M1 Rail report: Private $137 million plan nearly ready to roll
The private sector organizers of a $137 million streetcar plan for Woodward Avenue say they will subsidize streetcar operational funding for up to 10 years — potentially satisfying one of the project's biggest question marks and criticisms.
M1 Rail also acknowledged that it has not yet secured all of the construction funding or operational money for the project in downtown Detroit, but is close. It reports $84.1 million in pledged funding so far.
"We have raised significant new commitments of financial support and believe we are in reach of our capital goal of raising $137 million for the implementation of this project," the group said in a report it was required to submit to Washington in hopes of securing federal financing.
M1 Rail President Matt Cullen told Crain's earlier this month that the group was about $11 million short of what was then a $125 million project cost. The revised $137 million figure represents the most recent estimate.
M1 said Monday it submitted a 1,200-page report on Friday to the transportation department, meeting a requirement U.S. Transportation Secretary Ray LaHood set for the group on Jan. 6 to validate its project before it could be eligible for federal financing aid.
"The U.S. Department of Transportation welcomes M1 Rail's final proposal and will take the time to give it the thorough review it deserves. Secretary LaHood looks forward to meeting with Gov. Snyder, Mayor Bing and M1 Rail to discuss the plan in the next few weeks," the transportation department said in a statement today.
The group 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 reiterates M1's pledge to build a rail system that it can stand on its own while also feeding into other transit options.
"Simply put, we will not dig until we are certain that we can deliver," M1 said in its report. The goal is to have it running by 2015, and it eventually would be turned over to a public transit body, such as the regional authority for metro Detroit now under discussion in Lansing.
M1 estimates it will cost $5.1 million annually to operate and maintain the line.
"M1 Rail donors will purchase naming rights and/or provide supplemental contributions to 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," the group said in the report.
Cullen said Monday he is confident M1 will have a naming rights sponsor for the entire system, but declined to elaborate. He said arrangements have been made to cover 80 percent of the annual operating costs, and is equally confident sources will be found to cover the remainder.
That potentially could include some sort of tax dollars, but the objective is to not need a dedicated tax (and not need to convince voters for public help) for at least the first decade of the project's life.
Cullen also reiterated confidence in the yearly operating cost estimate, which he said he been dismissed by some critics as too low.
"Everybody's validated that number," he said.
The project is predicted by it backers in the report to "create more than $444 million of project benefits associated with economic development, travel time savings, safety and infrastructure benefits for the region."
Backers also say that $60 million of M1's private investment can qualify as the federally required local match for the proposed $500 million regional bus plan.
The report also sheds new light on who has committed funding to the M1 project: "Major commitments of $3 million have been secured from Quicken Loans, the Ilitch companies, Penske Corp., Compuware Corp., Chevrolet, Blue Cross Blue Shield of Michigan, Detroit Medical Center, Wayne State University, Henry Ford Health System, Wayne County, Ford Foundation and Kellogg Foundation," it says.
The Hudson Webber Foundation has pledged $1 million.
M1's leadership is made up of wealthy, influential Detroit advocates with downtown business commitments: Penske Corp. founder Roger Penske, chairman of the project; 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 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. M1 previously has said that Troy-based Kresge Foundation has pledged $35.1 million, part of which already has been spent, and another $3 million as a "backstop" grant.
The city's Downtown Development Authority has earmarked $9 million for M1, and another $16 million is from federal New Market Tax Credits, which have to be re-applied for annually.
Financing plans include a $22 million commercial loan.
M1 also is relying on a $25 million grant from the federal Transportation Investment Generating Economic Recovery program.
The 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 transit funding.
A previous $25 million TIGER grant for the city's rail project has since been transferred to a regional bus project.
M1 won't actually own the assets. According to the report, a new entity is bring created to own the system to satisfy requirements of the complex New Market Tax Credit formula: "An affiliate of M1 Rail (a Qualified Low-Income Community Business, or QALICB, referred to as M2) will be created in order to construct and acquire the project facilities and equipment. M2 will own all project assets for tax purposes."
The report and new disclosures about the project stem from its near death in December.
That's when Bing and Snyder jointly announced that the city was dropping its $528 million light-rail plan in favor of a state-backed regional rapid-bus system that cost about the same but connects key points in the metro area.
LaHood hailed the bus plan when it was announced,.
M1 had become part of that rail plan, and 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 has drawn skepticism at the federal, state and local levels.
The 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.
One looming unknown that could drive up M1's cost is what is underneath Woodward Avenue, the new report says. Until construction crews start digging, project analysts can make only educated guesses.
The state's $19.5 million plan to rebuild a 2.5-mile portion of Woodward between Sibley and Chandler streets in 2013 — it's still a state highway, a fact that lends the M1 name to the private project — means the unknowns would have been dealt with for at least that stretch of the project.
"To mitigate this risk, the M1 Rail project is being built in conjunction with the Michigan Department of Transportation's planned 2013 reconstruction of Woodward Avenue, enabling M1 to mitigate underground risks through partnership with MDOT," the group wrote.
If costs fail to meet estimates, M1 said it will end the project.
"In the unlikely event that the project's pre-construction phases consisting of more detailed design, environmental clearance and construction procurement deliverables demonstrate the project cannot be delivered within the financial resources available, M1 Rail will be the first one to cut its losses and terminate the project," it said in the report.
Other highlights from the report:
* The 3.31-mile line will be a mostly curb-side 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.
* Stops are Congress, Campus Martius Park, Grand Circus Park, Foxtown, Sibley, MLK/Mack, Canfield, Warren, Ferry, Amsterdam (eventually), the Amtrak station and Grand Boulevard.
* Round trips will be 36 to 40 minutes.
* The line will be a pure north-south system in which the streetcar driver gets up and goes to the other end of the car — both ends of the vehicles will have controls — when it reaches the end of the tracks, which will be embedded in the street.
* The streetcars will be smaller than traditional light-rail cars and carry a typical load of 60 to 70 people. Maximum capacity, sitting and standing, would be about 180. Each car costs a couple of million dollars.
* Ridership is estimated at 1.5 million when it launches in 2015, growing to 3 million annually by 2035.
* No demolitions are expected to be required to build the line.