UPDATED Funding Transit in Oregon: Policy Brief December 2009

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1 UPDATED Funding Transit in Oregon: Policy Brief December 2009 Smart Growth America engaged Reconnecting America to conduct a preliminary assessment of transit funding in Oregon and to make recommendations on future funding mechanisms that could raise significant revenue for transit in the state. This report summarizes the results of that research, conducted over a two week period in December, This report will: 1) provide an overview of present day transit funding in the state of Oregon; 2) analyze transit funding and revenue needs for the three largest transit agencies in the state; 3) discuss the criteria/characteristics that a new funding mechanism would need to work well for Oregon, and 4) recommend and discuss priority funding mechanisms that the state could pursue. Overview of transit funding in Oregon There are over 30 public transit agencies operating in the state of Oregon and these agencies vary in size, service type, and organizational structure. Statewide, the two largest shares of funding for transit come from local taxes (47%) and federal funds (40%). Compared to transit funding nationwide, it is noteworthy that the state contributes less funding for transit in Oregon than is generally seen throughout the nation. From , ODOT spent $63 million, or 1.8% of its total budget, on transit. Of this $63M, 67% was federal pass through money and the remaining 33%, or $20.8M, came from the cigarette tax. Oregon allocates approximately 4% of the cigarette tax revenue to the Special Transportation Fund, which provides direct support to elderly and disabled transit programs. Oregon also generates a small amount of state revenue for transit from a fee on state issued, non license identification cards. Federal funding provides about three quarters (74%) of transit capital expenses in Oregon. This federal funding comes to transit providers in Oregon though several federal grant programs and occasional appropriations for special projects. Federal passthrough funds, mentioned above, from the Congestion Mitigation and Air Quality program (CMAQ) and Surface Transportation Program (STP), Transit Funding, Oregon % Property Tax, Local Misc Tax, Local 40% Misc Tax, State 2% 7% 47% 0% Misc Funds, Local Misc Funds, State Federal Transit Funding, National % 17% Federal State 20% Local 36% Other Capital Funding, Oregon % 13% 10% Property Tax, Local Misc Tax, Local Misc Funds, Local 0% 74% Misc Funds, State Federal 1

2 can be used by some regions for qualifying transit projects. The majority of these funds are limited to use on capital projects (e.g. vehicle purchase, facilities, construction of new fixed guideway transit lines, and preventive maintenance). Operations Funding, Oregon % 2% 4% 5% Property Tax, Local Misc Tax, Local Misc Tax, State The majority of operating funding (88%) in Oregon Misc Funds, Local 88% is generated by various local taxes. While many Misc Funds, State other states rely on state and local sales taxes to support transit operations, transit providers in Oregon each rely on a different tax mechanism and other local funds to support their systems. These local sources will be discussed in more detail in the following section. There are six metropolitan regions in the state and four different structures for the transit agencies that serve those regions. TriMet and Lane County Transit are designated by the state as mass transit districts. Both have state appointed boards that can levy property, sales, income and payroll taxes, up to specified caps, without a vote of the people. Salem Keizer Transit is also designated as a mass transit district but has a locally elected board and cannot levy any taxes without a local election. Rogue Valley Transit District is a transportation district and it also has a locally elected board and cannot levy taxes without a popular vote. Bend and Corvallis provide transit as part of their city government structure. The distinctions and regulations governing mass transit districts and transportation districts can be found in Chapter 267 of the Oregon State Code. Table 1 provides an overview of the budgets and revenue sources for each of the five largest transit providers in the state. A discussion of the near term funding deficits and needs of the state s three largest transit providers, TriMet, Lane County Transit and Salem Keizer Transit follows. 1 A more extensive study projecting the long term, statewide needs for transit funding may be required by this campaign, but was not feasible as part of this initial effort. 2 Most transit agencies do not project their financial needs into the future in this way they instead tend to base their operating and capital plans on projected revenues. The following data was gathered from regional Metropolitan Transportation Plans (MTIP), transit agency budgets and interviews with staff at the regional planning organizations and transit agencies. 1 Due to time and capacity constraints, this research effort targeted the three largest transit providers in Oregon: TriMet, Lane County Transit, and Salem Keizer Transit. A parallel research effort, led by Sam Haffner with 1,000 Friends of Oregon, looked more closely at three smaller transit providers: Rogue Valley Transit District, Bend Area Transit and Corvallis Transit System. Sam s findings should be used to supplement and, is needed, amend this report. 2 A 2008 report by researchers at Portland State University projected funding needs out to 2030 for providing fixed route and demand responsive transit service for people with disabilities and older adults in urban and rural Oregon. The study found that, in 2030, given no new revenue sources for transit, this special category of transit would face a revenue shortfall of between $167.3 and $633.8 million (low and high estimates), representing 62% to 80% of total costs. (Dill, J. and Neal, M. Needs. Costs and Funding Alternatives for Transportation Services for Older Adults and People with Disabilities in Urban and Rural Oregon. Portland State University, 2008.) 2

