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Recommended VTA Quarter Cent Sales Tax Scenario
Jim Lawson, State and Regional Government Affairs Manager, introduced Jack Collins, Chief Construction Officer and Stephen Levy, Center for Continuing Study of the California Economy (CCSCE). Mr. Lawson noted that the presentation will involve a discussion on proposed Expenditure Plan (VTA Scenario) relative to Measure A proposal and the projected ¼ cent sales tax.
Mr. Lawson directed attention to two PowerPoint presentations entitled “VTA Scenario” and “Projections of Taxable Sales for VTA.” Mr. Lawson noted that at the request of the Board of Directors, staff will gather comments from the Advisory Committees regarding the Expenditure Plan and forward them to the Board of Directors.
Mr. Lawson reviewed the 2000 Measure A and noted that this was an all transit measure with ½ cent sales tax, it was built on the success of prior measures, targeted specific transportation projects, and achieved the required 2/3 votes. The major projects included in Measure A were BART to Milpitas, San Jose, and Santa Clara; Airport Connector from BART to San Jose International Airport; purchase of Zero Emission Buses and Paratransit Vehicles; Light Rail; expansion and electrification of Caltrain, and; increased VTA services.
The economic downturn in 2000 caused a negative impact on VTA. Mr. Lawson noted that VTA’s revenue dramatically decreased, representing a 21 percent decrease of sales tax revenue since FY 2001. This necessitated lay-offs and service reduction. To examine these issues, VTA created the Financial Stability Committee, which recommended that VTA work in partnership with community leaders to identify the most viable new and expanded revenue sources for VTA.
Mr. Lawson discussed the development of the VTA Scenario. He explained that as recommended by the Financial Stability Committee, VTA staff held workshops in a span of two years to assess the financial needs of VTA and discuss concerns regarding the delivery of Measure A projects. On June 2, 2005, the Board of Directors reviewed four scenarios. In the Summer of 2005, various scenarios were requested by North Counties Cities Group, Silicon Valley Leadership Group (SVLG), and City of San Jose. On September 16, 2005 the Board of Directors concluded the following: a 30-year, ¼ cent sales tax is required to complete the projects, include pavement management, complete BART by 2018, complete Dumbarton by 2011, and to have flexibility on the balance amount. On November 3, 2005, the Board of Directors deferred approval of the Expenditure Plan due to concerns about the Airport People Mover and pavement management. On December 1, 2005, the Board of Directors deferred approval to February 2006. At that meeting, the Expenditure Plan proposal included the Airport People Mover and Pavement Management. At the same meeting, the Board of Directors received input from the City of San Jose, Morgan Hill, and Gilroy. The Board of Directors also directed staff to gather feedback regarding the Expenditure Plan from Advisory Committees.
Mr. Lawson explained that after the December 2005 Meeting, VTA staff revised the annual sales tax projection. The CCSCE’s projection helped in the revision where the midpoint of “conservative and moderate” was used as a basis for the sales tax projection. Mr. Lawson noted that only the years 2008-2015 were adjusted from the previous version of the Expenditure Plan. The adjustment resulted into a $2 billion increase for projects. Mr. Lawson directed attention to the new projections of VTA and the projections by other cities.
Mr. Collins discussed the changes from the previous VTA Scenario and noted that based on the new sales tax projection, all 2000 Measure A projects will be completed with a positive ending balance of $537 million and VTA reserves at 15 percent. The new projection advances BART to December 2016, Light Rail to Eastridge by 2012, Light Rail to Nieman by 2017, Light Rail to Los Gatos by 2012, and accommodates Single Car Light Rail on Santa Clara Alum Rock by 2021 if this mode is selected as the preferred alternative for this corridor. The other projects include restoration of the 10 percent funding cut for Caltrain, completion of Caltrain electrification by 2018, Caltrain Service Improvements, 8.4 miles of Caltrain double tracking in South County by 2010, completion of Delbarton Rail by 2011, ACE upgrades between 2014 and 2025, completion of Airport People Mover by 2018, initiation of Bus Rapid Transit Projects on Line 22, Monterey Road, and Stevens Creek by 2011, more funding for local streets and roads, county roads and bicycle and pedestrian path improvement program, more funding for Bus Rapid Transit project in Sunnyvale/Cupertino, gradual increases to VTA Service of 24 percent by 2020, $2 million funding for new senior/disabled programs, and, $2.7 billion in BART Operating Subsidy to 2038.
Mr. Collins noted the next steps and stated that the VTA Scenario will be reviewed by the following: Santa Clara County Board of Supervisors, VTA Advisory and Standing Committees, VTA Board of Directors through a workshop in January 2006, and other interested parties such as the Cities of Cupertino, Morgan Hill, Gilroy, and Milpitas. Mr. Collins reported the Santa Clara County Board of Supervisors deferred action and further discussion for another two weeks. Upcoming actions include the VTA Board of Directors adoption by February 2006 and future discussions on ballot initiative.
