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November 21st, 2013 By German Lopez | News | Posted In: News, City Council, Streetcar

City: Canceling Streetcar Could Nearly Reach Cost of Completion

Only $7.5-$24.5 million left after fully shutting down project, paying back feds

election_streetcaressay_juliehillIllustration: Julie Hill
Streetcar Project Executive John Deatrick on Thursday revealed that the city might only keep $7.5-$24.5 million if it cancels the $132.8 million streetcar project.

That means the city could potentially spend more than 94 percent of the project’s total costs before it manages to fully close down the streetcar project, which is currently undergoing construction and tied up to various federal grants and business contracts.

The presentation was given in advance of Mayor-elect John Cranley and the newly elected City Council taking office in December. Cranley is an ardent opponent of the streetcar project, and a majority of the City Council says it wants to pause the project and consider cancellation.

Cranley’s proposed alternative to the streetcar — a trolley bus system — would cost $10-$15 million in capital funds, according to supporters of the rubber-tire trolley alternative. If streetcar cancellation costs were to reach the high end of the city’s estimate and the trolley bus is paid for, the city could end up spending $140.3 million to cancel the streetcar project and build a considerably less ambitious trolley bus line about $7.5 million more than it would cost to simply complete the streetcar project.

If it’s completed, Cincinnati Budget Director Lea Eriksen says operating the streetcar would cost between $3.4-$4.5 million each year, which city officials say could come from various potential sources, including a special improvement district that would raise property taxes within three blocks of the streetcar route.

But the operating budget cost would be a wash if Cranley pursues the trolley bus system, which, according to advocates, will cost slightly more to operate than the streetcar. Cranley says the operating cost for the trolley bus is concerning if it holds true.

Following Deatrick’s presentation, Cranley held a press conference in which he flatly denied the current city administration’s estimates. He says he will tap new experts to run over the numbers while the project is put on pause.

We’re going to bring in new, objective leadership, not the current leadership that is clearly biased toward the project and intent on defying the will of the voters, which was clearly expressed a couple weeks ago in this election,” Cranley says.

Deatrick’s cancellation projections account for $32.8 million in estimated sunk costs through November and a potential range of $30.6-$47.6 million in close-out costs, which include construction to close the project — such as repaving torn-up roads — and orders on vehicles and other supplies that are already placed but not officially billed.

The federal government has also allocated $44.9 million in federal grants to the streetcar project.

In a letter released by the city administration on Nov. 14, the Federal Transit Administration (FTA) explicitly stated that $40.9 million would be taken back if the project didn’t adequately progress; the remaining $4 million would be left under the supervision of Gov. John Kasich, who could shift the money to other parts of the state.

But Deatrick’s estimates don’t consider the unknown cost of litigation, which would need to come out of a city operating budget that is already structurally imbalanced, according to Meg Olberding, the city’s spokesperson.

The estimates also don’t consider that the city could potentially forgo spending $7.4 million in contingency funds on the project if it goes through completion and remains within budget, which would lower the project’s effective cost to $125.4 million.

If the city cancels the project, Deatrick says it’s also more likely that the city would lose in its legal battle against Duke Energy, which could add up to $15 million in costs. That money is tentatively allocated from the sale of the Blue Ash Airport as the city and Duke argue in court as to who has to pay for moving utility lines to accommodate for the streetcar tracks.

Those are the potential financial costs, but city officials also warn that canceling the project could have a detrimental impact on the city’s image.

“That’s what the city would be known for forever,” says Councilwoman Laure Quinlivan. “To throw this away would be unconscionable.”

City officials also warn that canceling would be pulling back on a light rail project that President Barack Obama’s administration has clearly prioritized.

“The city-federal relationship is excellent right now,” Deatrick says. “There would be immediate damage to that.”

The 200-plus workers currently involved the project would also be displaced. Councilwoman Yvette Simpson points out pausing or canceling the project in December would leave those workers jobless for the holiday season.

Another concern is the impact of cancellation on the relationship between the federal government and Southwest Ohio Regional Transit Authority (SORTA), which operates the Metro bus system and will operate the streetcar if it’s completed. If the city is unable to pay back the grants to the federal government within 30 days, Deatrick says the FTA could cut SORTA grants for bus service and potentially halt some local bus services.

One concern raised by Councilman Chris Seelbach and Councilman-elect Kevin Flynn, one of the three potential swing votes in the incoming council of nine, is whether the project’s estimated return on investment is still 2.7-to-1 over 35 years. That number is derived from a 2007 study conducted by consulting firm HDR, which was later evaluated and affirmed by the University of Cincinnati.

Deatrick points out the numbers were re-evaluated by HDR in 2011, and they still seem to hold true. He says there are still plenty of vacant buildings along the 3.6-mile streetcar line that could use the encouraged investment, despite some of the revitalization seen in the Over-the-Rhine and downtown areas that the streetcar route would cover.

The 2.7-to-1 return on investment is also “a very, very conservative estimate,” says Deatrick. He claims HDR could have relied on numbers from other cities, such as Portland, Ore., that saw considerably better returns on their streetcar systems.

Still, Flynn and Councilman-elect David Mann, another potential swing vote, say they want to scrutinize the cancellation estimates before making a final decision on the project.

Vice Mayor Roxanne Qualls, a long-time streetcar supporter who lost to Cranley in her mayoral bid, encourages a re-examination of the numbers. But she cautions, “If what has been presented today stands up to scrutiny, there’s absolutely no reason to cancel the project.”

Flynn won’t say whether he would reconsider his past opposition to the project if the numbers hold up. But Mann says, “If they do hold up, that’s fairly persuasive.”

Both Flynn and Mann also say that they would be willing to pause the project while clearer estimates are crunched.

But that could present a short time window. If the project doesn’t adequately progress, the federal government could take back its grant money. Based on city officials’ estimates, that provides a 30-day window to re-calculate cancellation costs and the potential return on investment.

Pausing the project would also impose its own set of costs as some workers and equipment are retained.

Councilman P.G. Sittenfeld, who’s also seen as a swing vote, could not be reached for comment. He’s currently in Washington, D.C., to meet with White House officials for an issue unrelated to the streetcar.

Three elected council members already support the streetcar project, so only two of the three potential swing votes would need to vote in favor of it to keep it going.

Updated with Mayor-elect John Cranley’s comments and clearer, corrected numbers.

 
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