3 Table 1: Oregon Transit Agency Overview Agency Budget (year) Revenue Sources, 2007* TriMet $69,780,000 (Capital, FY 10 approved) $483,220,000 (Operations, FY 10 approved) Local Property Tax, Operations: 0.7% Local Misc. Tax, Operations: 41.5% State Misc. Tax Operations: 0.3% State Misc. Funds, Operations: 0.1% Local Misc. Funds, Operations: 0.8% Local Property Tax, Capital: 1.7% Local Misc. Tax, Capital: 7.7% Local Misc. Funds, Capital: 6.0% Federal: 41.2% Lane Transit District (Eugene/Springfield) $13,152,970 (Capital, FY 09) $33,086,015 (Operations, FY 09) The approved capital budget for FY10 $40,578,400, due to the construction of new BRT line. Local Misc. Tax, Operations: 51.1% State Misc. Funds, Operations: 3.3% State Misc. Tax Operations: 1.5% Local Misc. Funds, Operations: 0.1% Local Misc. Tax, Capital: 7.6% Local Misc. Funds, Capital: 7.0% State Misc. Funds, Capital: 0.1% Federal: 29.3% Salem Keizer Transit $1,900,000 (Capital, FY 08) $17,741,010 (Operations, FY 08) Local Property Tax, Operations: 33.6% State Misc. Funds, Operations: 23.7% Local Property Tax, Capital: 0.7% Federal: 42.0% Bend Area Transit $3,186,585 (total, 2007) State Misc. Tax, Operations: 3.5% Local Misc. Funds, Operations: 40.8% Local Misc. Funds, Capital: 5.7% Federal: 50.0% Rogue Valley Transportation District (Medford) $6,482,845 (total, 2007) Local Property Tax, Operations: 29.9% Local Misc. Funds, Operations: 9.4% State Misc. Funds, Operations: 17.3% Local Property Tax, Capital: 2.2% Federal: 41.1% *2007 data on transit funding sources from National Transit Database ( TriMet TriMet operates buses, light rail (MAX), commuter rail (WES) and demand responsive paratransit, and carries more people than any other U.S. transit system of its size. A payroll tax provides the majority of TriMet s operating funding, while much of their capital funding comes from federal sources. TriMet s 3

4 Transit Improvement Plan for 2009 reports that a dramatic economic downturn resulted in $31 million shortfall in payroll revenues. 3 TriMet has addressed this shortfall through: $7.2 M: stimulus funds went toward preventative maintenance that we typically count as operations $13.5M: 9% across the board non service related cuts to staff and department budgets, including executive staff furloughs and staff reductions $6.9M: Major service cuts went into effect in September They targeted low performing lines and lines that had alternatives nearby. Bus and MAX service felt the cuts equally. $3.5M: Planned service reductions on the new Green Line. 2 4 minute cuts in November during mid day on frequent service lines. 4 Over the coming decade, TriMet projects that high and increasing health benefit costs for active and retired employees, as well as growing LIFT and fuel costs, will challenge the agency s ability to increase service as regional population and employment increases. By 2018, TriMet expects to have 1 retiree or dependent for each active employee, and the cost of medical benefits for retirees currently adds the equivalent of $.11 to the operating cost of each boarding ride. 5 In its Coordinated Human Services Transportation Plan, a federal requirement that assesses the plans and needs related to transit for the elderly and people with disabilities, TriMet projects a deficit of $8,143,890 by 2019 just from the state Special Transportation Fund that supports this particular sector of transit 6. Lane Transit District Lane Transit District (LTD) provides standard bus, paratransit and, starting in 2007, the EmX bus rapid transit service in the Eugene Springfield region. The primary local source of funding for LTD is a payroll tax. According to the annual financial report for FY 08, severe increases in unemployment and the loss of several major employers in the transit district led to a leveling off of payroll tax revenues, despite a tax rate increase that was implemented January 1, In the current fiscal year, the payroll tax base decreased by 1 percent as the result of declining employment in the District, but revenues will still increase slightly overall due to an increase in the tax rate from.65 percent to.66 percent on January 1, The result of these declining revenues is that LTD had to reduce fixed route service for the first time since A service reduction of approximately 15 percent was planned for September 2009, but was lowered to a 3% cut through the use of ARRA funds for preventative maintenance. LTD is currently anticipating a future service cut of approximately 20%, due to an operating deficit of about $7 million. 3 TriMet Transit Improvement Plan ( 4 Interview, Eric Hesse, TriMet 5 TriMet Transit Improvement Plan 6 TriMet Coordinated Human Services Transportation Plan ( 7 Lane Transit District, 07/08 Comprehensive Annual Financial Report ( 8 Lane Transit District, 09/10 Budget ( 4

