The San Diego Association of Governments has officially admitted it has a revenue problem – and that its researchers need to revamp the forecast they use to predict how much money is coming in.

At a board meeting Friday, staff from the regional planning agency conceded that to finish all the highway expansion, new transit lines and other transportation projects promised in a 2004 sales tax extension, it will need to find as much as $17.5 billion from federal and state sources.

SANDAG staff also disclosed that the forecast the agency uses to inform regional planning decisions isn’t reliable. The agency effectively admitted the new tax hike it put on the ballot in November would not have raised the $18 billion they said it would.

After SANDAG staff presented all this Friday, they asked if any of the board members had any questions. Only San Diego Councilwoman Lorie Zapf chimed in — but then she decided against asking anything, because the meeting was running over time.

The result was that no elected officials said a word about a potential $17.5 billion shortfall and any resulting impact on the communities they represent.

In 2004, voters extended the countywide, half-cent sales tax TransNet, and so far SANDAG has collected far less than it expected. At the same time, cost expectations for the remaining projects have increased by $8.4 billion since the last estimate.


We Stand Up for You. Will You Stand Up for Us?

Now SANDAG either needs to find new money elsewhere, or scale back its ambitions.

The agency relies on its own long-range revenue and population forecasts to make regional planning decisions. The forecast produced the revenue expectations for TransNet that the measure is now failing to meet.

SANDAG also relied on that forecast for the expected revenue from Measure A, which was defeated by voters last month. As Voice of San Diego reported in October, that forecast assumed the typical San Diegan would spend more money than at any time since 1970, even after accounting for inflation.

“In light of recent news reports that raised concerns that our revenue forecasts were possibly too optimistic, we took a closer look at the forecast methodology that was being used in the plan of finance,” said Ray Major, SANDAG’s chief economist. “And what we found is that there were some aspects of SANDAG’s demographic and economic forecasting model that were overestimating taxable retail sales.”

SANDAG staff is now revamping its model to fix the flaws that created its overly aggressive forecasts.

Its report to the board Friday relied instead on an average of national forecasts from Moody’s, IHS Global Insight and Woods & Poole.

In other words, SANDAG can no longer trust its own forecasting numbers, just months after it went to the ballot promising voters a set of improvements that relied on those forecasting numbers.

The new forecast, relying on outside experts, decreases the expected average increase in sales tax growth by a half of a percent over the life of the tax, from 4.4 percent to 3.9 percent.

That means SANDAG will bring in 15 percent less money over the life of the TransNet extension measure than previously anticipated, Major said.

The agency now expects to bring in $6.3 billion between now and 2048 for its so-called major corridor projects.

It needs to find another $21.5 billion from state or federal sources to build all the of the projects that are part of that program.

That could be a problem.

For one, that would mean winning more state and federal money in the future than SANDAG ever has before.

SANDAG uses its local revenue to get additional money from state and federal grants to cover the overall cost of its various projects.

Over the last 30 years, SANDAG has managed a three-to-one ratio on that front; it brought in $3 from outside sources for every $1 it raised locally. But it’ll now need to do even better, bringing in more like $3.41 from the state or feds for every $1 it collects from TransNet.

The TransNet measure itself only anticipated that SANDAG would bring in $1 from outside San Diego for every $1 it raised in sales taxes locally.

But SANDAG’s historical success bringing in outside money might not be so easy to repeat, let alone exceed, as it now needs to do.

It reached that three-to-one ratio with the help of two major infrastructure initiatives. One was California’s Prop. 1B, and the other was the federal stimulus program, passed in reaction to the worst economic downturn the country’s faced since the Great Depression.

It’s hardly a guarantee outside sources comparable to those will materialize again, or that SANDAG will be as successful competing for them a second time around.

A staff report said SANDAG can almost certainly count on $4 billion of the $21.5 billion it needs. The other $17.5 billion represents a funding gap with no clear solution – SANDAG will need to find that money, but it doesn’t know from where.

In a memo included in the documents given to SANDAG’s board, Public Financial Management, the agency’s financial adviser, deals with the issue more directly than SANDAG does. It says there is “uncertainty regarding future federal and state funding.”

PFM’s memo also considers whether a new local tax increase – like Measure A could have been – could be introduced to deal with the agency’s $17.5 billion funding shortfall.

“In order to meet these project needs, appropriate federal, state and local funding sources will need to be identified,” the memo reads. “Prior to identifying any new funding source, no additional financing strategies beyond 2021 are incorporated into this TransNet Program Update at this time.”

Nonetheless, SANDAG staff in their presentation to the board emphasized the positive.

“Big picture, looking backwards we’ve had about a three-to-one ratio, if we do have that same level of three-to-one matching funds, we do predict that you’ll be able to complete the projects in your major corridors program,” said Kim Kawada, SANDAG’s chief deputy executive director. “So that’s some good news to land on.”

SANDAG board members must have been satisfied. After learning they had $17.5 billion in needs and no clear idea how to get it, they asked no questions and adjourned the meeting.

