Tucson’s bill for streetcar construction is coming due. And after years of saying the $197 million project cost was accounted for, the city is now staring at a $13 million funding gap.
To cover it, city officials are now looking at taking out a $13 million loan, which has rankled one council member.
“For the last two years, we’ve been told that the project is on time and in budget. And I’ve been saying neither is true,” Councilman Steve Kozachik said. “The cars are late and now we’re told that we have a significant funding gap. It’d be nice if staff would start telling us straight so people can believe what they hear when it’s coming from the mouths of government officials.”
While the bulk of the $197 million came from federal grants and the Regional Transportation Administration, the city’s share was penciled in at $26 million.
City officials contended that with declining construction costs, $3 million from the Gadsden Company and potential grant monies available, the city might not have to pony up any money for construction costs.
But new grants never materialized, Gadsden reworked its deal with the city last June and costs didn’t sink far enough for the city to avoid paying.
“It wasn’t in the cards for us,” said Tucson’s Sunlink co-manager Andrew Quigley. “And Plan B was always the COP’s money.”
Certificates of participation (COP’s) are a type of bonding that doesn’t require voter approval, just a vote by the City Council.
Since they don’t go to the voters, loans can’t be paid out of the secondary property tax, the way bonds are. And that means they’re funded out of the city’s already over-burdened general fund.
Quigley said the city is still working with the RTA on possible solutions. If nothing changes, he said the city will have to take out the money around February 2014.
City officials estimate the annual cost could be around $700,000 to repay it.
Quigley said the $13 million amount is actually a testament to how effective the streetcar team was at executing the construction phase of the project.
“I think it’s really good news … because it’s about half of what we anticipated,” he said.
With the city facing a dire financial forecast next year, Kozachik said it’s imperative that accurate financial information is made available sooner rather than later, so the council can make an informed decision.
Impact on pay raises
The council is scheduled to decide next week whether to go ahead with pay raises the council approved last spring for city employees.
“We’re talking about a compensation package on Monday. If staff was withholding information about a $13 million funding gap, it seems to me a pretty salient piece of information if this council is going to be voting on a pay increase,” said Kozachik, who voted against the pay raises in May.
With city expenses climbing and a list of over $1 billion in unmet needs that includes everything from fixing city streets and parks to building a new $50 million city hall, the city might not have the capacity to add $8 million annually to the general fund to increase employee pay.
Not everyone thinks the $13 million streetcar payment is a deal breaker for pay raises.
“The debt service on this for the remainder of fiscal year 2014 will be about 350,000,” Mayor Jonathan Rothschild wrote in an email. “That is not a basis for not looking at employee salaries.”
Rothschild said he’s not too concerned about streetcar costs for now.
“The city will face additional fiscal challenges in 2015, but if we can sell an adequate number of streetcar passes, that revenue, along with the reserve funds we have at the RTA for operation and maintenance, should keep the financial impact of the streetcar to a minimum,” Rothschild said.
Unions hope the council doesn’t renege on the raises.
“It’s been seven years since employees have seen any adjustment in their salary,” said Jason Winsky, government affairs director for Tucson Police Officers Association. “If we don’t do it this year, we are potentially looking at going a decade without a cost of living increase because we all know there are budgetary concerns coming up in 2015.”
Winsky said the council promised it would make compensating employees a priority and they should live up to that.
“We’ve got to keep our qualified and talented employees here. We don’t want them to leave and go to other cities and municipalities,” he said.
If the council fails to pass the pay raises, Winsky foresees employee morale sinking even further.
“We’ve got employees across the board that have been waiting for this light at the end of the tunnel. ... And the reality is other municipalities are hiring. And they’re hiring at more competitive wages than we are,” he said.
In the end though, Winsky believes the council will allow the pay raises to take effect Jan. 1.
“The council has seen this is a priority and that they need to take care of this,” he said.