Cincy Streetcar Project Wins Fresh Life

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CHICAGO -- Cincinnati re-launched construction Thursday on a $133 million, partly bond-funded streetcar line a week after the city council unexpectedly voted to revive the controversial project.

The city council voted Dec. 19 to support the project just a few weeks after voting to kill it. The surprise support came after a philanthropic foundation pledged to contribute nearly $1 million annually over the next 10 years for operating costs.

The project had been considered dead after the November mayoral victory of bond attorney John Cranley, who campaigned in part on a promise to kill it to avoid taking on new debt.

The streetcar is one of a handful of redevelopment projects that supporters hope will give a boost the state's third-largest city. Cincinnati has recently enjoyed growing income tax revenue after years of decline, but it faces an $800 million unfunded pension obligation that sparked a downgrade from Moody's Investors Service last summer. Cranley has said the city should not take on additional debt.

Two weeks ago, the Federal Transit Administration gave the city council a deadline of Dec. 19 warning that it would pull $45 million of federal funding unless the early-December decision to halt the project was reversed.

The city council approved the project in a 6-3 vote last week just hours ahead of the federal deadline.

The deciding votes came after a groundswell of local support from a grassroots group called Believe in Cincinnati and a written commitment from the Haile U.S. Bank Foundation. The foundation won support from 15 local businesses and supporters who said they would contribute up to $900,000 a year over 10 years for operating costs, estimated at roughly $3 million a year.

"I believe in Cincinnati with or without a streetcar," Cranley said in a press conference after the council's vote.

The streetcar plan, the former mayor's pet project, has faced several near deaths over the six years it's been in the works, including in 2011 when then-newly elected Gov. John Kasich announced he was pulling state aid for the deal.

Supporters say the streetcar would spark economic development in a historic and developing area of the city. The first segment, 3.1 miles, is estimated to cost $133 million. That includes $40 million of federal funds, which will also have to be returned if the project is cancelled.

The city council in early 2012 approved the issuance of $64 million of bonds, and Cincinnati in December 2012 issued $32 million of bonds for the project. The bonds are unvoted general obligation debt that carry the city's full faith and credit pledge.

A piece of the bonds with a 2027 maturity and 2.5% coupon were yielding 4% in early December, three days after Cranley took office and vowed to kill the project, according to the Municipal Securities Rulemaking Board web site.

Bonds with a 2032 maturity and 3% coupon were yielding 4.5% in October trading, up from a 3% yield in January trading.

The city had planned under its former mayor to issue another $32 million of GO bonds. It's unclear when or whether the city will still issue the debt.

The project has also received $45 million in federal funding. The FTA notified the city of the deadline last week after the Cincinnati City Council voted Dec. 4 to suspend the project, a move that the FTA said it considers a material breach of project agreements.

Federal investments total $45 million from three programs, including the Transportation Investment Generating Economic Recovery, or TIGER, program.

Cranley has also pledged to kill a plan to privatize the city's parking system by leasing it to the local port authority for 30 years. The port authority had planned to sell $130 million of bonds to finance the lease.

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