Take Private Money and Going Public
Something major happened Wednesday to Detroit, and we all should be standing up applauding this game-changing event.
The first part of the story is the $25 million the U.S. government committed to the M-1/Woodward Avenue Light Rail Project on Feb. 17. The big news is the partnership between public and private money that made this federal grant possible.
The project combines the power of Detroit, the state via the Michigan Department of Transportation and at least four financial superstars (including Roger Penske, Mike Ilitch, Peter Karmanos Jr. and Dan Gilbert) who are doing everything within their power to get Detroit where it needs to be. Bless you, boys.
Say what you will about some of their other financial decisions (re: Kwame), but this light rail thing is a winner.
“Your business community should be congratulated,” said Frank Rapoport, Chair of the Global Infrastructure and Public Private Partnership (P3) team for international law firm McKenna, Long & Aldridge LLP. “Detroit is out front here. It's a great example of a public-private partnership.”
Rapoport, an expert on these unique funding structures, has studied Detroit's partnership. And he is impressed. He called our project “a model” for the rest of the nation. He noted that every state governor, city mayor or chamber of commerce should take note of how Detroit created this money-generating project – because it is the future of economic funding for the whole country.
The private funding, sponsored mostly by the Big Four Money Guys through the M-1, is a cool $125 million. The $25 million from the feds comes through a TIGER grant – discretionary funds known as the Transportation Investment Generating Economic Recovery program. All told, the project will take much more than this to complete, especially with plans to take it as far as Ann Arbor.
The key word there is discretionary. The feds didn't need to give us this money, Rapoport said. The reason they did is because the private money from the M-1 guys (and gals) is there.
“This is a competitive award based on what local government is doing and the federal government added to it,” Rapoport explained.
This funding structure is significant because municipalities like Detroit may not have the funds to get these projects off the ground. And the federal government may not have or doesn't want to put its money in these areas. But private dollars are there, and they are willing to get their payback on the back end of the project to make sure things like schools, roads and light rail gets built.
“The model that Detroit is using is a little more innovative because millionaires are stepping up,” Rapoport said. “This is the future of private financing for public infrastructure.”
This type of funding has happened in Europe, Canada and elsewhere for decades, Rapoport noted. Canada's program is so good that Gov. Arnold Schwarzenegger checked in with them about three years ago when he wanted to learn how to do it, Rapoport said.
Some background: The M-1/Woodward Avenue Light Rail Project will construct a light rail system connecting downtown Detroit to the New Center district along the area's main artery, Woodward Avenue. The project is 3.4 miles long with 12 station stops. The light rail system will run on both sides of the street in the second lane from the curb and will be co-mingled with vehicular traffic. TIGER funds will be used for road rehabilitation, a streetscape enhancement project and the purchase of light rail cars.
The U.S. Department of Transportation lauded the project in its award press release:
The project will have significant short-term benefits for Detroit's beleaguered economy, including job creation and economic activity. The city also expects the project to provide for significant long-term economic growth in the corridor, while improving mobility on a congested portion of Woodward Avenue, which carries 27,000 vehicles per day, on average. The project is also expected to enhance mobility options in this corridor, and attract investment to Downtown Detroit and the New Center area.
USDOT also noted the public-private partnership, mostly because it “leverages significant co-investment–almost half of the project's costs–from local and private sources, including station sponsorship, a development authority and a non-profit foundation.”
There are some opponents to the project -- check them out here.
Here's some more about the project from our friends and partners at CNN/Money.
I'm cheering on this project and trying to learn as much about it as I can. How about you?