When the Recession Strikes, Little Maneuvering Room for Better Transit

» Seattle’s large rail expansion program will be delayed thanks to a decline in local tax revenues. The sales tax comes back to bite.

The recession has not been kind to transportation agencies anywhere in the country. The loss of local revenues from dedicated taxes has in many places required agencies to reduce bus and rail operations — even with the significant aid that accompanied the 2009 Stimulus bill. But long-term consequences have been even more problematic for the hundreds of expansion plans either under construction or planned; in metropolitan areas from Dallas to Denver, previously funded projects have been put on hold.

Seattle’s Sound Transit is the most recent to announce its own problems: Last week, the agency revealed that its fifteen-year estimates for revenue collection established just two years ago would be 25% lower than expected. This means that a once $18 billion proposal to extend the region’s light rail system to the north, east, and south would have to be truncated by $3.9 billion, up from a $3.1 billion shortfall predicted just six months ago.

Though the region’s construction programs already in construction and in advanced planning — University Link and East Link, respectively — remain on schedule, a further extension of light rail facilities south into South King County past 272nd Street has been put on hold. A new transit investment in the region’s northern corridor (past Northgate) may no longer come in the form of light rail but instead in something less expensive, like improved buses. The creation of a new commuter rail link along the east side of the region has been suspended (though that project was to be funded primarily by private funds, so it could still be moved forward). All this in spite of the fact that Sound Transit has been able to literally quadruple ridership over the last ten years thanks both to the implementation of light rail beginning last year but also the improvement of regional bus and commuter rail services.

Seattle should comfort itself in the realization that despite all of these cutbacks, it is in a much better situation than cities elsewhere in the country. Example number one: Charlotte, whose countywide transit expansion program was revealed in the late 1990s and whose first light rail line has had high ridership, is facing a virtual shutdown in new construction because it has rightfully chosen to prioritize keeping its bus services afloat over spending on rail expansion.

Most cities have been especially affected by the recession because of their reliance on the sales tax to provide revenue. Of the recent referendums on transit expansion programs, almost all have involved a 1/2 cent or one cent increase in that tax; few cities have looked to other forms of revenue, like an income tax or a payroll tax. The consequences of this decision, however, have been devastating because sales tax revenues have fallen considerably as a result of the recession and the reduced standard of living experienced by the majority of Americans over the past few years. A more stable financing program for transit, using other forms of taxation, would ensure that planned projects actually get built.

The practically universal reliance on the sales tax is a “realistic” response to the sense that it is the most politically palatable form of taxation available. Because municipalities and regional entities are interested in producing stable coalitions in favor of transit expansion, they are required to institute revenue devices that are both regressive and unstable. That’s often because the business community — powerful in every area — is opposed to more progressive forms of taxation that threaten the salaries of their top executives. For many politicians, a sales tax is the most reasonable way to go about increasing funding. In addition, in many states, the idea of a special local or regional income tax is simply out of the question.

For cities like Seattle and Charlotte, what follows in an inability to proceed on schemes that were developed just a few years ago. But perhaps these cutbacks are simply the name of the game; it’s not like an increase in revenue through an income tax is even much of a feasible possibility.

Thus the current enigma: Should cities that had large transit ambitions scale them back due to having less money than once expected, or should they push for new revenue sources? The first option could be difficult to reconcile in the eye of the average citizen who voted for a sales tax increase on the assumption that he or she would experience significant improvements in transit service as a result. The second option seems unlikely to be supported by voters who are being asked to pay twice for something they were told could be accomplished after the first tax alone.

This situation puts transit agencies in a bind since they now appear as if they lied to the public when they promised certain amounts of spending during previous referenda. A more honest assessment of their travails would recognize that budget predictions are always predictions and nothing more; the severity of the recent recession was not something that was planned. Nonetheless, the public is rarely particularly sympathetic to the difficulties of government agencies.

Update, 28 September: I have updated the information about to reflect the state of the projects a bit more specifically.

