Let’s Rethink the Regional Transit Sales Tax

Buried in a recent post on the Southwest Light Rail situation was a suggestion: Let’s create a sales tax in Hennepin and Ramsey counties for building transit specific to those counties. Since the House and Senate started negotiations this week on their very different transportation packages, it might be a good idea to float a compromise to actually get something accomplished this session.

The Why

The Counties Transit Improvement Board (CTIB) was created in 2008 to help fund region-wide transit with a 0.25% sales tax in participating counties. Current counties paying in to CTIB include the core (Hennepin and Ramsey) plus most of the “collar” counties (Anoka, Washington, and Dakota). Carver and Scott elected to not join CTIB, and 6 additional communities, some within the CTIB region, opted out and provide their own transit service (examples include Southwest Transit, MVTA, and Plymouth MetroLink), but that’s an entirely different discussion on funding methods.

CTIB_GrantsVsReceiptsThe sales tax receipts (worth about $113m in 2014) fund capital investments (build new lines, buy buses, etc), modernize the system (station amenities), expand the existing system (bus operating hours, improved frequencies, larger coverage per route), and subsidize operations not covered by fares. These are important tasks, and while a fully user-funded system would be great, no public infrastructure does this today and there are many benefits to subsidizing transit.

However, CTIB does have its problems when it comes to building transit. The board is weighted in favor of suburban and exurban members. As we’ve seen with recent SWLRT inflation, running transit into the suburbs can be a costly affair. Distances rack up quicker per rider, marshes aren’t optimal to build on, parking structures cost a pretty penny compared to bus shelters, and even BRT lines (which should be cheap) end up running nearly $500 million. It’s how we get a situation where Hennepin County puts in far more than it gets back. The image to the right updates that graphic and adds operations grants. One would expect future projects to Dakota (Orange Line, Red Line extension) and Washington (Gateway BRT) Counties to shift them back in to the red once completed.

There are a LOT of potentially great transitways, arterial bus routes, and other improvements that would have high impact for existing riders (to say nothing of allowing more urban infill), but we end up playing the political game to negotiate which projects jump in the queue. Heck, state legislators wanted to earmark 40% of annual grants to certain counties, regardless of the sales taxes generated.

It all gets back to a point made by Nick Magrino that we need to think differently about building transit in places with a walkable grid is maybe different than serving other places. Maybe we should think about funding them separately as well, and maybe Hennepin and Ramsey would be better suited in the long-run if they cooperated on implementing projects within their collective borders.

Metro area, Met Council jurisdiction limits

The places in blue, plus some areas nearby in red. Maybe.

The Plan

Here’s my proposal: 1) Instead of a region-wide sales tax increase, create a 3/4 cent Hennepin-Ramsey sales tax to fund system expansion and operations, and 2) keep CTIB at its current rate, with a focus on building intra-county transitways as well as continuing to subsidize region-wide transit operations.

Suburbs only need to negotiate with each other as to which projects to prioritize from a now much larger pot of money. Examples include Gold Line/Gateway BRT, Orange Line BRT, etc – lines that cross into the core counties but primarily serve commuters into either downtown.

A 3/4 cent sales tax in just Hennepin and Ramsey counties would have generated about $203 million in 2013. Let’s say we wanted to go gung-ho and build a ton of lines by 2030 with this new revenue stream. Could it be done? Here’s a fairly comprehensive look at all transit projects on the radar (not including city-led streetcar projects) that primarily serve the two core counties inflated to 2015 cost estimates taken from various project documents:

HennRamseySpecificProjects

$5.5 billion to build a lot of lines, most of them pretty good, plus first-class bus signs and doubling the federal grant for shelters. Could it be done? If you assume the sales tax receipts grow by 1.5% each year, and the counties sell 30 year bonds at 4% yield, a 3/4 cent tax represents a $3.4 billion net present value. I know, that’s a very simple way to view things. Maybe that’s not enough to build everything on the wish list when you factor inflation and cost overruns, and it’s probably a good idea to use some of that revenue to expand local bus operations as planned.

The federal government could still be a partner on the big projects; at just 40% cost share that brings the local match down to $3.3 billion. If counties were inclined to use value capture to help fund the major lines, things become even easier. We’ve got options!

The Pitch

This plan would need support from residents to suburban leaders and state legislators to have any chance at passing. So what’s the pitch to get it done?

