Public transit consultant skeptical of Omaha’s streetcar project | Local News

After decades of stops and starts, Omaha is the closest it’s ever been to the development of a modern streetcar line.

But where city officials and local developers see an asset for economic development connecting midtown to the riverfront, one transit professional urges caution.

Tom Rubin knows a few things about public transportation and finance, having worked as the chief financial officer for the large transit system serving Los Angeles. And the Omaha native is skeptical of the plans for a streetcar in his hometown that he fears could financially run off the rails.

He’s concerned that rising inflation and interest rates could raise the cost of building the system and at the same time reduce the private development that’s being counted on to pay for it.

He questions why the city has not thought further about pursuing federal dollars to help defray the construction costs.

And he thinks there needs to be much more independent study of its financial feasibility beyond the lone review to date that was written by an engineering firm in the business of designing streetcars.

“It concerns me that the city is moving full speed ahead,” said Rubin, who now lives in the San Francisco area and works as a transportation consultant. “I think they need to stop and say, ‘What are we trying to do, and what are the ways to do that?’”

City officials and streetcar supporters say the studies that have been completed are far from the final word on whether the streetcar is feasible.

Before council members vote to go forward on the streetcar, they will receive an analysis of the finance plan from a national public finance consulting firm. A different finance company also would work with the city to structure any bonds that would be issued for the system’s construction.

Though questions remain to be answered, city officials and supporters also are steadfast in the prediction that Omaha’s streetcar system will prove a major tool for redevelopment that can create a thriving urban core in Omaha.

“We haven’t built one of these in Omaha, Nebraska, before,” said Jay Noddle, an Omaha developer who was recently appointed president of the newly created Omaha Streetcar Authority. “We’ve learned a lot, and we’re going to have to learn a lot more as we go.”

Omaha Mayor Jean Stothert in January announced her support for the planned 3-mile city streetcar line that would run from the University of Nebraska Medical Center to Omaha’s riverfront.

Stothert said projections show the $225 million cost of building the streetcar system would be completely paid for by using tax-increment financing, harnessing the new property tax dollars generated by new developments along the line.

The mayor announced the streetcar system in conjunction with Mutual of Omaha’s plans to build a 40-plus-story headquarters tower for its 4,000 Omaha employees on the block currently occupied by the downtown library.

Mutual officials have said the streetcar system is critical to their plans to construct the $600 million skyscraper in the heart of downtown. Not only does Mutual value having its new headquarters on the line, the streetcar system brings enhanced value to the redevelopment of its current midtown campus that helps make the pricey project work financially.

Now, the Mutual skyscraper and streetcar project are contractually tied together. With approval of the skyscraper’s redevelopment agreement last month, the city pledged it would in good faith pursue the construction of a streetcar system. It’s hoped both projects will be completed by 2026.

“It’s the right time for Omaha to support a streetcar,” Stothert said earlier this year. “Mutual of Omaha’s plan to build a new downtown headquarters is the first example of what is possible, and why now is the time. The momentum we have to change our urban core forever is undeniable.”

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.

It wasn’t until about four years ago that a streetcar system became a priority in the Greater Omaha Chamber’s strategic planning. A committee was formed by the chamber, and serious discussion of a streetcar began.

Armed with studies from previous years, the chamber’s Urban Core Committee last year developed a streetcar plan. When discussions of a massive Mutual project downtown ramped up last fall, the possibility of a streetcar was accelerated toward reality.

“Call it a bit of a lucky coincidence that we’re here now, but that’s why you do strategic plans for the urban core of a community — so that you’re ready,” said Noddle, who also chaired the Urban Core Committee.

At the time of the announcement, Stothert said the city had the chamber group’s finance plan vetted both by a finance team at First National Bank of Omaha and the city’s bond counsel. She said both affirmed that it can be funded without any kind of tax increase.

When The World-Herald through a public records request sought a copy of the finance plans, it received a copy of a draft financial report that was compiled by Omaha-based design and architectural firm HDR. The firm completed the document using data from the city, consultants and past streetcar studies.