5 The need for service reductions is especially frustrating at a time when LTD is seeing record ridership: boardings rose 17% in Salem Keizer Transit Salem Keizer Transit operates fixed route bus and paratransit service within the growth boundary of Salem and Keizer. The primary local source of funding for Salem Keizer Transit (SKT) is a property tax. The tax was established in 1996 and was anticipated to cover the operating expenses of the agency through Because property tax rates are fixed by state law, SKT has to rely on 5 year levies to generate any additional revenue from the property tax. They went after a property tax in 2006 and failed to get enough voters to the polls (at that time there was a double majority rule in place). They tried again in 2008, but this time the measure failed outright. Due to these two failed attempts to increase property tax revenues, SKT has cut 26% of their service since Their current deficit is about $2.5 million per year, though they were seeking a levy for ~$4 million/year, to allow for minor service expansions. 9 Another area of concern for SKT is that their population just exceeded 200,000, which means that they can no longer use federal transportation funds from the urbanized area formula program (5307) for transit operations. This means that annually, beginning in FY 09, about $400,000 in operating revenues must come from another source. According to the Transportation Improvement Plan for the Salem Keizer region, the transit district will be able to afford necessary capital improvements over the next 24 years but cannot afford to provide expansions of transit levels of service beyond those currently provided without renewed or additional sources of funding. The TIP states that new, stable and continuing sources of adequate operations funding for the mass transit system is critical to the ability of the overall regional transportation system to function effectively, and is a high regional priority. 10 How to choose revenue sources to fill that need From December , Reconnecting America conducted interviews with 15 experts in finance and transit at the state level and working for the regional agencies and transit providers from the Portland, Lane County and Salem Keizer regions (a list of interviewees is provided in Appendix II) 11. Sam Haffner with 1,000 Friends of Oregon conducted interviews with representatives from smaller cities and transit providers in the state, including Corvallis, Bend and Rogue Valley. His findings should be used to supplement and, if necessary, amend this report. Additionally, feedback from the state s smallest transit providers is not reflected in this work and should be incorporated into decisions and plans moving forward. One of the key objectives of the interview process was to identify universal characteristics or criteria 9 Interview, Allan Pollock, General Manager, Salem Keizer Transit 10 SKATS TIP, ( 11 Notes from the interviews can be provided upon request, but several interviewees asked that their comments not be published without their review and consent. 5

6 that any funding mechanism would have to have in order to work well for the state. The criteria that Reconnecting America identified were: 1. The mechanism must provide money for transit operations. All 15 interviewees stated that the greatest financial need faced by the transit agencies is for funding operations. There was consensus that, while capital funding is also limited, there are fewer sources for operating support and most agencies rely entirely on a local tax to operate their system. Depending on a single source of funding means that economic fluctuations have a severe effect on the ability of the agency to maintain service and plan for the future. Statelevel respondents even said that many of the smaller operators can t take any more capital money until they have the operating support to increase the administrative capacity of their agency. (Many respondents stated that they would also depend on federal levels of support for transit capital to be maintained and that they were hoping federal transit funding would be increased in the upcoming Surface Transportation Authorization.) 2. The mechanism must provide a significant amount of new money. A more extensive analysis will be required to quantify the total need for transit funding in the state, and to quantify the potential revenue that any of the proposed mechanisms could generate. This effort, however, makes a general assessment of whether each funding mechanism has the potential to raise a meaningful amount of new money for transit. Several interviewees noted that, if the new revenue stream is too small, it will either be spread too thin amongst all the transit providers or create an unequal or unfair distribution system. 3. In this preliminary scan of stakeholders, is the mechanism politically viable? It is important to state that this effort was not an intensive political analysis of these funding mechanisms or of the state of Oregon. In interviews, however, it came up repeatedly that some mechanisms were overwhelmingly considered politically untenable to Oregon voters. Further political analysis and polling on the mechanisms selected by the state partners is a necessity of this campaign. In addition to the criteria identified through the interviews, the following two criteria relate to the goals of the Smart Growth America campaign: 4. Does the mechanism have the potential to be legally adopted or approved in Oregon by 2012? While some funding mechanisms have great potential to be implemented in the future, it may be unlikely that they could be put in place within the next two years. The transit agencies need funding in the near term, and the parameters of the Smart Growth America campaign require state teams to focus on a mechanism that could feasibly be adopted by Does the mechanism have potential to be applied beyond just one or two regions in Oregon? This campaign is not focused on only one region or one transit system it seeks to strategically identify a source of funding that works throughout Oregon. While some of the proposed mechanisms would require different actions in different regions to be adopted, and many of them wouldn t meet all of the transit needs in the entire state, it is critical that the selected mechanism work for many regions, not just (for example) the rural providers or the largest transit agency. 6

