fact that the rate is guaranteed

    – CDOT confirmation that Divvy used federal grants to cover $500K operating loss in 2014

    – The federal money used was from $2 million in contingency funds from the original CMAQ grant

    – CDOT isn’t planning on using sponsorship or ad money raised so far to cover future operating deficits

    – That helps explain the day pass price hike — the additional revenue will help pay future operating deficits

    – However, future sponsorship and ad money may be used for operations shortfalls

    There are a couple of inaccurate statements in your comment:

    – Neither Alta Bicycle Share (the original Divvy concessionaire) nor Motivate (which bought ABS) filed for bankruptcy. You’re thinking of Bixi, the Montreal-based equipment supplier, which has provided the bikes and docks for Divvy: http://www.streetsblog.org/2014/01/21/bixi-bankruptcy-what-does-it-mean-for-american-bike-share/ The bankruptcy messed up Divvy’s supply chain and delayed the recent expansion. However, Bixi has been reorganized and seems to be on more solid footing now, and Motivate has started making its own bikes: http://www.streetsblog.org/2015/05/07/americas-biggest-bike-share-operator-now-makes-its-own-bikes/ The Bixi bankruptcy doesn’t really reflect on whether Divvy is financially sustainable.

    – Divvy posted a $500K operation loss last year, not a $500K operations profit.

    Again, we know that Divvy posted a $171K operations loss in 2013 and a $500K operations loss in 2015. This refers to the amount of money that came in via user fees, minus the amount of money it took to run the system. We also know that $12.5 million is coming over five years from BCBS, and the system is currently taking in $45K per month in ad revenue. We don’t have a have a full breakdown of revenue and expenses, but if you can tell me exactly what info you’re looking for, I may look into tracking this down.

    No one is claiming that Divvy has paid for its own bikes and docking stations — that infrastructure was covered by government funding. The goal is for the system to cover its own operating expenses and raise additional revenue for bike infrastructure and education. So far, CDOT has chosen to use CMAQ money, rather than sponsorship money and ad revenue to cover operations deficits. But it looks like there’s going to be no problem covering operations shortfalls with sponsorship, ads, and the projected $800K/year from the price hike in the future, so Divvy will continue to make ends meet and generate revenue.

    Personally, I don’t see why Divvy should be expected to pay for itself. Transit doesn’t pay for itself, and roads certainly don’t, but the government subsidizes them because it’s understood that it’s worth investing in transportation. The main reason why there’s pressure for Divvy to pay for its own operations is that most people don’t yet take biking seriously as a form of transportation.

  • BlueFairlane

    Except that even with a membership, I still have to pay $2/ride any time I have a bike for 31 minutes … which happens with some frequency. So really, I’m paying $75/year for a deep discount on the per-ride rate.

    As far as the rest, none of those perks are enough to override my preference to pay by ride instead of a year at a time. I know Divvy really wants a long-term commitment, but that’s just not my preference. And it’s Divvy’s right to say they don’t want me as a customer as much as it’s my right not to be one.

  • Sounds like you need to buy a wristwatch.

  • BlueFairlane

    Or I just need to make the better decision of not using Divvy.

  • RW

    What will happen when there needs to be significant investment in renewing equipment? I’ve noticed that many of the docks are looking much worse for the wear (paint flaking away, corrosion), and it’s rare at this point to find a bike that doesn’t have at least some minor mechanical malfunction (lack of working lights or untrue wheel, just to name a few). FWIW, I haven’t renewed my annual membership yet, as a majority of the times I tried to use the system lately I was unable to check out a bike. The light on the dock would just stay yellow and never release the bike. Usually I would end up walking to another dock to retrieve a bike. Customer support indicated this is due to problems with IT backend.

    I hope the system succeeds, it’s great to see more bikes on the streets. I just hope they have a long term plan to keep the system functional as it ages and expands.

  • I believe you’re aware of this already, but I’ll say it again. There’s really no reason to ever unintentionally accrue late fees while using Divvy. All you need to do is keep an eye on the time, and if you think you aren’t going to make it to your destination within 30 minutes, stop and refresh the bike at a station along the way, AKA “dock surfing.” Of course, dock surfing is much more convenient if you have a Divvy key, which is another reason the system is more useful if you’re an annual member.

  • Very good question. You generally can’t use CMAQ money for maintenance. DC’s Capital Bikeshare has been around for five years, uses the same operator, and the same equipment as Divvy, so they must have addressed this issue. I believe each time the divvy system expands, more bikes and docks are purchased than are actually put out on the street, so there are probably some replacements sitting in a warehouse in case equipment fails. I may look into this issue in the future.

    It sounds like you’ve had really bad luck. I use the system regularly, and I’ve found that problems with the equipment are the exception, not the rule. I’ve never noticed a Divvy bike with warped wheels or broken lights. Cracked seats are common, which is annoying when you’re using the system after/during rain. Hopefully, the next batch of bikes will have more durable saddles.

