The Omaha City Council heard lengthy testimony last week regarding an ordinance to approve a $70 million lease revenue bond issue to support the streetcar project.
When the item appeared on a city council agenda earlier this month, there was some public backlash, particularly on social media, regarding the project’s financial situation. City council members used the public hearing to clarify what the $70 million represents in the overall project.
In 2022, the city council approved up to $440 million in bonds to help finance the streetcar project. It was originally contemplated that $360 million would be from revenue bonds, while $80 million would come from lease revenue bonds. The primary difference between the two types of bonds is that the city backs lease revenue bonds while revenue bonds are only paid by the streetcar-related Tax Increment Financing revenue generated by new projects along the streetcar route.
In 2022, the interest rates were fairly comparable, with revenue bonds having 4.5 percent interest rate and lease revenue bonds around 4 percent. Currently, the interest rates for revenue bonds are at 6.5 percent, while lease revenue bonds are still at 4.5 percent. The city wants to take advantage of the significant cost savings available due to the lower interest rate.
The project’s current estimated cost is around $420 million. The Omaha Streetcar Authority has spent (and the city has issued) bonds totaling $130 million so far to support the project. The $70 million being requested is the next tranche to support a portion of this year’s anticipated spending.
While a council member had concerns regarding the city’s obligation under the lease revenue bond financial mechanism, the city is well positioned to generate more than enough TIF revenue to cover the cost of the project and other potential projects such as affordable housing initiatives.
The oft-cited MuniCap report estimated approximately $2 billion in potential development, which would generate $608 million in revenue. There is already more than $1.3 billion in projects within the streetcar TIF district with another known $400 million in new projects, which the city anticipates being announced by the end of the year. The City’s own projections – based on the current-pace estimates – indicate that $3.9 billion will be invested along the streetcar within 15 years.