According to that report, the streetcar could spur an estimated $3 billion in development in the area along its planned route during a 15-year span. That’s the value the city would tap through tax-increment financing, or TIF, to pay off the bonds that would finance the streetcar’s construction.

Stothert has said the buyers of the bonds assume any risks with their investment, leaving little or no risk for taxpayers.

Rubin is not an Omaha taxpayer. But the Omaha native, who has more than four decades of experience in public transit as a senior executive, consultant, auditor and author, has taken an interest in the Omaha proposal.

Rubin founded the transit practice of what is now accounting firm Deloitte, formerly served as CFO of the nation’s third-largest public transit system in Los Angeles and has served as a consultant to numerous federal, state and local transit agencies and planning organizations.

He also has written papers and studies on transit issues for groups as varied as the Environmental Defense Fund and the free-market Reason Institute. He has said he may seek to publish a paper on the Omaha project.

Rubin was in Omaha recently on family business and decided to check out the route himself.

To date, Omaha’s streetcar plan has faced little local opposition or pushback, though the plan to move the Omaha library has generated controversy.

But Rubin, who acknowledges he is generally skeptical of streetcars, said he questions the Omaha streetcar’s ability to bring the development needed to fund the project.

“What is the magic that will make people decide to put their new office building along the streetcar route?” he said. “I’m far from convinced that putting tracks down generates development.”

Streetcar supporters disagree, often pointing to the Kansas City streetcar as a shining example of the development potential.

Kansas City’s streetcar line opened in 2016 and already has attracted almost 10 million riders. And since the construction plan was approved in 2012, $4 billion in new development has been created along the route.

But there are other systems built in recent years that Rubin holds up as less than ideal. He mentioned St. Louis, where a streetcar shut down shortly after going into service. In that city, the line’s developers chose a route that did not have nearly enough ridership to support it.

Rubin said the current economic environment also raises concerns about bonding the Omaha project. Inflation could raise building costs, and higher interest rates figure to raise the cost of borrowing.

“It’s a lot easier to show you can make the debt service with a 2.5% bond than a 5% bond,” he said.

And higher interest rates also could slow development along the streetcar line. Less development would mean fewer TIF dollars to pay the bonds.

Another concern Rubin raises is the high cost of the streetcar system, which he said makes it hard to justify as a mode of transit. It is much more expensive per rider, for example, than Metro’s new ORBT rapid bus transit service.

Rubin said that prior to a major investment in a streetcar, an independent and unbiased analysis of the alternatives is needed. The HDR draft analysis at this point isn’t enough to convince him the streetcar is either a good idea or financially feasible for Omaha.

He noted Omaha-based HDR has long been a heavy hitter in the world of massive transit projects, including streetcars. On the Omaha project, the company did some initial design work on the streetcar route, utility coordination, the location of the streetcar vehicle maintenance facility and vehicle specifications.

City officials say an independent review of the streetcar finance plan already is in the works.

The City Council in March unanimously approved a resolution that will pay Maryland-based public finance consulting firm MuniCap Inc. up to $100,000 for its analysis of the city’s streetcar financial plan.

MuniCap will evaluate revenue streams for funding the project. The city then will work with investment banking firm D.A. Davidson to determine how the bond-selling process will be structured, said Stephen Curtiss, the City of Omaha’s finance director.

Some preliminary data could be shared with the city by MuniCap in coming weeks.

With D.A. Davidson, the city will dive into MuniCap’s findings, with the MuniCap report acting as “kind of a seal of approval as far as these revenue sources being achievable,” Curtiss said.

Ultimately, the city will need to put forth a workable finance plan for approval by the Omaha City Council.

As for concerns about current high inflation, Curtiss said the city’s financial model has a fairly large contingency built in that should mitigate the effects of inflation.

“On interest rates, we will deal with those when it’s time to issue (bonds),” Curtiss said. “There are a number of factors that will affect those, including taxable status, duration and call options.”

