Rail uncertainty raises questions on Talgo project

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By Sean Ryan

Milwaukee may lose money renovating a building for Talgo Inc. if the company leaves the city after a couple of years, warned Alderman Robert Bauman during Friday’s Zoning, Neighborhoods and Development Committee meeting.

The Milwaukee Department of City Development proposes to spend $6 million renovating a city-owned building in the former Tower Automotive site for Talgo, a Spanish manufacturer of high-speed trains. The proposed lease for the building, however, lets Talgo leave the site after two years if the company does not receive orders to build 16 more train sets by October 2011.

Ferran Canals, Talgo capital projects division manager, said federal grants already awarded for high-speed rail projects will generate enough demand for the company to get orders for 16 more trains. The Federal Transit Administration in January awarded $8 billion for high-speed rail.

“If we can,” he said, “we will be here manufacturing trains forever.”

Talgo’s four-year lease lets Talgo have two, five-year extensions and would let the company buy the building.

But Bauman said the lease may not last long because the political support for high-speed rail, and the possibility of future grants for projects, will probably die within a year. That could leave Talgo with no more train orders, and the city with an empty, 300,000-square-foot industrial building, he said.

“Congress could switch over to Republicans in November,” he said, “and there could be zero additional orders in the future.”

Talgo would be the first new tenant in the city’s plan to redevelop the 84-acre former Tower Automotive property into the Century City industrial park. A tax-incremental financing district the city created over the land would pay for the Talgo renovation project.

The city’s plan for the TIF district always included renovating the building, said Rocky Marcoux, Milwaukee Department of City Development commissioner.

“What we didn’t know,” he said, “is that we would have this incredible opportunity this quickly.”

TIF districts let cities borrow money to support development in an area and use taxes generated by the area’s increased property value to pay off the debt. When the debt is paid off, the district reverts to traditional property tax collections.

Jim Scherer, vice president of the Milwaukee Economic Development Corp., said other privately owned industrial buildings near the Talgo building have tenants.

If Talgo’s lease expires in a few years, he said, the city would have a good chance of finding new tenants.

The project would renovate the entire building. Talgo’s initial lease is for 133,000 square feet, less than half the space.

The Common Council’s Zoning, Neighborhoods and Development Committee on Friday approved the Talgo lease, with Bauman casting the lone dissenting vote.

But Bauman said he may use a parliamentary procedure during Wednesday’s Common Council meeting under which he would need only three votes to delay the lease for one month.

“This is certainly an opportunity for the city of Milwaukee,” Bauman said, “I’m inclined to support it. I’m not inclined to support it today.”

Bauman said aldermen have not received enough details about the Talgo lease, and he needs more information, including the prospects for the city building if the Talgo lease expires.

Jeff Fleming, DCD spokesman, said a delay in approving the lease would “present significant complications.”

Talgo must move into its facility by September at the latest to meet a 2012 deadline to build two high-speed trains for the Wisconsin Department of Transportation, Canals said. Talgo also has an order for two train sets from the state of Oregon.

To finish the building renovation by July, DCD plans to bid the contract on Friday, Marcoux said. The city is collecting bids for a contract to demolish the building immediately west of Talgo’s proposed facility. Bids are due April 1.

Canals said that, as long as Talgo has trains to build, the company will stay in Milwaukee.

“It’s not an issue for us,” he said of the opt-out provision in the lease. “We are here for the long run.”