Local in Ann Arbor

Will a new tax be enough to pay for countywide transit? Which tax?

Much of the discussion in Ann Arbor and beyond about county-wide transit and the Transit Master Plan has been about what we would like to have.  There have been some really lovely scenarios painted.  Indeed, the very genesis of the TMP was through multiple public meetings where a menu of options was presented.  These are going on now, in the guise of District Advisory Committee meetings.   The Moving You Forward website is all about “implementing a countywide transit vision” and says “You’re in the driver’s seat!…Click here to steer, where your opinions will directly shape the future of countywide transit!”

Unfortunately, this evokes the old saying, “If wishes were horses, beggars would ride.”  The co-chair of the TMP financial task force, Al Berriz, put his finger on the problem when he said, essentially, that many programs in the TMP had plenty of constituents or future customers, but no means of internally generated revenue.   This was while he was scrutinizing an enormous spreadsheet showing a 5-year plan for the TMP with a $60.8 million funding gap.

As we described in the last post,  Governor Snyder’s proposed changes to the way transportation is funded in Michigan,  especially because of his proposal for a Detroit Metro Regional Transit Authority, seem to throw askew all the carefully laid plans for the TMP.  So here is a question:  even if all that comes to pass, why can’t Ann Arbor and even Washtenaw County (assuming that a countywide millage passes) go ahead and have our local transit service as we planned?  The answer lies in where the money is.

Reprinted with permission by S. Harris. Copyright by ScienceCartoonsPlus.com

There is surely no more boring word in the English language than “budget”.  It is an automatic conversation-killer. But to those of us who care, this is a pulse-racing thing.  Those rows and columns determine the fate of, if not empires, at least programs that we really care about.  The true role of government at any level is to shift those numbers around to achieve a real result.  Of course, proposing programs and outcomes is the first step of leadership.  But in the end it is all about the money.  Programs don’t run on wishes.  Right after “to form a more perfect union” we must ask “who will be taxed?”.  So often, in our community discussions about the value of expanded transit options, the question of  “how will we pay for it” resolves to “surely someone will take care of it“.  In the memorable S. Harris cartoon, this is expressed as “Then a miracle occurs“.

So how are we going to pay for the TMP?  Let’s start with the AATA’s current year’s budget.  A budget has two essential elements:  Revenue and Expenditures.  The difference between them is either a surplus or a deficit.  (Reserve funds are outside the budget, but a deficit budget generally draws on them to make up the difference.) The AATA’s projected expenditures (expenses) are $30,410,616 for the current fiscal year. But its revenues are projected to be $29,418,996, a deficit of $991,621 (let’s just call it a million dollars).

Here are the sources of revenue. (The percent that each source pays is in the last column.)

Property tax revenues:

These are from the Ann Arbor perpetual millage.  As related in our post AATA Yesterday and Tomorrow,  this was originally 2.5 mills, but the rate has been whittled down to about 2.0 mills by the requirements of the Headlee Amendment.  In addition, Ann Arbor property values have fallen.  But this is the backbone of local support.

Passenger Revenue:

The AATA has a complex fare structure that has been constructed after considerable study.   While the basic fare is $1.50 for a one-way bus ride, there are many types of discounts, 30-day passes and “sponsored passes”, paid for by other organizations (examples are the M-Card for University of Michigan and go!pass for downtown employees).  Revenue from fares is restricted by two factors:

• Lack of elasticity of demand Transportation planners often speak of “choice” passengers, as distinguished from those who must use public transit.  If transit becomes too expensive relative to the cost of driving a car, people stop taking the bus.
•  Social constraints Part of the purpose of a mass transit system is to serve the disabled and elderly.  The special services for them (referred to as “demand” services, vs. fixed-route services) are simply not going to pay their way.  Otherwise, those with special needs could simply take a taxi.  Also, since many of those who must take the bus are lower-income, it is not practical or helpful to set their fares too high.

