Omaha streetcar debate rolls into the Nebraska Legislature

OMAHA — Though Omaha city officials have greenlighted the $300 million-plus urban streetcar project, a Nebraska lawmaker is waving the caution flag and has proposed legislation that could disrupt the flow.

Among streetcar-related bills introduced by State Sen. Lou Ann Linehan of Elkhorn is a call for the city or its streetcar authority to cover costs of gas and water utility work necessary to build the city-driven rail system.

Such language takes aim at a current conflict between officials of the city and the Metropolitan Utilities District over who should foot the bill for an estimated $20.5 million of utility line relocation and reinforcement needed to enable a safe downtown-to-midtown route.

Potential fallout

MUD has balked at contributing any more than $4.2 million, saying a higher amount risks a rate hike across its four-county customer base or a delay in scheduled utility work for neighborhoods with older pipes and greater needs.

Omaha officials, on the other hand, have said many of the utility lines in the urban core are so old they’d need replacement even without the streetcar. The city is working on a possible compromise, but MUD general counsel Mark Mendenhall said his team has yet to see it.

Another Linehan bill calls for a restriction in tax-increment financing, a statewide development tool she believes has become overused, in some cases abused. TIF is the key revenue source in paying off debt for Omaha’s modern-day streetcar system.

The mayor has said since the start that the project would be done without raising city sales tax or property tax rates.

In discussing her legislative proposals, Linehan said she recognizes the importance of a vital urban core, especially to draw young talent, and she lauded Omaha Mayor Jean Stothert’s efforts to grow the state’s largest city.

But the streetcar venture has financial implications beyond Omaha, said Linehan, chair of the Legislature’s Revenue Committee. She thinks more airing is needed and looks forward to learning more during public hearings in the State Capitol.

Mutual high-rise at stake

“It’s not too late — it’s $400 million,” Linehan said, referring to the bonds the city is to sell to finance the project. That reflects contingency funding as well as the anticipated $306 million city officials have said gets the transportation system up and running in 2026.

“And it’s fair,” Linehan added, “that representatives other than people at the city are asking questions. Our job for the Legislature is to look out for the whole state, especially our own areas, and I’ve heard too many questions from too many people.”

Omaha city officials didn’t immediately respond to questions about the Linehan bills. The senator said she met a week ago with the mayor and her staff. 

Like many Omahans, Linehan said she has watched as the streetcar was announced a year ago and progressed to the recent City Council vote approving the sale of about $440 million in bonds. 

Stakes were higher as Mutual of Omaha made construction of its $600 million new downtown headquarters contingent on a streetcar system that would run past the insurance titan’s existing campus, likely upping that property’s value.

Poised to be the tallest building in the city, Mutual’s new offices are to rise where the W. Dale Clark Library was demolished.

TIF law change

An independent consulting firm has told city leaders that anticipated new development and higher property values sparked by the streetcar should produce enough TIF revenue to pay off the bonds (without a tax rate increase).

Generally with TIF, a long-standing economic growth tool authorized by state law, a real estate developer takes out a loan for eligible costs on a blighted project site that’s been approved for redevelopment by a city. The city must find that the project wouldn’t happen but for the subsidy.

The debt is paid with increased property taxes generated on the new development. After the loan  period, typically 15 or 20 years, the higher property tax revenue then starts flowing to traditional sources such as school districts. (During the TIF loan schedule, the owner continues to pay property taxes to those normal sources on any valuation that existed prior to the improvement.)

With the streetcar project, TIF is being used in ways not yet tried in Omaha.

For example, one revenue stream calls for creation of a special TIF district along and around the streetcar corridor, and future increased property taxes from existing businesses in that area are to go toward paying off bonds.

As proposed, Linehan’s Legislative Bill 389 would preclude the TIF tool from being used twice on a property within a 50-year period.

The senator said she hopes to learn more during the related public hearing about how such a restriction might affect the streetcar’s financial plan.

‘What is going on?’

She said her concern about Omaha’s streetcar shot up after the city-MUD debate. 

“When I see two governing bodies in a battle like that, I’m like, ‘OK, what is going on?’ ” she said. 

Linehan believes that the cost of utility replacements for a development site that otherwise wouldn’t need them shouldn’t fall on MUD ratepayers. MUD ratepayers live in three counties in addition to Douglas.

As planned, the streetcar would run on fixed tracks along Farnam and Harney Streets, between 10th and 42nd Streets. North-south legs would stretch along 10th Street between Cass and Harney, and a portion of Eighth Street.

“It is a wonderful project,” Linehan said. “It also comes with consequences for the State of Nebraska. Incentive programs will be used. When TIF is used, especially when it’s used on something not old or blighted, that takes money away from other property tax entities — schools, for example.”

Streetcar fans, which include local developers and business leaders who foresee the urban core transportation mode as a growth stimulator and talent magnet, saw recent high-profile pushback from Omaha billionaire Warren Buffett, who recommended a vote of the citizens. 

More legal shifts eyed

A few other state senators have introduced related bills this legislative session. Among them: 

Sen. Justin Wayne of Omaha has proposed allocating $100 million to the Omaha streetcar initiative, with half of that going to create a North Omaha route.

Sen. Machaela Cavanaugh of Omaha has called for a change in the law to require a public vote on any TIF subsidy over $20 million. 

MUD Board Chair and former state legislator Tanya Cook said the public utility board is not inclined to change scheduled infrastructure work in higher-risk areas to meet the streetcar demands. She said MUD remains hopeful for an agreement with the city, as it could set a precedent on future projects.

Meanwhile, Linehan said she and her constituents welcome the state-level discussion.

“They would be disappointed if I didn’t do something,” she said.