$12.2M federal grant to help complete Detroit’s M-1 rail project along Woodward

David Shepardson
The Detroit News

Detroit’s $136 million Woodward Avenue light rail project won $12.2 million in additional federal funding Tuesday — a major milestone that will help complete the effort.

The award represents the last major piece of financing for the M-1 Rail, although some lesser donations and tax breaks have yet to be buttoned up.

“Because of this support and the support from all of our donors and partners, M-1 Rail is on its way to becoming an engine of economic growth that propels this entire city and region forward,” said the project’s CEO, Matt Cullen.

Tuesday’s grant was the second from the U.S. transportation department, and brings the federal commitment to $37.2 million. But corporations, foundations and state taxpayers have borne a majority of the costs: They’ve pledged $121.75 million toward construction, rail cars and other capital expenses, plus a $20 million reserve fund. The top donors are the Kresge Foundation, Quicken Loans Inc. and Penske Corp., and local hospitals and health care companies; Detroit’s three automakers and others have pledged smaller amounts.

M-1 Rail has been in talks to receive another $6 million in additional donations and is near closing on tax credits essential to the project.

The first shovels went into the ground on Woodward in late July; crews began welding track this week. The 3.3-mile line from downtown to Midtown is to be completed in late 2016.

In an interview Tuesday, U.S. Sen. Carl Levin, D-Detroit, called the additional federal grant “a huge boost for the city” that he hopes will lead to a regional bus system. He and other members of the state’s congressional delegation lobbied the White House and others for the money.

U.S. Sen. Debbie Stabenow, D-Lansing, called the funding “another vote of confidence in the amazing public-private partnerships that are moving Detroit forward.”

The city of Detroit applied for the $12.2 million grant in April. It warned that without additional federal funding “it is doubtful that the project — to which so much time, energy, and financial commitment has been dedicated by all its partners — will be able to go forward.”

On Tuesday, The Detroit News obtained confirmation of the award — a formal announcement from the Department of Transportation is expected Friday — and first reported the decision. Under the Freedom of Information Act, The News also secured a copy of the 30-page grant application that revealed new details about the project and its benefactors — some of whom upped their commitment and others who retrenched or dropped out.

While awaiting a decision on the additional federal grant, M-1 Rail’s board decided to start construction. Cullen said it was essential to proceed rather than miss another construction season and access to federal tax credits.

“We’ve been figuring it out all along; every time we’re confronted with a circumstance, we figure out how to deal with it and to move forward with the project,” Cullen said in a telephone interview last week. While he issued a statement on Tuesday’s grant approval, he didn’t return messages seeking additional comment.

M-1 is planning to hold an event with members of Congress Monday touting its progress.

In his interview with The News last week, Cullen said he’s in talks with prospective donors to add at least another $6 million in contributions — with $4 million earmarked for the project’s reserve fund and $2 million for the capital fund.

M-1 Rail plans to have $25 million in the reserve fund by the time the first street car heads down Woodward. The reserve fund is intended to cover operating and maintenance costs, which are expected to initially exceed fares collected from riders, for six years.

M-1 Rail expects about 1.8 million riders in its first 12 months of operation.

The application document filed in April discloses the project’s biggest donors — Quicken Loans, Penske and the Kresge Foundation — agreed to boost funding to its reserve fund by $8 million. But the project’s capital fundlost $4.5 million in donations when the Kellogg Foundation opted not to go through with a $3 million contribution, and Compuware cut its planned donation in half to $1.5 million.

Dana Linnane, a spokeswoman for the Battle Creek-based Kellogg Foundation, said while it had written a letter supporting the project and its own staff had recommended a $3 million grant, the foundation board did not approve the contribution. The foundation, she said, generally does not fund construction projects. Compuware didn’t immediately respond to a request for comment.

The Kresge Foundation agreed to boost support for the project in June and has now committed $49.6 million to the project — significantly more than previously known, the foundation and M-1 Rail confirmed.

Earlier this year, Quicken Loans and Penske were listed by M-1 Rail as contributing $3 million each. Cullen said Quicken Loans and its Rock Ventures unit have upped their total contributions to the project to $10 million; Penske’s support now stands at $7 million.

“It’s been a tremendous balancing act to keep this all in place,” he said of the dozens of funding pieces. “We’re underway and as we committed all along, we were going to get it done. ... The exact (funding) algorithm changes from time to time — not surprising over seven years.”

The project is expected to reach another milestone as early as Wednesday, by closing on about $8 million in New Market Tax Credits. That’s below the $10 million M-1 Rail estimated it would receive earlier this year.

The New Markets Tax Credit Program was established by Congress in 2000 to spur new or increased investments into operating businesses and real estate projects in low-income communities.

It permits individual and corporate investors to receive a tax credit against their federal income tax return in exchange for making equity investments in specialized financial institutions.