At the recent u196 meeting, AATA transportation analyst Chris White stated that there has never been a mass transit system in the US that has made a profit.  It seems that even being self-supporting is likewise a stretch.

Purchase of Service Agreements (POSA):

Since AATA is an Act 55 authority, it can in theory extend service to areas within 10 miles of its core area only by a formal contractual agreement in which the participating units of government pay for the service.  The POSAs have varied over the years, but the notable ones are Pittsfield Township and the City of Ypsilanti.

• POSA income is lost to the AATA if it is transformed into a countywide authority, because the contracting areas become part of the service area. (However, a draft 4-party agreement asks the City of Ypsilanti to contribute its millage to the whole, as Ann Arbor would.)

• The Canton Express and Chelsea Express are not currently paid for by POSA income.  They are being funded by a combination of state and federal grant funds, and Ann Arbor taxes.  It also helps that UM subsidizes its employees’ fares on these routes.

State Operating Assistance:

The State of Michigan (MDOT) allocates some of the Federal funding from the gas tax to local transit authorities according to a couple of formulas. As the AATA budget notes say, “The formula rate is projected to be 30.63% (201 1 was 3 1.29%) based on our total budgeted urban eligible expenses.”

Federal Operating Assistance:

Under Section 5307 administered by the Federal Transit Administration,  urbanized areas receive assistance from the Mass Transit Account of the Highway Trust Fund. Since Ann Arbor is less than 200,000 in population, AATA is not able to receive direct Federal operating assistance, but it does receive Federal formula funds (FFF) for capital expenses and also for certain types of operating expenses such as maintenance.

This program is funded under the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), also called the “transportation bill”.

Other:

This is mostly interest on banked reserve funds.  (Which are now being used up for deficit spending.)

Implications and Sources of Uncertainty

So although AATA is currently funded by a millage from the taxpayers of Ann Arbor, a greater share of their revenues comes from Michigan and Federal operating assistance grants – most from “formula funds”.  In fact, more than 42% of the current budget is from those funds.

What if the Regional Transit Authority is formed?

As pointed out in our previous post, AATA would become a mere contractor, and the TMP would presumably become advisory.  At best, this is hard for making plans.   Governor Snyder could, as indicated, move both Federal and state operating funds to that new authority.  As the FTA website states, “Governors, responsible local officials and publicly owned operators of transit services are to designate a recipient to apply for, receive, and dispense funds for transportation management areas…”   So any new Washtenaw County authority would not be able to depend on those funds.

Federal Transportation Funding is shaky.

Both Federal and state funds depend on the Highway Trust Fund, aka the gas tax.  This has been allocated according to SAFETEA-LU, which has not been reauthorized since 2009, but rather has been extended for ever-shorter periods of time.  It has been on life support while the Senate and House battle over a new transportation bill, which is currently in conference.  The new bill is to be called MAP-21 (Moving Ahead for Progress in the 21st Century).   But the two houses are far apart and currently the House is supposed to take up the bill in December.

Moving You Forward

But let’s put all that aside for now, and assume that AATA  also succeeds in surmounting the numerous political problems ahead in instituting a new county authority.  (Four townships have opted out, a ” 4-party agreement” is currently under negotiation among representatives of AATA, the City of Ann Arbor, the City of Ypsilanti, and Washtenaw County, and there are unknown pitfalls in getting a public vote to support a revenue measure.)  How could the funding gap be closed, given all the current assumptions?

A new countywide millage

The assumption has been that a new county-wide millage will be the chief means of bridging the funding gap ($60.8 million for the TMP’s draft 5-year budget).

Since the total taxable value in Washtenaw County is a little over $13 billion (see the table of taxable values in Washtenaw County ), a 1-mill tax would yield $13 million a year.  However, since four townships (Bridgewater, Lyndon, Salem and Sylvan) have opted out of participation in the TMP, the TV available for a countywide millage to support the TMP would be about $12.6 billion, for a 1-mill yield of $12.6 million.  That is a tidy amount that would just about meet the $60.8 million (5-year) deficit.

