Streetcar/Foothills — costs are too high
'Arithmetic is not optional' - Italian proverb
Streetcar/Foothills fails the financial risk sustainability test. First, there is no plan for paying additional operating/maintenance costs for the additional 2,600 households in the streetcar/Foothills development. Second, financial risks are understated and benefits overstated. Let's examine each point in more detail.
Operating costs: No revenue from streetcar/Foothills for additional public services. Currently there are 16,500 households in the city. Streetcar/Foothills adds 2,600 new households, a 16 percent increase. But there is no taxing or funding source from streetcar/Foothills for additional public services, such as police, fire, parks maintenance, etc. Under streetcar/Foothills, little tax revenue is devoted for ongoing public services. Incremental property taxes are almost entirely devoted to construction cost debt payments.
Here are two examples: Current compensation for police services is $8.4 million. In order to maintain the existing level of police coverage per household, streetcar/Foothills will require the city's budget for police services to increase by $1.3 million. To fund these expenses, the city will increase taxes/fees, reduce police coverage and/or reduce other public services.
To operate the streetcar, consultants estimate annual costs will be $3.78 million. Tri-Met acknowledged, despite its desire to pay streetcar operating costs, at this time it does not have the funds to do so. If Lake Oswego pays 20 percent of streetcar operating costs, the city will pay $0.75 million annually. Where will the money come from? The city's best answer so far is … we have always worked it out. Not a good answer.
The same analysis applies to each city service, such as parks services. Amounts will vary for each service but the key point remains. There is no identifiable revenue source. Under the usual model of development, developers pay for infrastructure, then transfer ownership to the city. The city pays ongoing operating/maintenance costs for added households/businesses through increased property taxes. Under the proposed streetcar/Foothills model, the city pays for infrastructure, the incremental property tax dollars pay the debt, and the city is left with minimal money to pay ongoing operating/maintenance costs of infrastructure and added households.
Financial risk: The council is told as a redevelopment board to take off our council hats and put on development hats, to take on more risk, to think as developers. When the council wears its city hat, it is conservative in financial analysis. For example, a 4.4 percent interest/discount rate was used in the sewer/LOIS project. For streetcar/Foothills a 5 percent rate is used. The city is taking on substantially more risk in streetcar/Foothills than the sewer/LOIS project. Developers use rates of return calculations in excess of 5 percent. An interest/discount rate less than what developers use, overstates the financial benefits of streetcar/Foothills. On streetcar/Foothills, council is trying to have it both ways, i.e., understate financial risks and overstate benefits.
There are cash flow issues and minimal money to pay operating/maintenance costs of infrastructure and added households. Insult is added to injury. The true insult and injury is to pay for streetcar/Foothills taxes/fees will have to be increased, services cut, reserves drawn, needed projects eliminated or a combination of all four.
Economic analysis has focused on 'the how' of streetcar/Foothills (e.g. tax increment financing, system development charges, etc. )The right question is 'the why' - is the risk worth the benefit? The answer is no.
As presently constituted, the city should not proceed with streetcar/Foothills.
Jeff Gudman is a member of the Lake Oswego City Council. He notes that his views are his alone and not those of the council.