Years in and miles to go, the City of Omaha and Metropolitan Utilities District are at odds over a payment plan for an increasingly expensive streetcar project.
The project, now estimated at $421 million, requires significant construction work by MUD to replace or relocate gas and water lines along the 3.2-mile route. The price tag of that work has more than doubled beyond early cost estimates and has added to growing tension between the utility district and city.
MUD seeks a payment plan that will protect ratepayers and the utility district from shouldering a significant increase in streetcar-related construction costs. The city has called for a way to monitor MUD’s streetcar expenses, alleging city staff was blindsided by the cost of the utility district’s first phases of work.
Turner Boulevard
The latest high-cost item for the city is the replacement of a water main beneath Turner Boulevard. The Omaha Streetcar Authority, not MUD, expects to foot the estimated $5.2 million bill for the replacement.
Work on the water main is scheduled to begin in early January and will close the intersection of Turner Boulevard and Farnam Street for about four months. Additional water line work would continue in the area after the intersection is reopened, and should be complete by mid-summer, according to the city.
The expense is part of a growing list of MUD utility work that the Omaha Streetcar Authority (OSA) is covering with streetcar bonds, said Erin Grace, a spokesperson for Omaha Mayor John Ewing.
“Currently, that total is $45 million,” Grace said. “The city expects that total could go up if MUD’s gas line work comes in higher than the $7.6 million currently included in the OSA estimates.”
Early negotiations between MUD and the city over streetcar construction lasted months before discussion was brought into public view in 2022. Both sides prioritized an agreement that would protect the public from a rate increase, and both have remained committed to that agreement.
The city has long argued that the work to update Omaha’s water and gas lines would have to be done eventually, so why not in step with the streetcar?
MUD contends that its replacement work is based on a complex risk model that considers multiple factors, like age and break history.
Tensions flared in late spring when MUD relayed news that the major water main beneath Turner Boulevard would have to be replaced. Jennifer Taylor, deputy city attorney, pushed back on that claim in an email to Mark Mendenhall, MUD’s general counsel.
“This is unacceptable,” she wrote.
Taylor asserted that the current (water main) alignment is not impacted by the streetcar system and MUD’s demand would increase project costs by millions of dollars and the schedule by up to two years.
“I certainly hope that the District is not attempting to leverage this time of transition between administrations for its own gain,” Taylor wrote, referencing a change in leadership from Mayor Jean Stothert to current Mayor John Ewing.
Arguments over the Turner Boulevard main replacement added to a challenging and contentious spring for the utility district and city staff.
A showdown
By early May, a showdown was brewing between the city and MUD.
The expected costs of MUD’s streetcar-related gas and water work more than doubled from a previous $20 million estimate to $43 million. Both entities were at odds over billing and reimbursement for those costs.
MUD and the City of Omaha entered into a contract in 2023 that capped MUD’s contribution to streetcar-related utility work at $7.6 million.
As the utility neared $7 million in expenditures, MUD leaders threatened to pull all crews from the streetcar route if the city failed to address a plan for timely payment.
In a May 2 letter to city officials, Mendenhall wrote that the utility district has gone to great lengths to “meet the city’s aggressive schedule.” He referenced work at 10th and Capitol streets that required multiple gas service cutoffs and left several downtown hotels and businesses without a connection to gas for several hours during the month of January.
“This would never have been done but for MUD’s willingness to accommodate the City’s desire to have that specific work done prior to the College World Series,” Mendenhall wrote.
The letter sent to Taylor also addressed the city’s allegations that MUD unnecessarily increased the scope of streetcar-related utility work.
“While we believed the allegation was incorrect, we nonetheless devoted numerous employee hours investigating,” Mendenhall wrote. “Having completed that investigation, we remain confident the allegation is incorrect.”
Through July 31, MUD has incurred streetcar-related expenses totaling about $8.3 million. As of late August, the district has received about $1.3 million from the City of Omaha, resulting in a net spend of $7 million, or approximately $600,000 below the agreed-upon spending cap, according to MUD.
The city and MUD are working to finalize a process for invoice review and reimbursement, according to the city.
Both entities, through their 2023 agreement, have committed to completing all streetcar-related utility relocation work without a gas or water rate increase, said MUD spokesperson Tracey Christensen.
On the other side of torn-up streets, contentious debate and frustrated area business owners is the promise of a powerful economic development tool.
An independent review published in late 2022 estimated development along the streetcar line will generate up to $607.9 million in property tax growth by 2057. A significant chunk of that will pay off the bonds used to fund the project, but $40 million in additional streetcar bonds were publicly pledged to address the city’s long-term affordable housing needs.
Before the rails are laid and the economic benefits start rolling, the city and the metro area’s largest utility providers must navigate an increasingly costly and complex construction process.
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