  • Hennepin/Ramsey County Leaders and Residents – We’ll go from .25% sales tax rate for transit to a 1% total rate. But it’ll be worth it. We’ll be able to build quality transit serving the most transit-worthy areas, at a rapid pace that will actually improve the lives of many households, while keeping original region-wide revenue streams that help fund the entire bus system.
  • Outstate Legislators and Residents – We want to tax ourselves. We’ll even bring it to a referendum. In exchange for you granting us this capability and promising not to cut state money that helps fund Metro Transit operations, we will abstain from asking for money from the state to build new transit lines in the core counties. Not a dime. We’ll cover it ourselves or with federal aid. Consider this: the state’s share of SWLRT was pegged at 10% of the project. Looking at the corridors under consideration, that’s a potential savings of $500 million just on our choo choos over the next decade or so.
  • Suburban Leaders and Residents – We’re still in this together – CTIB was a huge accomplishment and we want to keep it to help build suburban transit and fund region-wide operations. But we have to recognize that most areas that can support transit are in the two core counties. We won’t ask you to commit to a sales tax increase to fund a large list of projects that won’t enter your counties.

We’ll still need to figure out how to cut costs on some expensive projects, handle lawsuits against new lines, and other institutional challenges that complicate building transit in 2015 America. And, lord knows there are still places in Hennepin County that look about as rural as most parts of Carver – we should try to avoid building bad transit to those places in this plan as well. But, just go ahead and mull this over for a day or so, and if you agree, pass the idea along to your county and state leaders!


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28 Responses to Let’s Rethink the Regional Transit Sales Tax

  1. Adam Miller
    Adam Miller May 7, 2015 at 11:56 am #

    I’m for it.

    That probably means the House won’t be.

  2. Jim May 7, 2015 at 1:24 pm #

    Republicans won’t go for it. If the cities could fund their own transit projects without needing Republican votes, there goes a lot of leverage they use on the Democrats.

  3. Lyssa May 7, 2015 at 3:21 pm #

    You don’t think it is of benefit to Ramsey and Hennepin Counties to have suburban residents get to jobs in the downtowns via suburban transit connections? Your assumptions are based on the premise that only residents of Hennepin and Ramsey would benefit, not employers. Or you don’t think there are low-wage works and jobs in suburban locations that need fixed transit? Or low income folks in urban locations that need to get to low-wage jobs in suburban locations.

    I get what you are saying but this is based on an assumption that all the regions needs are within Hennepin and Ramsey and they simply are not.

    Note: I do work on the Gold Line but these comments are based on the many non-urban people/businesses I talk to on a daily basis.

    • Matt Steele
      Matt Steele May 7, 2015 at 3:30 pm #

      You’re a farmer in Lake Elmo?

      • Lyssa May 7, 2015 at 4:16 pm #

        Your comment makes no sense. I am a planner that actually understands regional development issues, am an urbanite but not an urban elitist.

        • Matt Steele May 8, 2015 at 12:21 pm #

          Urbanite? Ok. Urbanist? Probably not, if you’re supporting sprawl subsidies of a failed land-use pattern (whether transit or roads).

    • Alex Cecchini
      Alex Cecchini May 7, 2015 at 4:14 pm #

      I do think that it’s a benefit for suburban commuters to get downtown for jobs, or vice versa. I’d say that many of the planned lines within Hennepin County alone do exactly that (SWLRT, Blue Line, etc). In general I think there’s better bang for the buck by focusing dollars on areas that require fewer park and rides, one way empty buses due to peak hour loading, etc, but I didn’t want a debate about which lines are better than others to emerge from this post.

      My proposal keeps current CTIB at .25% across all counties (including Hennepin and Ramsey). That means all the expenditures on major lines within the 2 core counties CTIB was planning can now be put toward lines that serve a core county and a collar county (ex. Gold Line) while continuing to fund operations region-wide.

      • Lyssa May 7, 2015 at 4:28 pm #

        I get what you are suggesting. But why isolate/cut off counties that are working hard to create better places? Also, Ramsey Co as a whole is pretty well served by transit but I would bet that all the people living in the RCAPs on the east side of St. Paul can’t get to jobs (mostly outside Ramsey Co) that they are qualified for. Basic needs are not just within the two counties. Yes, the most current transit friendly places are but we are not planning for today but for 100+ years from now.

        • Wayne May 8, 2015 at 7:45 am #

          The biggest problem I have with that line of thinking is that we have places that desperately need better transit *today* that are being ignored while planners try to reshape the suburban fringe at great expense. Good money is being thrown after bad while places designed and built on transit that is no longer there languish. I’m not saying we should ignore longer term goals like better development patterns and transit to the burbs, only that it’s like putting money into a 401k while you starve to death.

