Jason Williams

jwilliams@enquirer.com

Cincinnati's streetcar faces an additional $1.2 million deficit over its first two years of operations, but the city appears to have enough money saved up to avoid having to ask taxpayers to foot the bill.

Mayor John Cranley and City Council previously knew the additional shortfall could occur and had been setting aside money to cover the potential deficit, details of which were revealed in a memo from City Manager Harry Black on Thursday morning.

The memo unveiled a new agreement with the private foundation that had previously committed to help pay for operations, allowing the city administration to nail down details of the operations budget over the first two years. The Haile/U.S. Bank Foundation will follow through and pay $900,000 in each of the first two years of operations, according to the new agreement.

The city still faces projected structural deficits of $680,527 and $518,888 each year, according to the memo, which did not mention how it could be covered. But it does not appear the city will have to dip into the general fund to cover the gap.

"We need to make it clear: We have this money," Councilman Kevin Flynn said.

The city should be able to cover the entire two-year deficit with parking-meter money it has been putting into savings since January 2015, Flynn said. Some $2.5 million is expected to have been saved by the time the streetcar opens to the public in mid-September.

It's possible the city could have other money available to help cover additional short-term deficits, including:

Potential leftover money from the construction budget's rainy-day fund. Streetcar project leaders reported last month it had around $970,000 remaining in the contingency budget. Flynn has taken a closer look and believes up to $2 million could be left over. Major construction on the 3.6-mile route in Downtown and Over-the-Rhine is completed, but touch-up work continues and the books haven't been closed with contractors.

Liquidated damages owed to the city by streetcar manufacturer CAF USA. The company has failed to deliver the five streetcar vehicles on time, and it's been racking up daily fines for the delays since the fall. Fines totaled $300,000 in January, and CAF USA still has not delivered one of the vehicles.

The city also plans to pay $1.1 million in startup costs out of the parking fund, nearly depleting it before the first paying customer hops on board. Startup costs helped create the projected two-year deficit, and Vice Mayor David Mann said the operations plan should be back on track by the third year of operations.

"I don't see any surprises here," Mann said.

The city increased meter rates and hours in late 2014, part of a plan to use $1.5 million in extra parking revenue to pay for streetcar operations each year.

The plan also calls for generating money from a voluntary tax-incentive plan for real estate developers doing projects along the streetcar route. But that fund is expected to take time to build up, and is only supposed to provide around $11,000 for the first year of operations.

Council and Cranley were made aware in December there would be an additional operating budget gap. Black sent a memo then saying an independent analysis showed previous revenue projections had been off and the startup costs would create a short-term shortfall.

Cranley and council's four fiscal conservatives have tried to avoid using the general fund to pay for streetcar operations by putting together a plan to generate other revenue sources. Technically, the meter money is from the general fund, even if the city raised the extra cash specifically for the streetcar.

The two-year deficit still could grow if money expected from fares, advertising and naming rights falls short of projections, Councilwoman Amy Murray cautioned. Black's memo on Thursday laid out the final revenue projections for the first two years of operations:

Fares – $676,969 (year 1), $683,738 (year 2)

$676,969 (year 1), $683,738 (year 2) Advertising – $139,650 each year

$139,650 each year Naming rights – $310,000 each year

Neither the city nor the transit authority have sold any advertising or naming rights. That revelation caused angst among some City Council members last month.

"Nobody has signed on the dotted line yet, but I've talked to a few people who said they would commit to (sponsoring) a stop," Flynn said Thursday. "It needed to happen quicker, but it will happen."

He added: "It still keeps me up at night."

Haile Foundation stepped up in December 2013 to save the streetcar from permanent cancellation by committing $900,000 a year over the first decade of operations. But the initial agreement was short on details, and city and Haile officials had to further negotiate parameters of the foundation's commitment over the past several months.

To receive Haile's full amount, City Council cannot simply cut streetcar service to help close a budget gap. Cranley has favored doing that in order to keep operations costs in check.

City Council would only be allowed to cut streetcar hours and frequency if the money expected to be generated from fares, advertising and naming rights falls short of the projections, according to the new agreement with Haile.