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Transportation bill provision sends Met Council scrambling to fund Southwest LRT planning

Through the omnibus transportation bill, state lawmakers pulled almost $30 million in funding from the project.

As a result of pulling the money, the Legislature sent Metropolitan Council staff — and Southwest LRT’s project office — scrambling.
MinnPost photo by Bill Kelley

State lawmakers slipped a little surprise into the transportation budget bill that passed in the closing hours of this year’s legislative session.

Couched in language that only an insider would understand, the Legislature yanked almost $30 million in funds intended to cover part of the state’s share of Southwest Light Rail construction.

That figure was what remained of a $37 million appropriation that the Legislature had made in 2013 — money that was a down payment on the state’s $160 million share of the proposed $1.66 billion line, slated to run from downtown Minneapolis to Eden Prairie.

As a result of pulling the money, the Legislature sent Metropolitan Council staff — and Southwest LRT’s project office — scrambling. 

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The original 2013 appropriation, it turns out, was being used to pay the on-going costs of planning the 16-mile extension: funding project staff, engineering and environmental studies  — pretty much everything that is being done to get the project ready for presentation to the federal government next year for environmental approval, and to make sure it’s eligible for matching funds.

And without on-going funding for the project, the Met Council and its Southwest Project Office would not be able to do what Gov. Mark Dayton directed it to do in April, when an updated budget pushed the project cost from $1.66 billion to almost $2 billion: look at alternative transit modes for serving the southwest suburbs; hire consultants to measure the quality and capabilities of the project’s staff; and begin an on-going attempt to reduce the project budget back to $1.66 billion.

Those key budget decisions are expected Wednesday from a committee made up of elected officials from communities along the proposed line: Minneapolis, St. Louis Park, Edina, Hopkins, Minnetonka and Eden Prairie.

Temporary funding mechanism approved

To solve the short-term project financing gap created by the Legislature, the Met Council last week approved a temporary funding plan to keep the office running through early next year. The plan, which involves moving around other funds in the Met Council budget, was made a bit easier thanks to another quirk of the state transportation budget. While the Legislature rescinded $29.7 million in unspent SWLRT money, it actually added money to the Met Council’s budget for transit improvements.

What that means is that in order to pay for SWLRT planning, the council will shift $13 million from a reserve fund paid for by the Motor Vehicle Sales Tax — then use the money appropriated from the Legislature this year to backfill the money that was just shifted over to fund the project’s ongoing operations.

Taken together, it means that it will leave operations “with no negative impact,” said Metro Transit finance director Ed Petrie at discussion of the Met Council’s transportation committee on June 24. But Met Council and committee member Gail Dorfman wondered if that was true. “It’s not like it has no impact because we would have used that $13 million in a potentially different way,” she said.

Still, the committee members endorsed the plan as a “creative solution” forced on it by the Legislature. “I’m frustrated that the Legislature puts us a position to cannibalize other services,” said Met Council Member Jennifer Munt at an earlier transportation committee meeting. She also feared that it sends a bad message to the Federal Transit Administration, a fear confirmed by Southwest LRT project manager Mark Fuhrmann.

“It is not a positive message to FTA,” Fuhrmann said. The FTA monitors local funding issues “with great interest” and said the council staff must provide a formal funding update at the end of the summer. “They will identify this as an additional stress on the council’s transportation budget.”

‘Tough decisions’ if state doesn’t come through

The one-time budget shift covers a critical short-term problem for the Southwest Project Office: keeping the lights on. But if the Legislature does not agree by next session on some way to cover the state’s 10 percent share of the line, the Met Council will have to scramble again to find the money from other local sources — or lose the project. One proposal that went before the Legislature in the 2015 session that could come back in 2016 is Dayton’s request to give the five counties in the Metro area authority to increase an existing transit sales tax. Proceeds from that proposal would have covered the final $160 million in project costs for Southwest LRT.

In lieu of dedicated funding, the Met Council has also floated an idea to sell “certificates of participation” to investors to raise the amount now projected to come from the state. That financing method would have investors front the council now and be paid back over time with interest. The source of the money that would be used to repay investors wasn’t clear, but it could come from other Met Council transit funds.

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Met Council chief financial officer Mary Bogie posed the issue as: “How we plan to move forward with the state financial commitment without a commitment from the state.”

The certificates were not her first choice as a funding mechanism, Bogie said. And she said she hopes the 2016 session of the Legislature will produce better results for the SWLRT project. But, she said, “if the state’s not there for filling its share, the council will face very tough decisions.”

The discussion of certificates of participation is what elicited a formal letter from state Rep. Tim Kelly. The Red Wing Republican, who chairs the House Transportation Committee, said the potential use of COPs “raises serious concerns.” Kelly’s June 23 letter to Met Council Chair Adam Duininck, questioned why — in the face of escalating project costs and lawsuits challenging the plan — the council “appears to be moving forward full steam ahead.”

“The implications of the council’s proposed alternative funding scheme are staggering for taxpayers and state and local policymakers,” Kelly continued. “Greater consideration of the proposal’s legality and risk are needed before any further action is taken.” He asked for answers to a series of questions, including what the debt service would be on the certificates; what source of money would be used to repay them; and “what transit projects will not be funded now because of the use of these MVST funds being reserved to pay off these COPs?”

Neither the transportation committee nor the full council was asked to approve the COP plan, but staff members said they could come back next year if the Legislature doesn’t act on permanent funding. The rest of the local share of funding for Southwest LRT includes 10 percent from the Hennepin County Regional Rail Authority and 30 percent from the Counties Transportation Improvement Board. If the project is approved by the FTA, the federal government would contribute 50 percent of the project’s total cost.

‘The line is in re-examination mode’

Senate Transportation Committee Chair Scott Dibble said he wasn’t trying to send any messages about the future of SWLRT when he signed onto the $29.7 million cut in the omnibus transportation bill. Instead, the conference committee he and Kelly co-chaired was faced with a tight spending target, and they saw the light rail money as being available to help fund other transportation needs.

“The line is in a reexamination mode,” Dibble said. “It makes sense while that is ongoing to make use of those dollars.” He advised against using the budget as “a foreshadowing that the project is not going to be built.”

That said, the Minneapolis Democrat said he was not fully aware that some of the $29.7 million was needed to cover on-going staff costs rather than being held in reserve for eventual construction. He said he is comfortable with the Met Council shifting other funds temporarily and expects to take another look at transit funding next year. If the Met Council can show the project budget is under control and SWLRT is a viable line, he will support additional money for construction.

Can he overcome House Republican opposition? Dibble described himself as “ever optimistic” and said that at some point Republicans will have to compromise on transit to get the roads and bridges money they seek.

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“Republicans are super-sized anti-transit — not just rail but all transit,” Dibble said. “But they say they really like roads and bridges. At some point along the way we’re gonna have a deal.”