LANSING, MI - Michigan's top transportation official on Tuesday said the state is reviewing a costly lease for rail cars it isn't using, but warned that terminating the contract could set back commuter rail projects by at least five years.

"We're going to work through the financial analysis to see what makes the most sense," said Kirk Steudle, director of the Michigan Department of Transportation, Tuesday in testimony before the House Transportation Committee.

Panel members grilled Steudle over a 2010 contract with Great Lakes Central Railroad of Owosso. As the Detroit Free Press reported last week, the state has spent nearly $12 million over the past four years on the double-decker passenger cars, which have never been used.

MDOT began leasing the cars in 2010 as it worked with regional partners on plans for commuter rail lines between Detroit and Ann Arbor, and Howell and Ann Arbor.

Steudle said new cars would have cost around $3 million each, but GLCR initially offered to refurbish 100-seat cars for $500,000 a piece. He noted that California paid a different company about $1 million to refurbish 64-seat cars.

"If you look at it as a cost per seat, we actually have a better deal than anyone else in the country," Steudle said.

But the commuter rail projects got tied up in red tape and have yet to get off the ground, even as the lease has continued. The Federal Highway Administration transferred oversight to the Federal Railroad Administration, Steudle said, requiring additional analysis and studies that have not yet been completed.

MDOT officials are expected to meet with GLCR later this week as the state considers possible contract changes or termination of the lease. It's believed the commuter rail lines are at least two years off.

"This is not something you can just say, send these away and when we need them we'll get them back," Steudle told lawmakers. "If you're on the other end, you want to know those cars are going to be in your fleet for at least five years, which means they're not coming back for five years. So we will start over again."

Scrutiny of the MDOT lease comes in advance of a May 5 ballot proposal that will ask voters to increase the state sales tax by one percentage point as part of a larger plan to generate $1.2 billion a year in new money for road and bridge repairs.

State Rep. Jeff Farrington, R-Utica, told Steudle he will have a hard time telling his constituents that MDOT is responsible with taxpayer dollars when it is "so glaring that mistakes were made" with the rail car lease.

"If I went to my board of directors and said we're going to sink $12 million into something that we really don't know if it's going to happen or not, I'd be fired," Farrington said.

Steudle acknowledged that MDOT may not have leased the cars five years ago if it knew the commuter rail projects would be delayed, but he said the question now is whether to abandon the initiative all together.

He also noted that the rail cars were leased with money from the Comprehensive Transportation Fund, which can only be spent on rail and transit projects.

"The lease money always has been through there and it always will be," he explained. "It's not coming out of the same pot of money we use to rehab roads and bridges."

Rep. Marilyn Lane, D-Fraser, said she supports investment in commuter rail projects, but noted that money spent on the unused rail cars could have been used to supplement other efforts, including the M-1 project in Detroit. The Legislature, not MDOT, should make those kinds of decisions, she said.

State Rep. David Rutledge, D-Superior Township, also vouched for commuter rail and said MDOT's decision to lease the cars may ultimately prove to be a wise decision if the projects move forward.

"If you unravel this, at the core of this discussion is whether or not you believe commuter rail is going to happen or not happen, or even if it's important or not," Rutledge said.

Jonathan Oosting is a Capitol reporter for MLive Media Group. Email him, find him on Facebook or follow him on Twitter.