Obama signs bill that green lights Woodward light rail private funding deal

Posted on November 21, 2011

On Friday, President Obama signed a $182 billion stopgap spending bill that will keep the federal government operating until Dec. 16 — a piece of bipartisan legislation that includes language approving the local matching funds scheme for Detroit’s Woodward Avenue light rail project.

Crain’s first reported in November 2009 that such language had been crafted by U.S. Sen. Carl Levinto allow the $100 million assembled by a consortium of private investors to act as the federally required local matching funds needed to trigger the release of money from Washington that would pay for the majority of the project.

The $528 million, nine-mile route with 19 stops between downtown and the city limit at Eight Mile Road needs $318 million from the Federal Transit Authority’s New Starts program that’s aimed at partially funding qualified local transit projects such as rail.

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

The M1 Rail consortium of private investors have 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-based Compuware Corp.; the Ilitch family, owners of the Detroit Tigers, Red Wings and Little Caesar Enterprises Inc.; and Quicken Loans/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.

However, that was the formula proposed by DDOT. It’s unclear if DEGC will modify that plan, which FTA Administrator Peter Rogoff has questioned in recent months. M1 Rail also has pressured the city to satisfy its desires for the rail line’s route and track alignment.

The FTA previously told Crain’s that funding for the project, which the city must still apply for, wouldn’t be requested from Congress until at least 2013. That would not prevent construction from beginning prior to that because the city also has some funding on hand, and could issue bonds against future federal aid. The line is supposed to be running by the end of 2015 or early 2016.

The rail project got its federal environmental regulatory approval in September.

For details on the project, click here.

Bill Shea, Crain’s Detroit