Image above: Proposed entrance to the University of Washington Link Station, from Sound Transit

29 Comments | Leave a Reply »
  • Gary Gerbrandt

    It’s hard to comprehend that so many of these sales taxes are so small. A five-cent sales tax would literally quintuple revenues, but God only knows that such a referendum could never pass. Very depressing.

  • Brett

    Omaha has a 2% property tax that supports the Ometro, Omaha’s transit system. It’s the reason Ometro has been very stable and not had to cut back bus service. Why cant more cities use this device?

    • randy

      Omaha has been scaling back its services for years and DOSE NOT support all of the Omaha area try to get to 108th and Q street at 9 or 10 at night the5/55 stops running around 6:30, better yet try going somewhere on a Sunday without spending 2-3 hours trying to get their! YOU must not use the buss system or you live on a major route if you do indeed frequent the system!!!I was on the phone trying to ask about extending the 5/55 route and was told that as of Jan 2011 MAT aka Metro is !!!$broke$!!! I was also trying to entertain the fact that maybe they should like Omaha city employees, they could take pay freezes or maybe even cuts, the spokesperson became really defensive and told me that they only get 2% per year and that split between 10 people in the administrative office only adds up to $10,000! by my calculations that means the average salary earned is around $50,000 but cant find any posted prof that this is all they make! I suppose that curt makes between 90-150k if not 200k this is ridiculous!!!!!!!!

  • Andrew

    On the bright side: The economy will no doubt recover eventually, it always has, and with economic recovery will come increased tax revenue for transit projects. For now, let’s focus on maintaining the service we already have.

    • Mike Orr

      There are two problems with this. One, the “service we already have” is often inefficient bus routes, like parallel routes every half mile that all go downtown at half-hour or hourly intervals. This wastes money and drives people away from transit, compared to a frequent trunk line and frequent feeder lines, which is what these rail systems are trying to achieve.

      Two, there will be a 3-10 year construction delay after the projects are revived. Yet the transit is needed now, or has been needed for twenty years.

      With the kinds of lines going in now, it would often be better to cut old service than to postpone construction of the new lines.

  • In most areas property taxes are a political hot potato that most politicians don’t have the stomach to tackle. Transit needs a stable form of revenue but in most jurisdictions there is no way it will come from property taxes.

  • Bob

    Why don’t we see more tax increment financing (TIF) for transit construction?

    What about municipal service districts?

  • Joseph E

    A land value tax, imposed on the areas served by transit, would be the most stable tax, and most effective and encouraging transit-oriented development. Ideally, the tax would be higher within 1/4 mile of rapid transit stations, a moderate level within 1 mile of a station or near a bus stop, and lower in areas distant from transit. A tax (or fees) on parking near transit would be even more helpful at encouraging good development to support the transit system, though the direct revenue would not be as large or stable. Congestion fees on roads would be great for lots of good reasons (especially for New York), but might not be a stable funding source.

    A land value tax is better than a sales tax, because it encourages private property owners to use their land well; a golf course or parking lot next to a transit stop would pay the same tax per acre (hectare) as an office building or condo tower, encouraging denser development next to transit. Land uses that honestly need cheap land could sensibly locate farther from transit access.

    Unfortunately, I don’t know of any North American examples of this tax. But it should be easy enough to do; regular property tax appraisals would also include an appraisal of the land value as bare, undeveloped land, based on local prices, and the tax would be paid along with the regular property tax. Eventually, it might replace property tax entirely, in developed areas (I would not recommend taxing farmland or forests)

    • Nathanael

      Funding transit through property tax would make a hell of a lot more sense than funding *schools* through property tax.

      Schools should be funded at a state or national level, and probably from income tax. They have no connection to land.

      Transit benefits land which is near stops. It does have a connection with land.

  • poncho

    if there is one tax people for the most part dont mind paying, its the sales tax. any other tax is completely off-limits.

    oregon which has no sales tax has had to work around that funding source. i assume thats why urban renewal, LIDs and TIFs are somewhat big in Portland for transit expansion funding.