  • Jeremy

    Question that is off topic: Is skipping the line at a kiosk to use a Divvy annual membership impolite? If there are 5 bikes in the rack and 5 people waiting in line at the kiosk, should I use my membership key to take a bike? Personally, I would walk to another station.

  • According to Divvy, it’s absolutely fine:
    http://divvybikes.tumblr.com/post/107708918010/7-reasons-why-being-a-divvy-member-rocks

    Personally, I wouldn’t feel guilty about this. The Divvy infrastructure is partly paid for by local money, so it makes sense that members (the vast majority of who live here) should get priority over 24-hour pass users, who are mostly visitors to Chicago.

    That Divvy post includes some other perks of membership I forgot to mention, such as a getting a free 24-hour pass for guests, cheaper overtime fees, and discounts at bike shops.

  • Jim Angrabright

    Odd that Mr. Hilkevitch never mentions that the building and upkeep on our roads is running a deficit, too. http://taxfoundation.org/article/gasoline-taxes-and-user-fees-pay-only-half-state-local-road-spending

  • I didn’t know about the BOGO burritos – win!

  • Anne A

    I’ve sometimes had the yellow light/unable to check out bike problem myself. More frequently, I’ve had problems with lack of availability – no bikes at/near desired start location and/or no open docks at/near desired destination. Seems like they’re having more challenges with distribution this year. Some days are worse than others.

    In general, Loop stations tend to run out of bikes at or before 5:00 and may or may not get replenished in the evening. Popular Loop locations are often full by 8:30 a.m.

  • skyrefuge

    This year’s expansion brought a new set of bikes along with the new docking locations, and it’s fairly easy to differentiate the new bikes from the old. I’ve completely avoided riding the old bikes since the expansion, and it’s been much more enjoyable. However, that has also validated your worry about the future, since it immediately made me despair for the time in the near-future when there will be no more expansions to feed such new bikes into the system.

    The easiest trick to find the new bikes is to just scan the rear hubs as you walk down the line of bikes at the station. The flanges on the hubs of the new bikes have small slashes cut through them, and the old bikes don’t.

    Also, the language on the list of rules stuck between the handlebars has changed, solving the foreign-language issue John discovered last year (http://chi.streetsblog.org/2014/10/07/are-lawbreaking-divvy-riders-really-causing-major-safety-issues/ ): “Walk bikes on sidewalk”, which apparently could be translated in some languages to something like “Use bikes on sidewalk” is now “Do not ride on sidewalk” or something like that. Looking at the hubs is a much quicker selection-method though.

  • skyrefuge

    When those 5 people got in line, there was just as good a chance of someone arriving and docking a 6th bike as there was of you taking one and leaving 4. I bet when you walked to another station for a bike, that 6th bike *did* arrive before the group of 5 left, leaving one in the dock. Then over the next 20 minutes, 5 more bikes got docked by random people, making for 6 bikes and 4 empty slots in our imaginary 10-bike station. Then, that original group of 5 tourists returns from their jaunt, but they cannot all fit in the 5 slots, so one or all are forced to seek out another station, and much confusion, rage, and money-loss ensues.

    If you had just taken the bike from that station when it was available instead of trying to “help them” by leaving it, there would have been 5 slots available for them to return their bikes to. Jerk!

  • skyrefuge

    This is unfortunately one of those things that you can’t really experience on a trial basis, but it’s amazing how much the use of the key fob improves the whole Divvy experience. I also wouldn’t pay for a membership if I still had to use the kiosks, but the incredible speed at which you can convert from walking to biking (and vice-versa) with the fob makes it totally worth it. I can’t think of any other transition between transportation modes that is so effortless.

    In terms of the time limit, my girlfriend and I have taken over 400 Divvy rides between the two of us, and only once have we been charged a $1.50 overage fee (30mph headwinds meant we underestimated the time it would take to reach the next dock!)

  • Try the membership. You won’t regret it. Avoiding the kiosk time alone is worth it.

ALSO ON STREETSBLOG

The Trib’s Jon Hilkevitch Changes His Tune, Reports Divvy Is a Success

|
Back in May, a month before the Divvy bike-share system launched, transportation reporter Jon Hilkevitch published the first of three Tribune articles characterizing Divvy as a rip-off, dysfunctional and racist. In that first piece, a faux exposé entitled “Overtime fees, legal potholes dot city bike-share program,” Hilkevitch portrayed the rules and charges associated with the […]

Hilkevitch Plays Dumb With an Anti-Divvy “Exposé”

|
I’ve long considered the Chicago Tribune’s Jon Hilkevitch to be one of Chicago’s best transportation writers. He works fast, gets his numbers straight and often gets the scoop on important stories, usually writing from a pro-walking, biking and transit perspective. For example, I always enjoy re-reading a brilliant article he wrote back in 2005, skewering […]