^ @Dev I was merely referring to Flynn's point about how departments can manipulate the capital budget and how funds dedicated for road and infrastructure can "leak" out in other ways. 

Cincinnati Democratic Committee backs railway sale, opposes income tax increase

 

Cincinnati Democrats voted overwhelming Monday, Oct. 2, to back the sale of the Cincinnati Southern Railway to Norfolk Southern and oppose an income tax increase that would be steered toward affordable housing in the region.

 

The twin votes came during a 90-minute meeting in which Mayor Aftab Pureval, former Mayor John Cranley and members of the current City Council implored the party’s precinct executives to take both positions.

...

Pureval reiterated the case he’s made since the Cincinnati Southern Railway board voted in November 2022 to sell the railway, which it holds in trust on the city’s behalf, to Norfolk Southern: The city has a $400 million deficit and the $1.6 billion sale and the resulting trust fund proceeds can be used to reduce it.

 

“It is the most important vote and the most important issue in my brief time as mayor, whether that's four or eight years,” Pureval said. If the sale doesn't pass, he added, the city’s choices are to "reduce the footprint of the city or raise property taxes.”

 

“If it doesn't pass, we are on a steady decline in this city," Pureval said.

 

More below:

https://www.bizjournals.com/cincinnati/news/2023/10/03/democratic-committee-southern-railway-sale-vote.html

 

Odd that the city has been steadily growing and new development is happening without selling a 100+ year old asset. Purval isn't as bad as Cranley from a policy standpoint but he is certainly up there in terms of cringe. He's also been a disappointment in terms of transit and moving the city to a more car-free future.

I've seen a half dozen homemade "No Rail Sale" (Issue 22) on the eastside of town but no official signs from https://saveourrail.org. 

23 hours ago, JaceTheAce41 said:

Odd that the city has been steadily growing and new development is happening without selling a 100+ year old asset. Purval isn't as bad as Cranley from a policy standpoint but he is certainly up there in terms of cringe. He's also been a disappointment in terms of transit and moving the city to a more car-free future.

 

Is it steadily growing? 

You get my point. Acting like owning a railroad for over 100 years is holding the city back is some of the silliest hyperbole I've heard from a politician. New development is happening, the population is growing over the past few years, new businesses are coming here. OTR has had a renaissance and other neighborhoods are starting to turn around. None of this has to do with owning a railroad and selling it for car-based infrastructure maintenance is so short sighted.

23 minutes ago, JaceTheAce41 said:

You get my point. Acting like owning a railroad for over 100 years is holding the city back is some of the silliest hyperbole I've heard from a politician. New development is happening, the population is growing over the past few years, new businesses are coming here. OTR has had a renaissance and other neighborhoods are starting to turn around. None of this has to do with owning a railroad and selling it for car-based infrastructure maintenance is so short sighted.

But besides the $25 million a year, what other tangible benefit does owning the railroad bring in?

 

Selling it could bring in a tangible benefit of $55-$60 million a year. Comparing Apples to Apples I would rather have $60 million vs $25 million.

 

Now, if you tell me that a re-negotiated RR lease would generate $100 million a year and we are leaving $40 million a year on the table, that is a different calculation.

Also, if there was some other tangible benefit to the city to own the railroad for its residents, then that is a different calculation. However, we are not using the railroad for transporting passengers or other tangible transportation benefit to the city. It is just an investment vehicle at this time, so therefore, to me, holding the asset does not provide the best return on the city's money. 

 

Also, an asset such as this is more valuable in the private sector hands than it is to a municipal entity so Norfolk Southern can achieve other benefits from ownership that the city could never realize. 

Edited October 4, 20231 yr by Brutus_buckeye

It is my understanding that the City is looking to maintain a 5.5% annual return to preserve the principal against inflation by paying into the trust fund and the residual

revenues will be paid out to the City for capital funding.   For example, this year  inflation is currently running at  3.7% so the residual amount with a 1.8% of 1.6B would be $28.8M assuming an overall investment return of the 5.5%.   If inflation were to increase back above 4% in the future the return would be less than the current lease revenue adjusted for inflation.   From what I had read on the City's solicitation for a financial advisor the goal is to at least match the current payment amount.   Still seams like a risk that would not be necessary if you locked in guaranteed increases in revenues that would match or beat inflation they way it has been since the southern was created over a century ago.     