    • JD Moore

      Poncho, we in Massachusetts must think different. There were two initiative petitions (2002 & 2008) to cut the income tax; both went down in flames (2-1 in the case of the 2008 initiative). The sales tax cut is on the ballot this year. The polls show it about even right now. As for me, I HATE the sales tax, ever since the schoolteachers petitioned the people for it in the 1960s. A RUPUBLICAN administration endorsed and got the legislature to pass this TAX. It was allegedly to “improve the schools.” The kids still come out stupider and stupider. Who makes change now when they just read the cash register. Has cash shortages by cashiers decreased?

  • political_incorrectness

    It will get worse though due to the fact that all the tax increases the legislature put in will be going hasta la vista due to Tim Eyeman. We really need a significant shift at the federal level to a share equivalent of roadways. If the feds even did a 70 to 30 match, I think cities would pick up more public transportation options.

  • Danny

    I agree with Joseph E.

    A land value tax will create density WAY more efficiently than a property value tax.

    Our tax laws have an incredible effect on land use. When river frontage area was a scarce commodity in Louisiana, tax laws allocated that land area efficiently:
    http://candychang.com/form-follows-tax-laws/

    When we use land taxes, we are punishing developers for going wide and long. When we use property taxes, we are punishing them for going wide, long, AND tall. The difference between them is important to consider if you want to influence outcomes.

  • Wanderer

    There aren’t any pure cases of land value taxes for you latter day Henrgy Georgeites, but Los Angeles did, controversially, levy assessments around the stations on its Red Line subway. You could get into some lovely arguments about ther effect of the transit on the land value, though.

    There need to be stable funding sources for both new construction and operating costs. Unfortunately, nothing is stable in a mega- recession like this, but property taxes vary less than sales taxes. Unfortunately, there seems to be a lot of political craziness around property taxes. The political leadership in the U.S. is going to have stop telling people that they can get something for nothing.

  • Paul K McGregor

    Yes, there needs to be a better discussion about how major metropolitan regions will fund transportation infrastructure. No matter what kind of tax mechanism you use, it will always be based on a strong healthy economy that will generate sufficient funds to support these projects and their future operations.

    Vancouver BC has a range of funding options but even with a sluggish economy in Canada, the funding options are no longer capable of delivering the agressive expansion program they want to achieve. Now the funds are only able to provide a state of good repair and not much more than that.

    The San Diego Association of Governments recently completed a study that looked at the impediments to transit looked at current funding sources, impediments to ridership growth and other sources of regional and local funding. One of the major conclusions was that any option that may get consideration would require voter approval and in the case of California, that requires a two thirds majority vote. San Diego passed the last sales tax extension with 67% of the vote.

    So I guess the lesson in all this is that any alternative funding mechanism you may decide on would still require political invovlvement so that’s why getting a sense of how the community wants to fund infrastucture improvements is important.

  • It is good that transit agencies are suffering because of the recession (depression really, but that is another topic). The point of a recession is to cool down overheated financial markets and purge the fat in businesses. You have to evaluate your organization and determine what you can live without.

    Transit agencies have to be more aggressive at maintaining current infrastructure as well as pursuing cost effective expansion. A lot of today’s expansion plans are not cost effective for various reasons. Why are rail services with 25% farebox recovery ratios being extended to areas that won’t improve those ratios? Transit agencies have to show that they understand that the populations they depend on for funding are under stress. Bailouts from DC will continue to enable cultures that cannot do more with less.

    It is instructive to watch how certain transit agencies get it. A few are buying used buses or redeveloping transit centers to generate revenue on site through retail space. However, others are building $1B train stations. This type of spending shows a lack of respect for voters.

  • JD Moore

    I bet these same governments go full steam ahead with road improvements: gotta keep those gas guzzling SUVs on the road. Appease those who are self-indulgent to drive one. They make up a much higher percentage of voters than those who go on the “loser cruiser.”

    • That’s not the way it works everywhere.

      Whether we like it or not, land use is a big driver of the types of transportation that are appropriate. Transit advocates have to respect the fact that for some journeys, the car is the best transportation option for the trip. Even if that car is a gas guzzling SUV.

  • Buddy Cheek

    I’m of the opinion that unless public transportation has the same flexibility as the current autos people won’t use it enough to make it economically feasible. Below are my thought for solving this.