    • James Warden
      James Warden May 8, 2015 at 10:29 am #

      Since when did Hennepin and Ramsey become synonymous with urban? The Met Council’s Thrive 2040 plan has only about half of Hennepin as Urban Center or Urban. The rest is suburban of some type, rural or agricultural. Maple Grove, Plymouth, Eden Prairie and the like are anything but urban. Ramsey has a pretty good chunk of suburban areas, too. It’s fine to argue that transit planning needs to include more than just two counties. But you can’t really base that argument on an urban-suburban split since the two core counties have the full spectrum of development just within their borders.

      (http://www.metrocouncil.org/METC/files/78/782819eb-7ef4-432f-8982-720890e65957.pdf)

    • Cole May 13, 2015 at 1:35 pm #

      Lyssa,

      I understand your point here but transit is never going to be the best solution to getting employees out to these locations. It can help, but at what cost to the region? If more people were able to afford living in these communities near their jobs and also still able to afford a car, then the spatial organization of the labor market would be more balanced. Besides, nearly 75% of the jobs in this region are in Hennepin and Ramsey counties and many of those are not well served by transit. I don’t support Alex’s approach because it ignores the possibility of adding additional bus service to the other counties, but it does focus high-intensity transit services to the areas where it is most needed and where the county government is most supportive of transforming growth with these investments. Most of what I hear in the other counties is complaints about lack of road funding and lack of regional balance in economic development opportunities.

      But what if we build these things and create economic development opportunities in say, Washington County, and that takes development potential from another part of the region? And what if that other part of the region had effective transit service already in place? Overall, the region doesn’t benefit from more economic activity, the transit system becomes less efficient because it’s potentially serving the same people with more costs, and there’s a good chance that fewer people will be able to get to those jobs on transit than previous because the location is just, by it’s nature, less central to the mass of population.

      So the question that many folks (not on streets.mn) have been asking is, will the build-out of the transit system lead to more decentralization of employment and activity and, thus, less overall accessibility for the region than an alternative land use growth scenario focused around a few key transitways? That’s not to say some of them couldn’t be in the other counties, but you need cities and counties willing to invest their OWN money to support the regional investments. If Red Line and Northstar are the measuring sticks so far, that’s not a good omen.

      Meanwhile, Scott County is subsidizing development to come to their county and then businesses are struggling to attract workers to the facilities and they use lack of transit as an excuse. It is a bit difficult to work in a region where fiscally conservative areas subsidize development and then complain about not getting more outrageous subsidies to serve the already subsidized development with transit. I get the concept of regional balance, but let’s have that conversation with some real data and not just maps and east vs. west arguments.

      Ultimately, it’s wrong to suggest that urban-only approach makes sense and it’s wrong to suggest that any suburb that hears from businesses about lack of transit needs to be served. We should reward communities that are proactive in their community vision with the kinds of regional investments that support those visions, regardless of geography.

      Also Alex, you should match the colors in the pie charts because Dakota and Washington switch colors.

  4. Eric Saathoff
    Eric S May 7, 2015 at 3:55 pm #

    I love this idea. Letting these kinds of decisions be made at a regional level means that we are doubling down on the system of sprawl that exists rather than focusing our money on the dense urban areas that are logical for public transit.

  5. Lyssa May 7, 2015 at 4:22 pm #

    1) I didn’t realize it was controversial for communities to tax themselves and then choose to work together to accomplish things they couldn’t achieve on their own. To quote Wellstone: Don’t we all do better when we all do better?
    2) You are making the assumption that current suburban sprawl will continue around transit stations. I’m assuming you haven’t to talk with planners from the entities or cities working on these projects.
    3) If you think that Ramsey and Hennepin County are self sustaining, you’re naive.

    I am an urban minded person but it frustrates me to no end when I read Streets.mn blogs and comments from people who are urban elitists. Many times there is no understanding of regional dynamics or current conditions. We are a region. Yes I would LOVE it if every place in the Twin Cities was like Selby/Dale or the North Loop but that isn’t reality. You are fooling yourself if you think it is. To me it is not productive to ignore what currently exists in our region.

    There is a lot of sprawl and crappy communities out there. But that doesn’t mean we don’t work together to create better development and ensure that all people (not just urban residents) can have choices in how they travel to/from work, school, recreation, and their basic needs.

    • Adam Froehlig
      Adam Froehlig May 7, 2015 at 4:38 pm #

      I’ll be the first to agree that this is a region. However, when that region is split up into seven counties and over 100 local jurisdictions (to say nothing of jursdictions outside of the Met Council area), it’s not always easy to get coordination.

      Nevermind that the political scene has allowed the GOP to take over control of the House on what was effectively a core city-vs-outstate platform.

