February 7, 2012 Mark Mallory, Mayor City of Cincinnati 801 Plum St.

Cincinnati, Oh 45202 Dear Sir: This is my third request for annual cash flows and additional information related to the Cincinnati Street Car project. Please provide a written response to this letter, and my 1/15 and 1/22 letter by Monday, February 13. Since you have not yet provided annual cash flows, I have reviewed some of the assumptions presented in the HDR Streetcar Feasibility Study. Some additional information: The streetcar projected Net Present Value does not breakeven for at least 20 years (... certain cash outflow of $100 million initial cash investment, and $5 million annual outlay ($2.5 million annual operating cost plus interest on debt of $60 million at 4%); and uncertain tax revenue based on $1.5 billion of private capital investment. Will taxpayers bear the cost of the investment shortfall during this period? The feasibility study uses a base of $84 million in 2007 dollars, adjusted for inflation to 2010 dollars would total $102 million. Using the same weighting assumptions, 2012 costs would increase by $13 million.1 How will this cost overrun be funded? Cincinnati is a conservative city e.g. culturally closer to Buffalo (a failed rail system) than Portland. Are private capital investments of $1.5 billion in 15 years too aggressive for this unproven $140 million+ investment? The city has a history of projects not meeting expectations subway system, Cincinnati Transit Hub, Freedom Center. Please comment. The feasibility study references Technical Appendix G: Economic Assessment, which appears to be an integral part of the report. Please provide a copy of the Technical Appendix G: Economic Assessment. The city now has a shortage of parking. The projected $1.5 billion will eliminate existing street level parking. Does the streetcar proposal include funding for building additional parking facilities?

http://www.cincinnati-oh.gov/city/downloads/city_pdf17754.pdf (Page 24) 1

Private capital investment of $1.5 billion2 is a critical assumption in the streetcar proposal. Using the commercial tax template 3 example on the city website, NPV breakeven occurs in 20+ years. Current city taxpayers will pay $16 million in the first 6 years, assuming investment objectives are met. Delays in investment will require additional taxpayer investment e.g. for each year of delayed $100 million investment by private investors, taxpayers will pay an additional $.7 million of cost Please comment. The useful life of a streetcar is 25-30 years, which will require streetcar replacement before 2040. This incremental spending of more than $20 million (current dollar cost) has not been considered in any of my financial analysis. Please comment. Future expansion of the streetcar across the Fort Washington Way will be considerably more expensive. The other three FWW bridges (Vine St., Race St., and Elm St.) are not designed for future rail and would require full deck replacements to accommodate the streetcar tracks. 4 Please comment on the overall streetcar strategy.

Please send your written response to these questions by Monday, February 13.

Background information 1. Tax Revenue The streetcar projected Net Present Value does not reach breakeven for at least 20 years. This includes certain cash outflow of $100 million (initial investment), and $5 million annual outlay (operating cost plus interest on debt of $60 million at 4%); and uncertain tax revenue based on $1.5 billion of private capital investment. Tax revenue is calculated using the template on the citys website, which provides for tax abatements of 75% of the value of commercial property for up to 12 years. 5 Similar abatements exist for residential investments.

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http://www.cincinnati-oh.gov/city/downloads/city_pdf17754.pdf (page 18) http://www.cincinnati-oh.gov/cdap/pages/-3481-/ 4 http://www.cincinnati-oh.gov/city/downloads/city_pdf17754.pdf (page 15) 5 http://www.cincinnati-oh.gov/cdap/pages/-3481-/ 2

 Net Present Value Cincinnati Street Car (2014-2040)

M 100.0 i l - l i o n (100.0) s $ (200.0)

The initial negative cash flow is based on $100 million of capital cost, 4% annual interest on $60 million of bonds for the project, and the projected annual operating loss of about $2.5 million. Initial tax revenue is minimal due to the tax abatement. If private capital investment is delayed, breakeven would be later in the project, and conceivably the project could never break even. Using the most current information, project cost would total nearly $143 million, and consist of: Inflation adjusted incremental spending of $13 million cost due to the 2year delayed start to 2012. This is based on the inflation assumptions used in the original feasibility study. Approximately $30 million of utility cost additions outlined in the January 25 letter, Exhibit 1. These cost estimates are not yet final and may increase.

