Linking Transportation Initiatives to Sales Taxes May Be Risky

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By Stephanie Beasley

Nov. 3 — Denver’s Regional Transportation District (RTD) agency knew it had to do something different to win approval of a funding boost, after voters nearly 20 years ago soundly rejected the “Guide the Ride” ballot initiative that would have raised sales taxes for developing light rail and other public transit options.

RTD recycled the idea of a 0.4 percent sales tax hike in 2004 and renamed it “FasTracks.” This time, officials sold the idea better, providing voters with more specifics about how public transit could transform the city and meet the transportation needs of Denver’s growing population.

“Just knowing that the Denver metro area was really going to grow, that was one of those things that made it happen,” RTD spokeswoman Christine Jaquez told Bloomberg BNA. “We really looked at what didn’t work with Guide the Ride.”

The measure passed. FasTracks was projected to raise $4.7 billion in revenue for the region’s public transit system, and the program became a beacon to other cities seeking to boost investments in commuter railroads and buses. But it was just the beginning of the road for RTD, which soon discovered the risks of tying public transit to a revenue source that ebbs and flows based on economic changes.

Four years after the initiative passed, the U.S. economy began to sink into a recession. Denver residents, like the rest of the country, began tightening their budgets.

“The Great Recession was really the biggest issue that hit us because people weren’t spending money as we’d projected,” Jaquez said. “The cost of materials also went up.”

Setbacks From Recession

The FasTracks program was able to continue during tough economic times with support from private sector partners, RTD General Manager and CEO Dave Genova said. The commitment from the local community was necessary to help the agency innovate as it dealt with financial challenges and kept projects moving forward, he said.

Things are back on track now. Denver invested $484 million in the redevelopment of its Union Station. The hub, which re-opened in 2014, is now a multimodal station with light rail, commuter rail, Amtrak, buses, taxis, shuttles and bikes. This year RTD opened four new rail lines—including a direct line from the airport—and a new bus rapid transit line.

The recession didn’t just hit Denver’s transportation program hard. San Diego is considering 0.5 percent sales tax increase for transportation projects this year after a similar 2004 initiative failed to generate the projected revenue, Robert Puentes, president and CEO at the Eno Center for Transportation, said.

“Part of the reason they had to go back to the voters is because the measure they passed almost 10 years ago fell way short,” Puentes said.

San Diego’s new ballot measure is projected to generate more than $18 billion over the next 40 years.

Lessons Learned

Denver and San Diego’s financial stumbles could offer some lessons to a slew of communities weighing proposals to raise taxes to support public transit projects after several years of what they consider flat funding at the federal level.

A five-year surface transportation reauthorization law enacted late last year provides $18.1 billion for public transit programs. The law gives a $268 million funding boost to the Federal Transit Administration’s bus and bus facilities program over fiscal year 2015 levels.

The regional initiatives, when combined, could raise as much as an additional $200 billion total for public transit system updates. Many of the measures propose to raise revenue through sales tax increases.

For example, Los Angeles County voters will consider an initiative that would raise $100 billion over the next 40 years for rail, bus transit and highway projects by raising sales tax by half a percent. A similar sales tax hike is on the ballot in Atlanta and would pay for upgrades to the city’s metro and bus services.

The American Public Transportation Association called the number of transit-related ballot measures this year “unprecedented” and expects the majority will pass.

How Agencies Can Prepare

But it isn’t really a new phenomenon for localities to pursue tax increases as a revenue source for transportation projects, said Jim Tymon , chief operating officer for the American Association of State Highway and Transportation Officials. Cities and districts are more likely to pursue sales tax increases because they have the advantage of being able to tie the initiatives to local improvements that directly benefit the voter, Tymon said.

There is no real way for agencies to avoid finding themselves in situations similar to what RTD encountered when they rely on tax hikes of any kind as a revenue mechanism for transportation projects, he said. A gas tax increase, for example, could be equally risky since petroleum prices rise and fall over time, he said. Instead, the key is for transportation agencies that are implementing tax raising ballot to prepare for economic uncertainty, Tymon said.

“As a transportation agency, you need to be flexible, to adjust your work plans to the decrease in revenue that might materialize,” he said.

That could mean being prepared to delay or trim projects if there is a financial downturn. Further, agencies should set money aside to sustain operations even when money is low, Tymon said, adding that transit workers such as bus drivers and rail maintenance staff will still need to be paid regardless of what happens to the revenue stream.

Puentes said sales tax increases have become a tradition in many places across the country such as San Diego and most likely will continue to appear on ballots every few years.

“The sales tax seems to be popular in those places where they’re generating a lot of money because it has the potential to do that,” he said.

To contact the reporter on this story: Stephanie Beasley in Washington sbeasley@bna.com

To contact the editor responsible for this story: Paul Hendrie at phendrie@bna.com

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