7 Reconnecting America considered 20 different funding mechanisms against these five criteria to come up with the priority mechanisms discussed in the next section. The initial list of mechanisms considered was based on input from interviews and from Reconnecting America s past experience working on transit issues in other states. Oregon Criteria Money for Operations? Raise enough money? Political viability? Meet 2 3 year timeline? Applicable to 3+ regions? Gas Tax Payroll Tax Tolls Vehicle Registration and/or License Fees Carbon Fee (per vehicle) Parking Fee/Tax Systems Development Charge/Local Improvement District Carbon Fee (Development Impact Fee) Congestion Pricing (area wide i.e. London) Bonds Congestion Pricing (HOT lanes on existing freeways) Federal Flex Funds Hotel/Motel or Rental Car Tax (tourist specific) Lottery Revenue Non license State Identification Card Fee Sales Tax (general or only on gasoline) Tax Increment Financing/Urban Renewal VMT (Vehicle Miles Travelled) Fee Cigarette Tax Income Tax Property Tax Maybe/Unknown Unlikely In this matrix, a yellow box indicates that it is possible that the funding mechanism does not meet the criteria and that more information is needed to make a determination. Red indicates that it is very unlikely that the mechanism would meet the criteria. (Boxes with no color fill indicate that the mechanism meets the criteria.) Using this methodology, we narrowed the list of funding mechanisms down to four Top Tier mechanisms that this campaign could pursue: Opening of a portion of state gas tax revenues to transit, expansion of the payroll tax, creating tolls and introducing new vehicle 7

8 registration/license fees. These Top Tier mechanisms are those that we feel have the most promise to meet the transit funding needs of Oregon at this time. The following section provides a discussion of the history, context and procedural considerations for adopting these mechanisms. The matrix process also indicates to us that several other funding mechanisms, referred to as the Second Tier list, may be good options for Oregon, but further research is needed to determine their ability to meet all of the criteria. These include some more innovative funding ideas that have not been fully tested or deployed elsewhere and include: a per vehicle Carbon Fee, a Parking Tax/Fee, a Systems Development Charge/Local Improvement District and a development based Carbon Fee. This draft report will be amended at a later date to include a brief discussion of these Second Tier funding mechanisms, and the presentation at the state retreat on December 17 th will provide information on these mechanisms. A brief explanation of why the other mechanisms received maybe/unknown or unlikely ratings is provided in the Appendix I of this report. This matrix/selection process will be discussed in detail at the state partners retreat on December 17 th. Section III: Discussion of Priority Funding Mechanisms This section provides a discussion of the findings on the Top Tier Funding Mechanisms: Opening of a portion of state gas tax revenues to transit, expanding the use of the payroll tax, creating tolls and introducing new vehicle registration/license fees. Because the discussion is very similar for the use of the gas tax and for vehicle registration/license fees, these options have been consolidated into one section. Before we begin the discussion of the funding mechanisms, there are three key points from the interviews that apply to whichever funding mechanism this campaign decides to pursue. First, most of the interviewees suggested that the best funding strategy for the state is a diverse one: one that balances federal, state and local funds, and also relies on a variety of revenue sources. The transit providers in particular felt that the majority of their current funding challenges were the result of too heavy a reliance on one single tax source. Furthermore, a slight increase in state or local funding can leverage significant federal funds due to the local match requirements. Second, the passage by the 2009 legislature of HB 2186, which created a Task Force to make recommendations on how scenario planning could be implemented throughout the state, should be viewed as a catalyst for this campaign. While the findings of the Task Force have not yet been published, the draft report says that funding for transportation and land use actions that would reduce GHG emissions, such as public transit or transportation demand management programs, is limited. Additional and sustainable funding for these actions will be needed. The Draft Recommendations of the Task Force include 3. Seek Funding for Public Transportation Operations Sustainable funding for transit operations will be fundamental to any significant effort to reduce GHG emissions from transportation. Especially if this campaign decides to pursue a legislatively adopted revenue mechanism, it should rely heavily on the recommendations of this state authorized task force to validate the need for a steady funding source for transit. 8

9 Last, and most specifically, representatives from the three transit agencies said that a state supported transit pass program would be a good way to package a new revenue source/allocation. Rather than asking the voters or legislators to provide a general allocation to the operating budget of the transit agencies, providing a pass program would infuse the transit agencies with unrestricted operating funds, increase ridership on existing routes (where in almost all cases there is capacity), and allow certain people to ride for free. The pass program could be targeted toward low income patrons or major employers, depending on the revenue source that is selected. Having a free pass is a proven way to increase the likelihood of someone using transit, so this program could have broad benefits. Top Tier Mechanisms Address the Constitutional Limitation on the Gas Tax and/or the Vehicle Administration Fees History & Process for Adoption In the biennium, the Oregon Department of Transportation (ODOT) collected $890 million in motor fuels tax. 12 About 20 percent of ODOT s revenue is derived from the gas tax. Oregon motorists pay 24 cents per gallon in state gas tax, a lower rate than any other western state except California. When registration, title fees and sales taxes are added to the gas tax, the total cost of driving a car in Oregon is significantly less than in most other states. Vehicles weighing more than 26,000 pounds don t pay the gas tax but rather a weight mile fee. 13 In the biennium, ODOT collected $501 million in Driver and Vehicle License Fees. Article 9, Section 3a of the state constitution, passed in 1980, limits the use of any tax levied on, with respect to, or measured by the storage, withdrawal, use, sale, distribution, importation or receipt of motor vehicle fuel or any other product used for the propulsion of motor vehicles; and (b) Any tax or excise levied on the ownership, operation or use of motor vehicles to the construction, reconstruction, improvement, repair, maintenance, operation and use of public highways, roads, streets and roadside rest areas in this state. Several previous efforts to amend the constitution and open the gas tax for other uses (transit, schools, state police) have failed. (Further analysis on the challenges and lessons learned from these campaigns will inform the next phase of this work.) There was a preliminary effort in the 2009 legislative session to allow localities to adopt a gas tax for transit, but this also failed. HB 2001, the state Jobs and Transportation Bill of 2009, included increased registration fees, title fees, license plate manufacturing fees, misc. vehicle trip permit fees, heavy vehicle registration fees, weight mile tax and related heavy vehicle frees, and gas and diesel tax increase (to start 1/1/11 or after two months of economic growth, whichever comes first). Together these are estimated to raise $300M/year, all of which is dedicated to road projects ODOT budget 13 Ibid. 14 ODOT & 9