48 minutes ago, GHOST TRACKS said:

It is my understanding that the City is looking to maintain a 5.5% annual return to preserve the principal against inflation by paying into the trust fund and the residual

revenues will be paid out to the City for capital funding.   For example, this year  inflation is currently running at  3.7% so the residual amount with a 1.8% of 1.6B would be $28.8M assuming an overall investment return of the 5.5%.   If inflation were to increase back above 4% in the future the return would be less than the current lease revenue adjusted for inflation.   From what I had read on the City's solicitation for a financial advisor the goal is to at least match the current payment amount.   Still seams like a risk that would not be necessary if you locked in guaranteed increases in revenues that would match or beat inflation they way it has been since the southern was created over a century ago.     

 

I think the key here is that:

 

1. 5.5% is extremely conservative. The S&P 500 has returned more like 10% over the long run. And...

 

2. The current inflation of 3.7% is much higher than the long run average. There's no reason to believe it will be higher on average. In reality, in most years it'll be more like 2%.

3 hours ago, DEPACincy said:

 

I think the key here is that:

 

1. 5.5% is extremely conservative. The S&P 500 has returned more like 10% over the long run. And...

 

Pension funds and trust funds typically invest 40-60% in blue chip stocks and the rest in bonds and other income sources like real estate (land leases and REIT-type income, although some own specific buildings outright).  That's what is so ridiculous about all of this - the railroad income *is* a diversification of the city's overall income stream, one that pays every single year.  There is the very real risk that the proposed trust fund won't pay out, possibly for several years in a row. 

 

 

 

 

 

13 hours ago, Lazarus said:

 

Pension funds and trust funds typically invest 40-60% in blue chip stocks and the rest in bonds and other income sources like real estate (land leases and REIT-type income, although some own specific buildings outright).  That's what is so ridiculous about all of this - the railroad income *is* a diversification of the city's overall income stream, one that pays every single year.  There is the very real risk that the proposed trust fund won't pay out, possibly for several years in a row. 

 

 

 

 

 

 

1. This is not a pension fund.

 

2. I would take that bet. 

19 hours ago, GHOST TRACKS said:

It is my understanding that the City is looking to maintain a 5.5% annual return to preserve the principal against inflation by paying into the trust fund and the residual

revenues will be paid out to the City for capital funding.   For example, this year  inflation is currently running at  3.7% so the residual amount with a 1.8% of 1.6B would be $28.8M assuming an overall investment return of the 5.5%.   If inflation were to increase back above 4% in the future the return would be less than the current lease revenue adjusted for inflation.   From what I had read on the City's solicitation for a financial advisor the goal is to at least match the current payment amount.   Still seams like a risk that would not be necessary if you locked in guaranteed increases in revenues that would match or beat inflation they way it has been since the southern was created over a century ago.     

We recently worked on an endowment project at my kids school. This is essentially a similar model.  The reason why they use a 5.5% payout every year is based on traditional averages, but that does not mean it will always be 5.5%. However, traditionally, the such documents do not allow for more than a 5.5% distribution (unless special circimstances apply) to ensure the principal keeps growing. 

 

Traditionally, you get an average of 8% return based on historical averages. So in many years the principal will grow and you only distribute 5.5%. Some years, the market will be less than 8% and in some years it will even be negative. When determining distributions of this type, at least in the educational endowment side, they use a 3 year average. Therefore, if over a 3 year period the returns are 25%, 5% & -5%; the average return is 8.3% and in year 4, they could still distribute 5.5% (because the rest of any gain stays gets compounded). Now in year 4 the return is 15% so that takes the 3 year moving average to 5%, which means year 5, the most you would distribute is 5% The 3 year averaging is designed to smooth out the volatility and help ensure that the distributions remain stable over the years. 

Some guy on Twitter asserts that N-S wants to own the line because the federal government is paying to install fiber optic cable (or some sort of high speed internet service) along it and the future owner will keep a percentage of the revenue from said service.  I can't imagine that this is more than an incidental source of revenue.  So...there are numerous legit reasons to oppose the sale but that's not one of them. 

 

I also am suspicious that some of the semi-organized opponents see that they missed out on direct funding for their pet projects as part of this deal and so hope to come back to the cookie jar in a few years with a plan that pads their pockets.  I don't believe that such a plan would be legal or that the Republican-controlled state legislature would capitulate to it. 

Luken: Railway board rebuffed request for hundreds of millions from business leaders

 

Cincinnati Southern Railway board members rejected business leaders’ request for hundreds of millions of dollars from the potential sale of the city-owned asset for economic development purposes, according to Charlie Luken, the former mayor and railway board member.

 

Luken initially made his comments during a 91.7 WVXU-FM forum on Issue 22, the ballot measure that would allow the city to sell the railway for $1.6 billion to Norfolk Southern if approved by voters on Nov. 7.