    Road to the Future

    Imagine getting into your electric car, which you had unplugged from your home electric circuit, then driving to a major highway system that worked like a distribution warehouse. That is one that picks up a product in one spot and delivered it to the desired location via sky rails. Can you imagine your auto being built in a fashion that it could connect to the system without it or the system slowing?

    Imagine that while you are delivered leisurely to a point near your final destination, you are being entertained; your auto is being cooled or heated, the batteries are being topped off and the cost of the trip is being charged to your debit or credit card.

    Imagine a system that will nearly eliminate accidents on your long distance travels.

    Imagine the system mostly being built over the existing right of ways of the interstate and other systems with very little environmental impact. The Carbon impact of cars would be reduced tremendously.

    Imagine putting Trillions of dollars on systems for the future rather than those that are antiquated or on a high speed train using yesterday’s technology. People will not use it because you lack transportation at both ends. Do we need to catch up with Japan or show them a better way? How about “A Giant Leap for Mankind” in which everyone participates?

    Imagine the millions of people that would be employed as we design, build and deploy a system that would make our country the envy of the world. By building the worlds most modern transportation system the economy would boom. With the systems for moving people and goods in place, the economy should continue to flourish. The standard of living should rise. We can export these materials and this knowledge to the rest of the world, further fueling the economy.

    Imagine the earnings growth of our major corporations and the participation of hundreds of small businesses as they provide the plans, tooling and products required to assemble the system.

    Imagine people from all walks of life in the U. S. being brought together with the pride of creating the world of future.

    I believe that we as a nation can do this. What do you think? Let me know your thoughts.

    Buddy Cheek
    buddycheek@gmail.com

    • Nathanael

      Well, except that people have been trying to build automated cars for 50 years and they *still don’t work*, except for the fact that carrying a car around with you on a long trip is a waste, except for the fact that people don’t really mind getting out of their car at the train station and jumping on the train….

  • Eric G.

    Georgist land value taxation might be a good way to stabilize funding. IMO we should also explore treating transit as a utility (in practice not much different than land tax where marginal land value is a function of service provided). As a Public Utility, calculation of fees may be simpler and there would be a more transparent connection of cost-benefit. If you’re in a Public Transportation Benefit Area but only have access to vanpool or a park and ride 5 miles away, your property pays a fee on its annual property tax bill – ?$20/acre? (excepting acreage in agricultural production or natural condition). If you also have paratransit available (which I would put everywhere across Urban Growth Areas) then you pay ?$50/acre? Commute hour directional service – up to $75. All day fixed-route $100. High Capacity, separated ROW, short headway, long span – $200.
    Because this utility model charges a fee, based on the cost of providing service, there is no arbitrary up and down with other economic transactions and no response of increasing or cutting service without regard for demand and community values judgements. People who demand service have to accept the cost. People who don’t want the cost, have to give up the service. It is a clear process of deciding what service the community wants and charging the people who get it. Users also pay a fare to cover the marginal cost of thier trip. It would be like water or electricity or gas. A base charge pays for the lines that bring it to your house, and the meter fee covers what you use.
    American politicians need to stop trying to hide or pass off the cost of public services. Honesty and transparency would do a great deal to restore trust in government in this country.

  • This is the key quotation:

    That’s often because the business community — powerful in every area — is opposed to more progressive forms of taxation that threaten the salaries of their top executives.

    I’d like to see some analysis of the political economy of different models of transit funding. How are alternatives proposed and struck down? Is this seemingly simple idea in favor of sales taxes really what’s keeping other revenue-generating instruments out?

  • People who don’t want the cost, have to give up the service. It is a clear process of deciding what service the community wants and charging the people who get it. Users also pay a fare to cover the marginal cost of thier trip. It would be like water or electricity or gas. A base charge pays for the lines that bring it to your house, and the meter fee covers what you use.

  • Imagine the millions of people that would be employed as we design, build and deploy a system that would make our country the envy of the world. By building the worlds most modern transportation system the economy would boom. With the systems for moving people and goods in place, the economy should continue to flourish. The standard of living should rise.

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