M1 Rail looks for private operator
From Crain’s Detroit Business:
Organizers of the $137 million streetcar plan for Detroit’s Woodward Avenue are assembling a list of private-sector companies to operate the system on a concession basis.
Part of the U.S. Department of Transportation’s requirement for up to $25 million in capital funding is that it wants a list of potential operators for the system.
The line will not be operated by M1 Rail, the private-sector organizer and financier of the streetcar project, or by any government agency such as the Detroit or Michigan departments of transportation or by the Southeast Michigan Council of Governments regional planning agency, said Matt Cullen, M1’s CEO.
“We didn’t contemplate building up a transit company,” he said.
M1 has an initial list of five private companies but hasn’t disclosed the names. The group is looking at the players in other markets with transit. M1 hasn’t completed its plans or criteria yet, but the operator also could be asked to design and build the system.
A French company’s track record
One potential operator is thought to be Lombard, Ill.-based Veolia Transportation Inc., which contractually operates transit systems in several U.S. cities.
For example, it has a 10-year, $560 million contract with the New Orleans Regional Transit Authority to manage the city’s three streetcar lines, 32 bus routes and paratransit service — which see a combined 12 million riders annually.
Veolia is the North American arm of Paris-based Veolia Transdev, which manages transportation systems in 28 countries and had revenue of $9.8 billion last year.
Under its New Orleans deal, all of the authority’s employees work for Veolia, and the company is responsible for all operations, safety, maintenance, customer care, routes, schedules, capital planning and grant administration.
That’s likely what M1 Rail will seek from an operator, according to an April document it filed with the federal government. However, it estimates that the 3.3-mile line between Hart Plaza and New Center (with a predicted 3 million yearly users) will cost only $5.1 million annually to operate, rising to $6.5 million by 2022, according to M1’s report to Washington.
Veolia also manages transit systems in Las Vegas, Boston, Phoenix, Denver, Los Angeles, San Francisco, Seattle, Baltimore, Atlanta and Washington, D.C.
The company is familiar with Detroit — but not in a positive light.
Veolia sued the city of Detroit in federal court in 2009 for what it claimed was more than $5 million in non-payment for operating the Metro Lift paratransit service, which is bus service for the disabled.
The city settled the case for $2.5 million last year.
Messages were left for Judith Pardonnet, Veolia Transportation’s vice president of communications, and for Mayor Dave Bing’s press secretary.
Other players on the list
One of the world’s other major transit operators is also believed to be on M1’s list.
The Memphis Area Transit Authority’s three trolley lines, which are part of M1’s studies, are operated by employees of Mid-South Transportation Management Inc., a subsidiary of Cincinnati-based First Transit.
First Transit is an arm of FirstGroup America, the U.S.-based operation of Scotland’s FirstGroup plc, a transit operator whose holdings include Dallas-based Greyhound Lines Inc.
MATA’s operational budget last year was $58 million, which also included 33 bus routes and paratransit service. The system’s five-year contract with First Transit has a $200,000 annual management fee, and everything else is reimbursement of whatever operational costs are incurred, said Tom Fox, MATA’s assistant general manager for planning and capital projects.
Another trolley car line closely examined by M1 Rail — the 3.9 mile, $103- million Portland Streetcar system that opened in 2001 — is operated by a nonprofit public corporation, Portland Streetcar Inc. It feeds into a three-country regional system of trains and buses operated by the Tri-County Metropolitan Transportation District of Oregon.
There’s been no discussion of a nonprofit running the M1 line.
A matter of financing
“It’s not uncommon to have a private-sector entity operate a system on a contract,” said Leo Hanifin, dean of the college of engineering and science at University of Detroit Mercy. A director of the Michigan Ohio University Transportation Center, he also sits on the M1 board and is one of the authors of a study that led to the streetcar project.
M1 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 the group plans to donate the project assets and operating responsibility to a public agency, such as the proposed regional transit authority.
The group sent U.S. Transportation Secretary Ray LaHood its 1,200-page report on the streetcar plan in April, and he came to Detroit earlier this month to let M1 know that he needed more details.
“Now they want us to validate the operating plan. Who is going to operate it?” Cullen said. “We’re answering the fundamental question of how we’re going to do this.”
M1’s plan is 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.
Capital funding is coming from private donors, foundations, corporations, federal tax credits and a commercial loan. The operational funding plan is a mixture of fare box revenue, grants, and advertising and naming rights sales.