    This article relates to: Government, Must Reads, SANDAG

    Written by Andrew Keatts

    I'm Andrew Keatts, a reporter for Voice of San Diego. Please contact me if you'd like at andrew.keatts@voiceofsandiego.org or 619.325.0529.

    10 comments
    Lori Saldana
    Lori Saldana subscribermember

    Something to consider re:forecast of regional tax revenues- people need to have more money to spend for those to materialize, and wages in this region have been stagnant for years (true in many parts of the country.)

    Related: According to this report, as of 2015 SANDAG had over 1500 employees. Here is a link to their salaries and benefits: http://transparentcalifornia.com/salaries/san-diego-association-of-governments/?page=2&s=-total

    Note that their Exec. Director's salary increased from $374,211.82 in 2012 (base salary + benefits) to $404,229.43 in 2015. That's a nice $30K (8%) increase in 3 years- hardly the norm for most San Diegans.

    I leave it to Andrew Keatts others to delve into this salary report in more detail, but I'm thinking that at least part of the forecasting shortfall problem from SANDAG's analysis is influenced by the economic culture at SANDAG vs. the reality of regional employment.

    These analysts are well-paid professionals, which we want and need in a regional planning organization. But this shortfall, and the way it has been handled at the last meeting, shows they are seriously overestimating regional revenues, suggesting a disconnect from the economic reality of many peoples' lives in this region.

    Walt Brewer
    Walt Brewer subscribermember

    Significant funds issue, but only a symptom of the San Diego Forward Core Plan mismatch with analyses results.

    $40billion mass transit capital funds, inconsistent with over 90% of GHG reduction is by improved on road vehicles.


    Proof that the extensive mass installation, and community design disruption again fails to solve the mass transit access deficiency problem.


    As suggested earlier, instead, making expanded on call Uber, Lyft, etc. 24/7 public transportation, relieves mass transit from off peak inefficient service and allows concentration on a few corridors needing surge support.


    Unlike trying to get people out of their cars for 30 years, the Public will use this on demand same vehicle travel direct to real destinations.


    The $40 billion mass transit overlay will not be needed.


    Let's look ahead, not back.


    NOTE: Windows 10 will not allow copy/paste from Word. A fix is supposed to be coming.


    Walt Brewer
    Walt Brewer subscribermember

    Kinsee.


    Malformed Comments is back  Only at VOSD

    michael-leonard
    michael-leonard subscriber

    A great report on a largely-hidden situation. Yes, we the people must continue to hold SANDAG accountable for their idiocies. Thank you VoSD for doing that!

    It's about time we learned that revenue forecasts are exactly that: forecasts. And, no matter how scientific the computer models may be, it IS basically prognostication. (That's just another way of saying "best guess".)

    Chris Brewster
    Chris Brewster subscribermember

    The basic problem with SANDAG is the almost complete lack of accountability of the board due to the manner in which the structure is set up. Being a member of the SANDAG board is a plumb assignment doled out by various city councils. They send one of their members to sit on the board (or, as in the case of San Diego, the Mayor picks a political crony). The work involves planning and spending so far into the future that a current board member is very unlikely to be their position when the money is ultimately spent. If they do a really good job, they get no credit. If they do a really bad job, they are long gone by the time it becomes evident, but even then, they are unlikely to be blamed. 

    Voters probably never make decisions about the elected officials on the SANDAG board based on their performance there. Thus, saying nothing and deferring to a staff who may be doing a poor job is in their personal, political best interest. They are likely more focused on the here and now in their districts.

    The director of SANDAG, Gary Gallegos, receives $410,880 in pay and benefits according to Transparent California. Is that likely to be affected by the failure of the most recent transportation initiative or the poor financial forecasting noted in this article? I think not. I am guessing that Mayor Faulconer’s primary request to Ms. Zapf, while representing him at SANDAG is: Don’t say anything that might embarrass me. Not a great recipe for success.

    MNKrupp
    MNKrupp subscriber

    One of the real issues with SANDAG is that the Board members are not very diligent in understanding many of the issues that come before them.  In addition, the City of San Diego's main representative, the Mayor almost never attends.  San Diego has the largest vote on the Board. The staff of SANDAG acts as an arrogant and aggressive group that pursues an agenda which is rarely understood by the public it is supposed to be serving.  More people including the press need to actively monitor this group as they are spending a very large amount of our tax money!

    Ron Hidinger
    Ron Hidinger subscriber

    So given the shortfall, how will the projects still on the table be prioritized?

    lorisaldana
    lorisaldana subscriber

    Great report. Thank you for this research. 


    Please keep investigating and asking them how they plan to close this gap. The public will need to approve their proposed solution, and their silence is on the deficit is deafening. 

    merlot4251
    merlot4251 subscriber

    These are the same bozos that just wanted us to approve another half-cent sales tax increase for the next 40 years. Fat chance.  And what has the TRANSET Oversight Board been doing for the past 10 years?  Apparently having margaritas while watching the sunsets. Time to wipe that slate clean too and install some new people who know the difference between revenue and expenses.