Transportation Secretary LaHood gives M1 Rail 60 more days to answer questions about Woodward streetcar

From Crain’s Detroit Business:

U.S. Transportation Secretary Ray LaHood has given the private consortium seeking to build a $137 million streetcar along Detroit’s Woodward Avenue 60 more days to answer questions about the project’s construction and operational financing before any federal funding will be granted.

LaHood today met with the leadership of the M1 Rail project, Gov. Rick  Snyder and other elected official at Detroit Mayor Dave Bing’s office in city hall.

Addressing reporters after the meeting, M1 Chairman Roger Penske, Snyder and Bing each said Washington still has “four or five” questions about the project, which seeks a $25 million federal transportation grant.

Perhaps tellingly, LaHood was originally scheduled to speak — but neither he nor any federal officials came to the press conference. He was supposed to address reporters at 11:30 a.m., but the ongoing talks delayed that about 30 minutes. Only Bing, Snyder, Penske and M1 CEO Matt Cullen spoke.

None made clear specifically what financing questions were not answered previously by M1.

In April, the group submitted a 1,200-page report to the U.S. Department of Transportation, meeting a requirement LaHood set for the group Jan. 6 to validate its project — and its costs — before it could be eligible for federal aid. That report apparently didn’t satisfy federal concerns, or Washington has raised new questions — it was unclear from today’s meeting.

M1 had 90 days to submit its plan to raise capital and operational funding for its 3.3-mile streetcar route between Hart Plaza and New Center, a project first reported in February 2008 by Crain’s. The report was in addition to the grant application.

The report reiterated M1’s pledge to build a rail system that can stand on its own while also feeding into other transit options.

Cullen said that  an additional 120 pages probably is needed to answer the federal questions.

“It’s a refinement of the work that we’ve done,” he said.

Penske said today that the group has assembled $131 million of the project’s costs, meaning it needs $6 million more to reach its goal, which includes a 15 percent contingency amount.

U.S. Rep. Hansen Clarke, D-Detroit, speaking with reporters alone after the meeting, said LaHood and the Transportation Department are worried that the project’s cost estimates are too low and that its fare box revenue estimates are too optimistic.

M1 estimates it will cost $5.1 million annually to operate and maintain the line. The group has said it will endow a $10 million fund to operate and maintain the system for up to 10 years, until 2025, at which point M1 Rail plans to donate the project assets and operating responsibility to a public agency, such as the proposed regional transit authority.

M1 sought the $25 million grant from the federal Transportation Investment Generating Economic Recovery program. An application for the latest round of TIGER grants was filed on M1’s behalf March 19 by the Southeast Michigan Council of Governments, the regional planning agency that acts as the legally required pass-through for federal transportation funding.

A previous $25 million TIGER grant for the city’s version of the rail project has since been transferred to a regional bus project.

Cullen has said that the consortium is still in talks with other potential donors for the capital costs and also expects to sell naming rights for the entire line.

LaHood also apparently raised the question of who will operate the line in the short and long term. M1’s plan has been to set up a private authority, which is legal under a 2008 state law, and later turn it over to a regional transit authority.

Enabling legislation for a metro Detroit RTA remains in the Senate.

The leadership of M1 Rail is Penske Corp. founder Penske; Peter Karmanos Jr., founder of Detroit-based Compuware Corp.; the Ilitch family, owners of the Detroit Tigers, Red Wings and Little Caesar Enterprises Inc.; and Quicken Loans Inc. founder Dan Gilbert, the project’s co-chairman.

Major commitments of $3 million have been secured from Quicken Loans, the Ilitch companies, Penske Corp., Compuware, Chevrolet, Blue Cross Blue Shield of Michigan, the Detroit Medical Center, Wayne State University, Henry Ford Health System, Wayne County, the Ford Foundation and the W.K. Kellogg Foundation. The Hudson Webber Foundation has pledged $1 million.

The $3 million commitments are for the display advertising rights to a station along the route. The Troy-based Kresge Foundation has pledged $35.1 million, part of which already has been spent, and it gave an additional $3 million as a “backstop” grant.

The Detroit Downtown Development Authority has earmarked $9 million for M1. An additional $16 million is from federal New Market Tax Credits, which have to be reapplied for annually. Financing plans include a $22 million commercial loan.

Bing and Snyder jointly announced in December that the city was dropping its $528 million light-rail plan, which ran from Hart Plaza to the city limit at Eight Mile Road, in favor of a state-backed regional rapid-bus system that would cost about the same but connect key points in the metro area. LaHood hailed the bus plan when it was announced.

M1 had become part of that rail plan. The decision to kill it prompted an outcry from the private group and its political patrons, including U.S. Sen. Carl Levin, and a hasty gathering of top elected officials and M1’s backers at Bing’s office Jan. 6. LaHood said that day that M1 would be given 90 days to convince Washington of the merits of its wish to build its portion of the line. M1 has to convince Washington, along with the city and state, that the streetcar system can be built and operated at its estimated costs — something that had drawn skepticism at the federal, state and local levels.

The M1 project was a standalone effort until being absorbed by a Detroit Department of Transportation project in 2009 that extended the route to Eight Mile Road.

M1’s plan is a 3.3-mile line that will be a mostly curbside-running, fixed-rail streetcar circulator system, co-mingled with traffic, with 11 stops between Grand Boulevard and Congress Street. It will run in the median at its north and south ends.