10 Pros HB 2001 prohibits local governments from taxing fuel for four years (not before Jan 2014). Allows city, county or local government to levy a fuel tax after obtaining voter approval on or after 2/2/2014. This constitutional restriction could be addressed in many ways: o The article could be entirely repealed. In Oregon, you need 8% of votes cast for Governor for a Constitutional Amendment (I think this is true to change or repeal an amendment as well). The benefit of doing this would be that you might be able to get other interest groups (who would later compete with your for those revenues) to join the campaign to repeal the article. Then the struggle to get the revenues dedicated to a new cause could happen within each region. TriMet is currently the only transit district authorized to impose vehicle registration fees (with voter approval), so the campaign would have to seek a legislative act to amend that statute. o The article could be amended to allow a specified portion (i.e. up to 1 cent of the gas tax or 1% of vehicle registration fees) to be used for a specified purpose (i.e. transit operations or a transit pass program). Many of the interviewees said that it would be more politically palatable if the gas tax was raised and the new revenue was dedicated to transit, as opposed to tapping in to the existing revenue. There are vast shortfalls in highway and bridge funding in the state, so competing directly with existing funding for these programs will be challenging. Raising the gas tax could be done legislatively or through the ballot, and could also seek to tie future increases to inflation rates. Many of the interviewees agreed that, given the budget issues faced by most transit agencies in the state, there was more interest for repealing this now than there has been in recent years. On a recent call with the Portland Transportation Cabinet, Mayor Adams mentioned that he thought that changing the constitutional limitation on the gas tax should be on the table. Although financial analysis is needed, it is likely that this could generate significant levels of funding for transit. There is the federal precedent of using a portion of the federal gas tax revenue for transit, with current national discussion to increase this allocation above current 18%. There is a direct link to the GHG reduction work and the Task Force findings (the state has GHG and VMT goals, this is a strategy to help reach them). Although the gas tax revenues will continue to decrease as we move toward alternative fuels and reduce VMT, it is likely to remain a significant source of revenue for at least years. Since trucks don t pay the gas tax (they pay the weight mile fee), there already exists a system for exempting them from paying for transit. Some people even stated that general increases to the gas tax (without changing the constitutional restriction) could allow more federal flex funding to be dedicated to transit. 10

11 Cons While many of the respondents thought that the time might be right to address this issue, the all said that it would be a very difficult political struggle that would take a very carefully crafted and powerful campaign. As VMT goes down and alternative fuel use goes up, gas tax receipts decrease. Fuel use (driving) is highly price sensitive, as seen in 2007 and 2008 with the major fluctuations in gas prices. So, revenues may not be very reliable. As in any statewide strategy, the biggest regions might end up as donor regions to the rest of the state, which would push them to prefer a regional/local mechanism. Likely to be opposed by rural voters who don t have transit options. Going to be opposed by AAA and the trucking industry both active and strong lobbies. Given difficult economic climate, especially in Oregon, this may be a politically and economically challenging time to increase gas tax or re allocate a portion of its funding to transit. May be considered regressive tax. The counter argument to this point is: gas use is directly linked to consumption, there is evidence that higher income households own more vehicles and drive more, and using these revenues for transit creates lower cost transportation options. Expand the Authority to enact a Payroll Tax and Increase the Cap History & Process for Adoption The payroll tax is currently the main source of operating funds for TriMet and Lane County Transit. In 2009 it generated about $216 million for TriMet and $23 million for Lane County Transit. The payroll tax was established in 1971 and a comparable self employment tax was established in The State Legislature sets the maximum payroll tax rate for Tri Met and LTD. In 2003, the Legislature increased the maximum rate to.007 (0.7%), and the 2009 legislature again increased it to.8% of total payroll, to be phased in at no more that.02% per year over a tenyear period. Both TriMet and LTD are currently implementing the maximum increase annually. Both TriMet and LTD s current budgets assume that the payroll tax rate will increase by.02% effective Jan 1st of each year and will continue to step up annually each calendar year until the maximum rate of eight tenths of one percent allowed by state law is reached on January 1, Job losses, however, offset much of the potential gains from the rate increase. To fill their operating gaps or to expand service, additional revenue beyond what is currently allow is needed. In the 2009 legislature, the precursor to HB 2001 (HB 2120) proposed extending payroll tax authority to the other transit providers without first seeking voter approval. It also would have allowed the transit agencies to adopt any rate up to the state maximum, without phasing it in over 10 years. This proposal was highly contentious amongst the legislators and did not receive a hearing. 11