Taking into account the cost of financing the construction of the system with the required 35% contingency as a reserve, the $6 million a year it would take to operate it, capital maintenance costs, and a 2018 projection of 1,000 riders per day, Rubin calculated the cost of the system over 30 years to come to an average of $61.69 per rider.

But Noddle says Rubin’s figure is grossly inflated by an estimate for ridership that is now believed to be outdated and too low.

The estimated 1,000 riders per day came from a 2018 streetcar report in which HDR completed a ridership forecasting exercise using a travel-modeling software. It estimated ridership for 2021 between 820 and 1,060 boardings per day.

The 2018 report acknowledges that more ridership forecasting would be needed to better estimate future ridership numbers. It said it suspected the estimate was low because it didn’t take into consideration existing travel markets in the corridor.

Noddle said those ridership projections are clearly outdated. They were made before such major developments as the Mutual tower, the $400 million downtown park overhaul or UNMC’s NExT Project, a major health care, training and research facility under development that is expected to employ thousands.

Omaha’s streetcar supporters say that as plans move forward, they intend to conduct a more current ridership study.

“Back when those projections were done, nobody knew that there was going to be a 4,000-person building at the east end of the line, and that many of those folks are going to go back and forth from Midtown Crossing,” Noddle said of the Mutual building.

Higher ridership could indeed significantly reduce estimates of the streetcar system’s cost per rider.

Kansas City is averaging 5,000 riders a day on its 3-mile line during the workweek and 10,000 a day on Saturdays.

If the Omaha streetcar attracted ridership comparable to the Kansas City system, the cost per passenger would be a fraction of what Rubin calculated and closer to what Rubin calculated as the cost-per-rider of the ORBT line.

Kansas City, though, also has twice the population of Omaha. The Kansas City system, like the proposed Omaha line, does not charge a fare.

Rubin acknowledged the Kansas City streetcar is working well but questioned whether Omaha could replicate that success. He’s not sure the Omaha route would be as viable as the one in Kansas City, which links the city’s riverfront and downtown with the arena district and Crown Center.

“They have a good route and some things that work well for them,” Rubin said. “I don’t think Omaha, even best case, could be as successful as Kansas City.”

Rubin also said he thought the city and the chamber group that did the study should have taken a harder look at seeking federal funds to help pay for the line’s construction.

Curtiss and Noddle point to time-consuming studies, such as an environmental impact study, as a reason the city chose not to pursue federal funding for the first phase of the streetcar.

“What was decided was that when we can figure out how to monetize and get this first line in, we can start to work with the feds on extension lines — I assume into North and South Omaha,” Curtiss said. “We’d begin to pursue federal funding sources almost immediately for (those lines).”

Rubin acknowledged seeking federal dollars can take time. But he thought that with the 2026 timeline for the project, officials still had time to seek a lower level of federal funding without triggering a full federal review.

“Will it take more time? Yes, but how much?” he said. “Omaha could ask for $75 million, and it’s relatively quick.”

As the city considers federal funding in the long term, Noddle said in coming weeks the Streetcar Authority will continue to lay the groundwork for the new system.

The board will identify consultants to help guide the city through the crucial early stages of the project. HDR will continue work on a preliminary design, which will consider existing utilities and infrastructure.

“A lot of the preliminary design, at least at a very early stage, is mostly due diligence on the right of way. Who owns it, does it need to be moved or upgraded?” Noddle said.

Bureaucratic steps also continue at the city level.

A tax-increment finance proposal between the city and the streetcar authority will come before the City Council in coming weeks.

Pete Festersen, president of the Omaha City Council, has long been supportive of a streetcar project but notes that the council and the city have a lot of questions to answer and plans to vet before moving forward.

“This is a major economic development and public transit project that we have to get right,” Festersen said. “There are questions we should be asking and vetting in great detail; that’s our fiduciary responsibility before delegating duties to a transit authority or approving the sale of any bonds.”

Noddle is confident the streetcar authority and city are on track to get it right.

“We know the impact that this will have because we can look at other communities that did exactly the same thing,” Noddle said. “When we get a little further along with the streetcar project, this area is going to explode with new development.”