    • Nick Magrino
      Nick Magrino May 7, 2015 at 5:39 pm #

      Lotta weaseley language (non-funny sarcasm, “assuming,” “actually”) in your comment(s) for someone calling other people elitists. For what it’s worth, less than six months ago I got hunting boots at the Woodbury Cabela’s and went to the nearby Chili’s afterwards. My friend had to drive, but it was worth getting a Tweet from @Chilis.

      The site certainly skews towards one direction with things, but I think to paint everyone here with a “let the suburbs burn” type brush is maybe a bit unfair (I, while one of the occasionally more shit-stirry posters, have advocated for the exact opposite: http://streets.mn/2015/02/19/measuring-the-minneapolis-st-paul-metro-area-and-getting-real-with-the-map/) and in particular it seems misplaced on this post. Alex spells out pretty clearly that he’s okay with keeping the smaller regional sales tax to do things like, for example, a half billion dollar bus (????) to Lake Elmo so everyone can feel like they’re getting something.

      We all (I think) recognize that actual planners and professionals are working with bizarre and confusing and frustrating political mandates, but it also shouldn’t be super surprising that private citizens with more than a passing interest in these issues are asking questions about and taking issue with the way the system is set up.

    • Eric Anondson
      Eric Anondson May 7, 2015 at 6:09 pm #

      “To me it is not productive to ignore what currently exists in our region.”

      I think Alex here is exactly not ignoring, he has offered something for exactly the situation that exists. For example, transit funding for the most transit dependent neighborhoods is held hostage by geographic areas with nearly zero affinity for those who are transit dependent.

    • Wayne May 8, 2015 at 8:26 am #

      “1) I didn’t realize it was controversial for communities to tax themselves and then choose to work together to accomplish things they couldn’t achieve on their own.”

      So why is it controversial for two counties with a greater transit need to band together to go the extra mile while leaving the funding mechanism for the greater metro stand as it is now? Why is it only ok to do if it you include (and, really, let’s be honest, stack the deck in favor of) the far suburban and exurban fringe where transit costs far more to do far less? The funding model encourages projects that have poor returns on investment and just give more ammunition to people who want to decry transit as wasteful spending.

      “3) If you think that Ramsey and Hennepin County are self sustaining, you’re naive.”

      No, they’re a money pot for the rest of the state to dip into so they can live beyond their own means. If someone wants to live practically in Wisconsin and work in St Paul, why should someone in Minneapolis who lives a mile from their own job have to subsidize that while having worse transit service for their own commute?

      I really doubt you assertion that you’re an urban minded person when you can throw terms like ‘urban elitist’ around and try to justify spending all the transit money on making it easier for people in the suburbs to commute into the city for work while ignoring the needs of people who already live in the city. People in the suburbs already have more and better options in many cases than those living in much closer proximity to their work, school, or shopping. Tell me why it takes the same amount of time and cost for me to go less than two miles from one side of downtown to the other as it does for someone to go 10-15 miles from the suburbs to downtown and why it should somehow be a priority to make that even easier and maybe I’ll understand you better.

  6. Zach May 7, 2015 at 11:03 pm #

    What possibility is there to get a levy like this without state approval? Would it be possible for the counties themselves to try to pass these sales tax themselves?

    I assume that if they were to pass them by themselves, they then would have to use the funds in their own county. Which means one might have disproportionately better service. But oh well.

    Also my back of the envelope calculations said they could get all those projects done now just through the sales tax already levied. But they might be wrong, so I’d need to make a better financial model to check that.

    • Adam Froehlig
      Adam Froehlig May 8, 2015 at 6:54 am #

      Zero possibility under current law. Per Section 297A.99 of the state statutes, local jurisdictions must hold a voter referendum if they wish to enact a sales tax to fund a “specific capital improvement”. The specific improvement must be designated at least 90 days before the referendum. Furthermore, after the referendum, the local jurisdiction must request approval from the Legislature.

      In short, the only way just about anything suggested in this article or the comments is going to happen is through the Legislature. Good luck getting that through the House…

      • Alex Cecchini
        Alex Cecchini May 8, 2015 at 7:47 am #

        Adam is right, it would need legislative approval, just like the creation of CTIB and the authority to enact the 1/4 cent sales tax did back in 08.

        It would be surprising to me if the House voted to keep just two counties (even though they hold 1.7 million people) from taxing themselves for transit. Especially if the means to do it was put up to a (not required) referendum. That would be overplaying the ideological cards if you ask me. But I’m not in office, so.

      • Adam Miller
        Adam Miller May 8, 2015 at 9:45 am #

        Which is what annoys me when a certain party rails against/cuts “local government aid.”

