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Detroit's Folly: Light Rail Edition

Detroit

Call it a variant on retail therapy: Detroit’s preferred method for dealing with fiscal crisis appears to be to double down on boondoggles. First, it pushed forward with a $450 million taxpayer-funded stadium. Now, Michigan Live reports that the city is still going through with a $140 million light rail project—that only covers 3.3 miles:

The federal government signed off on the $140 million M1 Rail project in April. Transportation Secretary Ray LaHood in January announced $25 million in federal funding for the transit project, which will have 11 stops and cost $1.50 per ride. Fifteen private donors led by Penske Chairman Roger Penske, Quicken Chairman Dan Gilbert and M-1 CEO Matt Cullen contributed $100 million to the project.

Even if you accept that this kind of investment—substantially underwritten by private investors, it should be noted—will make a difference to Detroit’s recovery in the long term by encouraging business development, it’s still terrible optics to break ground on a project like this right after the bankruptcy bomb has gone off. Private investors can do as they please with their money, but is pouring taxpayer dollars into infrastructure projects really the best thing to do as, say, pensioners’ futures hang in the balance? Maybe taking a step back is in order.

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  • Thirdsyphon

    I don’t know what prompted private investors to pour $100m of their own money into this project, or what reasoning was used to justify the additional $25m kicked in by the Feds…. but if you’re in charge of Detroit, turning down all that free money along with all the blue-collar jobs that it can create would be political malpractice.

    This project would make sense for Detroit, on these terms, if it had no practical value at all. In Detroit’s position, I’d have a hard time saying “no” to a proposal to excavate a mile-deep pit on the outskirts of town and then immediately fill it in again, if it came with funding on these terms.

    As it is, I’m fairly hopeful that the entrepreneurs who are providing the lion’s share of the funding must have *some* realistic plan in mind to turn a profit on it. Detroit has no reason to doubt them- which is good, because it also can’t afford to.

    • Corlyss

      The project is penny stupid and pound foolish. The feds can’t afford even the $25 mil, and will eventually bail out of maintenance. Look at who the private donors are: big Democratic contributors. There was a sweetheart deal somewhere under the glitz or it was a shakedown. That’s how big city machines work. And lastly, what is the one thing you know for a certified fact about such projects, 3rd? They are always late and over budget. Who’s going to pick up the tab for the 50-100% overrun?

      • Detroit

        The average cost overrun on North American rail projects (including streetcars) has historically been in the low 40% range. (The Feds do not cough up more funds for any overruns, BTW, so either the local taxpayers or the private-sector investors must pay for all of them)

        • Corlyss

          Where’d you get that 40% figure? My 50% was generous on the low side because my experience has been that only small, virtually insignificant projects generate overruns that modest. After all, the whole point of the original cost estimate is to plausibly low-ball the government to get a contract, which once entered into, fixes the government to the contractor as firmly as a spider fixes a fly in its web.

          • Detroit

            I am quite aware of low-balling, boondoggles, and such… I have a forum site about that; however, it is somewhat incomplete, pending upon my taking the time later to work on it.

            You asked for a reference? Why not read from Flyvbjerg, who is likely the best expert on the planet about transit cost overruns, etc?
            http://flyvbjerg.plan.aau.dk/COSTFREQ4.pdf

            He has numerous other studies.

          • Corlyss

            Thanks for the reference. I’ll check it out. Say something when your site gets up and running. I spent 35 years in federal government procurement.

    • f1b0nacc1

      The catch here is that the investments do not include any coverage for operating costs. This is only ‘free money’ in the same way that the first dose of crack is free…it gets you hooked so the dealer can make his money later on down the line…
      Once the line is built, the various public sector unions will control the operation of the line, and will thus be able to blackmail the city to their hearts content. This will in fact make the current financial mess even worse for the city, but the builders will have long since taken then money and run…

      • Thirdsyphon

        I don’t know enough about this project to gainsay you, but it’s hard to imagine private investors throwing in 100m of their own money and getting no interest in or control over the resulting rail line in return. Also, if their real business plan is to extort buckets of money from the coffers of Detroit. . . then they’re idiots who will probably go off and invest in a poisonous frog petting zoo if they’re turned down on this venture.

        • f1b0nacc1

          why would they bother dealing with long term POTENTIAL payoffs, when they can take the money upfront, and bank on some sort of bond settlement down the road? Most of these investors will get their money back in kickbacks and overbilling by wholly-owned contractors up front, the actual bond purchases are little more than seed money. Remember that the investors want a payoff, whether it comes now or later is largely unimportant as long as it is a sure thing…the best way to guarantee a sure thing is to take it up front….

  • Jacksonian_Libertarian

    The Democrats solution to the big government burden crushing the life out of the economy is, More Big Government. There’s a shocker.

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