MDOT to halt payments on idle railcars

LANSING – The Michigan Department of Transportation, responding to criticism from lawmakers and taxpayers after the Free Press reported the state agency is paying more than $1 million a year to lease railcars it can’t even use, is finalizing an agreement to halt the payments on Sept. 30, according to the state’s top rail official.

Tim Hoeffner, director of MDOT’s Office of Rail, said details aren’t finalized, but this much is agreed between MDOT and the owner of the cars, Great Lakes Central Railroad: The state will stop the lease payments of $3,000 a day, but the railroad will still promise to make the railcars available to MDOT, should they be needed, for up to five years.

MDOT wants the double-decker passenger cars, formerly used by commuter train operator Metra around Chicago, for proposed commuter services between Detroit and Ann Arbor and between Howell and Ann Arbor. But neither service has been approved or funded, some of the tracks the trains would use are not ready and officials say start dates are likely about four years away.

Scrutiny and criticism of the lease payments by lawmakers and others began after the Free Press reported Feb. 1 that MDOT has invested about $12 million since 2010 in the railcars, which sit idle in a rail maintenance yard in Owosso, northeast of Lansing, where Great Lakes Central is based.

Those payments include about $7.6 million to overhaul and refurbish the railcars, close to $3 million in lease charges, and more than $1.1 million paid to a consulting firm. Under the terms of MDOT’s 2010 contract with Great Lakes Central, the lease cost increased sharply last year to an in-service rate, which totals about $1.1 million a year once the refurbishments were completed, even though the railcars are years away from carrying any passengers.

After a series of heated legislative committee meetings, at which one Republican lawmaker told MDOT Director Kirk Steudle that a private-sector official would lose his job over the debacle, Steudle promised to “stop the bleeding” by finding customers to sublease the railcars or by terminating the lease. That’s what led to the current talks with Great Lakes Central.

Ultimately, MDOT opted for a middle route under which it stops making lease payments, but maintains an element of control over the railcars and its significant investment in them.

Hoeffner said under the new agreement, which is being finalized and scrutinized by attorneys, Great Lakes Central would be able to lease the cars to other customers for the next five years, provided it can make the railcars available to MDOT upon request.

Under the 2010 agreement with Great Lakes Central, MDOT is entitled to about 50% to 70% of the net lease or sale revenue from the railcars, depending on the type of railcar leased or sold by Great Lakes Central and the timing of the lease or sale.

It’s not clear whether those terms would remain in effect under the new agreement, and Hoeffner would not discuss details.

“What we’re working on right now is the contract that would promise the availability of the cars and also set the terms and conditions for the lease of the cars for future use,” Hoeffner said Thursday.

Chris Bagwell, executive vice president and general manager of Great Lakes Central, and Louis Ferris Jr., the railroad’s owner and board chairman, did not respond to telephone messages on Friday.

Great Lakes Central purchased the former Metra cars, which date from the 1950s and 1960s, in 2004 for about $114,000 each, records show.

Mark Dobronski, president of the Adrian & Blissfield Rail Road Co. and the Jackson and Lansing Railroad Co., which compete with Great Lakes Central in Michigan’s rail marketplace, said Friday he’s suspicious of the terms of the pending agreement between MDOT and Great Lakes Central, “given the mystery that has surrounded these cars for the last five years.”

MDOT “should have never entered into this agreement in the first place” and rather than negotiating a new contract should “pull out of it — it’s a bad deal,” Dobronski said.

The state should instead use the four-year gap before commuter services are expected to begin to obtain newer passenger cars, he said.

Concerns have been raised about how accessible the railcars are for passengers in wheelchairs and whether they will be deemed compliant with the Americans with Disabilities Act.

Also, in 2010, Great Lakes Central pledged the railcars — along with other rail equipment the railroad owns — as collateral when it obtained a $17-million loan from the Federal Railway Administration, records show.

FRA officials would not say what value was attached to the railcars MDOT is leasing without first processing a U.S. Freedom of Information Act request. They also would not say what, if any, restrictions are placed on a potential sale of the railcars.

Hoeffner said the federal lien against the railcars should not affect MDOT’s ability to use them in future commuter rail services, provided Great Lakes Central retains ownership of them.

One potential positive from the controversy surrounding the lease payments, he said, is that it has increased interest in the proposed commuter services among local officials whose communities would be served by them.

Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4.