Mexico's New Interstate Train: Tren Maya

On a recent trip down to Riviera Maya, we decided to drive down to Bacalar to check out the Bacalar Lagoon, and it's 7 hues. On our drive we noticed something was being constructed next to the main road, and we figured it was a toll road because usually in Mexico multi-lane toll roads are built next to free all-access bumpy 2-lane roads. But we were wrong. Once we asked around we learned that they aren't building a toll road; they are building a train. However, it isn't just any train connecting one city to another city, this is Tren Maya, a mega infrastructure project with a big vision connecting the entire Yucatan Peninsula and with a familial name paying homage to the region's mighty ancestors, the Maya.

Tren Maya Aerial View October 2023

Tren Maya or also known as Mayan Train or Train Maya is a 1,525-kilometre (948 mi) railway in Mexico that will connect major cities in the Yucatan Peninsula's 5 states. It will have 7 sections with 34 stations across Tabasco, Chiapas, Campeche, Yucatán and Quintana Roo. Construction began for all 7 sections simultaneously in June of 2020 and it is slated to open in December 2023. It is anticipated to have about 8,000 daily riders and ticket fares will vary for locals and tourists. For example, a trip fare from Cancun to Playa del Carmen will cost locals around 50 pesos (US $2.75) and it will cost tourists around 1,000 pesos (US $55.40).

When I got home I started to do some more research on Tren Maya to get a better idea of the project, it's economic impact and costs. On the one hand I found that UN-Habitat, estimates Tren Maya will create 945,000 jobs for Mexico and potentially help bring over 1.1 million people out of poverty. On the other hand, I also learned that the project approval politics got tricky and pretty sticky around it's climate, archeological and equity implications, nonetheless it got approved.

From Tren Maya's Wiki page the crowd-sourced authors shared that the tactics used by President Miguel Lopez Obrador to get the project approved created lots of chatter amongst rivals, which wasn't surprising, but what was a head turner was the criticism that came from the Mexican Office of the United Nations High Commissioner for Human Rights. The UN's criticism was mostly focused on the approach used by Lopez Obrador to get the project started and who it excluded. Specifically, the UN raised concerns that the voting materials only focused on the positive aspects of the project and were not translated properly. They also didn't like that the identified voting locations excluded those with no means to travel to them and essentially left indigenous women without a vote.

Project approvals in any country are never easy for projects of this size and can get quite lengthy. However, it is important to note that while the approval process for this project compared to approval processes in countries like the US didn't take that long, it did take several years to get approved. Also, Tren Maya wasn't conceived overnight, it was something Lopez Obrador had been thinking about for a long time.

Knowing the price tag for mega projects of this magnitude can get up in the billions, I was curious about the price tag for Tren Maya. In 2018, the agency building the project Fonatur (National Fund for Tourism Development) said it would cost $150 billion pesos (US$8.3 billion in October 2023 dollars) to build. In 2022 they updated their construction cost projections to 200 billion pesos (US $11.1 billion). However, early on there was skepticism around the cost projections the government put out and in 2019 a local think tank, the Mexican Institute for Competitiveness, considered the Mexico City-Toluca train project costs to come up with their own construction projections of 480 billion pesos (US$26.6 billion), which was 2.4 times the amount of the 2022 projected costs.

As I kept searching for the project costs I just couldn't see how this project was only going to cost $11.1 billion with the extent of the project scope of work, the accelerated timeline, the people power working around the clock to get this project built that we saw on our drive to Bacalar, and the increasing costs of construction materials. The optimist in me thought that perhaps Lopez Obrador is trying to prove a point that projects don't have to cost so much if Mexican politicians don't take their lions-portioned political grafts, but the core project costs just weren't adding up so I decided to keep digging some more. While I didn't dig deep into the project financials because they are confidential, I did use my Spanish skills to find that the Mexican government had tripled it's project cost projections last month, and now expects to spend 515 .8 billion pesos (US $28.6 billion). That's a much more believable figure, and even though its way more than they expected to spend, it is still a pretty good price when you compare it to the $128 billion that California's high-speed rail project is projected to cost to build 800 miles.

After getting a better idea of how much the project will cost I looked into the project financing details. It turns out the government turned to tourism tax revenue to help the deal pencil out. And while it's hard to confirm, I'm pretty certain tourism taxes will be paying for a good chunk of the project if not all it. It's a smart and logical move considering the popularity of Cancun, Playa del Carmen, and Tulum among tourists and the many tourism tax line items I saw on my hotel bill. The cash is specifically coming from the 3 government backed banking institutions that together financed the deal: National Bank of Public Works and Services (Banobras), the Nacional Financiera (Nafin) bank and the Foreign Commerce Bank (Bancomext). Interestingly, while the project is being built by Fonatur, it will be managed and operated by the military.