(Note: these are from the 2011 assessments.  The assessed values for 2012 will not be available until early March, and the tax would actually be levied against the 2013 assessments.  We’ll have to assume that the taxable value remains about the same over two years.)

Icing on the cake?

The really big, big question, of course, is whether a public vote for a county-wide millage will succeed.  After all, the taxpayers of both Ann Arbor and Ypsilanti will be asked to vote for an additional millage beyond the ones they already pay, without a major escalation in service.  Township voters are notoriously tax-resistant and in some townships, a one-mill assessment is as much as they pay for their township services.  Perhaps that is why another source of funds is so appealing.

At the second u196 meeting, AATA Board chair Jesse Bernstein voiced optimism for a different scenario.  He stated that he hoped the proposed increase in automobile registration fees would make it possible to fund the TMP without a millage.  (He called it the “icing on the layer cake”,  a sly reference to the model originally described by attorney Jerry Lax as the “layer cake model” of funding, in which the Ann Arbor millage is absorbed into the countywide transit authority.)

We don’t really have much information, but as noted before, Governor Snyder estimated that a new statewide registration fee would yield about $1 billion per year.  The maximum amount of that that could be used for transit (10%) would be $100 million a year (for the entire state).  Let’s say that Washtenaw County could be awarded 10% of that (which seems unlikely); it would still be short of the $12 million needed.

Snyder also estimated that local registration fees could bring in an additional $300 million a year statewide (again, that would only be a maximum of $30 million for transit).  But if the RTA goes through, all that income would be awarded to it for reallocation.  Conan Smith estimated a yield from the new local tax might be $4-5 million per year (assumptions not clearly stated), not enough to make up the funding gap even if all that came to Washtenaw County.

Of course, Snyder’s registration fee concept would first have to pass through both houses of the Michigan Legislature, and any local registration fees would have to be voted on. If for some reason Washtenaw County has a chance to vote on a registration fee for its own use, it would be subject to local tax skeptics just as a millage vote would be.

Timing is everything

The schedule for the TMP has slipped a bit, but was trending toward coalescence by mid-next year at least.  Certainly if a millage is going to go on the ballot in November 2012, everything will have to be in place by early summer.  But will all the developments at the state level be finished by then?  Snyder is a skillful and strong political leader, but he has quite a selling job ahead, even with a Republican legislature.  And how about all those votes and decisions (even locally) about a whole new category of tax (registration fees)?

At the u196 meeting on November 14, Ypsilanti Mayor Paul Schreiber asked Bernstein when the countywide authority would begin to function.  Bernstein said that Year 1 would start “as soon as it can” and noted that it would be helpful when it is known where the money is coming from.

Then he also said that “we” could continue working on it, using reserves.  Now that makes me nervous. I hate to see the AATA running on fumes.  There is too much uncertainty out there.

Note: This post is part of a continuing series on our local transit system.  See The Transportation Page for a listing.

Michigan politics introduce even more uncertainty into the future of the Transit Master Plan.

In our previous post, we left AATA hanging on a hope and a prayer that the initiation of its Transit Master Plan will play out as planned.  As we said, the AATA board has moved to “bet the farm” in putting forth a deficit budget that is to “catapult” (the AATA board chair’s expression) the organization into its transformation to a countywide transit authority that presents a transit menu with all the bells and whistles.  The budget includes pre-funding (in advance of actual revenue) several parts of a more regional approach.  Those include express commuter routes to Chelsea and Canton (yes, Wayne County) as well as a new service to the Detroit Metro Airport.  Every indication has been that the TMP’s supporters anticipate the additional revenue for the plan to come from a countywide millage, authorized by the voters next year.  Of course, that is a political judgment and it is a decided gamble to run out one’s reserves hoping for the good will of the voters.  (As we noted, the revenue from a new millage would not be available until July 2013.)

The Ann Arbor Chronicle has done an admirable job in documenting some of the rapidly occurring events in this area since that last board meeting.

