Local in Ann Arbor

The leaders (movers, shakers, and Council majority) of Ann Arbor celebrate the notion of Ann Arbor exceptionalism.  This evidently extends to invulnerability in times of uncertainty.  While the nation and even the world wait to see what will unfold with the Trump presidency, we are ready to bet on future Federal dollars to achieve our dream of a new train station.  On June 5, 2017, City Council will be asked to pay an additional $137,026 toward the new station.  (The last vote was in January, to put money into a contingency fund for this purpose.)  This money is intended to allow the City to collect the last part of a planning grant for a new station. Yet, it appears unlikely that Federal funds will be available for actual construction of a station.  And even more significantly, the contracted work may not be finished in time to be reimbursed under the current grant.

A good summary of the situation was provided by Ryan Stanton, writing for MLive.com (Ann Arbor News).   Stanton has been following this issue closely and earlier submitted a FOIA to see the document that the City sent to the Federal Railway Administration (FRA) for review.  All in all, the City of Ann Arbor has qualified for an award in non-transparency with regard to this project. You may remember the famous picture of the email with all lines redacted.  It has released no public documents about the project since September 2016. (All public documents are available on the City’s Ann Arbor Station page.)

Timeline on Ann Arbor City website for grant acceptance

But the project is running up against a brick wall.  The grant funds expire (gone back to the Treasury) as of September 30, 2017 (end of FY 2017). The schedule published on the City web page indicates that the required public hearing and 30 day review of public comments was to take place in December 2016, with final approval of the EA in January.  But the proposal has languished in some void between the FRA and the consultants.  Now it appears increasingly difficult to fit in all the tasks needed before expiration of the grant funds.  That would leave the City liable for all the costs that have been incurred since this phase of the work began.

As the City Administrator, Howard Lazarus, noted in a letter to Council members,

FRA has expressed some concern over the City’s ability to complete the work within the grant funding period. To that end, FRA has authorized a “tapered match” approach, in which the City can access the federal funds first. Staff believes under this structure, we can advance the majority of the PE effort before the end of July. Council should note that the FRA cannot guarantee that invoices sent to them after June 30th will be processed prior to their mid‐September cut‐off for FY17 funds disbursements.

Lazarus is asking Council to approve an amendment to the consultants’ contract that appears to extend their tasks beyond the original contract. One could speculate that some of this is to answer questions from the FRA in their response to the previous submission.  There is a slight pleading quality to Lazarus’ letter to the FRA. (Note: full-size text may be viewed by clicking on these illustrations.)

From Howard Lazarus to FRA Midwest Regional Manager May 26, 2017

An odd note is that the project is not shown in the attached schedule to be completed until October 2017.  How does that reconcile with a September 30 deadline, much less a June 30 deadline?  Yet presumably the City would not pay the consultants in advance of their work.  (The usual approach is that consultants issue invoices as work is done, and the City sends them to the FRA for reimbursement of the grant amount.)  It appears that the City is proposing to make itself responsible for completion of the work past the grant deadline.  All of this seems to be very creative accounting practice.

What’s  the Problem?

We recently alluded to the history of former Mayor John Hieftje’s vision with reference to the grant that was awarded for the first phase of planning a new train station.  Like most Federal grants from those golden days, this ARRA grant of $2.8 million (from the Obama stimulus of 2009) is for 80% of the cost – in this case, for the Environmental Assessment under NEPA, and some preliminary planning and engineering.  It has been the expectation that a future grant for actual construction would follow that same 80% Federal – 20% local rule.  But even 20% of a multimillion dollar building is a big bite for a small city.  So originally, the promise from Mayor Hieftje was that the City would put in NO GENERAL FUNDS.  Instead, the local match was to be picked up by the University of Michigan in a joint project, the Fuller Road Station. (Here is a post in which that promise was made explicitly). That deal fell apart and UM built a parking structure elsewhere.  Ann Arbor had already expended a fair amount of money on early planning, but that work was not accepted as a local match toward the grant, so the money was essentially wasted and new cash from the General Fund had to be invested in order to stay in the running for the grant.  The City has now spent over $1 million just in matching funds for the grant (most of this went to consultants and planners), though much more has been spent that doesn’t apply directly to that grant now.  And now it could be liable for all the sum left (about $750,000), including the 80% Federal match.

Predicting the Future of a New Station

Much of the uncertainty has been in the Federal budget process itself.  As we explained in some detail earlier, transportation funding is complex.  Part of it is based on the Highway Trust Fund – a dedicated source of revenue.  The rest is dependent on the dispensation of Congress, in money from the General Fund or from new sources of revenue.  Much of that was hanging by a thread until recently because all Federal funds were dependent on passage of a continuing resolution – which happily was passed on April 28 and signed by the President.  Here is a summary of transportation funding under that resolution. Note that some important items, namely TIGER grants and New Starts, that were to be eliminated according to the President, were saved in this extension.

Meanwhile, the President, or more accurately, the White House, presented Congress with an Executive Budget. As has always been true of Presidential budgets, this is more a policy document than an actual description of how money will finally be allocated.  Only Congress gets to appropriate money.  But it is important because it shows President Trump’s priorities and thinking.  And those priorities do not include handing money out to little cities.  Here is a revealing summary of the “Infrastructure Initiative”.  From the summary:

The flexibility to use Federal dollars to pay for essentially local infrastructure projects has created an unhealthy dynamic in which State and local governments delay projects in the hope of receiving Federal funds. Overreliance on Federal grants and other Federal funding can create a strong disincentive for non-Federal revenue generation.

Instead, the White House would move to a model in which private investors would enter into partnership with states and local governments to build or improve projects that have a revenue generation capability.  So – toll roads, transit prices high enough to pay a profit, fees for using anything. The Feds would simply facilitate all this.  The idea is so potent that investment funds along these lines have already attracted Saudi investors.

Under the very best of scenarios, Congress will pass a budget for FY 2018, to begin October 1.  All current funding will expire as of September 30.  In the past few years, Congress has failed to pass a budget at all and instead has relied on a series of continuing resolutions, which generally hold most budgets where they began, with a few small changes.  But let’s assume that they make it this time. (After all, one party controls both houses of Congress and the Presidency.)  What are the chances that discretionary spending on transit will be included in the new budget, given the strong leanings by the White House and the tax-cutting mood of Congress?

A Double Gamble

So it appears that the City of Ann Arbor is placing bets on its cards for two outcomes:

1. That it can recoup all the grant monies for the current project, against a very tough timeline
2. That this will somehow result in the future in a new train station.

But it also appears that there is a mood of desperation at the possibility of having the effort collapse.  From Lazarus’ letter to Council:

From Howard Lazarus to Ann Arbor City Council

Rather high-stakes cards, and to my risk-averse eyes not a good bet.  Will Council raise, or fold?

This entry was posted on May 28, 2017 at 8:13 pm and is filed under civic finance, politics, Transportation. You can subscribe via RSS 2.0 feed to this post's comments. You can comment below, or link to this permanent URL from your own site.