 

In an Oct. 16 interview with the Business Courier after the forum, Luken said he and Paul Muething, who chairs the railway board, met with Gary Lindgren, the president of the Cincinnati Business Committee, and two other leaders Luken declined to name sometime before the sale was announced in November 2022.

 

Public records obtained by the Courier last year show that Muething and Luken were scheduled to meet with Lindgren and North American Properties CEO Tom Williams and Western & Southern CEO John Barrett in August 2022.

 

"They wanted to see if $400 million or $500 million of the $1.6 billion could be carved out for economic development projects,” Luken said, which could have included housing, an arena or caps on Fort Washington Way, although discussions did not get that far, he added.

 

More below:

https://www.bizjournals.com/cincinnati/news/2023/10/17/cincinnati-railway-board-rebuffed-business-leaders.html

Mayor's re-election campaign treasurer is the same as the railway sale campaign

Pureval, when asked, gave the wrong name of who his treasurer is

 

 

The campaign to sell Cincinnati’s railroad to Norfolk Southern Corp. has spent more than $600,000 on TV ads promoting the sale, according to media buying records submitted by local stations to the Federal Communications Commission.

 

Critics of the sale claim that creates a conflict of interest for Cincinnati Mayor Aftab Pureval, who stars in the ads and could benefit from media exposure as he prepares to run for re-election in 2025. In an interview with the WCPO 9 I-Team, Pureval said he has “no direct involvement” in Building Cincinnati’s Future, the pro-sale campaign he said is “largely funded by Norfolk Southern.”

 

But his critics are disturbed by another fact: Building Cincinnati’s Future and the mayor’s re-election campaign share the same treasurer.

 

“It might not be against the law, but it doesn’t pass the smell test,” said former Cincinnati Vice-Mayor Christopher Smitherman. “It is an absolute conflict of interest for his treasurer to be involved in this campaign. And I’ll even take the next step. I think it’s a conflict of interest for the mayor himself to be involved in a campaign like this.”

 

Cont

 

 

On 10/4/2023 at 11:43 AM, Cygnus said:

I've seen a half dozen homemade "No Rail Sale" (Issue 22) on the eastside of town but no official signs from https://saveourrail.org. 

 

The've reached downtown:

This has been such an interesting local political topic to follow—it's not partisan, ultimately has an "upside" no matter how it lands, and each "side" has such an intriguing collection of personalities who wouldn't seem to normally mesh.

 

I'm still undecided, though, even after pouring through the WVXU guide.  

15 minutes ago, Gordon Bombay said:

intriguing collection of personalities who wouldn't seem to normally mesh.

 

ODD BEDFELLOWS

2 hours ago, ColDayMan said:

Luken: Railway board rebuffed request for hundreds of millions from business leaders

 

Cincinnati Southern Railway board members rejected business leaders’ request for hundreds of millions of dollars from the potential sale of the city-owned asset for economic development purposes, according to Charlie Luken, the former mayor and railway board member.

 

Luken initially made his comments during a 91.7 WVXU-FM forum on Issue 22, the ballot measure that would allow the city to sell the railway for $1.6 billion to Norfolk Southern if approved by voters on Nov. 7.

 

In an Oct. 16 interview with the Business Courier after the forum, Luken said he and Paul Muething, who chairs the railway board, met with Gary Lindgren, the president of the Cincinnati Business Committee, and two other leaders Luken declined to name sometime before the sale was announced in November 2022.

 

Public records obtained by the Courier last year show that Muething and Luken were scheduled to meet with Lindgren and North American Properties CEO Tom Williams and Western & Southern CEO John Barrett in August 2022.

 

"They wanted to see if $400 million or $500 million of the $1.6 billion could be carved out for economic development projects,” Luken said, which could have included housing, an arena or caps on Fort Washington Way, although discussions did not get that far, he added.

 

More below:

https://www.bizjournals.com/cincinnati/news/2023/10/17/cincinnati-railway-board-rebuffed-business-leaders.html

Sorry I’m sure I missed it but if sold who controls all this money??? Who approves uses?

16 minutes ago, 646empire said:

Sorry I’m sure I missed it but if sold who controls all this money??? Who approves uses?

The railway board will control the money and approve its uses under the available terms of uses.  Back in the Spring, when the State allowed the sale to go forward, they put guardrails on the deal to ensure it is only used for infrastructure projects. Therefore, unless the State changes the law, the railway board will only be able to approve actual infrastructure projects on the annual income from the sale. They may not use it to build an arena or for park projects or housing. 

Not sure where FWW Caps would fall under in the criteria, the devil is in the details there. However, it would be fairly difficult to get an allocation for say a new arena or Streetcar expansion in the funds.

