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Business Observer Friday, May 21, 2010 10 years ago

Taxing Time for Tampa Trains

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Hillsborough's fuzzy $15 billion light rail, bus and road plan promises jobs and economic growth if funded with the highest sales tax in the state, plus state and federal grants. Voters decide in November if it's all worth it.
by: Jay Brady Government Editor

REVIEW SUMMARY
What. Voters will decide if Hillsborough's sales tax should go to 8%.
Issue. Is it wiser to fund more buses instead of subsidizing more costly rail?
Impact. Future economic development and job growth counted on to offset continuous taxpayers' subsidies.

Business and environmental groups have formed an unusual alliance to increase the Hillsborough County sales tax from 7% to 8% to help pay for $15 billion in rail, bus and road improvements over the next 30 years.

Tampa Mayor Pam Iorio calls it, “the most significant public policy issue of this century.”

But are Hillsborough voters buying it?

Advocates from business point to Hillsborough Area Regional Transit consultant's statistics claiming construction benefits estimated to produce 25,000 job years (1,000 jobs for 25 years), $2.38 billion in gross domestic product, and $2.1 billion in real personal income for the county.

Supporters expect help from a local political committee already set up to fund a seven-figure campaign according to Rick Asnani, the professional campaign manager for “Moving Hillsborough Forward.”

But there's also plenty of opposition in a down economy to increasing the tax rate by 14% and making Hillsborough's sales tax higher than any other destination in Florida.

“This is not the time to put additional debt on Hillsborough and the rest of the nation,” Tom Gaitens told commissioners May 13 as one of the first public hearing speakers at an East Tampa gym.

Gaitens, who runs a political consulting firm in Riverview, is Florida field coordinator for FreedomWorks, a Washington, D.C.-based political action committee for limited government and low taxes.

Commissioners instead followed the advice of people like Stuart Rogel, president of the Tampa Bay Partnership, representing 165 companies and their thousands of employees. “We believe this is about jobs, economic development and most importantly, the future,” Rogel told the seven commissioners in front of nearly 400 mostly pro-rail residents at the hearing.

When Hillsborough county voters go to the polls Nov. 2, they'll get to vote on the sales tax. The extra 1% is projected to generate about half of the $15 billion, planners say is needed to match federal and state funds. The plan calls for 75% of revenues to be spent on rail and buses and 25% on roads.

Lots of unknowns
Taxpayers would shell out for 46 miles of light rail service. One segment connects downtown Tampa and the planned high speed rail station there initially to Westshore and Tampa International Airport, and another to the University of South Florida and perhaps beyond. Those and two other legs extend like spokes out from the downtown Tampa hub in major directions except southeast. (See map.)

It's uncertain which connection will occur first. There are issues with both links.

For the route north to USF, officials just met with CSX rail officials May 12 about using its rail line. But that option suffers from a widespread problem: it's going to be almost exclusively at grade, meaning stopping traffic at every intersection — creating congestion instead of relieving it.

CSX is open to discussion, but proved to be tough negotiators with the Florida Department of Transportation in the SunRail deal. That commuter rail line, approved by the state in December, is to run from Poinciana through Orlando to Deland.

The other choice, using the I-275 median, puts the tracks above grade, but it also means placing stations in the median at cross-streets. That makes the stations less attractive for stimulating development around them, as planners envision, and it makes convenient parking difficult.

The line extending toward the airport through Westshore doesn't actually reach the airport. It may be up to airport officials to figure out how to make the connection, but the federal government and tourism interests may prefer the airport link simply because it connects planes with trains.

Commissioners are divided. They voted 5-2 following to put the issue to voters. But one commissioner, Chairman Ken Hagan, though voting to put it on the ballot, says he's against the tax as are Commissioners Jim Norman and Al Higginbotham.

The tax itself is projected to bring in $7.3 billion from 2011 to 2040 with $3.8 billion for operating expenses and $3.5 billion to pay for light rail trains, train stations, more buses, and maintenance facilities.

Not only will an 8% sales tax be the highest in Florida, it will be in the top 20 highest in the country, according to Higginbotham, a handicapped bus rider who opposes the tax. “That's not a very good marketing tool if we're trying to bring new companies into the area,” says the four-year commissioner.

Higginbotham, of Plant City, represents eastern and southern Hillsborough residents who have little to gain from the plan. Supporters tend to come from neighborhoods to be served by the light rail system and enhanced bus service between downtown, Westshore and the airport, and between downtown and Temple Terrace where the University of South Florida campus resides.

Those areas include many businesses in addition to USF, which sent a representative to the hearing to support the plan.

'Counting on the feds'
Light rail's getting much of the press in this community debate, but buses get a sizable share of funding, according to HART's plan. A new study suggests buses should get all of it.

