Earlier this month, downtown voters within the boundaries of a special transportation development district approved a series of tax and assessments to finance the two-mile route — supported by Mayor Sly James and long lobbied for by the City Council member Russ Johnson.
The successful mail-in ballot paves the way for a 1% increase in the sales tax within the district, which includes 4,000 parcels, along with special parking and property tax assessments.
"The streetcar is what downtown residents want and will serve as an economic engine along its route," the city treasurer, Tammy Queen, said of the city's thinking behind the project.
"It's the next logical step in the development of downtown," she said.
The tax, which takes effect next spring, will generate about $3.5 million annually and the assessments will generate a similar amount beginning in fiscal 2014.
The roughly $7 million in annual revenue, along with a $2 million city contribution, will fund various operating reserves, operations, and go toward the repayment of up to $83 million in borrowing to fund construction, said Queen.
The city would put an annual appropriation pledge behind the 25-year borrowing as it has for a series of high profile downtown development projects designed to revitalize the area and generate new economic development.
The streetcar line, to run mostly along the city's Main Street between its River Market and Union Station, could be up and running in 2015.
"The tax and assessment money will be banked during the first years of construction when we are collecting revenues but not paying for operations," Queen said.
The initial revenue will fund an operating reserve and also special reserves at a level equal to 1.5 times debt service coverage to serve "as insulation against the general fund if there is a problem or revenues aren't coming in adequately," she said.
Those special accounts will be established in addition to any formal debt service reserve as part of the bond indenture.
The city anticipates coming to market by March with a financing, as construction is set to begin in the summer.
The city could issue a total of $87 million with the goal of providing at least $73.5 million in construction funds, but the sizing and timing of its borrowing depends on whether the city opts to pursue a federal Transportation Infrastructure Finance and Innovation Act program loan.
If the city decides to seek a TIFIA loan for up to one-third of the project's cost, it may borrow a smaller amount in the $30 million range and then return later in 2013 or 2014 to complete the financing. "We will have to make the decision in the next month or so as to whether it's more affordable after you weigh all the issues" such as the cost of applying for the TIFIA loan and the issuance costs of multiple bond transactions, Queen said.
First Southwest Co. and Moody Reid Inc. are advising the city. Oppenheimer & Co. Inc. would serve as senior manager but the city has not yet rounded out the underwriting team.
The project's total price tag is about $98 million and the city has won various federal grants to make up the difference in the financing. The city will construct and own the system but it will be operated under an agreement with a streetcar authority made up downtown business leaders and residents and city appointees.
The streetcar financing plan — from its revenue sources to the special reserves — was crafted from lessons learned on past city projects, some of which continue to dent the city's annual budget.
The largest subsidy of about $14 million to $15 million goes for bonds issued in 2006 to support the city's downtown entertainment district known as KC Live. Kansas City's appropriation pledge backs those bonds, but the city had originally believed tax-increment financing revenues and certain state's sales and income taxes generated by the district would sufficiently cover debt repayment. They have, however, fallen short.
The district is anchored by a bond-financed arena and the city's convention center, which was expanded with bond financing.
"That's why the new revenue structure was created and the reserves" for the streetcar plan, Queen said.
A vote earlier this year establishing the special downtown taxing district cleared the way for the December financing vote. While supporters celebrated the victory, they've also talked about expanding the route and expanding who pays for it. The sales tax increase could be cancelled if a larger countywide sales tax for regional transit is eventually approved.
Critics of the vote include some major property owners including businesses that will be required to pay the higher tax rates but did not have a say in the election because they are not residents with the ability to cast a vote. Some had threatened litigation to challenge the election, according to local published reports, but none was filed.
The city has paid a credit price for its support of downtown projects that have dramatically increased its debt load. Fitch Ratings assigns a AA rating to Kansas City GOs, Moody's Investors Service rates them Aa2, and Standard & Poor's rates them AA.
In revising the city's outlook to negative from stable earlier this year, Fitch said it was concerned that capital spending could further elevate the city's already high debt burden and claim a greater percentage of available resources.
The city's credit benefits from a deep and diverse economic base and improving financial operations in the form of general fund operating surpluses.
The city has $450 million of GO debt and $1.1 billion of appropriation backed debt. The appropriation bonds are rated two notches below Kansas City's GO level by Fitch and Moody's due to the non-essential nature of many of the projects, while Standard & Poor's rates them just one notch lower at AA-minus.
Moody's said the lower appropriation rating "incorporates the city's fundamental credit quality as well as the risk of appropriation and the non-essential nature of the projects financed with the bond proceeds."
The early projects like the arena and KC Live district were pushed by former Mayor Kay Barnes, who drew both praise and criticism for the city's role in promoting downtown development.
Her detractors believe she provided too many subsidies for private businesses, putting the city's credit at risk, while supporters believe the incentives were necessary to jump-start development.
Buoyed by federal grant support for such projects, Kansas City is one of a handful of cities with streetcar systems in the works. Voters recently approved a measure creating an assessment district in downtown Los Angeles to build a $125 million streetcar line, according to the Los Angeles Times. Project boosters see the project as an economic generator to help revive downtown's old movie theaters and office buildings.