Strong political alignment to build transit brings widespread public support to speed projects along.
Since the creation of the CRTM in the mid 1980s, the regional government had been planning to expand the region’s transit system. Then led by the Spanish Socialist Workers Party, it created planning and environmental documents for new lines and extensions. The expansion of the subways became a primary campaign issue in the 1995 regional government elections, with political factions competing on how much transit they could deliver. In 1995, the conservative People’s Party won the majority of seats in the regional parliament.469 A major campaign promise was to build 31 miles of new subway lines in the region during their 4-year term, out-promising the Socialist party opponents.470 The People’s Party made good on their commitment, constructing and opening 35 miles of new lines during their first term. During the 1999 elections, the party doubled down on the issue, promising to build an additional 47 miles during their next 4-year term. After winning an even larger majority, the People’s Party led the construction of 46 miles of subway over four years.
Though the subways were built by the conservative government, the projects had broad support across the political spectrum. This shifted the political debate to how much transit should be built, rather than if it should be built at all. While there were multiple factors behind the success of the subway build-out between 1995 and 2003, the political agreement on the need for transit investment is seen as crucial to enabling rapid development of the region’s network. Among other things, it led the regional government to acquire the financial resources necessary to deliver on its promise. To do so, it borrowed heavily, in some cases funding 80 percent of a line through debt. However, after the delivering the first expansion program from 1995-1999, the regional government’s infrastructure ministry did not have enough financing capacity to bond directly for future expansions. Instead, the regional government created publicly owned companies and used an SPDV and P3s to enable it to borrow without the debt appearing in the government’s budget.471
In 1999, the regional government created MINTRA, a state-owned company designed to deliver the subway expansion projects. As a governance tool, this structure was useful in delegating the specific task of project delivery to a government owned, third-party SPDV. SPDVs are often used to deliver projects, then either continue on as owners who rent access to the infrastructure, or transfer ownership over to an operator. As an independent unit, they can help staff focus on the delivering the project and managing contracts. To this end, MINTRA was created a high quality, single focus team that was successful in building out Madrid’s network.
Similarly, the Madrid region used PPPs to design, build, finance, operate, and maintain its light rail lines over a 30- to-40-year period. The regional government manages three different P3 contracts, each of which involves a consortium of private sector companies. The private companies are tasked with the short-term responsibility of delivering the light rail project and the long-term task of running the line efficiently. They receive regular base payments from the regional government and a variable payment based on how many passengers they carry in a certain month. The P3s were successful at delivering 22 miles of light rail at relatively low costs, despite some lines with significant tunneling. However, the P3 structure might not accurately portray the full upfront construction costs as some items are paid for over the life of the multi-decade contract.
However, the other reason that the regional government used MINTRA and P3s to deliver their rail lines was for clever accounting. Technically, MINTRA was considered a private entity, so its massive debt was not on the government’s books. Yet being owned by the regional government made holders of MINTRA’s debt confident that it had government backing, allowing MINTRA to borrow money at competitive rates. Similarly, the P3 consortia borrowed from the private market based on the availability of government payments that it would receive upon revenue service. Even though the P3 contract for the light rail lines pledge government support throughout the 30- to-40- year life of the agreement, these payments do not legally count as government debt.472
Using MINTRA and P3s, the regional government was able to indirectly borrow billions of Euros to rapidly fund and build its rail transit network. This debt undoubtedly helped move projects forward, but was also a major contributor to the European debt crisis that began in 2009.473 Governments struggled to fulfill their contractual agreement to support debt service of these entities and many others across sectors, and the resulting debt crisis exposed the extent of this hidden borrowing. This fallout is a large reason why Madrid has only built 4.7 miles of new subway extensions since 2008, most of which was in the planning and construction phase before the crisis hit.