Transit Time: Are CATS' financial projections too rosy?
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City consultants estimate sales tax revenues will exceed historical growth, with costs lower; Missing the mark like original Blue Line?
by Steve Harrison
In 2007, Mecklenburg County voters went to the polls to decide whether to keep or repeal the half-cent sales tax for transit.
Leading up to the vote, the city and Charlotte Area Transit System said keeping the tax would not only preserve existing service, but would generate enough money to build so much more. They said the half-cent would let them finish the 2030 transit plan: the Blue Line extension to UNC Charlotte, a streetcar through Center City, a commuter rail line to Lake Norman and bus rapid transit from Matthews to uptown.
Voters kept the tax. Hardly any of that happened.
The city did squeeze enough money from the tax to finish the $1.1 billion Blue Line extension to UNC Charlotte, though it shortened the length of the line to save money.
CATS didn’t have enough money for the streetcar, so City Council voted to spend money from the general fund to build it. Rapid transit on Independence Boulevard was never built. The city didn’t get permission from Norfolk Southern railroad to build the commuter train, but it didn’t have enough money anyway.
Around five years ago, CATS said it was out of money, admitting the half-cent was tapped out.
A new tax that will pay for everything
Now, in 2021, there’s an entirely new City Council, a new city manager, a new transit director. And city leaders are proposing a penny increase to the sales tax. Similar to 2007, they say it will pay for: a Blue Line extension to Ballantyne, a train to Lake Norman, more bus service and a light rail line from Matthews to Belmont. It will also pay for new roads, sidewalks, bike lanes and greenways.
Total cost: $13.5 billion.
“One of the things that I do want to say up front is that the one cent covers it all,” City Manager Marcus Jones told council members in June. “We’re able to do both the transit and the transportation. It covers the capital costs, the operating costs and the financing costs.”
The manager’s confidence is based on work from a consultant, InfraStrategies, whose managing principal is former CATS CEO Carolyn Flowers. She was the leader of the transit system in Charlotte from 2010 to 2015 when it faced the reality of the transit tax running dry.
At the time, CATS blamed the Great Recession on its inability to build more. And while the recession did hurt the city’s sales tax collections, the transit system wasn’t able to bounce back even after the economy recovered and the country entered the longest economic expansion in the nation’s history.
To make the numbers work, InfraStrategies has created a financing plan that spreads debt payments over 50 years. It also says sales tax revenue will come in higher than historical norms, and that costs will increase at a slower rate than what’s happened in the past.
First, the revenue side: InfraStrategies project the penny sales tax would increase by an average of 4.4% a year for 50 years. Consultant Amanda Vandegrift said that figure was based on numbers from the last few years — “assumptions that we have vetted as conservative.” She said recent Mecklenburg sales tax collections have grown at 7.7% a year “in recent years.” Her figures cover a period of strong economic growth and do not include the effects of the Great Recession, when tax collections fell and then grew sluggishly. In her presentation to the City Council in June, she characterized 4.4% growth as being on the low end of what the city can expect: “You’re likely to see higher growth, but we won’t know until we’re there.”
Sales tax growth is lower, though, if you go back farther in time. The first full fiscal year of the half-cent sales tax for transit was in 1999-2000, when it generated $53.1 million. In 2018-2019 — the last full year before the pandemic — the tax brought in $107 million.
That works out to an average annual growth rate of 3.8%.
The difference between growing a 3.8% and 4.4% may not seem like a lot. But over 30 years, it would be about $1.4 billion. The city plans to finish paying off the debt in 50 years. By that point, the difference is nearly $7 billion.
“It’s the difference between this whole plan being feasible and not,” said council member Ed Driggs, a member of the transportation committee who said he’s concerned about the projections.
Projections by a city consultant show sales tax revenue increasing by 4.4% annually — higher than the average rate over the last two decades. (Slide presented at City Council meeting in June)
Whitney Afonso with the UNC School of Government said sales taxes are “extremely difficult to forecast.” One reason is that they are less stable than the property tax. They increase rapidly in good times but drop quickly during downturns.
Afonso said there’s another problem: Mecklenburg County’s population growth will likely slow over the next 10 years as it runs out of space for new homes. She says more families will move to neighboring counties that, for now, don’t have transit taxes.