12 Pros Cons The last attempt to pass a payroll tax by a public vote in Salem was in 1994 and it failed. Further study of this campaign may be critical to this current effort. Several actions would be required to expand use of the payroll tax: o The Legislature could increase the maximum rate further. LTD estimates that every 0.1% of payroll tax generates approximately $4 million annually. o The Legislature could also allow LTD and Tri Met to increase the payroll tax rate to the maximum allowable rate immediately, rather than phasing the increase over a ten year period. o The Legislature could extend the payroll taxing authority to the other existing transit providers without a vote of the public OR, the Legislature could change the designation and governing structure of some of the transit providers to a mass transit district, giving them a state appointed board and taxing authority without a vote. o Lane Transit District is not authorized to collect the employer payroll tax from local governments, but TriMet has included local governments (except schools) in its employer base since LTD could seek a legislative bill to give it the same authority, and this point should be considered if payroll taxing authority is extended to Salem Keizer, Rogue Valley, or others. Because the City of Eugene and Lane County are among the largest employers in the area, this would add significantly to the current payroll tax revenue in that district. The payroll tax is not visible to the average person or by every voter, and it is closely linked to economic expansion (and thus the need for improved transportation options). TriMet believes that, in a slowing economy, dips in payroll revenues lag behind dips in sales tax and aren t as volatile to a changing economy as a sales tax. Conversely, payroll tax revenues take longer to rebound after a down economy. Many respondents thought that a payroll tax and a property tax work well together to provide transit funding. Any effort to expand one should not replace the other (in Salem Keizer, for example). While the payroll tax generates significant revenue levels, the property tax (due to state laws restricting its growth) is not very sensitive to general economic fluctuations. Since the failed attempt in 1994 to pass a payroll tax, there are several new employers in the Salem district. It is possible that they could influence the business community to be more supportive this time, though polling and political analysis is needed to confirm this point. The payroll tax is highly variable in a fluctuating economy, hence the current budget problems faced by Lane County Transit and TriMet. Given the slow economy and high unemployment, passing an additional tax on employers will be a significant political challenge. 12

13 After paying this tax, employers want direct accountability to the transit provider. TriMet gave the example of Intell, a large employer located on the edge of the growth boundary, who feels entitled to direct transit service because of the tax they re paying, but providing service to this site is not efficient for TriMet. When the legislation was written in 1979, legislators in the Salem area had two main reasons for NOT giving SKT the payroll tax authority (and these still exist to some degree today). Since the business community in Salem has such direct access to their legislators, the political pressure of the Chamber of Commerce will be hard to overcome in this region. Similarly, a stateappointed board will be politically unpopular in this conservative region. The local governments feel tapped out they are looking for greater state level support for transit. Collect Bridge Tolls in several regions and dedicate a portion of the revenue to transit operations History & Process for Adoption Oregon has very few tolls on its bridges. There is a state law that restricts the use of toll revenues to use on capacity expansions on the facility where the toll is collected. The Columbia River Crossing (CRC) project in Portland is very likely to challenge this issue. Tolling is viewed by many as critical to pay for the construction of the CRC. But, if you put a toll on the CRC, you will also need to toll the neighboring bridge(s), or people will just change their travel route to avoid paying. So it is likely that the state restriction on the use of toll revenues will need to be changed related to the CRC project. The Willamette River Crossing (WRC) project is being considered in the Salem area, and similar issues exist as described above for Portland. The CRC may create an opportunity to address state laws so that others regions would have the option to enact tolls and use revenue for transit. Automated tolling technology would likely allow tolls to be enacted without the construction of extensive tolling plazas or the creation of significant local traffic back ups (further traffic analysis needed). Tolling provides a significant source of revenue for transit operations in the San Francisco Bay Area. A portion of a $1 increase to the toll on seven Bay area bridges, which went into effect in 2004, is dedicated to a Regional Traffic Relief Plan. This Plan provides a specified list of transit operations and capital projects that support the function of the bridges and the regional transportation network. In 2008, this toll provided $25.3 million for operations and $45 million for the transit capital projects in the plan. There is similar precedent in other regions in the U.S. Several steps are needed to use toll revenue for transit: o The state has broad authority to toll but local political will needs to be developed before the state will enact any tolls. 13

