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Streetcar 012312

Streetcar 012312

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Published by: COAST on May 06, 2012
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05/24/2012

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 January 30, 2012Mark Mallory, Mayor City of Cincinnati801 Plum St.,Cincinnati, OH 45202
Dear Sir:
This is my
second request for a detailed cash
flow for the streetcar project, and aresponse to numerous other significant questions.Based on some additional analysis I am concerned that there may be a seriousgap in the
$110 million
streetcar proposal. I have enclosed a copy of my January17 request for your reference.
I would ask that you answer the original questionsas well as the following additional questions by Monday, February 6, 2012.
 After researching the Cincinnati Streetcar more thoroughly, I have a few moreobservations:
Discounted Cash Flow analysis shows that the Net Present Value of theStreetcar Proposal is negative, and depending on assumptions, well inexcess of a negative $50 million during the next 20-30 years.
Please provide your detail cash flow, which describes how the streetcar will funother city investments.
Estimated streetcar costs for the abbreviated route now totalapproximately $135 million (See Exhibit 1), reflecting the estimate for utility relocation. The project is now underfunded by more than $30million.
Where will funding for the additional $30 million cost originate?
o
A recent Business Courier article indicates that the Streetcar Routehas been expanded to the Banks based on the receipt of theFederal Grant of $10.9 million. It seems that the additional 5 blocksof streetcar will add to the estimated $99.5 million originallyestimated.
What are the costs of the additional route? What is thesource for these additional funds?
o
The recent Business Courier article stated that Duke Energyconsiders any utility costs [$18 million] related to the streetcar, “
 to be project costs and should be covered under the project’sbudget.”
1
 
How will the city fund these costs?
There will be a significant funding shortfall:
o
When taxpayers were asked directly in previous referendums, “Doyou want a streetcar?” the taxpayers rejected the streetcar. When
1
http://www.bizjournals.com/cincinnati/print-edition/2012/01/27/next-cincinnati-streetcar-stop-duke.html
 
the project no longer has funds to complete the 1.6 mile route,
doyou 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 claw-back 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 constructioncost 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 thissimilar 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 decisionto proceed with the streetcar investment? Additional background information follows:1. The Business Courier stated that the streetcar is
viewed by top cityofficials as a vital economic development project to help attract newinvestment 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 millionduring the next 30 years.
 
How did the city reach the conclusion that thestreetcar would generate funding for additional investment?
Some of theinvestment assumptions (consistent with a template used by the city) usedto reach the negative cash flow include:a. A 3% discount rateb. Assessed Value at 35% of new real estate investmentsc. Commercial property tax rate of $0.077444543d. 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 regulationsallow up to 15 years for abatement. Do you intend to change thetax abatement practice?2. The current cost estimates now total about $135 million (see Exhibit 1attached). This information is based on the latest article written by theBusiness Courier discussing the project.
2
http://www.bizjournals.com/cincinnati/print-edition/2012/01/27/next-cincinnati-streetcar-stop-duke.html
3
http://www.cincinnati-oh.gov/cdap/pages/-3481-/
 
a.
Where will the additional $30+ million of funding originate?
Thisadditional $30 million of cost has not been reflected in the totalnegative cash flow of more than $50 million included in point 1. If we were to incur the additional $30 million of cost, the discountednegative cash flow could total in excess of $100 million. Where willthis 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 thestreetcar itself. Have we included all of the costs for a repair facility? For example, initially we will require an inventory of spareparts, tooling etc. that may not be included in the cost of astorage/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 millionon an “absolute minimal amount of work” to maintain MSD’s access tosewers for future maintenance, repairs and improvements.”
Is it smart toestimate the absolute minimum on such a project? Does this mean that the future repairs will be more expensive by taking construction shortcutstoday?
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 don’t want a bad investment decisionrelated 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 amcertain that each question has already been resolved, but answers not yet madepublic. 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)

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