Light-rail line canceled in favor of cheaper bus plan

Posted on December 14, 2011

Detroit’s dire financial situation has forced cancellation of a $528 million plan to build a light-rail line along Woodward Avenue from downtown to the city limit at Eight Mile Road, ending four years and millions of dollars in planning work in favor of a cheaper plan for dedicated bus lanes, Crain’s has learned tonight.

In October, Gov. Rick Snyder proposed a network of high-speed buses in dedicated lanes that would operate separately from the Detroit Department of Transportation and the Suburban Mobility Authority for Regional Transportation. The system would operate as part of a regional transit authority, bills for which are expected to be introduced in Lansing.

Although details are few, the basic system could include routes along Gratiot, Woodward, Michigan Avenue and M-59 corridors with connections to Detroit Metropolitan Airport. There’s been no talk of cost or how it would be paid for.

That plan, apparently, will replace the more expensive rail effort that has attracted federal, state and private funding commitments. Crain’s broke the news of the proposed light-rail project in 2007.

Matt Cullen, CEO of M1 Rail, the consortium of local private sector investors in the project, declined to comment tonight. The group previously had expressed skepticism of the city’s ability to fund and manage the project.

M1 has sent a letter to Bing and Snyder proposing a 3.2-mile rail line from downtown to the New Center Area, saving some level of train service instead of losing the entire nine-mile-long project.

Peter Rogoff, administrator of the Federal Transit Administration, also had publicly questioned Detroit’s plan to fund the rail system but had sent staff to the city to work on a plan.

The city of Detroit expects to run out of cash by April. By the end of the fiscal year in June 2012, the shortfall is estimated to be $45 million. The city has an accumulated deficit of about $180 million in its $1.2 billion general fund.

The state has ordered a review of the city’s finances, widely seen as a step toward Snyder’s appointing an emergency financial manager who would have near-dictatorial powers to open union contracts and institute other austerity measures.

It was revealed this week that Bing, Snyder and U.S. Transportation Secretary Ray LaHood had a conference call Monday. Snyder’s office told Crain’s this week that the city’s financial situation in relation to federal transit dollars for the rail project was not discussed, and it’s unclear whether the three had talked about the rail project situation at another point.

LaHood’s office issued this statement: “Secretary LaHood is committed to working with Governor Snyder and Mayor Bing to help find safe and reliable solutions to the transit challenges facing the residents of the greater Detroit region. The Department of Transportation applauds their efforts to work together on a regional transit solution that will offer residents safe, cost-effective ways to reach their schools, jobs and churches.”

The rail project was being overseen by the quasi-public Detroit Economic Growth Corp. after Bing stripped it away from the beleaguered Detroit Department of Transportation. The DEGC already had a relationship with M1 Rail. The agency is contracted by the city to act as staff for a number of authorities — including the Downtown Development Authority, which had committed $9 million to the rail project’s funding through the private investment group.

The M1 consortium, which initially tried to build a small version of the rail line without government involvement, had pledged $100 million in cash and tax credits toward the project’s capital costs.

Its members 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-basedCompuware Corp.; the Ilitch family, owners of the Detroit Tigers, Red Wings and Little Caesar Enterprises Inc.; and Quicken Loans Inc./Rock Financial founder Dan Gilbert, the project’s co-chairman.

The 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. The Troy-based Kresge Foundation has pledged $35 million, part of which already has been spent.

M1’s funding represents nearly half of the $210 million local funding match required to leverage $318 million in Federal Transit Administration money needed to build the system. That’s the plan under the New Starts’ 60-40 match program.

The rest of the local funding match is coming from several sources, including $74 million from the sale of $125 million in Capital Grant Receipts Revenue Bonds by the city, $12 million from previously received federal transportation grants and $25 million from a federal Transportation Investment Generating Economic Recovery grant.

Some of the funding crafted by the city diverted DDOT bus funding for the rail project — something that worried the feds, who sought to craft a new financing plan. It’s unclear whether another plan was ever produced.

On Nov. 18, President Barack Obama signed a $182 billion stopgap spending bill that will keep the federal government operating until Friday — a piece of bipartisan legislation that included language approving the local matching funds for the light-rail project.

Megan Owens, executive director of Detroit-based transit advocacy group Transportation Riders United, was shocked when she learned that the rail project was doomed.

“It’s outrageous. Mayor Bing just threw away a $3 billion economic development opportunity that should have been the centerpiece of Detroit’s revitalization,” she said.

By Bill Shea, Crain’s Detroit