December 6, 2023


Business&Finance Specialists

Draft financial plan says Omaha streetcar could spur $3 billion in development | Politics & Government

8 min read

The City of Omaha continues to explore the financial plans for a proposed streetcar system, but a draft analysis obtained by The World-Herald points to multiple funding avenues and new details.

The analysis also indicates the streetcar’s financing will rely heavily on an anticipated surge of new development surrounding the proposed route.

Those details largely match a rough outline of the project first shared by Mayor Jean Stothert during a press conference on Jan. 26. At the conference, Stothert shared plans for the streetcar and a new Mutual of Omaha headquarters set to rise in downtown.

In announcing the streetcar project, Stothert said a financing plan originating from a Greater Omaha Chamber working group had been independently reviewed by two different parties. Both confirmed the project could be funded without a tax increase.

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The draft analysis — obtained through a public records request — appears to confirm Stothert’s remarks.

The analysis, conducted by HDR, includes recommendations and information that will be reviewed by the city and possibly included in the final financial plan, which ultimately will require approval by the City Council. It also details key funding strategies.

The cost of building and launching the streetcar system is estimated at $225 million, but because federal guidelines call for a 35% contingency in case of unexpected costs, the city would need to raise $306 million.

According to HDR’s draft analysis, the streetcar could spur $3 billion in development in the area along its planned route during a 15-year span. That development would generate substantial growth in property tax revenues. The city would capture a portion of that revenue and use the money to pay off the debt from the streetcar’s construction.

The analysis estimates that once built, the operations and maintenance of the streetcar would cost about $6.4 million a year — a cost that could be covered, in part, by an increase in fees on existing parking garages.

Under the proposal, the streetcar will operate along a 3-mile route using 5.5 track miles. The line travels along Farnam and Harney Streets from 10th Street to 42nd Street and along 10th Street between Harney and Cass Streets.

Two major developments in the works would bookend the rail system: the $400 million riverfront parks and science museum to the east and the University of Nebraska Medical Center’s $2.6 billion Project NExT facility to the west.

Everywhere streetcars have been built, they have attracted private development that tends to exceed expectations, Stothert said in January. Omaha expects “extraordinary development” along the streetcar line, she said.

HDR’s analysis backs up that statement, citing a recent study by the Federal Transit Authority, which reviewed five federally funded and operational streetcar projects across the country.

The study found that streetcar projects had an immediate positive effect on property values with a range of 5% to 28%. Omaha’s property tax values have grown at a historical average of 2% year-over-year, according to the analysis.

HDR also explored the potential pace of development and how that could financially impact the project.

The analysis details three different development scenarios that include: front-loaded, or quick development along the streetcar corridor; linear development; and back-loaded development, meaning the anticipated projects spurred by the streetcar are slow to start.

The back-loaded scenario is the least likely to happen, according to HDR. It would likely entail a significant economic recession.

Each of the scenarios results in a positive cash balance, or budget surplus, in 2051, but all three involve a net revenue decline in the first few years of streetcar operations.

The decline results from a gradual ramp up in revenue generation from the TIF and other sources, combined with the need to cover expenses related to bond payments, construction of the streetcar and new city garages, and the beginning of streetcar operations, according to HDR.

Under the back-loaded scenario, the project could actually experience a multi-year deficit — years when the costs outweigh revenues, according to the analysis. Revenues would eventually start flowing in as development occurs, but the city would need to find a way to cover expenses during those early deficit years.

Officials have said that the costs of launching the streetcar system and paying back the bonds will be more than covered by an estimated $354 million generated via TIF.

Those dollars would come from three different revenue streams within a special TIF district spanning the entire streetcar route, as well as three blocks north and south of the route.

New developments in the streetcar district would contribute 25% of their TIF proceeds. That element alone is projected to generate $218 million.

Using authority it has under state law, the city also plans to extend the timeline of already existing TIF projects in areas deemed extremely blighted along the route from the current 15 years to 20 years. Those five additional years of payments would generate $50 million.

The third part will come from existing properties that see increased valuations within the TIF district, raising $86 million.

Typically through TIF, the developer of a city-approved project takes out a loan to help cover eligible redevelopment expenses. The loan is paid back, generally over a 15-year period, by using the increased property taxes that are generated on the new development. Normally, property tax payments go to support schools, city and county government and other local tax-reliant bodies.

During the TIF period, the property owner continues to pay a portion of property taxes to local governments based on the valuation that existed before any improvements. After the TIF loan is repaid, property taxes collected on the higher-value, improved property then start flowing to those local governments.

Beyond the use of TIF, the HDR analysis identified four other potential sources of funding.

Parking stall fees on surface parking lots have been increasingly used by other cities as a source of money for streetcar systems, according to HDR.

There are currently about 19,500 surface parking stalls not operated by the city in the streetcar corridor. A monthly fee of $4 per stall ($0.13 per day) would yield about $400,000 per year and $10.6 million over 30 years, HDR estimates.

Payment in lieu of taxes (PILOTs) are payments that could be made by some select tax-exempt entities as a substitute for property tax payments.

HDR found that within the streetcar corridor there are at least 11 tax-exempt, property-owning entities. The city could establish voluntary PILOT agreements with some of the larger tax-exempt entities that would benefit from the improved connectivity provided by the streetcar.

The 11 entities weren’t identified in the analysis, but places such as museums, churches and social service providers would be exempt from a PILOT agreement. HDR estimates that revenue potential at about $500,000 per year for 30 years.

Philanthropic contributions were identified as a source that would help fund some of the initial design, planning and pre-construction costs, as well as potential early bond debt payments depending on the pace of development, but “it appears that the philanthropic element is no longer part of the discussion,” Deputy City Attorney Bernard in den Bosch wrote in a response to The World-Herald’s records request.

Another $15 million was identified through “in-kind services.” As an example, the streetcar route is within an area of old gas and water lines owned by the Metropolitan Utilities District that in coming years will need to be replaced.

MUD wouldn’t have to cover the cost of opening the street and repaving if they timed their replacements with the construction of the streetcar.

Proposals to build a streetcar system date back a quarter of a century to the administration of then-Mayor Hal Daub. But those proposals were derailed by the lack of a plan to pay the massive cost of building the system.

HDR’s analysis builds on multiple studies conducted in recent years, including a 2016 financial assessment.

All the elements of the streetcar plans are proposals at this point, subject to City Council approval.

If the streetcar project moves forward, final design and pre-construction activities would begin later this year. Construction would happen in 2024 through 2025, with the streetcar open and functioning sometime in 2026.