Districts and representatives for u196. Note that four townships are not participating. Graphic courtesy of the Ann Arbor Chronicle.

As explained in that report, the new interim county-wide board (the unincorporated Act 196 board, or u196 board) had their first meeting on October 20.  Then the finance committee met on October 28. They were to come up with a “white paper” by January outlining the map to financing the TMP through a process of subcommittees and work groups and multiple meetings before the end of the year.

There was some impressive staff work available to them.  Materials prepared for the meeting included complex schema showing fully fleshed-out project-by-project capital and operational funding needs, and likely funding from already known sources, including passenger fares.  (The Hypothetical Transit Master Plan Budget, Years 1-5, required a 17″ x 23″ page to be printed in very small type.)   There was also a prepared PowerPoint presentation (not actually presented) on how to promote a ballot measure and a handout detailing case-by-case how well transportation funding ballot measures nationwide have done.

And then it all fell apart.

Michigan Governor Rick Snyder gave a significant address on transportation and infrastructure on October 26.  A full summary of his proposal was then released.  There are many elements, but here are a few that are especially relevant to the fate of the TMP.

• A significant revision of Act 51.  This is the Michigan law that governs transportation funding.  Snyder would make major changes to the state formula for allocating revenue from the gas tax and other transportation funding to local entities.
• A new source of funding for transportation: increased registration fees for passenger vehicles.  The fee would be based on the value of the vehicle, so as now would vary according to the age and original price.  As stated, it would be “an additional $10 per month on the average passenger vehicle”.  This would raise an estimated $1 billion per year.  In addition, he would allow “a local or regional registration fee of $40 per year on the average vehicle” that would be collected by the state and returned to the “local agency”.  The local fee could only be imposed by a vote of the people affected.
• A Southeast Michigan regional transit authority.  “I propose a new Regional Transit Authority for southeast Michigan, one with the teeth and the commitment to coordinate existing bus services and permanent, dedicated regional funding to invest in rapid transit. My proposal is for a new authority, free of legacy costs, which will establish rolling rapid transit along four critical routes including Gratiot, Woodward, Michigan Avenue and the M-59 corridor.”

This is one of those classic good news and bad news stories for the TMP.  One of the problems that its supporters have faced is the very limited range of options that Michigan state law gives to local governmental entities for raising money.  Almost all forms of taxation that local governments use elsewhere are excluded. As we noted in the previous post, sales taxes and local vehicle taxes have been more or less off-limits without either state legislation or constitutional amendments, hence the millage is the only option.  This explains the comment that AATA chair Jesse Bernstein made at the October 20 u196 meeting.  In discussing the impending finance committee meeting, he said “Everyone talks about a millage, but I’m hoping that the Governor will light a candle over the weekend.”  Apparently Bernstein had some knowledge that the local vehicle registration fees were in the works.

But the problem is that this new revenue, and indeed the entire enterprise,  may have been taken out of the AATA’s (or the u196 board’s) hands.  The announcement by Snyder of a Regional Transit Authority (RTA) to address the chronic problems in Detroit area transportation might have seemed to have little to do with our local plans.  After all, though we certainly want the Detroit Metro area (Wayne, Oakland and Macomb counties) to prosper, we are not really a part of their system in most senses. Little did most realize that a September 21 resolution by the Washtenaw County Board of Commissioners took a first step in committing Washtenaw County to being part of a new regional authority.   As reported by the Ann Arbor Chronicle,  the BOC passed a resolution supporting the regional authority on September 16 with very little discussion.

The resolution was presented by Commissioner Conan Smith, whose wife, Rebekah Warren, was the Senate co-sponsor (with, notably, the Republican chair of the transportation committee) of a package of bills to establish the authority.  The initial announcement did not indicate that Washtenaw would be a member of the authority. A package of three bills (Senate Bills 443, 444 and 445 ) that are “tie-barred” are apparently still in committee. Smith attended a summit meeting earlier this year as a representative of Washtenaw County and is now a member of the core group (dubbed the “Fab Five” by Mlive.com) who are working to make this happen; though Smith is only the chair of the Washtenaw County BOC (an office that rotates), he joins Detroit’s Mayor and three elected county executives.