        The state forbids local governments from taxing themselves, and then poses as if it’s bailing them out when it forks over their portion of sales and income taxes.

        • Matt Brillhart May 8, 2015 at 10:11 am #

          Speaking of local government aid (LGA) – what if that was a negotiation point with Republicans to allow Hennepin & Ramsey Counties to tax themselves? House Republicans voted (again) to drastically reduce LGA to Mpls & St. Paul. Not to reallocate those funds to other/rural communities, but actually to reduce the size of the LGA program in general. What if we (urban DFLers) signed off on that – in exchange for the transit sales tax increase in Hennepin/Ramsey Counties?

          In the short term, it would blow a major hole in Mpls & St. Paul’s budgets. But in the long term, the resulting development and property tax base growth from the quicker build-out of the transit system would pay dividends. They’d probably have to phase out LGA over 10 years in order to avoid short term crisis.

          • Adam Miller
            Adam Miller May 8, 2015 at 11:51 am #

            I don’t think “we” should agree to gut our budgets unless we get the power to raise our own revenues to offset it.

            • Matt Steele May 8, 2015 at 12:28 pm #

              Exactly. Let’s scrap LGA… and keep our local revenues.

              The “Minnesota Miracle” has definitely been touted for having some short-term progressive outcomes.

              But it has also destroyed feedback loops about what is a productive place, what is a productive land use, and what is highly subsidized sprawl (that has the illusion to the unwashed masses that it’s the natural outcome of the market).

              The “Minnesota Miracle” has been highly regressive and destructive within the realms of transportation and land use.

              • Wayne May 8, 2015 at 12:50 pm #

                I’m all for going scorched earth on outstate after their recent election tantrum and showing them just how much the metro pays for their lifestyle. Scrap the whole thing and let everyone keep what they actually put in and see how long before they come crying for handouts.

                Let’s also stop subsidizing water and waste infrastructure to the exurban fringe. Maybe make a minimum land use density requirement to be including in the met council instead of some stupid blanket collection of counties that goes out far beyond anything resembling ‘metropolitan.’ Let the greenfield developments actually pay for the roads and pipes and power lines they need themselves. Then we’ll see how fast development patterns shift back to areas that already built their infrastructure.

  7. Alex Cecchini
    Alex Cecchini May 11, 2015 at 7:24 am #

    Thank you for bringing up sales taxes and its regressive nature. I actually have brought this up before (see: http://streets.mn/2014/11/25/a-call-for-sales-tax-on-cars-and-gasoline/). If we really wanted to look at our current tax situation related to transportation, we’d remove the exemption of motor vehicle and gasoline sales from the general state-wide sales tax, and lower the overall rate by roughly 1.2% That would have a big, positive impact on lower-income residents (who are more likely to not own a car, or own fewer/cheaper cars and drive them less). Unfortunately, the GOP plan does exactly the opposite, dedicating current general fund sales tax revenues to roads, with more than likely negative impact in other programs that do benefit those same residents.

    But, you’re right. And I’ve brought up this question before to other pro-transit folks. Do we really want to use one of the more regressive taxes to fund transit, even if it will have the most benefit for lower income residents? I guess I’m not sure. My proposal is the unfortunate compromise between an economically efficient (and perhaps more fair) method and a politically palatable given current structures and timelines.

    This certainly isn’t stemming from a “I want my choo-choo” place – I ride the bus or my bike every day. I live over 3/4 mile from a planned rail line, and it’s well down the priority list in planning. I’m usually on the side saying that if you were to spend $1 billion on transit, I’d rather see improvements to existing bus lines/stations first. But, I’m also aware that the existing urban transit-shed doesn’t serve hundreds of thousands of jobs, homes, and other destinations in the suburbs very well.

    • James Warden
      James Warden May 11, 2015 at 9:07 am #

      I think it’s better to aim for straight usage fees for both transit and roads and ignore general fund, sales tax, bonding and the like. If we want to subsidize certain riders with broader tax revenue — and I think we should — than the state should give them vouchers funded through the HHS budget. This would make transportation subsidies more explicit and more targeted. I’d make the subsidies open-ended, too. Let the recipients choose whether they want to spend it on gas or transit. Transportation planners would then have more incentive to align infrastructure with taxpayers’ willingness to pay for it.

      • Adam Froehlig
        Adam Froehlig May 11, 2015 at 12:25 pm #

        It’s fine in concept, but some back-of-the-envolope calculations suggest that both the gas tax and transit fares would have to triple in order to “ignore general fund, sales tax, bonding and the like”. There’s no way that there wll be either the political will or the popular support for such increases…