Mr. Levy presented the Projections of Taxable Sales for VTA and noted that he has been doing long-term projections for almost 35 years for a number of agencies and organizations. He noted that he provides VTA projections of taxable sales for which VTA derived its projection and revenues. He noted that he provides two alternatives: the baseline or moderate and conservative set of projections. Mr. Levy clarified that he does not provide recommendations to VTA as to which projection to use nor an analysis of VTA projects or sales tax options.
Mr. Levy discussed the major factors that determine taxable sales, which include job growth, population growth, wage and income growth, retail spending as share of personal income, and business-to-business spending. Mr. Levy stated that he provides a moderate growth forecast of 6.9 percent rate of increase and a low growth of 4.7 percent. VTA in turn, utilizes the midpoint.
Member Okuzumi took her seat at 5:21 p.m.
Mr. Levy directed attention to Slide #6 – CCSCE’s Low Projection Changed the Most, and noted that CCSCE’s low projection has increased from 3 percent to 4.7 percent. He explained that the conservative projection has changed significantly due to positive wage growth increase since 2003. He noted that wage growth could support spending. Mr. Levy discussed the major changes from last year’s projection and noted that there will be slightly lower job growth expected, the conservative wage growth assumption was raised, a larger share of workers will live in Santa Clara County due to more housing, and business-to-business spending will be slightly higher.
Mr. Levy noted that the job growth that CCSCE is projecting is approximately 1.5 percent. The moderate projection states that by 2015, Santa Clara County will have the same number of jobs as it was in 2000. Mr. Levy moved on to the wage growth and noted that even with the downturn after 2000, the county gets rates of wage growth that are between 5-6 percent. Mr. Levy explained that with wage growth at this rate and job growth of approximately 1 percent, there will be a revenue growth between 6-7 percent.
Mr. Levy stated that to improve the prospects of economy and job growth, Silicon Valley needs to build more housing. Mr. Levy noted that the more housing that is built, the income earned and spent within the County will be higher. Mr. Levy pointed out that this factor is one of the changes of last year’s projection.
Mr. Levy presented the data for retail sales as percentage of income with comparison between Santa Clara County and State of California. He noted that this is the main reason why Santa Clara County and VTA have suffered the most in terms of sales tax revenues. The data shows that the County and the state have almost the same share of income spending on taxable items up to 1998. However, after 1998, the consumers of the state started to spend a higher share of their income for taxable sales while Santa Clara County’s consumers spent less. Mr. Levy stated that this could be attributed to lesser house construction and lesser purchase of automobiles in the County. Mr. Levy noted that the spending of County residents is very different from that of the State.
Member Probst referred to Projections of Taxable Sales for VTA , Slide # 13 – Projected Share of Income Spent on Taxable Retail Sales and inquired about the relationship of this data to the high cost of housing or internet shopping.
Mr. Levy responded that it could be factors but noted that Santa Clara County is so different from other areas in California.
Member Okuzumi inquired if the lower share of income spent on taxable retail sales could be attributed to the higher savings rate in Santa Clara County. Mr. Levy stated that Santa Clara County’s savings rate is different from that of the nation’s average. Mr. Levy noted that it is possible that people who kept their jobs during the recession period got cautious and saved more money. He cautioned that one of the challenges of projections such as this is that people change over the years.
Mr. Levy referred to Business-to-Business Sales per Job Rising and noted that the business-to-business activity would go back to about where it was in 2000 by 2015.
Upon query of Member Okuzumi, Mr. Levy clarified that contrary to the news article, he did not make a recommendation to VTA as to which projection numbers to use. He noted that his obligation is to provide the best figures or projections but it is VTA’s decision as which numbers/projections that they would want to use.
Member Burnett noted that it would be beneficial to have legislation in Congress that will enforce internet sales tax. This way, he explained, the tax dollars would go where it needs and should go to.
Mr. Levy addressed the inquiry of Member Elias and stated that population growth is not quantitatively a large factor in determining the growth in sales.
Upon inquiry of Member Elias, Mr. Lawson clarified that the South County was involved in the discussion of the VTA Scenario.
Member Okuzumi queried on the accuracy of the projections over the next couple of years. Mr. Levy noted that it is important to have flexibility in the spending plan to address the uncertainties of the future. Mr. Levy further explained that there are two safeguards: conduct an analysis annually and include flexibility in the plan with an awareness that things can change. Mr. Levy noted that there will be fluctuations in the market and it is extremely important to have a room for adjustments.
Member Okuzumi expressed concern that the VTA Scenario is very tight, especially critical due to the beginning of the BART Project conception and noted that there is no room for error.
Mr. Collins responded that to address the issues Member Okuzumi raised and the risks involved, the VTA Scenario included an important aspect, the annual update that includes a review of revenues, expenditures, and status of projects.
