From Crain’s Detroit Business
Until an accord is reached on critical aspects of the Woodward light-rail line, a consortium of private-sector donors who have pledged $100 million toward the project’s $528 million capital costs won’t commit any money.
“We’ll wait to see if there’s a project that makes sense and is viable. Then we’ll be prepared to invest,” said Matt Cullen, CEO of M1 Rail, the coalition of project financial backers who mainly favor a curbside alignment for the line rather than the median-running layout apparently preferred by the city.
And until the debate is resolved, the $100 million exists largely as just a series of informal “soft” commitments from donors, some of which have lapsed because the 9.3-mile, streetcar-style line between Hart Plaza and Eight Mile Road still remains in the planning stages.
“It isn’t like this money was in a box,” Cullen said.
The M1 money accounts for 47 percent of the project’s $210 million required local match needed to leverage $318 million in federal funding to build the line.
The impasse over the line’s alignment — M1 Rail prefers slower curbside service that delivers people to the sidewalk, while the Detroit Department of Transportation is pushing for a purely center-of-street line that travels at higher speeds — continues behind the scenes, sources familiar with the situation told Crain’s.
Until those details are resolved, M1 Rail isn’t going to firm up its financing commitment, Cullen said, nor will the group commit money to a project that it doesn’t philosophically agree with.
Cullen is quick to add that he expects the city and M1, along with the Federal Transit Administration staffers advising DDOT on the project, to come to an accord.
“Everybody on our side of the project wants it to happen and will be reasonably flexible about it,” he said, adding that preliminary plans for a mostly median-running line have begun to circulate in recent weeks, and project engineering is only about 10 percent complete.
“All the funders, including the city, M1 and FTA, have to have a project they’re all comfortable with,” he said, noting that the line will be a hybrid curbside-median layout that will likely loop west to include the Rosa Parks Transit Center at Cass and Michigan avenues.
The $100 million is part of the required local match needed by DDOT to leverage funding under the Federal Transit Administration’s New Starts program, aimed at partially funding qualified local fixed guideway transit projects such as rail. Washington would fund $318 million if the project’s New Starts application — expected to be made late in the summer — is approved. (See box.)
DDOT is confident it will develop a project that satisfies concerns and that M1 Rail will come through with its funding commitment.
“The city is not concerned about whether they’re going to do that,” said Bob Berg, a partner and vice president of Detroit-based Berg Muirhead and Associates, which does media relations work for the city.
The alignment will be laid out based on federal project criteria and what makes the most sense based on public comments collected during the environmental impact process, Berg said.
Mayor Dave Bing will make the final decision on the route, alignment, stations and other details, based on recommendations made to him by Detroit CFO Norm White, who is leading the rail project.
Decisions on the alignment and other details are expected this summer, and construction could begin later this year. Organizers say the line will be operational by 2015.
The money
M1 Rail assembled its $100 million in financial commitments largely from pledges to buy the advertising rights for the line’s stops, foundation gifts and federal tax credits.
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 software company 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, Cullen said.
Four other donors have withdrawn their informal $3 million station commitments, Cullen said. He declined to name those donors and said he believes they can be persuaded to recommit once there is a finalized design for the rail line.
“There are other softer commitments that we had in place and we have to get back in place,” he said. “We couldn’t get certainty on all of the funding sources.”
Also pledging funds to M1 are the Troy-based Kresge Foundation ($35 million) and Detroit’s quasi-public Downtown Development Authority ($9 million).
The final portion of the $100 million wasn’t cash at all 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 the rail project plans are in place, Cullen said.
“We are confident we can put them back in place,” he said. Originally, M1 Rail said it had arranged for $125 million in financial commitments, but $25 million was from a federal transportation stimulus grant that was signed over to DDOT for the project.
Currently, all of the funding commitments exist informally.
“We don’t have binding funding agreements,” Cullen said. “Have we had people coming in and out of that? Yes we have. Is that surprising? No. It’s all predicated on people being comfortable with the project.”
He attributed some of the lapsed commitments to changes in personnel at those businesses or organizations, and the recession.
The concerns
Cullen said M1 wants to see three main things:
• What does the project look like?
• Can it be built within its budget?
• Is it financially sustainable?
“All of this other discussion and noise, ultimately it has to be addressed by those three things,” he said. “It’s got to make sense holistically.”
DDOT has assembled a variety of financial resources to handle the annual operating costs. (See box.)
M1 Rail originally intended to unilaterally finance a rail line from Hart Plaza to Grand Boulevard but stepped aside in 2010 to allow DDOT to lead the larger project.