Obviously, that could change over time, but you need to get the state to change the restrictive language to open up other options to spend the money.

 

 

1 hour ago, Brutus_buckeye said:

Therefore, unless the State changes the law, the railway board will only be able to approve actual infrastructure projects on the annual income from the sale. They may not use it to build an arena or for park projects or housing.

The CSR board will not determine how the money will be spent. The fund manager will have a recommendation that they will approve for how much of the returns stay in the fund and how much to pay out to the city. The city administration will then include those funds in their recommended budget with the mayor and city council's review and approval.

2 hours ago, Gordon Bombay said:

This has been such an interesting local political topic to follow—it's not partisan, ultimately has an "upside" no matter how it lands, and each "side" has such an intriguing collection of personalities who wouldn't seem to normally mesh.

It's a neoliberal Rorschach test. If you are a strong supporter for the sale, you might be a neoliberal.

50 minutes ago, Dev said:

The CSR board will not determine how the money will be spent. The fund manager will have a recommendation that they will approve for how much of the returns stay in the fund and how much to pay out to the city. The city administration will then include those funds in their recommended budget with the mayor and city council's review and approval.

The fund manager will determine the distribution. However, the distribution must be spent solely on infrastructure projects. Council will not be able to vote to spend $60 million of the distribution in 2028 on a new arena or convention center renovation or new public housing. They are limited there. The Railway trustees will oversee the fund manager 

5 hours ago, Brutus_buckeye said:

The railway board will control the money and approve its uses under the available terms of uses.  Back in the Spring, when the State allowed the sale to go forward, they put guardrails on the deal to ensure it is only used for infrastructure projects. Therefore, unless the State changes the law, the railway board will only be able to approve actual infrastructure projects on the annual income from the sale. They may not use it to build an arena or for park projects or housing. 

Not sure where FWW Caps would fall under in the criteria, the devil is in the details there. However, it would be fairly difficult to get an allocation for say a new arena or Streetcar expansion in the funds.

Obviously, that could change over time, but you need to get the state to change the restrictive language to open up other options to spend the money.

 

 

Interesting. Seems a bit messy and the fact that they probably can’t use the funds towards transportation ans such makes me lean no.

2 hours ago, 646empire said:

Interesting. Seems a bit messy and the fact that they probably can’t use the funds towards transportation ans such makes me lean no.

but in the end, money is fungible. So if you have a $50 million budget obligation that you need to budget for every year to pay for the roads and you have a $60-70 million inflow from the railroad sale, then you no longer have to fund that budget obligation and those funds that would otherwise go to fixing the roads from the general fund can go somewhere else. 

Will the additional  annual  revenue from the Board of Trustees (which does not have a fixed  guarantee from year to year) be secure enough for the City to issue bonds for larger capital projects?

9 hours ago, GHOST TRACKS said:

Will the additional  annual  revenue from the Board of Trustees (which does not have a fixed  guarantee from year to year) be secure enough for the City to issue bonds for larger capital projects?

Based on historical returns, it should. Just because in one or two years, the returns are down significantly where a distribution cannot be made, over the course of 30 years or longer the returns should meet or exceed their mark. Plus when you only distribute 5% of the returns to the city and hold back say 2-3% in many years, the principal will grow over time and that helps offset against down years OR it grows significantly large enough where the returns paid out each year to the city increase.  These would be considered assets that a bondholder would deem safe collateral. 

Cincinnati Republicans duel over financial terms of potential $1.6B railway sale

 

As the Charles Bronson movie "Breakout Pass," which features a train derailment scene, played on a TV in the background, two Republicans pitched their case for and against the sale of the Cincinnati Southern Railway the night of Oct. 17 at Price Hill Chili.

 

Amy Murray, a former Cincinnati councilwoman, railway board member and Procter & Gamble executive; and Adam Koehler, a businessman and unsuccessful mayoral and state legislative candidate, did not directly debate each other.

 

But in separate presentations to about 50 people at the West Side Republican Club, they outlined starkly different views of the proposed railroad sale’s financial benefits.

 

Voters will decide whether to sell the railroad for $1.6 billion to Norfolk Southern Nov. 7. The club itself voted to oppose the sale at the end of its meeting.

 

The financial model outlined by the railway board and the city calls for the $1.6 billion to be invested and deliver 5.5% returns on average, annually. In the first year, that means the trust would generate $88 million, with $56 million going toward the city, approximately $8 million going to investment advisers and $24 million being reinvested in the fund to keep up with inflation. Officials acknowledge that some market years will be worse than that average, while others will be much better.

