Cincinnati city officials want to sell the Cincinnati Southern Railway, the nation’s only municipally owned railroad. The city leases it to Norfolk Southern for about $25 million a year, and the company now wants to buy the CSR outright for $1.62 billion.
The money would be deposited into an investment fund with annual revenue coming from the returns. Cincinnati Mayor Aftab Pureval said conservative estimates are projected to double yearly revenue.
"Instead of relying on one business or one industry, an industry that we're seeing disrupted constantly from advancements in technology, Cincinnatians can now rest assured that through this trust fund, our most pressing infrastructure needs will be funded in perpetuity," Pureval said.
Cincinnati voters have final say over whether to sell the asset; it's expected to be on the November 2023 ballot.
What the city will receive
Former Cincinnati Mayor Charlie Luken is a member of the board of trustees that manages the CSR, which voted unanimously Monday to move forward with the sale. He said the railroad has provided money for city infrastructure every year for decades, and the sale wouldn’t change that.
"The only difference for me as a taxpayer ... is there's going to be a lot more money to deal with these problems," Luken said.
The city is anticipating $385 million in unfunded capital needs for roads, bridges and city-owned buildings over the next five years.
The CSR board, which is appointed by the mayor and approved by council, would control the trust fund, with a goal to forward an annual payment to the city from investment returns only, not touching the principal.
"The guarantee is that ... the city is assured of getting at least $25, $26 million a year," said board chair Paul Muething. "So even if, god forbid, interest rates went to zero and we had no return on the money, we would have to dip into the principal for a period of time, so that the city would at least get that money. And then the hope would be that in future years, things would turn around, we'd get that money, we'd restore the principal."
Muething said the estimated $50 million annual revenue is based on a 5.5% return rate.
Before voters see the sale on the ballot, Ohio lawmakers will have a chance to weigh in. The board's resolution approving the sale is contingent on passage of a state law that would allow the creation of a trust fund with certain requirements:
- Proceeds from the fund could only be spent on "rehabilitation, modernization, or replacement of existing infrastructure improvements" and could not be used to construct new infrastructure improvements.
- The board of trustees must retain at least one independent financial advisor and adopt policies and objectives for the investment of the trust fund, which must be made public.
- The board could hire staff and retain advisors, to be paid from the investment earnings of the trust fund.
- Board members could not have financial conflicts of interest.
The state law amendment draft, as provided by the Cincinnati City Solicitor's Office, does not include language guaranteeing a "floor" amount of revenue each year. Instead, it would require the board of trustees to "periodically disburse earnings from the fund to the city, in a frequency and amount to be determined by the board of trustees in consultation with the fiscal officer of the city, and which must meet the minimum disbursement criteria as determined by the electors."
In other words, that guarantee would need to be part of the ballot measure put before voters. WVXU has requested a copy of the ballot language.
The sale would also need approval from the U.S. Surface Transportation Board.
'What is best for the future of the city?'
Board member and former Cincinnati council member Amy Murray said when negotiations started, she didn't think there was any way she'd agree to sell.
"But as we've gone through the negotiations, as we look at our job and responsibility to provide value to the citizens of Cincinnati ... I had to take off my personal lens and say, 'What is best for the future of the city?' " Murray said. "It certainly came true that it was better to sell for $1.6 billion than continue leasing."
Negotiations date back nearly two years, to when Norfolk Southern had the option to renew a 25-year lease that is set to expire at the end of 2026.
The board met privately in executive session several times in 2022, "to discuss the potential sale or lease of real estate." Ohio law outlines very specific reasons that a public board can meet privately. One is to consider "the sale of property at competitive bidding ... if premature disclosure of information would give an unfair competitive or bargaining advantage to a person whose personal, private interest is adverse to the general public interest."
This sale was not put out for competitive bid, however. Muething said the lease agreement prevented the board from entertaining any other purchase offers.
"This wasn't a situation where we could have just gone out and sought other bids to buy the railroad," Muething said. "Any other buyer would have been buying it subject to Norfolk and Southern continuing to operate the line for the next 25 years."
State Rep. Tom Brinkman (R-Mt. Lookout) filed a lawsuit opposing Monday's board meeting, asking a judge for a restraining order to prevent another executive session. Cincinnati City Solicitor Emily Smart Woerner said the board never intended to use executive session for its Monday meeting, and said the judge denied the request.
"Had the railroad board negotiated outside of executive session that would have been bad for Cincinnati taxpayers, because we would have, in essence, been negotiating against ourselves," Mayor Pureval said.
Although the board and city officials are clearly in favor of the sale, they cannot use public money to campaign for its approval. The city law department said nothing would legally prevent Norfolk Southern from funding a passage campaign.
"The public has an entire year to better understand the deal, to vet the deal, to ask their questions, and ultimately to pass or fail the deal," Pureval said. "That's up to the people of Cincinnati."
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