CINCINNATI - The city's streetcar could see a shortfall as high $1.4 million in money needed to operate in its first year of service, according to projections by the city of Cincinnati’s financial advisors.
The estimates are “deliberately conservative” and offer a “worst-case scenario” analysis of the streetcar’s projected sources of revenue and operating costs, said Cincinnati City Manager Harry Black in a memo to council members.
With the streetcar on target to launch service by September 2016, Black says he ordered up the review and analysis in an effort to head-off any funding issues associated with the new service “well ahead of the planned opening.”
The analysis, prepared by Davenport and Co., offers up a breakdown of several scenarios for the streetcar’s cash flow in its first five years of service based on system’s projected revenue streams and overhead costs. The review then builds in a host of variables -- such as increases in the city’s projected overhead costs or reduction in revenue streams such as advertising or certain tax revenues.
Under its various projections, Davenport says the funding gap for the streetcar in its first year could range from $830,000 to $1.4 million. By 2021, the potential support shortfall could range from $495,000 to as high as $2.4 million.
None of the scenarios, however, include any increases in revenue from fares, ridership or advertising.
The review also did not take into consideration new funding sources council is working to put into place. A plan expected to be approved by council this week will allow developers in Downtown and Over-the-Rhine to apply for 12-year to 15-year tax abatements, if they agree to contribute 15 percent of the incentive into a streetcar operating fund.
For example, a newly constructed development worth $1 million could land a 15-year tax abatement worth $461,704. Of that, 15 percent – or $69,256 – would be paid into the streetcar fund. Another $55,404 (or 25 percent of the abatement) is required by state law to be paid to the school district – leaving a hefty $221,618 incentive of for the developer in total property tax savings. Developers proposing renovation and remodeling projects can apply for a 12-year abatement.
Cincinnati Vice Mayor David Mann, who took the lead on crafting the plan, has noted that the plan becomes more robust by 2020 – when more projects are in the pipeline and contributing to the fund.
“It’s the first two or three years we have a (funding) issue,” he said.
Black agreed, telling council members in his memo that he is “cautiously optimistic” the tax incentive plan will “in time, alleviate the funding the shortfall.”
Black said he expects to review the report in the coming days with council members and pledged to work “proactively to develop options to ensure the long term success of the project and the City’s financial future.”