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.

The 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.

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:

$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!