CHICAGO -- Cincinnati’s mayor-elect is killing a pair of controversial bond-funded projects, including one just days away from entering the municipal bond market.
John Cranley, a municipal bond attorney who beat incumbent Mayor Mark Mallory last week, said Tuesday he would officially halt a deal to finance a new streetcar system. The city already sold bonds to finance the first stage of the project. It’s not immediately clear what the move means for those bondholders.
Cranley on Tuesday also announced that he will halt a plan to privatize the city’s parking system by leasing it to the local port authority for 30 years.
The announcement came just days before the Port of Greater Cincinnati Development Authority planned to sell up to $130 million of bonds to finance the deal.
“We believe we have the right to break the lease and we intend to do so,” Cranley said at a press conference.
The City Council needs to vote to break the agreement, according to local press reports.
Cranley, who takes office on Dec. 1, campaigned in part on promises to put the kibosh on both projects.
On Monday, Cranley and seven members of the incoming City Council formally asked the port authority to drop plans to issue bonds to finance their purchase of the city’s parking system.
“If you proceed to close on the bond issue despite our plea to not continue and in spite of the pending litigation regarding the legal existence of the lease, you should take care not to spend any of the bond proceeds that come into your possession either directly or indirectly as they will very likely need to be returned to the bondholders if the bonds go into default,” said the letter to the authority, according to a local report. “It is not in the community’s interests or the long-term interests of the port authority to proceed.”
The plan called for Cincinnati to lease its meters to the Port of Greater Cincinnati Development Authority for 30 years and its garages for 50 years. The port authority would sell roughly $87 million of bonds to finance a one-time up-front payment to the city for the asset. It would privately place a $105 million note with the city, and make payments on the note twice a year from parking revenues.
Guggenheim Securities LLC was set to be the underwriter. Public Financial Management is the city’s financial advisor on the deal. Calfee, Halter & Griswold LLP is bond counsel for the port authority.
The streetcar plan, Mallory’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, was estimated to cost $125.4 million as of late 2012. 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 3% coupon and 2032 maturity saw a big jump in yield in the weeks leading up to the election compared with earlier this year. The bonds were selling for 81 cents on the dollar with a 4.5% yield, compared to 99 cents on the dollar and a 3% yield in January trading.
Moody’s Investors Service in July downgraded the city’s GO bonds, including the streetcar bonds, to Aa2 from Aa1.
Cranley is of counsel at Keating Muething & Klekamp PLL. He practices in the bond and municipal finance area, with a focus on “complex public-private” finance, including tax increment districts, according to the firm’s website.
He was on the Cincinnati City Council from 2000 to 2008.