• Memo to the VTA Board regarding the proposed 1/8 tax increase

    by  • August 7, 2008 • BART extension, Statements

    Memo to the VTA Board

    August 7, 2008

    After eight years of planning, VTA still does not have the financing lined up to pay for the construction and operation of the Silicon Valley Rapid Transit project. Each proposal for new money, when granted, ends up surprising the VTA board when it learns the new funds are inadequate. At that point the usual course has been for the VTA to go out again for more money. As you will see from our attached analysis, the proposal for a new sales tax (one– eighth of a cent) will not raise enough money, and VTA will have to go out again for yet another tax.

    Voters and the VTA Board need to know what BART will really cost, both for capital and operating.

    In 2000, VTA asked voters to approve Measure A, a tax that was to raise $6 billion. The Expenditure List assigned $2 billion to the BART project.

    In 2001, after Measure A was approved, VTA began negotiations with BART over a “buy–in” fee. BART’s figure was about double what VTA had estimated. It was agreed to begin at $48 million a year, and increase at the rate of Santa Clara County sales tax collections, in perpetuity. The base year is 2002, six years ago. The current buy–in figure is higher now than the initial $48 million.

    In 2002, VTA acknowledged that it had a long–term, 25–year operating deficit of $6 billion. VTA continued to cut bus service while continuing to move the BART project forward.

    Also in 2002, VTA agreed to have the BART buy–in figure taken directly from its TDA allocation, unless VTA could come up with a sound alternative source of funds. The TDA is used to run VTA’s buses, and VTA has not yet come up with a reliable alternative to providing the TDA funds to BART.

    In 2003, the Chief Financial Officer of the VTA released a report to the “Ad Hoc Expenditure Committee” that showed for the first 22 years of the 30 years of Measure A, VTA’s expenditures would exceeded its revenues. The principal driver of this situation was the cost of building BART. The CFO wrote to the VTA Board about financing alternatives: “The end result of this was that the BART project would be completed in FY 2026 and we were still unable to maintain a positive cash flow.”

    In 2006, VTA worked the county to ask voters for one quarter of a cent to solve its financing problems. That was probably not enough money, but the voters said No.

    Now in 2008, with costs rising, VTA is prepared to ask voters for one eighth of a cent, to fix its problems and move BART along. But if one quarter of a cent was inadequate, how will a one eighth of a cent tax solve the problem?

    We estimate that, WITH a new one eighth of a cent tax, when the BART line opens in 2017, that VTA will be underwater by at least $15 million a year with the buy-in. And the red ink continues through the life of Measure A. That is because the tax is inadequate to the task.

    Before more money is assigned to the BART project, shouldn’t everyone agree on what it will cost and on what funds are available to pay for it?

    Attachments:

    VTA memo: BART Operating Subsidy

    VTA cost estimate by BayRail Alliance

    Relevant pages from the Comprehensive Agreement between BART and VTA

    Responses to issues raised by VTA General Manager Michael Burns and Director Sam Liccardo at the August 7th VTA Board meeting:

    Burns: BayRail’s calculation does not show that the tax would be collected years before the start of service. The tax would begin to be collected, best guess is, four years before the start of service.

    Response: Assuming that VTA does not use that fund for other purposes, it will still leave VTA with an overall deficit of about $200 million when the entire initial surplus is used to close the deficit.

    Burns: VTA is not committed to the $48 million (advance payment) but rather the operating and maintenance cost.

    Response: BayRail’s calculation is based on the Comprehensive Agreement between BART and VTA. The agreement is clear about what VTA’s obligation is. Mr. Burns has the responsibility to accurately explain the agency’s obligation and should not produce information that is not consistent with the terms of the Comprehensive Agreement.

    Liccardo: BayRail’s memo double counted the cost.

    Response: BayRail’s calculation does not double count any cost.

    According to the Comprehensive Agreement, VTA has to make advance payments ($48 million per year in 2002 dollars, adjusted to sales tax growth) to BART which, along with passenger fares, is to ensure that BART receives up front the funds that they say they need to cover operating costs, allocated overhead and capital reserves. Nowhere in the Comprehensive Agreement does it state that VTA will pay BART directly the net operating costs, allocated overhead and the minimum capital reserves, which is what the VTA’s memo tried to suggest is the case.

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