14 o o The constitutional limitation on vehicle generated fees would need to be amended to allow a portion of toll revenues to be used for systemic transportation demand management strategies, including transit. See discussion on changing the constitution related to gas tax revenues. The state statute that limits toll revenue to use on immediate capacity expansions would need to be amended through legislative action. Pros Cons Transit is a critical component of managing demand in the entire system, and is compatible with efforts to expand capacity through a new bridge. In other words, using tolls for transit improves the functional capacity of that new facility to operation without congestion, and may reduce demand for future capacity expansions. Increasing the cost of driving can encourage the use of transit in places where reliable and frequent service exists. Enacting tolls on existing bridges, and freeing up the use of those funds for more than just immediate capacity expansions, could be viewed as a strategy for addressing broad revenues needs in the state beyond transit. As long as transit secures a portion of the toll revenues from the outset of the campaign, this effort could generate support from other interest groups. The political challenge is that Oregon does not have a history of much tolling, and people think it is their constitutional right to cross that river at no cost. It is likely that the toll revenues would first be used to pay for bridge construction (of the CRC and WRC projects) so revenue would not be available for transit operations until after construction bonds were paid off. In the interim, a portion of toll revenues could be used to pay for transit capital on the bridge itself (i.e. light rail on the CRC) or in the corridor. Tolls are typically seen as regressive in that they are not tied to consumption or income levels. Using toll revenue to pay for transit is one way of addressing this, but passes or rebates for lowincome drivers who cannot use transit may be a necessity. While the CRC project is moving forward in Portland, the WRC project is still a long way off (project costs are still not known) and tolling has not been a priority issue in other regions. Some people believe that this issue should play out in Portland before the other regions take it on. Second Tier Mechanisms These mechanisms, most of which are newer and have not been tested around the country, require greater discussion and research but could be good sources of new transit revenue for Oregon. More information will be provided at the state retreat and will be added to this report at a later date. The Second Tier Mechanisms include: a per vehicle Carbon Fee, a Parking Tax/Fee, a Systems Development 14

15 Charge/Local Improvement District and a development based Carbon Fee. Since the last two are both variations on development fees, their discussion has been compiled into one section. Establish a per vehicle Carbon Fee There are many different ways to tax carbon emissions, but this report focused on a system that charges a fee on each vehicle, based on some measure of that vehicle s size, efficiency and/or emissions. Pervehicle carbon fees are not currently used in the United States, though they were proposed in the state of Washington in 2008 (SB 6900, Establishing vehicle engine displacement and emissions fees ). This proposal did not receive a hearing due to significant public opposition. The proposal in Washington would have added the following fees to the cost of registering a vehicle: Engine Size (liters) Rate Schedule Up to 1.9 $ $ $ $ $ $ or over $600 The argument for this type of fee is that the engine size correlates to the vehicle size and emissions. This same proposed legislation in Washington also included a vehicle emission fee, to be collected at registration, based on the carbon dioxide emission per mile of the vehicle. These fees would have been collected according to the following schedule: Emissions (grams/mile) Rate Schedule Up to 161 $ $ $ $ $ $400 Over 362 $600 These two fees were designed to work together to address the varying greenhouse gas emission levels of different vehicle types. The revenue from both fees was proposed to be dedicated to the state s multimodal transportation account. A similar system of charging vehicles based on their size and emissions is used in some European countries, in the United Kingdom and in Japan. Each of these systems varies in application but charge a different fee depending on the vehicle s engine size (measured by displacement) or emissions. Very few of the interview respondents had comments on the viability of a per vehicle carbon fee in Oregon. More research on this funding mechanism is warranted. 15

16 Create a per space parking tax or encourage local parking fees to pay for transit Parking can generate revenue for transit in two ways. The more commonly used method is charging the user per space (by the hour, using meters or in garages) and dedicating some of the revenue from these parking fees to transit service in the area. This method is used in many cities throughout the U.S., and currently San Francisco and Chicago are conducting pilot programs to test charging variable, marketbased rates for parking, in order to generate revenue, reduce traffic (as people cruise around searching for spaces), and encourage mode shift. Parking space fees are typically decided at the city level, though state authority might be required to allow localities to charge for parking on public land. Another way that parking can generate money for transit is through a tax on parking spaces. Many jurisdictions in the U.S. charge a sales tax on parking transactions, most commonly applied to commercial parking spaces. This sales tax applies to any commercial parking space, so would apply to parking fees charged by a private garage management company or any business (i.e. hotels or employers). This type of fee is currently used in San Francisco, Pittsburg, Miami, Los Angeles, Chicago and New York City. 15 While this tax has the potential to generate significant revenue that could be dedicated to any use, it can disadvantage urban areas (where there is more likely to be a charge for parking) compared to exurban or suburban sites where parking is likely to be free. 16 Furthermore, it might discourage the use of market rate parking pricing, which can be an effective strategy at encouraging carpooling or transit use. A variation on parking taxes is a per space tax or levy. This is a type of property tax, as it charges a flat fee either per space or by the square footage of parking provided. This model of taxation is applied in Australia, Vancouver (B.C.), Toronto and in some European cities, and has been attempted, with limited success, in Washington D.C. The benefit of this form of parking tax is that is discourages land owners or developers from providing an excess of parking, which can lead to greater transit ridership and to more efficient or diverse land use. 17 Establish a Systems Development Charge, Local Improvement District and/or a development based Carbon Fee (Discussion forthcoming.) (Update after the state retreat: This funding mechanism was not selected by the state partners as a priority, so no further discussion will be provided at this time.) 15 Litman, Todd. Parking Taxes, Evaluating Options and Impacts. Victoria Transport Policy Institute, May 29, Ibid. 17 Ibid. 16

