The Sacramento Streetcar Project An Eye on Sacramento Report January 13, 2015 “Start Digging a Hole” "In the world of civic projects, the first budget is really just a down payment. The idea is to get going. Start digging a hole and make it so big, there’s no alternative to coming up with the money to fill it in.” ---Willie Brown, former California Assembly Speaker, from his July 28, 2014 S.F. Chronicle column. For further information on this EOS Report, please contact: Craig K. Powell, President Dennis Neufeld, Director of Research (916) 718-3030 - [email protected] (916) 539-1054 - [email protected] For further information about Eye on Sacramento, please contact: Lisa Garcia, Vice-President, Community Outreach Director Eye on Sacramento, 1620 35th Avenue, Suite K, Sacramento, CA 95822 Phone: (916) 403-0592; E-mail: [email protected]; Website: www.eyeonsacramento.org Eye on Sacramento is a 501(c)(3) non-profit organization 1 TABLE OF CONTENTS Page I. EXECUTIVE SUMMARY 4 II. MESSAGE FROM PRESIDENT OF EYE ON SACRAMENTO 7 III. PROJECT DESCRIPTION 9 - Proposed Streetcar Route 9 - Estimated Construction Costs and Funding 10 IV. STREETCAR RESURRECTION 10 - Sacramento's Historic Streetcar 10 - The Modern Streetcar Movement 11 - Early Streetcar Leadership by West Sacramento 11 V. CAUSES FOR CONCERN 12 - Public Opinion is Coalescing Against the Streetcar Movement 12 - Revival or Dying Fad? 13 - Ridership and Service Plan 14 - Streetcars vs. Buses 14 - Innovative Bus Designs May End Streetcar's Monopoly on "Cool" 15 - Absence of Destinations 16 - Troubling Similarities to Tampa and Little Rock Streetcar Systems 16 - Union Pacific Track: Roadblock to Expansion East of 19th Street 17 - West Sacramento Bus Riders Will Be Forced to Transfer 19 - West Sacramento Service Will Be Cut in Half 20 VI. TRAFFIC AND OPERATIONAL ISSUES 21 - Worse Traffic on I, J and L Streets 21 - Meet the Traffic Problems of 2018 22 - Vulnerability of Light Rail to Streetcar Delays 25 - Tower Bridge Crossing 26 - The $150 Million Turning Lane 27 - Problems with Arena Service 28 - Safety, Security of Streetcars: Will It Be Any Better Than Light Rail? 28 - Streetcars and Bicycles Are Not Mixing 29 VII. ECONOMIC DEVELOPMENT IMPACTS 29 - Impacts Will Vary by District 29 - Economic Projections of Higher Property Values: Are They Credible? 30 - Construction Impacts on Merchants and Businesses: Mitigation? 31 VIII. PROPERTY TAX ASSESSMENT & FISCAL IMPACTS 31 - Imposition of Tax Assessment is a Two-Election Process 31 - Apparent Major Change in Method of Calculating Assessments 32 - Proposed Property Owner Ballot: A Blank Check? 32 - The Truth About the 40-Year Duration of the Property Tax Assessment 33 - Why the Tax Assessment is Much, Much Greater Than $30 Million 34 2 Page - The Role of GO! Streetcar and Its Sponsor, Friends of Light Rail & Transit 34 - Arena Developers' Sweetheart Deal on the Streetcar Tax 35 - Sacramento Owners vs. West Sacramento Owners: A Question of Fairness 36 - Special Benefit to West Sacramento's Triangle District Developers? 36 - The Extraordinarily High Cost of the Streetcar Facility: $15.9 Million 37 - Worrisome Lack of Conditions to Use of Property Tax Assessments 38 - Cost Overruns After Construction Has Begun: Who Will Be Responsible? 39 - Will Contingency Reserves Be Adequate to Cover Construction Cost Overruns? 39 - The Certainty of Annual Streetcar Operating Deficits and Sacramento's "Fiscal Cliff" 40 IX. FUTURE CONCERNS 41 - Challenge of Coordinating Six Governmental Jurisdictions 41 - Lack of Budgeting for Car Replacements 42 - City's Fanciful Plan to Build Nine Additional Streetcar Lines 43 3 I. EXECUTIVE SUMMARY Key Findings Impacts of Streetcar Project on Economic Development After a review of the experiences of other U.S. cities and an examination of the proposed Sacramento streetcar system, we've concluded that streetcars would not increase mobility, cut commute times or reduce traffic congestion and would be less cost-effective than buses due to their higher capital costs. These days, streetcars are being promoted as a catalyst to development and economic growth. However, we find no credible evidence that establishes that streetcars are a significant factor in stimulating development. While promoters of streetcars cite instances of increased development in areas of some cities in which streetcar lines have been built, they have failed to prove "causation," that is to say, that streetcars were the actual cause of the concurrent building development. In the frequently cited case of Portland, development along its streetcar line was greatly assisted by significant tax and other government subsidies that were extended to developers. But Sacramento cannot currently offer developers the same generous package of development incentives that local government in Portland was able to provide to developers of property near their new streetcar line. Consequently, we don't place much credence in economic forecasts that predict