January 30, 2012 Mark Mallory, Mayor City of Cincinnati 801 Plum St.

, Cincinnati, OH 45202

Dear Sir:
This is my second request for a detailed cash flow for the streetcar project, and a response to numerous other significant questions. Based on some additional analysis I am concerned that there may be a serious gap in the $110 million streetcar proposal. I have enclosed a copy of my January 17 request for your reference. I would ask that you answer the original questions as well as the following additional questions by Monday, February 6, 2012. After researching the Cincinnati Streetcar more thoroughly, I have a few more observations: Discounted Cash Flow analysis shows that the Net Present Value of the Streetcar Proposal is negative, and depending on assumptions, well in excess of a negative $50 million during the next 20-30 years. Please provide your detail cash flow, which describes how the streetcar will fund other city investments. Estimated streetcar costs for the abbreviated route now total approximately $135 million (See Exhibit 1), reflecting the estimate for utility relocation. The project is now underfunded by more than $30 million. Where will funding for the additional $30 million cost originate? o A recent Business Courier article indicates that the Streetcar Route has been expanded to the Banks based on the receipt of the Federal Grant of $10.9 million. It seems that the additional 5 blocks of streetcar will add to the estimated $99.5 million originally estimated. What are the costs of the additional route? What is the source for these additional funds? o The recent Business Courier article stated that Duke Energy considers any utility costs [$18 million] related to the streetcar, to be project costs and should be covered under the projects budget. 1 How will the city fund these costs? There will be a significant funding shortfall: o When taxpayers were asked directly in previous referendums, Do you want a streetcar? the taxpayers rejected the streetcar. When

http://www.bizjournals.com/cincinnati/print-edition/2012/01/27/next-cincinnatistreetcar-stop-duke.html

the project no longer has funds to complete the 1.6 mile route, do you expect that the voters will then vote for tax increases to fund the project? o Will the city raise real estate and income tax to support the funding shortfall? What impact will those tax increases have on local businesses and future business development? o If taxpayers refuse to fund the projected shortfall, are there clawback or other onerous provisions attached to the Urban Circulator Grant ($25 million), the OKI Grant ($4 million), or the Tiger Funding ($10.9 million)? Extension beyond the abbreviated 1.6 miles will have higher construction cost per mile due to elevation changes. If we consider this a long-term project, what is the expected total cost of the streetcar strategy? Is this similar to the failed $500+ million rail system in Buffalo NY? Since your term as Mayor will be complete in December will current City Council Members bear the sole responsibility for the investment decision to proceed with the streetcar investment?

Additional background information follows: 1. The Business Courier stated that the streetcar is viewed by top city officials as a vital economic development project to help attract new investment that will, in turn, generate tax revenue to fund other services.2 Using some basic assumptions, the projected Discounted Cash Flow of the streetcar project has a negative cash flow of more than $50 million during the next 30 years. How did the city reach the conclusion that the streetcar would generate funding for additional investment? Some of the investment assumptions (consistent with a template used by the city) used to reach the negative cash flow include: a. A 3% discount rate b. Assessed Value at 35% of new real estate investments c. Commercial property tax rate of $0.077444543 d. Annual abatement at 75%3 e. Estimated construction and real estate investment in the city of $100 million per year for the next 15 years, totaling $1.5 billion. f. Tax abatement for the first 10 years, although the city regulations allow up to 15 years for abatement. Do you intend to change the tax abatement practice? 2. The current cost estimates now total about $135 million (see Exhibit 1 attached). This information is based on the latest article written by the Business Courier discussing the project.
2

http://www.bizjournals.com/cincinnati/print-edition/2012/01/27/next-cincinnatistreetcar-stop-duke.html 3 http://www.cincinnati-oh.gov/cdap/pages/-3481-/

a. Where will the additional $30+ million of funding originate? This additional $30 million of cost has not been reflected in the total negative cash flow of more than $50 million included in point 1. If we were to incur the additional $30 million of cost, the discounted negative cash flow could total in excess of $100 million. Where will this cash originate? b. I have not included any cost for relocation of all the traffic control devices on the proposed route. What are those costs? c. I assume that the city has properly included sufficient capital for the streetcar itself. Have we included all of the costs for a repair facility? For example, initially we will require an inventory of spare parts, tooling etc. that may not be included in the cost of a storage/maintenance building. Have we included the initial parts/tooling cash flow start-up costs for such a venture? 3. City Engineer Don Gindling said the city has a deal to spend $2.5 million on an absolute minimal amount of work to maintain MSDs access to sewers for future maintenance, repairs and improvements. Is it smart to estimate the absolute minimum on such a project? Does this mean that the future repairs will be more expensive by taking construction shortcuts today? The original streetcar proposal included $6 million for relocation of the sewers. Where has the difference of $3.5 million been considered? I am certain that you, the city council and I dont want a bad investment decision related to the streetcar, but I think there are far too many unanswered questions, based on public information. Since the amounts in question are material, I am certain that each question has already been resolved, but answers not yet made public. Your written response to this letter and my January 17 letter, by Monday, February 6 would be appreciated. Regards,

Cc:

Roxanne Qualls (Suite 352) Cecil Thomas (Suite 356) Laure Quinlivan (Suite 349) Chris Seelbach (Suite 350) Yvette Simpson (Suite 346 B) P.G. Sittenfeld (Suite 354) Christopher Smitherman (Suite 346 A) (registered mail return receipt) Charlie Winburn (Suite 351) Wendell Young (Suite 348)