An unhappy M1 Rail puts project funds on the line: Group sees DDOT’s plan as unsustainable

From Crain’s Detroit Business

The proposed Woodward Avenue light rail project is in jeopardy.

The private consortium of investors that has pledged $100 million toward the project’s $528 million cost doesn’t have faith in the Detroit Department of Transportation‘s plan and won’t provide funding until it does, sources familiar with the situation told Crain’s.

The group of prominent Detroit businessmen and organizations, M1 Rail, doesn’t think the nine-mile-long, streetcar-style rail line between the city limit at Eight Mile Road and downtown, as proposed, is the best use of the funding, is financially sustainable or is the best layout and alignment.

The city’s plan also fails to tie the line into any future regional mass transit systems, sources say, and that has M1 balking at financial assistance.

The $100 million is crucial because it’s part of the $210 million in required local match money needed by DDOT to leverage funding under the Federal Transit Administration‘s New Starts program, which is aimed at partially funding qualified local transit projects such as rail. Washington would pay $318 million of the cost if the project’s New Starts application — expected this summer — is approved.

Without the M1 money, the project could be doomed because the city doesn’t have backup funding to replace any lost private money. The city is generating its share of matching money through the sale of bonds and state and federal grants. (See “The Funding Train,” right, on this page.)

The city has not been told that money will be withheld, said Bob Berg, partner and vice president at Detroit-based Berg Muirhead and Associates and a spokesman for the city on the rail project.

“There’s been a good-faith effort to accommodate all the interested parties, including M1 and the public,” he said.

The city doesn’t have an alternate local match plan because it has no reason to believe M1 won’t provide its $100 million, he said.

“You’re always going to have bumps along the road. That doesn’t necessarily stop you,” Berg said. “This always has been a fairly complex situation. The city has been trying to keep everyone in the loop all along.”

DDOT must have the funding sorted out by the fall, when preliminary engineering begins.

Deafening silence

M1 Rail has been conspicuously quiet since Mayor Dave Bing announced June 29 that the city had committed to a particular route and mixed center-running and curbside alignment for the streetcar-style system — plans that irritated some of the private backers who preferred different options, insiders have said.

M1 Rail’s members don’t want to fund a project they believe will fail — the fear is being linked to a little-used system belittled as “People Mover 2” — but they also don’t want to be viewed as the ones who killed light rail, insiders say.

One member, however, has broken his silence.

Rip Rapson, CEO of the Troy-based Kresge Foundation that has pledged $35 million toward the rail effort as part of M1, told The Wall Street Journal in a story on July 2 that the organization was reconsidering its financial commitment — something that it can use as leverage in talks with the city.

“Are we going to pull our money out? We won’t just because we’re annoyed,” he told the newspaper. “Everyone knows that Kresge is the do or die for the line.”

The heart of the dispute is less annoyance than disagreement with the city’s plan, however.

Rapson was out of town Thursday and Friday and unavailable for comment, but a foundation spokeswoman tried to soften the tone of the newspaper story.

“We really expect that the issues will be resolved,” said Judy McGovern, Kresge’s associate director of communication. “There are fresh conversations going on to this all the time.”

She said the $3.1 billion foundation already has paid $14 million of the $35 million so far, and expects to fund more this year.

Other members of the M1 coalition have declined to comment or have not returned messages.

Matt Cullen, M1’s CEO, would volunteer only a blanket statement.

“M1’s board and stakeholders remain very supportive of Mayor Bing and very supportive of robust, sustainable transit projects for Detroit and the region,” he said.

Cullen previously has said the group won’t fund a project with which it disagrees. And those close to the situation have said M1 doesn’t view DDOT’s proposal as a “robust, sustainable transit project.”

Sustainability, insiders say, is one of the key stumbling blocks. M1 doesn’t believe the city’s plan to cover the line’s annual operating expenses is viable and that the line is of only limited value if it isn’t part of a regional system.

Norm White, the city’s CFO and lead on the rail project, previously has said the Woodward line is being built with the hope it will spark other communities to pay to extend it into the suburbs and become part of a regional system.

A $10 billion proposal to deploy a system of bus and rail lines throughout Wayne, Oakland and Macomb counties over 25 years, with M1 rail as its spine, was approved by political executives in December 2008 — but has been put aside since then.

The author of the regional plan and the man who organized the private investor group, John Hertel, declined to say anything other than it would “be a shame” if the rail line wasn’t built at least from Hart Plaza to New Center — the original plan proposed by M1 three years ago.

He left his role as regional transit czar to head the SMART bus system, and the Woodward project transitioned from M1 to DDOT in 2009.

The Woodward alignment and route were agreed upon by Bing and the FTA, a pact announced June 29. The agreement is via the project’s final environmental impact statement, which spells out the specifics of what will be built and where.

M1 and DDOT negotiated for months on the alignment. M1 wanted more curbside service, especially through Midtown. But that’s not part of the plan, which fed into M1 Rail members’ irritation.

The city has said the layout and median-curbside alignment chosen was the best option and one driven by federal guidelines.

Big names, big money

M1 Rail assembled its $100 million in commitments largely from foundation gifts, federal tax credits and pledges to buy the advertising rights for the line’s stops.

The organization’s major individual donors are deep-pocketed, powerful Detroit advocates with downtown business commitments: Penske Corp. founder Roger Penske, who is chairman of the project; Peter Karmanos Jr., founder of Detroit-based Compuware Corp.; Mike Ilitch, owner of the Detroit Tigers and Detroit Red Wings and co-founder of Little Caesar Enterprises Inc.; and Quicken Loans/Rock Financial founder Dan Gilbert, the project’s co-chairman.

Those four have committed $3 million each for the display advertising rights to a station along the route. Henry Ford Hospital and Wayne State University also have committed $3 million each for a station.

Four other donors withdrew informal $3 million station commitments. Cullen declined to name them and said he believes they can be persuaded to recommit when there is a final design.

Also pledging funds to M1 is Detroit’s quasi-public Downtown Development Authority ($9 million).

The final portion of the $100 million wasn’t cash but $20 million from the U.S. Treasury Department‘s New Market Tax Credit program, which annually awards credits against federal income taxes for qualified organizations that invest in low-income communities.

The credits are for a year and must be reapplied for if they aren’t used. M1 qualified for the credits twice but isn’t applying again until plans are in place, Cullen said.

The uncertainty over the rail money has transit insiders worried.

Marie Donigan, a former Royal Oak state representative who does private-sector transit advocacy and consulting, said the loss of M1 Rail funding would be “devastating.”

She also said that since the project was taken over by the city — M1 Rail originally intended to build a smaller line on its own, but stepped aside for DDOT’s bigger project — the private backers haven’t been deployed properly to advocate for the effort.

“Instead of being asked to champion the project, they’re being asked to pay for it. It’s kind of a sad role for them,” she said.