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Audit: Would cost up to $80M to cancel streetcar, up to $105M to complete it

Minus money spent, completion cost is $68.9M

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CINCINNATI -- With a newly released audit in mind that said it could cost up to $80.1 million to cancel the streetcar, and up to $105.7 million to complete it, Cincinnati City Council decided Thursday to continue the construction of the streetcar.

The audit, released Wednesday morning, states it would cost between $50.3 million and $80.1 million to cancel the project.

Mayor John Cranley announced Thursday afternoon that council had enough votes to continue the project.

Unless a decision was made by midnight Thursday, the Federal Transit Administration (FTA) has said it will rescind $44.9 million in grants. The action would have effectively killed the project.

The bottom line from the KPMG audit: It would cost $22.8 million less to cancel the project rather than complete it, and possibly less.

Subtracting the $34 million already spent on the project lowers the cancellation cost to between $16.3 million and $46.1 million.

By comparison, it would cost between $104.6 million and $105.7 million to complete it.

Estimates on the cost for completing the project include the $34 million spent so far, along with $1.7 million to $2.8 million in added expense due to the one-month suspension of the project.

Without those costs included, the cost to complete the project is $68.9 million.

But the amount doesn't include costs for potential lawsuits filed by contractors on the project.

Also, the streetcar system’s annual operating costs would be between $1.88 million and $2.44 million, after taking into account various revenue sources like fares and advertising.

The results likely bolstered the effort in support of the project.

Cranley noted the estimated net present value of operating costs over the system's "useful life" are between $56.4 million and $73.7 million, for an average of $64.8 million.

By combining the average construction cost with the average net present value of operating costs, which is $68.9 million, the cost to the city to complete is $133.7 million, the mayor added. Subtracting cancelation costs, the net savings to the city is estimated at $102 million.

"I do not believe it is financially prudent to proceed," Cranley said.

City Council voted 5-4 earlier this month to suspend work on the streetcar, pending the results of the independent audit.

Vice Mayor David Mann and Councilman Kevin Flynn are considered council’s swing vote on the streetcar project.

Support from both members was needed to override any potential veto by Cranley.

The audit may have persuaded Mann to continue.

"The significant thing for me are the estimates on the annual operating costs," Mann said. "Given SORTA's commitment, it seems to me the risks are acceptable.

Councilman P.G. Sittenfeld said the results should push his colleagues into finishing the project. Sittenfeld initially was wary about the streetcar, but said too much has been spent to scuttle it.

"Let me be blunt: These numbers all sound very familiar to me from having done my own homework," Sittenfeld posted on Facebook.

"So our options remain the same: We choose enormous waste and damage or we choose to actually get some return on our investment while minimizing our long-term exposure," he added.

Councilwoman Yvette Simpson, a streetcar supporter, said the audit proves the project's suspension was wasteful.

"We spent the same amount to delay for one month that we would spend to operate the streetcar for a full year," Simpson said.

Global auditing firm KPMG began work last week. The audit’s scope included calculating the cost to end the project, as well as completing the current phase.

Also, the audit evaluated operating and maintenance costs for 30 years; and reviewed how city staff devised earlier estimates about cancelation costs.

Previous estimates by city administrators stated it would cost between $34.6 million and $51.6 million to stop the project; and between $52 million and $74 million to complete it.

Streetcar supporters are trying to raise commitments for $80 million from private donors to pay for operating costs over a 30-year period.

In a last ditch effort to the save the project, the Southwest Ohio Regional Transit Authority (SORTA) offered Tuesday to be responsible for the streetcar system’s operating costs.

It will cost between $3.5 million and $4.5 million annually to operate the system. So far, SORTA has a commitment of $1 million from the nonprofit Haile U.S. Bank Foundation.

But $45.7 million of SORTA’s $91.9 million annual budget comes from the city’s earnings tax. Streetcar opponents say the offer ultimately still makes the city responsible, and at least one council member called SORTA’s offer “half-baked.”

“I asked (SORTA’s CEO), ‘What’s your plan if these rosy projections don’t pan out?’” Cranley said. “She said ‘I’m not worried about it. I’m confident.’ I don’t share her confidence.”

Seven members of SORTA’s governing board voted to make the offer. One member opposed it, one abstained and four other members were absent from the meeting.

Cranley, who campaigned for mayor on ending the project, has said any pledges of money must be legally binding.

Cincinnati’s streetcar project has an estimated price of $133 million to $148 million.

Construction began in August, and about $32 million has been spent so far.

Supporters need to collect 5,970 signatures of registered city voters to qualify for the ballot, and have set a goal of getting 12,000 within five days – which was Sunday night.

If successful, a special election must be held two to four months after an amendment is certified for the ballot.

If circulators gather signatures quickly enough, that means a special election likely would be held in February at a cost of $400,000.

The streetcar’s first phase is a 3.6-mile looped route through downtown and Over-the-Rhine, with 18 stops. The project will cost between $133 million and $148 million to complete.

The system’s primary function is to spark redevelopment along its route, and earlier city studies indicated it would generate $2.70 for every $1 spent.

Opponents question the studies, and said operating expenses would be a burden on the city’s budget.

 

Tap here to view streetcar audit report.

Copyright 2013 Scripps Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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