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MANAGEMENT UPDATE.

WHY CINCINNATI IS SELLING ITS RAILROAD

On Election Day last Tuesday, voters in Cincinnati were faced with a ballot measure that would permit the city to sell the nation’s only municipally owned railroad, the Cincinnati Southern Railway to Norfolk Southern Corporation for $1.6 billion. Currently, the corporation has been leasing the railroad from the city, but in 2022 Norfolk Southern offered to purchase the railroad outright. It had been built by the city over 140 years back in order to benefit from the railway boom of that era. 


The purpose of the sale, according to the ballot measure, was to create a trust fund that would generate at least $26.5 million annually “for the purpose of the rehabilitation, modernization, or replacement of existing streets, bridges, municipal buildings, parks and green spaces, site improvements, recreation facilities, improvements for parking purposes, and any other public facilities owned by the City of Cincinnati, and to pay for the costs of administering the trust fund.”

It was a close call, and so-called Issue 22 passed by less than two percentage points.



Typically, according to the Government Finance Officers Association, when a municipality sells an asset, it should only do so with a competitive process. But this appears to have been an exception to that general rule. Unlike situations in which city buildings are sold to the private sector, “freight lines are regulated by the federal government’s Surface Transportation Board,” explained Gus Ricksecker, chief of staff to Cincinnati City Councilmember Reggie Harris, who is head of the Council’s Budget & Finance Committee.


As Ricksecker told us, that situation would make it “extremely unlikely that anyone other than Norfolk Southern would be able to purchase the railroad.”


These additional revenues may be a golden opportunity for the city to catch up on its infrastructure needs. According to the Cincinnati Enquirer, the city’s mayor, “estimated the investment money would bring in twice what the lease does, saying that would be a boon to the $400 million in backlogged city projects.”


“Cincinnati is a city with infrastructure built for 500,000 people in 1950. Over the past 60 or so years, it has declined in population, to 297,000 in 2010, which meant we lost significant amounts of income and property tax revenue and so there wasn’t enough to support the infrastructure,” said Ricksecker. “But over the last decade the city began to grow again, and yet we have the burden of a large amount of unfunded capital maintenance on our books.” 


This is not the first time Cincinnati’s leaders have sought to proactively address critical infrastructure challenges as, during the pandemic, voters passed another ballot initiative that increased the sales tax by 0.8% to support the Southwest Ohio Regional Transit Authority (SORTA) with up to $130 million annually. While transit systems across the country were faced with significant financial obstacles, Cincinnati saw ridership return to pre-pandemic levels earlier this year which exceeded the national average return by nearly 20%.  


The ability to address issues of crumbling infrastructure is critical. As Mary Scott Nabers, author of “Inside the Infrastructure Revolution – A Roadmap for Rebuilding America, wrote in a late October issue of Construction Dive, “the longer this issue remains unaddressed, the greater the financial burden will be on taxpayers.”


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