Roger Contreras, Chief Financial Officer, noted that VTA staff has considered and worked on the VTA Scenario very conservatively. Mr. Contreras reiterated that staff used the new projections for 2008-2015 only. For 2006 and 2007, VTA has kept its budgeted numbers, 4.8 and 4.9 percent respectively. After 2015, 4.8 percent is used again.
Member Fletcher referred to VTA Scenario Includes New Projects, Slide #15, last bullet, and inquired about the cost of the BART Operating Subsidy per year. Mr. Collins responded that the cost would vary every year.
Member Fletcher inquired if there are allowances for cost overruns to the project construction estimates for BART. Mr. Collins replied that the plan includes cost contingencies. Staff has taken the base year dollars and escalated it over construction to allow changes in construction costs. Mr. Collins added that VTA has a good track record in delivering projects such evident in Measure B projects. Ms. Gonot further clarified that there are contingencies built into the project estimates plus escalation cost over and above the contingencies.
Mr. Collins pointed out that VTA will lead the project management and implementation of the BART Extension Project and BART will be operating the system, once completed.
As a response to Chairperson Schulter’s inquiry, Mr. Collins stated that the VTA Scenario sets aside $2 million per year for the senior/disabled programs. This amount would escalate every year for the next 30 years. By the General Manager’s direction, staff will work with the Committee for Transit Accessibility (CTA) to determine what type of programs will be effective and appropriate for the users. Mr. Collins added that this program was included in the VTA Scenario because it is an important issue. Mr. Collins explained that the $2 million specified in the VTA Scenario is a separate amount from the required Americans with Disabilities Act’s (ADA) paratransit services, which is currently funding through VTA’s operating budget.
Mr. Lawson added that this is the Expenditure Plan dedicates funding to address the needs of the seniors/disabled.
Chairperson Schulter expressed concern that the senior/disabled population is growing and added that the earmark amount is not sufficient to address the needs of the senior/disabled. He noted that this area should be re-visited and re-evaluated.
Member Tebo referred to pavement management, and inquired about using gasoline tax.
Ms. Gonot responded that the pavement management in the VTA Scenario is a supplement. Metropolitan Transportation Commission (MTC) has made a commitment to the local streets and roads and there are federal dollars that are allocated for that. Additionally, there is also the Proposition 42 funds and the state funds for pavement management. Ms. Gonot added that some larger cities would still need to provide funding for their cities’ pavement management program.
Member Tebo expressed concern that the people mover project cost estimate is approximately ten times more than other comparable projects in the country. He commented that the cost estimate for this project is excessive and added that the project could be built faster and cheaper if high cost estimates are not used.
Member Tebo stated that he is a fan of BART and commented that that BART is the biggest and most important project over the next 30 years. However, he noted that that the project has “terrible” route/design choices. The golden triangle, downtown San Jose, and San Jose Airport are the three principal locations and yet only one of these three will be connected in the route/design. He noted that this is a poor route choice as only a small population of the County could be served and people from other counties cannot get to the locations where they need to go. He noted that the route/design is the cause of project funding issues and high costs. He suggested that the route/design be revisited to make the project more realistic, cost effective, and better serve the future riders.
Member Probst commended VTA for managing and completing Measure B projects. She attributed the success of the program to the annual review, flexibility, and the changes that VTA implemented. She noted that the annual review and flexibility is important and stated that she expects the same success for Measure A projects.
Member Okuzumi commented that VTA was successful in managing and delivering projects within budget. However, she pointed out that VTA does not have the experience in managing complex multi-billion projects such as BART. She expressed concern that a cost overrun in the BART project would have significant impact to other projects in the program.
Member Okuzumi referred to the San Francisco and San Mateo Counties Transportation measures and suggested incorporating specific categories and percentage of funds per category in the ballot language to ensure funding guarantee for second/lower priority projects. She suggested the following categories: Pavement Management, BART, Non-BART, and Senior Disabled Projects.
Ms. Gonot referred to the Measure B program and noted that not having categories allowed for projects to move forward through flexibility and creativity.
Member Rogers there should always be balance in accountability, be honest to the public, and maintain credibility. Member Rogers concurred with Member Okuzumi and noted that the further out the forecasts are, there is little accuracy, and there are no guarantees. She also concurred with Member Probst and stated that the annual review is extremely important as it provides the Board of Directors to address priorities according to revenues and expenditures.
Member Tebo noted that the Measure B concludes on March 31, 2005. He commented that it has been a spectacular program and that VTA did a wonderful job.
Member Elias noted that to address the changes in sentiments associated with the changes in the membership of the Board of Directors within the next 30 years, a set of criteria should be established to guide future monitoring activities such as the annual review.
Mr. Lawson noted that CAC will be very involved in the oversight of the Measure A funds.
On order of Chairperson Schulter, there being no objection, the Committee reviewed and forwarded recommendations on the Recommended VTA Scenario to the VTA Board of Directors.
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