Using these additional costs, the NPV breakeven occurs in 2040, again assuming $1.5 billion of private capital investment starting in 2015. Investment delays would result with an NPV loss. What are the annual cash flows used to substantiate the more than $140 million project? 2. Cultural Assessment

Cincinnati is a conservative city e.g. culturally closer to Buffalo (a failed rail system) than Portland. Are private capital investments of $1.5 billion in 15 years too aggressive for our conservative city? The feasibility study refers to cities that range from very progressive to more modest cultural areas from Portland Oregon to Kenosha Wisconsin. Cincinnatis culture is closer to upstate NY than Portland. Note the capital investment value for the cities identified by the feasibility study. Nearly $2 billion was invested in Portland, while less than $200 million was invested in Kenosha.
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http://www.cincinnati-oh.gov/city/downloads/city_pdf17754.pdf (page 21) 4

City Development Investment

3,000.0 2,500.0 M i 2,000.0 l l i o 1,500.0 n s $ 1,000.0 500.0 - Buffalo Kenosha Cincinnati Tacoma Little Rock Tampa Portland

The feasibility study justifies the private capital investment of $1.5 billion by pairing Cincinnati with Tampa and Portland. Cincinnati is not similar in culture to either city. Please comment. 3. Historical City Investments

The city has a history of projects that have not met expectations potentially due to overly optimistic expectations. o Cincinnati has the largest unused subway system in the country, as reported by WLWT. 7 Please comment. o The Cincinnati Transit Hub was dedicated in 2003.8 The cost of $23 million (funded by a state TRAC grant) was designed to accommodate hundreds of buses per hour. What is the current utilization? Please comment on current plans to use this city asset. o The $110 million Freedom Center has not met expectations, and in December 2011 the board considered closing the center. Original estimated annual visits were projected at more than 300,000 actual attendance is about 110,000. 9 Please comment. Given the citys historical performance for meeting investment returns, please explain the current optimistic assumptions, considering that the success of the project requires substantial private investment of $1.5 billion during the next 15 years. 4. Economic Assessment Technical The feasibility study refers to Technical Appendix G: Economic Assessment Technical, which appears to be an integral part of the report. The Appendix is not available on the city site. This report will likely include the annual cash flows, which have been previously requested. Please provide a copy of the report. 5. Population Growth The feasibility study (page 18) indicates city population increase of about 5,000 people, exclusively due to the streetcar. What sensitivity factors have been considered e.g. delay of residential construction by 5 years? The HBR study (page 20) presents a chart that shows the city development value with the streetcar, and without the streetcar. What other alternatives for city development have been considered, which invest up to $140 million+ capital, $75 million of annual operating expense, and $75 million of interest carrying cost over 30 years? 6. City Parking

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http://www.youtube.com/watch?v=zY0qSNmS_Fo (WLWT reporting) http://www.cincinnati-transit.net/transitcenter.html 9 http://news.cincinnati.com/article/20111218/NEWS01/312180027/FreedomCenter-could-close 6

the existing inventory of vacant or underutilized buildings in the project area, and second, land area in the same zone which is currently devoted to parking, most of it in the form of surface parking lots.10 The study considers the loss of on-street parking, but does not assess off-street parking requirements. There is a shortage of parking in the city today. When we lose this vacant land, surface level parking, have you considered the capital cost of new parking garages, which will be required? Who will pay for these facilities? Thank you for your attention to these matters. I look forward to your written response by Monday, February 13, 2012. Sincerely,

Cc:

Roxanne Qualls (Suite 352) Cecil Thomas (Suite 356) Laure Quinlivan (Suite 349) Chris Seelbach (Suite 350) Yvette Simpson (Suite 346 B) P.G. Sittenfeld (Suite 354) Christopher Smitherman (Suite 346 A) Charlie Winburn (Suite 351) Wendell Young (Suite 348)

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http://www.cincinnati-oh.gov/city/downloads/city_pdf17754.pdf 7