that Sacramento will experience development increases comparable to what Portland experienced when it installed its streetcar line. To the extent that streetcars do serve as a catalyst to economic growth, we believe that essentially the same economic impact can be secured at a fraction of the proposed cost by, instead, purchasing and deploying redesigned and reengineered modern transit buses that are virtually indistinguishable in appearance and function from modern streetcars (a picture of such a modern transit bus appears on page 15 of this report). Based on cancellations of streetcar projects and overruns of both construction and operating costs experienced by other U.S. cities, and our review of studies, reports and media accounts, it appears that public opinion - and the opinion of many transit experts - is shifting away from the modern version of the streetcar. In fact, it appears that much of the impetus for building such systems has been the willingness of the federal government in recent years to fund half of the costs of construction, which, in Sacramento's case, is expected to amount to $75 million. In other cities that have built streetcars, some local merchants and businesses have experienced major disruptions to their businesses during the 24-month construction period involved in building a streetcar system. We have seen no indication that the project will offer assistance to help such impacted businesses. 4 Impacts of Streetcar Project on Traffic Based on our detailed review of every almost element of the proposed streetcar system, we conclude that it would increase traffic congestion on I, J and L Streets and will create major traffic problems near the I-5 on-ramps and off-ramps at 3rd and J Streets, as well as problems on the Tower Bridge and at the intersection of J and 19th Streets. The streetcar is slated to use existing Light Rail tracks on some streets in Downtown, including 7th and 8th Streets and one block of H Street. Since streetcars are much slower that Light Rail trains, there are real concerns that streetcars will cause back-ups and delays for Light Rail trains, which, at 360-feet long, can clog up intersections, trip traffic signals and aggravate congestion at Downtown intersections. The Special Tax Levy Downtown and Midtown property owners are being asked to cast advisory ballots on a proposed special tax levy on their properties without the benefit of having correct or complete information on important details of the tax levy, bond financing costs or the streetcar project itself, including financial risks and impacts of the project. Media reports on the streetcar project have included erroneous information about the amount of the total taxes that would be paid by property owners and how long such tax payments must be made. The total assessment will not be $30 million as has been erroneously reported, but will, instead, be 20% of the total costs of constructing the streetcar project (estimated to be $150 million), plus interest and other financing costs on Mello-Roos bonds that will have a maturity of up to 40 years (not 30 years, as has been reported in the media). The bonds will finance a $30 million cash contribution to the construction costs of the streetcar project. Additional amounts will be borrowed to cover prepaid bond interest, bond reserves and issuance costs, up to a maximum authorized borrowing of $38 million. If the full $38 million is borrowed, the total interest and other financing costs on the bonds could amount to as much as $58 million, depending on interest rates, bond maturities, payment and other terms, which could bring total tax payments by property owners to pay off the bonds (including financing costs) up to as much as $96 million. It is more likely, however, that total tax payments will be closer to $75 million. Property owners will pay a tax rate that's based on how close their property is to the proposed streetcar line, with those parcels located within one block of the line paying the highest rate, those within two blocks paying the second highest rate and those within three blocks paying the lowest rate. Commercial and office property owners will pay a rate based on both the square footage of their land and the square footage of their buildings. For example, a commercial office building located within two blocks of the line would pay an annual rate of $0.040 cents for each sq. ft. of land and a rate of $0.112 cents for each building sq. ft. Owners of residential property will pay a rate based on the number of units on the property. 5 Special Tax Break for Arena's Owners: $10,000,000 Estimated Tax Subsidy Owners of the new Downtown Arena, however, will be paying much lower tax rates than other commercial property owners. They will pay no tax at all on their land and will pay a $0.040 rate on most of its building square footage, a rate 64% lower than the rate paid by all other commercial property located the same distance from the streetcar line ($0.112).