At the finance committee meeting, Smith joined State Representative Mark Ouimet and Snyder advisor Dennis Schornak in explaining the Governor’s intent.  (As Smith said, “there are a number of things he hasn’t released yet”. )  Here are the basics:

• The RTA would be formed upon winning a vote in all four affected counties (Wayne, Oakland, Macomb, Washtenaw).  On questioning, Schornak said that there is no opt-out on a county-by-county basis; if the voters in all three Metro Detroit counties approve the RTA while Washtenaw County votes against it, we will be included.
• The RTA would then also float a ballot measure to approve the additional vehicle registration fee.  If it passes by a majority over the four counties, those monies would be collected by the state and forwarded to the RTA.
• Of the vehicle registration fee income, 90% would go to roads and 10% to transit.  There are constitutional restrictions in having more than 10% to transit, but this is an improvement for transit over some prior formulas. (Presumably, only the 10% for transit would go to the RTA, with the remainder going to commissions that administer roads.)
• Taxes thus collected (at a 95% rate) would be distributed back to the contributing counties proportionately in services.
• The RTA would handle all finances and governance related to transit in the 4-county area.  It would be the sole recipient of all state and Federal funds.
• The AATA would be a subcontractor, under the aegis of the RTA.

This news was a stunner to the financial committee and Berriz rather summarily (no discussion)  announced that the subcommittees, task assignments, etc., were off the table.  (There was one subcommittee of volunteers to look at what projects the TMP should undertake, described as “uses”.)  Also, the ambitious schedule to produce a white paper has been scrapped.   The next meeting of the committee was scheduled for December 16.

Why all the upset over a proposal (Snyder’s) that hasn’t even been enacted into legislation?  A draft bill has not even been revealed (it was to be discussed by the Fab Five today, November 7).  It’s simple – how is the finance committee to evolve a 5-year plan for funding an AATA-based TMP when it is just reasonably possible that all the rules will change?  Here are some major concerns that are surely in their heads, though not expressed.

• The biggie: the AATA would no longer have access to state and Federal formula funds and perhaps to grant funds of any kind.  In the hypothetical budget that never got presented,  formula funds were to supply about $55 million over 5 years.  The extensive capital requirements of the TMP (related especially to rail projects) were projected to use $19 million of Federal funds.
• Even today, state and Federal formula funds (which are reliable paychecks for transit operations based on long-standing legislation) account for $12.4 million out of $29.4 million budgeted revenues, or about 42%.  Thus, the loss of access to these funds would affect the current operations of the AATA adversely, unless they were returned to Washtenaw County in full.
• The new revenue from the registration fees would be nice, but probably not enough for ambitious new projects.  Smith estimated $4-5 million per year; it was not clear whether that was for Washtenaw County or for the entire RTA.  Snyder was projecting $300 million per year for the entire state at the maximum fee level, but his assumptions were not explained.  The five-year budget was showing that $60.8 million (about $12 million a year) was needed to accomplish the TMP beyond current revenues.
• Loss of local control.  The AATA/u196 would become a contractor, not the governance body.  As such, it could not direct policy at all but would have to supply the service they were told to provide.  So the entire TMP becomes moot, except perhaps as a source document for future planning by the RTA.

There are a lot of  steps between here and there.  Snyder must get his draft legislation through both houses of the state legislature and then some political steps will be involved in getting a vote together on forming the RTA. A question was asked at the meeting as to whether the Legislature would designate the counties to be included, but I didn’t hear a good answer.  Certainly the fact that the BOC passed a resolution endorsing the entry of Washtenaw County into the RTA will probably have some weight.

Maybe it won’t happen.  But I think that anyone who underestimates this Governor is making a mistake. It was obvious that the financial committee wasn’t planning to make that particular mistake.

Meanwhile, the AATA is still operating on a deficit budget.