Cincinnati will sell its Cincinnati Southern Railway system — the last municipally owned railroad in the country — and use the proceeds to create a permanent investment fund for infrastructure needs under a measure narrowly approved by voters Tuesday.
The city will net $1.62 billion in the deal, considered one of the few instances of true asset recycling in the U.S., when a state or local government sells off an asset and plows the proceeds back into infrastructure.
The sale to Norfolk Southern Corp. is expected to close in early 2024.
“This is a victory for the citizens of Cincinnati,” Tom Crosson, a spokesperson for Norfolk Southern, was quoted as saying in local reports. “Current and future generations will reap the benefits of new infrastructure investments, helping to create a better future for the city.”
Bloomberg News
The measure squeaked through with just under 52% of the vote after a contentious campaign that saw Mayor Aftab Pureval urging voters to say yes backed by a political action committee funded by Norfolk Southern. Opponents said the deal undervalued the asset and pointed to Norfolk Southern’s derailment and toxic explosion in February, among other doubts.
The Cincinnati Southern Railway, a 338-mile freight line that runs to Chattanooga, Tennessee, is the only city-owned interstate railway in the country. The city has owned it for more than 150 years – it floated $10 million of bonds in 1869 to finance construction – and has leased it to Norfolk Southern or its subsidiaries and predecessors since 1881.
As the current lease neared expiration in 2026, city leaders said a sale would generate nearly twice as much as current lease payments, which also go to pay for infrastructure. The deal calls for the $1.6 billion to go into an investment fund, where the principal would remain untouched and the interest, estimated at up to $70 million annually, would be used to chip away at an infrastructure backlog that’s pegged at $400 million.
The Ohio Legislature passed a state law paving the way for the deal, and the Cincinnati City Council on Aug. 2 approved the motion sending the question to the ballot.
The state law restricts the use of proceeds to “modernizing, repairing and replacing existing infrastructure” and requires the Cincinnati Southern Railway Board of Trustees to send at least $26.5 million to the city’s coffers each year to ensure that Cincinnati doesn’t get less than it does under a lease, which now provides about $25 million annually.