 

Murray compared it to any number of investment trusts held throughout the region, whether they're held at St. Xavier High School, Elder or the Greater Cincinnati Foundation.

 

“All of them do the same thing,” Murray said. “All of them keep their funds going in perpetuity. They are very successful.”

 

More below:

https://www.bizjournals.com/cincinnati/news/2023/10/18/southern-railway-sale-republicans-financial-terms.html

 

I don't have a dog in this fight since I don't live within the Cincinnati city limits, but I thought I had read previously that the payments received from Norfolk & Southern would be carried out over years.

 

If that's the case, the returns from the fund would be negligible for a while after the sale. Is that not correct? Will the city receive a lump sum payment?

On 10/14/2023 at 3:32 PM, DEPACincy said:

 

1. This is not a pension fund.

 

 

 

Right, public pension funds get public bailouts (see the recent massive California surpluses directed toward the state's various public pension funds).  This trust fund won't get bailed out because it doesn't directly pay retirees who vote in every single general and primary election.  Cincinnati will be forced to raise the earnings tax, at least temporarily, to cover a prolonged period when this trust fund doesn't pay out. 

 

What really matters is what happens in the first few years...those of us with memories recall how the stadium sales tax used a 3% annual return in sales tax receipts as its baseline.  The whole plan was derailed by the 2001-03 mini-recession, which meant we had one or two flat-line years right at the beginning of the 30-year repayment plan.  The crisis motivated the county to bail out the stadium fund with general revenue.  It was a major news story for many years.   We don't have major news stories anymore because we don't have almost any local reporters.  There weren't, for example, any cub reporters assigned to the railroad board meetings, which is how this whole scheme was sprung upon the public after many months of public meetings that absolutely zero people attended. 

 

9 hours ago, Lazarus said:

Cincinnati will be forced to raise the earnings tax, at least temporarily, to cover a prolonged period when this trust fund doesn't pay out.

This will not happen. The legislation already spells out what to do, and it will just not pay out.

2 hours ago, Dev said:

This will not happen. The legislation already spells out what to do, and it will just not pay out.

 

Right now the city is getting $26 million per year, guaranteed, and they negotiated up to $37 million for the new lease before the trustees decided to sell the damn thing. 

 

So in a year when the trust doesn't pay out, we'll get $0 instead of...the promised $60 million.  That is an absolutely huge problem for a city with a capital budget that is currently well under $100 million.  They might be able to patch over that for a year, but it's an unsustainable problem. 

 

In the very long term, the sale could end up being a bonanza if the stock market has a blow-out 10-year period between 2025 and 2035.  But what if the opposite happens? 

 

 

 

11 minutes ago, Lazarus said:

 

 

 

In the very long term, the sale could end up being a bonanza if the stock market has a blow-out 10-year period between 2025 and 2035.  But what if the opposite happens? 

 

 

 

This is a fair point and one that is lost on many that have been conditioned to think that the stock market only goes up, however, a portfolio like this is meant to behave like an endowment (or a pension as you point out), and to exist in perpetuity.  As a result, it would be extremely well diversified and not overly reliant on equities.  I would think that the portfolio construction would be 40-60% equities tops, a lot of fixed income and some alternatives.  It would be nice if there was some discussion of what the investment portfolio would look like instead of incessant sell-the-railroad-figure-the-rest-out-later cheer leading.  One of the reasons I am voting no is lack of this disclosure.  The board that oversees the selection of third party managers to invest this windfall would likely not have sufficient expertise and would instead be political hacks and random local business leaders that are not sufficiently equipped to oversee an endeavor of this magnitude.

Edited October 19, 20231 yr by tabasco

38 minutes ago, tabasco said:

This is a fair point and one that is lost on many that have been conditioned to think that the stock market only goes up, however, a portfolio like this is meant to behave like an endowment (or a pension as you point out), and to exist in perpetuity.  As a result, it would be extremely well diversified and not overly reliant on equities.  I would think that the portfolio construction would be 40-60% equities tops, a lot of fixed income and some alternatives.  It would be nice if there was some discussion of what the investment portfolio would look like instead of incessant sell-the-railroad-figure-the-rest-out-later cheer leading.  One of the reasons I am voting no is lack of this disclosure.  The board that oversees the selection of third party managers to invest this windfall would likely not have sufficient expertise and would instead be political hacks and random local business leaders that are not sufficiently equipped to oversee an endeavor of this magnitude.

