DETROIT, US – How does a bankrupt city with a declining population and dwindling public finances provide transportation for its residents? Detroit’s answer to that question has increasingly been to leverage private investments and entrepreneurial ideas.
A few of these entrepreneurial ideas are homegrown. Nearly six years ago local investors developed the M1 Rail concept, the city’s first-ever light rail. The $140 million project, funded almost entirely by private investment, breaks ground later this month and will start operations in the late 2015. Another project, The Detroit Bus Company, was founded as a private enterprise in early 2012 to provide better and more reliable bus service.
At the World Economic Forum’s Dalian conference next week, the WEF will host a panel titled Strategic Shifts in the Transportation Ecosystem that will focus on some of the trends shaping transportation in cities. Detroit’s current system is being affected by these trends as much as any other city around the world.
“I think the private sector has a role to play and I am glad they are here,” said Carmine Palombo, Director of Transportation Programs at the South East Michigan Council of Governments (SEMCOG). “The private sector would not come here unless they saw an opportunity to make a buck.”
Private companies are able to exploit those opportunities because Detroit has neglected its public transportation infrastructure for years, due to a number of factors. On a local level, Detroit’s population has been on the decline for the past sixty years, which has led to a reduced tax base to pay for transit projects. Moreover, governance problems at a regional level have reduced Detroit’s ability to win funding for urban projects in lieu of suburban and car-friendly alternatives.
Whatever the reason for the system’s gaps, local leaders see the problem as an opportunity.
“Detroit is in a unique position,” said Chris Thomas, Founder and Manager of Fontinalis Partners, a Bill Ford-backed private venture capital firm focused on transportation. “Until recently we were the only major metropolitan area without a dedicated transit authority, which to me is a glass half-empty, half-full situation. I see it as a white sheet of paper where we can build the best in brand solution at the lowest cost with the highest functionality.”
Local entrepreneurs agree. In early 2012, serial entrepreneur Andy Didorosi founded The Detroit Bus Company to provide better bus service than the notoriously dysfunctional public options. With only three buses and a website, he decided to first offer local bus tours rather than challenge the local bus system right away. The strategy was an attempt to turn a profit that would fuel the company’s expansion and Didorosi’s larger plan.
Little more than a year later and with the financial support of the Detroit-based Skillman Foundation, it looks like his plan is working, albeit in a slightly different way. Earlier this summer, Didorosi expanded the company’s mission to provide bus service for local after-school programs. While only a pilot project, the Bus Company’s service has helped Detroit’s after-school programs – all 90 of them – rethink their transit services through route consolidation and creating more efficient routes.
Private investments are also funding the light rail project. A non-profit consortium of local business owners and foundations known as M1 Rail are paying the majority of the $140 million cost for the project, which is scheduled to debut in late 2015. The project is seen as the foundational piece of a larger, more efficient transit system connecting the current bus system with a $500 million publically funded bus rapid transit system, rail lines to Chicago, and a commuter line to nearby Ann Arbor.
“I think it will be a really good project for the city,” said SEMCOG’s Palombo. “It will be sort of a first piece that will connect everything else.”
Organizers also hope the project will promote growth and stimulate economic activity. M1 supporters cite studies that show a minimum of six dollars of additional private investment is spent for every dollar invested in projects of this kind. Organizers believe the project will foster additional downtown development, increase population density, and act as the first building block for an improved transit system. The project will run down Woodward Avenue, a major thoroughfare leading into the Downtown Core. Woodward is a somewhat fitting choice since it also bears the distinction of being the first paved road in America.
“This is huge!” said Jeanette Pierce, Community Relations Manager at the D:hive welcome center in Detroit’s Central Business District, and an advisor to the M1 project. “We have been talking about this literally for 100 years to have some sort of rail. Then we have the naysayers [who say] ‘well, it’s not going to go anywhere’ or ‘it’s too small.’ Well, you have to start somewhere.”
Nationally known private transit brands have also joined their local entrepreneurial counterparts in Detroit. In March, Uber announced its smartphone-enabled taxi company was coming to town. In July, on the same day that Detroit officials announced the city was bankrupt, Zagster revealed the launch of its bike-sharing program for Quicken Loans and Rock Venture employees. Two weeks later, ZipCar expanded its car-sharing enterprise into the downtown core.
While the private sector has been filling in public transit gaps, the region has also been working to get its act together on the public sector front. After over 40 years of local wrangling, the state legislature passed a bill earlier this year creating a Regional Transit Authority charged with overseeing a proposed $500 million bus rapid transit system and, potentially, the consolidation of the region’s two dysfunctional bus systems.
Some in the transportation sector see the RTA as a major boon to building the public transit system Detroit needs.
“I think it will enhance and improve public transit in the four-county area,” said SEMCOG’s Palombo. “It will do two things. One, it will consolidate and coordinate the existing activity so that we get the biggest bang for our buck on the existing system. And the second thing is the opportunity for the first time to go to the people in the four counties to ask for and approve more dollars.”
As for the RTA working with their private-sector partners, Palombo was bullish. “I think when the dust settles – if everything goes down right – then you will have different entities serving different markets. Everyone has to play nice in the sandbox. To be profitable the market will fix itself so that they [transit providers] are providing service in a market that works for them.”