Transit thoughts - 1/23/18
Last August, I put out a list of questions I would need answered in order to vote to put the transit initiative on the May 1 ballot. The proposed Transit Improvement Program answered all of these questions and more. So, I am voting to put the referendum on the ballot. Tonight we approved the referendum on 2nd reading. The 3rd and final reading will be on February 6.I would like to go through some important details that haven't been discussed thoroughly in public yet. I am going to start with some relatively simple details and then move to more complex funding issues:
Nomenclature: When the state enacted the IMPROVE Act, it authorized counties to create certain tax surcharges to fund an approved "Transit Improvement Program." The 55 page document I link to above is Metro's proposed Transit Improvement Program. That is the technical document that would be funded by the proposed set of new tax surcharges. From my perspective, the "Let's Move Nashville" web site includes lots of interesting and necessary explanations, graphs, and details. But, technically, the only information that matters is the Transit Improvement Program. If you want to know what you are voting to fund, that 55 page document is what you should read.
What about federal funding?: Many people have asked what happens if the anticipated federal funding is not available. The first answer to this is that the proposed transit program assumes federal funding that is consistent with historic levels. If that level of funding is not available, we will have to find alternative funding (unlikely), or parts of the system could be scrapped (probably unlikely), or the system will take longer than the anticipated 15 years to build (most likely).
Are we locked into the plan or can it change?: Plans can change as years unfold. The question is to ask what approvals will be necessary to make changes. The best advice at this time is that relatively small changes (like the sequence rail lines are built) probably require little formal approval outside of annual budgeting hearings. At the other end of the spectrum, major additions or changes to the system described in the Transit Improvement Program will probably require an additional ballot referendum. In the middle, there might be gray area changes where it is not clear today what authority will be needed. For example, if a new rail line were proposed, but it was not going to use the new tax surcharges as a funding source, then that might not trigger an additional ballot referendum.
No general obligations bonds are anticipated: Multiple people have asked me whether Metro can afford the additional $3 billion in bond debt anticipated in the transit improvement program. People need to know that only revenue bonds supported by the new tax surcharge revenue are planned. No general obligation bonds are part of the transit improvement program.
The details about the revenue bonds are important: During the 15 year transit improvement program, the plan is to issue $3 billion in revenue bonds supported by the new tax surcharges. At the end of the 15 years, we will have only paid interest on these bonds. The full $3 billion in principal will still be due when the construction plan is complete in 2032. From 2032 to 2039, the amount of annual payments will increase from $166 million (2032) to $224 million (2039). Then from 2040 to 2060, the program calls for level principal and interest payments of $226 million per year.
Why do the revenue bond payments ratchet up through the 2030s and not level off until 2040?: The short answer is the revenue from the new tax surcharges is not expected to be high enough to support the full principal and interest payments on the $3 billion in revenue bonds until 2040. The revenue bond repayments will be "sculpted" to fit the expected tax revenue stream. If you have wondered why Metro isn't building the light rail lines out to the county line from the start, this financial modeling about the expected tax revenue is the key to the answer. Please understand that I am not presenting this feature of the economics as "good" or "bad." It is however something that informed voters should know about.
What happens when we want to expand the transit system?: First, it is important to know that the system is meant to be successful as designed. That said, it is also important to consider what happens if we want to expand the light rail system out to the county line in any direction. All of the previous four bullet points are important for this question -- the big issues are about what it would take to approve a major addition to the system, and about whether there will be funds available to pay for a major addition. Here are the basic options to pay for a major additional line or a rail extension to the county line: (1) wait until the late 2030s when our growing city will generate enough sales tax revenue to pay for additional major capital transit improvements; (2) find a new funding source beyond what will be on the referendum in 2018; and (3) further "sculpt" new revenue bond issues to have payments more backloaded instead of having level principal and interest payments from 2040 to 2060.
How is Metro integrating transit planning with other important government functions?: If funded, the transit improvements over the next 15 years will be monumental. There are a lot of question about how transit development will impact affordable housing, small business, neighborhoods, sidewalks, parks, and greenways. To get a jump on this, the Mayor appointed a taskforce to look at issues related to transit and affordability. The taskforce delivered its recommendations to the Mayor on January 10. You can see a copy here.
On February 6, it is almost a certainty that the Metro Council will vote to put the Transit Improvement Program referendum on the May 1 ballot. I hope voters take the time to look at the full program. If you have any questions or comments, let me know at bob.mendes@nashville.gov.