“Once you are stopping adding to the population, a commuter doesn’t spend as much of their income within the city limits as an actual resident,” she said. “And they should be taking that into consideration.”
Is the city also underestimating costs?
While the city is arguably overestimating its revenue growth, it may also be underestimating how much transit projects cost. The consultant estimated costs would increase by 3.5% a year.
That’s probably too low, said Steve Polzin, a former adviser with the U.S. Department of Transportation in the Trump administration. He said the cost of transit projects historically grew faster than that, and that President Biden’s infrastructure plan will pump billions of dollars into transit spending.
“So you’ll see very significant inflation on the cost side for things like electric buses and train cars and track equipment and those kinds of things,” Polzin said. “That will push tremendous pressure on the domestic market.”
Recent history bears that out.
When voters kept the half-cent sales tax in 2007, CATS said the Blue Line extension would cost $750 million. When the city finalized the cost five years later, the price had risen to $1.16 billion — despite shortening the length of the line by eliminating a station at Interstate 485.
That’s an increase of 7% a year — twice what the consultant is projecting.
Former CATS chief executive Ron Tober said the sales tax projections of 4.4% may “be a little high.” But he’s more worried that the consultant is underestimating how much construction costs and operating costs may increase.
He said escalating operating costs are, in his opinion, the biggest threat to the plan. If costs exceed revenues then “sooner or later you are going to become a deficit operation or eat into any reserves that you have built up or over time.”
No institutional memory
The city’s projections are reasonable enough to pass a cursory review, which will likely satisfy City Council, whose most veteran member, Julie Eiselt, was elected in 2015.
The construction schedule is delayed so far into the future that the people in charge today will be long gone if the money runs dry.
And a future council will be left with trying to keep the promises from 2021. Just as today’s council is trying to fulfill the promises of 2007.
Steve Harrison is a reporter with WFAE, Charlotte’s NPR news source. Reach him at sharrison@wfae.com. A version of this article first appeared in his Inside Politics newsletter.
In brief…
Three brothers killed in two light rail accidents: A Lynx Blue Line light rail train struck and killed two men on Tuesday morning who were attempting to hold a memorial for their brother, who died last week when a train struck his pickup, police said. This week’s and last week’s accidents took place at the crossing at Hebron Street, near South Boulevard and close to the Starmount neighborhood. Police said all safety measures were working property. (Observer)
Stay safe when you travel uptown: The city of Charlotte is reminding people how to get around safely, after a year when many stayed away from big crowds, sporting events and uptown in general. The immediate reason: An anticipated influx of visitors with the Carolina Panthers’ Fan Fest on Friday. Longer term, traffic is expected to increase as people come back to work and major events in person. Charlotte will start updating its road closure map on the weekends (instead of just weekdays), and the city is encouraging people to do things like wear bright clothes while walking at night, wear a helmet if you ride a bike and yield to pedestrians while driving. (City of Charlotte)
Countdown to the Gold Line:
Electric bus troubles? Several transit agencies across the country have had trouble with electric buses manufactured by Proterra. “For the past five years, the reliability and fit-and-finish quality of those buses have degraded over time,” according to a report for Foothill Transit in Southern California, which has had at least one of every three electric buses out of service since 2019. Other cities reporting trouble include Duluth, Minn.; Albuquerque, N.M.; Philadelphia; and Asheville. Proterra has a plant in Greenville, S.C., and Charlotte’s airport bought five of its buses in 2019. Proterra says it works with its customers on any issues and honors all warranties. (Vice)
Road maintenance rankings: Charlotte came in No. 8 out of 20 major cities in a new ranking of places with the best maintained streets. The U.S. Chamber of Commerce Foundation and RoadBotics produced a report that used mapping and artificial intelligence to compare road conditions in central business districts of cities across the county. Philadelphia had the best, while Phoenix and Detroit were tied for last. Here is the map of the streets surveyed in Charlotte, in uptown and South End, with green being best condition and red being the worst:
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Speaking of maintaining safety when uptown — aren’t those electric scooters supposed to be on the streets, instead of whipping around pedestrians, as I’ve experienced lately?