You need to allow some type of flexibility here. You do not want to tie the hands of the investor managers in such a way that it harms the potential returns and actually causes the portfolio to not only under perform but to lose money if the rules on investments are too stringent. You need to offer some flexibility to allow the investment managers to use their best knowledge to direct the investments. They are also governed by fiduciary rules that mean that they cannot take extra ordinary risks that would create exposure to the portfolio that a reasonable investor would not do. This means that they cannot go 100% in on equities or 100% on fixed (if the goal is to generate a 5.5% distribution.  There will be guidelines and certain grades of investments that they can use, so it will not be a blank slate, but they will have some discretion. Given how most endowments seem to be set up, you likely get a mix of equity/fixed in the range of 65-85% Equity with remaining fixed and a small component held in cash or cash equivilant. The majority will be weighted toward equities if it is set up like an endowment fund.

The board will sign off on the investment manager and the guidelines that the manager will be governed under. There are a lot of guardrails that would prevent the board from authorizing any undue risks in these cases. 

 

49 minutes ago, tabasco said:

The board that oversees the selection of third party managers to invest this windfall would likely not have sufficient expertise and would instead be political hacks and random local business leaders that are not sufficiently equipped to oversee an endeavor of this magnitude.

 

 

It's crazy to see who has served on the city's various boards.  I remember speaking to Jens Sutmoller about 10 years ago, when he was an assistant for Mayor Mark Mallory, and he said that people from the 2005 campaign were appointed seats on various boards, himself included, simply because Mallory didn't have a sprawling "machine".  He joked that he somehow ended up on the Lunken Airport Board, despite his complete lack of knowledge in aviation matters.  Later, he ended up serving on the Cincinnati Southern Railroad board, despite a lack of credentials.  

 

If you remember back to 2005, it was expected that David Pepper was going to win the mayor's seat.  Mallory's win was a surprise, and so the people who worked on his campaign (like Sutmoller) weren't the machine.  It was actually a really good time in local affairs because a lot of not-career people were given jobs and appointments by Mallory. 

 

But the railroad board is poised to jump from obscurity to high profile should the sale pass.  Sure, they will be hemmed in by various laws, but the choice of fund manager is poised to become a prized kickback.  The mayor appoints the railroad board, so we'll end up seeing the fund management change when someone new takes the mayor's seat. 

 

 

 

 

 

Former state rep calls for lawsuit to stop meetings on Cincinnati railway sale

 

A former state representative is asking for a taxpayer lawsuit to stop the community workshops focused on the sale of the Cincinnati Southern Railway.

 

In a demand letter to City Solicitor Emily Smart Woerner, an attorney for former Republican lawmaker Tom Brinkman alleges the workshops and the city's "Cincy on Track" spending plan violate the city charter ban on using public money for the passage or defeat of a ballot issue.

 

Cincinnati City Council's Budget and Finance Committee presented its plan for spending the proceeds of the proposed sale of the railway earlier this month. The city also announced it would host three community workshops "to inform the public about the potential sale of the Cincinnati Southern Railway and learn more about community budget priorities," according to a press release.

 

Cont

2 hours ago, Lazarus said:

Right now the city is getting $26 million per year, guaranteed, and they negotiated up to $37 million for the new lease before the trustees decided to sell the damn thing. 

 

So in a year when the trust doesn't pay out, we'll get $0 instead of...the promised $60 million.  That is an absolutely huge problem for a city with a capital budget that is currently well under $100 million.  They might be able to patch over that for a year, but it's an unsustainable problem. 

 

In the very long term, the sale could end up being a bonanza if the stock market has a blow-out 10-year period between 2025 and 2035.  But what if the opposite happens?

Yes, I am also concerned that a protracted recession could impact the payout in the near-term, before the fund is of sufficient size, and privately asked a CSR board member what would happen in that eventuality. That said, it is very unlikely that it will be an issue in the long-term, which is why people are referring to endowments. Also, the deficit is so large that it would take decades for the city to get fully caught up, even if they were able to $65 million on the lease. The deal for the rail line, whether that's sell or rent, has always been about long-term returns, not returns in the next 10 or 20 years.

 

The board is tasked with fiduciary responsibility and given the lack of negotiation on the lease price from NSR, the sale is the only viable way for them to get the value that their consultants believe it is worth. So it's not a good deal by any means, but it's the best one they could get. If the voters reject, that's fine, hopefully they are able to get a better deal. Personally, I voted no last week in the hopes that NSR will try to sweeten the deal if the issue fails (as well as hoping the city will do a better of planning for the increased funds).