Operating and maintenance expenses exceed $5.7 billion for buses, bus rapid transit, and para-transit providing on-demand service to elderly and handicapped residents. That equates to nearly 82% of those expenses from 2011-2040. On the capital side, the funding share is nearly reversed with light rail responsible for about three-quarters of the cost.

But by 2040, capital costs for the light rail system are projected to go to zero when capital improvements are finished for four planned future legs of the system.

This is when things could get tricky for taxpayers.

Sometime that decade, the train cars and locomotives put into service later this decade, and which last about 25 years, will start needing replacement. Rail structures, tracks and signals wear out after 30 years. But because HART's financial analysis ends at 2040, those inevitable big capital replacement costs aren't shown, or where the money's coming from.

If federal or state funds aren't available then, those expenses will fall to county taxpayers, who can also expect then to have to come up with $1 million a mile a year in today's dollars for maintenance.

For 46 miles of track, in 25 years at 4% inflation, that comes to nearly $123 million a year in 2040. But HART's plan assumes less than $108 million in light rail operating and maintenance expenses for 2040.

Higginbotham admits, “We don't have a good handle yet on expenses.”

Property taxes already fund part of HART's budget and are projected to add up to $1.5 billion through 2040. By comparison, fare box revenue will amount to less than $1.3 billion in that time, or just 17% of the $7.6 billion in total operating revenue for the 30 years.

Between the sales tax and property taxes, Hillsborough taxpayers will be subsidizing 69% of the transit operating budget. State and federal sources account for 7% of operating revenues, but nearly half of capital revenue.

Robert Poole, director of transportation policy at the Reason Foundation, sees a funding train wreck: “If you look at the fiscal position of the federal government, there's no way in hell you can count on that as a long-term funding source,” he says. “Counting on the feds is fiscally foolish and irresponsible.”

That problem has been exposed in other areas of the country that have had light rail or commuter rail systems during the past several decades.

According to Cato Institute senior fellow and economist, Randal O'Toole, a transportation and rail expert, federally funded transit systems come with strings attached. If a project is cancelled before the end of its useful life, Uncle Sam gets a pro-rata share of the grant money back.

With tight budgets and little market for used train cars or buses, transit agencies get put in a no-win situation. As O'Toole puts it: “This means it can be less expensive to keep running the trains than to admit they are a failure.”

“No rail transit line in the country comes close to covering its operating costs, much less its total cost,” writes O'Toole in a March 24, 2010 policy analysis. His data shows light rail fares cover less than 30% of operating costs and less than 11% of total costs on average.

Each light rail passenger trip loses $6.91 on average nationally, so each trip requires a taxpayers' subsidy of that amount for operating and capital costs. And O'Toole's study shows no light rail system is more efficient than buses offering equivalent service.

Rail models
Interestingly, advocates for the Hillsborough light rail system point to places like Charlotte, N.C., Salt Lake City, Denver, Phoenix and Dallas as good examples of “successful” rail projects.

But in Charlotte, light rail fares cover only 17% of operating costs and just 3.4% of total costs despite ridership that exceeded apparently low expectations. Higginbotham says expenses there are running more than 100% over estimates.

Salt Lake City, ranked by Forbes magazine as the best city in the country for commuters, covers less than 36% of operating costs with fares and only 8.4% of total costs. The data is similar for the other cities.

Curiously, HART staff asked Salt Lake City light rail budgeters to review its financial plan, and gave it a thumbs up. According to O'Toole's report, “The Utah Transit Authority recently admitted that it has been overestimating light-rail ridership by 20 percent or more. A Utah state auditor found that regional transportation planners 'cooked the books' to bias cost-effectiveness analyses in favor of more rail operations.”

That may explain why last January U.S. Transportation Secretary Ray LaHood did away with cost-effectiveness rules for federal transit grants, and instead now judges projects on the unquantifiable concept of “livability.” O'Toole criticizes the change, writing that LaHood is “ ... saying, in effect, that he was willing to fund rail projects no matter how much money they waste.”

Denver's first rail line came in 28% over budget; the second, 59% over the original projection. Ultimately, its general manager resigned last year, and the transit agency now says it only has funds for two or three of six planned lines, which it couldn't afford to operate even if it could build them.

According to O'Toole's sources, taxpayers may be asked for another tax increase to complete the six lines. Or as one Hillsborough County resident put it in her testimony to the commission at the hearing: “Everyone who enters this contest is a loser.”

Development offset
Proponents of the tax bank on so-called transit-oriented development around the rail stations, meaning high-density projects with a mix of retail, office space and housing. Such development generates both jobs and tax revenue to offset rail's costs.

Often, however, these projects are subsidized using tax-increment financing or other financial support for stations located in enterprise zones. Tampa has such zones where developers receive favorable tax treatment for construction materials and hiring local workers.

With 12.3% unemployment in the county, the plan can only help bring that rate down. And there is evidence that a rail transit system helps attract some corporations.

Still, the key question remains, is it all worth an 8% sales tax?

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