SANDAG Admits to Overestimating What It'd Collect from Tax Hike
SANDAG staff members conceded Friday that to finish all the transportation projects promised in a 2004 sales tax extension, the agency will need to find as much as $17.5 billion from federal and state sources. No elected officials at the meeting said a word about the potential multibillion-dollar shortfall and any resulting impact on the communities they represent.
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.
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.