1 hour ago, Brutus_buckeye said:

You need to allow some type of flexibility here. You do not want to tie the hands of the investor managers in such a way that it harms the potential returns and actually causes the portfolio to not only under perform but to lose money if the rules on investments are too stringent. You need to offer some flexibility to allow the investment managers to use their best knowledge to direct the investments. They are also governed by fiduciary rules that mean that they cannot take extra ordinary risks that would create exposure to the portfolio that a reasonable investor would not do. This means that they cannot go 100% in on equities or 100% on fixed (if the goal is to generate a 5.5% distribution.  There will be guidelines and certain grades of investments that they can use, so it will not be a blank slate, but they will have some discretion. Given how most endowments seem to be set up, you likely get a mix of equity/fixed in the range of 65-85% Equity with remaining fixed and a small component held in cash or cash equivilant. The majority will be weighted toward equities if it is set up like an endowment fund.

The board will sign off on the investment manager and the guidelines that the manager will be governed under. There are a lot of guardrails that would prevent the board from authorizing any undue risks in these cases. 

I hear you and I am very familiar with the construction of an IPS and how endowments and pensions manage their portfolios.  Endowments typically look to spend 3-5% of their portfolio each year so our requirements are a bit less than that and thus we don't need to be as aggressive with equity allocation.  In a situation where there is a $1.6bln portfolio, if properly constructed, we would have a highly sophisticated board of people who then interact with a variety of 3rd party managers (it may be tempting just to give the whole portfolio to BLK or whoever because they wow us with really low fees but that is probably not the best route and instead we would have multiple managers and make them compete with each other with RFPs).  I believe your equity allocation is quite a bit too high at 85%.  We will want some equities of course but we will also want a lot of high quality bonds (both IG corps and TSY's).  I would favor the ability of the board to have a small allocation to HY and EM due to the long time horizon but would not be surprised if the IPS eschews these lower rated investments and I am ok with that.  I would hope that we also have some PE, Private Credit, Mezzanine and other alternative assets as well.

 

My concern stems from the fact that we will likely have clowns on the board interfacing with the 3rd party managers and the clowns will be ill equipped at manager selection, etc.  This can cost a fund dearly in returns over time as the vast majority of returns over time are explained by asset allocation.

 

I just have very little faith that the board will be properly constructed and can easily envision a bunch of cronies.  Can the mayor just pick whoever he wants?  DEI at all costs like all of his other selections?  That spells trouble and fund under-performance.  Being on this board is not a cushy assignment and requires real work and expertise.

23 minutes ago, tabasco said:

  Can the mayor just pick whoever he wants?  DEI at all costs like all of his other selections?  That spells trouble and fund under-performance. 

 

Yes, he can appoint whoever he wants.  Also, you are correct that we might see political pressure to divest from fossil fuels, require minority-owned investments, etc. (as has happened with the Norway wealth fund, university endowments, etc.), which could hurt returns. 

43 minutes ago, tabasco said:

My concern stems from the fact that we will likely have clowns on the board interfacing with the 3rd party managers and the clowns will be ill equipped at manager selection, etc.  This can cost a fund dearly in returns over time as the vast majority of returns over time are explained by asset allocation.

 

I just have very little faith that the board will be properly constructed and can easily envision a bunch of cronies.  Can the mayor just pick whoever he wants?  DEI at all costs like all of his other selections?  That spells trouble and fund under-performance.  Being on this board is not a cushy assignment and requires real work and expertise.

I understand that. I think the key would be to make sure that the governing trust documents in place make it very difficult to change and that it would take more than a simple board majority to exercise significant changes, maybe even unanimity. Does not solve all your concerns but could at least offer a decent amount of protection. Unfortunately, those decisions are not made until after this would pass

5 hours ago, Lazarus said:

 

Right now the city is getting $26 million per year, guaranteed, and they negotiated up to $37 million for the new lease before the trustees decided to sell the damn thing. 

 

 

 

 

 

It's not guaranteed if the company goes bankrupt or out of business. What if there is a major accident on the line that takes out a bridge or a city like La Grange in ky?

1 hour ago, unusualfire said:

It's not guaranteed if the company goes bankrupt or out of business. What if there is a major accident on the line that takes out a bridge or a city like La Grange in ky?

NSR would absolutely be bailed out by the Feds if they went bankrupt. This specific line is exceedingly profitable, and necessary, so the only financial threat would be nationalization or potentially a CSX merger, but I don't think there is momentum for either of those options.

 

The City has no liability for the operation and maintenance of the rail line. Someone might try to sue the city, but it would be dismissed very quickly.

3 hours ago, tabasco said:

I just have very little faith that the board will be properly constructed and can easily envision a bunch of cronies.  Can the mayor just pick whoever he wants?  DEI at all costs like all of his other selections?  That spells trouble and fund under-performance.  Being on this board is not a cushy assignment and requires real work and expertise.