17 Appendix I Appendix I provides a brief explanation of why these funding mechanisms were NOT selected as priority recommendations in this report. Again, these findings are the results of a preliminary research and interview process. Reconnecting America recognizes that new information may be uncovered at the state retreat that would lead to further consideration of these mechanisms. More detailed notes from the research and interviews on each of these mechanisms can be provided upon request. Congestion Pricing (area wide i.e. London): This mechanism could generate significant funding for transit but as of yet is untested in the United States. It is likely to be piloted in the San Francisco Bay Area in the coming years and then could be expanded to other regions. Bonds: ODOT sold $813.2 million in bonds to finance road and bridge projects during In addition, ConnectOregon II authorized $100 million in lottery backed bonds to improve transportation connections through investments in rail, air, marine and public transit. In other words, the state is already aggressively pursuing bonds as a funding mechanism for transportation projects. Since these revenues will have to be repaid by future tax payers, we do not see them as an ideal long term funding source for transit operations. Congestion Pricing (HOT lanes on existing freeways): While high occupancy toll lanes (HOT lanes) might be a good model to pursue in conjunction with the recommendation on tolling in the Top Tier section of this report, most regions that use HOT lane revenue to pay for transit are restricted to using that revenue for transit in the same corridor where the toll is collected. This inhibits this revenue mechanism from providing broad and flexible operating support. In some regions, this version of congestion pricing may be a strong option for supporting a particular corridor or route. Federal Flex Funds: Other than in rural areas, federal flex funds are predominately limited to use for capital projects. Hotel/Motel or Rental Car Tax (tourist specific): This mechanism is of particular interest to some experts in the Portland region. While it may work well in that region (based on the argument that many tourists ride transit for free in Fareless Square), we do not believe that it would generate significant funds or be politically viable in other regions that do not have significant tourism or are struggling to attract tourists. Lottery Revenue: Lottery backed bonds are currently used to fund some transit projects through ConnectOregon, which was recently reauthorized through HB Several interviewees expressed concern that the lottery backed funds were highly competitive with many other causes in the state, that the revenue base was relatively narrow and thus couldn t provide enough revenue to significantly help transit in Oregon, and that bonds still had to be repaid from some other source in the future. Non license State ID Card Fee: Interviewees agreed that this funding source was limited by the small number of these ID cards issued each year. Further financial analysis may be warranted. Sales Tax (general or only on gasoline): Every interviewee said that this was a political non starter. 17

18 Voter polling may be warranted. Tax Increment Financing/Urban Renewal: This mechanism is already used with great success in the Portland region. It has limited applicability, however, in areas that are not building new fixed route transit or do not have strong land markets in these regions TIF is unlikely to generate significant revenue. VMT (Vehicle Miles Travelled) Fee: The Portland region led the national pilot of this program and is actively pursuing federal support to further develop it for large scale implementation. While VMT Fees may be a great funding mechanism for Oregon in the near future, it is unlikely that they could be implemented at a significant scale in the 2 3 year timeline of this campaign. Cigarette Tax: Some cigarette tax revenue is currently dedicated to the Special Transportation fund (for elderly and disabled transportation). There was a recent proposal to raise the cigarette tax for transit, which failed because the federal cigarette tax went up around the same time. Also, another recent proposal to raise the tax and dedicate new revenues to children s health initiatives failed due to push back from the industry. Interviewees felt that if the state couldn t raise it for kids health, then the likelihood of passing an increase for transit was not strong. Many also indicated that they didn t think it would generate significant levels of funding, although financial analysis may be warranted. Income Tax: Interviewees indicated that they didn t feel the income tax would generate enough revenue for transit, given all the other demands on this source. Also, they stated that increasing income tax levels could cause more people to relocate to Washington. Third, if enacted at the transit agencylevel, Lane County Transit and TriMet would be required by law to credit the amount of the employer s payroll tax paid to the District. (After the bulk of this analysis was completed, we learned about the proposal in the 2009 legislature, HB 2069, to put a limit on the amount of medical expenses that could be deducted from income taxes of elderly taxpayers above a certain income. This proposed bill, which would have dedicated the revenue to the Special Transportation Fund, was pulled before its hearing due to concerns over too many taxes, but it is likely to come up again. Preliminary research indicated that it could generate as much as $50M/year for elderly and disabled transportation. More research/consideration is recommended.) 18