To see this project being built in it's entirety all at the same time on our drive to Bacalar was pretty mind blowing. California's high-speed rail is being built in small segments over many more years. Only 422 miles of the high-speed rail project's 500-mile Phase 1 from San Francisco to Los Angeles/Anaheim has received environmental clearance, with only 119 miles in active construction.

After learning about Tren Maya's journey I hope Lopez Obrador, his team and his successors are able to identify ways to mitigate the main environmental, archeological and equity concerns to help improve Tren Maya's legacy for the Yucatan Peninsula and Mexico as a whole.

#todossomostrenmaya

#trenmaya

Who Owns and Operates the Airport in Your City?

When we think of airports, we often think of vacation or work travel. We also think of it as a place we go to pick someone up that has come to visit us. We hardly ever stop to think about how airports work, we are just happy that they are there to take us to our destination.

My hunch is that if you ask the average person on the street who owns the airport in their city they will struggle with providing an answer. Some may guess and say "the city" and depending on the city, they may be right. However, airports are often managed by an "airport authority" that is publicly managed with a governing board of directors comprised of elected or appointed regional leaders.

I was curious about the top 10 US airports and who runs them, and created a quick reference table that also includes my hometown airport, San Diego:

Passenger wise, Hartsfield-Jackson Atlanta International Airport is the busiest airport around the country. If you're wondering how Atlanta has more travelers than New York or Los Angeles, don't forget that both New York and Los Angeles are serviced by 3 airports each: New York is serviced by JFK, La Guardia and Newark; and Los Angeles is serviced by LAX, Burbank and Long Beach.

While, Atlanta has the most passengers traveling through it, Chicago's O'Hare International Airport has the highest operating expenses even though it's only the 4th busiest airport:

It takes a lot to get airports running smoothly so that we can check in, get through security and make our flights in time for take-off. How airports are governed is just one piece of the puzzle. Airport management is impacted by various supply and demand factors and like the airline industry, airports were hit particularly hard during Covid-19 and are still bouncing back. McKinsey recently reported that during the pandemic "aircraft movements and passenger traffic...plummeted to less than half their usual volumes," and also resulted in airport concession stores closing permanently.

Even though government grants helped to soften the blow of the pandemic, they were only temporary relief measures and the decline in passenger and aircraft activity continues to have residual effects on airport cash flows. Now more than in pre-pandemic times, airports across the country are thinking about ways to diversify and increase their future cash flows to ensure they deliver seamless and safe travel experiences.

Drucker's Great Company Philosophy Applied to Cities

While running a city is somewhat different than running a company there are universal qualities in leaders that are transferable across the private and public sectors. Similarly, there are fundamental goals that the private and public sectors must always keep top of mind: the private sector is driven by maximizing profits, and the public sector is guided by maximizing public good.

In the private sector, companies sell goods or services to cover the costs to run their business operations and make a profit. In the public sector, cities use public revenues to pay for: "parks and recreation services, police and fire departments, housing services, emergency medical services, municipal courts, transportation services (including public transportation), and public works (streets, sewers, snow removal, signage, and so forth)." In the news we often hear that the public sector is funded by our "taxes," but local government revenue is a little more complex than that, it can come from "property, sales, and other taxes; charges and fees; and transfers from federal and state governments and municipal bonds.

Just like most companies seek to become great companies, most cities seek to become great cities, and just like some companies may get confused along their path, some cities do so as well. I recently re-read some classic Peter Drucker and saw how his advice to companies seeking to become great companies in his Management: Task, Responsibilities, Practices, also provides a cautionary tale for cities as cities levy to position themselves as the best cities to live, work and play in.

For the private sector Drucker asserts that "profit" is a strategic necessity rather than the ultimate end goal, when he said: "Business cannot be defined or explained in terms of profit...The concept of profit maximization is, in fact, meaningless...The first test of any business is not the maximization of profit, but the achievement of sufficient profit to cover the risks of economic activity."

Similarly, by just changing a few words to the classic quote here is my take on how we can apply this management concept to cities as they turn to local taxes to ensure that the revenue from those taxes can cover the costs to keep the city looking beautiful, maintain good roads and parks and have reliable utility services across the city: "Cities cannot be defined or explained in terms of city tax revenues from land use...the concept of city revenue maximization is, in fact, meaningless...the first test of any city is not the maximization of city tax generation, but the achievement of sufficient public good for all to cover the risks of economic activity."

Just for fun: if you're interested in seeing how your city's revenue sourced the Government Finance Officers Association has created revenue sources for cities with populations over 10,000 people.