I know this sounds conspiratorial but the power players in this city are only going to let the Mayor appoint, and City Council confirm, classic neo-liberals to the board. Also the board is required to be bipartisan.

City rejects attempt by attorney to halt Cincinnati Southern Railway forums

 

An attorney has demanded Cincinnati’s solicitor go to court to halt three upcoming public meetings sponsored by the city administration on the proposed $1.6 billion sale of the Cincinnati Southern Railway, writing that they constitute illegal political campaigning.

 

Curt Hartman, on behalf of his client, former state Rep. Tom Brinkman Jr., sent a taxpayer demand letter asking the solicitor to go to Hamilton County Common Pleas Court and ask a judge to stop the meetings.

 

Voters will decide on the sale, designated as Issue 22, Nov. 7.

 

“[T]he forthcoming public events are tied directly to the on-going vote on Issue 22 and, in turn, violate Article XIII, Section 3, of the Cincinnati City Charter,” Hartman wrote. “The timing of these activities, together with the lack of any objectivity therein, clearly support the conclusion as to their singular purpose, i.e., to support and advance the passage of the ballot issue on the proposed sale of the Cincinnati Southern Railway.”

 

That section of the charter bars the city from spending money advocating for the passage or defeat of any ballot issue.

 

More below:

https://www.bizjournals.com/cincinnati/news/2023/10/19/cincinnati-southern-railway-forums-city-charter.html

 

7 hours ago, unusualfire said:

It's not guaranteed if the company goes bankrupt or out of business. What if there is a major accident on the line that takes out a bridge or a city like La Grange in ky?

 

Trains would continue to operate on the railroad if N-S went bankrupt, as happened back in 1968~ when the Pennsylvania RR went bankrupt and re-emerged as Amtrak and Conrail.  There might be a delay but the new entity using the line would be obligated to make the missed lease payment or payments. 

 

ON THE LINE

City leaders want to sell the Cincinnati Southern Railway, but detractors could derail the plan

 

A health center with a rat problem. Aging, pockmarked streets overdue for repaving. A city maintenance garage whose floor was deemed in so much danger of collapsing that crews were forced to repair city snowplows on the street in frigid temperatures. Parks overrun by honeysuckle and other invasive plant species.

 

The city of Cincinnati’s unfunded maintenance needs are at $400 million and growing.

 

At the same time, a major source for the city’s capital budget, its ownership of the Cincinnati Southern Railway and lease to Norfolk Southern Corp., is due for renegotiation. The railroad has offered to buy the asset outright for $1.6 billion.

 

If voters approve the sale on Nov. 7 (Issue 22), the money will be put into a trust fund and the annual returns plowed into the capital deficit, potentially making noticeable improvements in services citizens use and receive each day.

 

Mayor Aftab Pureval, who has staked considerable political capital on the sale, has framed the choice as nearly existential for the city.

 

“It is the most important vote and the most important issue in my brief time as mayor, whether that’s four or eight years,” Pureval said. “If it doesn’t pass, we are on a steady decline in this city.”

 

More below:

https://www.bizjournals.com/cincinnati/news/2023/10/20/southern-railway-sale-issue-22.html

 

^Someone a few days ago floated around the concept of being able to issue bonds off the railroad proceeds. Apparently, based on the Biz Courier article, that is not an option as you cannot borrow against the railroad proceeds per state law. 

The $37M number that is proposed above - that is a guaranteed return which is good, my main concern with that - is there some sort of escalator in the lease? Like the lesser of 3% or CPI? If that is in the clause then I would lean towards the lease option as it will always go up and the money isnt speculative. 

Edited October 20, 20231 yr by wjh

29 minutes ago, wjh said:

that is a guaranteed return which is good, my main concern with that - is there some sort of escalator in the lease?

Nothing is exactly guaranteed. If N&S would go out of business that $37 million a year goes to $0.00. If N&S ever has to file bankruptcy (which is not that unreasonable of a possibility if you give enough incidents like you had in E. Liverpool last year) then the $37 million becomes a lot less (although it is complicated how it all sorts out and the city would certainly see an interruption of payments).

 

In that sense, you are putting all your eggs in the N&S basket and hoping they would pay over the life of the lease or diversifying under a mix of stable securities and fixed income assets designed to generate an 8% return on average.

1 hour ago, ColDayMan said:

ON THE LINE

City leaders want to sell the Cincinnati Southern Railway, but detractors could derail the plan

 

A health center with a rat problem.

 

 

 

 

Remember the police station on Ludlow Ave. with the rat problem?  The one that spurred a months-long news cycle back around 2015 and spurred the move of the office to College Hill?  Well that building that we were told was unsavable is now a parks office.